<PAGE>
 
                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549
 
                                _______________
 
 
                                   FORM 10-Q
 

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

               FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996

                                      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: 0-20725


                              SIEBEL SYSTEMS, INC.

             (Exact name of registrant as specified in its charter)

           DELAWARE                                       94-3187233
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
incorporation or organization)


                            1855 SOUTH GRANT STREET
                              SAN MATEO, CA 94402
         (Address of principal executive offices, including zip code)

                                (415) 295-5000
             (Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

                               Yes [X]  No [ ]

The number of shares outstanding of the registrant's common stock, par value
           $.001 per share, as of November 8, 1996, was 16,747,931.
<PAGE>
 
                             SIEBEL SYSTEMS, INC.

                                   FORM 10-Q

               FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996

                               TABLE OF CONTENTS
<TABLE>
<CAPTION>
                                                                          PAGE
PART I.  FINANCIAL INFORMATION                                            ----
<S>     <C>                                                              <C> 
         Item  1.  Financial Statements
                                                                                
                   a) Balance Sheets                                       
                      as of September 30, 1996 and December 31, 1995       3
                                                                                
                   b) Statements of Operations                             
                      for the three and nine months ended September        
                      30, 1996 and 1995                                    4
                                                                                
                   c) Statements of Cash Flows                             
                      for the nine months ended September 30, 1996 and     
                      1995                                                 5
                                                                                
                   d) Notes to Financial Statements                        6
                                                                                
         Item  2.  Management's Discussion and Analysis of Financial 
                   Condition and Results of Operations                     8
 
PART II. OTHER INFORMATION

         Item  1.  Legal Proceedings                                      14

         Item  6.  Exhibits and Reports on Form 8-K                       14

SIGNATURE                                                                 15
</TABLE> 

                                       2
<PAGE>
                        Part I.  Financial Information
                         Item 1.  Financial Statements


                             SIEBEL SYSTEMS, INC.

                                Balance Sheets
                     (In thousands, except per share data)
<TABLE>
<CAPTION>
                                                                                      September 30,     December 31,
                                                                                         1996              1995
                                                                                      -------------     ------------
                                                                                       (unaudited)
<S>                                                                                  <C>               <C>
                                    Assets                                                                                   
                                    ------                                                                                   
                                                                                                                             
Current assets:                                                                                                              
   Cash and cash equivalents                                                          $      51,256     $     11,391             
   Short-term investments                                                                    25,210                -                
   Accounts receivable, net                                                                   4,505            3,066             
   Deferred income taxes                                                                        314              314             
   Prepaids and other                                                                         3,634              440             
                                                                                      -------------     ------------           
                                                                                                                             
           Total current assets                                                              84,919           15,211             
                                                                                                                             
Property and equipment, net                                                                   5,878              863             
Other assets                                                                                    380               17             
                                                                                      -------------     ------------           
                                                                                                                             
           Total assets                                                               $      91,177     $     16,091             
                                                                                      =============     ============           
                                                                                                                             
                     Liabilities and Stockholders' Equity                                                                    
                     ------------------------------------                                                                    
                                                                                                                             
Current liabilities:                                                                                                         
   Accounts payable                                                                   $       2,084     $        493             
   Accrued expenses                                                                           5,937            1,075             
   Income taxes payable                                                                         617              395             
   Deferred revenue                                                                           5,665            4,166             
                                                                                      -------------     ------------           
                                                                                                                             
           Total current liabilities                                                         14,303            6,129             
                                                                                      -------------     ------------           
                                                                                                                             
   Deferred income taxes                                                                         28               28             
                                                                                                                             
           Total liabilities                                                                 14,331            6,157             
                                                                                                                             
Stockholders' equity:                                                                                                        
   Convertible preferred stock;  $.001 par value;  10,000 shares authorized;                      -                5
       4,906 and 0 shares issued and outstanding in 1995 and                                                                 
       1996, respectively                                                                                                    
   Common stock;  $.001 par value;  35,000 shares authorized;  8,249 and                         17                8
       16,735 shares issued and outstanding in 1995 and 1996, respectively                                                   
   Additional paid-in capital                                                                75,644            9,999             
   Notes receivable from stockholders                                                          (508)             (13)            
   Deferred compensation                                                                     (1,115)            (381)            
   Retained earnings                                                                          2,808              316             
                                                                                      -------------     ------------           
                                                                                                                             
           Total stockholders' equity                                                        76,846            9,934             
                                                                                      -------------     ------------           
                                                                                                                             
           Total liabilities and stockholders' equity                                 $      91,177     $     16,091             
                                                                                      =============     ============            
</TABLE>

                See accompanying notes to financial statements.

                                       3
<PAGE>
                             
                             SIEBEL SYSTEMS, INC.

                           Statements of Operations
                                  (unaudited)
                     (In thousands, except per share data)


<TABLE>
<CAPTION>
                                                                     Three Months Ended       Nine Months Ended
                                                                        September 30,            September 30,
                                                                     ------------------       -----------------
                                                                     1996          1995       1996         1995
                                                                     ----          ----       ----         ----
<S>                                                                 <C>         <C>           <C>       <C>
Revenues:
   Software                                                          $ 10,235   $ 2,400       $ 21,373  $ 3,586
   Maintenance and other                                                  936       164          2,053      292
                                                                     --------   -------       --------  -------

           Total revenues                                              11,171     2,564         23,426    3,878

Cost of revenues:
   Software                                                                20         8             56       12
   Maintenance and other                                                  525       117          1,290      173
                                                                     --------   -------       --------  -------

           Total cost of revenues                                         545       125          1,346      185
                                                                     --------   -------       --------  -------

           Gross margin                                                10,626     2,439         22,080    3,693

Operating expenses:
   Product development                                                  1,685       822          3,836    2,059
   Sales and marketing                                                  5,443       903         12,049    1,765
   General and administrative                                           1,395       292          2,823      630
                                                                     --------   -------       --------  -------

           Total operating expenses                                     8,523     2,017         18,708    4,454
                                                                     --------   -------       --------  -------

           Operating income (loss)                                      2,103       422          3,372     (761)

Other income, net                                                         442        56            671      109
                                                                     --------   -------       --------  -------

           Income (loss) before income taxes                            2,545       478          4,043     (652)

Income tax expense (benefit)                                              952       191          1,551     (261)
                                                                     --------   -------       --------  -------

           Net income (loss)                                         $  1,593   $   287       $  2,492  $  (391)
                                                                     ========   =======       ========  =======

Net income (loss) per share                                          $   0.08   $  0.02       $   0.13  $ (0.03)
                                                                     ========   =======       ========  =======

Shares used in net income (loss) per share computation                 19,991    16,856         19,460   15,620
                                                                     ========   =======       ========  =======
</TABLE>

                See accompanying notes to financial statements.

                                       4
<PAGE>
                             
                             SIEBEL SYSTEMS, INC.

                           Statements of Cash Flows
                                  (unaudited)
                                (In thousands)
<TABLE>
<CAPTION>
                                                                                      Nine Months Ended                       
                                                                                         September 30                            
                                                                                      -----------------
                                                                                      1996         1995
                                                                                      ----         ----
<S>                                                                                   <C>       <C>                         
Cash flows from operating activities:                                                                                         
   Net income (loss)                                                                  $  2,492  $  (391)                 
   Adjustments to reconcile net income (loss) to net cash provided by (used in)                                               
     operating activities:                                                                                                    
        Compensation related to stock options                                              171        -                     
        Depreciation and amortization                                                      624      129                  
        Loss on disposal of property and equipment                                         155        -                     
        Provision for doubtful accounts                                                    112        -                     
        Licenses exchanged for equipment                                                (1,156)       -                     
        Changes in operating assets and liabilities:                                                                          
           Accounts receivable, net                                                     (1,551)  (2,155)                 
           Prepaids and other                                                           (3,194)    (400)                 
           Other assets                                                                   (363)      12                  
           Accounts payable                                                              1,591      271                  
           Accrued expenses                                                              4,862      907                  
           Income taxes payable                                                            222        -                     
           Deferred revenue                                                              1,499      888                  
                                                                                      --------  -------
                                                                                                                              
              Net cash provided by (used in) operating activities                        5,464     (739)                 
                                                                                      --------  -------
                                                                                                                              
Cash flows from investing activities:                                                                                         
   Purchases of property and equipment                                                  (4,638)    (646)                 
   Purchases of short-term investments                                                 (25,210)       -                     
                                                                                      --------  -------
                                                                                                                              
              Net cash used in investing activities                                    (29,848)    (646)                 
                                                                                      --------  -------
Cash flows from financing activities:                                                                                         
   Proceeds from issuance of common stock                                               63,212       31                  
   Repurchases of common stock                                                               -       (7)                 
   Proceeds from issuance of preferred stock                                             1,532    4,560                  
   Issuance of stockholder notes                                                          (507)     (13)                 
   Collection of stockholder notes                                                          12        -                     
                                                                                      --------  -------
                                                                                                                              
              Net cash provided by financing activities                                 64,249    4,571                  
                                                                                      --------  -------
                                                                                                                              
Change in cash and cash equivalents                                                     39,865    3,186                  
                                                                                                                              
Cash and cash equivalents, beginning of period                                          11,391    1,017                  
                                                                                      --------  -------
                                                                                                                              
Cash and cash equivalents, end of period                                              $ 51,256  $ 4,203                  
                                                                                      ========  =======
                                                                                                                              
                                                                                                                              
Supplemental disclosures of cash flows information:                                                                           
   Cash paid for income taxes                                                         $  1,280  $     -                     
                                                                                      ========  =======
                                                                                                                              
   Noncash investing and financing activities:                                                                                
     Conversion of partnership units into common stock                                                                        
        and Series A preferred stock                                                  $      -  $ 1,153                  
                                                                                      ========  =======
                                                                                                                              
     Conversion of preferred stock into common stock                                  $      5  $     -                     
                                                                                      ========  =======
                                                                                                                              
     Exercise of common stock options in exchange for                                                                         
        stockholder notes receivable                                                  $    507  $    13                  
                                                                                      ========  =======
                                                                                                                              
     Credits used to purchase equipment                                               $  1,156  $     -                     
                                                                                      ========  =======
</TABLE>

                See accompanying notes to financial statements.

                                       5
<PAGE>
 
                             SIEBEL SYSTEMS, INC.
                         NOTES TO FINANCIAL STATEMENTS
                                  (UNAUDITED)


1.  BASIS OF PRESENTATION

    The accompanying unaudited financial statements have been prepared on
    substantially the same basis as the audited financial statements, and in the
    opinion of management include all adjustments, consisting only of normal
    recurring adjustments, necessary for their fair presentation. The interim
    results presented are not necessarily indicative of results for any
    subsequent quarter or for the year ending December 31, 1996.

    For information as to the significant accounting policies followed by the
    Company and other financial and operating information, see the Company's
    Registration Statement on Form S-1 (No. 333-12061), filed with the
    Securities and Exchange Commission on September 16, 1996 (the "Form S-1").
    These financial statements should be read in conjunction with the financial
    statements included in that Registration Statement.

2.  NET INCOME (LOSS) PER SHARE

    Net income (loss) per share is computed based on weighted average number of
    common and preferred shares outstanding and is adjusted for shares issuable
    upon the exercise of stock options (unless antidilutive) using the treasury
    stock method.

3.  PUBLIC OFFERINGS

    On July 3, 1996 (the "Closing Date"), the Company closed an initial public
    offering (the "Initial Offering") of 2,257,450 shares of its common stock,
    which was comprised of 2,094,450 shares sold by the Company (including
    294,450 shares to cover over-allotments) and 163,000 shares sold by selling
    stockholders. The net proceeds to the Company of $33,113,000 from the
    Initial Offering (prior to expenses) were received by the Company on the
    Closing Date. Simultaneous with the closing of the Initial Offering, all
    outstanding shares of preferred stock were converted to common stock on a
    one-for-one basis.

    On September 25, 1996 (the "Follow-On Closing Date"), the Company closed an
    additional public offering (the "Follow-On Offering") of 1,500,000 shares of
    its common stock, which was comprised of 750,000 shares sold by the Company
    and 750,000 shares sold by selling stockholders. The net proceeds to the
    Company of $30,637,500 from the Follow-On Offering (prior to expenses) were
    received by the Company on the Follow-On Closing Date. On October 8, 1996
    (the "Option Closing Date"), the Company closed the over-allotment portion
    of the Follow-On Offering, which was comprised of 12,711 shares sold by the
    Company and 212,289 shares sold by selling stockholders. The net proceeds to
    the Company of $519,244 (prior to expenses) were received by the Company on
    the Option Closing Date.

4.  CASH, CASH EQUIVALENTS, AND SHORT-TERM INVESTMENTS

    The Company considers all highly liquid investments with an original
    maturity of 90 days or less to be cash equivalents. Short-term investments
    generally consist of highly liquid municipal securities with original
    maturities in excess of 90 days.

    The Company has classified its investments in certain debt and equity
    securities as "available for sale." Such investments are carried at fair
    value, with gross unrealized gains and losses reported as a separate
    component of stockholders' equity. As of September 30, 1996, gross
    unrealized gains and losses have not been material.

<TABLE> 
<CAPTION> 
                                      September 30,      December 31,
    (In thousands)                        1996               1995   
    -------------------------------------------------------------------
                                       (unaudited)
    <S>                               <C>                <C>

    Certificates of deposit              $ 1,325            $       -
    Municipal securities                  23,885                    -
    -------------------------------------------------------------------
 
                                         $25,210            $       -
    -------------------------------------------------------------------
</TABLE>

                                       6
<PAGE>
 
5. ACCRUED EXPENSES
<TABLE>
<CAPTION>
                                      September 30,   December 31,
   (In thousands)                         1996            1995     
   ----------------------------------------------------------------
                                       (unaudited)
   <S>                                   <C>            <C>          
 
   Wages, Commissions, Bonuses             $3,001         $  364
   Sales tax                                  547            486
   Marketing                                  312             16
   Other                                    2,077            209
   ----------------------------------------------------------------
 
                                           $5,937         $1,075
   ----------------------------------------------------------------
</TABLE>

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

THIS FORM 10-Q CONTAINS FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS AND
UNCERTAINTIES.  THE COMPANY'S ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THE
RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS.  FACTORS THAT MIGHT CAUSE
SUCH A DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED HEREIN AND
UNDER THE CAPTION "RISK FACTORS" IN THE COMPANY'S REGISTRATION STATEMENT ON FORM
S-1 (NO. 333-12061).  ANY SUCH FORWARD-LOOKING STATEMENTS SPEAK ONLY AS OF THE
DATE SUCH STATEMENTS ARE MADE AND THE COMPANY UNDERTAKES NO OBLIGATION TO
PUBLICLY RELEASE THE RESULTS OF ANY REVISION TO THESE FORWARD-LOOKING
STATEMENTS.

OVERVIEW

Siebel Systems, Inc. is an industry leading provider of enterprise-class sales
and marketing information software systems.  The Company designs, develops,
markets, and supports Siebel Sales Enterprise, a leading Internet-enabled,
object oriented client/server application software product family designed to
meet the sales and marketing information system requirements of even the largest
multi-national organizations.

Approximately 92% of the Company's revenues to date have been derived from non-
recurring license fees of the Siebel Sales Enterprise product family. The
remaining revenues are primarily attributable to lower margin maintenance and
other revenues, including training revenues. The Company currently expects that
license revenues from Siebel Sales Enterprise will continue to account for a
substantial majority of the Company's revenues for the remainder of 1996 and for
the foreseeable future. As a result, factors adversely affecting the pricing of
or demand for Siebel Sales Enterprise could have a material adverse effect on
the Company's business, operating results and financial condition. Most of the
Company's revenues to date have been derived from one-time license fees from
customers who have received a perpetual license to the Company's products.

A relatively small number of customers account for a significant percentage of
the Company's license revenues. For 1995 and the first nine months of 1996,
sales to the Company's ten largest customers accounted for 93% and 74% of total
revenues, respectively.  The Company expects that licenses of its products to a
limited number of customers will continue to account for a large percentage of
revenue for the foreseeable future.  The license of the Company's software
products is often an enterprise-wide decision by prospective customers and
generally requires the Company to provide a significant level of education to
prospective customers regarding the use and benefits of the Company's products.
In addition, the implementation of the Company's products involves a significant
commitment of resources by prospective customers and is commonly associated with
substantial reengineering efforts which may be performed by the customer or
third-party system integrators.  The cost to the customer of the Company's
product is typically only a portion of the related hardware, software,
development, training and integration costs of implementing a large-scale sales
and marketing information system.  For these and other reasons, the sales and
implementation cycles associated with the license of the Company's products is
often lengthy (ranging to date from between two and twenty-four months from
initial contact to product implementation) and is subject to a number of
significant delays over which the Company has little or no control.  Given these
factors and the expected customer concentration, the loss of a major customer or
any reduction or delay in sales to or implementations by such customers could
have a material adverse effect on the Company's business, operating results, and
financial condition.

As of September 30, 1996, many of the Company's customers were in the pilot
phase of implementation of Siebel Sales Enterprise.  Only a few of the Company's
customers have completed a significant portion of their enterprise-wide
development and deployment of Siebel Sales Enterprise, while most have only
recently commenced such development and deployment.  As a result, the Company's
products are currently being used by only a limited number of sales
professionals.  If any of the Company's customers are not able to customize and
deploy Siebel Sales Enterprise successfully and on a timely basis to the number
of anticipated users, the Company's reputation could be significantly damaged,
which could have a material adverse effect on the Company's business, operating
results and financial condition.

The Company markets its products in the United States through its direct sales
force and internationally through its sales force and a distributor in Japan.
International revenues accounted for 12% and 8% of total revenues in 1995 and
the first nine months of 1996, respectively.  The Company is increasing its
international sales force and seeking to establish distribution relationships
with appropriate strategic partners and expects international revenues will
account for an increasing portion of total revenues in the future.  As a result,
failure to cost-effectively maintain or increase international sales could have
a material adverse effect on the Company's business, operating results and
financial condition.

                                       8
<PAGE>
 
The Company's limited operating history makes the prediction of future operating
results difficult.  Prior growth rates in the Company's revenue and net income
should not be considered indicative of future operating results.  Future
operating results will depend upon many factors, including the demand for the
Company's products, the level of product and price competition, the length of
the Company's sales cycle, the size and timing of individual license
transactions, the delay or deferral of customer implementations, the Company's
relationships with systems integrators, the Company's success in expanding its
direct sales force, indirect distribution channels and customer support
organization, the timing of new product introductions and product enhancements,
the mix of products and services sold, levels of international sales, activities
of and acquisitions by competitors, the timing of new hires, changes in foreign
currency exchange rates, the ability of the Company to develop and market new
products and control costs and the ability to attract and retain key personnel.
There can be no assurance that any of the Company's business or strategies will
be successful or that the Company will be able to sustain profitability on a
quarterly or annual basis.

The Company's sales generally reflect a relatively high amount of revenue per
order.  The loss or delay of individual orders, therefore, can have a
significant impact on the revenue and quarterly results of the Company.  The
timing of license revenue is difficult to predict because of the length of the
Company's sales cycle, which to date has ranged from two to eighteen months from
initial contact to the execution of a license agreement.  Because the Company's
operating expenses are based on anticipated revenue trends and because a high
percentage of the Company's expenses are relatively fixed, a delay in the
recognition of revenue from a limited number of license transactions could cause
significant variations in operating results from quarter to quarter and could
result in losses. To the extent such expenses precede, or are not subsequently
followed by, increased revenues, the Company's operating results would be
materially adversely affected.  As a result of these and other factors, revenues
for any quarter are subject to significant variation, and the Company believes
that period-to-period comparisons of its results of operations are not
necessarily meaningful and should not be relied upon as indications of future
performance.  It is likely that in some future quarter the Company's operating
results will be below the expectations of public market analysts and investors.
In such event, the price of the Company's Common Stock would likely be adversely
affected.

To date, the Company has not experienced significant seasonality of operating
results.  The Company expects that future revenues for any period may be
affected by the fiscal or quarterly budget cycles of its customers.

RESULTS OF OPERATIONS

REVENUES

Software.  License revenues increased to $10,235,000 for the three months ended
September 30, 1996 from $2,400,000 for the three months ended September 30,
1995.   For the nine months ended September 30, 1996, license revenues increased
to $21,373,000 from $3,586,000 for the nine months ended September 30, 1995.
License revenues increased during these periods from the respective prior year
periods due to an increase in the number of licenses of  Siebel Sales
Enterprise.  This increase in the number of licenses was primarily due to the
increased market and customer awareness of the Siebel Sales Enterprise product
family, and, to a lesser degree, an expansion of the Company's direct sales
organization over the past six quarters.

Maintenance and Other.  Maintenance and other revenues increased to $936,000 for
the three months ended September 30, 1996 from $164,000 for the three months
ended September 30, 1995.  For the nine months ended September 30, 1996,
maintenance and other revenues increased to $2,053,000 from $292,000 for the
nine months ended September 30, 1995.  These increases were due to the more
widespread licensing of products to customers pursuant to agreements with a
maintenance component.  Earlier licenses typically involved pilot installations
which did not include maintenance.

COST OF REVENUES

Software.  Cost of software license revenues includes product packaging,
documentation and production. Cost of license revenues through September 30,
1996 have averaged less than 1% of software license revenues. All costs incurred
in the research and development of software products and enhancements to
existing products have been expensed as incurred, and, as a result, cost of
license revenues includes no amortization of capitalized software development
costs.

                                       9
<PAGE>
 
Maintenance and Other.  Cost of maintenance and other revenues consists
primarily of personnel, facility and systems costs incurred in providing
customer support. Cost of maintenance and other revenues aggregated $525,000 for
the three months ended September 30, 1996 and $117,000 for the three months
ended September 30, 1995.  For the nine months ended September 30, 1996, cost of
maintenance and other revenues increased to $1,290,000 from $173,000 for the
nine months ended September 30, 1995.  These increases reflect the effect of
fixed costs resulting from the Company's expansion of its maintenance and
support organization in anticipation of entering into an increasing number of
licenses with a maintenance component. The Company expects that maintenance and
other costs will continue to increase in absolute dollar amounts as the Company
expands its customer support organization to meet anticipated customer demands
in connection with product implementation.

OPERATING EXPENSES

Product Development.  Product development expenses include expenses associated
with the development of new products, enhancements of existing products and
quality assurance activities, and consist primarily of employee salaries,
benefits, consulting costs and the cost of software development tools.  Product
development expenses increased to $1,685,000 for the three months ended
September 30, 1996 from $822,000 for the three months ended September 30, 1995.
For the nine months ended September 30, 1996, product development expenses
increased to $3,836,000 from $2,059,000 for the nine months ended September 30,
1995.  These expenses generally decreased, as a percentage of total revenues, to
approximately 15% for the third quarter of 1996 from approximately 32% for the
third quarter of 1995.  The increases in the dollar amount of product
development expenses were primarily attributable to costs of additional
personnel in the Company's product development operations. The Company
anticipates that it will continue to devote substantial resources to product
development. The Company expects product development expenses to increase in
absolute dollar amount but to remain at approximately the same percentage of
total revenues as the third quarter of 1996.

Sales and Marketing.  Sales and marketing expenses consist primarily of
salaries, commissions and bonuses earned by sales and marketing personnel, field
office expenses, travel and entertainment and promotional expenses. Sales and
marketing expenses increased to $5,443,000 for the three months ended September
30, 1996 from $903,000 for the three months ended September 30, 1995.  For the
nine months ended September 30, 1996, sales and marketing expenses increased to
$12,049,000 from $1,765,000 for the nine months ended September 30, 1995.  These
expenses increased, as a percentage of total revenues, to approximately 49% in
the third quarter of 1996 from approximately 35% for the third quarter of 1995.
The increases in the dollar amount of expenditures on sales and marketing and
the increase in these expenses as a percentage of total revenues reflect
primarily the hiring of additional sales and marketing personnel and, to a
lesser degree, costs associated with expanded promotional activities. The
Company expects that sales and marketing expenses will continue to increase in
absolute dollar amount as the Company continues to expand its sales and
marketing efforts, establishes additional sales offices and increases
promotional activities. These expenses are expected to remain at approximately
the same percentage of total revenues as the third quarter of 1996.

General and Administrative.  General and administrative expenses consist
primarily of salaries and occupancy costs for administrative, executive and
finance personnel. These expenses increased to $1,395,000 for the three months
ended September 30, 1996 from $292,000 for the three months ended September 30,
1995.  For the nine months ended September 30, 1996, general and administrative
expenses increased to $2,823,000 from $630,000 for the nine months ended
September 30, 1995.  These expenses increased as a percentage of total revenues
to approximately 12% in the third quarter of 1996 from approximately 11% in the
third quarter of 1995.  The increases in the absolute dollar amount of general
and administrative expenses were primarily due to increased staffing and
associated expenses necessary to manage and support the Company's increased
scale of operations.  The Company believes that its general and administrative
expenses will continue to increase in absolute dollar amount as a result of the
continued expansion of the Company's administrative staff and facilities to
support growing operations and the expenses associated with being a public
company.  The Company anticipates that its general and administrative expenses
as a percentage of total revenues should remain at approximately the same
percentage as the third quarter of 1996.

OTHER INCOME, NET

Other income, net is primarily comprised of interest income earned on the
Company's cash short-term investments and reflects earnings on increasing cash
and short-term investment balances during 1996.

                                      10
<PAGE>
 
PROVISION FOR INCOME TAXES

Income taxes have been provided at an effective rate of approximately 38%, which
is comprised primarily of federal and state taxes.  The Company accounts for
income taxes in accordance with Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes."

LIQUIDITY AND CAPITAL RESOURCES

As of September 30, 1996, the Company's cash and cash equivalents increased by
$39,865,000 from the Company's cash and cash equivalents as of December 31,
1995.  This increase was primarily attributable to net income, proceeds from the
Company's initial public offering of common stock which closed on July 3, 1996
(the "Initial Offering") and the Company's additional public offering of common
stock which closed on September 25, 1996 (the "Follow-On Offering") (together,
the "Offerings"), and increases in accrued expenses, partially offset by an
increase in short-term investments and purchases of property and equipment.

The Company's cash, cash equivalents and short-term investments increased to
$76,466,000 at September 30, 1996 from $11,391,000 at December 31, 1995,
representing approximately 84% of total assets.  The Company received
approximately $33.1 million in proceeds (prior to expenses) in connection with
the Initial Offering and approximately $30.6 million in proceeds (prior to
expenses) in connection with the Follow-On Offering.  See Note 3 of Notes to
Financial Statements.

The Company intends to use the net proceeds of the Offerings primarily for
working capital and other general corporate purposes, including expansion of
general sales and marketing and customer support activities to accommodate
continued growth in the Company's business and customer base.  The amounts
actually expended by the Company for working capital purposes will vary
significantly depending upon a number of factors, including future revenue
growth, if any, the amount of cash generated by the Company's operations and the
progress of the Company's product development efforts.  In addition, the Company
may make one or more acquisitions of complementary technologies, products or
businesses which broaden or enhance the Company's current product offerings.
However, the Company has no specific plans, agreements or commitments, oral or
written, and is not currently engaged in any negotiations for any such
acquisition.  Pending the uses described above, the net proceeds of the
Offerings have been invested in short-term, interest-bearing, investment-grade
securities.

In August 1996, the Company moved its principal administrative, sales,
marketing, support and research and development operations to a 66,000 square
foot site in San Mateo, California.  The Company currently has no material
commitments for capital expenditures other than expenditures for leasehold
improvements and other costs associated with the relocation of its principal
operations and normal purchases of property and equipment, primarily computer
workstations used for product development, demonstration and customer support
purposes.

The Company believes that the net proceeds from the Offerings, together with the
anticipated cash flows from operations, cash, cash equivalents and short-term
investments, will be adequate to meet its cash needs for working capital and
capital expenditures for at least the next twelve months.

FACTORS AFFECTING OPERATING RESULTS

Limited Operating History. The Company commenced operations in July 1993 and
shipped version 1.0 of its product, Siebel Sales Enterprise, in April 1995. The
Company has only a limited operating history, and its prospects must be
evaluated in light of the risks and uncertainties encountered by a company in
its early stage of development. The new and evolving markets in which the
Company operates make these risks and uncertainties particularly pronounced. To
address these risks, the Company must, among other things, successfully
implement its sales and marketing strategy, respond to competitive developments,
attract, retain, and motivate qualified personnel, continue to develop and
upgrade its products and technologies more rapidly than its competitors, and
commercialize its products and services incorporating these enhanced
technologies. The Company expects to continue to devote substantial resources to
its product development and sales and customer support and, as a result, will
need to generate significant quarterly revenues to achieve and maintain
profitability. The Company's limited operating history makes it difficult to
predict accurately future operating results. There can be no assurance that any
of the Company's business strategies will be successful or the Company will be
profitable in any future quarter or period.

                                      11
<PAGE>
 
Reliance on Andersen Consulting and Other Relationships; Dependence on System
Integrators.  The Company has established strategic relationships with a number
of organizations that it believes are important to its worldwide sales,
marketing and support activities and the implementation of its products.  The
Company believes that its relationships with such organizations provide
marketing and sales opportunities for the Company's direct sales force and
expand the distribution of its products.  These relationships also assist it in
keeping pace with the technological and marketing developments of major software
vendors, and, in certain instances, provide it with technical assistance for its
product development efforts.  In particular,  the Company has established a non-
exclusive strategic relationship with Andersen Consulting, a principal
stockholder of the Company.  In the first nine months of 1996, approximately 60%
of the revenues of the Company were derived from customers for which Andersen
Consulting had been engaged to provide system integration services.  Any
deterioration of the Company's relationship with Andersen Consulting could have
a material adverse effect on the Company's business, financial condition and
results of operations.  In addition, the Company has relationships with Itochu
Corporation and Itochu Techno-Science Corporation, among others.  The failure by
the Company to maintain its existing relationships, or to establish new
relationships in the future, could have a material adverse effect on the
Company's business, results of operations and financial condition.  The
Company's customers and potential customers frequently rely on Andersen
Consulting, as well as other third-party system integrators to develop, deploy
and/or manage Siebel Sales Enterprise.  If the Company is unable to train
adequately a sufficient number of system integrators or, if for any reason such
integrators do not have or devote the resources necessary to facilitate
implementation of the Company's products or if such integrators adopt a product
or technology other than Siebel Sales Enterprise, the Company's business,
operating results and financial condition could be materially and adversely
affected.

Limited Deployment.  The Company first shipped Siebel Sales Enterprise version
1.0 in April 1995. As of September 30, 1996, many of the Company's customers
were in the pilot phase of implementing the Company's software. The Company's
customer licenses frequently contemplate the deployment of the product
commercially to large numbers of sales and marketing personnel, many of whom
have not previously used application software systems, and there can be no
assurance of such end-users' acceptance of the product. The Company's product is
expected to be deployed on a variety of computer hardware platforms and to be
used in connection with a number of third-party software applications and
programming tools. Such deployment presents very significant technical
challenges, particularly as large numbers of sales personnel attempt to use the
Company's product concurrently. If any of the Company's customers are not able
to customize and deploy Siebel Sales Enterprise successfully and on a timely
basis to the number of anticipated users, the Company's reputation could be
significantly damaged, which could have a material adverse effect on the
Company's business, operating results and financial condition. In addition to
revenues from new customers, the Company expects that a significant percentage
of any future revenues will be derived from sales to existing customers.
However, such customers are not contractually committed in all cases to purchase
additional licenses. If existing customers have difficulty further deploying
Siebel Sales Enterprise or for any other reason are not satisfied with Siebel
Sales Enterprise, the Company's business, operating results and financial
condition could be materially and adversely affected.

Competition.  The market for the Company's products is intensely competitive,
subject to rapid change and significantly affected by new product introductions
and other market activities of industry participants.  The Company's products
are targeted at the emerging market for sales and marketing information systems,
and the Company faces competition primarily from customers' internal information
technology departments and systems integrators, as well as from other
application software providers that offer a variety of products and services to
address this market.  Many of the Company's customers and potential customer
have in the past attempted to develop sales and marketing information systems,
in-house either alone or with the help of systems integrators.  The Company is
able to compete successfully against these customers' and potential customers'
internal development efforts only to the extent such development efforts fail.

The Company relies on a number of systems consulting and systems integration
firms for implementation and other customer support services, as well as
recommendations of its products during the evaluation stage of the purchase
process, particularly Andersen Consulting.  Although the Company seeks to
maintain close relationships with these service providers, many of them have
similar, and often more established., relationships with the Company's
competitors.  If the Company is unable to develop and retain effective, long-
term relationships with these third parties, the Company's competitive position
could be materially and adversely effected.  Further, there can be no assurance
that these third parties, many of which have significantly greater resources
than Company, will not market software products in competition with the Company
in the future or will not otherwise reduce or discontinue their relationships
with or support of the Company and its products.

A large number of personal, departmental and other products exist in the sales
automation market.  Some of the Company's current and potential competitors and
their products include Symantec (ACT!), Borealis Corporation (Arsenal), Brock
International (Brock Activity Manager), Early Cloud & Co. (CallFlow), IMA
(EDGE), Marketrieve Company (Marketrieve PLUS), Clarify, Inc. (Clear-Sales),
Oracle Corporation (Oracle Sales Manager), SaleSoft 

                                      12
<PAGE>
 
(PROCEED), Pivotal Software, Inc. (Relationship), SalesBook Systems (SalesBook),
SalesKit Software Corporation (SalesKit), Aurum (SalesTrak), Sales Technologies
(SNAP for Windows), Saratoga Systems (SPS for Windows) and The Vantive
Corporation (Vantive Sales). Many of these competitors have longer operating
histories, significantly greater financial, technical, marketing and other
resources, significantly greater name recognition and a larger installed base of
customers than the Company. In addition, many competitors have well-established
relationships with current and potential customers of the Company. As a result,
these competitors may be able to respond more quickly to new or emerging
technologies and changes in customer requirements, or to devote greater
resources to the development, promotion and sale of their products, than can the
Company.

It is also possible that new competitors or alliances among competitors may
emerge and rapidly acquire significant market share.  The Company also expects
that competition will increase as a result of consolidation in the software
industry.  Increased competition may result in price reductions, reduced gross
margins and loss of market share, any of which could materially adversely affect
the Company's business, operating results and financial condition.  There can be
no assurance that the Company will be able to compete successfully against
current and future competitors or that competitive pressures faced by the
Company will not materially and adversely affect its business, operating results
and financial condition.

Management of Growth; Dependence upon Key Personnel.  In the event that the
significant growth of the Company's revenues continues, such growth may place a
significant strain upon the Company's management systems and resources.  The
Company's ability to compete effectively and to manage future growth, if any,
will require the Company to continue to improve its financial and management
controls, reporting systems and procedures on a timely basis and expand, train
and manage its employee work force. There can be no assurance that the Company
will be able to do so successfully.  The Company's failure to do so could have a
material adverse effect upon the Company's business, operating results and
financial condition. The Company's future performance depends in significant
part upon the continued service of its key technical, sales and senior
management personnel, particularly Thomas M. Siebel, the Company's chairman and
Chief Executive Officer, none of whom has entered into an employment agreement
with the Company.  The loss of the services of one or more of the Company's
executive officers could have a material adverse effect on the Company's
business, operating results and financial condition. The Company's future
success also depends on its continuing ability to attract and retain highly
qualified technical, customer support, sales and managerial personnel.
Competition for such personnel is intense, and there can be no assurance that
the Company will be able to retain its key technical, sales and managerial
employees or that it can attract, assimilate or retain other highly qualified
technical, sales and managerial personnel in the future.

International Operations.  The Company's sales are primarily to large multi-
national companies. To service the needs of such companies, both domestically
and internationally, the Company must provide worldwide product support
services. As a result, the Company has expanded and intends to continue to
expand its international operations and enter additional international markets,
which will require significant management attention and financial resources and
could adversely affect the Company's operating margins and earnings, if any.
Revenues from international sales accounted for approximately 8% of the
Company's total revenues in the first nine months of 1996. The Company believes
that in order to increase sales opportunities and profitability it will be
required to expand its international operations. The Company has committed and
continues to commit significant management time and financial resources to
developing direct and indirect international sales and support channels. There
can be no assurance, however, that the Company will be able to maintain or
increase international market demand for Siebel Sales Enterprise. To the extent
that the Company is unable to do so in a timely manner, the Company's
international sales will be limited, and the Company's business, operating
results and financial condition could be materially and adversely affected.

                                      13
<PAGE>
 
                          PART II. OTHER INFORMATION


ITEM 1. LEGAL PROCEEDINGS

The company is engaged in certain legal proceedings as disclosed in the
Company's Registration Statement on Form S-1.  There were no significant changes
to these legal proceedings in the three months ended September 30, 1996.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

    (a) Exhibits
<TABLE> 
<CAPTION> 
     Exhibit
     Number                     Description of Document
     ------                     -----------------------
     <S>               <C> 
        (1)    3.3     Restated Certificate of Incorporation of the Registrant.
        (1)    3.4     Bylaws of the Registrant.
        (1)    4.1     Reference is made to Exhibits 3.3 and 3.4.
        (1)    4.2     Specimen Stock Certificate.
        (1)    4.3     Restated Investor Rights Agreement, dated December 1,
                       1995, between the Registrant and certain investors, as
                       amended April 30, 1996 and June 14, 1996.
        (3)   10.1     Registrant's 1996 Equity Incentive Plan, as amended.
        (1)   10.2     Registrant's Employee Stock Purchase Plan.
        (1)   10.3     Form of Indemnity Agreement entered into between the
                       Registrant and its officers and directors.
     (1)(2)   10.6     Master Alliance Agreement, dated March 17, 1995, between
                       the Registrant and Andersen Consulting LLP.
     (1)(2)   10.8     Strategic Alliance and Software License Agreement, dated
                       December 12, 1995, by and among the Registrant, Itochu
                       Techno-Science Corporation and Itochu Corporation.
        (1)   10.9     Assignment Agreement, dated September 20, 1995, by and
                       between the Registrant and Thomas M. Siebel.
        (1)   10.10    Lease Agreement, dated June 4, 1996, by and between the
                       Registrant and Crossroad Associates and Clocktower
                       Associates.
        (3)   11.1     Statement Regarding Computation of Net Income (Loss) Per
                       Share.
        (3)   27.1     Financial Data Schedule.
</TABLE>
-----------------
              (1)  Incorporated by reference to the Company's Registration
                   Statement on Form S-1 (No. 333-03751), as amended.

              (2)  Confidential treatment has been granted with respect to
                   portions of this exhibit.

              (3)  Filed herewith.
 
    (b) Reports on Form 8-K:

          There were no reports on Form 8-K filed during the period.

                                      14
<PAGE>
 
                                   SIGNATURE

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.


                                      SIEBEL SYSTEMS, INC.



Date:    November 14, 1996        By: /s/ Justin R. Dooley
                                      -----------------------------------------
                                      Justin R. Dooley
                                      Vice President Finance and Administration
                                      (Duly Authorized Officer and Principal
                                      Financial and Accounting Officer)

                                      15