This paper develops a theory around the notion of quadratic differential forms in the context of linear differential systems. In many applications, we need to not only understand the behavior of the system variables but also the behavior of certain functionals of these variables. The obvious cases where such functionals are important are in Lyapunov theory and in LQ and H-infinity optimal control. With some exceptions, these theories have almost invariably concentrated on first order models and state representations. In this paper, we develop a theory for linear time-invariant differential systems and quadratic functionals. We argue that in the context of systems described by one-variable polynomial matrices, the appropriate tool to express quadratic functionals of the system variables are two-variable polynomial matrices. The main achievement of this paper is a description of the interaction of one- and two-variable polynomial matrices for the analysis of functionals and for the application of higher order Lyapunov functionals.