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    June 30, 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___

28,222,555  shares of common stock of the Registrant were outstanding as of July
31, 1998.



<PAGE>
<TABLE>



                                       BOOLE & BABBAGE, INC.

                                               INDEX
<CAPTION>



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

       Item 1.        FINANCIAL STATEMENTS
                      Consolidated Balance Sheets
                           June 30, 1998 and September 30, 1997                                  1

                      Consolidated Statements of Income
                           Three and Nine Months Ended June 30, 1998 and 1997                    2

                      Consolidated Statements of Cash Flows
                           Nine Months Ended June 30, 1998 and 1997                              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, 1998 and 1997                 6-11


Part II       OTHER INFORMATION

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


Signatures                                                                                      13

</TABLE>
<PAGE>
<TABLE>

                                             Boole & Babbage, Inc.
                                          Consolidated Balance Sheets
                                      (Amounts in thousands except shares)
                                           (June 30, 1998 unaudited)
<CAPTION>

                                                                                 June 30,         September 30,
Assets                                                                             1998               1997
                                                                                -----------        -----------
<S>                                                                              <C>                 <C>     
Current assets:
    Cash and cash equivalents                                                    $  39,904           $ 33,923
    Short-term investments                                                          54,033             23,050
    Accounts receivable, net                                                        22,196             26,412
    Installment and other receivables, net                                          59,238             65,469
    Deferred tax asset                                                               6,034              6,154
    Prepaid expenses and other current assets                                        6,066              4,513
                                                                                -----------        -----------
           Total current assets                                                    187,471            159,521

Purchased and internally developed software, net                                    12,646             12,152
Equipment, furniture and leasehold improvements, net                                10,075              9,968
Long-term installment and other receivables                                         49,982             52,290
Long-term deferred tax asset                                                        10,539             10,571
Costs in excess of net assets of purchased businesses, net                             614                634
Other assets                                                                        20,396             15,008
                                                                                -----------        -----------
           Total assets                                                          $ 291,723           $260,144
                                                                                ===========        ===========

Liabilities and Stockholders' Equity
Current liabilities:
     Accounts payable                                                             $  8,601           $  8,895
     Accrued payroll expense                                                        10,348              9,840
     Other accrued liabilities                                                      24,288             27,080
     Short-term borrowings                                                             107              1,016
     Notes payable due within one year                                                  67                319
     Capital lease obligations due within one year                                     780                933
     Deferred maintenance revenue                                                   59,575             53,432
                                                                                -----------        -----------
           Total current liabilities                                               103,766            101,515

Notes payable due after one year                                                         -                 50
Capital lease obligations due after one year                                         1,821              1,795
Deferred maintenance revenue due after one year                                     44,439             38,282

Stockholders' equity:
     Preferred stock, 2,000,000 shares authorized, $.001 par value, none issued         --                 --
     Common stock, $.001 par value, authorized--45,000,000 shares; issued--
         30,646,124 (29,969,715 at September 30, 1997)                                  30                 30
     Additional paid-in capital                                                     97,442             91,960
     Retained earnings                                                              59,194             32,800
     Unrealized gain on marketable securities                                       11,343              5,691
     Foreign currency translation adjustment                                        (5,699)            (3,503)
     Less treasury stock, 2,397,930, shares (1,843,182 at
           September 30, 1997), at cost                                            (20,613)            (8,476)
                                                                                -----------        -----------
           Total stockholders' equity                                              141,697            118,502
                                                                                -----------        -----------
           Total liabilities and stockholders' equity                             $291,723           $260,144
                                                                                ===========        ===========
<FN>
See accompanying notes.
</FN>
</TABLE>
                                                       1
<PAGE>

<TABLE>


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

<CAPTION>


                                                     Three Months Ended                    Nine Months Ended
                                                         June 30,                              June 30,
                                              -------------------------------       ----------------------------
                                                    1998              1997               1998              1997
                                              -------------       -----------       ------------        --------
<S>                                               <C>               <C>               <C>               <C>     

Revenue:
      Product licensing                           $ 29,922          $ 26,784          $ 91,107          $ 79,119
      Maintenance fees and other                    23,758            21,972            69,093            65,849
                                                  --------          --------          --------          --------
           Total revenue                            53,680            48,756           160,200           144,968
                                                  --------          --------          --------          --------

Costs and expenses:
      Cost of product licensing                      3,741             3,676            11,247            10,966
      Cost of maintenance fees and other             5,788             4,495            16,442            14,711
      Product development                            6,325             6,310            19,196            18,573
      Sales and marketing                           24,939            23,277            74,096            70,535
      General and administrative                     4,545             4,344            13,978            14,017
      Acquisition and nonrecurring costs                 -                 -                 -            11,309
                                                  --------          --------          --------          --------
           Total costs and expenses                 45,338            42,102           134,959           140,111
                                                  --------          --------          --------          --------

Operating income                                     8,342             6,654            25,241             4,857

Interest and other income, net                       3,570             2,758            11,428             6,574
                                                  --------          --------          --------          --------
Income before provision for income taxes            11,912             9,412            36,669            11,431

Provision for income taxes                           3,340             2,820            10,275             5,225
                                                  --------          --------          --------          --------

Net income                                        $  8,572          $  6,592          $ 26,394          $  6,206
                                                  ========          ========          ========          ========


Basic earnings per share                          $   0.30          $   0.24          $   0.94          $   0.23
                                                  ========          ========          ========          ========

Diluted earnings per share                        $   0.28          $   0.22          $   0.86          $   0.21
                                                  ========          ========          ========          ========


Common shares outstanding                           28,245            27,900            28,200            27,430
                                                  ========          ========          ========          ========

Common shares assuming dilution                     30,825            30,145            30,775            29,910
                                                  ========          ========          =========         ========
<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,
                                                                                ------------------------------
                                                                                   1998              1997
                                                                                ------------      ------------
Cash flows from operating activities:
<S>                                                                                 <C>                <C>    
  Net income                                                                        $26,394            $6,206
  Adjustments to reconcile net income to net cash
      provided by operating activities:
      Depreciation and amortization of capitalized software                           6,760             7,221
      Loss on disposal of assets                                                         42               479
      Gain on sale of equity securities                                              (3,762)                -
      Stock issued under compensatory stock plans                                       125                54
      Changes in operating assets and liabilities excluding 
       the effect of acquisitions:
         Accounts receivable and installment and other receivables                  (31,853)          (19,847)
         Prepaid expenses and other assets                                           (2,153)           (1,967)
         Accounts payable and accrued expenses                                       (1,338)            1,188
         Deferred maintenance revenue                                                14,857             7,598
                                                                                ------------      ------------

Net cash provided by operating activities                                             9,072               932
                                                                                ------------      ------------

Cash flows from investing activities:
     Purchases of equipment, furniture and leasehold improvements                    (3,362)           (2,736)
     Payments for capitalized software                                               (3,636)           (3,664)
     Net purchases of short-term investments                                        (30,983)            1,904
     Investment in equity securities                                                 (2,808)             (361)
     Proceeds from sale of equity securities                                          7,025                 -
                                                                                ------------      ------------

Net cash used for investing activities                                              (33,764)           (4,857)
                                                                                ------------      ------------

Cash flows from financing activities:
      Proceeds from sale of lease contracts receivable                               40,994             2,154
      Proceeds from issuance of common stock                                          5,355             5,141
      Treasury stock purchases                                                      (12,136)             (601)
      Payments under line of credit, net                                               (907)           (2,256)
      Payments on notes payable                                                        (301)             (273)
      Payments on capital leases                                                       (759)           (1,672)
                                                                                ------------      ------------

Net cash provided by financing activities                                            32,246             2,493
                                                                                ------------      ------------

Effect of exchange rate changes on cash                                              (1,573)           (2,280)
                                                                                ------------      ------------

Net increase (decrease) in cash and cash equivalents                                  5,981            (3,712)

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

Cash and cash equivalents at end of period                                          $39,904           $33,548
                                                                                ============      ============

Supplemental  disclosures of cash flow information:  Cash paid during the period
      for:
          Interest                                                                   $1,523            $1,304
          Income taxes, net                                                          $8,902            $3,457

Supplemental disclosures of noncash investing and financing activities:
           Capital  lease  obligations  of $632,000 was incurred in 1998 for the
purchase of equipment.

<FN>
See accompanying notes
</FN>
</TABLE>
                                                       3
<PAGE>






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


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

     A summary of the significant accounting policies of the Company is included
     in Note 1 of Notes to  Consolidated  Financial  Statements in the Company's
     annual  report on Form 10-K for the year ended  September  30, 1997.  These
     consolidated  financial statements should be read in conjunction with those
     notes.

     The consolidated  financial information at June 30, 1998 and for the three-
     and nine-  month  periods  ended June 30, 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.

<TABLE>

2.   Earnings Per Share
     In 1997,  the  Financial  Accounting  Standards  Board issued  Statement of
     Financial  Accounting  Standards  No.  128,  "Earnings  Per  Share",  which
     replaced the  previously  reported  primary and fully diluted  earnings per
     share with basic and diluted  earnings per share.  Unlike primary  earnings
     per share,  basic  earnings  per share  excludes  any  dilutive  effects of
     options,  warrants, and convertible securities.  Diluted earnings per share
     is very  similar to the  previously  reported  fully  diluted  earnings per
     share.  All earnings per share amounts for all periods have been  presented
     to conform to the Statement 128 requirements.
<CAPTION>

       (Amounts in thousands, except             3 mos. ended June 30,     9 mos. ended June 30,
        earnings per share)                      ---------------------     ---------------------
                                                 1998          1997          1998          1997
                                                 ----          ----          ----          ----
     <S>                                         <C>          <C>          <C>          <C>     

     Diluted:
      Common shares outstanding                  28,245       27,900        28,200       27,430
      Employee stock option plans                 2,580        2,245         2,575        2,480
                                                 ------       ------        ------       ------
                                                 30,825       30,145        30,775       29,910
                                                 ======       ======        ======       ======

      Net income (loss)                          $8,572       $6,592       $26,394      $ 6,206
                                                 ======       ======        =======      ======
      Diluted earnings (loss) per share          $  .28       $  .22       $   .86      $   .21
                                                 ======       ======        =======     =======

<FN>

     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 method of computation.

</FN>
</TABLE>
 
                                      4
<PAGE>



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


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


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

     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.

                                       5
<PAGE>



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


RESULTS OF OPERATIONS:

When used in this discussion,  the words "anticipate," "estimate," "project" and
similar expressions are intended to identify  forward-looking  statements.  Such
statements  are  subject to certain  risks and  uncertainties,  including  those
discussed  below and in the Company's Form 10-K for the year ended September 30,
1997, that could cause actual results to differ materially from those projected.
Readers are  cautioned  not to place undue  reliance  on these  forward  looking
statements,  which speak only as of the date hereof.  The Company  undertakes no
obligation   to  publicly   release  the  result  of  any   revisions  to  these
forward-looking  statements which may be made to reflect events or circumstances
after the date hereof or to reflect the occurrence of unanticipated events.

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

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

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



REVENUES:

The Company  derives  its  revenues  primarily  from the  licensing  of computer
software  programs,  the  sales  of  software  maintenance  services,  and  from
consulting and education services. The table on the following page shows percent
of total revenue and year-to-year percentage changes as reported and without the
effect of currency  rate  changes  for the three and nine months  ended June 30,
1998 and 1997, respectively.


                                       6
<PAGE>
<TABLE>


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


                                                     As       Without                               As      Without
                                % of Revenue       Reported   Currency        % of Revenue       Reported   Currency
                                ------------       --------   --------        ------------       --------   --------
                                3 mos. ended                                  9 mos. ended
                                  June 30                                        June 30                         
                            ---------------------   Y/Y        Y/Y        ----------------------   Y/Y        Y/Y
                              1998       1997       Chg.       chg.         1998        1997       chg.       chg.
                            ---------- ---------- ---------- ---------    ---------- ----------- --------- ----------
<S>                          <C>        <C>        <C>        <C>           <C>        <C>         <C>       <C>     
Product licensing             55.7%      54.9%     11.7%      16.2%          56.9%      54.6%      15.2%     21.8%
Maint.fees and other          44.3%      45.1%      8.1%      12.0%          43.1%      45.4%       4.9%     10.3%
                            ---------- ---------- ---------- ---------    ---------- ----------- --------- ----------
    Total                    100.0%     100.0%     10.1%      14.3%         100.0%     100.0%      10.5%     16.6%
                            ========== ========== ========== =========    ========== =========== ========= ==========

</TABLE>
<TABLE>

Product Licensing:
<CAPTION>

                                      As                 Without               As               Without
                                   Reported             Currency            Reported            Currency
                                   --------             --------            --------            --------
                                  Y/Y chg 3Mo         Y/Y chg 3Mo         Y/Y chg 9Mo         Y/Y chg 9Mo
                                 ---------------    ----------------     ---------------    ----------------
<S>                                  <C>                 <C>                 <C>                 <C>        
Product Group:
Client/Server                        41.0%               48.2%               56.2%               66.4%
Mainframe                            (1.7%)               1.4%                2.1%                7.6%
                                 ---------------    ----------------     ---------------    ----------------
                                     11.7%               16.2%               15.2%               21.8%
                                 ===============    ================     ===============    ================
Sales Channel:
Domestic                             (0.6%)              (0.6%)              20.0%               20.0%
International                        19.1%               26.4%               12.5%               22.9%
                                 ---------------    ----------------     ---------------    ----------------
                                     11.7%               16.2%               15.2%               21.8%
                                 ===============    ================     ===============    ================
</TABLE>


The  Company  licenses  its  products  to  customers  for use on their  computer
systems.  As is common in the industry,  more than 50% of the Company's  license
revenue is derived from  transactions that close in the last month of a quarter,
which  can make  quarterly  revenues  difficult  to  forecast.  Since  operating
expenses are  relatively  fixed,  failure to achieve  projected  revenues  could
materially and adversely affect the Company's operating results.  This, in turn,
could  result in an  immediate  and  adverse  effect on the market  price of the
Company's stock.

Products:

The Company  anticipates that the Client/Server group will continue to show high
growth  rates for fiscal  1998 and 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.

                                       7
<PAGE>


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

Mainframe products include Plex products, which enable customers to handle large
groups of computer processors,  particularly the parallel processing machines by
IBM. In the mainframe  market,  industry  analysts have  projected  that systems
management  spending  will only grow at 5% per year through the year 2000.  They
also  project  that while the  majority  of large data  centers  have  adopted a
sysplex  strategy,  mid-size data centers will not broadly adopt these  parallel
processors until 1998 or later.  Thus, despite a somewhat flat mainframe market,
the Company's  product  licensing  growth has benefited by data centers adopting
this new technology.  This has also helped to increase the number of competitive
replacements  which in fiscal 1998 accounted for  approximately 13% of licensing
revenue  and occur  primarily  through  multi-year  licensing  agreements  which
comprised  approximately  58% of licensing  revenue.  Thus,  future growth rates
could be  materially  and adversely  impacted if the parallel  processors do not
gain significant market acceptance among the mid-size data centers,  if the rate
of successful  competitive  replacements  slows, or if customer  spending shifts
away from traditional  mainframes to technology platforms where the Company does
not have significant product acceptance.


Sales Channels

Domestic:
Domestic licensing  comprised 33.5% and 37.7% of total product licensing for the
three  months and 37.3% and 35.8% for the nine  months  ended June 30,  1998 and
1997,  respectively.  For growth to continue in the domestic market, the company
is  dependent  on  continued  productivity  increases  as well as the ability to
generate larger size transactions,  primarily through  multi-year  contracts and
competitive replacements.


International:
The Company's licensing from its international operations,  comprised of foreign
subsidiaries  and  marketing  agents,  increased  as a result of solid growth in
Europe and South America  despite  unfavorable  currency  exchange rates. 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.

                                       8
<PAGE>


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

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  $7.8
million of revenue of which $6.8  million has been paid  through  June 30, 1998.
Since  there are no  minimum  generated  amounts,  actual  royalties  due to the
Company  may  be  significantly  below  the  maximum  amount.  The  increase  in
maintenance  fees  and  other  is  mainly  the  result  of more  consulting  and
educational  service  revenue and higher  maintenance  revenue due to  increased
product  licensing in the previous year combined  with  relatively  high renewal
rates.  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  revenues in fiscal 1998 will increase
due to the higher license revenue growth in 1997, although it will be negatively
impacted  by  reduced  revenue  associated  with  site  consolidations,  non-CPU
specific pricing and multiple-year  maintenance  package discounts.  The Company
must  continue to generate new product  licensing  revenues and also continue to
provide  high  quality   maintenance  support  and  upgrades  to  ensure  future
maintenance revenue increases.


COSTS AND EXPENSES:
<TABLE>
The following table shows percent of total revenue and  year-to-year  percentage
changes of costs and expenses (excluding acquisition and non recurring costs) as
reported and without the effect of currency  rate changes for the three and nine
months ended June 30, 1998 and 1997,  respectively.  The Company  acquired  MAXM
Systems Corporation  ("MAXM") on January 16, 1997. The transaction was accounted
for  using  the  pooling  of  interest  method  and the  Company's  consolidated
financial  statements  for all prior  periods have been  restated to include the
results of MAXM. In general,  operating costs increased more in the three months
ending June 30, 1998 than the  nine-month  period as redundant  costs related to
MAXM were eliminated in the second quarter of 1997.

<CAPTION>

                                                      As      Without                              As       Without 
                              % of Revenue         Reported  Currency        % of Revenue       Reported    Currency
                                ------------       --------  --------        ------------       --------    --------
                                3 mos. ended                                 9 mos. ended
                                  June 30                                       June 30                         
                            ------------------      Y/Y        Y/Y        ------------------      Y/Y        Y/Y
                              1998       1997       chg.       chg.         1998       1997       chg.       Chg.
                            ---------- ---------- ---------- ---------    ---------- ---------- ---------- ----------
<S>                          <C>        <C>         <C>       <C>          <C>        <C>        <C>         <C>
Cost of product
    licensing                 7.0%       7.5%        1.8%      6.9%         7.0%       7.6%       2.6%        9.8%
Cost of maintenance
    fees and other           10.8%       9.2%       28.8%     33.2%        10.3%      10.1%      11.8%       18.0%
Product development          11.8%      12.9%        0.2%      0.6%        12.0%      12.8%       3.4%        4.5%
Sales and marketing          46.5%      47.7%        7.1%     11.1%        46.3%      48.7%       5.0%       10.8%
General and                                                                                      
    administrative            8.5%       8.9%        4.6%      7.4%         8.7%       9.7%      (0.3%)       4.0%
                            ---------- ---------- ---------- ---------    ---------- ---------- ---------- ----------
    Total                    84.6%      86.2%        7.7%     11.2%        84.3%      88.9%       4.8%        9.9%
                            ---------- ---------- ---------- ---------    ---------- ---------- ---------- ----------
</TABLE>

                                       9
<PAGE>



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


Cost of product licensing:

Cost of product  licensing  consists  primarily of royalties paid to independent
software  authors  and  amortization  of  purchased  and  internally   developed
software.  The increase in 1998 relates primarily to higher royalty costs due to
increased  third party sales. In general,  fluctuations  in the  relationship of
cost of product  licensing to licensing  revenue are caused primarily by changes
in licensing  revenue mix,  royalty  agreements and  amortization of capitalized
software.


Cost of maintenance fees and other:

Cost of  maintenance  fees  and  other  consists  primarily  of cost of  product
maintenance   support,   royalties   paid  to  independent   software   authors,
amortization of purchased and internally developed software, the cost to provide
educational  and  consulting  services  and costs  related to  certain  computer
services.  In 1998,  the increase for the three and nine months is primarily due
to higher costs to provide consulting and education and higher royalty costs.

In general,  fluctuations in the  relationship  of cost of maintenance  fees and
other to revenue are caused  primarily  by changes in  maintenance  revenue mix,
maintenance  support,  royalty  agreements,   and  amortization  of  capitalized
software.


Product development:

The  increase  in product  development  in 1998 for the three and nine months is
primarily  attributable  to higher research and  development  ("R&D")  personnel
costs due to  increased  headcount  offset by  decreased  expenses  relating  to
supporting the IBM jointly developed CICS product.  R&D expenditures were 16% of
revenue  (excluding  third  party) for the nine months in 1998 and in 1997 while
the  amount  of R&D  capitalized  was 16% and 15% of gross R&D costs in 1998 and
1997,  respectively.  The  Company  capitalizes  certain  development  costs  in
accordance with Statement of Financial Accounting Standard No. 86. To the extent
the Company  capitalizes its product  development  costs, the effect is to defer
such costs to future  periods  and match them to the  revenue  generated  by the
products.  Product development expenses may fluctuate annually depending in part
upon the number and status of internal software development projects.


Sales and marketing:

The  increase  in sales and  marketing  in 1998 for the three and nine months is
primarily  a result  of  higher  commissions  on  increased  product  licensing,
increased headcount, and more product marketing costs.


General and administrative:

General and  administrative  expenses increased for the three and nine months in
1998 primarily due to increased personnel costs.

                                       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 net interest income and gains
and losses from sales of investments and currency hedging.  Increases of 29% and
74% for the  three and nine  months  of fiscal  1998 over 1997 are due to higher
interest   income  on  more  lease  contracts  and  gains  on  sales  of  equity
investments.  In the third quarter, this was partially offset by currency losses
in Europe in the current year versus net gains in the prior year.

Income Taxes:

Income taxes have been provided  based upon the estimated  effective tax rate of
28% for 1998.  In 1997,  the  effective  tax rate was 30%  exclusive  of the tax
effect of non-deductible  acquisition costs and pre-acquisition operating losses
of MAXM for which no tax benefit was  recognized.  These  acquisition  costs and
operating losses of Maxm increased tax expense by $1,800,000 for the nine months
ended June 30, 1997.

The effective  tax rate differs from the federal  statuary rate due primarily to
permanently invested earnings of foreign subsidiaries being taxed at rates lower
than the  federal  statutory  rate and tax credits for  increased  research  and
development.  Management  believes  future  taxable income will be sufficient to
realize the tax benefit of the net  deferred  tax asset of  approximately  $16.6
million.


LIQUIDITY AND CAPITAL RESOURCES:

At  June  30,  1998,  the  Company's  cash,  cash   equivalents  and  short-term
investments were $93,937,000.  The Company continues to use installment  payment
plans to gain a  competitive  advantage  during the sales  process and had gross
outstanding  installment  receivables  of  $113,368,000  at June 30,  1998.  The
Company  periodically  sells  portions of  installments  receivables  subject to
limited recourse  provisions.  During the first nine months of 1998, the Company
sold $40,994,000 of installment receivables.

The  Company  continues  to finance  its growth  through  funds  generated  from
operations.  For the nine  months  ended  June 30,  1998  net cash  provided  by
operating  activities was $9,072,000.  Net cash used in investing  activities in
1998  was  $33,764,000,   primarily  for  internally   developed  and  purchased
capitalized  software,  acquisition  of  computers  and related  equipment,  the
purchase of equity securities,  and the net purchases of short-term  investments
offset by cash provided from to the sale of equity securities. Net cash provided
by financing  activities  in 1998 was  $32,246,000,  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.

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

                                       11
<PAGE>



BOOLE & BABBAGE, INC.

                           PART II. OTHER INFORMATION

ITEM 6.  Exhibits and Reports on Form 8-K

             (a) Exhibits

                        The following exhibit is filed herewith.

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

                           27               Financial Data Schedule

             (b) Reports on Form 8-K - None.




                                       12
<PAGE>


                        BOOLE & BABBAGE, INC. SIGNATURES


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



                                             BOOLE & BABBAGE, INC.



August 10, 1998                              \Paul E. Newton\
---------------                              --------------------------
                                             Paul E. Newton
                                             President and Director
                                             (Principal Executive Officer)



August 10, 1998                              \Arthur F. Knapp, Jr.\
---------------
                                             --------------------------
                                             Arthur F. Knapp, Jr.
                                             Senior Vice President
                                             Chief Financial Officer
                                             (Principal Financial Officer)



August 10, 1998                              \Carla J. Dorow\
---------------                              --------------------------
                                             Carla J. Dorow
                                             Controller
                                             (Principal Accounting Officer)



                                       13