<PAGE>
 
                      SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                             ______________________
                                   FORM 10-Q
(Mark One)

[X]  QUARTERY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30,1997

                                       OR


[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______________ 
     TO______________


                        COMMISSION FILE NUMBER 0-22647
                        ------------------------------

                        PERITUS SOFTWARE SERVICES, INC.
                        ------------------------------ 
             (Exact Name of Registrant as Specified in Its Charter)

          Massachusetts                                         04-3126919
 --------------------------------                           ------------------
   (State or Other Jurisdiction                              (I.R.S. Employer
 of Incorporation or Organization)                          Identification No.)
 
304 Concord Road, Billerica, Massachusetts                        01821
------------------------------------------                      ----------
 (Address of Principal Executive Offices)                       (Zip Code)
 
                                 (508)670-0800
                                 -------------
              (Registrant's Telephone Number, Including Area Code)

                                 Not Applicable
                                 --------------
              (Former Name, Former Address and Former Fiscal Year,
                         If Changed Since Last Report)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.  Yes __. No X.
                                               -- 

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:

                                                  Shares outstanding
        Title of Class                             at August 8, 1997
------------------------------                    ------------------
 Common Stock, $.01 par value                          13,136,696

                                       1
<PAGE>
 
                         PERITUS SOFTWARE SERVICES INC.
                                   FORM 10-Q
                  FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
                               TABLE OF CONTENTS

PART I   FINANCIAL INFORMATION                                              PAGE
                                                                            ----
 
         Item 1. Financial Statements
 
         Consolidated Balance Sheet
         as of June 30, 1997 and December 31, 1996                            3
 
         Consolidated Statement of Operations
         for the Three and Six Months Ended June 30, 1997 and 1996            4
        
         Consolidated Statement of Cash Flows
         for the Six Months Ended June 30, 1997 and 1996                      5
         
         Notes to Consolidated Financial Statements                           6
 
         Item 2. Management's Discussion and Analysis of Financial
                 Condition and Results of Operations                          8
 
PART II  OTHER INFORMATION
 
         Item 4. Submission of Matters to a Vote of                          16
                 Security Holders
 
         Item 6. Exhibits and Reports on Form 8-K                            17
 
         Signatures                                                          18

                                       2
<PAGE>
 
                         PART I. FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

                        PERITUS SOFTWARE SERVICES, INC.
                           CONSOLIDATED BALANCE SHEET
                   (IN THOUSANDS, EXCEPT SHARE-RELATED DATA)
                                  (UNAUDITED)
<TABLE>
<CAPTION>
                                                                                              PRO FORMA                  
                                                                                JUNE 30,      JUNE 30,       DECEMBER 31, 
ASSETS                                                                            1997          1997             1996     
                                                                               ---------     ----------       ----------  
Current assets:                                                                               (Note 3)                   
<S>                                                                            <C>           <C>              <C>         
   Cash and cash equivalents.........................................           $ 2,473        $ 43,580          $ 7,388 
   Accounts receivable, net of allowance for doubtful accounts of
    $30 and $30 and including amounts receivable from 
      related parties of $648 and $260, respectively.................             7,996           7,996            4,163
   Costs and estimated earnings in  excess of billings on uncompleted                                           
     contracts, including amounts on uncompleted contracts with 
     related parties of $301 and $562, respectively..................             1,971           1,971            2,195 
   Unbilled license revenue from related party.......................             1,000           1,000            1,400 
   Prepaid expenses and other current assets.........................               594             276              119 
                                                                                -------         -------          ------- 
       Total current assets..........................................            14,034          54,823           15,265 
Property and equipment, net..........................................             2,285           2,285            1,970 
Other assets.........................................................               561             561              490 
                                                                                -------         -------          ------- 
                                                                                $16,880        $ 57,669          $17,725 
                                                                                =======         =======          ======= 
LIABILITIES, REDEEMABLE STOCK AND  STOCKHOLDERS' EQUITY (DEFICIT)    
Current liabilities:                                                                                                     
   Current portion of capital lease obligations.....................            $    57        $     57          $    74 
   Current portion of long-term debt................................                225             225              225 
   Accounts payable.................................................                924             924              497 
   Billings in excess of costs and estimated earnings on uncompleted
     contracts......................................................                850             850              902 
   Deferred revenue.................................................              1,007           1,007            3,262 
   Other accrued expenses and current liabilities...................              2,210           2,210            2,087 
                                                                                -------         -------          ------- 
       Total current liabilities....................................              5,273           5,273            7,047 
Capital lease obligations...........................................                183             183              201 
Long-term debt......................................................              1,432           1,432            1,337 
                                                                                -------         -------          ------- 
       Total liabilities............................................              6,888           6,888            8,585 
                                                                                -------         -------          ------- 
Minority interest in consolidated  subsidiary.......................                176             176              155 
                                                                                -------         -------          ------- 
Commitments.........................................................                --               --              -- 
                                                                                -------         -------          ------- 
Redeemable convertible preferred stock,  no par value:    
   Series A--1,903,525 shares authorized, issued and outstanding at
     issuance cost plus accretion and accrued dividends
     (liquidation preference $7,281,000).    ......................               6,293            --              5,912 
   Series B--1,818,182 shares authorized, issued and outstanding 
     at issuance cost plus accretion and accrued dividends
     (liquidation preference $6,000,000).    ......................               6,403            --              6,107 
Redeemable common stock right......................................                 325            --                268 
                                                                                -------         -------          ------- 
                                                                                 13,021            --             12,287 
                                                                                -------         -------          ------- 
Stockholders' equity (deficit):                                                                                          
  Common stock, $.01 par value; 50,000,000, 50,000,000 and 0 shares
    authorized; 6,199,395, 12,822,298 and 0 shares issued and 
    6,199,395, 12,822,298 and 0 shares outstanding, respectively....                 62            128               -- 
  Class A Common Stock, no par value; 0, 0 and 13,295,000 shares 
    authorized; 0, 0 and 6,033,614 shares issued and 0, 0 
    and 6,033,614 shares outstanding, respectively..................                --             --              2,207 
  Class B non-voting common stock, no par value; 1,000,000, 0 and
    275,000 shares authorized; 101,196, 0 and 101,196 shares issued 
    and 101,196, 0 and 101,196 shares outstanding, respectively.....                164            --                164 
  Additional paid-in capital........................................              2,168         56,076               -- 
  Accumulated deficit...............................................             (5,481)        (5,481)           (5,593)
  Note receivable from stockholder..................................                (58)           (58)              (58)
  Cumulative translation adjustment.................................                (60)           (60)              (22)
                                                                                -------        -------           ------- 
       Total stockholders' equity (deficit).........................             (3,205)        50,605            (3,302)
                                                                                -------        -------           ------- 
                                                                                $16,880        $57,669           $17,725 
                                                                                =======        =======           =======  
</TABLE>
      The accompanying notes are an integral part of these consolidated 
                             financial statements.

                                       3
<PAGE>
 
                        PERITUS SOFTWARE SERVICES, INC.

                      CONSOLIDATED STATEMENT OF OPERATIONS
                   (IN THOUSANDS, EXCEPT SHARE-RELATED DATA)
                                  (UNAUDITED)
<TABLE>
<CAPTION>
                                                                                          THREE MONTHS           SIX MONTHS       
                                                                                              ENDED                ENDED          
                                                                                            JUNE 30,              JUNE 30,        
                                                                                       -------------------  --------------------  
                                                                                         1997      1996       1997       1996     
                                                                                       --------  ---------  ---------  ---------  
<S>                                                                                    <C>       <C>        <C>        <C>        
Revenue:                                                                                                                          
  Outsourcing services, including $978, $1,266, $1,953 and $2,445
    from related parties, respectively.............................                    $ 3,044    $ 2,514    $ 5,563    $ 4,758   
  License..........................................................                      4,643         45      8,787         45   
  Other services...................................................                      1,295        701      2,491      1,105   
                                                                                       -------    -------    -------    -------   
     Total revenue.................................................                    $ 8,982    $ 3,260    $16,841    $ 5,908   
                                                                                       -------    -------    -------    -------   
Cost of revenue:                                                                                                                  
  Cost of outsourcing services including $592, $510, $965                                                                 
    and $992 from related parties, respectively....................                    $ 2,358    $ 2,199    $ 4,403    $ 4,433
   License.........................................................                        148        --         275        --   
   Cost of other services..........................................                      1,036        672      2,325      1,178   
                                                                                       -------    -------    -------    -------   
     Total cost of revenue.........................................                      3,542      2,871      7,003      5,611   
                                                                                       -------    -------    -------    -------   
Gross profit.......................................................                      5,440        389      9,838        297   
                                                                                       -------    -------    -------    -------   
Operating expenses:                                                                                                               
  Sales and marketing..............................................                      2,035        729      3,418      1,383   
  Research and development.........................................                      1,969      1,401      3,603      2,761   
  General and administrative.......................................                        875        707      1,800      1,455   
                                                                                       -------    -------    -------    -------   
    Total operating expenses.......................................                      4,879      2,837      8,821      5,599   
                                                                                       -------    -------    -------    -------   
    Income (loss) from operations..................................                        561     (2,448)     1,017     (5,302)  
Interest (expense) income, net.....................................                         (7)       (61)        20        (99)  
                                                                                       -------    -------    -------    -------   
  Income (loss) before estimated income taxes and minority interest                        554     (2,509)     1,037     (5,401)  
Provision (benefit) for estimated  income taxes....................                        124        (62)       172       (204)  
                                                                                       -------    -------    -------    -------   
  Income (loss) before minority interest...........................                        430     (2,447)       865     (5,197)  
Minority interest in consolidated  subsidiary......................                          8        (18)       (21)        20   
                                                                                       -------    -------    -------    -------   
    Net income (loss)..............................................                    $   438    $(2,465)   $   844    $(5,177)  
                                                                                       =======    =======    =======    =======   
Pro forma net income (loss) per share assuming conversion of
  convertible preferred stock......................................                      $0.03     $(0.22)     $0.07     $(0.51)
                                                                                       =======    =======    =======    =======   
Shares used in computing pro forma net income (loss) per share.....                     12,741     11,083     12,726     10,105  
                                                                                       =======    =======    =======    =======   
</TABLE>
      The accompanying notes are an integral part of these consolidated 
                             financial statements.

                                       4
<PAGE>
 
                        PERITUS SOFTWARE SERVICES, INC.
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                 (IN THOUSANDS)
                                  (UNAUDITED)
<TABLE>
<CAPTION>
                                                                                                 SIX MONTHS ENDED    
                                                                                                -------------------  
                                                                                                     JUNE 30,        
                                                                                                -------------------  
                                                                                                  1997      1996     
                                                                                                --------  ---------  
<S>                                                                                             <C>       <C>        
Cash flows from operating activities:                                                                                
  Net income (loss)                                                                             $   844    $(5,177)  
  Adjustments to reconcile net income (loss) to net cash used in operating activities:   
    Depreciation and amortization.....................................................              495        373   
    Minority interest in consolidated subsidiary......................................               21         20  
    Non-cash employee compensation....................................................              --         118   
    Changes in assets and liabilities, net of effects from acquisitions: 
      Accounts receivable.............................................................           (3,833)       291   
      Costs and estimated earnings in excess of billings on uncompleted contracts.....              224        589   
      Unbilled license revenue from related parties...................................              400        --   
      Prepaid expenses and other current assets.......................................             (475)       (53)  
      Other assets....................................................................               10         51   
      Accounts payable................................................................              427       (259)  
      Billings in excess of costs and  earnings on uncompleted contracts..............              (52)       100   
      Deferred revenue................................................................           (2,255)        77   
      Other accrued expenses and current  liabilities.................................              123         37   
      Deferred income taxes...........................................................              --        (186)  
                                                                                                -------    -------   
        Net cash used in operating activities.........................................           (4,071)    (4,019)  
                                                                                                -------    -------   
Cash flows from investing activities:
  Cash of business acquired for common stock, net of costs paid in cash...............              --         174
  Investment in subsidiary............................................................             (111)       --
  Purchases of property and equipment.................................................             (779)      (565)
                                                                                                -------    -------   
        Net cash used in investing activities.........................................             (890)      (391)
                                                                                                -------    -------   
Cash flows from financing activities:
  Proceeds from short-term borrowings, net of repayments.............................               --          10  
  Proceeds from long-term debt.......................................................               200        --   
  Principal payments on long-term debt...............................................              (105)      (188) 
  Principal payments on capital lease obligations....................................               (34)       (39) 
  Proceeds from exercise of stock options............................................                23          6  
 .                                                                            
  Proceeds from sale of redeemable convertible preferred stock and redeemable 
    common stock.....................................................................               --       5,408
  Treasury stock acquired............................................................               --        (531) 
                                                                                                -------    -------  
        Net cash provided by financing activities....................................                84      4,666  
                                                                                                -------    -------  
Effects of exchange rates on cash and  cash equivalents..............................               (38)        (2) 
                                                                                                -------    -------  
Net increase (decrease) in cash and  cash equivalents................................            (4,915)       254  
Cash and cash equivalents, beginning of  period......................................             7,388        264  
                                                                                                -------    -------  
Cash and cash equivalents, end of period                                                        $ 2,473    $   518  
                                                                                                =======    =======   
</TABLE>
      The accompanying notes are an integral part of these consolidated 
                             financial statements.

                                       5
<PAGE>
 
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

   The accompanying consolidated financial statements include the accounts of
the Company and its subsidiaries, and have been prepared by the Company without
audit in accordance with the Company's accounting policies, as described in the
Registration Statement on Form S-1, Registration No. 333-27087. In the opinion
of management, the accompanying consolidated financial statements contain all
adjustments, consisting only of those of a normal recurring nature, necessary
for a fair presentation of the Company's financial position, results of
operations and cash flows at the dates and for the periods indicated. While the
Company believes that the disclosures presented are adequate to make the
information not misleading, these financial statements should be read in
conjunction with the audited consolidated financial statements and related notes
included in the Company's Registration Statement on Form S-1, Registration No.
333-27087. The operating results for the three and six months ended June 30,
1997 are not necessarily indicative of the results to be expected for the full
year ending December 31, 1997.

2. UNAUDITED PRO FORMA NET INCOME (LOSS) PER SHARE

   Unaudited pro forma net income (loss) per share is determined by dividing the
net income (loss) attributable to common stockholders by the weighted average
number of shares of common stock and common stock equivalents outstanding during
the period, assuming the conversion of all convertible preferred stock and the
redeemable common stock right as of the beginning of each period or date of
issuance, if later.  Conversion of all convertible preferred stock and the
redeemable common stock right occurred upon the closing of the Company's initial
public offering of its common stock (Note 3).

   Pursuant to Securities and Exchange Commission Staff Accounting Bulletin No.
83, common stock equivalents, regardless of their anti-dilutive impact, issued
at prices below the offering price per share during the twelve months preceding
the initial filing of the Company's Registration Statement and through the
effective date of the initial public offering of the Company's common stock have
been included in the calculation of unaudited pro forma net income (loss) per
share using the treasury stock method as if outstanding since the beginning of
each period presented through March 31, 1997. These conversions have been
reflected in the unaudited pro forma balance sheet as of June 30, 1997.

3. CAPITAL STOCK

   On July 8, 1997, the Company closed its initial public offering of 4,025,000
shares of common stock, 2,800,000 of which were sold by the Company and the
balance by selling stockholders, at a public offering price of $16 per share.
The net proceeds to the Company from the offering were approximately 
$41,000,000. The Company plans to use the proceeds for repayment of certain
existing indebtedness, research and development, working capital and general
corporate purposes and possible acquisitions.  In connection with closing the
initial public offering, all outstanding shares of Series A and B preferred
stock and Class B Common Stock automatically converted into 3,822,903 shares 
of common stock, and the redeemable common stock right automatically terminated.

4. RECENTLY ISSUED ACCOUNTING STANDARDS

   In February 1997, the Financial Accounting Standards Board issued SFAS No.
128 "Earnings Per Share", which will require adoption during the year ending
December 31, 1997.  This statement specifies the computation, presentation and
disclosure requirements of earnings per share.  The new standard replaces the
presentation of primary earnings per share prescribed by Accounting Principles
Board Opinion No. 15, "Earnings per Share" (APB15) with a presentation of basic
earnings per share and also requires dual presentation of basic and diluted
earnings per share on the face of the statement of operations for all entities
with complex capital structures.  Basic earnings per share excludes dilution and
is computed by dividing income available to common stockholders by the weighted-
average number of common shares outstanding for the period.  Diluted earnings
per share is computed similarly to fully diluted earnings per share pursuant to
APB15.  The Company will be required to implement SFAS128 in the fourth quarter
ending December 31, 1997 and to restate all prior periods.  If the Company had
been 

                                       6
<PAGE>
 
required to implement the guidance in SFAS128 during the three and six month
periods ended June 30, 1997, the following pro forma earnings per share amounts
would have been reported.
<TABLE>
<CAPTION>
 
                                       Three Months Ended    Six Months Ended 
                                          June 30, 1997        June 30, 1997  
                                        ----------------      ----------------
<S>                                     <C>                   <C>             
Pro forma net income per common share:                                    
   Basic                                    $  0.07                $  0.11
                                            =======                =======
                                                                          
   Diluted                                  $  0.03                $  0.07
                                            =======                =======
                                                                          
Weighted average number of common shares      6,000                  7,595
                                            =======                =======
                                                                          
Weighted average number of common and                                     
 dilutive potential                          12,751                 12,731
   common shares                            =======                =======
</TABLE>

   In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income."
This statement establishes standards for the reporting and display of
comprehensive income and its components.  Comprehensive income is defined as the
change in equity of a business enterprise during a period from transactions and
other events and circumstances from non-owner sources.  It includes all changes
in equity during a period except those resulting from investments by owners and
distributions to owners.  This standard will require that an enterprise display
an amount representing total comprehensive income for the period.  SFAS No. 130
will be effective for the Company's year ending December 31, 1998.  Adoption of
SFAS No. 130 is for presentation only and will not affect the Company's
financial position or results of operations.

   In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" which supersedes SFAS No. 14.  This
statement changes the way that public business enterprises report segment
information, including financial and descriptive information about their
selected segment information.  Operating segments are defined as revenue-
producing components of the enterprise which are generally used internally for
evaluating segment performance.  SFAS No. 131 will be effective for the
Company's year ending December 31, 1998 and will not affect the Company's
financial position or results of operations.

                                       7
<PAGE>
 
      ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                           AND RESULTS OF OPERATIONS

OVERVIEW

   Peritus Software Services, Inc. ("Peritus" or the "Company") was founded in
1991 to address the growing market for managing and maintaining the installed
base of software in organizations. The Company focused its efforts on the
delivery of software maintenance outsourcing services until 1995, when it began
to devote significant resources to the development of software tools addressing
the problems associated with mass changes to application systems and their
associated databases, particularly the year 2000 problem. In 1996, the Company
began licensing its AutoEnhancer/2000 software, which was designed to address
the year 2000 problem, to value added integrators and directly to end users. In
1996, the Company expanded its research and development efforts through the
acquisition of Vista Technologies Incorporated, a developer of computer-aided
engineering software (''Vista'').

   The Company derives its revenue from software maintenance outsourcing
services, software and methodology licensing and other services sold directly to
end users or indirectly via value added integrators and distributors, and its
clients include primarily Fortune 1000 companies and similarly sized business
and government organizations worldwide. The Company's products and services are
marketed through its direct sales force, both domestically and in Spain, through
value added integrators operating worldwide and through international
distributors in Canada, Italy and Japan.

   On July 8, 1997, the Company closed an initial public offering of 4,025,000
shares of common stock, 2,800,000 being sold by the Company and the balance by
selling stockholders, at a public offering price of $16 per share.  The net
proceeds to the Company from the offering after deducting expenses were
approximately $41,000,000.  The balance of the proceeds went to selling
stockholders.


THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THREE MONTHS ENDED JUNE 30, 1996

   REVENUE

   Total revenue increased 175.5% to $8,982,000 in the three months ended June
30, 1997 from $3,260,000 in the three months ended June 30, 1996. This increase
was primarily due to the licensing of the Company's AutoEnhancer/2000 software,
as well as from increases in other services revenue and, to a lesser extent,
outsourcing services revenue. International revenue increased 30.3% to $568,000
in the three months ended June 30, 1997 from $436,000 in the three months ended
June 30, 1996. As a percentage of total revenue, international revenue decreased
to 6.3% in the three months ended June 30, 1997 from 13.4% in the three months
ended June 30, 1996. Substantially all of the Company's international revenue
for the three months ended June 30, 1997 and 1996 was attributable to revenue
generated by Persist, S.A. ("Persist"), the Company's majority-owned Spanish
subsidiary.

   Outsourcing Services.   Outsourcing services revenue increased 21.1% to
$3,044,000 in the three months ended June 30, 1997 from $2,514,000 in the three
months ended June 30, 1996. As a percentage of total revenue, outsourcing
services revenue decreased to 33.9% in the three months ended June 30, 1997 from
77.1% in the three months ended June 30, 1996. The increase in outsourcing
services revenue in absolute dollars was primarily attributable to the addition
of two new outsourcing contracts in late 1996 and one in 1997 and was partially
offset by the recognition of lesser amounts of revenue under the percentage-of-
completion method on existing contracts that were in their later phases. The
decrease in outsourcing services revenue as a percentage of total revenue
reflects the contribution of license revenue to total revenue during the three
months ended June 30, 1997. Outsourcing services remain a major component of the
solutions offered by the Company, and the Company anticipates that such services
will continue to account for a significant portion of total revenue for the
foreseeable future.

                                       8
<PAGE>
 
   License.   License revenue was $4,643,000 in the three months ended June 30,
1997, 51.7% of total revenue. The Company recognized $45,000 in license revenue
in the three months ended June 30, 1996. The Company's license revenue in the
three months ended June 30, 1997 was primarily attributable to the delivery of
licensed software to end users and to license fees from value added integrators.

   Other Services.   Other services revenue increased 84.7% to $1,295,000 in the
three months ended June 30, 1997 from $701,000 in the three months ended June
30, 1996. As a percentage of total revenue, other services revenue was 14.4% in
the three months ended June 30, 1997 compared to 21.5% in the three months ended
June 30, 1996. The increase in other services revenue in absolute dollars was
primarily attributable to an increase in consulting, training and client support
services relating to the Company's year 2000 products and services. This
increase was partially offset by a decrease in direct delivery services for one
significant pilot year 2000 renovation.


   COST OF REVENUE

   Cost of Outsourcing Services Revenue.   Cost of outsourcing services revenue
consists primarily of salaries, benefits and overhead costs associated with
delivering outsourcing services to clients. The cost of outsourcing services
revenue increased 7.2% to $2,358,000 in the three months ended June 30, 1997
from $2,199,000 for the three months ended June 30, 1996. Cost of outsourcing
services revenue decreased as a percentage of outsourcing services revenue to
77.5% in the three months ended June 30, 1997 from 87.5% in the three months
ended June 30, 1996. The decrease in the cost of outsourcing services revenue as
a percentage of outsourcing services revenue was due primarily to the re-
deployment in late 1996 of underutilized resources to research and development
and support activities, partially offset by the addition of resources necessary
to provide services under three new outsourcing contracts.

   Cost of License Revenue.   Cost of license revenue consists primarily of
salaries, benefits and related overhead costs associated with materials
packaging and freight. Cost of license revenue was $148,000 in the three months
ended June 30, 1997, or 3.2% of license revenue. There was no cost of license
revenue in the three months ended June 30, 1996.

   Cost of Other Services Revenue.   Cost of other services revenue consists
primarily of salaries, benefits and related overhead costs associated with
delivering other services to clients. Cost of other services revenue increased
54.2% to $1,036,000 in the three months ended June 30, 1997 from $672,000 in the
three months ended June 30, 1996. Cost of other services revenue as a percentage
of other services revenue decreased to 80.0% in the three months ended June 30,
1997 from 95.9% in the three months ended June 30, 1996.  Costs increased in the
three months ended June 30, 1997 due to increased staffing in the Company's
client support, training and consulting organizations in anticipation of future
revenue primarily related to the introduction of the Company's year 2000
products and services.

   OPERATING EXPENSES

   Sales and Marketing.   Sales and marketing expenses consist primarily of
salaries, commissions and related overhead costs for Company personnel; sales
referral fees to third parties; advertising programs; and other promotional
activities. Sales and marketing expenses increased 179.1% to $2,035,000 in the
three months ended June 30, 1997 from $729,000 in the three months ended June
30, 1996. As a percentage of total revenue, sales and marketing expenses
increased to 22.7% in the three months ended June 30, 1997 from 22.4% in the
three months ended June 30, 1996. The increase in expenses in absolute dollars
was primarily attributable to increased staffing, commissions, including an
increase in sales referral fees to third parties, and promotional activities in
conjunction with the launch of the Company's AutoEnhancer/2000 software. The
Company intends to increase the amount of expenditures for sales and marketing
in 1997, both domestically and internationally. There can be no assurance that
these expenditures will result in increased revenue.

   Research and Development.   Research and development expenses consist
primarily of salaries, benefits and related overhead costs for engineering and
technical personnel and outside engineering consulting services 

                                       9
<PAGE>
 
associated with developing new products and enhancing existing products.
Research and development expenses increased 40.5% to $1,969,000 in the three
months ended June 30, 1997 from $1,401,000 in the three months ended June 30,
1996. As a percentage of total revenue, research and development expenses
decreased to 21.9% in the three months ended June 30, 1997 from 43.0% in the
three months ended June 30, 1996. The increase in research and development
expenses in absolute dollars was primarily attributable to increased staffing
for the product development efforts for the Company's year 2000 products and
services and mass change technologies, including an increase in staffing
effected through new hires and internal transfers. The Company intends to employ
additional research and development staff and therefore anticipates that
research and development expenses will continue to increase in absolute dollars
in 1997.

   General and Administrative.   General and administrative expenses consist
primarily of salaries and related costs for the finance and accounting, human
resources, legal services, information systems and other administrative
departments of the Company, as well as legal and accounting expenses and the
amortization of goodwill associated with the Vista acquisition. General and
administrative expenses increased 23.8% to $875,000 in the three months ended
June 30, 1997 from $707,000 in the three months ended June 30, 1996. As a
percentage of total revenue, general and administrative expenses decreased to
9.7% in the three months ended June 30, 1997 from 21.7% in the three months
ended June 30, 1996. The increase in general and administrative expenses in
absolute dollars was primarily due to additions to the Company's administrative
staff to support growth, higher professional fees and increases in other general
corporate expenses. The Company anticipates that general and administrative
expenses will increase in absolute dollars in 1997 in part due to increased
costs associated with becoming a publicly held company.

   Interest Income (Expense), Net.   Interest income (expense), net is primarily
composed of interest income from cash balances and interest expense on debt.
Interest expense, net decreased 88.5% to $7,000 in the three months ended June
30, 1997 from $61,000 in the three months ended June 30, 1996. This change in
interest expense, net was primarily attributable to decreased interest expense
on lesser borrowings by the Company as well as increased interest income from
increased cash balances.

   Provision (Benefit) for Income Taxes.   The Company recorded an income tax
provision of $124,000 in the three months ended June 30, 1997 versus a benefit
of $62,000 in the three months ended June 30, 1996. The provision was the result
of an increase in taxable income, which was partially offset by the Company's
expected utilization in 1997 of previously generated net operating loss
carryforwards. 

   Minority Interest in Consolidated Subsidiary.   The minority interest in
consolidated subsidiary represents the equity interest in the operating results
of Persist, the Company's majority-owned Spanish subsidiary, held by
stockholders of Persist other than the Company. The minority interest in
consolidated subsidiary decreased to a loss of $8,000 in the three months ended
June 30, 1997 from income of $18,000 in the three months ended June 30, 1996.
This change was the result of the decreased profitability of Persist. At June
30, 1997 and 1996, the Company held a 63.7% equity interest in Persist.

                                       10
<PAGE>
 
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996

   REVENUE

   Total revenue increased 185.1% to $16,841,000 in the six months ended June
30, 1997 from $5,908,000 in the six months ended June 30, 1996. This increase
was primarily due to the licensing of the Company's AutoEnhancer/2000 software,
as well as from increases in other services revenue and, to a lesser extent,
outsourcing services revenue. International revenue increased 105.7% to
$1,300,000 in the six months ended June 30, 1997 from $632,000 in the six months
ended June 30, 1996. As a percentage of total revenue, international revenue
decreased to 7.4% in the six months ended June 30, 1997 from 10.7% in the six
months ended June 30, 1996. Substantially all of the Company's international
revenue for the six months ended June 30, 1997 and 1996 was attributable to
revenue generated by Persist.
 
   Outsourcing Services.   Outsourcing services revenue increased 16.9% to
$5,563,000 in the six months ended June 30, 1997 from $4,758,000 in the six
months ended June 30, 1996. As a percentage of total revenue, outsourcing
services revenue decreased to 33.0% in the six months ended June 30, 1997 from
80.5% in the six months ended June 30, 1996. The increase in outsourcing
services revenue in absolute dollars was primarily attributable to the addition
of two new outsourcing contracts in late 1996 and one in 1997 and was partially
offset by the recognition of lesser amounts of revenue under the percentage-of-
completion method on existing contracts that were in their later phases. The
decrease in outsourcing services revenue as a percentage of total revenue
reflects the contribution of license revenue to total revenue during the six
months ended June 30, 1997.

   License.   License revenue was $8,787,000 in the six months ended June 30,
1997, 52.2% of total revenue. The Company recognized $45,000 license revenue in
the six months ended June 30, 1996. The Company's license revenue in the six
months ended June 30, 1997 was primarily attributable to the delivery of
licensed software to end users and to license fees from value added integrators.

   Other Services. Other services revenue increased 125.4% to $2,491,000 in the
six months ended June 30, 1997 from $1,105,000 in the six months ended June 30,
1996. As a percentage of total revenue, other services revenue was 14.8% in the
six months ended June 30, 1997 compared to 18.7% in the six months ended June
30, 1996. The increase in other services revenue in absolute dollars was
primarily attributable to an increase in consulting, training and client support
services relating to the Company's year 2000 products and services. This
increase was partially offset by a decrease in direct delivery services for one
significant pilot year 2000 renovation.


   COST OF REVENUE

   Cost of Outsourcing Services Revenue.  The cost of outsourcing services
revenue decreased 0.7% to $4,403,000 in the six months ended June 30, 1997 from
$4,433,000 in the six months ended June 30, 1996. Cost of outsourcing services
revenue decreased as a percentage of outsourcing services revenue to 79.1% in
the six months ended June 30, 1997 from 93.2% in the six months ended June 30,
1996. The decrease in the cost of outsourcing services revenue as a percentage
of outsourcing services revenue was due primarily to the re-deployment in late
1996 of underutilized resources to research and development and support
activities, partially offset by the addition of resources necessary to provide
services under the new outsourcing contracts.

   Cost of License Revenue.  Cost of license revenue was $275,000 in the six
months ended June 30, 1997, or 3.1% of license revenue. There was no cost of
license revenue in the six months ended June 30, 1996.

  Cost of Other Services Revenue.  Cost of other services revenue increased
97.4% to $2,325,000 in the six months ended June 30, 1997 from $1,178,000 in the
six months ended June 30, 1996. Cost of other services revenue as a percentage
of other services revenue decreased to 93.3% in the six months ended June 30,
1997 from 106.6% in the six months ended June 30, 1996. Costs exceeded revenue
in the six months ended June 30, 1996 primarily as a result of expected cost
overruns on one significant pilot engagement, which subsequently became a
significant product license.

                                       11
<PAGE>
 
   OPERATING EXPENSES

   Sales and Marketing.  Sales and marketing expenses increased 147.1% to
$3,418,000 in the six months ended June 30, 1997 from $1,383,000 in the six
months ended June 30, 1996. As a percentage of total revenue, sales and
marketing expenses decreased to 20.3% in the six months ended June 30, 1997 from
23.4% in the six months ended June 30, 1996. The increase in expenses in
absolute dollars was primarily attributable to increased staffing, commissions,
including an increase in sales referral fees to third parties, and promotional
activities in conjunction with the launch of the Company's AutoEnhancer/2000
software.

   Research and Development.  Research and development expenses increased 30.5%
to $3,603,000 in the six months ended June 30, 1997 from $2,761,000 in the six
months ended June 30, 1996. As a percentage of total revenue, research and
development expenses decreased to 21.4% in the six months ended June 30, 1997
from 46.7% in the six months ended June 30, 1996. The increase in research and
development expenses in absolute dollars was primarily attributable to increased
staffing for the product development efforts for the Company's year 2000
products and services and mass change technologies, including an increase in
staffing effected through new hires and internal transfers.

   General and Administrative.  General and administrative expenses increased
23.7% to $1,800,000 in the six months ended June 30, 1997 from $1,455,000 in the
six months ended June 30, 1996. As a percentage of total revenue, general and
administrative expenses decreased to 10.7% in the six months ended June 30, 1997
from 24.6% in the six months ended June 30, 1996. The increase in general and
administrative expenses in absolute dollars was primarily due to additions to
the Company's administrative staff to support growth, higher professional fees
and increases in other general corporate expenses.

   Interest Income (Expense), Net.  Interest income, net of $20,000 in the six
months ended June 30, 1997 compares to interest expense, net of $99,000 in the
six months ended June 30, 1996. This change was primarily attributable to
decreased interest expense on lesser borrowings by the Company as well as
increased interest income from increased cash balances.

   Provision (Benefit) for Income Taxes.   The Company recorded an income tax
provision of $172,000 in the six months ended June 30, 1997 versus a benefit of
$204,000 in the six months ended June 30, 1996. The provision was the result of
an increase in taxable income, which was partially offset by the Company's
expected utilization in 1997 of previously generated net operating loss
carryforwards. 

   Minority Interest in Consolidated Subsidiary.  The minority interest in
consolidated subsidiary increased to income of $21,000 in the six months ended
June 30, 1997 from a loss of $20,000 in the six months ended June 30, 1996. This
change was the result of the increased profitability of Persist. At June 30,
1997 and 1996, the Company held a 63.7% equity interest in Persist.


LIQUIDITY AND CAPITAL RESOURCES

   The Company has financed its operations and capital expenditures primarily
with the proceeds from sales of the Company's Convertible Preferred Stock and
Common Stock, borrowings, advance payments for services from clients and
internally generated cash flows. The Company's cash balances were $2,473,000 and
$7,388,000 at June 30, 1997 and December 31, 1996, respectively. The Company's
working capital was $8,761,000 and $8,218,000, at June 30, 1997 and December 31,
1996, respectively.  On July 8, 1997, the Company closed an initial public
offering of 4,025,000 shares (2,800,000 of which were offered by the Company and
the balance by selling stockholders) of Common Stock at a public offering price
of $16.00 per share.  The net proceeds to the Company from the offering after
deducting expenses were approximately $41,000,000.  The Company plans to use
such proceeds for 

                                       12
<PAGE>
 
repayment of certain existing indebtedness, research and development, working
capital and general corporate purposes and possible acquisitions.

   The Company's operating activities used cash of $4,071,000 and $4,019,000
during the six months ended June 30, 1997 and June 30, 1996, respectively. The
Company's use of cash during the six months ended June 30, 1997 was primarily
caused by an increase in accounts receivable of $3,833,000 and a decrease in
deferred revenue of $2,255,000. These decreases were partially offset by net
income of $844,000 plus non-cash depreciation and amortization expense of
$495,000 during the six months ended June 30, 1997.

   The Company used cash of $890,000 and $391,000 for investing activities
during the six months ended June 30, 1997 and June 30, 1996, respectively.
Investing activities have consisted principally of the acquisition of property
and equipment, most notably computer equipment and software to support the
growing employee base and corporate infrastructure. Although the Company has no
significant commitments for capital expenditures in 1997, the Company expects to
continue to purchase property and equipment to further develop its
infrastructure.

   The Company's financing activities provided cash of $84,000 and $4,666,000
during the six months ended June 30, 1997 and June 30, 1996, respectively. In
March 1996, the Company raised aggregate net proceeds of $5,408,000 in private
placements of the Company's Convertible Preferred Stock and Common Stock. Net
proceeds from the sales of such shares were used for the Company's general
working capital needs, to make scheduled debt payments and for treasury stock
acquisitions.

   In May 1995, the Company issued a secured subordinated note payable for
approximately $924,000 with a face value of $1,000,000 and interest payable at
10% per annum. The note is subordinate to any bank debt and is collateralized by
a second security interest in all of the assets of the Company. In addition, the
note carries a prepayment premium and contains various restrictive covenants
including, but not limited to, minimum earnings and limitations on certain
interest coverage, debt and equity ratios. The note also included warrants with
an ascribed value of approximately $76,000 for the purchase of up to 312,500
shares of Common Stock for $1.60 per share. These warrants were exercised in
July 1997. In July 1997, the Company used a portion of the net proceeds of the
initial public offering to repay in full the note.

   In September 1996, the Company obtained a revolving line of credit facility
from a bank which bears interest at the bank's prime rate plus 0.5% (9.0% at
June 30, 1997). The maximum borrowing under this line of credit is $3,500,000
and is limited to 75% of certain receivables plus 50% of costs and estimated
earnings in excess of billings on uncompleted contracts, as defined by the line
of credit agreement. The line of credit, which was extended on June 20, 1997,
expires and all borrowings are payable in full on June 30, 1998. In addition to
this line of credit, the Company also entered into an equipment financing
agreement in September 1996. Under this agreement, the bank agreed to provide up
to $1,500,000 for the purchase of certain equipment (as defined by the
agreement) through June 30, 1997. Ratable principal and interest payments are
payable during the period July 1, 1997 through June 1, 2000, and bear interest
at the bank's prime rate plus 1% (9.5% at June 30, 1997). Both of these
agreements require the Company to comply with certain financial covenants and
are secured by all of the assets of the Company. As of June 30, 1997, there were
no borrowings outstanding, and $3,500,000 remained available, under the
revolving credit facility and $707,000 was outstanding under the equipment
financing agreement.

   On July 8, 1997, the Company closed an initial public offering of 4,025,000
shares of common stock, 2,800,000 being sold by the Company and the balance by
selling stockholders, at a public offering price of $16 per share. The net
proceeds to the Company from the offering after deducting expenses were
approximately $41,000,000. The balance of the proceeds went to selling
stockholders. The Company believes that the net proceeds from the sale of Common
Stock offered in its initial public offering, together with cash generated from
operations and existing cash balances and advances available under its revolving
credit line agreement will be adequate to finance its capital requirements for
at least the next twelve months. To the extent that such amounts are
insufficient to finance the Company's capital requirements, the Company will be
required to raise additional funds through equity or debt financing. No
assurance can be given that such financing will be available on terms acceptable
to the
                                       13
<PAGE>
 
Company and, if available, such financing may result in further dilution to the
Company's stockholders and higher interest expense.

   To date, the Company has not invested in derivative securities or any other
financial instruments that involve a high level of complexity or risk. Cash has
been and the Company contemplates that it will continue to be invested in
interest-bearing, investment grade securities.


ACCOUNTING PRONOUNCEMENTS

   In February 1997, the Financial Accounting Standards Board issued SFAS 128,
Earnings per Share. SFAS 128 specifies modifications to the calculation of
earnings per share from those currently utilized by the Company. Under SFAS 128,
''basic'' earnings per share will be calculated based upon the weighted average
number of common shares actually outstanding, and ''diluted'' earnings per share
will be calculated based upon the weighted average number of common shares and
dilutive potential common shares. SFAS 128 is effective in the Company's fourth
quarter of 1997 and will be adopted at that time. Management believes that the
adoption of SFAS 128 will have no significant effect on the reporting of the
Company's results of operations, as the Company has not been required to report
historical earnings per share. In addition, management believes that the
adoption of SFAS 128 will have no effect on the Company's financial position or
cash flows.

   In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income."
This statement establishes standards for the reporting and display of
comprehensive income and its components. Comprehensive income is defined as the
change in equity of a business enterprise during a period from transactions and
other events and circumstances from non-owner sources. It includes all changes
in equity during a period except those resulting from investments by owners and
distributions to owners. This standard will require that an enterprise display
an amount representing total comprehensive income for the period. SFAS No. 130
will be effective for the Company's year ending December 31, 1998. Adoption of
SFAS No. 130 is for presentation only and will not affect the Company's
financial position or results of operations.

  In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" which supersedes SFAS No. 14. This statement
changes the way that public business enterprises report segment information,
including financial and descriptive information about their selected segment
information. Operating segments are defined as revenue-producing components of
the enterprise which are generally used internally for evaluating segment
performance. SFAS No. 131 will be effective for the Company's year ending
December 31, 1998 and will not affect the Company's financial position or
results of operations.

FACTORS THAT MAY AFFECT FUTURE RESULTS

   From time to time, information provided by the Company or statements made by
its employees may contain "forward-looking' statements, as that term is defined
in the Private Securities Litigation Reform Act of 1995. For this purpose, any
statements contained herein that are not statements of historical fact may be
deemed to be forward-looking statements.  Without limiting the foregoing, the
words "believes," "anticipates," "plans," "expects," and similar expressions are
intended to identify forward-looking statements.

   This Form 10-Q may contain forward looking statements which involve risks and
uncertainties. The Company's actual results may differ materially from the
results discussed in such statements. Certain factors that could cause such a
difference include, without limitation, the risks specifically described in the
Company's Registration Statement on Form S-1, Registration No. 333-27087, filed
with the Securities and Exchange Commission in connection with its recent
initial public offering, which factors are incorporated herein by reference, and
other factors such as the Company's limited operating history, the dependence on
the year 2000 market, the need to develop additional products and services, the
concentration of clients and credit risk, the management of growth and increases
in expenditures in sales and marketing, research and development and finance and
administration, the dependence upon third-party channels and potential for
channel conflict, the impact of competitive products and services and pricing,
competition for qualified technical personnel, the offering of fixed-price,
fixed time-frame contracts rather than contracts on a time and materials basis,
the potential for contract liability related to the provision of year 2000 and
other products and services, limited protection of proprietary rights, rapid
technological change, dependence on key personnel, risks associated with
international operations and offshore development centers, the impact of the
government regulation of immigration, dependence on government contracts,
product or services demand and market acceptance risks, product development and
services capacity, commercialization and technological difficulties, capacity
and supply constraints or difficulties, and the effect of general business or
economic conditions.

                                       14
<PAGE>
 
   In addition, the Company's quarterly revenue, expenses and operating results
have varied significantly in the past and are likely to vary significantly from
quarter to quarter in the future. A significant portion of the Company's revenue
in any quarter is typically derived from a limited number of large client
transactions. In addition, the sales cycle associated with these transactions is
lengthy and is subject to a number of uncertainties, including clients'
budgetary constraints, the timing of clients' budget cycles and clients'
internal approval processes. Accordingly, the timing of significant transactions
is unpredictable and, as a result, the Company's revenue and results of
operations for any particular period are subject to significant variability. The
complexity of certain projects and the requirements of generally accepted
accounting principles can also result in a deferral of revenue recognition, in
whole or in part, on a particular contract during a quarter, even though the
contract has been executed or payment has actually been received by the Company.
Quarterly fluctuations may also result from other factors such as new product
and service introductions or announcements of new products and services by the
Company's competitors, changes in the Company's or its competitors' pricing
policies, changes in the mix of distribution channels through which the
Company's products and services are sold, the timing and nature of sales and
marketing expenses, changes in operating expenses, the financial stability of
major clients, changes in the demand for software maintenance products and
services, foreign currency exchange rates and general economic conditions.

                                       15
<PAGE>
 
                          PART II.  OTHER INFORMATION


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

  On May 28, 1997, the Company held a Special Meeting of Stockholders.  The
  meeting involved the re-election of the Company's then current directors:
  Arthur Carr, Douglas A. Catalano, Dominic K. Chan, Allen K. Deary, John
  Giordano, W. Michael Humphreys, Henry F. McCance, Axel Leblois and Roland
  Pampel.

  The following sets forth a description of each matter voted on and the votes
  cast:

  (1) A proposal to amend the Company's Restated Articles of Organization, as
      amended, to (i) reclassify the Class A Voting Common Stock as Common
      Stock; (ii) provide for 50,000,000 authorized shares of Common Stock; and
      (iii) increase the authorized shares of the Company's Class B Non Voting
      Common Stock from 270,000 to 1,000,000.

  (2) A proposal to further amend and restate the Company's Restated Articles of
      Organization, as amended.

  (3) A proposal to amend and restate the Company's By-laws.

  (4) A proposal to adopt and approve the Company's 1997 Stock Incentive Plan.

  (5) A proposal to adopt and approve the Company's 1997 Employee Stock Purchase
      Plan.

  (6) A proposal to adopt and approve the Company's 1997 Director Stock Option
      Plan.

      For each of the above-referenced matters (1) through (6), the votes were
      cast as follows:
<TABLE>
<S>                                        <C>              <C>           <C>
        (i)   Class A Common Stock:        5,423,211 For    0 Withheld    0 Abstentions and 0 broker non-votes
       (ii)   Class B Common Stock:           76,355 For    0 Withheld    0 Abstentions and 0 broker non-votes 
      (iii)   Series A Preferred Stock:    1,888,885 For    0 Withheld    0 Abstentions and 0 broker non-votes
       (iv)   Series B Preferred Stock:    1,663,499 For    0 Withheld    0 Abstentions and 0 broker non-votes

  (7) A proposal to reelect the current Directors of the Company:

        (i)   Arthur Carr
       (ii)   Douglas A. Catalano
      (iii)   Dominic K. Chan
       (iv)   Allen K. Deary
        (v)   John Giordano
       (vi)   W. Michael Humphreys
      (vii)   Henry F. McCance

     For each of the above-referenced individuals (i) through (vii), the votes
     were cast as follows:

        (i)   Class A Common Stock:        5,423,211 For    0 Withheld    0 Abstentions and 0 broker non-votes
       (ii)   Class B Common Stock:           76,355 For    0 Withheld    0 Abstentions and 0 broker non-votes 
      (iii)   Series A Preferred Stock:    1,888,885 For    0 Withheld    0 Abstentions and 0 broker non-votes
       (iv)   Series B Preferred Stock:    1,663,499 For    0 Withheld    0 Abstentions and 0 broker non-votes
</TABLE> 
                                       16
<PAGE>
 
     (viii)   Axel Leblois
       (ix)   Roland Pampel

  For each of the above-referenced individuals (viii) through (ix), the votes
  were cast as follows:
<TABLE>
<S>                                        <C>              <C>             <C>
        (i)   Class A Common Stock:        5,423,211 For      0 Withheld    0 Abstentions and 0 broker non-votes
       (ii)   Class B Common Stock:           75,855 For      0 Withheld  500 Abstentions and 0 broker non-votes 
      (iii)   Series A Preferred Stock:    1,888,885 For      0 Withheld    0 Abstentions and 0 broker non-votes
       (iv)   Series B Preferred Stock:    1,663,499 For      0 Withheld    0 Abstentions and 0 broker non-votes
</TABLE>

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)  EXHIBITS:

     Documents listed below, except for documents identified by footnotes, are
     being filed as exhibits herewith. Documents identified by footnotes, if
     any, are not being filed herewith and, pursuant to Rule 12b-32 of the
     General Rules and Regulations promulgated by the Commission under the
     Securities Exchange Act of 1934 (the "Exchange Act") reference is made to
     such documents as previously filed as exhibits with the Commission. The
     Company's file number under the Exchange Act is 0-22647.

     G2
     Exhibit 11.  Statement re computation of per share earnings
     Exhibit 27.  Financial Data Schedule

(b)  REPORTS ON FORM 8-K:
     None.

                                       17
<PAGE>
 
                                   SIGNATURES

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



DATED: August 14, 1997

                                    PERITUS SOFTWARE SERVICES, INC.

                                    BY:  /s/ Allen K. Deary
                                       -----------------------------------------
                                    Allen K. Deary
                                    Vice President, Finance and
                                    Chief Financial Officer (Principal Financial
                                    Officer)

                                       18
<PAGE>
                       PERITUS SOFTWARE SERVICES, INC.

 
                                 EXHIBIT INDEX
 
 
 Exhibit No.                     Description
-------------      ----------------------------------------
 
     11            Computation of earnings per common share
     27(1)         Financial Data Schedule


(1) In electronic version only.


                                       19