<PAGE>
 
                                                    CONFORMED COPY WITH EXHIBITS

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-K

[X]     Annual report pursuant to Section 13 or 15(d) of the Securities 
        Exchange Act of 1934 for the fiscal year ended October 31, 1995 or

[_]     Transition report pursuant to Section 13 or 15(d) of the Securities 
        Act of 1934

COMMISSION FILE NO. 0-17754

                                CONSILIUM, INC.
             (Exact name of Registrant as specified in its charter)

              DELAWARE                                       94-2523965
   (State or other jurisdiction of                         (IRS Employer
    incorporation or organization)                       Identification No.)

                  485 CLYDE AVENUE, MOUNTAIN VIEW, CA    94043
              (Address of principal executive office)  (Zip Code)

      Registrant's telephone number, including area code:  (415) 691-6100

          SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

                                               Name of each exchange
             Title of each class                on which registered
             -------------------               ---------------------
                    None                                None

          SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

                          COMMON STOCK, $.01 PAR VALUE
                                (Title of Class)

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 
                                -----           -----

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [_].

The aggregate market value of the voting stock held by non-affiliates of the
Registrant, based upon the closing sale price of the Common Stock on January 18,
1996 as reported on the NASDAQ National Market System, was approximately
$43,454,999. Shares of Common Stock held by each officer and director and by
each person who owns 5% or more of the outstanding Common Stock have been
excluded in that such persons may be deemed to be affiliates. This determination
of affiliate status is not necessarily a conclusive determination for other
purposes.

As of January 18, 1996, Registrant had 7,710,812 shares of Common Stock 
outstanding.

                      DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for the Annual Meeting to be held on March 19,
1996 is incorporated by reference into Part III.

<PAGE>
 
                                    PART I

ITEM 1.   BUSINESS
          --------

     Consilium is the leading supplier of enterprise-wide, integrated
manufacturing execution systems (MES) software and services. MES software tracks
the five essential elements of the manufacturing plant floor -- materials,
equipment, personnel, specifications/work instructions and facility conditions
in real time -- and correlates the data for true visibility and control of
manufacturing operations. This access to comprehensive, up-to-date information
about the production process enables manufacturers to identify and implement
manufacturing Best Practices in the areas of cost, quality, service, compliance
and speed. Such continuous improvement in the area of production thus enables
companies to use their manufacturing operations for strategic competitive
advantage, and to optimize performance of the business as a whole.

     The Company develops, markets and sells two distinct software product
lines, aimed at different manufacturing industries. The Company's WorkStream DFS
(Distributed Factory System) product line is targeted at manufacturers who
produce their products in discrete lots or batches, particularly those in the
semiconductor, electronics, and aerospace industries. The Company's FlowStream
product line is targeted at for industries that employ batch process
manufacturing such as pharmaceuticals, medical devices and specialty chemicals.
A comprehensive range of services complement these products, including a
Customer Response Center, training classes and both pre- and post-implementation
consulting services.

     The Company's WorkStream DFS product line includes multiple software
products, WorkStream and WorkStream Open, as well as a set of new application
servers and a connecting message "bus," or network which, when used with
WorkStream or WorkStream Open, form a WorkStream DFS system. WorkStream consists
of 24 integrated software modules sharing a common database and graphical user
interface. WorkStream monitors and controls discrete manufacturing operations,
where product lots or batches are kept intact throughout the production process.
WorkStream also provides tools to enhance productivity in indirect labor
functions such as quality control, production planning and facilities
maintenance. Discrete manufacturers most commonly use WorkStream systems to:

     .  reduce cycle times and meet just-in-time deliveries
     .  lower indirect labor costs
     .  reduce scrap and rework; increase yield
     .  increase utilization of capital equipment
     .  improve quality
     .  reduce regulatory compliance costs
     .  shorten response times to equipment breakdowns and
        other manufacturing problems

     The WorkStream system's modular design allows customers to license only
those functions necessary for their current business needs and to add functions
as their requirements evolve.

     WorkStream software was initially developed to run on Digital Equipment
Corporation's line of VAX(R) computers, using Digital's proprietary VMS
operating system. For many years, Digital has been the leader in hardware
systems for the manufacturing floor, largely because of its secure and
expandable environment for computing. In the late 1980s, standards-based, open
systems computing environments also began to achieve success in the
manufacturing market. In 1992, WorkStream was


Consilium, WorkStream, and FlowStream are registered trademarks and WorkStream
Open and WorkStream DFS are trademarks of Consilium, Inc.

                                       1
<PAGE>
 
ported to its first open systems platform, Hewlett-Packard Company's HP 9000
line of UNIX-based computers. The new UNIX-based product was named WorkStream
Open. The development of WorkStream Open incorporated several technologies,
including client/server architecture, X-windows terminal access, Motif user
interface standard, SQL database and POSIX compliance.

     In 1995, the Company introduced a next-generation distributed technology
framework for its WorkStream DFS product line, as well as three new application
servers. The distributed technology framework is based on a software message
bus, which connects applications, software systems and manufacturing equipment
as servers on a network. The WorkStream DFS application servers introduced in
1995 include a quality server for on-line quality analysis and statistical
process control, a recipe management server for centralized context-sensitive
recipe management, and a station controller for automation implementation. The
next-generation additions to the WorkStream DFS system extend the capabilities
of the current WorkStream and WorkStream Open products into a distributed,
client/server environment. The distributed nature of the WorkStream DFS system
allows users to add new functional modules or servers to their existing systems
built around WorkStream or WorkStream Open, and to more easily integrate
software applications from other sources, as additional servers on the network.
The overall system utilizes computer resources more efficiently and can operate
more effectively as a result.

     In October 1995, the Company announced an alliance with Avnet Computer,
Digital Equipment Corporation and Oracle Corporation to jointly provide an
upgrade path for WorkStream users to migrate from older Digital VAX systems to
Digital's new Alpha platform. When available, the solution will consist of a new
version of WorkStream running Digital's Open VMS Alpha operating system, Alpha
hardware platforms from Digital, Oracle's CODASYL DBMS database and a full range
of implementation services from Avnet.

     Just after the close of fiscal 1995, the Company announced a partnership
with Oracle Corporation to create a total supply chain management solution for
the semiconductor industry. The companies will work together to tightly link
WorkStream DFS software with Oracle's order processing, financial and enterprise
resource planning (ERP) systems. Together, these systems will provide a more
comprehensive view of product availability from sales order through
manufacturing than is presently available. Such a view will enable semiconductor
manufacturers to better meet their customers' requirements for specific product
orders in committed time frames.

     In early fiscal 1992, the Company introduced and sold the first copy of a
second software product line, called FlowStream, aimed at batch process
manufacturers. In a batch process manufacturing environment, product from the
same batch may be spread across several operations at once, thus requiring that
different tracking methods be used than those employed in a discrete
environment. FlowStream was built specifically to address the unique
requirements of batch process manufacturers, and supports several critical
functions including production, engineering, research and development,
regulatory compliance and reporting, and quality control. Benefits of FlowStream
in the batch process industries include:

     .  operational control for assured regulatory compliance
     .  improved efficiency of data collection
     .  reduced cost of documentation associated with compliance
     .  decreased cycle times
     .  decreased time to market
     .  lowered indirect labor costs
     .  shortened response times to equipment breakdowns and other 
        manufacturing problems

                                       2
<PAGE>
 
     FlowStream runs on Digital and HP workstations, and features graphical user
interfaces geared to the needs of specific users, from planners and engineers to
operators. FlowStream is based upon industry-standard technologies, including X-
windows, C++ object-oriented programming, an SQL relational database, and TCP/IP
communications, which facilitate ease of use of the software and the transfer of
data between FlowStream software and other programs used in the manufacturing
environment.

     Both the FlowStream and WorkStream DFS product lines provide on-line views
of plant floor operations, highlighting opportunities for manufacturers to
improve operations.

     Through its direct sales force, the Company markets its WorkStream DFS and
FlowStream product lines in the United States, Canada, France, Germany, Japan,
Malaysia, Singapore, South Korea, Taiwan, and the United Kingdom. The Company
also markets its products through distributors in Japan, Israel, Italy, and
Taiwan. Many of the Company's customers are Global Fortune 500 companies and,
based on the most recently available information, include 5 of the 10 largest
aerospace firms, 4 of the 10 largest chemical manufacturers, 11 of the 25
largest electronics companies, and 10 of the 20 largest pharmaceutical firms,
worldwide. To date, software from the Company's WorkStream DFS product line has
been purchased by over 100 companies for 230 sites in 20 countries, and the
Company's FlowStream product has been purchased by 18 companies for 31 sites in
8 countries.

     The Company was incorporated in California in October 1978 to provide
consulting services and released its first standard software product in fiscal
1983. The Company reincorporated in the state of Delaware in March 1991. Unless
the context otherwise requires, "Consilium" and the "Company" refer to
Consilium, Inc. and its subsidiaries. The Company's executive offices are
located at 485 Clyde Avenue, Mountain View, California 94043, and its telephone
number is (415) 691-6100.


Background
----------

     The goal of applying computer automation to the manufacturing environment
is improved efficiency and lowered costs, both direct and indirect. There are
several different computer software applications which are designed for various
stages of the product life cycle, from computer-aided engineering and design
("CAE/CAD") to computer-assisted production on the plant floor. The primary
software applications for planning and executing production once a product is
designed include: Enterprise Resource Planning (ERP) systems, manufacturing
execution systems (MES), and control systems for automated equipment and micro-
operations.

     ERP systems help manufacturers translate forecasted demand or order backlog
into a manufacturing plan of raw materials, gross capacity and production orders
for the plant floor. They also track the associated financial and accounting
paperwork, and in fact are most commonly associated with financial transaction
automation. Since ERP systems only collect historical yield and cost data and do
not provide real-time information about the complete status of operations, they
do not support the proactive or ongoing management of the actual production
process as it occurs.

     Distributed control systems direct the operation of numerically controlled
machines, robots, material transports, vessels, specialty equipment, sensors,
and measurement and inspection devices used in manufacturing. Such devices are
often grouped in self-contained "work cells." Control systems track the status
of materials and equipment within a particular work cell area and not on the
plant floor as a whole.

                                       3
<PAGE>
 
     Since the 1970s, as the increasing availability of lower cost, higher
performance computer systems made the use of manufacturing software more cost
effective, large numbers of ERP and distributed control systems have been
developed and installed. The usage of and benefit from using ERP and distributed
control systems is common across many industries. Increasingly, manufacturers
are recognizing that these tools, while effective in the functions for which
they were designed, do not have adequate capabilities to manage the critical
variables of the dynamic production process on the plant floor.

     Manufacturing execution systems are specifically designed to manage
production operations on the plant floor. Some industries, such as
semiconductors, have long seen the benefit of using MES software and are
considered to have fully accepted MES as a critical tool for manufacturing.
Companies in other industries, such as pharmaceuticals, are not as familiar with
the benefits of MES, and are therefore slower to adopt what is to them a still
unproven concept. Across many industries, there is a growing need for tools that
can help improve manufacturing performance, as cost, quality, service and
regulatory pressures on manufacturers increase. The Company's WorkStream DFS
product line addresses the need for manufacturing performance tools for discrete
manufacturers who must track, control and document their use of materials,
equipment, personnel, job specifications and facilities at each step of the
production process. The Company's FlowStream product addresses this need for
manufacturers in batch process environments.


Types of Manufacturing
----------------------

     Manufacturing operations can be characterized as either discrete, batch
process, continuous process, or hybrid (combining more than one form). In
discrete operations, such as electronics manufacturing, raw material is
processed in distinct units. Work-in-process can be tracked by lot, work order
or batch. In batch process operations, such as pharmaceutical manufacturing,
material is converted from one form or state to another through various
processing steps and is tracked by batch, lot or mass quantity. Material in
batch process-type operations may be spread across several conversion steps at
once. In continuous process operations, such as oil refining, raw material is
processed without interruption in a continuous flow. Finally, some producers,
such as specialty chemical companies, may require a combination of batch process
and discrete operations to manufacture their products.

     Manufacturers track and control each step of their operations based on
requirements of regulatory compliance, quality control assurance, and cost
reduction goals. Manufacturers with production processes that are hard to
consistently replicate must be able to ascertain the precise conditions under
which each product was manufactured in order to identify and correct process
variability or other causes of defects. Other manufacturers must be able to
trace both subassemblies or intermediate products and finished goods due to
product liability concerns or potential product recall, warranty or services
obligations. In addition, certain manufacturers must certify that their products
have been processed in accordance with regulatory or customer specifications, or
other standards. Manufacturers faced with these challenges must be able to
follow raw materials through each processing stage ("traceability") and recreate
the history of work-in-process from any processing stage ("genealogy"). The
collection of such data serves not only to answer questions about a particular
product or process after the fact, but acts also as a powerful tool to improve
manufacturing performance in real time during the production process.

     A manufacturing execution system such as the Company's WorkStream DFS
product line provides the tools which discrete, lot-based manufacturers need to
execute their manufacturing plan and collect the data which will enable them to
analyze and control production. Typical discrete, lot-based industries include
semiconductors; disk drives; and assembly operations in the commercial 

                                       4
<PAGE>
 
aircraft, aerospace and defense industries. Such industries benefit from MES for
different reasons. For semiconductor companies, the visibility and control
provided by MES can enable various measurements of efficiency, such as capital
equipment utilization and quality. For aerospace manufacturers, assurance of
regulatory compliance is key, and MES provides both control mechanisms and
reporting capabilities to address this. Indirect labor usage is also a critical
measurement for the aerospace and defense industries, and MES provides the tools
to both account for and reduce indirect labor usage.

     Batch process manufacturers such as pharmaceutical and chemical companies
have similar requirements for information collection and analysis.
Pharmaceutical manufacturers must be able to demonstrate compliance with a host
of procedural and environmental regulations before a batch of product can be
approved for shipment to customers. They must maintain complete and accurate
batch records, detailing the history of all related elements of the
manufacturing process - materials, labor, equipment, procedures, facilities,
etc. - and guaranteeing that all actions taken, both planned and unplanned, were
in line with documented and approved manufacturing practices. In addition,
pharmaceutical manufacturers increasingly are under pressure to lower costs to
their customers, and are therefore experiencing smaller margins than they had
previously enjoyed. Manufacturing is a key area in which such companies may
lower costs.

     Today, many pharmaceutical plants use paper-based systems for record
keeping. Overhead and indirect labor costs associated with the compilation and
maintenance of these records is a large and increasing expense. Therefore, an
electronic system which automates the data collection process and incorporates
proactive features to prevent deviations from the standard procedures - such as
an MES - can pay for itself in a very short time.

     Chemical companies confront both an increasingly stringent regulatory
environment and mounting global competition in nearly all segments of the
industry. In addition, the need to package end products in multiple forms
presents a unique challenge. Therefore, in addition to tracking precisely all
materials resulting from the manufacturing process - primary products, co- and
by-products, and various forms of waste - chemical manufacturers must also amass
enough detailed information about their operations to discover ways to improve
them from the cost or quality standpoint. The process control systems currently
used by the majority of these companies cannot provide this higher level
information, nor can their ERP systems provide the detail required to empower
this continuous improvement approach. Chemical manufacturers' competitive
situation drives them to seek new and more comprehensive tools.

     A manufacturing execution system such as the Company's FlowStream product
provides pharmaceutical and chemical manufacturers with a tool for achieving
both regulatory compliance and manufacturing improvement.


Products
--------

     The WorkStream DFS and FlowStream product lines monitor and control the
five essential elements of manufacturing - materials, equipment, personnel,
specifications, and facilities - throughout the production process, and
correlate critical data for real-time visibility and control of manufacturing
operations.

                                       5
<PAGE>
 
     The following table shows the Company's principal products, price range and
approximate average new installation prices in fiscal 1995:

<TABLE>
<CAPTION>
 
                                                              Approximate
                                                            Average price of
                                                            new installation
WorkStream DFS Product Line           List price range       in fiscal 1995
----------------------------------------------------------------------------
<S>                                <C>                     <C>
  WorkStream and
    WorkStream Open products       $50,000 - $1,000,000+        $350,000
 
     WorkStream DFS servers          $45,000 - $50,000          $ 60,000
 
FlowStream Product Line
----------------------------------------------------------------------------
  FlowStream product               $50,000 - $1,000,000+        $300,000
</TABLE>

WorkStream DFS Product Line
---------------------------

     The Company's WorkStream DFS product family consists of multiple software
products, WorkStream and WorkStream Open, as well as a set of application
servers and a connecting message "bus," or network. The WorkStream DFS system
includes a set of 24 integrated software modules for managing the execution of a
production plan for discrete lot-based industries; a software communications
"message bus;" and three functional servers providing additional capabilities in
a distributed, client/server environment. The 24 modules are grouped into four
benefits or solutions areas: tracking; quality and engineering management;
planning; and process control and automation. The current application servers
provide capabilities primarily in the areas of automation and quality. The
WorkStream DFS product line's modular design allows customers to license only
those functions necessary to their current business needs and to add functions
as their requirements evolve.

     The WorkStream and WorkStream Open software products are written in the
COBOL and C computer languages and are principally licensed to run on either the
Digital VAX line of computers under Digital's proprietary VMS operating system
with Oracle Corporation's CODASYL DBMS database or on the Hewlett-Packard HP
9000 line of computers running under the HP-UX UNIX operating system and the
Informix relational database. The WorkStream and WorkStream Open systems'
modules are integrated through a common database, permitting all modules to
obtain information simultaneously from a single data source, and through a
common user interface. The systems are designed to allow distributed application
processing in the Digital cluster mode and in client/server mode. Users can
access WorkStream or WorkStream Open software directly via a terminal or
workstation to enter data, view data, initiate batch reports or analyses and
view the results. Data also can be entered using bar code wands or can be
entered automatically by automated equipment and work cell controllers. The
Company has recently entered into an alliance with Avnet Computer, Digital
Equipment Corporation and Oracle Corporation to port its WorkStream product to
run on Digital's Alpha platform running the Open VMS operating system.

     The WorkStream DFS servers introduced in 1995 are object-oriented
applications and run in a UNIX-based environment. They are designed to operate
in a distributed software environment, and connect to an ISIS message bus, using
standard communication protocols to talk to either WorkStream or WorkStream
Open. They have been developed in the SmallTalk computer language and use the

                                       6
<PAGE>
 
Informix relational database software. WorkStream DFS servers are currently
available to run on Hewlett-Packard's HP 9000 line of computers with the HP-UX
operating system.

     Over the next several months, the Company plans to integrate WorkStream DFS
with various order processing, financial and ERP systems from Oracle
Corporation. The resulting system will be marketed as a total supply chain
management solution to the semiconductor industry.

     The following table summarizes the primary functionality of the WorkStream
DFS product family:

<TABLE>
<S>                               <C>
WorkStream DFS Functions
------------------------
Tracking and Control          .   XTracks WIP by lot, sub-lot, or serial 
                                  identifier.
                              .   Maintains genealogy and lot traceability.
                              .   Tracks manufacturing resources and labor and 
                                  equipment states and maintains history.
 
Quality Management            .   Collects quality, test, and environmental 
                                  data correlated by material, equipment, and 
                                  operator.
                              .   Provides Statistical Quality Control.
                              .   Analyzes and charts collected process data 
                                  and flags anomalous data.
                              .   Displays job specifications in both text and 
                                  graphics appropriate times and locations.
 
Planning and Scheduling       .   Rule-based dispatching.
                              .   Finite capacity constraints.
                              .   Work scheduling.
                              .   Intracompany planning.
</TABLE>

FlowStream Product Line
-----------------------

     The Company's FlowStream product is designed for companies that employ
batch process styles of manufacturing. At present, FlowStream is targeted
primarily at the pharmaceutical and chemical industries. FlowStream addresses
six benefits or solutions areas: batch operations tracking and control;
inventory or materials management; quality management; document management;
planning and scheduling; and costing. FlowStream tracks work-in-process activity
by work order down through each operation or step, whether automated or manual.

     FlowStream software is written in the C++ language, emphasizing an object-
oriented design, and runs on the Rdb and Oracle relational databases. FlowStream
is a distributed application that allows users to access and share real-time
information. FlowStream takes advantage of certain industry-standard interfaces.
Interfacing tools within FlowStream allow integration with other manufacturing
applications such as ERP, Laboratory Information Management Systems (LIMS) and
automation controllers. FlowStream provides graphical user interfaces featuring
icons and windows.

                                       7
<PAGE>
 
     The following table summarizes the primary functionality of the FlowStream
product family:

<TABLE>
<S>                              <C>
FlowStream Functions
--------------------
Tracking and Control         .   Tracks WIP by work order, batch production 
                                 run, material, store, container or state.
                             .   Maintains genealogy and lot traceability.
                             .   Tracks manufacturing resources and labor and 
                                 equipment states and maintains history.
 
Quality Management           .   Collects quality, test, and environmental 
                                 data correlated by material, equipment, and 
                                 operator.
                             .   Provides Statistical Quality Control.
                             .   Analyzes and charts collected process data 
                                 and flags anomalous data.
                             .   Displays job specifications in both text and 
                                 graphics appropriate times and locations.
 
Document Management          .   Documentation and configuration management,
 
Planning and Scheduling      .   Rule-based dispatching.
                             .   Finite capacity constraints.
                             .   Work scheduling.
                             .   Material requirements planning.
                             .   Master production scheduler.
                             .   Capacity planning.
 
Costing                      .   Detailed model costing and reporting.
</TABLE>

Markets and Customers
---------------------

     Software in the WorkStream DFS product line was first used primarily by
semiconductor manufacturers whose products were sold directly into the open
market and by electronics systems companies which used the software primarily to
produce semiconductors for use in their own products. Systems from the
WorkStream DFS product line have now also been installed by many commercial
aircraft, aerospace and defense, and electronics manufacturers for a range of
diverse applications, including electronics assembly; sheet metal fabrication;
disk drive assembly; silicon wafer fabrication; and radar and navigation systems
manufacture and assembly. Current target industries include manufacturers of
semiconductors, complex electronics such as disk drives and flat panel displays,
and aerospace products in both the Company's installed base and new accounts.

                                       8
<PAGE>
 
     FlowStream software is currently targeted at research and development and
manufacturing operations in the pharmaceutical, medical device and specialty
chemical (e.g. fibers, paints, resins, plastics and film) industries.

     In fiscal 1995, no customer accounted for 10% or more of total revenue.


Sales
-----

     Through its direct sales force, Consilium markets its WorkStream DFS and
FlowStream product lines in the United States, Canada, France, Germany, Japan,
Malaysia, Singapore, South Korea, Taiwan, and the United Kingdom. The Company
also utilizes distributors in Israel, Italy, Japan, and Taiwan.

     As a Digital Cooperative Marketing Partner (CMP) and a Hewlett-Packard
Independent Software Vendor (ISV) participant, the Company participates with
these computer systems firms in a variety of cooperative marketing programs
including joint appearances at tradeshows, joint brochures, joint sales seminars
and joint sales calls. Under the previously described alliances with Avnet
Computer, Digital Equipment Corporation and Oracle Corporation, the Company also
participates in a variety of cooperative marketing programs, including joint
appearances at tradeshows, joint brochures, joint sales seminars and joint sales
calls.

     The sales cycle for a new installation of a WorkStream DFS system typically
ranges from nine to fifteen months from the initial identification of a
qualified potential user to the installation of the software. The sales cycles
for a new installation of FlowStream typically range from nine to eighteen
months. Sales cycles for either product can be extended due to the nature of the
decision-making process for purchasing MES solutions, which generally involves
many individuals from many departments within a manufacturing company. In
addition, the missionary nature of marketing a new product such as FlowStream
into new industries, such as pharmaceuticals and chemicals, contributes to
uncertainty about the timing of future sales order closures.

     Implementation of a WorkStream DFS system, including customer training,
typically takes between four and six months. Implementation of FlowStream takes
between three and twelve months to complete, depending on the scope and
complexity of the project. Follow-on orders for additional modules, servers,
and/or sites typically are not received until successful implementation at the
initial site.

     The Company's direct sales force and support staff are organized by
geographical regions. As of October 31, 1995, the sales and marketing
organizations consisted of 61 employees.

     The Company's foreign distributors either sublicense the Company's products
directly to end users after acquiring copies from the Company at a discount from
list price, or act as agents and receive a commission for initiating a license
agreement between the Company and the end user.

     Revenues from foreign customers represented 33% of total revenues in 1995,
31% of total revenues in fiscal 1994 and 27% of total revenues in fiscal 1993.
The majority of the Company's revenues are denominated in U.S. dollars. Some
foreign sales revenues are denominated in foreign currencies and are subject to
currency fluctuations during the time between revenue recognition and receipt of
funds. To date, the Company has not hedged against such foreign currency
fluctuations.

     Since the Company ships its standard products upon receipt of customer
orders, it generally has no material product backlog.

                                       9
<PAGE>
 
Product Development
-------------------

     Consilium has invested significant development resources to create, enhance
and extend the functionality of its WorkStream DFS and FlowStream software
product lines. Research and development expenses were 32%, 39% and 36% of
revenues in fiscal 1995, 1994 and 1993, respectively.

     The Company expects to continue to incur development expenses to maintain
and augment its current products in 1996. This augmentation could include the
creation of additional WorkStream DFS servers, the extension of availability of
its WorkStream and WorkStream Open software to additional platforms and
operating environments, and the enhancement of functionality of its FlowStream
product for the batch process industries.

     In August 1985, the Financial Accounting Standards Board issued a statement
requiring that certain software development and production costs be capitalized
and amortized over the economic life of the related product. For the fiscal
years 1995, 1994 and 1993, the Company capitalized $1,460,000, $1,662,000 and
$1,842,000, respectively, which represented approximately 12%, 13% and 15% of
total spending on research and development in such periods. These capitalized
costs are amortized on a module-by-module or server-by-server basis. For the
fiscal years 1995, 1994 and 1993, the Company amortized $1,863,000, $1,809,000
and $1,578,000, respectively. (See Note 2 of Notes to Consolidated Financial
Statements.)


Services and Support
--------------------

     The Company offers product support to its customers through comprehensive
maintenance agreements. The majority of the Company's customers purchase and
renew maintenance pursuant to the Company's standard maintenance agreement.
Maintenance, which consists of product enhancements and technical support, may
be purchased after the expiration of the warranty period, which is currently 90
days, and is automatically renewable annually thereafter. Annual maintenance
fees are generally 15% of the list price of the modules or servers being
maintained and are subject to a Consumer Price Index-based inflator. Product
support services are provided worldwide by a combination of local office
technical support staff and the Company's Customer Response Center.

     The Company also offers a variety of training and consulting services
through its Professional Services organization. Training classes are regularly
scheduled at regional centers or customer locations. Consulting services cover
pre-selling analysis, installation, project management, customization and
application integration. These services are offered as consulting products with
defined deliverables in order to facilitate the customers' planning and
budgeting. Time-and-material-based services are also offered to augment the
Company's consulting products and to meet specialized requirements.

     The Company is increasing its allocation of resources to its Professional
Services organization because it believes that this function is key to
satisfying its customers' requirements for implementation and consulting
assistance. Satisfying its customers' requirements is, in turn, critical for
maintaining a positive image in the marketplace as a successful provider of MES
solutions.

     The Company believes that the ability to identify and work with qualified
systems integration firms which integrate various manufacturing and other
systems together is an important component to its success. In early fiscal 1996,
the Company announced a certification program to train and certify systems
integration firms to integrate the Company's WorkStream DFS and FlowStream
product lines in customer implementations.

                                       10
<PAGE>
 
Competition
-----------

     The Company believes that the primary competitive factors in the market for
MES software are size of installed base and product functionality, and that
additional factors include price/performance, ease of use, hardware and
software platform, vendor reputation, and financial stability. The Company
believes that its products currently compete favorably with other systems on the
primary factors listed above, although it may be at a competitive disadvantage
against companies with greater financial, marketing, services and support and
technological resources than the Company. The Company also believes that the
relative importance of these competitive factors may change over time.

     The Company continues to experience competition primarily from the
management information systems departments of its largest potential customers,
which have the capability to develop software internally. The Company believes
that acquisition of MES products will increasingly shift to external vendors as
packages, services and expertise become more widely available from third
parties. The Company continues to experience direct competition primarily in the
semiconductor and pharmaceutical industries from various competitors, including
Base-10, FASTech, Incode, Promis, Inc., and SAP.

     The Company anticipates increased competition from both large and small
companies. FASTech markets a competing product for the semiconductor industry.
IBM directly offers and cooperatively markets POMS, a product developed by a
third party, to the pharmaceutical industry. In addition, ERP system vendors are
beginning to compete with the Company. The first such offering was released by
SAP in mid-1995. The Company believes that the development effort required for
producing an MES comparable to the Company's WorkStream DFS and FlowStream
product lines presents a significant barrier to the entrance of new competitors.


Proprietary Rights
------------------

     The Company's success and ability to compete is dependent in part upon its
proprietary technology. The Company generally provides its products to end users
under a non-exclusive, non-transferable license which typically has a perpetual
term unless terminated for breach. Under the Company's current form of license
agreement, the licensed software may be used solely for internal operations at
specified sites. In certain instances, the Company has granted a customer
licensed rights to any modifications made to the licensed software by or for
such a customer. The Company protects the human readable, source code version of
its WorkStream Open and FlowStream products as a trade secret and an unpublished
copyrighted work.

     The Company has registered "CONSILIUM," "WorkStream" and "FlowStream" as
trademarks in the United States and several foreign jurisdictions and has
received trademark designation for "CONSILIUM," "WorkStream" and "FlowStream" in
several other foreign jurisdictions.

     The Company holds three patents, and also relies on a combination of trade
secret, copyright and trademark laws and license agreements to protect its
proprietary rights in its products. There can be no assurance that others will
not develop technologies that are similar or superior to the Company's
technology, duplicate the Company's technology, or design around patents owned
by the Company. The Company generally enters into confidentiality or license
agreements with employees, distributors and customers, and limits access to and
distribution of its software, documentation and other proprietary information.
Despite these precautions, it may be possible for a third party to copy or
otherwise obtain and use the Company's products or technology without
authorization, or to develop similar technology independently. In addition,
effective copyright and trade secret protection may be unavailable or limited in
certain foreign countries.

                                       11
<PAGE>
 
     The Company believes that, because of the rapid pace of technological
change in the computer software industry, patent, trade secret and copyright
protection are important to support the continued building up of knowledge,
ability and experience of the Company's employees. This in turn supports the
ability of the Company to provide frequent product enhancements, and deliver
quality support services in a timely manner.

     There has been substantial industry litigation regarding patent and other
intellectual property rights involving technology companies. In the future,
litigation may be necessary to protect and enforce the Company's intellectual
property rights, to defend the Company against claimed infringement of the
rights of others and to determine the scope and validity of the proprietary
rights of others. Any such litigation could be costly and could divert
management's attention, which could have a material adverse effect on the
Company's business, results of operations or financial condition regardless of
the outcome of the litigation. In addition, third parties making claims against
the Company with respect to intellectual property infringement may be able to
obtain injunctive or other equitable relief that could effectively block the
Company's ability to sell its products in the United States and abroad, and
could result in an award of substantial damages. In the event of a claim of
infringement, the Company and its customers may be required to obtain one or
more licenses from third parties. There can be no assurance that the Company or
its customers could obtain necessary licenses from third parties at a reasonable
cost or at all.


Employees
---------

     As of October 31, 1995, the Company had a total of 210 full-time employees,
including 61 in sales, marketing and related activities, 71 in product
development and maintenance, 46 in services and support, and 19 in management,
administration and finance. The Company also regularly utilizes a significant
number of contract personnel, primarily to assist with software development. At
October 31, 1995, the Company utilized approximately 32 contracted personnel.
None of the Company's employees is represented by a labor union. The Company has
experienced no work stoppages and believes that employee relations are good.

     Competition in the recruitment of personnel in the computer software
industry is intense. The Company believes that its future success will depend in
part on its continued ability to hire and retain qualified sales, customer
support, technical and management employees and consultants.

                                       12
<PAGE>
 
Executive Officers of the Registrant
------------------------------------

     As of December 31, 1995, the executive officers of the Company, who are
elected by and serve at the discretion of the Board of Directors, are as
follows:

<TABLE>
<CAPTION>
        Name               Age                Position
        ----               ---                --------
<S>                        <C>   <C>
Jonathan J. Golovin         45   Chairman of the Board of Directors, 
                                 Secretary and Chief Technical Officer
Frank Kaplan                53   Vice President, Software Development
Edward Norton               51   Vice President, International Field 
                                 Operations and Worldwide Services
Lloyd Payton                55   Vice President, American Field Operations
Thomas A. Tomasetti         51   President, Chief Executive Officer and Director
Richard H. Van Hoesen       40   Vice President, Operations, Administration 
                                 and Finance and Chief Financial Officer
Clifton Wong                35   Controller
Ralph Zak                   46   Vice President, Marketing
</TABLE>

     Dr. Golovin, the founder of Consilium, was President of the Company from
1978 to 1987 and has served as a director of the Company since its inception and
as Secretary since January 1989. In April 1992, he was named Chief Technical
Officer. Dr. Golovin has taught both graduate and undergraduate courses in
operations management and production planning at the Massachusetts Institute of
Technology and the University of California at Berkeley. He holds a Ph.D. in
Operations Management from the Massachusetts Institute of Technology and a B.S.
degree from Cornell University.

     Mr. Kaplan joined the Company in May 1994 as Vice President of Software
Development. From 1987 to 1994, he held various high level software development
positions with NEC America, Inc., a communications technology company, including
Assistant General Manager, Software Development and Director, Software
Development. Prior to NEC, Mr. Kaplan was with AT&T Bell Laboratories, a
communications technology research firm, where he was Department Head for
Operations Systems Development. Mr. Kaplan holds two Masters degrees in
Mathematics from Yale University and a B.S. in Mathematics from City College of
New York.

     Mr. Norton joined the Company in September 1994 as Vice President of
Consulting and Services. In April 1995, he was promoted to Vice President,
International Sales and Worldwide Services. His title was changed to
International Field Operations and Worldwide Services in January 1996. Mr.
Norton was with Industrial Resources, Inc. from 1993 to 1994, a company he
founded to provide investment and development services for companies and
government organizations in Asia. From 1989 to 1993, Mr. Norton held the
positions of Vice President of Asia Pacific and Vice President, Worldwide
Customer Services Division with Pyramid Technology, a computer company. Mr.
Norton's prior experience includes senior management assignments with Tolerant
Systems (now Veritas), a computer systems company, from 1983 to 1989 and
Burroughs Corporation, a computer systems company (now Unisys). He holds a B.S.
in Chemistry from Sussex University in England.

     Mr. Payton joined the Company in 1993 as Western Region Sales Manager and
was promoted to Vice President, North American Sales in April 1995. In January
1996, his title was changed to Vice President, American Field Operations. From
1990 to 1993, he was an independent consultant in factory automation and
business planning. From 1984 to 1990, Mr. Payton was Chief Executive

                                       13
<PAGE>
 
Officer of WSI Corporation, a specialty hardware company. From 1970 to 1983, he
held a variety of executive sales management positions with Parallex
Corporation, an on-line data processing services company, Xerox Corporation, a
multi-technology company, and Telecom Midwest Corporation, a provider of on-line
accounting and control systems for manufacturers. He holds B.A. degrees in
Business and English from Murray State University in Kentucky and an M.B.A. from
Wake Forest University.

     Mr. Tomasetti has served as President and Chief Executive Officer of the
Company since June 1987 and as Director since November 1987. He was a technology
consultant with Hillman Ventures, a venture capital firm, from November 1986 to
June 1987, and served as Chief Executive Officer for Formaster Magnetic Designs,
a software duplication equipment firm, from November 1984 to November 1986. From
January 1982 to September 1984, he was Director of Western Operations for
Scientific Calculations, Inc., a software company, and previously spent 16 years
at General Electric Company, a diversified multi-national conglomerate, most
recently as Vice President/General Manager for the Calma division. Mr. Tomasetti
holds a B.S. degree in Engineering from the University of Massachusetts at
Lowell.

     Mr. Van Hoesen joined the Company in October 1994 as Vice President
Operations, Administration and Finance and Chief Financial Officer. Mr. Van
Hoesen was Director of Investor Relations at Sun Microsystems, a computer
company, from 1992 to 1994. From 1988 to 1992, he held several senior finance
and administration positions, most recently as Director, Administration, MIS and
Investor Relations, with Teradata Corporation, a computer company. Mr. Van
Hoesen's prior experience includes financial and administrative assignments with
Clabir Corporation, a diversified holding company, Unimation Robotics, an
industrial robotics company and Andersen Consulting, a management consulting
firm. He holds a B.S. in Industrial Engineering from Lehigh University and an
M.B.A. from the University of Pennsylvania's Wharton School of Finance.

     Mr. Wong joined the Company as Controller in May 1995. From 1990 to 1995,
he was Director of Finance at Kubota Graphics Corporation, a computer hardware
company, which was previously known as Kubota Pacific Computer, Inc. From 1986
to 1990, he held various positions in finance with Stardent Computer, a computer
hardware company, which was previously known as Ardent Computer, most recently
serving as Operations Controller. He holds a B.A. in Accounting from Golden Gate
University in California and is a Certified Public Accountant in the state of
California.

     Mr. Zak joined the Company as Vice President, Marketing in May 1995. From
1992 to May 1995 he was with Quickturn Design Systems, an electronic design
automation company, where he held the positions of Vice President, Business
Development and Communications and Vice President, Marketing. From 1989 to 1992,
he was Director of Marketing for the printed circuit board division of Mentor
Graphics Corporation, an electronic design automation company. From 1970 to
1989, Mr. Zak held various executive marketing, business development and
strategic planning positions with HHB Systems, Quadtree Corporation and Calma
Company, design automation companies, and Bechtel Corporation, an engineering
construction firm. He holds a B.S. in Mechanical Engineering from the University
of California at Berkeley and an M.B.A. from Stanford University.

                                       14
<PAGE>
 
ITEM 2.  PROPERTIES
         ----------

     The Company's principal administrative, marketing and product development
and support facilities are located in a building totaling 61,600 square feet in
Mountain View, California. The Company will complete its move to this facility
on February 2, 1996. The Company occupies this space under a lease agreement
which expires January 31, 2003. The annual base rent payment (not including
operating expenses, insurance, property taxes, and assessments) is approximately
$665,280, and is subject to further adjustments annually in accordance with the
Consumer Price Index. The Company must also pay operating expenses, taxes and
assessments.

     In addition, the Company leases sales and service office space in Atlanta,
Georgia; Bedminster, New Jersey; Blue Bell, Pennsylvania; Cranford, New Jersey;
Dallas, Texas; Denver, Colorado; Irvine, California; Minneapolis, Minnesota; and
Nashua, New Hampshire, as well as in Canada, Germany, Japan, Singapore, South
Korea, Taiwan and the United Kingdom.

     The Company believes that its current facilities are adequate for its
current needs and that suitable additional space will be available as required.
See Note 3 of Notes to Consolidated Financial Statements for information
regarding the Company's obligations under its facilities leases.


ITEM 3.  LEGAL PROCEEDINGS
         -----------------

     None.


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
         ---------------------------------------------------

     Not applicable.

                                       15
<PAGE>
 
                                    PART II


ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
         -----------------------------------------------------
         STOCKHOLDER MATTERS
         -------------------


Market Price of Common Stock
----------------------------

Consilium, Inc.'s common stock is traded on the Nasdaq National Market under the
symbol "CSIM."  The high and low stock prices are as reported by Nasdaq.
Consilium's Initial Public Offering of stock was May 9, 1989 at $9.00 per share.

<TABLE>
<CAPTION>
                   Quarter     Quarter    Quarter    Quarter
                    Ended       Ended      Ended      Ended
Fiscal year:      January 31   April 30   July 31   October 31
                  ----------   --------   -------   ----------
<S>               <C>          <C>        <C>       <C>
1995
  High               8 1/4       8 7/8    12 5/8      15 1/8
  Low                5 5/8       7 1/8     7 3/8       9 5/8
1994                                                  
  High               9 5/8      10 1/2     8 1/2       6 1/2
  Low                6 1/4       7 1/2     4 3/4       3 3/4
1993                                                  
  High                  11       9 1/4     7 1/2       7 1/4
  Low                7 1/4       6 1/2     5 1/2       5 7/8
1992                                                  
  High                  22      17 1/4    14 1/2      10 1/4
  Low               11 3/4          11     6 1/2       6 3/4
</TABLE>

Holders of Company Stock
------------------------

As of December 31, 1995, the Company had 194 stockholders of record and believes
it had at least 2,300 beneficial holders.


Dividends
---------

The Company has not paid cash dividends on its Common Stock and does not plan to
pay cash dividends to its stockholders in the near future.  The Company
presently intends to retain its earnings to finance further growth of its
business.

                                       16
<PAGE>
 
ITEM 6.  SELECTED FINANCIAL DATA
         -----------------------

(In thousands, except income (loss) per share amounts)

<TABLE>
<CAPTION>
Years ended October 31:          1995      1994       1993       1992        1991
                                -------   -------    -------    -------     -------
<S>                             <C>       <C>        <C>        <C>         <C>
Total revenues                  $33,857   $27,944    $28,475    $27,558     $27,354
Income (loss) before taxes        1,150    (5,523)    (4,973)    (5,161)     (1,567)
Provision (benefit) for                                         
   income taxes                     523       725        310        162        (503)
Net income (loss)                   627    (6,248)    (5,283)    (5,323)     (1,064)
Income (loss) per share            0.08     (0.85)     (0.75)     (0.77)      (0.15)
Shares used in per share                                        
   calculations                   7,912     7,362      7,025      6,915       6,910
                                                                
<CAPTION>
At October 31:                    1995      1994       1993       1992        1991
                                 ------    ------     ------     ------      ------
<S>                              <C>       <C>        <C>        <C>         <C>
Working capital                   9,498     7,345     12,571     17,354      20,699
Total assets                     29,437    26,998     31,643     34,506      37,235
Long-term debt, less                                            
   current portion                  ---       ---        313        464         ---
Stockholders' equity             15,869    13,646     18,836     23,192      27,617
</TABLE>

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
         -----------------------------------------------------------
         AND RESULTS OF OPERATIONS
         -------------------------


Results of Operations
---------------------

Revenues.  Total revenues increased 21% to $33,857,000 in fiscal 1995 compared
---------                                                                     
with $27,944,000 in fiscal 1994, which was down 2% from revenues of $28,475,000
in fiscal 1993.

     The following table shows the proportion of the Company's total revenue for
the past three fiscal years from each of its three principal geographic regions:

<TABLE>
<CAPTION>
                    Years ended October 31,
                   1995       1994      1993
                   ----       ----      ----
<S>                <C>        <C>       <C>
North America       67%        69%       73%
Europe              18%        17%       18%
Asia/Pacific        15%        14%        9%
</TABLE>

Product License Revenues.  Product license revenues increased 59% to $16,847,000
in fiscal 1995 compared with $10,588,000 in fiscal 1994, which was up 7% from
product license revenues of $9,927,000 in fiscal 1993.  The fiscal 1995 increase
was due to higher levels of sales in both of the Company's product lines.

     Broken out by product line, product license revenue attributable to
products in the Company's WorkStream DFS product line increased 36% to
$12,436,000 in fiscal 1995 compared with $9,153,000 in fiscal 1994, which was up
51% from revenues of $6,048,000 in fiscal 1993. The 1995

                                       17
<PAGE>
 
increase was due to a resurgence in demand in the semiconductor industry for the
Company's WorkStream and WorkStream Open products, as well as commercial
availability of the Company's new WorkStream DFS application servers. Throughout
1995, the semiconductor industry expanded rapidly, and many industry observers
expect it to continue to do so in 1996.

     License revenues attributable to the FlowStream product line increased 207%
to $4,411,000 in fiscal 1995 compared with $1,435,000 in fiscal 1994, which was
down 63% from revenues of $3,879,000 in fiscal 1993. The increase in fiscal 1995
from fiscal 1994 was due to a higher level of acceptance of the FlowStream
product in the pharmaceutical industry, which historically has not used packaged
computer systems to track plant floor operations and is therefore in the early
stages of adopting such systems. The fiscal 1993 product license revenue figure
for FlowStream included $2.7 million in non-refundable prepaid license fees
associated with a major agreement signed by the Company with Honeywell
Automation and Control. Excluding this transaction, FlowStream revenues were up
22% in fiscal 1994 from net revenues of $1,179,000 in fiscal 1993.

     The Company does not expect product license revenues to grow at the
percentage levels reached in 1995, as future growth will be compared with
relatively stronger periods than in earlier years. In addition, future growth
could be negatively affected if the semiconductor industry slowed its expansion,
or if the pharmaceutical industry, which has not yet adopted computer automated
manufacturing on a wide scale, does not develop into a strong market for the
Company's FlowStream product line. Finally, competition is expected to increase,
and there can be no assurance that competitive pressures will not have a
material effect on the Company's business. Additional competitors entering the
market could result in customer deferral of purchasing decisions for the
Company's products in the near-term, as prospective customers evaluate
competitive products.

     The Company's product license revenue historically has been concentrated in
a relatively small number of customers and its products have a high average
selling price. See "-- Potential Fluctuation in Quarterly Results." During
fiscal 1995, the percentage of product license revenue derived from the
Company's ten largest customers was approximately 55% compared with 69% in
fiscal 1994 and 65% in fiscal 1993. Product license fees generally are payable
upon delivery of the licensed software, and cover the customer's use of the
software for the entire term of the license agreement, which is generally
perpetual.

Services Revenues.  Services revenues in 1995 were $15,979,000, an increase of
10% over $14,589,000 in fiscal 1994, which was down 7% from $15,655,000 in
fiscal 1993. Services revenues are derived primarily from custom programming
services, resident and application consulting services, customer training, and
annual software maintenance fees.  The increase in services revenues in fiscal
1995 primarily was due to an increase in revenues from consulting services and
to higher maintenance levels from the Company's WorkStream DFS product lines.
The Company anticipates maintenance revenues associated with its WorkStream DFS
and FlowStream product lines will continue to increase in the near term due to
the higher volume of product licenses sold in recent quarters which are
scheduled to commence maintenance terms.  The decrease in services revenues from
fiscal 1993 to fiscal 1994 primarily was due to a reduction in custom
programming revenues.

Development Revenues.  Development revenues decreased 63% in fiscal 1995 to
$1,031,000 from $2,767,000 in fiscal 1994, which was down 4% from $2,893,000 in
fiscal 1993. The decrease is associated with the completion of activities
related to certain customer-funded development projects.

     Development revenues include work associated with porting agreements and
development contract work for third parties. Under these contracts and
agreements, the Company earns development and porting revenues, with third
parties having the right to license and use the software, often sooner than
otherwise would have occurred. The results of these development contracts and

                                       18
<PAGE>
 
porting projects are expected to become standard products upon completion of the
work. Development revenues can vary significantly from period to period,
depending upon the number of contracts which have been entered into. In
addition, the timing and scope of development projects can change during the
period of development, making it difficult to accurately forecast the level of
development revenues beyond the near term. Based on current projects planned,
development revenues in fiscal 1996 are expected to remain approximately
constant with fiscal 1995 levels.

Costs and Expenses.
-------------------

Cost of Product Revenue.  Cost of product revenue increased 10% to $3,046,000 in
fiscal 1995, compared with $2,763,000 in fiscal 1994 and $2,410,000 in fiscal
1993.  The increase in cost of product revenues in fiscal 1995 was due to higher
product license revenues recorded during the year.  Cost of product revenue
includes amortization of capitalized software production costs, royalties,
distributor commissions, and purchased software which is resold to the end-
customer, typically along with the Company's own software.  Depending on the mix
of sales of proprietary software, third party licenses and sales made through
distributors in a given period, the associated costs of product revenue can vary
significantly.  Product costs as a percent of product revenue were 18%, 26%, and
24% for fiscal years 1995, 1994, and 1993, respectively.  The decrease in cost
of product revenue as a percentage of product revenue from fiscal 1994 to fiscal
1995 was due to a change in the mix of product revenues coupled with higher
amortization, royalties, and purchased software costs.

Cost of Services Revenue.  Cost of services revenue was 30% of total services
revenues in fiscal 1995, compared with 31% and 34% in fiscal 1994 and 1993,
respectively.  Services costs include expenses for the customer response center,
resident and application consulting services, custom programming services, and
training groups within the Company.  Costs increased 5% from fiscal 1994 to
fiscal 1995.  The absolute dollar increase in cost of services compared with
fiscal 1994 primarily was due to the hiring of additional services personnel to
continue to meet customer requirements for consulting services.  Services costs
decreased 16% from fiscal 1993 to fiscal 1994.  The absolute dollar decrease
resulted from a change in the nature of work performed by the corporate
professional services group.  The nature of the group's work changed from
service-oriented projects to research and development activities during the
early part of fiscal 1994.

Research and Development Expenses.  Research and development expenses
represented 32% of total revenues in fiscal year 1995, 39% in 1994 and 36% in
fiscal 1993.  These expenses increased to $10,903,000 in fiscal 1995 compared
with $10,860,000 in fiscal 1994 and $10,206,000 in fiscal 1993.  Included in
research and development expenses are costs associated with the development of
new products, costs of enhancing and maintaining existing products, as well as
costs of porting and funded-development projects.  The proportional decrease in
research and development expense as a percentage of total revenues was due to a
higher level of sales for fiscal 1995 than in fiscal 1994.

     Software development expenditures of $1,460,000, $1,662,000, and $1,842,000
were capitalized under Statement of Financial Accounting Standards No. 86 in
fiscal 1995, 1994, and 1993, respectively. The amounts capitalized represented
approximately 12%, 13%, and 15% of total research and development expenditures
during such periods. The percentage decreases were due to a decline in the
absolute dollar amount of software costs capitalized during these periods. In
accordance with Statement 86, the amount of research and development
expenditures capitalized in a given time period depends upon the nature of the
development work performed. Accordingly, amounts capitalized may vary from
period to period. See Notes 1 and 2 of Notes to Consolidated Financial
Statements.

Selling and Marketing Expenses.  Selling and marketing expenses represented 35%
of total revenues in fiscal 1995, compared with 41% and 45% in fiscal 1994 and
1993, respectively.  Selling and

                                       19
<PAGE>
 
marketing expenses increased to $11,898,000 in fiscal 1995 from $11,519,000 in
fiscal 1994 and decreased from $12,701,000 in fiscal 1993. The current year
increase in absolute dollars was due primarily to an increase in the commission
expense for the period resulting from the higher level of sales for the year,
partially offset by a lower headcount. The proportional decrease in sales and
marketing expense as a percentage of total revenues was due to a higher level of
sales for fiscal 1995 than in fiscal 1994 and increased sales productivity. The
Company believes it has achieved much of the available sales productivity
increases, and that future revenue increases would be accompanied by
proportionate increases in selling and marketing expenses.

General and Administrative Expenses.   General and administrative expenses
include the costs of the finance, accounting, purchasing and administrative
operations of the Company.  General and administrative expenses as a percent of
total revenue were 9%, 10%, and 11% for fiscal years 1995, 1994 and 1993,
respectively.  The decrease from 1994 to 1995 was primarily due to increases in
sales over the comparable periods.  Contributing to the decrease in 1994 from
1993 was lower bad debt expense.  It is anticipated that expenses will be at
higher levels for the next fiscal year, particularly in the first two quarters,
due to the costs associated with moving the Company's headquarters following the
expiration of its current lease in February 1996.

Restructuring Charge.  During the third quarter of fiscal 1994, the Company
announced a worldwide consolidation of its operations and recorded a
restructuring charge of $1,407,000.  The consolidation primarily affected
several field offices.  Major cost components associated with the restructuring
were severance pay amounts for terminated employees, lease and rental costs
associated with the consolidation of sales offices and the consolidation of
operations at the Company's headquarters facilities.  The balance was comprised
of fixed asset write-offs in the offices affected, as well as travel and legal
fees.  The consolidation was designed to improve efficiencies and bring
operational expenses in line with revenues.

     Between the third quarter of 1994 and the second quarter of 1995, the
Company utilized $1,196,000 for various restructuring activities. During the
third quarter of fiscal 1995, the Company reevaluated the status of its
restructuring activities in light of results of operations that had improved
substantially since the commencement of the restructuring. As a result of that
reevaluation, the Company decided to discontinue subsequent restructuring
activities and reversed the remaining restructuring reserve of $211,000.

Interest Income and Expense.  For the fiscal year ended October 31, 1995,
interest income was $588,000, compared with interest income of $442,000 for
fiscal 1994 and $404,000 for fiscal 1993.  Higher invested cash balances  and
higher interest rate levels accounted for the increase from fiscal 1994 to
fiscal 1995.  Higher interest rate levels, offset by a lower invested cash
balance, accounted for the increase from fiscal 1993 to fiscal 1994. Interest
expense of $10,000, $35,000, and $59,000 in fiscal 1995, 1994 and 1993,
respectively, relates to computer equipment financed under capital leases.

Provision for Income Taxes.  The Company's income tax provision for all years
presented principally relates to withholding taxes on sales made in foreign
jurisdictions.  The Company has not incurred domestic income tax charges due to
utilization of net operating losses in fiscal 1995 and its net loss position in
fiscal years 1994 and 1993.  The Company has established a valuation allowance
against its deferred tax assets and reviews this allowance on a periodic basis.
As such time that the Company believes that is it more likely than not that the
deferred tax asset will be realized, the valuation allowance will be reduced.
 
     The Company adopted Statement of Financial Accounting Standards No. 109 as
of November 1, 1993. The cumulative effect of adoption of Statement 109 was not
material to the Company's results of operations or financial position for the
year ended October 31, 1994.

                                       20
<PAGE>
 
Net Income(Loss).  The Company had net income of $627,000, or $.08 per share in
fiscal 1995 compared with the prior year net loss of $6,248,000, or $.85 per
share in fiscal 1994. This compares with a net loss of $5,283,000, or $.75 per
share in fiscal 1993.

Potential Fluctuations in Quarterly Results.  The Company's results of
operations historically have fluctuated on a quarterly basis due to several
factors.  These factors include: the relatively high average selling price of
the Company's products; a relatively small number of transactions; market
acceptance of new products; introduction of competitive product offerings and
subsequent deferrals in sales orders as competitive products are evaluated by
prospective customers; the size and timing of new orders; the timing of co-
development projects with customers; expense levels; pricing changes; gain or
loss of significant customers or distributors; and the general economic
conditions in the Company's primary markets.   Any unfavorable change in these
or other factors could have a material adverse effect on the Company's operating
results for a particular quarter. The operating results in any quarter are not
necessarily indicative of results for future financial periods.


Liquidity and Capital Resources
-------------------------------

As of October 31, 1995, the Company had working capital of $9,498,000, compared
with $7,345,000 at October 31, 1994.  The fiscal 1995 increase was due primarily
to cash collections associated with the higher level of product sales for the
year.  Net cash provided by operating activities in fiscal 1995 was $1,702,000
compared with net cash used in operating activities of $524,000 in fiscal 1994.
Net cash provided by operations in fiscal 1995 primarily resulted from fiscal
1995 net income and an increase in non-cash charges for depreciation and
amortization, offset by an increase in accounts receivable and a decrease in
other liabilities and accrued expenses.  Higher levels of sales contributed to
the increase in accounts receivable, and the utilization of the restructuring
charge recorded in the third quarter of fiscal 1994 accounted for the decrease
in the other liabilities and accrued expenses.   Net cash used in operating
activities in fiscal 1994 was due primarily to the current year net loss offset
by non-cash charges for depreciation and amortization, a decrease in accounts
receivable, and an increase in other liabilities and accrued expenses.  Improved
collections contributed to the decrease in accounts receivable.  Higher accrued
compensation levels and expenses associated with the restructuring charge
recorded in the third quarter of fiscal 1994 contributed to the increase in
other liabilities and accrued expenses.

     Net cash used for investing activities was $981,000 in fiscal 1995 as
compared to net cash provided by investing activities of $1,377,000 in fiscal
1994 and $2,977,000 in fiscal 1993. The change from fiscal 1994 to 1995 was due
to a decrease in short-term investments of $2,022,000, a decrease in
expenditures on capitalized software production costs of $202,000, offset by an
increase in investments in capital equipment of $880,000. During fiscal 1994,
short-term investments decreased $3,702,000. Amounts spent on property, plant
and equipment decreased to $663,000 in fiscal 1994 from $722,000 in fiscal 1993.
Net cash provided by financing activities of $1,283,000, $676,000, and $565,000
in fiscal 1995, 1994 and 1993, respectively, represents primarily sales of
common stock under the employee stock purchase and stock option plans, partially
offset by principal payments on capital leases.

     At October 31, 1995, the Company had $10,686,000 in cash and cash
equivalents and $1,478,000 in short-term investments. Management believes the
existing cash and cash equivalents, including short-term investments, will be
sufficient to meet the Company's currently anticipated working capital and
capital expenditure requirements in fiscal 1996.

                                       21
<PAGE>
 
Recent Accounting Pronouncements
--------------------------------

During March 1995, the Financial Accounting Standards Board issued Statement No.
121 (SFAS No. 121), "Accounting for the Impairment of Long-Lived Assets and
Long-Lived Assets to Be Disposed Of."  This standard is effective for the
Company's 1997 fiscal year and its adoption is not expected to have a material
effect on the financial statements of the Company.

     During October 1995, the Financial Accounting Standards Board issued
Statement No. 123 (SFAS No. 123), "Accounting for Stock-Based Compensation."
This standard, which established a fair value based method of accounting for
stock-based compensation plans, also permits an election to continue following
the requirements of APB Opinion No. 25, "Accounting for Stock Issued to
Employees" with disclosures of pro forma net income and earnings per share under
the new method. The Company is reviewing the implications of SFAS No. 123 and
evaluating the effect, if any, on the financial condition and results of
operations of the Company. SFAS No. 123 will be effective for the Company's
fiscal year 1997.

                                       22
<PAGE>

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
         -------------------------------------------
 
Report of Independent Accountants


Board of Directors and Stockholders
Consilium, Inc.

     We have audited the accompanying consolidated balance sheets of Consilium,
Inc. and subsidiaries as of October 31, 1995 and 1994, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended October 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

     We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

     In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Consilium, Inc.
and subsidiaries as of October 31, 1995 and 1994, and the consolidated results
of their operations and their cash flows for each of the three years in the
period ended October 31, 1995 in conformity with generally accepted accounting
principles.



                                            /s/ Coopers & Lybrand L.L.P.
                                            ----------------------------
                                            Coopers & Lybrand L.L.P.

San Jose, California
December 6, 1995, except for Note 10,
for which the date is December 15, 1995.

                                       23
<PAGE>

Consolidated Statements of Operations
(In thousands, except per share amounts)

<TABLE>
<CAPTION>
                                          Years ended October 31,
                                  --------------------------------------
                                    1995           1994           1993
                                  --------       --------       --------
<S>                               <C>            <C>            <C>
Revenues
  Product                         $ 16,847       $ 10,588       $  9,927
  Services                          15,979         14,589         15,655
  Development                        1,031          2,767          2,893
                                  --------       --------       --------

Total revenues                      33,857         27,944         28,475
                                  --------       --------       --------

Costs and Expenses
  Product                            3,046          2,763          2,410
  Services                           4,734          4,497          5,363
  Research and development          10,903         10,860         10,206
  Selling and marketing             11,898         11,519         12,701
  General and administrative         2,915          2,828          3,113
  Restructuring charge                (211)         1,407            ---
                                  --------       --------       --------
                                    
Total operating expenses            33,285         33,874         33,793
                                  --------       --------       --------
                                    
Income (loss) from operations          572         (5,930)        (5,318)
                                  --------       --------       --------
                                    
Interest income                        588            442            404
Interest expense                       (10)           (35)           (59)
                                  --------       --------       --------
                                    
Income (loss) before income
  tax provision                      1,150         (5,523)        (4,973)
                                  --------       --------       --------
                                    
Provision for income taxes             523            725            310
                                  --------       --------       --------

Net income (loss)                 $    627       $ (6,248)      $ (5,283)
                                  ========       ========       ========

Income (loss) per share           $   0.08       $  (0.85)      $  (0.75)
                                  ========       ========       ========
Shares used in
  per share calculations             7,912          7,362          7,025
                                  ========       ========       ========
</TABLE>

The accompanying notes are an integral part of these consolidated financial 
statements.

                                      24
<PAGE>

Consolidated Balance Sheets
(In thousands, except share and per share amounts)

<TABLE>
<CAPTION>
                                                         October 31,
                                                     1995           1994
                                                     ----           ----
<S>                                                <C>            <C>
        Assets
Current Assets:
  Cash and cash equivalents                        $ 10,686       $  8,682
  Short-term investments                              1,478          3,500
  Accounts receivable, net of allowance            
    for doubtful accounts of $650 and              
    $625 in 1995 and 1994, respectively               8,347          5,181
  Other current assets                                1,055          1,055
                                                   --------       --------

    Total current assets                             21,566         18,418
                                                   
Property & equipment, net                             2,425          2,351
Software production costs, net                        5,121          5,524
Other assets                                            325            705
                                                   --------       --------
                                                   
    Total assets                                   $ 29,437       $ 26,998
                                                   ========       ========
                                                   
        Liabilities                                
Current liabilities:                               
  Accounts payable                                 $  1,824       $  1,209
  Other current liabilities and accrued expenses      4,586          4,589
  Deferred revenue                                    5,658          4,962
  Capital lease obligation                              ---            313
                                                   --------       --------
                                                   
    Total current liabilities                        12,068         11,073
                                                   
Deferred revenue                                      1,325          1,846
Deferred income taxes                                   158            348
Accrued lease obligation                                 17             85
                                                   --------       --------
                                                   
    Total liabilities                                13,568         13,352
                                                   --------       --------

Commitments and contingencies (Notes 3, 8 and 10)

        Stockholders' Equity
Preferred stock, $.01 par value
  Authorized: 4,000,000 shares
  Issued and outstanding: no shares in 1995 
    and 1994                                            ---            ---
Common stock, $.01 par value
  Authorized: 25,000,000 shares:
  Issued and outstanding: 7,695,655
    in 1995 and 7,428,651 in 1994                        77             74
Additional paid-in capital                           23,337         21,744
Accumulated deficit                                  (7,545)        (8,172)
                                                   --------       --------

    Total stockholders' equity                       15,869         13,646
                                                   --------       --------

    Total liabilities and
      stockholders' equity                         $ 29,437       $ 26,998
                                                   ========       ========
</TABLE>

The accompanying notes are an integral part of these consolidated financial 
statements.

                                      25
<PAGE>

Consolidated Statements of Stockholders' Equity

<TABLE>
<CAPTION>
                                                                                          Retained
                                                                                         Earnings /
                                                    Common Stock        Additional      (Accumulated
(In thousands)                                    Shares     Amount   Paid-in Capital     Deficit)      Total
<S>                                               <C>        <C>      <C>               <C>           <C> 
--------------------------------------------------------------------------------------------------------------
BALANCES, NOVEMBER 1, 1992                         6,958     $  70        $ 19,763        $  3,359    $ 23,192
--------------------------------------------------------------------------------------------------------------
Issuance of stock pursuant to employee
    stock purchase plan                              121         1             749             ---         750
Exercise of common stock options for cash            141         1             176             ---         177
Net loss                                             ---       ---             ---          (5,283)     (5,283)
--------------------------------------------------------------------------------------------------------------
BALANCES, OCTOBER 31, 1993                         7,220        72          20,688          (1,924)     18,836
--------------------------------------------------------------------------------------------------------------
Issuance of stock pursuant to employee
   stock purchase plan                               142         1             738             ---         739
Exercise of common stock options for cash             67         1             318             ---         319
Net loss                                             ---       ---             ---          (6,248)     (6,248)
--------------------------------------------------------------------------------------------------------------
BALANCES, OCTOBER 31, 1994                         7,429        74          21,744          (8,172)     13,646
--------------------------------------------------------------------------------------------------------------
Issuance of stock pursuant to employee
   stock purchase plan                               136         1             708             ---         709
Exercise of common stock options for cash            131         2             885             ---         887
Net income                                           ---       ---            ---              627         627
--------------------------------------------------------------------------------------------------------------
BALANCES, OCTOBER 31, 1995                         7,696      $ 77        $ 23,337        $ (7,545)   $ 15,869
--------------------------------------------------------------------------------------------------------------
</TABLE>

The accompanying notes are an integral part of these consolidated financial 
statements.

                                      26
<PAGE>

Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                             Years ended October 31,
(In thousands)                                                            1995          1994         1993
-----------------------------------------------                         --------      --------     --------
<S>                                                                     <C>           <C>          <C>
Cash flows from operating activities:
  Net income (loss)                                                     $    627      $ (6,248)    $ (5,283)
                                                                        --------      --------     --------
  Adjustments to reconcile net income (loss) to net cash provided by
      (used in) operating activities:
   Depreciation and amortization                                           3,332         3,162        3,053
   Provision for doubtful accounts receivable                                324           188          699
   Change in assets and liabilities:
    Accounts receivable                                                   (3,490)        1,085         (210)
    Other assets                                                             190          (654)       1,043
    Accounts payable                                                         615          (321)        (306)
    Deferred revenue                                                         175           714        1,574
    Other liabilities and accrued expenses                                   (71)        1,550          310
                                                                        --------      --------     --------

     Total adjustments                                                     1,075         5,724        6,163
                                                                        --------      --------     --------

      Net cash provided by (used in) operating activities                  1,702          (524)         880
                                                                        --------      --------     --------

Cash flows from investing activities:
  Capital expenditures                                                    (1,543)         (663)        (722)
  Capitalized software production costs                                   (1,460)       (1,662)      (1,842)
  Purchases of short-term investments                                     (1,708)       (3,502)      (9,469)
  Sales of short-term investments                                          3,730         7,204       15,010
                                                                        --------      --------     --------

      Net cash (used for) provided by investing activities                  (981)        1,377        2,977
                                                                        --------      --------     --------

Cash flows from financing activities:
  Issuance of common stock and other                                       1,596         1,058          927
  Principal payments on capital leases                                      (313)         (382)        (362)
                                                                        --------      --------     --------

  Net cash provided by financing activities                                1,283           676          565
                                                                        --------      --------     --------

      Net increase in cash and cash equivalents                            2,004         1,529        4,422
                                                                        --------      --------     --------

Cash and cash equivalents at beginning of period                           8,682         7,153        2,731
                                                                        --------      --------     --------

Cash and cash equivalents at end of period                              $ 10,686      $  8,682     $  7,153
                                                                        --------      --------     --------

Supplemental cash flow information:
  Cash paid for:
   Interest                                                             $     10      $     35     $     59
   Income taxes paid (refunded)                                         $     13      $     12     $   (340)
  Equipment acquired under capital leases                               $    ---      $    ---     $    235
</TABLE>

The accompanying notes are an integral part of these consolidated financial 
statements.

                                      27
<PAGE>
 
Notes to Consolidated Financial Statements
------------------------------------------

Note 1:  Summary of Significant Accounting Policies:

Consilium, Inc. was incorporated in October 1978 and designs and licenses
integrated manufacturing execution systems (MES) software for the manufacturing
plant floor.  The Company also markets consulting, implementation and training
services for its software products.

Principles of Consolidation:  The consolidated financial statements include the
accounts of Consilium, Inc. and its wholly owned subsidiaries.  All significant
inter-company accounts and transactions have been eliminated.

Cash and Cash Equivalents:  The Company considers all highly liquid investments
purchased with a maturity of three months or less to be cash equivalents.  At
October 31, 1995, the Company maintained substantially all of its cash and cash
equivalents with three financial institutions.

Short-Term Investments:  On November 1, 1994, the Company adopted the provisions
of Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities."  In accordance with the Statement,
prior period consolidated financial statements have not been restated to reflect
the change in accounting principle.  The impact of adopting Statement No. 115
did not have a material effect on the consolidated financial statements.

     Short-term investments consist of debt securities with a remaining maturity
of more than three months when purchased. The Company has determined that all of
its debt securities should be classified as available for sale. The difference
between the cost basis and the market value of the Company's investments was not
material at October 31, 1995. All of the Company's investments at October 31,
1995 consist of commercial paper with remaining maturities of less than one
year.

Depreciation and Amortization:  Property and equipment are stated at cost and
depreciated on a straight-line basis over estimated useful lives of five years.
Leasehold improvements are amortized over their estimated useful lives or the
remaining term of the related lease, if shorter.

Software Production Costs:  Costs incurred prior to establishment of
technological feasibility are charged to research and development expense.
Thereafter, the Company capitalizes certain costs, consisting of salaries,
related benefits and an allocation of indirect costs, incurred internally in
creating computer software.  Software production costs are capitalized until the
software is available for general release.  Amortization is provided on the
basis of license revenues recognized during the year to total anticipated
license revenues; however, the annual amortization expense, at a minimum, will
not be less than 20% of the capitalized costs.  Research and development costs
incurred to improve and enhance existing software are charged to expense as
incurred.

Revenue Recognition:  The Company licenses standard application software
programs and offers annual maintenance contracts that provide for technical
support and updates to software modules.  Product license revenue is generally
recognized upon receipt of a customer purchase order, execution of a software
license agreement and shipment of a product to the customer.  However, with
respect to sales made through foreign distributors or systems integrators,
revenue is recognized either upon resale by the distributor to the end user or
upon installation of the software at the end user's facility.  Revenue from
development and porting contracts is generally recognized using the percentage
of completion method of accounting.  Revenue from customer maintenance contracts
is recognized ratably over the period of the contract.  Payments for maintenance
contracts are generally made for the upcoming year and are non-refundable.
Service revenue is recognized as work is performed.

                                       28
<PAGE>
 
Advertising Costs:  Advertising costs are charged to operations as incurred.
Advertising costs were $470,000, $503,000 and $453,000 in fiscal years 1995,
1994 and 1993.

Income Taxes:  Effective November 1, 1993, the Company adopted Financial
Accounting Standards Statement No. 109, "Accounting for Income Taxes."  Under
Statement 109, the liability method is used in accounting for income taxes.
Under this method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and liabilities
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse.  Valuation allowances are
established when necessary to reduce deferred tax assets to the amounts expected
to be realized.  Prior to the adoption of Statement 109, income tax expense was
determined using the deferred method in accordance with Accounting Principles
Board Opinion No. 11.

Foreign Currencies:  The functional currency of the Company's wholly owned
subsidiaries is the U.S. dollar.  Translation gains and losses are included in
the statement of operations.

Concentrations of Credit Risk:  A significant portion of the Company's sales and
receivables are from customers in the semiconductor, electronics, pharmaceutical
and chemical industries.  The Company maintains allowances for doubtful accounts
receivable and does not require collateral.  Short term investments are
comprised primarily of taxable notes and municipal bonds with maturities not
exceeding six months.  The Company has investment policies and performs ongoing
credit evaluations to minimize credit risk.

Computation of Income/Loss per Share:  Net income per common share is computed
using the weighted average number of common and dilutive common equivalent
shares outstanding during the period.  Dilutive common equivalent shares consist
of the dilutive effect of stock options as computed using the treasury stock
method.  Net loss per share is based on the weighted average number of common
shares outstanding during the period.  Stock options have not been included in
the calculation of common equivalent shares for loss per share as their
inclusion would be antidilutive.

Recent Accounting Pronouncements:  During March 1995, the Financial Accounting
Standards Board issued Statement No. 121 (SFAS No. 121), "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of."  This
standard is effective for the Company's 1997 fiscal year and its adoption is not
expected to have a material effect on the financial statements of the Company.

During October 1995, the Financial Accounting Standards Board issued Statement
No. 123 (SFAS No. 123), "Accounting for Stock-Based Compensation."  This
standard, which established a fair value based method of accounting for stock-
based compensation plans, also permits an election to continue following the
requirements of APB Opinion No. 25, "Accounting for Stock Issued to Employees"
with disclosures of pro forma net income and earnings per share under the new
method.  The Company is reviewing the implications of SFAS No. 123 and
evaluating the effect, if any, on the financial condition and results of
operations of the Company.  SFAS No. 123 will be effective for the Company's
fiscal year 1997.

Reclassifications:  Certain reclassifications were made to prior year amounts to
conform to the 1995 presentation.  These reclassifications did not change the
previously reported net income (loss),  total assets or total cash flows of the
Company for those years.

                                       29
<PAGE>
 
Note 2:  Balance Sheet Detail:

Property and Equipment:

<TABLE>
<CAPTION>
                                                     October 31,
(In thousands)                                     1995       1994
                                                 --------    -------
<S>                                              <C>         <C>
Computer equipment                               $  8,136    $ 6,934
Office equipment                                    2,040      2,043
Purchased software                                  1,965      1,733
Leasehold improvements                                736        723
                                                 --------    -------
                                                   12,877     11,433
                                                 ========    =======
Less accumulated depreciation and amortization    (10,452)    (9,082)
                                                 --------    -------
                                                 $  2,425    $ 2,351
                                                 ========    =======
</TABLE>

     Property and equipment at October 31, 1995 and 1994 includes computer
equipment acquired under capital leases of $1,131,000 (accumulated amortization
of $1,131,000 and $819,000, respectively).

Software Production Costs:

<TABLE>
<CAPTION>
                                                     October 31,
(In thousands)                                     1995       1994
                                                 --------    -------
<S>                                              <C>         <C>
Software production costs                        $ 16,325    $14,865
Less accumulated amortization                     (11,204)    (9,341)
                                                 --------    -------
                                                 $  5,121    $ 5,524
                                                 ========    =======
</TABLE>

<TABLE>
<CAPTION>
                                                     Years Ended October 31,
(In thousands)                                    1995       1994       1993
                                                 ------     ------     ------
<S>                                              <C>        <C>        <C>
Software production costs capitalized            $1,460     $1,662     $1,842
Annual amortization of software
 production costs                                $1,863     $1,809     $1,578
</TABLE>

Other Current Liabilities and Accrued Expenses:

<TABLE>
<CAPTION>
                                                     October 31,
(In thousands)                                    1995        1994
                                                 ------      ------
<S>                                              <C>         <C>
Accrued compensation                             $2,245      $1,105
Employee stock purchase plan withholdings           326         302
Other                                             1,009       2,161
Accrued taxes                                     1,006       1,021
                                                 ------      ------
                                                 $4,586      $4,589
                                                 ======      ======
</TABLE>

Note 3:  Commitments:

Operating Leases:  The Company leases its headquarters, research and development
facility, sales offices and certain equipment under noncancelable operating
leases for periods of up to seven years.  Certain facility leases provide for
monthly rentals of approximately $66,000, subject to increases in the Consumer
Price Index, or 5% annual increases, and continue through January 1996.  Under
these agreements, the Company is responsible for property taxes, insurance and
maintenance.  During August 1995, the Company entered into a lease for a new
headquarters facility with monthly rental 

                                       30
<PAGE>
 
payments beginning February 1996 of approximately $55,000, subject to increases
in the Consumer Price Index, to a maximum of 5% annual increase.

     Future minimum lease payments under operating leases at October 31, 1995,
are as follows:

<TABLE>
<CAPTION>
Year Ending October 31,
-----------------------
(in thousands)
<S>                               <C>
1996                              $1,075
1997                                 934
1998                                 891
1999                                 901
2000                                 798
Thereafter                         2,638
                                  ------
Total minimum lease payments      $7,237
                                  ======
</TABLE>

     Rental expense was approximately $1,245,000, $1,577,000, and $1,349,000 for
the years ended October 31, 1995, 1994, and 1993, respectively.


Note 4:  Capital Stock:

Employee Stock Purchase Plan:  On March 15, 1989, the Board of Directors adopted
an employee stock purchase plan (the "Purchase Plan") and initially reserved a
total of 250,000 shares of Common Stock of the Company.  In March 1993, the
number of shares reserved for issuance under the Plan was increased by 250,000.
The Company again increased the number of shares reserved for issuance under the
Plan from 500,000 to 680,000 shares in March 1994.  Under the Plan, employees
may purchase common stock through payroll deductions at 85% of the lesser of the
fair market value on the first or last day of six month offering periods.  At
October 31, 1995, a total of 111,351 shares remained available for purchase
under the plan.

Employee Stock Option Plans:  The Company increased the number of shares
reserved for issuance under its 1983 stock option plan from 2,000,000 to
2,320,000 in March 1994.  418,056 shares were available for future grants as of
October 31, 1995.  In March 1993, the Company adopted its 1993 stock option plan
under which options for a total of 500,000 shares of Common Stock may be granted
to employees other than executive officers of the Company.  1,974 shares were
available for future grants as of October 31, 1995.  Under the 1983 and 1993
plans, both qualified and non-qualified options may be granted to employees to
purchase Common Stock at prices not less than fair market value at date of
grant.  The exercise period is determined by the Board of Directors at the date
of grant. All options granted under the Plan are exercisable immediately and
generally expire five years from date of grant.  Options generally vest over
four years and, if exercised prior to vesting, are subject to repurchase at the
original purchase price.  At October 31, 1995, a total of 401,380 options were
vested.

     On September 21, 1993, the Board of Directors approved the repricing of all
employee stock options previously granted with exercise prices greater than
$6.125 per share. A total of 631,124 shares were repriced at $6.125 per share.
The Board of Directors agreed to the repricing with the condition that all
grants would begin re-vesting on September 21, 1993.

                                       31
<PAGE>
 
     Activity under the 1983 and 1993 Employee Stock Option Plans is as follows:

<TABLE>
<CAPTION>
(In thousands)
                                   Number         Price       Aggregate
                                 of Shares      per Share       Price
                                 --------------------------------------
<S>                              <C>          <C>             <C>
Balance at November 1, 1992            701    $  .75-$18.75     $ 6,375
Granted                                791    $6.125-$10.00       9,633
Exercised                             (141)   $   .75-$7.25        (172)
Canceled                              (185)   $4.875-$17.25      (7,945)
-----------------------------------------------------------------------
Balance at October 31, 1993          1,166    $  .75-$18.75     $ 7,891
Granted                                319    $  4.50-$8.75       2,221
Exercised                              (67)   $   .75-$7.25        (316)
Canceled                              (320)   $6.125-$18.75      (2,459)
-----------------------------------------------------------------------
Balance at October 31, 1994          1,098    $ 4.50-$15.00     $ 7,337
Granted                                438    $6.375-$12.14       3,521
Exercised                             (131)   $  4.50-$8.75        (887)
Canceled                              (215)   $ 4.50-$12.50      (1,635)
-----------------------------------------------------------------------
Balance at October 31, 1995          1,190    $ 4.50-$12.50     $ 8,336
</TABLE>

Outside Director Stock Option Plan:  In 1990, the Company adopted a stock option
plan under which options for a total of up to 100,000 shares of Common Stock may
be granted to non-executive directors of the Company.  The plan provides for the
granting of nonqualified stock options at prices not less than fair market value
on the date of grant.  Options expire 10 years after the date of grant.  At
October 31, 1995, a total of 32,500 options had been granted at exercise prices
ranging between $6.125 and $8.50 per share, of which none were exercised.  In
addition, the Company has separate option agreements with non-executive
directors which totaled 27,500 shares at an exercise price of $6.25 per share as
of October 31, 1995.


Note 5:  Income Taxes:
 
As discussed in Note 1, the Company adopted Statement of Financial Accounting
Standards No. 109 as of November 1, 1993.  The cumulative effect of adoption of
Statement 109 was not material to the Company's results of operations or
financial position for the year ended October 31, 1994.  Prior periods were not
restated.

     The provision for income taxes consists of foreign withholding taxes.

     The reconciliation between the provision for taxes calculated at the
effective tax rate and at the statutory federal income tax rate is as follows:

<TABLE>
<CAPTION>
                                        Years Ended October 31,
                                        1995      1994      1993
                                       --------------------------
<S>                                    <C>       <C>       <C>
Federal income tax statutory rate       34.0%    (34.0%)   (34.0%)
Foreign taxes                           45.5%     13.1%      6.2%
Operating losses                       (34.0%)    34.0%     34.0%
                                       --------------------------
Effective tax rate                      45.5%     13.1%      6.2%
                                       =====     =====     ======
</TABLE>

                                       32
<PAGE>
 
     The following table shows the major components of the deferred tax assets
and liabilities as of October 31, 1995 and 1994:

<TABLE>
<CAPTION>
(In thousands)
                                    1995       1994
                                   -------    -------
<S>                                <C>       <C>
Current deferred tax assets:        

Accounts receivable, inventory
  and other reserves               $   221    $   513
Accrued expenses                       184        689
Deferred revenue                       282        580
Valuation allowance                   (529)    (1,434)
                                   -------    -------
 
Net current deferred tax assets    $   158    $   348
                                   =======    =======

Non current deferred tax assets 
  (liabilities):

Net operating losses               $ 5,124    $ 4,605
Tax credit carryforwards             4,515      3,440
Depreciation                          (357)      (180)
Amortization                        (2,089)    (2,185)
Other                                  222        444
Valuation allowance                 (7,573)    (6,472)
                                   -------    -------
 
Net non-current liability          ($  158)   ($  348)
                                   =======    =======
</TABLE>

     Deferred income taxes included in other current assets at October 31, 1995
and 1994 were $158,000 and $348,000, respectively. The Company has recorded a
valuation allowance against its net deferred tax assets due to the uncertainty
surrounding the realization of such assets. Management evaluates on a quarterly
basis the recoverability of the deferred tax assets and the level of the
valuation allowance. At such time as it is determined that it is more likely
than not that the deferred tax assets are realizable, the valuation allowance
will be reduced.

     At October 31, 1995, the Company has federal net operating loss
carryforwards of approximately $14,075,000 and state net operating loss
carryforwards of approximately $5,500,000. In addition, the Company has
approximately $4,160,000 and $350,000 in general business credit carryforwards
for federal tax and state tax reporting purposes, respectively.

     These carryforwards and credits expire between 1996 and 2010 for both
federal and state purposes, if not used before such time to offset future
taxable income or taxes payable.


Note 6:  Geographic and Significant Customer Information:

The Company designs and licenses integrated manufacturing execution systems
(MES) software for batch process and discrete manufacturers and operates
primarily in one segment.   The Company markets and services its products in the
United States and foreign countries through its direct sales organization and
through distributors.

     The Company's foreign operations primarily consist of product sales and
services. Geographic net revenue information is as follows:

                                       33
<PAGE>
 
<TABLE>
<CAPTION>
                               Years Ended October 31,
(In thousands)                1995      1994      1993
                             -------   -------   -------
<S>                          <C>       <C>       <C>
North America                $22,651   $19,168   $20,893
Asia / Pacific Rim             5,147     3,834     2,387
Europe                         6,059     4,942     5,195
                             -------   -------   -------
Total net revenue            $33,857   $27,944   $28,475
                             =======   =======   =======
</TABLE>

     No customer accounted for more than 10% of total revenue for fiscal 1995.
Two customers accounted for 11% and 10%, respectively, of total revenue in
fiscal 1994. One other customer accounted for 11% of total revenue in fiscal
1993.


Note 7:  Employee Benefit Plan:

The Company has a 401(k) plan for eligible employees.  The Board of Directors
may elect to make a discretionary contribution to the plan.  There were no such
contributions in fiscal 1995, 1994, or 1993.


Note 8:  Litigation:

In the ordinary course of business, various legal actions and claims pending
have been filed against the Company.  In the opinion of management, the ultimate
liability, if any, with respect to these matters, will not adversely affect the
results of operations or financial position of the Company.


Note 9:   Restructuring Charge:

During the third quarter of fiscal 1994, the Company announced a worldwide
consolidation of its operations and recorded a restructuring charge of
$1,407,000.  The consolidation primarily affected several field offices.  Major
cost components associated with the restructuring were severance pay amounts for
terminated employees, lease and rental costs associated with the consolidation
of sales offices and the consolidation of operations at the Company's
headquarters facilities.  The balance was comprised of fixed asset write-offs in
the offices affected, as well as travel and legal fees.  The consolidation was
designed to improve efficiencies and bring operational expenses in line with
revenues.

     Between the third quarter of 1994 and the second quarter of 1995, the
Company utilized $1,196,000 for various restructuring activities. During the
third quarter of fiscal 1995, the Company reevaluated the status of its
restructuring activities in light of results of operations that had improved
substantially since the commencement of the restructuring. As a result of that
reevaluation, the Company decided to discontinue subsequent restructuring
activities and reversed the remaining restructuring reserve of $211,000. No
reserve amount remains at October 31, 1995.


Note 10:  Subsequent Event:

On December 15, 1995, the Company entered into an agreement with Electronic Data
Systems Corporation to out-source the Company's computer data center and
telecommunication services.  The contract has a 10-year term beginning December
1995. In the event the Company decides to terminate the contract before the
expiration of the term, the Company will be required to pay a termination fee
depending on the termination date, as stated in the agreement.

                                       34
<PAGE>
 
     The table below sets out the obligations under this contract:

<TABLE>
<CAPTION>
 
                                 Service     Termination
Fiscal Year                    Obligation        Fee
-----------                    -----------   -----------
<S>                            <C>           <C>
1996                           $ 1,396,000      $900,000
1997                             2,747,000       800,000
1998                             2,874,000       600,000
1999                             2,950,000       500,000
2000                             3,028,000       300,000
Thereafter                      16,581,000       150,000
                               -----------
Total Service Obligations      $29,576,000
                               ===========
</TABLE>

                                       35
<PAGE>
 
ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
         -----------------------------------------------------------
         AND FINANCIAL DISCLOSURE
         ------------------------

     Not applicable.

                                       36
<PAGE>
 
                                   PART III


ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
          --------------------------------------------------

     Information required by this item other than information regarding
executive officers is set forth under "Election of Directors" and "Executive
Compensation and Other Matters - Compliance with Section 16(a) of the Securities
Exchange Act of 1934" in the Company's Proxy Statement for the 1996 Annual
Meeting of Stockholders, to be filed within 120 days after the end of the fiscal
year ended October 31, 1995, and is hereby incorporated by reference.
Information regarding executive officers is set forth under "Executive Officers
of the Registrant" in Part I of this 10-K.


ITEM 11.  EXECUTIVE COMPENSATION
          ----------------------

     The information required by this item is set forth under "Executive
Compensation and Other Matters" in the Company's Proxy Statement for the 1996
Annual Meeting of Stockholders and is incorporated herein by reference.


ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
          --------------------------------------------------------------

     The information required by this item is set forth under "General
Information - Stock Ownership of Certain Beneficial Owners and Management" in 
the Company's Proxy Statement for the 1996 Annual Meeting of Stockholders and is
incorporated herein by reference.


ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
          ----------------------------------------------

     The information required by this item is set forth under "Executive
Compensation and Other Matters - Compensation Committee Interlocks and Insider
Participation" in the Company's Proxy Statement for the 1996 Annual Meeting of
Stockholders and is incorporated herein by reference.

                                       37
<PAGE>
 
                                    PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
          ---------------------------------------------------------------

     (a) The following documents are filed as part of this Report:

          1. Financial Statements.
             ---------------------

             Report of Independent Accountants dated December 6 and December 15,
             1995.

             Consolidated Statements of Operations - Years Ended October 31,
             1995, 1994 and 1993.
      
             Consolidated Balance Sheets - October 31, 1995 and 1994.

             Consolidated Statements of Stockholders' Equity - Years Ended
             October 31, 1995, 1994, and 1993.

             Consolidated Statements of Cash Flows - Years Ended October 31,
             1995, 1994 and 1993.

             Notes to Consolidated Financial Statements.

          2. Financial Statement Schedule.  The following financial statement
             -----------------------------                                   
             schedule of Consilium, Inc. is filed as part of this Report and
             should be read in conjunction with the Consolidated Financial
             Statements of Consilium, Inc.

             Report of Independent Accountants on Financial
               Statement Schedule                                  Page S-1
             Schedule II - Valuation and Qualifying Accounts       Page S-2

             Schedules not listed above have been omitted because the
             information required to be set forth therein is not applicable or
             is shown in the Consolidated Financial Statements or notes thereto.

          3. Exhibits (a)
             --------    
<TABLE>
<CAPTION>
             Exhibit   
             Number                 Exhibit Title
             -------                -------------
             <S>          <C>
             3.1          Certificate of Incorporation of the Company. /3/
                       
             3.2          By-Laws of the Company. /3/
                       
             10.1         Lease agreement dated November 28, 1988, among the 
                          Company and John Arrillaga, Trustee of the John
                          Arrillaga Separate Trust and Richard T. Peery, 
                          Trustee of the Richard T. Peery Separate Property
                          Trust. /1/
                       
             10.2         Master Lease Agreement, dated December 2, 1988, 
                          between the Company and General Electric Capital
                          Corporation, with schedules. /1/
</TABLE>

                                       38
<PAGE>
 
<TABLE>
<CAPTION>
             Exhibit   
             Number                 Exhibit Title
             -------                -------------
             <S>          <C>
             10.3         Letter Agreement, dated July 22, 1987, with respect 
                          to the employment of Thomas Tomasetti. /1,6/
                       
             10.4         Lease agreement paperwork for the 630 Clyde Court 
                          facility, dated March 6, 1990, among the Company
                          and Santa Clara Property Associates. /2/

             10.5         Agreement between the Company and Honeywell, Inc., 
                          Industrial Automation and Control, dated April 1,
                          1993. /3,5/
                       
             10.6         Form of Director and Officer Indemnity Agreement. 
                          /4,6/
                       
             10.7         Amended and Restated 1983 Stock Option Plan. /6/
 
             10.8         Forms of Stock Option Agreement used in conjunction 
                          with the 1983 Stock Option Plan. /6/
 
             10.9         1990 Outside Director's Stock Option Plan. /6/
 
             10.10        Forms of Outside Directors Stock Option Agreement 
                          used in conjunction with the 1990 Outside Director's 
                          Stock Option Plan. /6/
 
             10.11        Lease agreement for the Company's principal 
                          facility, dated August 2, 1995, among the Company and
                          The Prudential Insurance Company of America.
 
             10.12        Letter Agreement, dated August 5, 1994, with respect 
                          to the employment of Edward Norton. /6/
 
             10.13        Letter Agreement, dated September 28, 1994, with 
                          respect to the employment of Richard Van Hoesen. /6/

             11.1         Statement re Computation of Income (Loss) per Share.

             21.1         Schedule of Subsidiaries.

             23.1         Consent of Independent Accountants.

             24.1         Power of Attorney.
  
             27           Financial Data Schedule (available in EDGAR format 
                          only).
</TABLE>

          /1/  Incorporated by reference from exhibits of the same number in
               Registrant's Registration Statement on Form S-1 (File No. 33-
               27947), effective May 9, 1989.

          /2/  Incorporated by reference from exhibit 10.3 to Registrant's 
               Annual Report on Form 10-K filed for the Year ended October 31,
               1990.

          /3/  Incorporated by reference from exhibits 3.1, 3.2 or 10.19 to
               Registrant's Quarterly Report on Form 10-Q filed for the Quarter
               ended April 30, 1993.

                                       39
<PAGE>
 
          /4/  Incorporated by reference from exhibit 10.6 to Registrant's
               Quarterly Report on Form 10-Q for the Quarter ended July 31,
               1994.

          /5/  The Securities and Exchange Commission has granted confidential
               treatment for portions of this document.

          /6/  Compensatory or employment arrangement.


     (b)  Reports on Form 8-K

          Registrant did not file any reports on Form 8-K during the last 
          quarter of the fiscal year ended October 31, 1995.

                                       40
<PAGE>
 
                             FORM S-8 UNDERTAKING


     For the purposes of complying with the amendments to the rules governing
Form S-8 (effective July 13, 1990) under the Securities Act of 1933, as amended,
the undersigned Registrant hereby undertakes as follows, which undertaking shall
be incorporated by reference into the Registrant's Registration Statements on
Form S-8 Nos. 33-30381 (filed August 8, 1989), 33-30382 (filed August 8, 1989),
33-35363 (filed July 9, 1990), 33-41312 (filed June 20, 1991), 33-63346 (filed
May 27, 1993) 33-63512 (filed May 28, 1993), 33-79474 (filed May 27, 1994) and
33-79458 (filed May 27, 1994).


     Insofar as indemnification for liabilities arising under the Securities Act
     of 1933 may be permitted to directors, officers and controlling persons of
     the Registrant pursuant to the foregoing provisions, or otherwise, the
     Registrant has been advised that in the opinion of the Securities and
     Exchange Commission such indemnification is against public policy as
     expressed in the Securities Act of 1933 and is, therefore, unenforceable.
     In the event that a claim for indemnification against such liabilities
     (other than the payment by the Registrant of expenses incurred or paid by a
     director, officer or controlling person of the Registrant in the successful
     defense of any action, suit or proceeding) is asserted by such director,
     officer or controlling person in connection with the securities being
     registered, the Registrant will, unless in the opinion of its counsel the
     matter has been settled by controlling precedents, submit to a court of
     appropriate jurisdiction the question whether such indemnification by it is
     against public policy as expressed in the Act and will be governed by the
     final adjudication of such issue.

                                       41
<PAGE>
 
                                   SIGNATURES


     Pursuant to the requirements of Section 13 or 15(d) 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.


                                            CONSILIUM, INC.



                                            By: /s/ Richard H. Van Hoesen
                                                --------------------------------
                                                Richard H. Van Hoesen
                                                Vice President, Finance and 
                                                Administration and Chief 
                                                Financial Officer


DATED:  January 25, 1996
        ----------------

                                       42
<PAGE>
 
                               POWER OF ATTORNEY

     KNOW ALL PEOPLE BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Thomas A. Tomasetti and Richard H. Van Hoesen,
jointly and severally, his or her attorneys in fact, each with the power of
substitution, for him or her in any and all capacities, to sign any amendments
to this Report on Form 10-K, and to file the same, with exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of said attorneys in
fact, or his or her substitute or substitutes, may do or cause to be done by
virtue thereof.

     Pursuant to the requirements of the Securities and Exchange Act of 1934,
this Report has been signed below by the following persons in the capacities and
on the dates indicated.

<TABLE>
<CAPTION>
            Signature                             Title                          Date
            ---------                             -----                          ----
<S>                               <C>                                      <C>
By:  /s/ Jonathan J. Golovin             Chairman of the Board,            January 25, 1996
     -----------------------      Secretary and Chief Technical Officer
      (Jonathan J. Golovin)



By:  /s/ Thomas A. Tomasetti           President, Chief Executive          January 25, 1996
     -----------------------              Officer and Director
      (Thomas A. Tomasetti)           (Principal Executive Officer)



By: /s/ Richard H. Van Hoesen         Vice President of Operations,        January 25, 1996
    -------------------------          Administration and Finance
     (Richard H. Van Hoesen)           and Chief Financial Officer
                                      (Principal Financial Officer)

By:     /s/ Clifton Wong                       Controller                  January 25, 1996
        ----------------             (Principal Accounting Officer)
         (Clifton Wong)

By:     /s/ Robert Horne                        Director                   January 25, 1996
        ----------------
         (Robert Horne)
</TABLE>

                                      43
<PAGE>
 
                       REPORT OF INDEPENDENT ACCOUNTANTS
                        ON FINANCIAL STATEMENT SCHEDULE



Our report on the consolidated financial statements of Consilium, Inc., is
included on page 27 of this has been incorporated by reference in this Form 
10-K. In connection with our audits of such financial statements, we have also
audited the related financial statement schedules listed in the index on page 38
of this Form 10-K.

In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.



                                      s/s Coopers & Lybrand L.L.P.
                                      -------------------------------           
                                          Coopers & Lybrand L.L.P.



San Jose, California
December 6, 1995
<PAGE>

                                CONSILIUM, INC.
                SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
           Column A                  Column B              Column C              Column D        Column E
-------------------------------     ----------    -------------------------     -----------      ---------
                                    Balance at    Charged to     Charged to                       Balance
                                    Beginning     Costs and        Other                          at End
          Description               of Period     Expenses       Accounts       Deductions       of Period
-------------------------------     ----------    ----------     ----------     -----------      ---------
<S>                                 <C>           <C>            <C>            <C>              <C>
 Year ended October 31, 1993:
Allowance for doubtful accounts     $  750,000    $  699,178          -         $    899,178     $  550,000

 Year Ended October 31, 1994:
Allowance for doubtful accounts     $  550,000    $  188,400          -         $    113,400     $  625,000

 Year Ended October 31, 1995:
Allowance for doubtful accounts     $  625,000    $  323,873          -         $    298,873     $  650,000
</TABLE>
<PAGE>
 
                               INDEX OF EXHIBITS
<TABLE>
<CAPTION>
 
   Exhibit
   Number                 Exhibit Title                                            
   -------                -------------                                            
   <C>        <S>                                                                  
 
    3.1       Certificate of Incorporation of the Company. /3/
 
    3.2       By-Laws of the Company. /3/

   10.1       Lease agreement dated November 28, 1988, among the
              Company and John Arrillaga, Trustee of the John Arrillaga
              Separate Trust and Richard T. Peery, Trustee of the 
              Richard T. Peery Separate Property Trust. /1/

   10.2       Master Lease Agreement, dated December 2, 1988, between
              the Company and General Electric Capital Corporation, 
              with schedules. /1/

   10.3       Letter Agreement, dated July 22, 1987, with respect to
              the employment of Thomas Tomasetti. /1,6/

   10.4       Lease agreement paperwork for the 630 Clyde Court facility,
              dated March 6, 1990, among the Company and Santa Clara
              Property Associates. /2/

   10.5       Agreement between the Company and Honeywell, Inc.,
              Industrial Automation and Control, dated April 1, 1993. /3,5/

   10.6       Form of Director and Officer Indemnity Agreement. /4,6/
 
   10.7       Amended and Restated 1983 Stock Option Plan. /6/                         
 
   10.8       Forms of Stock Option Agreement used in conjunction
              with the 1983 Stock Option Plan. /6/                                     
 
   10.9       1990 Outside Director's Stock Option Plan. /6/                           
 
   10.10      Forms of Outside Directors Stock Option Agreement used
              in conjunction with the 1990 Outside Director's Stock Option
              Plan. /6/                                                                
 
   10.11      Lease agreement for the Company's principal facility,
              dated August 2, 1995, among the Company and The
              Prudential Insurance Company of America.                                 
 
   10.12      Letter Agreement, dated August 5, 1994, with respect to
              the employment of Edward Norton. /6/                                     

</TABLE> 
<PAGE>
 
<TABLE> 

   <C>        <S>                                                                    <C>    
   10.13      Letter Agreement, dated September 28, 1994, with
              respect to the employment of Richard Van Hoesen. /6/                    
 
   11.1       Statement re Computation of Income (Loss) per Share.                    
 
   21.1       Schedule of Subsidiaries.                                               
 
   23.1       Consent of Independent Accountants.                                      
 
   24.1       Power of Attorney.                                                      

   27         Financial Data Schedule (available in EDGAR format only).

</TABLE> 
-----------------
/1/  Incorporated by reference from exhibits of the same number in Registrant's
     Registration Statement on Form S-1 (File No. 33-27947), effective May 9,
     1989.

/2/  Incorporated by reference from exhibit 10.3 to Registrant's Annual Report
     on Form 10-K filed for the Year ended October 31, 1990.

/3/  Incorporated by reference from exhibits 3.1, 3.2 or 10.19 to Registrant's
     Quarterly Report on Form 10-Q filed for the quarter ended April 30, 1993.

/4/  Incorporated by reference from exhibit 10.6 to Registrant's Quarterly
     Report on Form 10-Q for the quarter ended July 31, 1994.

/5/  The Securities and Exchange Commission has granted confidential treatment
     for portions of this document.

/6/   Compensatory or employment arrangement.