<PAGE>
 
                                                    Conformed copy with exhibits



                                   Form 10-Q
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

      (Mark One)

  X   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
----- EXCHANGE ACT OF 1934

For the quarterly period ended  July 31, 1997
                              -----------------

                                      OR

       TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
------ EXCHANGE ACT OF 1934

For the transition period from                   to
                              -------------------  -----------------

                        Commission File Number 0-17754

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



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


485 Clyde Avenue, Mountain View, California              94043
-------------------------------------------              -----
 (Address of principal executive offices)              (Zip Code)
 
Registrant's telephone number, including area code:  (650) 691-6100
                                                     --------------

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed under 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 the number of shares outstanding of each of the issuer's classes of
common stock as of September 5, 1997:

<TABLE> 
<S>                                                 <C> 
Common Stock, $0.01 par value                              8,214,594
-----------------------------                       -----------------------
           Class                                       Number of Shares
</TABLE> 

                                       1
<PAGE>
 
                                CONSILIUM, INC.

                                     INDEX


                        PART I.   FINANCIAL INFORMATION

<TABLE> 
<CAPTION> 
                                                                        Page No.
                                                                        --------

<S>          <C>                                                        <C> 
Item 1.      Financial Statements:
 
                 Condensed Consolidated Balance Sheets -
                 July 31, 1997 and October 31, 1996.....................       3
 
                 Condensed Consolidated Statements of Operations -
                 Three and Nine months ended July 31, 1997 and 1996.....       4
 
                 Condensed Consolidated Statements of Cash Flows -
                 Nine months ended July 31, 1997 and 1996...............       5
 
                 Notes to Condensed Consolidated Financial Statements...       6
 
Item 2.      Management's Discussion and Analysis of Financial
             Condition and Results of Operations........................       9
 
Item 3.      Quantitative and Qualitative Disclosures About Market 
             Risks......................................................      16

<CAPTION> 

                         PART II.   OTHER INFORMATION

Item 1.      Legal Proceedings..........................................      17
 
Item 2.      Changes in Securities......................................      17
 
Item 3.      Defaults upon Senior Securities............................      18
 
Item 4.      Submission of Matters to a Vote of Security Holders........      18
 
Item 5.      Other Information..........................................      18
 
Item 6.      Exhibits and Reports on Form 8-K...........................      18
 
             Signatures.................................................      22
</TABLE>

                                       2
<PAGE>
                         PART I. FINANCIAL INFORMATION
                                CONSILIUM, INC.
                     CONDENSED CONSOLIDATED BALANCE SHEETS
                                (In thousands)

<TABLE> 
<CAPTION> 
                                                July 31, 1997              October 31, 1996
                                                -------------              ----------------
                                                 (Unaudited)
<S>                                           <C>                          <C> 
ASSETS

Current assets:
     Cash and cash equivalents                 $         5,474               $        8,094
     Short term investments                                  -                        1,000
     Accounts receivable, net                           14,360                        9,139
     Other current assets                                1,124                        1,114
                                                  -------------                -------------

               Total current assets                     20,958                       19,347

Property and equipment, net                              4,510                        4,827
Software development costs, net                          2,383                        3,094
Goodwill, net                                            1,402                        1,345
Other assets                                               406                          380
                                                  -------------                -------------

               Total assets                    $        29,659               $       28,993
                                                  =============                =============

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
     Line of credit / Note payable             $         3,051               $        1,792
     Accounts payable                                    4,257                        4,114
     Other current liabilities and
       accrued expenses                                  6,643                        4,015
     Deferred  revenue                                   8,573                        5,694
                                                  -------------                -------------

               Total current liabilities                22,524                       15,615

Long-term liabilities                                       32                           41
                                                  -------------                -------------

               Total liabilities                        22,556                       15,656
                                                  -------------                -------------


Stockholders' equity                                     7,103                       13,337
                                                  -------------                -------------

               Total liabilities and
                 stockholders' equity           $       29,659               $       28,993
                                                  =============                =============
</TABLE> 

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

                                       3
<PAGE>
                                 CONSILIUM, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                      (In thousands, except per share data)
                                   (Unaudited)

<TABLE> 
<CAPTION> 
                                                     Three months ended                    Nine months ended
                                                          July 31,                              July 31,
                                                   1997               1996               1997               1996
                                                 --------           --------           --------           --------
<S>                                              <C>                <C>                <C>                <C> 
REVENUES:
      Product                                    $  4,420           $  5,773           $ 11,234           $ 13,965
      Services                                      6,405              4,429             18,826             12,312
      Development                                      84                513                514              1,376
                                                 --------           --------           --------           --------
           Total revenues                          10,909             10,715             30,574             27,653
                                                 --------           --------           --------           --------

COST OF REVENUES:
      Product                                         778              1,720              2,483              3,211
      Services                                      3,593              1,888             11,475              4,888
      Development                                    --                  395                369              1,070
                                                 --------           --------           --------           --------
           Total cost of revenues                   4,371              4,003             14,327              9,169
                                                 --------           --------           --------           --------

GROSS MARGIN                                        6,538              6,712             16,247             18,484
                                                 --------           --------           --------           --------

OPERATING EXPENSES:
      Research and development                      3,015              2,727              9,250              8,008
      Selling and marketing                         3,483              3,408             10,094              9,751
      General and administrative                    1,006                954              2,809              3,010
                                                 --------           --------           --------           --------
           Total operating expenses                 7,504              7,089             22,153             20,769
                                                 --------           --------           --------           --------

Loss from operations                                 (966)              (377)            (5,906)            (2,285)

Interest income                                        34                 93                 98                319
Interest expense                                     (102)               (42)              (173)               (42)
                                                 --------           --------           --------           --------

LOSS BEFORE
      INCOME TAX PROVISION                         (1,034)              (326)            (5,981)            (2,008)

PROVISION FOR INCOME TAXES                            147                207                262                579
                                                 --------           --------           --------           --------

NET LOSS                                         $ (1,181)          $   (533)          $ (6,243)          $ (2,587)
                                                 ========           ========           ========           ========

NET LOSS PER SHARE                               $  (0.15)          $  (0.07)          $  (0.78)          $  (0.33)
                                                 ========           ========           ========           ========

SHARES USED IN PER SHARE
      CALCULATIONS                                  8,018              7,838              7,974              7,773
                                                 ========           ========           ========           ========
</TABLE> 

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

<PAGE>

                                CONSILIUM, INC.
                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                (In thousands)
                                  (Unaudited)

<TABLE> 
<CAPTION> 

                                                                                  Nine months ended
                                                                                      July 31,
                                                                                1997            1996
                                                                            -------------   -------------
<S>                                                                       <C>             <C> 
Cash flows from operating activities:
     Net loss                                                             $       (6,243) $       (2,587)
                                                                            -------------   -------------
     Adjustments to reconcile net loss to 
      net cash used for operating activities:
       Depreciation and amortization                                               2,694           2,345
       Provision for doubtful accounts                                              -                180
       Change in assets and liabilities:
          Accounts receivable                                                     (5,221)         (1,619)
          Other assets                                                              (213)         (1,053)
          Accounts payable                                                           143           2,642
          Deferred revenue                                                         2,870          (1,360)
          Other liabilities and accrued expenses                                   2,628            (487)
                                                                            -------------   -------------

            Net cash used for operating activities                                (3,342)         (1,939)
                                                                            -------------   -------------

Cash flows from investing activities:
     Capital expenditures                                                           (912)         (2,973)
     Capitalized software development costs                                         (525)           (670)
     Sales of short-term investments                                               1,000           1,478
                                                                            -------------   -------------

            Net cash used for investing activities                                  (437)         (2,165)
                                                                            -------------   -------------

Cash flows from financing activities:
     Proceeds from issuance of common stock and exercise of options                  288             966
     Repayment on note payable                                                    (1,792)            (83)
     Borrowing from line of credit / note payable                                  3,051           2,000
                                                                            -------------   -------------

            Net cash provided by financing activities                              1,547           2,883
                                                                            -------------   -------------

Effect of exchange rate changes on cash                                             (388)            -
                                                                            -------------   -------------
Net decrease in cash and cash equivalents                                         (2,620)         (1,221)
                                                                            -------------   -------------
Cash and cash equivalents at beginning of period                                   8,094          10,686
                                                                            -------------   -------------
Cash and cash equivalents at end of period                                $        5,474  $        9,465
                                                                            =============   =============

</TABLE> 

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

                                       5
<PAGE>
 
                                CONSILIUM, INC.

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (Unaudited)

1.   INTERIM FINANCIAL DATA
 
     The interim condensed consolidated financial statements of Consilium, Inc.
     and its subsidiaries ("the Company") are unaudited but reflect, in the
     opinion of management, all normal recurring adjustments necessary to
     present fairly the financial information set forth therein.  These interim
     condensed consolidated financial statements should be read in conjunction
     with the audited financial statements and notes thereto included in the
     Company's annual report on Form 10-K for the year ended October 31, 1996.
     The Company believes the results of operations for the three and nine
     months ended July 31, 1997 and the cash flows for the nine months ended
     July 31, 1997 are subject to fluctuation and are not necessarily indicative
     of results of operations and cash flows for any future period.

2.   NET LOSS PER SHARE

     Net loss per share is based on the weighted average number of common shares
     outstanding during the period.  Common equivalent shares have not been
     included in the calculation of loss per share as their inclusion would be
     antidilutive.

3.   LINE OF CREDIT

     In April 1997, the Company entered into a revolving line of credit
     agreement (the "Line of Credit Agreement") under which it can borrow up to
     $5,000,000, based on eligible accounts receivable.  The revolving line of
     credit is secured by substantially all of the Company's assets, bears
     interest at the bank's prime rate per annum (8.5% at July 31, 1997) and
     expires on March 15, 1998.  At July 31, 1997, $3,051,000 was outstanding
     under the revolving line of credit.  The Line of Credit Agreement requires
     the Company to maintain certain financial covenants.  At July 31, 1997, the
     Company was not in compliance with certain of these financial covenants.
     Following the end of the quarter, the financial covenants were
     retroactively modified by the bank and the Company was in compliance with
     all financial covenants, as modified.  In connection with this line of
     credit, the Company granted the bank warrants to purchase 70,000 shares of
     the Company's Common Stock at an exercise price of $3.98 per share.  Such
     warrants are fully exercisable and expire in April 2002.  The warrant
     holder has certain registration rights with respect to the underlying
     Common Stock.

4.   NEW ACCOUNTING PRONOUNCEMENTS

     Effective November 1, 1996, the Company adopted the disclosure
     only provisions of SFAS No. 123, "Accounting for Stock-Based Compensation".
     The effect on the Company's financial position and results of operations,
     upon adoption, was not significant.

                                       6
<PAGE>
 
     Also effective November 1, 1996, the Company adopted the provisions of SFAS
     No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived
     Assets to be Disposed of." The adoption of this new pronouncement did not
     have any effect on the Company's financial position or results of
     operations.

     In February 1997, the Financial Accounting Standards Board issued SFAS No.
     128, "Earnings Per Share".  SFAS No. 128 will become effective in the first
     quarter of the Company's fiscal year ending October 31, 1998.  Upon
     adoption, all prior-period earnings per share data presented will be
     restated to conform with SFAS No. 128.  SFAS No. 128 requires companies to
     compute net income per share under two different methods, basic and
     diluted, and to disclose the methodology used for the calculation.  Pro
     forma net losses per share assuming SFAS No. 128 had been adopted at the
     beginning of fiscal 1996 would not be different from the net losses per
     share as reported in the Company's interim financial statement for the
     three and nine months ended July 31, 1997.

     In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
     "Disclosures About Segments of an Enterprise and Related Information,"
     which establishes standards for disclosure of segment information.  SFAS
     No. 131 will become effective for the Company's fiscal year ending October
     31, 1999.  The Company anticipates additional disclosure requirements on
     segment information upon adoption of SFAS No. 131.

5.   RECLASSIFICATIONS

     Certain reclassifications were made to prior year amounts to conform to the
     fiscal 1997 presentation. These reclassifications did not change the
     previously reported net loss, total assets or total cash flows of the
     Company for prior year.

6.   SUBSEQUENT EVENTS

     On August 1, 1997, the Company acquired certain assets of Fast Associates
     Pte. Ltd. ("FAST"), a Singapore corporation specializing in semiconductor
     factory automation.  The Company purchased two existing semiconductor
     factory automation contracts, certain tangible and intangible assets and
     assumed certain liabilities of FAST.  The acquisition was accounted for as
     a purchase.  The purchase price consists of an initial payment of 120,000
     shares of the Company's common stock valued at $476,000 and future
     performance-based payments equal to specified percentages of systems
     integration and related services net operating margin, and net product
     license and maintenance revenue recognized by the Company in certain
     countries in Asia for a period of three years ending on August 1, 2000, as
     follows: 45% of systems integration/services net operating margin, 10% of
     product license net revenue, and 2.5% of product maintenance net revenue.
     Such payments may be made in cash or the Company's common stock, at the
     option of the Company.  $1,500,000 of the performance payments are
     guaranteed, subject to adjustment in future performance payments if
     estimated revenue levels are not met.  Of these guaranteed amounts, a
     portion was paid in August 1997 by issuance of 75,586 shares of the
     Company's common stock valued at $300,000.  Four additional payments of
     cash or common stock valued nominally at $300,000 each will be paid at
     intervals of ninety days, beginning 

                                       7
<PAGE>
 
     November 1, 1997. Shares issued in connection with this transaction have
     certain registration rights.

     Also, in August 1997, the Company entered into 8% Convertible Preferred
     Stock Subscription Agreements with three private institutional investors
     (collectively the "Purchasers'), pursuant to which the Company sold to the
     Purchasers on August 19, 1997 (the "Closing Date") an aggregate of 3,000
     newly issued shares of Series A Preferred Stock of the Company (the
     "Preferred Shares") at a price of $1,000 per share and an aggregate gross
     proceeds to the Company of $3,000,000, before deducting expenses.  Each
     share of Preferred Stock is convertible, without the payment of any further
     consideration, into shares of Common Stock of the Company, as follows:

       A. Six months after the Closing Date, provided that the closing bid
          price of the Common Stock of the Company as reported on the Nasdaq
          National Stock Market ("Nasdaq") on the date of conversion (the
          "Closing Bid Price") is $5.00 or greater, each Purchaser may convert
          each of its Preferred Shares into a number of shares of Common Stock
          of the Company equal to (a) $1,000 divided by (b) the average closing
          bid price of the Common Stock of the Company as reported on Nasdaq for
          the five consecutive trading days prior to the date of conversion,
          discounted by 15%, but in any case no less than $1.95 and no greater
          than (i) the difference between the Closing Bid Price and $1.95, plus
          (ii) the Closing Bid Price; provided, however, that the Company shall
          not be obligated, at any time prior to nine months after the Closing
          Date, to convert, in the aggregate, more than 25% of the total
          Preferred Shares.

       B. Nine months after the Closing Date, provided that the Closing Bid
          Price is $5.00 or greater, each Purchaser may convert each of its
          Preferred Shares into a number of shares of Common Stock of the
          Company equal to (a) $1,000 divided by (b) the average closing bid
          price of the Common Stock of the Company as reported on Nasdaq for the
          five consecutive trading days prior to the date of conversion,
          discounted by 17%, but in any case no less than $1.95 and no greater
          than (i) the difference between the Closing Bid Price and $1.95 plus
          (ii) the Closing Bid Price; provided, however, that the Company shall
          not be obligated, at any time prior to one year after the Closing
          Date, to convert, in the aggregate, more than 50% of the total
          Preferred Shares.

       C. One year after the Closing Date, each Purchaser may convert each of
          its Preferred Shares into a number of shares of Common Stock of the
          Company equal to (a) $1,000 divided by (b) the average closing bid
          price of the Common Stock of the Company as reported on Nasdaq for the
          five consecutive trading days prior to the date of conversion,
          discounted by 18%; but in any case no less than $1.95 and no greater
          than (i) the difference between the Closing Bid Price and $1.95 plus
          (ii) the Closing Bid Price.

     The Preferred Stock has the right to cumulative dividends at 8% per annum
     through conversion.  The Preferred Stock cannot be converted for six months
     following the Closing Date and will automatically convert, if not earlier
     converted by the holders, no later than 24 months following the Closing
     Date.  The Preferred Stock has no voting 

                                       8
<PAGE>
 
     rights. The holders of Series A Preferred Stock have certain registration
     rights with respect to the underlying Common Stock.

     In connection with the issuance of Series A Convertible Preferred Stock,
     the Company granted the placement agents warrants to purchase an aggregate
     of 150,000 shares of the Company's Common Stock at an exercise price equal
     to 125% of the average closing bid price of the Common Stock of the Company
     as reported on Nasdaq for the five consecutive trading days prior to August
     19, 1997. The warrants are fully exercisable and expire in August, 2002.
     The warrants holders have certain registration rights with respect to the
     underlying Common Stock.

     Each of the Purchasers and warrants holders are accredited investors who
     purchased such shares for investment purposes, as transactions not
     involving a public offering pursuant to the exemption from registration
     provisions of Section 4(2) of the Securities Act of 1933, as amended, and
     Rule 506 of Regulation D thereunder.




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

This discussion contains, in addition to historical information, forward-looking
statements that involve risks and uncertainties, including but not limited to,
statements regarding expected fluctuations in the timing and size of orders for
FlowStream product from the healthcare products and process industries and
expected development revenues. The Company's actual results could differ
significantly from the results discussed in the forward-looking statements in
the section entitled "Potential Fluctuations in Quarterly Results". Factors that
could cause or contribute to such differences include, among others, those
discussed below as well as those discussed in the Company's Annual Report on
Form 10-K for the year ended October 31, 1996. The following discussion should
be read in conjunction with the consolidated financial statements and notes
thereto.

RESULTS OF OPERATIONS
---------------------

REVENUES.  Total revenues for the third quarter of fiscal 1997 increased 2% to
--------                                                                      
$10,909,000, compared with $10,715,000 in the third quarter of fiscal 1996.
Revenues for the first nine months of fiscal 1997 increased 11% to $30,574,000,
compared with $27,653,000 in the same period of fiscal 1996. For the three and
nine months ended July 31, 1997, the increases in total revenues over the same
periods of the previous fiscal year were primarily due to a higher level of
services revenues in the Asia/Pacific region, partially offset by a lower level
of overall product and development revenues.

     Percentage of total revenues for the three and nine months ended July 31,
1997 and 1996 by geographic region were as follows:

                                       9
<PAGE>
 
<TABLE> 
<CAPTION> 
                                       Three months ended  Nine months ended 
                                           July 31,             July 31,      
                                        1997       1996      1997      1996  
                                        ----       ----      ----      ----  
     <S>                                <C>        <C>       <C>       <C>    
                                                              
     North America                       55%        61%       48%       57%   
     Europe                              21%        17%       19%       17%   
     Asia/Pacific                        24%        22%       33%       26%   
</TABLE>

     The proportional decreases in sales to North America for the three and
nine months ended July 31, 1997 were due to lower product license sales in the
North America region.  The proportional increases in sales to Asia/Pacific for
the three and nine months ended July 31, 1997 were primarily due to services
revenue associated with the Company's new systems integration services business
in the Asia/Pacific region.

     Percentage of total revenues for the three and nine months ended July 31,
1997 and 1996 by business unit were as follows:

<TABLE> 
<CAPTION> 
                                      Three months ended    Nine months ended
                                            July 31,             July 31,
                                       1997        1996      1997       1996
                                       ----        ----      ----       ---- 
<S>                                    <C>         <C>       <C>        <C> 
Semiconductor and Electronics
Business Unit
  (WorkStream DFS(TM))                  81%         71%       86%        80%

Healthcare Products and Process
Industries Business Unit
  (FlowStream(R))                       19%         29%       14%        20%
</TABLE> 

     The Company's Semiconductor and Electronics Business Unit markets and sells
WorkStream DFS products to manufacturers who produce their products in discrete
lots or batches, particularly those in the semiconductor and electronics
industries.  The Company's Healthcare Products and Process Industries Business
Unit markets and sells FlowStream products to regulated or complex industries
that employ batch process manufacturing, particularly those in the healthcare
products (pharmaceutical, medical devices and biotechnology), chemical and other
process industries.

Product Revenues.  Product revenues for the three and nine months ended July
----------------                                                             
31, 1997 decreased 23% and 20% over the same periods of the previous fiscal
year.  The decreases were primarily due to lower product revenue levels from the
Company's WorkStream DFS and FlowStream product lines during the periods, as
described below:

     Product revenues attributable to products in the Company's Workstream DFS
product line decreased 8% to $3,307,000 during the three months ended July 31,
1997, as compared with $3,592,000 for the same period in fiscal 1996. For the
nine months ended July 31, 1997, product revenues from the WorkStream DFS
product line decreased 15% to $9,763,000, as compared with $11,540,000 in the
previous fiscal year.  The period over period decreases were primarily due to
fluctuations in timing of new orders for WorkStream(R) products from new
semiconductor fabrications and the recent slowdown in the semiconductor
industry.

                                       10
<PAGE>
 
     Product revenues attributable to FlowStream for the three months ended July
31, 1997 were $1,113,000, as compared to $2,181,000 for the same period in
fiscal 1996.  For the nine months ended July 31, 1997, FlowStream revenues were
$1,471,000, as compared to $2,424,000 for the same period in the previous fiscal
year.  The period over period decreases were attributable to fluctuations in the
size and timing of orders for FlowStream product from the healthcare products
and process industries, which included recognition of a $2 million sales
transaction from a customer in July 1996.  The Company expects to continue to
see such fluctuations in FlowStream product revenues until there is a higher
level of acceptance of the FlowStream products.

Services Revenues.  Services revenues for the three months ended July 31, 1997
-----------------                                                            
increased 45% to $6,405,000, compared with $4,429,000 for the same period of
fiscal 1996.  For the nine months ended July 31, 1997, services revenues
increased 53% to $18,826,000, compared with $12,312,000 for the same period of
fiscal 1996.  Services revenues are primarily from annual software maintenance
fees, systems integration services relating to the Workstream DFS(TM) product
line, specialized programming services, resident and application consulting
services and customer training. The increases in services revenues for the three
and nine months ended July 31, 1997 were primarily due to increased revenues
derived from the Company's new systems integration business and higher
maintenance revenue levels from the Company's WorkStream product lines. Services
revenues normally are subject to fluctuations primarily due to the timing of new
contracts and the completion of existing projects.

Development Revenues.  Development revenues for the three months ended July
--------------------                                                        
31, 1997 decreased 84% to $84,000, compared with $513,000 for the same period of
fiscal 1996.  For the nine months ended July 31, 1997, development revenues
decreased 63% to $514,000, compared with $1,376,000 for the same period of
fiscal 1996. 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 participating third parties having the right to license and use the
software, often sooner than otherwise would have occurred.  Development revenues
can vary significantly from period to period, depending upon the number of
contracts which have been entered into and the state of completion of such
projects. The decreases in development revenues during the three and nine months
ended July 31, 1997 were primarily due to the completion of most existing funded
development projects.  Based on current internal development resource
allocations and projects planned, the Company expects that development revenues
in fiscal 1997 will continue to decrease significantly from prior year levels,
although the Company may take on additional development projects in the future
if business and strategic objectives of the Company are met by such projects.

COSTS AND EXPENSES
------------------

Cost of Product Revenues.  Cost of product revenues for the three months ended
------------------------                                                     
July 31, 1997 decreased 55% to $778,000, compared with $1,720,000 for the same
period of the previous fiscal year.  The absolute dollar and percentage
decreases in cost of product revenues for the three months ended July 31, 1997
were primarily due to the mix of lower product license sales and lower third
party software product costs, compared with the same period of fiscal 1996.  For
the nine months ended July 31, 1997, cost of product revenues decreased 23% to
$2,483,000, compared with $3,211,000 for the same period of fiscal 1996.  The
absolute dollar and percentage decreases in cost of product revenues for the
nine months ended July 31, 1997 were 

                                       11
<PAGE>
 
primarily due to lower product license sales during the period. Cost of product
revenues includes amortization of capitalized software development costs,
royalties, 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 (and the variance in associated third party royalties) and
additional third party software relating to specific orders, the associated
costs of product revenue can vary significantly. Product costs as a percentage
of product revenues for the three and nine months ended July 31, 1997 were 18%
and 22%, respectively, compared with 30% and 23% for the same periods of the
previous year. The decrease in cost of product revenues for the three months
ended July 31, 1997 as a percentage of product revenues was attributable to
lower third party product costs and lower royalties associated with the product
revenues during the period.

Cost of Services Revenues.  Cost of services revenues increased 90% to
-------------------------                                             
$3,593,000 for the three months ended July 31, 1997, compared with $1,888,000
for the same period of the previous fiscal year.  For the nine months ended July
31, 1997, cost of services revenues increased 135% to $11,475,000, compared with
$4,888,000 for the same period of the previous fiscal year.  The increases in
absolute dollars and percentage of cost of services revenues were primarily due
to the hiring of additional services personnel, both permanent and sub-
contracted, to add to the Company's ability to support the new systems
integration services business and to enhance the Company's ability to meet
customer requirements for customer support and consulting services.  Cost of
services revenues was 56% and 61% of total services revenues for the three and
nine months ended July 31, 1997, respectively, compared with 43% and 40% in the
comparable periods of fiscal 1996.  The increase in cost of services revenues as
a percentage of services revenues was primarily due to the Company's investment
in its new systems integration services business in fiscal 1997.

Cost of Development Revenues.  Cost of development revenues decreased 100% to $0
----------------------------                                                   
for the three months ended July 31, 1997, compared with $395,000 for the same
period of the previous fiscal year.  The absolute dollar decrease in cost of
development revenues for the three months ended July 31, 1997 was primarily due
to no development costs associated with the existing development project during
the period.  For the nine months ended July 31, 1997, cost of development
revenues decreased 66% to $369,000, as compared to $1,070,000 for the same
period of fiscal 1996.  The absolute dollar decrease in cost of development
revenues for the nine months ended July 31, 1997 was primarily due to lower
development revenue levels during the period.  Cost of development revenues was
0% and 72% of total development revenues for the three and  nine months ended
July 31, 1997, compared with 77% and 78% in the comparable periods of fiscal
1996.  The significant decrease in cost of development revenues as a percentage
of development revenues for the three months ended July 31, 1997 was primarily
due to the existing development project having no associated costs during the
period.  Development costs, which may vary significantly from project to
project, include direct labor costs associated with development contracts and
porting projects as well as third party consulting expenses.

Research and Development Expenses.  Research and development expenses 
---------------------------------                                     
represented 28% and 30% of total revenues for the three and nine month periods
ended July 31, 1997, respectively, compared with 25% and 29% for the same
periods of the previous fiscal year. The increase in the percentage of research
and development expenses as a percentage of total revenues in the recent three
month period compared with the same quarter last year was due to the higher
level of overall research and development activity. Expenses were $3,015,000 and
$9,250,000 for the three and nine months ended July 31, 1997, respectively, as
compared to

                                       12
<PAGE>
 
$2,727,000 and $8,008,000 for the same periods of the previous fiscal year. The
increases in the absolute dollar amount of research and development expenses for
the three and nine months ended July 31, 1997 were primarily due to the hiring
of additional research and development personnel, permanent and sub-contracted,
primarily to add computing platform options and functional enhancements for the
Company's products. Included in research and development expenses are costs
associated with the development of new products and the costs of enhancing and
maintaining existing products.

     Software development expenditures of $287,000 and $180,000 were capitalized
for the three months ended July 31, 1997 and 1996, respectively. The amounts
represent approximately 9% and 6% of total research and development expenditures
during such periods. The absolute dollar and percentage increases were due to an
increase in the amount of software development costs eligible for capitalization
during the quarter ended July 31, 1997. In accordance with SFAS No. 86, the
amount of research and development expenditures capitalized in a given time
period depends upon the amount of development work performed subsequent to the
establishment of technological feasibility for a product. Accordingly, amounts
capitalized may vary from period to period.

Selling and Marketing Expenses.  Selling and marketing expenses represented 32%
------------------------------                                                 
and 33% of total revenues for the three and nine months ended July 31, 1997,
respectively, as compared with 32% and 35% for the same periods of fiscal 1996.
The decrease in sales and marketing expenses as a percentage of total revenues
during the nine months ended July 31, 1997 was due to a higher level of sales
activities, offset by a relatively slight increase in selling and marketing
expenses during the period. Selling and marketing expenses were $3,483,000 and
$10,094,000 for the three and nine months ended July 31, 1997, respectively,
compared with $3,408,000 and $9,751,000 for the same periods of the previous
year. The increases in the absolute dollar amount of selling and marketing
expenses for the three and nine months ended July 31, 1997, compared with the
same periods in fiscal 1996, were primarily due to an overall increase in
headcount and related travel expenses during the first and third quarter of
fiscal 1997.

General and Administrative Expenses.  General and administrative expenses
-----------------------------------                                       
include the costs of the finance, accounting, legal and administrative
operations of the Company and represented 9% and 9% of total revenues for the
three and nine month periods ended July 31, 1997, respectively, as compared with
9% and 11% for the same periods of the previous fiscal year.  The proportional
decrease in general and administrative expenses as a percentage of total
revenues for the nine months ended July 31, 1997 was due to a higher level of
revenues and overall reduction in expenses.  General and administrative expenses
were $1,006,000 and $2,809,000 for the three and nine months ended July 31,
1997, compared to $954,000 and $3,010,000 for the same periods in fiscal 1996.
The increase in absolute dollars for the three months ended July 31, 1997 was
primarily due to higher travel expenses during the recent quarter compared to
the same period of the previous year.  The decrease in absolute dollars for the
nine months ended July 31, 1997 was primarily due to a decrease in legal
fees compared to the same period of the previous year, and the non-
recurring costs of the Company's move to its new facilities in the second
quarter of fiscal 1996.

Interest Income and Expense.  Interest income was $34,000 and $98,000 for the
---------------------------                                                 
three and nine months ended July 31, 1997, respectively, compared to $93,000 and
$319,000 for the same periods in the previous fiscal year.  Lower invested cash
balances and slightly lower interest rate levels accounted for the decrease in
interest income.  Interest expense was $102,000 and 

                                       13
<PAGE>
 
$173,000 for the three and nine months ended July 31, 1997, respectively,
compared to $42,000 and $42,000 for the same periods in fiscal 1996. The
increase in interest expense was primarily due to higher outstanding short term
borrowings during the periods.

Provision for Income Taxes.  The income tax provision for the nine months ended
--------------------------                                                      
July 31, 1997 represents taxes on earnings of certain foreign subsidiaries,
which are profitable, and taxes paid in certain foreign jurisdictions.  The
Company has established a valuation allowance against its deferred tax asset and
reviews this allowance on a periodic basis.  At such time that the Company
believes that it is more likely than not that a portion of the deferred tax
asset will be realized, the valuation allowance will be reduced.

POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS.  The Company's results of
-------------------------------------------                           
operations historically have fluctuated on a quarterly basis due to numerous
factors.  These factors may include: the relatively high average selling price
of the Company's products; a relatively small number of transactions; the size
and timing of new orders; market acceptance of the Company's products;
introduction of competitive product offerings and subsequent deferrals in sales
orders as competitive products are evaluated by prospective customers;  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.  Results have been
negatively affected as the semiconductor industry slowed its expansion and will
continue to be negatively impacted if the slowdown continues, or if the
healthcare products and process industries, which have not yet adopted computer
automated manufacturing on a wide scale, do not develop into a strong market for
the Company's FlowStream product line, or if the Company is unsuccessful in
managing systems integration projects profitably.  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 July 31, 1997, the Company had
--------------------------------                                         
$5,474,000 in cash and cash equivalents, as compared with $9,094,000 in cash and
cash equivalents and short term investments at October 31, 1996.  The Company
used $3,451,000 for operating activities during the nine months ended July 31,
1997, compared with $1,939,000 used for operating activities in the same period
of the previous fiscal year.  Net cash used for operating activities for the
nine months ended July 31, 1997 primarily resulted from the net loss from the
period and an increase in accounts receivable related to the longer collection
cycles for certain systems integration projects, offset by an increase in
deferred revenue, other liabilities and accrued expenses.

     Net cash used for investing activities was $437,000 during the first nine
months of fiscal 1997, as compared with $2,165,000 of net cash used for
investing activities for the same period in fiscal 1996.  The $437,000 net cash
used for investing activities during the nine months ended July 31, 1997
represented capital expenditures and capitalized software development costs of
$912,000 and $525,000, respectively, offset by sales of short-term investments
of $1,000,000.

     Net cash provided by financing activities was $1,656,000 during the first
nine months of fiscal 1997, which represented proceeds from borrowings on the
new revolving line of credit of $3,051,000, proceeds from issuance of common
stock of $397,000 less debt repayments of $1,792,000.

                                       14
<PAGE>
 
     Under the asset purchase agreement to purchase the Taiwan operations of
Systematic Designs International, Inc., the Company may be required to make
additional annual performance-based payments (in cash or stock) over a two year
period ending on July 8, 1998.  Such performance-based payments will be based
upon a specified percentage, ranging from 17.5% to 50.0%, of certain revenues,
as defined in the purchase agreement.

     In April 1997, the Company entered into a revolving line of credit
agreement (the "Line of Credit Agreement") under which it can borrow up to
$5,000,000, based on eligible accounts receivable.  The revolving line of credit
is secured by substantially all of the Company's assets, bears interest at the
bank's prime rate per annum (8.5% at July 31, 1997) and expires on March 15,
1998.  At July 31, 1997, $3,051,000 was outstanding under the revolving line of
credit.  The Line of Credit Agreement requires the Company to maintain certain
financial covenants.  At July 31, 1997, the Company was not in compliance with
certain of these financial covenants.  Following the end of the quarter, the
financial covenants were retroactively modified by the bank and the Company was
in compliance with all financial covenants, as modified.  In connection with
this line of credit, the Company granted the bank warrants to purchase 70,000
shares of the Company's Common Stock at an exercise price of $3.98 per share.
Such warrants are fully exercisable and expire in April 2002.  The warrant
holder has certain registration rights with respect to the underlying Common
Stock.

     Under the asset purchase agreement to purchase certain tangible and
intangible assets from FAST Associates, Pte. Ltd., the Company may be required
to make additional annual performance-based payments (in cash or stock) over a
three year period ending on August 1, 2000.  Such performance-based payments
will be based upon specified percentages of certain systems integration and
related services net operating margin, and certain net product license and
maintenance revenues, as defined in the purchase agreement.

     In August 1997, the Company entered into 8% Convertible Preferred Stock
Subscription Agreements with three private institutional investors (collectively
the "Purchasers'), pursuant to which the Company sold to the Purchasers on
August 19, 1997 an aggregate of 3,000 newly issued shares of Series A Preferred
Stock of the Company at a price of $1,000 per share and an aggregate gross
proceeds to the Company of $3,000,000, before deducting expenses.  See Note 6 of
Notes to Condensed Consolidated Financial Statements for a description of the
conversion rights of the holders.  The Preferred Stock has the right to
cumulative dividends at 8% per annum through conversion.  The Preferred Stock
cannot be converted for six months following the closing and will automatically
convert, if not earlier converted by the holders, no later than 24 months
following the closing.  The holders of Series A Preferred Stock have certain
registration rights with respect to the underlying Common Stock.

     Management believes the existing cash and cash equivalents including cash
raised from the Preferred Stock Subscription, combined with its borrowing
capacity and cash generated from operations will be sufficient to meet the
Company's working capital and capital expenditure requirements for the next
twelve months.

                                      15

<PAGE>

ITEM 3.        QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
               -----------------------------------------------------------

     Not applicable

                                       16
<PAGE>
 
PART II.      OTHER INFORMATION


Item 1.   Legal Proceedings
          -----------------
          None

Item 2.   Changes in Securities
          ---------------------
          In August 1997, the Company entered into 8% Convertible Preferred
          Stock Subscription Agreements with three private institutional
          investors (collectively the "Purchasers'), pursuant to which the
          Company sold to the Purchasers on August 19, 1997 (the "Closing Date")
          an aggregate of 3,000 newly issued shares of Series A Preferred Stock
          of the Company (the "Preferred Shares") at a price of $1,000 per
          share.  Each share of Preferred Stock is convertible, without the
          payment of any further consideration, into shares of Common Stock of
          the Company, as follows:

          A. Six months after the Closing Date, provided that the closing bid
             price of the Common Stock of the Company as reported on the Nasdaq
             National Stock Market ("Nasdaq") on the date of conversion (the
             "Closing Bid Price") is $5.00 or greater, each Purchaser may
             convert each of its Preferred Shares into a number of shares of
             Common Stock of the Company equal to (a) $1,000 divided by (b) the
             average closing bid price of the Common Stock of the Company as
             reported on Nasdaq for the five consecutive trading days prior to
             the date of conversion, discounted by 15%, but in any case no less
             than $1.95 and no greater than (i) the difference between the
             Closing Bid Price and $1.95, plus (ii) the Closing Bid Price;
             provided, however, that the Company shall not be obligated, at any
             time prior to nine months after the Closing Date, to convert, in
             the aggregate, more than 25% of the total Preferred Shares.

          B. Nine months after the Closing Date, provided that the Closing Bid
             Price is $5.00 or greater, each Purchaser may convert each of its
             Preferred Shares into a number of shares of Common Stock of the
             Company equal to (a) $1,000 divided by (b) the average closing bid
             price of the Common Stock of the Company as reported on Nasdaq for
             the five consecutive trading days prior to the date of conversion,
             discounted by 17%, but in any case no less than $1.95 and no
             greater than (i) the difference between the Closing Bid Price and
             $1.95 plus (ii) the Closing Bid Price; provided, however, that the
             Company shall not be obligated, at any time prior to one year after
             the Closing Date, to convert, in the aggregate, more than 50% of
             the total Preferred Shares.

          C. One year after the Closing Date, each Purchaser may convert each
             of its Preferred Shares into a number of shares of Common Stock of
             the Company equal to (a) $1,000 divided by (b) the average closing
             bid price of the Common Stock of the Company as reported on Nasdaq
             for the five consecutive trading days prior to the date of
             conversion, discounted by 18%; but in any case no less than $1.95
             and no greater than (i) the difference between the Closing Bid
             Price and $1.95 plus (ii) the Closing Bid Price.

                                       17
<PAGE>
 
          The Preferred Stock has the right to cumulative dividends at 8% per
          annum through conversion. The Preferred Stock cannot be converted for
          six months following the Closing Date and will automatically convert,
          if not earlier converted by the holders, no later than 24 months
          following the Closing Date. The Preferred Stock has no voting rights.
          The holders of Series A Preferred Stock have certain registration
          rights with respect to the underlying Common Stock.

          Each of the Purchasers are accredited investors who purchased such
          shares for investment purposes, as transactions not involving a public
          offering pursuant to the exemption from registration provisions of
          Section 4(2) of the Securities Act of 1933, as amended, and Rule 506
          of Regulation D thereunder.

Item 3.   Defaults upon Senior Securities
          -------------------------------
          None

Item 4.   Submission of Matters to a Vote of Security Holders
          ---------------------------------------------------
          None

Item 5.   Other Information
          ------------------
          None

Item 6.   Exhibits and Reports on Form 8-K
          --------------------------------

     (a). List of Exhibits
<TABLE>
<CAPTION>

  Exhibit
  Number       Exhibit Title
  ------       -------------
  <S>          <C> 
  2.1          Asset Purchase Agreement for the acquisition of FAST Associates,
               Pte. Dated July 31, 1997. /12/

  3.1          Certificate of Incorporation of the Company. /3/

  3.2          By-Laws of the Company. /3/

  3.3          Certificate of Designation of Series A Convertible Preferred
               Stock.

  4.1          Form of Warrant Agreement dated April 1, 1997 between the Company
               and Imperial Bank.

  4.2          Form of 8% Convertible Preferred Stock Subscription Agreement for
               the Sale of an Aggregate $3 million worth of Preferred Shares to
               certain private institutional investors dated August 19, 1997.

  4.3          Form of Warrant Agreement dated August 19, 1997 between the
               Company and certain placement agents.
</TABLE> 

                                       18
<PAGE>
 
<TABLE> 
 
  <S>          <C>
  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/
               
  10.7         Amended and Restated 1983 Stock Option Plan. /6,7/
 
  10.8         Forms of Stock Option Agreement used in conjunction with the 1983
               Stock Option Plan. /6,7/
               
  10.9         1990 Outside Director's Stock Option Plan. /6,7/
 
  10.10        Forms of Outside Directors Stock Option Agreement used in
               conjunction with the 1990 Outside Director's Stock Option Plan.
               /6,7/
                
  10.11        Lease agreement for the Company's principal facility, dated
               August 2, 1995, among the Company and The Prudential Insurance
               Company of America. /7/
  
  10.12        Letter Agreement, dated August 5, 1994, with respect to the
               employment of Edward Norton. /6,7/
               
  10.13        Letter Agreement, dated September 28, 1994, with respect to the 
               employment of Richard Van Hoesen. /6,7/

  10.14        Letter Agreement, dated July 12, 1996 , with respect to the
               resignation of Thomas Tomasetti. /6.,8/
               
  10.15        Letter Agreement dated June 3, 1996, with respect to the
               employment of Laurence R. Hootnick. /6,8/
               
  10.16        Asset Purchase Agreement for the acquisition of the Taiwan
               operations of Systematic Designs International, Inc. dated 
               July 2, 1996. /10/
</TABLE> 

                                       19
<PAGE>
 
<TABLE> 
        
  <S>          <C>        
  10.17        Letter Agreement dated August 6, 1996, with respect to the
               employment of Wynn Bowman./6,9/
               
  10.18        Letter Agreement dated August 6, 1996, with respect to the
               employment of Michael J. Field./6,9/
               
  10.19        Change of Control Agreement with Laurence R. Hootnick./11,6/
                             
  10.20        Change of Control Agreement with Jonathan J. Golovin./11,6/
 
  10.21        Form of Change of Control Agreement for Executive Officers./11,6/
 
  10.22        1996 Stock Option Plan and Forms of Stock Option Agreement./11,6/

  10.23        Security and Loan Agreement dated April 1, 1997 between the
               Company and Imperial Bank.

  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 for the Year ended October 31, 1990.

       /3/  Incorporated by reference from exhibits 3.1, 3.2 and 10.19,
            respectively, to Registrant's Quarterly Report on Form 10-Q 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.

       /7/  Incorporated by reference from exhibits of the same number to
            Registrant's Annual Report on Form 10-K for the Year ended 
            October 31, 1995.

       /8/  Incorporated by reference from exhibits of the same number in
            Registrant's Quarterly Report on Form 10-Q for the Quarter ended
            July 31, 1996.

       /9/  Incorporated by reference from exhibits of the same number to
            Registrant's Annual Report on Form 10-K for the Year ended 
            October 31, 1996.

       /10/ Incorporated by reference from exhibit 2.1 to Registrant's Report
            on Form 8-K filed on July 26, 1996 for the acquisition of the Taiwan
            operations of Systematic Designs International, Inc.

                                       20
<PAGE>
 
       /11/ Incorporated by reference from exhibits of the same number in
            Registrant's Quarterly Report on Form 10-Q for the Quarter ended
            January 31, 1997.

       /12/ Incorporated by reference from exhibit 2.1 to Registrant's Report
            on Form 8-K/A filed on September 9, 1997 for the acquisition of FAST
            Associates, Pte. Ltd. This agreement is subject to a confidential
            treatment report which has been filed by the Registrant.

   (b).       Reports on Form 8-K

                    Report filed on August 15, 1997 on Acquisition of FAST
                    Associates, Pte. Ltd.

                    Report filed on September 9, 1997 on Acquisition of FAST
                    Associates, Pte. Ltd.

                                       21
<PAGE>
 
                                   Signatures



     Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, a duly authorized officer and the chief financial officer of the
registrant.


                                                    CONSILIUM, INC.
                                        -------------------------------------
                                                     (Registrant)



Date       September 12, 1997           by:    /s/ Clifton Wong
     -----------------------------         ----------------------------------
                                            Clifton Wong
                                            Vice President, Finance and
                                            Chief Financial Officer

                                       22