Exhibit 13.1
<TABLE>

Boole & Babbage, Inc.
Selected Consolidated Financial Data

<CAPTION>
                                                                     Years ended September 30, (c)
                                                         ----------------------------------------------------
(In thousands, except per share amounts)                   1997       1996       1995       1994       1993
-------------------------------------------------------------------------------------------------------------

<S>                                                      <C>        <C>        <C>        <C>        <C>     
Revenue                                                  $197,097   $180,151   $169,027   $141,600   $121,015

Expenses (a)                                              173,974    167,322    156,242    133,983    116,834
                                                         --------   --------   --------   --------   --------
       Income excluding special charges (a)                23,123     12,829     12,785      7,617      4,181

Interest and other income, net                              9,180      5,643      3,907      1,306      1,209
                                                         --------   --------   --------   --------   --------
Income before income taxes                                 32,303     18,472     16,692      8,923      5,390

Provision for income taxes                                 10,365      7,015      5,076      4,575      3,519
                                                         --------   --------   --------   --------   --------

Net income  (b)                                          $ 21,938   $ 11,457   $ 11,616   $  4,348   $  1,871
                                                         ========   ========   ========   ========   ========

Net income per share                                     $   1.09   $   0.60   $   0.63   $   0.25   $   0.11
                                                         ========   ========   ========   ========   ========

Shares used in per share calculations                      20,095     19,210     18,465     17,150     16,980
                                                         ========   ========   ========   ========   ========


Balance sheet data:
     Cash, cash equivalents and short-term investments   $ 56,973   $ 62,010   $ 42,047   $ 39,794   $ 24,224
     Total assets                                        $260,144   $224,540   $182,827   $145,621   $106,450
     Long-term debt                                      $  1,845   $  3,269   $  2,075   $  7,830   $  9,684
     Deferred maintenance revenue                        $ 91,714   $ 80,190   $ 61,468   $ 49,172   $ 33,893
     Stockholders' equity                                $118,502   $ 95,064   $ 78,501   $ 47,482   $ 29,481

<FN>
(a) Excludes $11.3 million  ($0.42 per share) of acquisition  expense in FY97and
    $4.1 million ($0.18 per share) of purchased R&D expense in FY94.

(b) Excludes $1.5 million ($0.08 per share) of extraordinary gain on forgiveness
    of debt in FY95 and $.2  million  ($0.01 per share) of gain on  disposal  of
    division in FY93.

(c) All periods have been restated to reflect the pooling of interest accounting
    in connection with the MAXM acquisition in Q297
</FN>
</TABLE>
                                       1
<PAGE>
                                  Exhibit 13.1
<TABLE>

Boole & Babbage, Inc.
Quarterly History
(Unaudited)
<CAPTION>
(In thousands, except per share amounts)  Q1 96      Q2 96      Q3 96      Q4 96      Q1 97      Q2 97       Q3 97      Q4 97
------------------------------------------------------------------------------------------------------------------------------
<S>                                     <C>        <C>        <C>        <C>        <C>        <C>         <C>        <C>     
Revenue:
   Product licensing                    $ 22,448   $ 23,659   $ 24,169   $ 24,943   $ 27,278   $ 25,057    $ 26,784   $ 29,790
   Maintenance fees and other             20,416     20,179     21,426     22,911     22,483     21,394      21,972     22,339
                                        --------------------------------------------------------------------------------------
      Total revenue                       42,864     43,838     45,595     47,854     49,761     46,451      48,756     52,129
                                        --------------------------------------------------------------------------------------

Costs and expenses:
   Cost of product licensing               3,787      4,048      3,863      3,657      3,978      3,312       3,676      4,064
   Cost of maintenance fees and other      4,200      4,147      5,968      5,168      6,016      4,200       4,495      5,040
   Product development                     5,303      5,058      5,482      6,483      6,387      5,876       6,310      6,308
   Sales and marketing                    22,106     22,783     22,403     24,474     25,126     22,132      23,277     25,282
   General and administrative              4,688      4,424      4,615      4,665      5,325      4,348       4,344      4,478
   Acquisition and nonrecurring costs       --         --         --         --         --       11,309        --         --
                                        --------------------------------------------------------------------------------------
      Total costs and expenses            40,084     40,460     42,331     44,447     46,832     51,177      42,102     45,172
                                        --------------------------------------------------------------------------------------

      Operating income (loss)              2,780      3,378      3,264      3,407      2,929     (4,726)      6,654      6,957

Interest and other income, net             1,256      1,332      1,411      1,644      1,588      2,228       2,758      2,606
                                        --------------------------------------------------------------------------------------
Income (loss) before taxes                 4,036      4,710      4,675      5,051      4,517     (2,498)      9,412      9,563
Provision (benefit) for income taxes       1,825      1,530      1,585      2,075      2,600       (195)      2,820      2,300
                                        --------------------------------------------------------------------------------------

Net income (loss)                       $  2,211   $  3,180   $  3,090   $  2,976   $  1,917   ($ 2,303)   $  6,592   $  7,263
                                        ======================================================================================

Net income (loss) per share             $   0.12   $   0.17   $   0.16   $   0.15   $   0.10   ($  0.11)   $   0.33   $   0.36
                                        ======================================================================================

Shares used in per share calculations     19,065     19,105     19,320     19,360     19,700     20,120      20,095     20,395
                                        ======================================================================================

Stock Price (closing bid)
   High                                 $  17.11   $  17.25   $  17.59   $  17.17   $  25.00   $  27.00    $  23.75   $  32.00
   Low                                  $  12.89   $  13.33   $  15.50   $  14.17   $  16.50   $  22.00    $  20.25   $  21.13
</TABLE>
                                       2
<PAGE>
                                  Exhibit 13.1

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION & RESULTS OF OPERATIONS

<TABLE>

The table  below sets forth the  results of  operations  of the  Company for the
three fiscal years ended September 30, 1997:
<CAPTION>

                                                  PERCENTAGE OF REVENUE            YEAR-TO-YEAR
                                                 YEARS ENDED SEPTEMBER 30,        PERCENTAGE CHANGE
                                               ------------------------------   ---------------------
                                                1997        1996        1995     97 vs. 96  96 vs. 95
-----------------------------------------------------------------------------------------------------
<S>                                            <C>         <C>         <C>         <C>       <C>   
Revenue:
        Product licensing                       55.3%       52.9%       53.0%      14.4%       6.3%  
        Maintenance fees and other              44.7%       47.1%       47.0%       3.8%       6.9%
                Total revenue                  100.0%      100.0%      100.0%       9.4%       6.6%
                                               -----       -----       -----      -----      ----- 
Costs and expenses:                                                                          
        Cost of product licensing                7.6%        8.5%        7.7%      -2.1%      18.4%
        Cost of maintenance fees and other      10.0%       10.8%       10.8%       1.4%       6.3%
        Product development                     12.6%       12.5%       12.5%      11.4%       6.0%
        Sales and marketing                     48.6%       50.9%       51.3%       4.4%       5.8%
        General and administrative               9.4%       10.1%       10.1%       0.6%       7.3%
        Acquisition and nonrecurring costs       5.7%        --          --         N/A        N/A
                                               -----       -----       -----      -----      ----- 
                Total costs and expenses        93.9%       92.8%       92.4%      10.7%       7.1%
                                               -----       -----       -----      -----      ----- 
                                                                                             
                Operating income                 6.1%        7.2%        7.6%      -7.9%       0.3%
                                                                                             
Interest and other income, net                   4.7%        3.1%        2.3%      62.7%      44.4%
                                               -----       -----       -----      -----      ----- 
Income before provision for income taxes        10.8%       10.3%        9.9%      13.7%      10.7%
Provision for income taxes                       3.8%        3.9%        3.0%       7.3%      38.2%
                                               -----       -----       -----      -----      ----- 
Net income before extraordinary item             7.0%        6.4%        6.9%      17.6%      -1.4%
Extraordinary gain on forgiveness of debt        --          --          0.9%       N/A        N/A
                                               -----       -----       -----      -----      ----- 
Net income                                       7.0%        6.4%        7.8%      17.6%     -12.7%
                                               =====       =====       =====      =====      =====
</TABLE>

                                       3
<PAGE>                                                           

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

Acquisition
On January 16, 1997, the Company  acquired all of the outstanding  capital stock
of MAXM Systems Corporation  ("MAXM"), a privately held company, in exchange for
up to 1,137,115  shares of Boole & Babbage  common stock.  The  transaction  was
accounted  for  using  the  pooling  of  interests   method  and  the  Company's
consolidated  financial  statements  for all prior periods have been restated to
include the results of MAXM.
<TABLE>

Revenue
The Company  derives  its  revenues  primarily  from the  licensing  of computer
software  programs,   the  sales  of  software  maintenance  services  and  from
consulting and  educational  services.  The following  table shows  year-to-year
percentage changes as reported; without the effect of currency rate changes; and
without the revenues of MAXM for all periods.
<CAPTION>
                                                         
Growth Rates:                   As Reported           Without Currency Effect       Without MAXM Results
                         --------------------------   ------------------------    ------------------------
Product Licensing          97 vs. 96    96 vs. 95     97 vs. 96     96 vs. 95     97 vs. 96     96 vs. 95
<S>                          <C>          <C>            <C>          <C>            <C>          <C>  
Product Group:
  Client/Server               4.9%        16.0%          13.2%        17.5%          43.6%        73.4%
  Mainframe                  18.0%         3.0%          26.4%         4.9%          26.4%         4.9%
                             ----         ----           ----         ----           ----         ---- 
                             14.4%         6.3%          22.7%         8.1%          30.2%        14.9%
                             ====         ====           ====         ====           ====         ==== 
Sales Channel:                                                                                    
  Domestic                   23.5%        (5.9%)         23.5%        (5.9%)         35.2%        17.9%
  International               9.8%        13.7%          22.3%        16.6%          27.8%        13.6%
                             ----         ----           ----         ----           ----         ---- 
                             14.4%         6.3%          22.7%         8.1%          30.2%        14.9%
                             ====         ====           ====         ====           ====         ==== 
                                                                                                  
Maintenance fees and                                                                              
other                         3.8%         6.9%          10.6%         8.6%          15.0%         5.5%
                             ====         ====           ====         ====           ====         ==== 
                                                                                                  
Total revenue                 9.4%         6.6%          17.0%         8.3%          23.1%        10.3%
                             ====         ====           ====         ====           ====         ==== 
</TABLE>

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

Products
The Company  anticipates  that the  Client/Server  group of  products  will show
higher growth rates for fiscal 1998. However,  the Company competes with certain
companies who have much greater  financial and operational  resources 

                                       4
<PAGE>

along with larger  customer  bases.  This could allow those  companies to bundle
competing products with more established non-competing products in order to gain
a marketing advantage.  In addition,  the Company is dependent on the success of
its new Explorer family of Windows NT and Web-based products relating to its new
Desired-State  Management  initiative.  This initiative represents a significant
expansion of the SpaceView, COMMAND/POST, and Command MQ product lines. There is
also a potential  diversion of customers' business attention and project funding
toward Year 2000 projects. Due to these factors, there can be no assurances that
new or even existing  products  will achieve  significant  market  acceptance or
competitive success and thus contribute to revenue growth.

     Mainframe  products  include Plex products which enable customers to handle
large  groups of  computer  processors,  particularly  the  parallel  processing
machines from IBM. In the mainframe  market,  industry  analysts have  projected
that systems  management  spending will only grow at  approximately  5% per year
through the year 2000.  They also  project that while the majority of large data
centers have adopted a sysplex strategy,  mid-size data centers will not broadly
adopt these parallel  processors until 1998 or later.  Thus,  despite a flattish
mainframe  market,  the Company's product licensing growth has benefited by data
centers  adopting  this new  technology.  This has also helped to  increase  the
number of competitive replacements which in 1997 accounted for approximately 16%
of  licensing  revenue  compared  with  approximately  11% in 1996.  These occur
primarily through multi-year licensing agreements which comprised  approximately
50% of the licensing  revenue in 1997 and 1996. Thus,  future growth rates could
be materially and adversely  affected if these  parallel  processors do not gain
significant  market  acceptance among the mid-size data centers,  if the rate of
successful  competitive  replacements slows, or if customer spending shifts away
from traditional  mainframes to technology  platforms where the Company does not
have significant product acceptance.
     
     A price increase on selected  products was implemented in January 1997, but
did not have a significant  effect on recognized  revenue in 1997. Price changes
during 1996 and 1995 were not significant.

Markets
Domestic:
Domestic  licensing  comprised 36.1%, 33.5% and 37.8% of total product licensing
for 1997, 1996, and 1995,  respectively.  Domestic product  licensing grew 23.5%
overall in 1997 versus the decrease of 5.9% in 1996 which had resulted primarily
from decreased  productivity in the telesales  group.  For growth to continue in
the  domestic  market,  the  company  is  dependent  on  continued  productivity
increases as well as the ability to generate larger size transactions, primarily
through multi-year contracts and competitive replacements.

International:
In 1997, the Company's licensing from its international operations, comprised of
foreign  subsidiaries and marketing agents,  increased 9.8% as a result of solid
growth in all channels despite unfavorable currency exchange rates. In 1996, the
Company's  licensing  from its  international  operations  increased  13.7% as a
result of  strong  growth in Europe  which was  somewhat  offset by  unfavorable
currency  exchange rates. In addition to the risks  described  above,  since the
majority  of  product  licensing  is derived  from  international  markets,  the
Company's  overall  operations and financial  results could be significantly and
adversely affected by such international factors as changes in currency exchange
rates and specific regional or country political and economic circumstances.

Maintenance Fees and Other
Maintenance  revenue is generated from services the Company  provides  including
technical support, product enhancements,  system updates and user documentation.
Maintenance  revenue also includes  maintenance  services for an initial  period
ranging from six months to one year which is included in the initial charge when
the  Company  licenses  its  software  products  under  a  long-term  agreement.
Thereafter on each  anniversary  date of the license,  the customer may elect to
renew its  maintenance  agreement with the Company.  Customers may also elect to
purchase  advance  maintenance at the time of product  licensing for maintenance
periods beyond the first year. Included in maintenance fees and other is revenue
from consulting and educational services,  computer services, hardware sales and
royalties  from IBM for the jointly  developed  CICS product.  In July 1996,

                                       5
<PAGE>

the Company entered into a long-term  licensing  agreement requiring IBM to make
royalty payments,  based upon their sales of the product, of up to approximately
$10 million for the period  from the fourth  quarter of 1996  through the second
quarter of fiscal 1999.  The Company has  recognized  $5.4 million in revenue of
which $4.3 million has been paid through  September 30, 1997. Since there are no
minimum  generated  amounts,   actual  royalties  due  to  the  Company  may  be
significantly below the annual maximum amounts.

     The  increases  in  maintenance  fees and other are  mainly  the  result of
increased  product licensing in the previous years combined with relatively high
renewal rates and increased royalties from IBM under the July 1996 agreement.

     In both years,  the  maintenance  revenue  growth  rates are lower than the
licensing  growth rates primarily as a result of fewer customer sites due to the
consolidation  of  customer  data  centers;   reduced  revenue  associated  with
customers'  conversion to non-CPU  specific  pricing  systems such as MIPS-based
pricing;  and higher  discount  levels  offered by the Company on  multiple-year
maintenance packages.

     The Company  anticipates that maintenance revenue in 1998 will increase due
to the higher license  revenue  growth in 1997,  although it will continue to be
negatively  impacted by reduced  revenue  associated  with site  consolidations,
non-CPU specific pricing and discounted multiple-year maintenance packages.

     The Company must  continue to generate new product  licensing  revenues and
also continue to provide high quality maintenance support and upgrades to ensure
future maintenance revenue increases.
<TABLE>

Costs and expenses
The following table shows year-to-year percentage changes of costs and expenses,
excluding  acquisition and non-recurring costs, as reported;  without the effect
of currency  rate changes;  and without the costs and expenses  relating to MAXM
for all periods.

<CAPTION>
                                                       
Growth Rates:                  As Reported             Without Currency Effect       Without MAXM Results
                        ---------------------------    ------------------------    ------------------------
                           97 vs. 96     96 vs. 95    97 vs. 96     96 vs. 95     97 vs. 96     96 vs. 95
<S>                            <C>           <C>          <C>           <C>           <C>           <C>  
Cost of product
licensing                      (2.1%)        18.4%         6.9%         20.1%         11.8%         20.4%
Cost of maintenance
fees and other                  1.4%%         6.3%         7.9%          9.2%         21.7%          4.9%
Product development            11.4%          6.0%        13.0%          6.3%         17.8%         16.5%

Sales and marketing             4.4%          5.8%        11.2%          7.4%         19.7%          6.5%
General and
administrative                  0.6%          7.3%         5.1%          8.6%         14.4%          7.3%
                               ----          ----         ----          ----          ----          ---- 
      Total costs and
       expenses                 4.0%          7.1%        10.0%          8.7%         18.3%          8.9%
                               ====          ====         ====          ====          ====          ==== 
</TABLE>

Cost of Product Licensing
Cost of product  licensing  consists  primarily of royalties paid to independent
software  authors  and  amortization  of  purchased  and  internally   developed
software.  In both years, the increases were primarily due to higher third-party
royalties from increased third-party licensing in Europe and Japan. In the third
quarter of 1996 there was a charge of  approximately $1 million on the remaining
royalty commitments on a third-party  product.  In general,  fluctuations in the
relationship  of cost of product  licensing  to revenue are caused  primarily by
changes in licensing  revenue  mix,  royalty  agreements,  and  amortization  of
capitalized software.

                                       6
<PAGE>

Cost of Maintenance Fees and Other
Cost of  maintenance  fees  and  other  consists  primarily  of cost of  product
maintenance   support,   royalties   paid  to  independent   software   authors,
amortization of purchased and internally developed software, the cost to provide
educational  and  consulting  services  and costs  related to  certain  computer
services.  In  1997,  the  increase  was due  primarily  to  higher  third-party
royalties  in  Europe  as a result of the  expiration  of a reduced  rate from a
third-party vendor which was in effect from the second quarter of fiscal 1995 to
the fourth quarter of fiscal 1996. Cost of educational  and consulting  services
was  up in  proportion  to the  services  revenue  increase  although  this  was
partially offset by lower  maintenance  support costs. In 1996, the increase was
primarily due to higher cost of educational  and consulting  services  partially
offset by lower maintenance  support costs and software  amortization.  Software
amortization was down due to write-offs in 1995 of certain software products and
the full amortization of products  purchased in July 1991.  Maintenance  support
costs  are  down as a result  of more  efficient  processes  which  allowed  the
redeployment  of  personnel  to research and  development  ("R&D").  In general,
fluctuations  in the  relationship  of cost of  maintenance  fees  and  other to
revenue are caused primarily by changes in maintenance revenue mix,  educational
and  consulting  revenue,   maintenance   support,   royalty   agreements,   and
amortization of capitalized software.

Product Development
In 1997,  the  increase in product  development  is  primarily  due to increased
headcount and consulting  costs. The increase in 1996 is due to higher personnel
costs as  headcount  replacements  were filled and certain  maintenance  support
employees were transferred to R&D. The Company capitalizes  development costs in
accordance  with  Statement of  Financial  Accounting  Standards  No. 86. To the
extent the Company  capitalizes its product  development costs, the effect is to
defer such costs to future  periods and match them to the revenue  generated  by
the products.  Product development  expenses may fluctuate annually depending in
part upon the number and status of internal software development projects.


Sales and Marketing
In 1997,  the increase in sales and  marketing  was primarily a result of higher
sales commissions on increased product licensing.  In addition,  1997 had higher
product marketing costs and  international  sales costs. The increase in 1996 is
primarily  a result of higher  commissions  on  increased  sales.  Higher  sales
personnel costs internationally were partially offset by lower product marketing
costs.

General and Administrative
The increase in costs in 1997 is primarily  attributable to higher personnel and
consulting costs,  European facility costs and performance-based  accruals.  The
increase in 1996 was primarily a result of a prior year lease termination credit
combined with higher 1996 facilities  costs for relocating  certain European and
Japanese offices.

Acquisition and Non-recurring Costs
During the second quarter of 1997, the Company had  approximately  $11.3 million
of non-recurring  costs comprised of $1 million of purchased R&D costs and $10.3
million of acquisition  costs related to the purchase of MAXM. These acquisition
costs  consisted  primarily  of $4.0  million of  termination  costs  related to
reseller  agreements,  $2.8  million of employee  costs,  $1.6  million of costs
related to closing redundant  facilities and $1.9 million of legal,  accounting,
broker fees and other.


Interest and Other 
Interest and other income consists principally of interest income or expense and
gain or loss from sales of  investments,  currency  or  disposal  of assets.  An
increase of 62.7% over 1996 was primarily the result of higher  interest  income
on more lease contracts  receivable,  lower interest expense as the MAXM line of
credit was paid off in 1997 and less currency losses. The 44.4% increase in 1996
was  primarily  the  result of more  interest  income as gross  lease  contracts
receivable  was higher and there was  approximately  $300,000 of gain on sale of
investment  securities  versus a $300,000  loss in 1995.  These  increases  were
somewhat  mitigated by higher currency losses.  As further  described in Note 1,
the Company has a hedging program

                                       7
<PAGE>

to attempt to reduce its exposure to currency fluctuations.

Income Taxes
The effective tax rates were 35.8%,  38.0%,  and 30.4% for 1997,  1996 and 1995,
respectively.  Without  the  impact  of  non-deductible  acquisition  costs  and
pre-acquisition  operating  losses of MAXM,  the effective tax rates were 28.5%,
28.0% and 30.0%,  respectively.  It is anticipated that the Company's  effective
tax rate in 1998 will  approximate  these  non-acquisition  related  rates.  The
Company's  effective tax rates before the valuation allowance for MAXM operating
losses and  non-deductible  acquisition  costs differ from the federal statutory
rate  primarily due to  permanently  invested  earnings of foreign  subsidiaries
being taxed at rates lower than the federal  statutory  rate and tax credits for
increased  research  and  development.  At September  30, 1997,  the Company had
carryforwards  of  MAXM's  pre-acquisition   federal  net  operating  losses  of
approximately $43.8 million that will expire between 2003 and 2012.

Recent Accounting Pronouncements

         SFAS No. 128,  "Earnings per share," was issued in February 1997 and is
required  for  periods   ending  after  December  15,  1997.  It  requires  dual
presentation of earnings per share ("EPS");  basic EPS and diluted EPS (see Note
1 of Notes to Consolidated Financial Statements).

     SOP 97-2,  "Software Revenue  Recognition," was issued in November 1997 and
is required for periods ending after December 15, 1997. It provides  guidance on
applying GAAP in recognizing revenue on software  transactions and the impact on
the results of operations is not expected to be material.

Liquidity and Capital Resources
At September 30, 1997,  the Company's  cash,  cash  equivalents  and  short-term
investments were $56,973,000.  The Company continues to use installment  payment
plans  to  gain a  competitive  advantage  during  the  sales  process  and  had
outstanding  installment  receivables of $124,792,000 at September 30, 1997. The
Company  periodically  sells  portions of  installments  receivables  subject to
limited recourse provisions. During 1997, the Company sold $8,140,000.

The  Company  continues  to finance  its growth  through  funds  generated  from
operations. For the year ended September 30, 1997 net cash provided by operating
activities   before   acquisition  and   non-recurring   costs  was  $9,726,000.
Acquisition and non-recurring expenses of $9,744,000 were paid in 1997. Net cash
used in investing  activities in 1997 was  $7,690,000,  primarily for internally
developed  and  purchased  capitalized  software,  acquisition  of computers and
related  equipment  and the  purchase  of equity  securities.  Cash  provided by
investing  activities was due to net sales of short-term  investments.  Net cash
provided by financing activities in 1997 was $7,628,000, primarily from the sale
of lease contracts receivable,  the exercise of employee stock options and stock
purchases  through the Employee  Stock  Purchase  Plan.  Cash used for financing
activities  relates  to the  Company's  stock  repurchase  program  and to  debt
payment.

         On July 30, 1997, a share  repurchase plan was adopted which authorized
the  Company  to  acquire  500,000  shares of its common  stock.  The  Company's
previous  stock  repurchase  plan was  rescinded in  accordance  with pooling of
interest accounting in connection with the MAXM acquisition. During fiscal 1997,
the Company  repurchased 85,000 shares of its common stock, 55,000 of which were
purchased under the new plan, for an aggregate purchase price of $2,072,000.

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

                                       8
<PAGE>
                                  Exhibit 13.1
<TABLE>

Boole & Babbage, Inc.
Consolidated Statements of Income
<CAPTION>

                                                           Years Ended September 30,
                                                        ------------------------------
(In thousands, except per share amounts)                  1997       1996       1995
--------------------------------------------------------------------------------------
<S>                                                     <C>        <C>        <C>              
Revenue:
      Product licensing                                 $108,909   $ 95,219   $ 89,542      
      Maintenance fees and other                          88,188     84,932     79,485        
                                                        --------   --------   --------
           Total revenue                                 197,097    180,151    169,027
                                                        --------   --------   --------

Costs and expenses:
      Cost of product licensing                           15,030     15,355     12,964
      Cost of maintenance fees and other                  19,751     19,483     18,329
      Product development                                 24,881     22,326     21,056
      Sales and marketing                                 95,817     91,766     86,753
      General and administrative                          18,495     18,392     17,140
      Acquisition and nonrecurring costs                  11,309       --         --
                                                        --------   --------   --------
           Total costs and expenses                      185,283    167,322    156,242
                                                        --------   --------   --------

Operating income                                          11,814     12,829     12,785

Interest and other income, net                             9,180      5,643      3,907
                                                        --------   --------   --------
Income before provision for income taxes                  20,994     18,472     16,692

Provision for income taxes                                 7,525      7,015      5,076
                                                        --------   --------   --------
Net income before extraordinary item                      13,469     11,457     11,616

Extraordinary gain on forgiveness of debt of acquired
    companies, net of $924,000 tax provision                --         --        1,507
                                                        --------   --------   --------
Net income                                              $ 13,469   $ 11,457   $ 13,123
                                                        ========   ========   ========

Net income per share                                    $   0.67   $   0.60   $   0.71
                                                        ========   ========   ========

Shares used in per share calculations                     20,095     19,210     18,465
                                                        ========   ========   ========
</TABLE>

                                       9
<PAGE>
                                  Exhibit 13.1
<TABLE>

Boole & Babbage, Inc.
Consolidated Balance Sheets
<CAPTION>
                                                                                             September 30,
                                                                                  -----------------------------------
(Dollars in thousands)                                                              1997          1996         1995
---------------------------------------------------------------------------------------------------------------------
<S>                                                                               <C>          <C>          <C>      
Assets
Current assets:
    Cash and cash equivalents                                                     $  33,923    $  37,260    $  26,247
    Short-term investments                                                           23,050       24,750       15,800
    Accounts receivable, net                                                         26,412       27,955       33,565
    Installment and other receivables, net                                           65,469       46,221       28,066
    Deferred tax asset                                                                6,154        5,649        5,810
    Prepaid expenses and other current assets                                         4,513        4,383        6,832
                                                                                  ---------    ---------    ---------
        Total current assets                                                        159,521      146,218      116,320

Purchased and internally developed software, net                                     12,152       11,614       12,278
Equipment, furniture and leasehold improvements, net                                  9,968       12,763       10,914
Long-term installment and other receivables                                          52,290       39,141       32,223
Long-term deferred tax asset                                                         10,571        9,472        7,778
Costs in excess of net assets of purchased businesses, net                              634          660          687
Other assets                                                                         15,008        4,672        2,627
                                                                                  ---------    ---------    ---------
        Total assets                                                              $ 260,144    $ 224,540    $ 182,827
                                                                                  =========    =========    =========

Liabilities and Stockholders' Equity
Current liabilities:
     Accounts payable                                                             $   8,895    $   7,605    $   8,261
     Accrued payroll expense                                                          9,840        7,890        7,149
     Other accrued liabilities                                                       27,080       25,090       22,449
     Short-term borrowings                                                            1,016        3,150          400
     Notes payable due within one year                                                  319          469          680
     Capital lease obligations due within one year                                      933        1,813        1,844
     Deferred maintenance revenue                                                    53,432       51,241       43,411
                                                                                  ---------    ---------    ---------
        Total current liabilities                                                   101,515       97,258       84,194

Notes payable due after one year                                                         50          444          863
Capital lease obligations due after one year                                          1,795        2,825        1,212
Deferred maintenance revenue due after one year                                      38,282       28,949       18,057

Stockholders' equity:
     Preferred stock, 2,000,000 shares authorized, $.001 par value, none issued        --           --           --
     Common stock, $.001 par value, authorized--45,000,000 shares; issued--
         19,979,810 (19,111,374 and 18,343,248 in 1996 and 1995, respectively)           20           19           18
     Additional paid-in capital                                                      91,970       81,044       73,911
     Retained earnings                                                               32,800       19,331        7,874
     Unrealized gain on marketable securities                                         5,691          370          132
     Foreign currency translation adjustment                                         (3,503)         704        1,051
     Less treasury stock, 1,228,788 shares (1,143,788 and 1,024,988 shares
         in 1996 and 1995, respectively), at cost                                    (8,476)      (6,404)      (4,485)
                                                                                  ---------    ---------    ---------
        Total stockholders' equity                                                  118,502       95,064       78,501
                                                                                  ---------    ---------    ---------
        Total liabilities and stockholders' equity                                $ 260,144    $ 224,540    $ 182,827
                                                                                  =========    =========    =========
</TABLE>
                                       10
<PAGE>
                                  Exhibit 13.1


<TABLE>

Boole & Babbage, Inc.
Consolidated Statements of  Cash Flows
<CAPTION>
                                                                                             September 30,
                                                                                  -----------------------------------
(Dollars in thousands)                                                              1997          1996         1995
---------------------------------------------------------------------------------------------------------------------
<S>                                                                                <C>         <C>         <C>     
Cash flows from operating activities:
  Net income                                                                       $ 13,469    $ 11,457    $ 13,123
  Adjustments to reconcile net income to net cash
      provided by (used for) operating activities:
      Depreciation, amortization and write-off of capitalized software                9,672      10,415      10,766
      Loss on disposal of assets                                                        413         279         103
      Gain on sale of equity securities                                                --          (291)       --
      Extraordinary gain on forgiveness of debt, net of tax                            --          --        (1,507)
      Deferred income taxes                                                          (4,772)     (1,634)     (1,884)
      Stock issued under compensatory stock plans                                        96         272         138
      Minority interest                                                                --          --           (62)
      Changes in  operating  assets  and  liabilities  excluding  the  effect of
         acquisitions:
         Accounts receivable and installment and other receivables                  (45,472)    (35,976)    (26,325)
         Prepaid expenses and other assets                                           (1,926)      2,296      (2,152)
         Accounts payable and accrued expenses                                       12,930       5,599       4,164
         Deferred maintenance revenue                                                15,572      19,267      11,607
                                                                                   --------    --------    --------

Net cash provided by (used for) operating activities                                    (18)     11,684       7,971
                                                                                   --------    --------    --------

Cash flows from investing activities:
     Purchases of equipment, furniture and leasehold improvements                    (3,752)     (5,495)     (5,584)
     Payments for capitalized software                                               (5,277)     (3,941)     (3,048)
     Net sales (purchases) of short-term investments                                  1,700      (8,950)    (15,510)
     Investment in equity securities                                                   (361)     (2,085)       (346)
     Proceeds from sale of equity securities                                           --           717        --
                                                                                   --------    --------    --------

Net cash used for investing activities                                               (7,690)    (19,754)    (24,488)
                                                                                   --------    --------    --------

Cash flows from financing activities:
      Sale of lease contracts receivables                                             8,140      15,849        --
      Proceeds from issuance of common stock                                          5,988       4,375       6,865
      Purchase of treasury stock                                                     (2,072)     (1,919)       --
      Borrowings (payments) under line of credit                                     (2,134)      2,750         400
      Payments on notes payable                                                        (282)       (626)     (3,583)
      Borrowings on sales leaseback transactions                                       --         1,184         855
      Payments on capital leases                                                     (2,012)     (2,108)     (2,333)
                                                                                   --------    --------    --------

Net cash provided by financing activities                                             7,628      19,505       2,204
                                                                                   --------    --------    --------

Effect of exchange rate changes on cash                                              (3,257)       (422)        766
                                                                                   --------    --------    --------

Net increase (decrease) in cash and cash equivalents                                 (3,337)     11,013     (13,547)

Cash and cash equivalents at beginning of year                                       37,260      26,247      39,794
                                                                                   --------    --------    --------

Cash and cash equivalents at end of year                                           $ 33,923    $ 37,260    $ 26,247
                                                                                   ========    ========    ========

Supplemental  disclosures  of cash flow  information: 
      Cash paid during the year for:
          Interest                                                                 $  1,638    $    916    $  1,299
          Income taxes                                                             $  7,935    $  4,783    $  3,355

<FN>

Supplemental disclosures of non-cash investing and financing activities:
        Capital lease  obligations  of $2,505,000  were incurred in 1996 for the
        purchase of  equipment.  A capital  lease  obligation  of  $103,000  was
        incurred in 1995 for the purchase of equipment.
</FN>
</TABLE>
                                       11
<PAGE>
                                  Exhibit 13.1
<TABLE>

Boole & Babbage, Inc.
Consolidated Statements of Stockholders' Equity

<CAPTION>
                                                                                                                
                                                          Common Stock          Additional                      Unrealized Gain 
                                                    ------------------------      Paid-in        Retained        on Marketable  
(Dollars in thousands)                              Shares          Amount        Capital        Earnings          Securities   
--------------------------------------------------------------------------------------------------------------------------------
<S>                                                 <C>           <C>           <C>            <C>                   <C>
Balance, September 30, 1994                         17,527,349    $        18   $    60,015    ($    5,249)          $170

Other equity transactions of acquired companies        177,122           --           6,892           --               --
Exercise of employee stock options and
     related tax benefit                               486,137           --           5,892           --               --
Sale of common stock under the employee
     stock purchase plan and related tax benefit       141,380           --             974           --               --
Issuance of common stock under the
     employee incentive stock plan                      11,260           --             138           --               --
Unrealized loss on marketable securities,
     net of taxes                                         --             --            --             --              (38)
Foreign currency translation adjustment                   --             --            --             --               --
Net income                                                --             --            --           13,123             --
                                                    ----------    -----------   -----------    -----------         ------
Balance, September 30, 1995                         18,343,248             18        73,911          7,874            132

Other equity transactions of acquired companies          8,931           --             341           --               --
Exercise of employee stock options and
     related tax benefit                               620,682              1         5,362           --               --
Sale of common stock under the employee
     stock purchase plan and related tax benefit       131,561           --           1,323           --               --
Issuance of common stock under the
     employee incentive stock plan                       6,952           --             107           --               --
Unrealized gain on marketable securities,
     net of taxes                                         --             --            --             --              238
Purchase of treasury stock                                --             --            --             --               --
Foreign currency translation adjustment                   --             --            --             --               --
Net income                                                --             --            --           11,457             --
                                                    ----------    -----------   -----------    -----------         ------
Balance, September 30, 1996                         19,111,374             19        81,044         19,331            370

Other equity transactions of acquired companies         (1,778)          --             (34)          --               --
Exercise of employee stock options and
     related tax benefit                               732,412              1         9,062           --               --
Sale of common stock under the employee
     stock purchase plan and related tax benefit       132,262           --           1,768           --               --
Issuance of common stock under the
     employee incentive stock plan                       5,540           --             130           --               --
Unrealized gain on marketable securities,
     net of taxes                                         --             --            --             --            5,321
Purchase of treasury stock                                --             --            --             --               --
Foreign currency translation adjustment                   --             --            --             --               --
Net income                                                --             --            --           13,469             --
                                                    ----------    -----------   -----------    -----------         ------
Balance, September 30, 1997                         19,979,810    $        20   $    91,970    $    32,800         $5,691
                                                    ==========    ===========   ===========    ===========         ======
</TABLE>

<TABLE>

Boole & Babbage, Inc.
Consolidated Statements of Stockholders' Equity

<CAPTION>
                                                       Foreign                         Total
                                                      Currency                         Stock-
                                                     Translation        Treasury      holders'
(Dollars in thousands)                                Adjustment         Stock         Equity
-----------------------------------------------------------------------------------------------
<S>                                                   <C>            <C>            <C>        
Balance, September 30, 1994                           ($       52)   ($    4,485)   $    50,417

Other equity transactions of acquired companies              --             --            6,892
Exercise of employee stock options and
     related tax benefit                                     --             --            5,892
Sale of common stock under the employee
     stock purchase plan and related tax benefit             --             --              974
Issuance of common stock under the
     employee incentive stock plan                           --             --              138
Unrealized loss on marketable securities,
     net of taxes                                            --             --              (38)
Foreign currency translation adjustment                     1,103           --            1,103
Net income                                                   --             --           13,123
                                                      -----------    -----------    -----------
Balance, September 30, 1995                                 1,051         (4,485)        78,501

Other equity transactions of acquired companies              --             --              341
Exercise of employee stock options and
     related tax benefit                                     --             --            5,363
Sale of common stock under the employee
     stock purchase plan and related tax benefit             --             --            1,323
Issuance of common stock under the
     employee incentive stock plan                           --             --              107
Unrealized gain on marketable securities,
     net of taxes                                            --             --              238
Purchase of treasury stock                                   --           (1,919)        (1,919)
Foreign currency translation adjustment                      (347)          --             (347)
Net income                                                   --             --           11,457
                                                      -----------    -----------    -----------
Balance, September 30, 1996                                   704         (6,404)        95,064

Other equity transactions of acquired companies              --             --              (34)
Exercise of employee stock options and
     related tax benefit                                     --             --            9,063
Sale of common stock under the employee
     stock purchase plan and related tax benefit             --             --            1,768
Issuance of common stock under the
     employee incentive stock plan                           --             --              130
Unrealized gain on marketable securities,
     net of taxes                                            --             --            5,321
Purchase of treasury stock                                   --           (2,072)        (2,072)
Foreign currency translation adjustment                    (4,207)          --           (4,207)
Net income                                                   --             --           13,469
                                                      -----------    -----------    -----------
Balance, September 30, 1997                           ($    3,503)   ($    8,476)   $   118,502
                                                      ===========    ===========    ===========
</TABLE>

                                       12
<PAGE>

1.  Summary of Significant Accounting Policies


Business
Boole & Babbage,  Inc. ("the Company") is a worldwide leader in availability and
service level  management for  distributed  systems.  Its Enterprise  Automation
product lines provide a flexible and scalable set of solutions for the entire IT
enterprise  including  systems,  applications,  middleware,  databases  and  Web
technologies.


Basis of Presentation
The accompanying  financial statements include the wholly-owned  subsidiaries of
Boole & Babbage, and Joint Systems & Technology (JST), a majority-owned Japanese
subsidiary  of  Boole &  Babbage.  All  significant  intercompany  accounts  and
transactions have been eliminated.

      As more  fully  described  in Note 2, on  January  16,  1997  the  Company
acquired MAXM Systems  Corporation  ("MAXM").  The transaction was accounted for
using the pooling of interests method and the Company's  consolidated  financial
statements  for all prior  periods have been  restated to include the results of
MAXM.

      The  preparation  of financial  statements  in conformity  with  generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that affect the amounts  reported in the financial  statements  and
accompanying notes. Actual results could differ from those estimates.


Cash, Cash Equivalents and Short-Term Investments
The Company  considers all highly liquid  investments  that mature within ninety
days of purchase to be cash equivalents. At September 30, 1997, cash equivalents
consisted of $6,449,000 of time deposits with original  maturities of 30 days or
less.  All of the Company's cash  equivalents  and  short-term  investments  are
classified as available-for-sale  and are reported at fair value with unrealized
gains and losses included in equity. Fair values are based upon quoted prices in
an active  market or if that  information  is not  available,  on quoted  market
prices of instruments of similar  characteristics.  At September 30, 1997,  cost
approximated fair value for all cash equivalents and short-term investments. All
of the Company's  short-term  available-for-sale  securities  have a contractual
maturity of one year or less.  Realized  gains and losses and  declines in value
judged to be other than  temporary  are  included in interest  income.  To date,
there have been no  significant  gains or losses  realized on the Company's cash
equivalents or short-term investments. The cost of securities sold is based upon
the specific identification method.

Short-term investments consist of the following:

 (Dollars in thousands)    1997     1996      1995
------------------------ --------- -------- ---------
Municipal bonds and       $ 9,600  $16,000   $ 7,500
notes
Auction preferred stock    13,450    6,750     4,000
Taxable commercial           -       2,000     1,500
paper
Certificates of deposit      -         -       2,800
                         --------- -------- ---------
                          $23,050  $24,750   $15,800
                         ========= ======== =========

Receivables
Accounts  receivable  and  installment  receivables  are net of  allowances  for
doubtful accounts of $1,995,000,  $2,277,000,  and $2,103,000,  at September 30,
1997,  1996,  and 1995,  respectively.  The Company  markets  computer  software
systems to customers in diversified  industries.  Ongoing credit  evaluations of
its  customers'  financial  condition  are made and  generally no  collateral is
required.


Revenue Recognition
Revenue  from  product  licensing  is  recognized  after  delivery  and customer
acceptance without contingencies. Each license contract entitles the customer to
maintenance and  enhancements  for a period ranging from six months to one year.
The  portion of the  contract  fee  associated  with  providing  maintenance  is
deferred and recognized ratably over the period as maintenance fees. The Company
uses  the  same  percentage  to  compute  maintenance  included  in the  product
licensing  amount as it uses to price subsequent year  maintenance.  Revenue and
related  royalty  and agent  commission  costs from  maintenance  contracts  are
deferred and recognized ratably over the renewal periods.

      In connection with long-term leases of software,  the net present value of
the lease payments  related to the product license is recognized as revenue upon
the commencement of the lease.  Related interest income and maintenance  revenue
are recognized ratably over the lease term.

      Revenue from sales through marketing agents in certain overseas markets is
recorded at the gross sales price to the customer,  and the commissions withheld
by these agents are included in sales and marketing expense.

                                       13
<PAGE>

Equipment, Furniture and Leasehold Improvements
Equipment, furniture and leasehold improvements are stated at cost. Depreciation
and amortization are provided  principally on a straight-line  basis over useful
lives ranging from 3 to 10 years. Assets under capital leases are amortized over
the shorter of the asset life or the remaining lease term. Equipment,  furniture
and leasehold improvements consist of the following:

                        -------------------------------
                                September 30,
                        -------------------------------
(Dollars in thousands)       1997      1996       1995
----------------------- ---------- --------- ----------
Equipment                $ 34,200  $ 37,938   $ 31,892
Furniture                  10,381     9,288      8,571
Leasehold improvements      1,259     1,982      1,796
                        ---------- --------- ----------
                           45,840    49,208     42,259
Accumulated depreciation   35,872    36,445     31,345
                        ---------- --------- ----------
                         $  9,968  $ 12,763   $ 10,914
                        ========== ========= ==========

Costs in Excess of Net Assets of Purchased Businesses
The excess of the purchase price over the net assets of Boole & Babbage  Europe,
a wholly-owned  subsidiary,  is being amortized on a straight-line basis over 40
years.  Costs in excess of net assets of  purchased  businesses  are  summarized
below:

                             --------------------------
                                   September 30,
                             --------------------------
(Dollars in thousands)          1997     1996     1995
---------------------------- -------- -------- --------
Costs in excess of net 
assets of purchased                             
  businesses                 $ 1,056  $ 1,056  $ 1,056
Accumulated amortization         422      396      369
                             -------- -------- --------
                             $   634  $   660  $   687
                             ======== ======== ========

Marketable Securities
Included in noncurrent other assets are marketable  equity  securities which are
classified as available for sale and stated at fair value. Fair values are based
upon quoted prices in an active market.

                             --------------------------
                                   September 30,
                             --------------------------
(Dollars in thousands)          1997     1996     1995
---------------------------- -------- -------- --------
Cost of marketable            
  securities                 $ 3,212  $ 2,850   $1,193
Unrealized gain                9,546      625      230
                             -------- -------- --------
                             $12,758  $ 3,475   $1,423
                             ======== ======== ========

The unrealized  gain is recorded net of tax in a separate  stockholders'  equity
account as follows:

                             --------------------------
                                   September 30,
                             --------------------------
(Dollars in thousands)          1997     1996     1995
---------------------------- -------- -------- --------
Unrealized gain              $ 9,546    $ 625    $ 230
Deferred income tax           (3,855)    (255)     (98)
                             -------- -------- --------
                             $ 5,691    $ 370    $ 132
                             ======== ======== ========

Purchased and Internally Developed Software
Capitalized  software consists of purchases of completed  software products from
outside vendors and internal costs  associated with the development of software.
Such costs are capitalized and amortized in accordance with guidelines set forth
in  Financial  Accounting  Standard  No. 86,  "Accounting  for Costs of Computer
Software to be Sold, Leased, or Otherwise Marketed" (FAS 86). All software costs
are  amortized  to cost of  revenue  on the  basis of each  product's  projected
revenues or on a straight-line  basis over the remaining estimated economic life
of the products,  whichever is greater.  The estimated economic lives range from
five to seven  years.  Amortization  of  capitalized  software  was  $4,581,000,
$4,814,000, and $5,315,000 for 1997, 1996, and 1995, respectively.

Cost of Product Licensing
Cost of product  licensing  consists of royalties  paid to software  authors and
amortization of capitalized software.

Cost of Maintenance Fees and Other
Cost of maintenance fees and other consists of the cost of maintenance  support,
royalties paid to software authors,  amortization of capitalized  software,  the
cost to provide  educational and consulting  services,  and the costs of certain
computer services.

Product Development
Product development costs include expenditures for research and development, net
of amounts  capitalized.  Research  and  development  expenditures  included  in
product development costs are as follows:

                          ---------------------------
                          Years Ended September 30,
                          ---------------------------
(Dollars in thousands)     1997     1996      1995
------------------------- -------- -------- ---------
Total costs               $26,379  $24,483   $23,163
Less amounts capitalized    4,022    3,611     3,050
                          -------- -------- ---------
                          $22,357  $20,872   $20,113
                          ======== ======== =========

These  costs do not  include  either  the  expenditures  relating  to the  joint
development  project with IBM to develop systems management  products in support
of new CICS releases not the IBM reimbursements  which totaled  $1,375,000,  and
$2,080,000 in 1996, and 1995, respectively.

      In 1997,  the  company acquired  the  rights to a  client/server  software
product for $1,000,000 which was expensed as purchased research and development.
This expense in included under the caption  "acquisition and nonrecurring costs"
on the consolidated statements of income.

Accounting for Income Taxes
Income taxes are computed in accordance  with Statement of Financial  Accounting
Standards No. 109, "Accounting for Income Taxes."

Net Income Per Share
Net income per share is computed  using the  weighted  average  number of common
shares  outstanding  and shares  issuable  assuming the exercise of  outstanding
options using the treasury stock method. Fully diluted earnings per share is not
disclosed  because it is not  materially  different  from  primary  earnings per
share.

                                       14
<PAGE>

Foreign Currency
The assets and  liabilities of foreign  subsidiaries  are  translated  into U.S.
dollars at  current  exchange  rates.  Revenue  and  expense  accounts  of these
operations are translated at average exchange rates prevailing during the year.
Translation  gains and losses are  included as an  adjustment  to  stockholders'
equity.

      The Company has a hedging  strategy to attempt to minimize the  short-term
impact of foreign  currency  fluctuations  on its net asset  position in foreign
currencies. The foreign currency forward contracts have a term of ninety days or
less and settle  immediately after the end of the fiscal year. The contracts are
marked-to-market  and the fair value upon settlement  approximates  the carrying
value.  The gains and losses on these contracts are netted with gains and losses
on the  revaluation  of the net asset position and are included in income in the
period in which the  exchange  rates  change.  Aggregate  transaction  gains and
(losses)  included  in  determining  net  income  in 1997,  1996,  and 1995 were
approximately $992,000, ($958,000), and ($497,000),  respectively. These amounts
are  included  in the  consolidated  statements  of  income  under  the  caption
"interest and other income,  net." The Company had approximately  $50.4 million,
$34.5 million and $26.3 million of open forward exchange  contracts at September
30, 1997, 1996 and 1995, respectively.


Recent Accounting Pronouncements
In February 1997, the Financial  Accounting Standards Board issued Statement No.
128,  "Earning per Share," which is required to be adopted on December 31, 1997.
At that time,  the Company will be required to change the method  currently used
to compute  earnings per share and to restate all prior  periods.  Under the new
requirements for calculating  primary earnings per share, the dilutive effect of
stock plans will be excluded. The impact is expected to result in an increase in
primary   earnings  for  the  years  ended   September  30,  1997  and  1996  of
approximately $.06 and $.05 per share, respectively. The impact of Statement 128
in the  calculation  of fully  diluted  earnings per share is not expected to be
material.

         SOP 97-2, "Software Revenue  Recognition," was issued in November 1997.
Implementation  of SOP 97-2 is required for periods  ending  after  December 15,
1997 and provides  guidance on applying GAAP in recognizing  revenue on software
transactions.  The  impact  of SOP  97-2 on the  results  of  operations  is not
expected to be material.

      Statement  of  Financial  Accounting  Standards  No.  130,  ("SFAS  130"),
"Reporting Comprehensive Income" was issued in June 1997. Implementation of SFAS
130 is required  for periods  ending  after  December  15, 1997 and  establishes
standards for reporting and display of  comprehensive  income and its components
in a full set of general-purpose financial statements.

      Statement  of  Financial  Accounting  Standards  No.  131,  ("SFAS  131"),
"Disclosures about Segments of an Enterprise and Related Information" was issued
in June 1997.  Implementation  of SFAS 131 is required for periods  ending after
December 15, 1997 and  establishes  standards  for the way that public  business
enterprises  report  information  about operating  segments in annual  financial
statements and requires that those enterprises report selected information about
operating   segments  in  interim  financial  reports  issued  to  shareholders.

Reclassifications 
Beginning  in  the  first  quarter  of  1997,  changes  have  been  made  in the
classification of revenue and operating  expense in the Consolidated  Statements
of Income. 1996 and 1995 have been reclassified to conform to these changes.

      "Product licensing" consists of licensing of software products (net of the
bundled  maintenance).  "Maintenance  fees and other"  consists of revenue  from
maintenance,  educational  and consulting  services,  hardware  sales,  computer
services and royalties  from IBM related to the jointly  developed  CICS product
now being sold by IBM. "Cost of product  licensing"  includes  royalties paid to
independent  software  authors and the  amortization of purchased and internally
developed  software.  "Cost of maintenance  fees and other" includes the cost of
maintenance  support as well as royalties paid to independent  software authors,
amortization of purchased and internally developed software, the cost to provide
educational and consulting  services to customers and costs related to operating
the computer services division.


2.  Acquisitions
On January 16, 1997, the Company  acquired all of the outstanding  capital stock
of MAXM Systems Corporation  ("MAXM"), a privately held company, in exchange for
1,137,115  shares  of Boole &  Babbage  common  stock,  10% of which are held in
escrow with an  independent  third-party  escrow agent.  The Company  incurred a
charge in the  quarter  ending  March  31,1997  (which is included in the income
statement  line  "acquisition  and  nonrecurring   costs")  in  connection  with
activities to complete this acquisition and eliminate  redundant  facilities and
personnel.  The  acquisition  costs  consisted  primarily  of  $4.0  million  of
termination  costs  related to  reseller  agreements,  $2.8  million of employee
costs,  $1.6 million of costs related to closing  redundant  facilities and $1.9
million  of legal,  accounting,  broker  fees and  other.  The  transaction  was
accounted  for  using  the  pooling  of  interests   method  and  the  Company's
consolidated  financial  statements  for all prior periods have been restated to
include the results of MAXM.

The table below sets forth the  composition of combined  revenues and net income
(loss) for the periods  indicated.  Information for the year ended September 30,
1997 with respect to MAXM  reflects the period  October 1, 1996 through  January
16,  1997,  the date MAXM was  acquired.  The net loss of MAXM in 1995  includes
$1,507,000 of extraordinary gain, net of taxes, from forgiveness of debt.

                                       15
<PAGE>

                    ---------------------------------
                         Years Ended September 30,
                    ---------------------------------
(Dollars in
thousands)             1997       1996       1995
-----------------------------------------------------
Revenues:
Boole & Babbage      $195,032   $165,077   $152,244
MAXM (Pre-
acquisition)            2,065     15,074     16,783
                    ----------- ---------- ----------
Consolidated         $197,097   $180,151   $169,027
                    ----------- ---------- ----------

Net income (loss):
Boole & Babbage      $ 27,908   $ 18,040   $ 13,948
Acquisition costs     (10,309)      -          -
MAXM                   (4,130)    (6,583)      (825)
                    ----------- ---------- ----------
Consolidated         $ 13,469   $ 11,457   $ 13,123
                    =========== ========== ===========



3.  Installment and Other Receivables
Installment and other receivables consists of lease contracts receivables, sales
tax and  value-added  tax on  trade  receivables,  and  other  receivables.  The
Company's leasing operations consist of the leasing of various computer software
products under term or perpetual licensing  agreements with payment periods from
one to five years.

     Following are the components of the lease contracts receivable:

                          -----------------------------
                                 September 30,
                          -----------------------------
(Dollars in thousands)      1997      1996      1995
------------------------- --------- --------- ---------
Minimum lease
  payments receivable     $124,792   $89,054   $62,553
Less unearned  interest     13,105     8,853     6,399
                          --------- --------- ---------
Net investment in
  sales type leases        111,687    80,201    56,154
Amount due within one
year                        59,397    41,060    23,931
                          --------- --------- ---------
Amount  due after one
year                      $ 52,290   $39,141   $32,223
                          --------- --------- ---------

Minimum lease payments receivable during each of the succeeding fiscal years are
as follows:

------------------ ---------------------------------
Year                      (Dollars in thousands)
------------------ ---------------------------------
1998                                  $ 66,094
1999                                    31,214
2000                                    19,704
2001                                     6,941
2002                                       839
                                     ----------
                                      $124,792
                                     ==========

The Company  periodically  sells portions of its lease  contracts  receivable to
finance  companies  subject  to limited  recourse  provisions.  The total  lease
contracts receivables sold during 1997 and 1996 had present values of $8,140,000
and $15,849,000,  respectively.  No lease contract  receivables were sold during
1995.  The  uncollected  present  value of  receivables  that have been sold was
approximately  $18,478,000,  $17,842,000,  and $4,050,000 at September 30, 1997,
1996 and 1995, respectively.

4.  Income Taxes
Pretax income consists of the following:

                         -----------------------------
                            Years Ended September 30,
                         -----------------------------
(Dollars in thousands)      1997      1996      1995
------------------------ --------- --------- ---------
Domestic                  $ 7,236   $ 7,599   $ 7,661
Foreign                    13,758    10,873     9,031
                         --------- --------- ---------
                          $20,994   $18,472   $16,692
                         ========= ========= =========

The provision for taxes on income consists of the following:

                        -------------------------------
                           Years Ended September 30,
                        -------------------------------
(Dollars in thousands)      1997      1996      1995
-----------------------  --------- --------- ---------
Federal
  Current                 $7,637    $4,756    $1,884
  Deferred                (3,921)   (1,141)   (1,119)
                        ---------- --------- ----------
                           3,716     3,615       765
State
  Current                  1,515     1,013     1,075
  Deferred                (1,107)     (322)     (614)
                        ---------- --------- ----------
                             408       691       461
                                    
Foreign
  Current                  3,145     2,880     4,001
  Deferred                   256      (171)     (151)
                        ---------- --------- ---------
                           3,401     2,709     3,850
                        ---------- --------- ----------
                          $7,525    $7,015    $5,076
                        ========== ========= ==========

No  provision  for  residual  federal  taxes  has  been  made  on  approximately
$46,000,000  of  accumulated  undistributed  earnings of the  Company's  foreign
subsidiaries,  since it is the Company's  intention to  permanently  invest such
earnings in its foreign operations.  Determination of the amount of unrecognized
deferred tax liabilities is not practicable.

      The  provision  for taxes on income  differs  from the amount  computed by
applying the statutory tax rate of 35% to income before taxes as follows:

                             --------------------------
                               Years Ended September
                                        30,
                             --------------------------
                               1997     1996    1995
                             --------- ------- --------
Computed expected
   tax provision              35.0%    35.0%    35.0%
State income tax, net
   of federal benefit          1.3%     0.9%     1.0%
                                        
Permanently invested
earnings
   of foreign
subsidiaries, net
   of foreign income taxes   (10.6%)   (8.0%)   (9.4%)
Goodwill  amortization and
   other permanent items       2.7%     0.6%     0.5%
                                        
Research & development        (3.1%)   (0.9%)   (2.7%)
credit
Net change in valuation
   allowance                  10.4%    11.4%     6.4%
Other                          0.1%    (1.0%)   (0.4%)
                             --------- ------- --------
                              35.8%    38.0%    30.4%
                             ========= ======= ========


Deferred  income  taxes  reflect  the net tax effects of  temporary  differences
between the carrying  amounts of assets and liabilities for financial  reporting
purposes and the amounts used for income tax purposes. Significant

                                       16
<PAGE>

components of the Company's deferred tax assets are as follows:

                                             ----------------------------------
                                                       September 30,
                                             ----------------------------------
(Dollars in thousands)                         1997         1996         1995
----------------------------                 --------     --------     --------
Deferred Tax Assets:
 Net operating loss carryforwards            $ 18,235     $ 16,578     $ 14,036

  Foreign tax credit carryforwards                 36           29           17
  Research credit carryforwards                  --             52          898
  AMT credit carryforwards                       --           --            650
  Deferred maintenance revenue                 16,078       11,307        9,564

  Accrued expenses                              2,784        2,134        1,694
  Bad debt allowance                              612          563          520
  Other                                           644          594          506
                                             --------     --------     --------
    Total gross deferred tax asset             38,389       31,257       27,885
Less valuation allowance                       14,603       12,470       11,256
                                             --------     --------     --------
    Total deferred tax asset                   23,786       18,787       16,629
                                             --------     --------     --------
Deferred Tax Liabilities:
  Unrealized gain on marketable
    securities                                 (3,850)        (255)         (98)
  Software capitalization, net                 (3,211)      (3,065)      (2,943)

  Other                                          --           (346)        --
                                             --------     --------     --------
   Total deferred tax liability                (7,061)      (3,666)      (3,041)
                                             --------     --------     --------
Net deferred tax asset                       $ 16,725     $ 15,121     $ 13,588
                                             --------     --------     --------

The  net  valuation  allowance  increased  $2,133,000  from  1996  to  1997  and
$1,214,000 from 1995 to 1996 primarily as a result of establishing allowances on
pre-acquisition  net operating  losses of MAXM and net operating losses incurred
in certain  foreign tax  jurisdictions.  None of the  allowance at September 30,
1997 is attributable to stock option deductions;  consequently,  any reversal of
the  valuation  allowance  will be  reflected  in a lower tax  rate.  Management
believes  future  taxable  income will be sufficient to realize the deferred tax
benefit of the net deferred tax asset.

      At  September  30,  1997,  the  Company had  federal  net  operating  loss
carryforwards of  approximately  $43.8 million that will expire between 2003 and
2012. The losses were incurred by MAXM prior to  acquisition  and are subject to
limitation.


5.  Leases, Notes Payable and Contingencies

Operating Leases
The Company leases its facilities and certain  equipment under operating  leases
expiring at various dates through 2018. Minimum lease commitments for facilities
and equipment at September 30, 1997 are as follows:

------------------------- --------------------
Year                              (Dollars in
                                   thousands)
------------------------- --------------------
1998                                  $ 8,125
1999                                    6,815
2000                                    3,789
2001                                    1,113
2002                                      449
Thereafter                              2,156
                                    ----------
                                      $22,447
                                    ==========

Total rent  expense  under  operating  leases  was  $8,692,000,  $8,793,000  and
$8,670,000, for 1997, 1996, and 1995, respectively.

Capital Leases
The Company leases certain  computer  equipment under long-term  capital leases.
Capitalized costs of $12,721,000,  $16,484,000, and $12,898,000, are included in
equipment,  furniture and leasehold improvements at September 30, 1997, 1996 and
1995,   respectively.   Accumulated   depreciation   amounted  to   $10,288,000,
$12,378,000,   and   $10,478,000,   at  September  30,  1997,   1996  and  1995,
respectively.

The following is a schedule of future  minimum lease  payments  under  long-term
capital leases together with the present value of the net minimum lease payments
as of September 30, 1997:




---------------------------------- --------------------
Year                               (Dollars in
                                   thousands)
---------------------------------- --------------------
1998                                          $  1,114
1999                                               780
2000                                               596
2001                                               615
                                             ----------
Total minimum lease payments                     3,105
Less amount representing interest                  377
                                             ----------
Present value of future minimum lease         
payments                                         2,728
Amount due within one year                         933
                                             ----------
Amount due after one year                     $  1,795
                                             ==========



Notes Payable
The Company  incurred a note payable as a result of an  acquisition in 1994. The
non-interest  bearing  obligation,  net of discount based on an imputed interest
rate of 8.25%,  had a balance of $256,000 at September 30, 1997. The Company has
an  equipment  note at 8.25% which had a balance of $113,000  at  September  30,
1997. The notes payable are due as follows:



----------------------- ------------------------
Year                     (Dollars in thousands)
----------------------- ------------------------
1998                                       $319
1999                                         50
                                      ----------
Total notes payable                         369
Amount due within one year                  319
                                      ----------
Amount due after one year                  $ 50
                                      ==========


Total interest  expense  related to capital lease  obligations and notes payable
was $482,000, $419,000, and $623,000 in 1997, 1996 and 1995, respectively.

Line of Credit
During 1995, the Company entered into  arrangements for the Japanese  subsidiary
for two lines of credit totaling $1,800,000.  As of September 30, 1997, 1996 and
1995,  there were  outstanding  balances of  $1,016,000,  $990,000 and $400,000,
respectively.  Interest rates on these lines of credit range from 1.63% to 1.75%
per annum.

During 1995, MAXM Systems  Corporation entered into a line of credit arrangement
for  $2,500,000.  As of September 30, 1997 the balance has been paid in full.

                                       17
<PAGE>

At September  30, 1996,  there was an  outstanding  balance of  $2,160,000.  The
interest rate on the line of credit was prime rate plus 1.5%.

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

6.  Common Stock

Stock option plans
The 1995 Stock Option Plan (the 1995 plan), as amended,  authorizes the grant of
up to  1,125,000  shares of the  Company's  common  stock to key  employees  and
consultants of the Company.  The exercise price is 100% of the fair market value
of the stock on the date such options are granted.

The 1993  Nonemployee  Directors' Stock Option Plan (the 1993 plan), as amended,
authorizes  the grant of up to 168,750  shares of the Company's  common stock to
nonemployee  directors  of the Company.  The exercise  price is 100% of the fair
market value of the stock on the date such options are granted.

The 1986  Supplemental  Stock  Option  Plan (the 1986 plan),  as amended,  which
authorized the grant up to 7,965,000  shares of the Company's common stock under
terms substantially the same as the 1995 Plan, expired November 1996.

Options outstanding under all plans are currently exercisable to the extent that
the optionees have vested under the terms of their grant. Options generally vest
at a rate of twenty-five  percent per year and expire 10 years after the date of
grant.

The number of options exercisable under all plans was 2,388,773,  2,369,799, and
2,086,124 at September 30, 1997, 1996 and 1995, respectively.

Employee Stock Purchase Plan
The  Company  adopted an Employee  Stock  Purchase  Plan and,  as  amended,  has
reserved an aggregate total of 2,500,000 shares.  Purchase rights under the plan
are granted at 85% of the lesser of the market value on the offering date or the
exercise date. Shares purchased under the plan were 132,262, 131,561 and 141,380
during 1997,  1996,  and 1995,  respectively.  At September  30, 1997 there were
580,623 shares  available for future purchases of which 59,911 were committed to
be issued in October 1997.

Stock Incentive Plan
In September  1987, the Company  adopted a Stock Incentive Plan and, as amended,
entitles  employees who have reached certain  anniversary dates with the Company
to receive the  Company's  common stock for each year of service.  Shares issued
under the plan were  5,540,  6,952,  and 11,260  during  1997,  1996,  and 1995,
respectively. The Board has reserved 134,438 shares for issuance under the plan.
At September 30, 1997, there were 5,622 shares available for future awards.
<TABLE>

The following table summarizes  activity of the stock option plans for the three
years ended September 30, 1997:
<CAPTION>
                                                      
                                                              Option Activity           
                                                      --------------------------------- 
                                                                      Weighted Average    
                                    Options Available                    Exercise
                                    for Future Grant      Number           Price
                                    ----------------- --------------- -----------------
<S>                                    <C>               <C>              <C>  
Balance, September 30, 1994               523,022        3,512,793        $ 4.92
Authorized increase                     1,350,000           --
  Options granted                      (1,207,125)       1,207,125         11.18
  Options exercised                        --             (486,137)         3.92
  Options canceled                        115,068         (115,068)         6.75
                                    ----------------- --------------- -----------------
Balance, September 30, 1995               780,965        4,118,713          6.83
Authorized increase                     1,125,000           --
  Options granted                        (930,488)         930,488         16.06
  Options exercised                        --             (620,682)         4.65
  Options canceled                         92,136          (92,136)         9.33
                                    ----------------- --------------- -----------------
Balance, September 30, 1996             1,067,613        4,336,383          9.10
  Options granted                        (592,500)         592,500         22.29
  Options exercised                        --             (732,412)         5.88
Options canceled                          183,630         (183,630)        14.09
----------------------------------- ----------------- --------------- -----------------
Balance, September 30, 1997               658,743        4,012,841        $11.37
----------------------------------- ----------------- --------------- -----------------

</TABLE>

                                       18
<PAGE>


20

The following  tables  summarize the  information  about options  outstanding at
September 30, 1997:

                            
                         Outstanding  options
                 ----------------------------------
                              Weighted    Weighted 
                 Number of     Average     Average 
Range of           Shares    Contractual Exercise  
Exercise           (in        Life (in      Price  
Prices           thousands)     years)             
---------------- ----------- ----------- ----------
$2.74-$8.00        1,497        4.95      $ 5.01
$8.26-$16.00       1,703        7.71       12.55
$16.25-$33.66        813        9.26       20.65
---------------- ----------- ----------- ----------
Total              4,013        6.99      $11.37
================ =========== =========== ==========

                         
                            Exercisable options    
                         --------------------------
                          Number of     Weighted   
                            Shares       Average   
                             (in        Exercise   
Range of Exercise Prices  thousands)      Price    
------------------------ ------------- ------------
$2.74-$8.00                 1,420        $ 4.89
$8.26-$16.00                  894         11.68
$16.25-$33.66                  75         16.95
------------------------ ------------- ------------
Total                       2,389        $ 7.81
======================== ============= ============

These  options  will expire if not  exercised  at specific  dates  ranging  from
October  1997 to  September  2007.  Prices  for  options  exercised  during  the
three-year period ended September 30, 1997 ranged from $2.30 to $16.83.

Pro forma information
The Company has  elected to follow APB  Opinion  No. 25,  "Accounting  for Stock
Issued to Employees," in accounting for its employee stock options  because,  as
discussed below,  the alternative fair value accounting  provided for under SFAS
No. 123, "Accounting for Stock-Based  Compensation,"  requires the use of option
valuation  models  that were not  developed  for use in valuing  employee  stock
options.  Under APB No. 25, because the exercise price of the Company's employee
stock  options  equals the market price of the  underlying  stock on the date of
grant,  no  compensation  expense  is  recognized  in  the  Company's  financial
statements.

Pro forma information regarding net income and earnings per share is required by
SFAS No. 123.  This  information  is required to be determined as if the Company
had accounted for its employee stock options  (including shares issued under the
Employee Stock Purchase Plan,  collectively called "options") granted subsequent
to September  30, 1995 under the fair value method of that  statement.  The fair
value of options  granted in fiscal years 1996 and 1997 reported  below has been
estimated at the date of grant using a  Black-Scholes  option pricing model with
the following weighted average assumptions:

                                        Employee
                          Employee       Stock
                            Stock       Purchase
                           Options        Plan
                         ------------ -------------
                          1997  1996   1997   1996
------------------------ ------ ----- ------ ------
Expected life (in years)  5.5    5.5    .5     .5
Risk-free interest rate   6.2%   6.3%  5.7%   5.5%
Volatility                 .43    .42   .50    .40
------------------------ ------ ----- ------ ------

The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded  options  that have no vesting  restrictions  and are fully
transferable.  In addition,  option valuation models require the input of highly
subjective assumptions,  including the expected stock price volatility.  Because
the Company's options have characteristics significantly different from those of
traded  options,  and because  changes in the subjective  input  assumptions can
materially  affect the fair value  estimate,  in the opinion of management,  the
existing models do not necessarily provide a reliable single measure of the fair
value of its options.  The  weighted  average  estimated  fair value of employee
stock  options  granted  during  1997 and 1996 was  $10.83  and $7.70 per share,
respectively.  The weighted average estimated fair value of shares granted under
the  Employee  Stock  Purchase  Plan  during  1997 and 1996 was $6.00 and $4.51,
respectively.

For purposes of pro forma  disclosures,  the estimated fair value of the options
is amortized to expense over the options' vesting period.

The Company's pro forma  information  follows (in thousands  except for earnings
per share information):

                              1997       1996
--------------------------- --------- ----------
Pro forma net income        $11,344    $10,689
Pro forma earnings per      $  0.57    $  0.56
share
--------------------------- --------- ----------

The effects on pro forma  disclosures of applying SFAS No. 123 are not likely to
be  representative  of the  effects on pro forma  disclosures  of future  years.
Because  SFAS No.  123 is  applicable  only to  options  granted  subsequent  to
September 30, 1995, the pro forma effect will not be fully reflected until 2000.

                                       19

<PAGE>

7.    Foreign Operations

The company operates  predominantly in one industry segment. The following table
summarizes  selected  financial  information  of  the  Company's  operations  by
geographic location:

                     -----------------------------------
                         Years Ended September 30,
                     -----------------------------------
(Dollars in
thousands)              1997        1996        1995
-------------------- ----------- ----------- -----------
Revenues:
  United States and
      Canada         $  78,574    $ 69,242    $ 70,076
  Europe                91,322      87,138      75,390
  Other                 27,201      23,771      23,561
                     ----------- ----------- -----------
Consolidated         $ 197,097    $180,151    $169,027
                     ----------- ----------- -----------

Operating income:
  United States and
      Canada         $   2,252    $  1,658    $  1,983
  Europe                 7,837      10,084       7,718
  Other                  1,725       1,087       3,084
                     ----------- ----------- -----------
Consolidated         $  11,814    $ 12,829    $ 12,785
                     ----------- ----------- -----------

Identifiable
assets:
  United States and
      Canada         $ 144,137    $126,791    $106,762
  Europe               115,966      98,917      80,248
  Other                 12,596      11,773       8,392
  Eliminations         (12,555)    (12,941)    (12,575)
                     ----------- ----------- -----------
Consolidated         $ 260,144    $224,540    $182,827
                     ----------- ----------- -----------

Included in operating income but excluded from revenues are royalties charged to
international  operations by domestic  operations which aggregated  $21,464,000,
$21,192,000 and $17,550,000 in 1997, 1996, and 1995, respectively.


Market for the Registrant's Common Stock and Related Stockholder Matters

The Company's common stock has been traded in the over-the-counter  market under
the NASDAQ symbol "BOOL" since the Company's initial public offering on February
3, 1984. The number of stockholders  of record of the Company's  common stock as
of October 31, 1997 was 591. The Company has not paid any cash  dividends  since
1978 on its common stock,  with the exception of payment of partial  shares as a
result of the stock splits in 1994, 1995 and 1996. The Company  anticipates that
for the foreseeable  future,  it will continue to retain its earnings for use in
its business. The table on page 2 reflects the range of high and low closing bid
quotations for each period indicated as reported by NASDAQ.

These quotations  represent prices between dealers without adjustment for retail
markups, markdowns or commissions, and may not represent actual transactions.

The Board of Directors and Stockholders
Boole & Babbage, Inc.

We have audited the accompanying consolidated balance sheets of Boole & Babbage,
Inc. as of  September  30,  1997,  1996 and 1995,  and the related  consolidated
statements of income,  stockholders'  equity,  and cash flows for the years then
ended.  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 did not audit the  financial  statements of
MAXM Systems  Corporation,  which statements reflect total assets and a net loss
constituting $14.5 million and $6.6 million,  respectively,  of the related 1996
consolidated  financial  statements  totals,  and which statements reflect total
assets and a net loss constituting $15.9 million and $0.8 million, respectively,
of the related 1995 consolidated  financial  statements totals. Those statements
were audited by other  auditors  whose report has been  furnished to us, and our
opinion, insofar as it relates to data included for MAXM Systems Corporation, is
based solely on the report of the other auditors.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  These 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,  based on our audits and the report of the other  auditors,  the
consolidated  financial  statements  referred to above  present  fairly,  in all
material respects,  the consolidated financial position of Boole & Babbage, Inc.
at  September  30,  1997,  1996 and 1995,  and the  consolidated  results of its
operations  and its cash  flows  for the years  then  ended in  conformity  with
generally accepted accounting principles.



Ernst & Young LLP
San Jose, California
October 24, 1997

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