<PAGE>

                     U.S. 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 ENDING JUNE 30, 2000.

                                       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: 333-84045



                            PREDICTIVE SYSTEMS, INC.
                        ---------------------------------

             (Exact Name of Registrant as Specified in its Charter)

              DELAWARE                                 13-3808483
 ----------------------------------     ---------------------------------------
   (State or other Jurisdiction of      (I.R.S. Employer Identification Number)
    Incorporation or Organization)

               417 FIFTH AVENUE, NEW YORK, NEW YORK                 10016
-----------------------------------------------------------------------------
             (Address of Principal Executive Offices)            (Zip Code)


                                 (212) 659-3400
-----------------------------------------------------------------------------
              (Registrant's Telephone Number, Including Area Code)


Check whether the registrant: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 [ ]

As of June 30, 2000, there were 25,791,131 shares of the registrant's common
stock, $.001 par value per share, outstanding.

<PAGE>



                                      INDEX

                    PREDICTIVE SYSTEMS, INC. AND SUBSIDIARIES

                                                                           Page
PART I.  FINANCIAL INFORMATION                                             ----

         ITEM 1.  CONSOLIDATED FINANCIAL STATEMENTS

                  Consolidated Balance Sheets at June 30, 2000 (unaudited)
                  and December 31, 1999 ....................................  1

                  Consolidated Statements of Operations for the three and
                  six months ended June 30, 2000 and 1999 (unaudited) ......  2

                  Consolidated Statement of Cash Flows for the six months
                  ended June 30, 2000 and 1999 (unaudited) .................  3

                  Notes to Consolidated Financial Statements (unaudited) ...  4

         ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                   CONDITION AND RESULTS OF OPERATIONS .....................  6

         ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
                   RISK .................................................... 11

PART II. OTHER INFORMATION

         ITEM 1.  LEGAL PROCEEDINGS ........................................ 18

         ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS ................ 18

         ITEM 3.  DEFAULTS UPON SENIOR SECURITIES .......................... 18

         ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ...... 18

         ITEM 5.  OTHER INFORMATION ........................................ 18

         ITEM 6.  EXHIBITS AND REPORT ON FORM 8-K .......................... 18

         ITEM 7.  SIGNATURES ............................................... 18

                                       i
<PAGE>

PART 1.  FINANCIAL INFORMATION

ITEM 1.  CONSOLIDATED FINANCIAL STATEMENTS

                    PREDICTIVE SYSTEMS, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                June 30, 2000    December 31, 1999
                                                                                -------------    -----------------
                                                                                 (unaudited)
<S>                                                                           <C>                  <C>
ASSETS

CURRENT ASSETS
     Cash and cash equivalents                                                $127,205,724         $ 89,633,634
     Investment in marketable securities at market value                         2,449,532            2,018,060
     Accounts receivable - net of allowance for
         doubtful accounts of $806,865 and $568,344, respectively               21,817,548           16,257,304
     Unbilled work in process                                                    1,065,128              289,120
     Notes receivable - employees                                                    -                  116,859
     Notes receivable - stockholders                                               280,216                 -
     Refundable income tax                                                           -                  842,606
     Deferred tax asset                                                          4,814,744                 -
     Prepaid expenses and other current assets                                   1,361,644            1,219,717
                                                                              ------------         ------------
         Total current assets                                                  158,994,536          110,377,300

PROPERTY AND EQUIPMENT - net of accumulated depreciation
     and amortization of $2,416,971 and $1,703,711, respectively                 6,534,115            2,884,105

GOODWILL - net of accumulated amortization of $753,225 and
     $326,871, respectively                                                      3,510,312            3,936,666

OTHER ASSETS                                                                       277,536              224,740
                                                                              ------------         ------------
                  Total assets                                                $169,316,499         $117,422,811
                                                                              ============         ============

                                                 LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
     Accounts payable                                                         $  2,125,588          $ 2,322,065
     Accrued expenses                                                            5,359,805            4,714,861
     Current portion of capital lease obligations                                  172,385              183,193
     Income taxes payable                                                          254,747                 -
     Deferred income tax liability                                                 394,820                 -
     Deferred income                                                               722,072            1,064,721
                                                                              ------------         ------------
         Total current liabilities                                               9,029,417            8,284,840

NONCURRENT LIABILITIES
     Capital lease obligations                                                     207,176              284,037
     Deferred rent                                                                 342,075               49,863
     Deferred income tax liability                                                   -                  299,851
     Other long-term liabilities                                                     -                    2,498
                                                                              ------------         ------------
         Total liabilities                                                       9,578,668            8,921,089
                                                                              ------------         ------------

STOCKHOLDERS' EQUITY
     Common stock, $.001 par value, 200,000,000 shares
         authorized, 25,791,131 and 23,429,200 shares
         issued and outstanding, respectively                                       25,791               23,429
     Additional paid-in capital                                                157,050,608          108,404,681
     Deferred compensation                                                       (218,594)            (256,672)
     Retained earnings                                                           3,062,111              369,625
     Accumulated other comprehensive loss                                        (182,085)             (39,341)
                                                                              ------------         ------------
         Total stockholders' equity                                            159,737,831          108,501,722
                                                                              ------------         ------------
                  Total liabilities and stockholders' equity                  $169,316,499         $117,422,811
                                                                              ============         ============
</TABLE>

                    The accompanying notes to consolidated financial statements
                    are an integral part of these consolidated balance sheets.

                                       1
<PAGE>

                    PREDICTIVE SYSTEMS, INC. AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

<TABLE>
<CAPTION>
                                             Three Months Ended June 30,          Six Months Ended June 30,
                                             2000                  1999              2000            1999
                                         ------------          ------------      ------------   ------------
<S>                                      <C>                   <C>               <C>            <C>
REVENUES:
        Professional services            $ 22,067,108          $ 11,390,845      $ 40,968,389   $ 21,278,287
        Hardware and software sales         1,307,860               810,234         1,451,733      1,287,701
                                         ------------          ------------      ------------   ------------
            Total revenues                 23,374,968            12,201,079        42,420,122     22,565,988
                                         ------------          ------------      ------------   ------------
COST OF REVENUES:
        Professional services              11,168,771             5,396,624        20,874,591     10,245,945
        Hardware and software purchases       999,745               605,933         1,107,956      1,031,889
                                         ------------          ------------      ------------   ------------
            Total cost of revenues         12,168,516             6,002,557        21,982,547     11,277,834
                                         ------------          ------------      ------------   ------------
            Gross profit                   11,206,452             6,198,522        20,437,575     11,288,154
                                         ------------          ------------      ------------   ------------

SALES AND MARKETING                         3,125,963             1,820,126         5,776,785      3,409,297
GENERAL AND ADMINISTRATIVE                  6,425,231             3,907,392        11,865,354      7,376,425
DEPRECIATION AND AMORTIZATION                 651,600               168,308         1,139,614        312,135
NONCASH COMPENSATION EXPENSE                   19,039                 5,250            38,078          9,875
                                         ------------          ------------      ------------   ------------
            Operating profit                  984,619               297,446         1,617,744        180,422

OTHER INCOME (EXPENSE):
        Interest income                     1,956,704                24,401         3,221,335         69,574
        Other (expense) income                 (1,631)               24,132           (11,117)        36,882
        Interest expense                      (13,837)              (22,845)          (31,826)      (109,078)
                                         ------------          ------------      ------------   ------------
INCOME BEFORE INCOME TAX PROVISION          2,925,855               323,134         4,796,136        177,800

Income tax provision                        1,261,909               409,915         2,103,650        361,065
                                         ------------          ------------      ------------   ------------
        Net income (loss)                $  1,663,946           $   (86,781)     $  2,692,486   $   (183,265)
                                         ============          ============      ============   ============
NET INCOME (LOSS) PER SHARE: BASIC       $       0.07           $     (0.01)     $       0.11   $      (0.02)
                                         ============          ============      ============   ============
NET INCOME (LOSS) PER SHARE: DILUTED     $       0.05           $     (0.01)     $       0.08   $      (0.02)
                                         ============          ============      ============   ============

WEIGHTED AVERAGE SHARES OUTSTANDING:
   BASIC                                   25,525,718             9,553,512        24,489,787      8,970,694
                                         ============          ============      ============   ============
WEIGHTED AVERAGE SHARES OUTSTANDING:
   DILUTED                                 34,158,073             9,553,512        33,913,534      8,970,694
                                         ============          ============      ============   ============
</TABLE>

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

                                       2
<PAGE>

                    PREDICTIVE SYSTEMS, INC. AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

<TABLE>
<CAPTION>

                                                                                       Six Months Ended
                                                                                           June 30,
                                                                               -------------------------------
                                                                                   2000                1999
                                                                               -----------         -----------
<S>                                                                           <C>                  <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
          Net income (loss)                                                   $  2,692,486         $  (183,265)

Adjustments to reconcile net income (loss) to net cash used in operating
      activities:
          Noncash compensation expense                                              38,078               9,875
          Deferred income taxes                                                   (569,775)           (153,350)
          Depreciation and amortization                                          1,139,614             312,135
          Provision for doubtful accounts                                          238,521             285,328
          Unrealized loss on marketable securities                                 (32,433)                  -
          (Increase) decrease in-
               Accounts receivable                                              (5,798,765)         (4,699,713)
               Unbilled work in process                                           (776,008)           (415,039)
               Prepaid expenses and other current assets                          (141,927)           (210,901)
               Other assets                                                        (52,796)             49,973
          Increase (decrease) in-
               Accounts payable                                                   (196,477)            (94,411)
               Accrued expenses and other current liabilities                      644,944             588,593
               Deferred income                                                    (342,649)           (420,341)
               Deferred rent                                                       292,212             (18,780)
               Income taxes                                                      2,822,730             544,340
               Other long-term liabilities                                          (2,498)                  -
                                                                              ------------         -----------
                    Net cash used in operating activities                          (44,743)         (4,405,556)
                                                                              ------------         -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
          Purchase of marketable securities                                   (190,598,183)                  -
          Proceeds from sale or redemption of marketable securities            190,166,711                   -
          Common shares repurchased to treasury                                          -          (8,398,753)
          Payments to employees                                                    116,859             (30,938)
          Repayments from employees                                                      -              35,577
          Payments to stockholders                                                (280,216)                  -
          Repayments from stockholders                                                   -             515,000
          Payments to related party                                                      -            (478,078)
          Repayments from related party                                                  -           1,395,026
          Purchase of property and equipment                                    (4,450,939)           (744,752)
                                                                              ------------         -----------
                    Net cash used in investing activities                       (5,045,768)         (7,706,918)
                                                                              ------------         -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
          Cash overdraft                                                                 -            (475,610)
          Proceeds from short-term borrowings                                            -           4,351,000
          Repayments of short-term borrowings                                            -          (9,949,000)
          Proceeds from sale of common stock, net of expenses                   40,054,296                   -
          Payments of preferred dividends                                                -             (70,000)
          Proceeds from sale of preferred stock                                          -          18,566,225
          Proceeds from sale of stock through ESPP                               1,305,702                   -
          Proceeds from exercise of stock options                                1,412,914              65,469
                                                                              ------------         -----------
                    Net cash provided by financing activities                   42,772,912          12,488,084
                                                                              ------------         -----------
          Effects of exchange rates                                               (110,311)            (15,699)
                                                                              ------------         -----------
Net increase in cash                                                            37,572,090            359,911

CASH AND CASH EQUIVALENTS  - beginning of period                                89,633,634                   -
                                                                              ------------         -----------
CASH AND CASH EQUIVALENTS  - end of period                                    $127,205,724         $   359,911
                                                                              ============         ===========
      SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
          Cash paid during the year for:
                    Interest                                                  $     14,543         $   157,838
                                                                              ============         ===========
                    Taxes                                                     $          -         $    23,693
                                                                              ============         ===========
      SUPPLEMENTAL DISCLOSURES OF CASH FLOW TRANSACTIONS:

                    Dividends declared on mandatory redeemable
                      convertible preferred stock                             $          -         $     8,750
                                                                              ============         ===========
</TABLE>

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

                                       3
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (unaudited)

(1) BASIS OF PRESENTATION

       The consolidated financial statements and accompanying financial
       information as of June 30, 2000 and for the six months ended June 30,
       2000 and 1999 are unaudited and, and in the opinion of management,
       include all adjustments (consisting only of normal recurring adjustments)
       which the Company considers necessary for a fair presentation of the
       financial position of the Company at such dates and the operating results
       and cash flows for those periods. The financial statements included
       herein have been prepared in accordance with generally accepted
       accounting principles and the instructions of Form 10-Q and Rule 10-01 of
       Regulation S-X. Accordingly, certain information and footnote disclosures
       normally included in financial statements prepared in accordance with
       generally accepted accounting principles have been condensed or omitted.
       These financial statements should be read in conjunction with the
       Company's audited financial statements for the year ended December 31,
       1999. Results for interim periods are not necessarily indicative of
       results for the entire year.

(2) NET INCOME (LOSS) PER SHARE

       Basic net income (loss) per share is computed by dividing net income
       (loss) available to common stockholders by the weighted average number of
       shares outstanding. Diluted net income (loss) per share reflects the
       potential dilution that would occur if securities or other contracts to
       issue common stock were exercised or converted into common stock, unless
       they are antidilutive.

       The following table reconciles the numerator and denominator for the
       calculation:

<TABLE>
<CAPTION>
                                      Three Months Ended               Six Months Ended
                                           June 30,                         June 30,
                                      ----------------------        ----------------------
                                      2000              1999        2000              1999
                                      ----              ----        ----              ----
                                           (unaudited)                    (unaudited)
<S>                                 <C>            <C>              <C>            <C>
Numerator -
   Net income (loss)                $ 1,663,946    $  (86,781)      $ 2,692,486    $(183,265)
   Preferred stock dividends                  -              -                -       (8,750)
                                    -----------    -----------      -----------    ----------
      Numerator for basic and
         diluted earnings per
         share - net income (loss)
         available to common
         stockholders               $ 1,663,946     $ (86,781)      $ 2,692,486    $(192,015)
                                    ===========     ==========      ===========    ==========

       Denominator -
           Weighted average shares -
             Basic                  25,525,718      9,553,512        24,489,787     8,970,694
             Diluted                34,158,073      9,553,512        33,913,534     8,970,694
                                    ==========      =========        ==========     =========

       Net income (loss) per share -
             Basic                  $     0.07      $   (0.01)       $     0.11     $  (0.02)
             Diluted                $     0.05      $   (0.01)       $     0.08     $  (0.02)
                                    ==========      ==========       ==========     =========
</TABLE>

(3) COMPREHENSIVE INCOME (LOSS)

       The Company adopted Statement of Financial Accounting Standards No. 130,
       "Reporting Comprehensive Income," which established standards for

                                       4
<PAGE>

       reporting and displaying comprehensive income and its components. The
       components of comprehensive income (loss) are as follows:

<TABLE>
<CAPTION>
                                             Three Months Ended         Six Months Ended
                                                  June 30,                  June 30,
                                             ------------------        ------------------
                                            2000           1999        2000          1999
                                            ----           ----        ----          ----
                                                (unaudited)               (unaudited)
<S>                                      <C>            <C>         <C>          <C>
         Net income (loss)               $1,663,945     $ (86,781)  $2,692,486   $(183,265)
         Unrealized loss on investments     (19,413)        --         (32,433)       --
         Foreign currency translation
                  adjustment               (120,180)    $ (15,699)    (110,311)    (15,699)
                                         ----------     ---------   ----------   ---------
         Comprehensive income (loss)     $1,524,352     $(102,480)  $2,549,742   $(198,964)
                                         ==========     ===-=====   ==========   =========
</TABLE>


(4) ACQUISITION


       On August 12, 1999, the Company acquired Network Resource Consultants and
       Company B.V. ("NRCC") in a transaction accounted for as a purchase. In
       connection with this transaction, the Company exchanged 1,062,814 shares
       of its common stock in exchange for all of the outstanding stock of NRCC.

       The Company acquired net assets of approximately $88,000 and recorded
       intangible assets of approximately $4.3 million which represented the
       excess of the purchase price over the fair value of assets acquired.

       The following information presents the pro forma results of operations
       for the Company for the periods ending June 30, 2000 and 1999 as if the
       acquisition of NRCC had occurred on the first day of the periods
       presented:

<TABLE>
<CAPTION>
                                        Three Months Ended            Six Months Ended
                                             June 30,                     June 30,
                                       --------------------          ------------------
                                       2000            1999          2000          1999
                                       ----            ----          ----          ----
                                            (unaudited)                 (unaudited)
<S>                                  <C>           <C>           <C>          <C>
       Revenues                      $23,374,968   $12,750,818   $42,420,122  $23,565,513
        Operating income (loss)          984,619       165,255     1,617,744      (98,685)
        Net income (loss)            $ 1,663,946   $  (248,944)  $ 2,692,486  $  (516,867)
        PER SHARE INFORMATION:
              Net income (loss) per share -
                Basic                $      0.07   $     (0.02)  $      0.11  $     (0.05)
                Diluted              $      0.05   $     (0.02)  $      0.08  $     (0.05)
             Weighted Average Shares
                Outstanding -
                Basic                 25,525,718    10,616,326    24,489,787   10,033,508
                Diluted               34,158,073    10,616,326    33,913,534   10,033,508
</TABLE>

(5) FOLLOW-ON OFFERING


       In April 2000, we consummated a follow-on public offering for 3.8 million
       shares of our common stock, of which 1.0 million shares were sold by the
       Company, while the remainder were sold by certain stockholders, resulting
       in net proceeds to the Company of approximately $40.1 million after
       deducting underwriter discounts and commissions and expenses payable by
       us.

                                       5
<PAGE>

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

                  THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS RELATING TO
FUTURE EVENTS AND FUTURE PERFORMANCE OF THE COMPANY WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934, INCLUDING, WITHOUT LIMITATION, STATEMENTS REGARDING THE
COMPANY'S EXPECTATIONS, BELIEFS, INTENTIONS OR FUTURE STRATEGIES THAT ARE
SIGNIFIED BY THE WORDS "EXPECTS", "ANTICIPATES", "INTENDS", "BELIEVES" OR
SIMILAR LANGUAGE. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED
IN SUCH FORWARD-LOOKING STATEMENTS. ALL FORWARD-LOOKING STATEMENTS INCLUDED IN
THIS DOCUMENT ARE BASED ON INFORMATION AVAILABLE TO THE COMPANY ON THE DATE
HEREOF, AND THE COMPANY ASSUMES NO OBLIGATION TO UPDATE ANY FORWARD LOOKING
STATEMENTS. THE COMPANY CAUTIONS INVESTORS THAT ITS BUSINESS AND FINANCIAL
PERFORMANCE ARE SUBJECT TO SUBSTANTIAL RISKS AND UNCERTAINTIES. IN EVALUATING
THE COMPANY'S BUSINESS, PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE
INFORMATION SET FORTH BELOW UNDER THE CAPTION "RISK FACTORS" IN ADDITION TO THE
OTHER INFORMATION SET FORTH HEREIN AND ELSEWHERE IN THE COMPANY'S OTHER PUBLIC
FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION.

                  Substantially all of our revenues are derived from
professional services. We provide network consulting services to our clients on
either a project outsource or collaborative consulting basis. We derive revenues
from these services on both a fixed-price, fixed-time basis and on a
time-and-expense basis. We use our BusinessFirst methodology to estimate and
propose prices for our fixed-price projects. The estimation process accounts for
standard billing rates particular to each project, the client's technology
environment, the scope of the project, and the project's timetable and overall
technical complexity. A member of our senior management team must approve all of
our fixed-price proposals in excess of $1.0 million. For these contracts, we
recognize revenue using a percentage-of-completion method primarily based on
costs incurred. We make provisions for estimated losses on uncompleted contracts
on a contract-by-contract basis and recognize such provisions in the period in
which the losses are determined. Professional services revenues for
time-and-expense based projects are recognized as services are performed. Any
payments received in advance of services performed are recorded as deferred
revenue. Our clients are generally able to reduce or cancel their use of our
professional services without penalty and with little or no notice. We also
derive limited revenues from the sale of hardware and software. We sell hardware
and software only when specifically requested by a client. We expect revenues
from the sale of hardware and software to continue to decline on a percentage
basis.

                  Since we recognize professional services revenues only when
our consultants are engaged on client projects, the utilization of our
consultants is important in determining our operating results. In addition, a
substantial majority of our operating expenses, particularly personnel and
related costs, depreciation and rent, are relatively fixed in advance of any
particular quarter. As a result, any underutilization of our consultants may
cause significant variations in our operating results in any particular quarter
and could result in losses for such quarter. Factors which could cause
underutilization include:

                  -   the reduction in size, delay in commencement, interruption
                      or termination of one or more significant projects;

                  -   the completion during a quarter of one or more significant
                      projects;

                  -   the miscalculation of resources required to complete new
                      or ongoing projects; and

                  -   the timing and extent of training, weather related
                      shut-downs, vacations and holidays.

                                       6
<PAGE>

                  Our cost of revenues consist of costs associated with our
professional services and hardware and software purchases. Costs of revenues
associated with professional services include compensation and benefits for our
consultants and project-related travel expenses. Costs of hardware and software
purchases consist of acquisition costs of third-party hardware and software
resold.

                  On August 12, 1999, we acquired Network Resource Consultants
and Company B.V. for an aggregate purchase price of approximately $4.3 million.
The purchase price was paid in the form of 1,062,814 shares of our common stock
in exchange for all of the outstanding capital stock of Network Resource
Consultants and Company. The acquisition was accounted for as a purchase and
resulted in intangible assets of approximately $4.3 million representing the
excess purchase price over the fair value of the net assets acquired. The
intangible assets are being amortized over a period of 5 years.

                  On September 16, 1999, we completed the sale of 1,242,000
shares of our common stock to Cisco Systems, Inc. at $12.00 per share for net
proceeds of approximately $14.2 million. On September 22, 1999, we completed the
sale of 94,867 and 18,133 shares of our common stock to General Atlantic
Partners 57, L.P. and GAP Coinvestment Partners 11, L.P., respectively, at
$12.00 per share for net proceeds of approximately $1.4 million.

                  In November 1999, we consummated the initial public offering
of 4.6 million shares of our common stock at $18.00 per share, which resulted in
net proceeds of approximately $75.1 million after deducting underwriter
discounts and commissions, and expenses as payable by us.

                  In April 2000, we consummated a follow-on public offering for
3.8 million shares of our common stock, of which 1.0 million shares were offered
by the Company resulting in net proceeds of approximately $40.1 million after
deducting underwriter discounts and commissions, and expenses as payable by us.

                  We plan to continue to expand our operations by hiring
additional consultants, and adding new offices and systems. The resulting
increase in operating expenses will have a material adverse effect on our
operating results if our revenues do not increase to support such expenses.
Based on all of the foregoing, we believe that our quarterly revenue and
operating results are likely to vary significantly in the future and that
period-to-period comparisons of our operating results are not necessarily
meaningful and should not be relied on as indications of future performance.


RESULTS OF OPERATIONS

Three Months Ended June 30, 2000 and 1999

                  REVENUES. Revenues increased 92% to $23.4 million in the three
months ended June 30, 2000 from $12.2 million in the three months ended June 30,
1999. Revenues from professional services increased 93.7% to $22.1 million in
the three months ended June 30, 2000 from $11.4 million in the three months
ended June 30, 1999. This increase was primarily due to an increase in the
number of professional services projects and an increase in the size of the
projects. During the three months ended June 30, 2000, NetCom/ICG, Inc.
accounted for 16.2% of our revenues. The number of our billable consultants
increased to 377 at June 30, 2000 from 190 at June 30, 1999.

                  GROSS PROFIT. Gross profit increased 81% to $11.2 million in
the three months ended June 30, 2000 from $6.2 million in the three months ended
June 30, 1999. As a percentage of revenues, gross profit decreased to 47.9% in
the three months ended June 30, 2000 from 50.8% in the three months ended June
30, 1999. This decrease in gross profit margin was due to a reduction in the
utilization rate to 78% for the three months ended June 30, 2000 from 88% for
the three months ended June 30, 1999, partially offset by an increase in average
billing rates. Cost of revenues increased to $12.2 million in the three months
ended June 30, 2000 from $6.0 million in the three months ended June 30, 1999.

                                       7
<PAGE>

This increase in cost of revenues was primarily due to the increase in
consultant headcount and the corresponding increase in compensation and benefits
paid to consultants.

                  SALES AND MARKETING EXPENSES. Sales and marketing expenses
consist primarily of compensation and benefits, travel expenses and promotional
expenses. Sales and marketing expenses increased 71.7% to $3.1 million in the
three months ended June 30, 2000 from $1.8 million in the three months ended
June 30, 1999. As a percentage of revenues, sales and marketing expenses
decreased to 13.4% in the three months ended June 30, 2000 from 14.9% in the
three months ended June 30, 1999. The increase in absolute dollars was primarily
due to an increase of $410,000 in compensation and benefits paid due to the
hiring of additional personnel, an increase of $467,000 in commissions paid due
to an increase in revenues and an increase of $429,000 in sales and marketing
efforts.

                  GENERAL AND ADMINISTRATIVE EXPENSES. General and
administrative expenses increased 64.4% to $6.4 million in the three months
ended June 30, 2000 from $3.9 million in the three months ended June 30, 1999.
As a percentage of revenues, general and administrative expense decreased to
27.5% in the three months ended June 30, 2000 from 32.0% in the three months
ended June 30, 1999. The increase in absolute dollars was primarily due to an
increase of $519,000 in recruiting and professional development and other
administrative costs due to the continued investment in our in-house recruiting
organization, an increase of $748,000 in compensation and benefits paid due to
the hiring of additional personnel, and an increase of $1,251,000 in facilities
and equipment costs reflecting the continued investment in our infrastructure.

                  DEPRECIATION AND AMORTIZATION. Depreciation and amortization
increased 287.1% to $652,000 in the three months ended June 30, 2000 from
$168,000 in the three months ended June 30, 1999. This increase was due to
purchases of additional computer equipment to support our growth and
amortization of intangibles of $213,000 associated with the acquisition of
Network Resource Consultants and Company.

                  NONCASH COMPENSATION EXPENSE. During 1999, we granted options
to purchase shares of common stock at exercise prices that were less than the
fair market value of the underlying shares of common stock. This will result in
noncash compensation expense over the period that these specific options vest.
During the three months ended June 30, 2000, we recorded approximately $19,000
of noncash compensation expense related to these options compared to $5,000 for
the three months ended June 30, 1999.

                  OTHER INCOME (EXPENSE). Other income increased to $1.9 million
in the three months ended June 30, 2000 from $26,000 of other income in the
three months ended June 30, 1999. This increase was primarily due to an increase
in interest income related to net proceeds from both our initial
and secondary public offerings, which proceeds were invested in interest-bearing
cash equivalents and marketable securities.

                  INCOME TAXES. For the three months ended June 30, 2000, the
income tax provision was $1,262,000 on pre-tax income of $2.9 million. The
income tax was $410,000 on pre-tax income of $323,000 for the three months ended
June 30, 1999. The U.S. effective tax rate was 43% during the three months ended
June 30, 2000 and 1999, respectively. The differences in the effective tax rates
relates to the provision for a valuation allowance against net operating losses
of our foreign subsidiaries and non-tax deductible expenses, including
amortization of intangibles of $213,000 for the three months ended June 30,
2000.

                                       8
<PAGE>

Six Months Ended June 30, 2000 and 1999

                  REVENUES. Revenues increased 88.0% to $42.4 million in the six
months ended June 30, 2000 from $22.6 million in the six months ended June 30,
1999. Revenues from professional services increased 92.5% to $41.0 million in
the six months ended June 30, 2000 from $21.3 million in the six months ended
June 30, 1999. This increase was primarily due to an increase in the number of
professional services projects and an increase in the size of the projects.
During the six months ended June 30, 2000, Qwest Communication, Inc. and
NetCom/ICG, Inc. accounted for 11.8% and 11.3% of our revenues, respectively.

                  GROSS PROFIT. Gross profit increased 81.0% to $20.4 million in
the six months ended June 30, 2000 from $11.3 million in the six months ended
June 30, 1999. As a percentage of revenues, gross profit decreased to 48.2% in
the six months ended June 30, 2000 from 50.0% in the six months ended June 30,
1999. This decrease in gross profit margin was due to a reduction in the
utilization rate to 77% for the six months ended June 30, 2000 from 85% for the
six months ended June 30, 1999, partially offset by an increase in average
billing rates. Cost of revenues increased to $22.0 million in the six months
ended June 30, 2000 from $11.3 million in the six months ended June 30, 1999.
This increase in cost of revenues was primarily due to the increase in
consultant headcount and the corresponding increase in compensation and benefits
paid to consultants.

                  SALES AND MARKETING EXPENSES. Sales and marketing expenses
increased 69.4% to $5.8 million in the six months ended June 30, 2000 from $3.4
million in the six months ended June 30, 1999. As a percentage of revenues,
sales and marketing expenses decreased to 13.6% in the six months ended June 30,
2000 from 15.1% in the six months ended June 30, 1999. The increase in absolute
dollars was primarily due to an increase of $1.1 million in compensation and
benefits paid due to the hiring of additional personnel, an increase of $803,000
in commissions paid due to an increase in revenues and an increase of $510,000
in sales and marketing efforts.

                  GENERAL AND ADMINISTRATIVE EXPENSES. General and
administrative expenses increased 61.0% to $11.9 million in the six months ended
June 30, 2000 from $7.4 million in the six months ended June 30, 1999. As a
percentage of revenues, general and administrative expense decreased to 28.0% in
the six months ended June 30, 2000 from 32.7% in the six months ended June 30,
1999. The increase in absolute dollars was primarily due to an increase of $1.8
million in recruiting and professional development and other administrative
costs due to the continued investment in our in-house recruiting organization,
an increase of $1.4 million in compensation and benefits paid due to the hiring
of additional personnel, and an increase of $1.3 million in facilities and
equipment costs reflecting the continued investment in our infrastructure.

                  DEPRECIATION AND AMORTIZATION. Depreciation and amortization
increased 265.1% to $1.1 million in the six months ended June 30, 2000 from
$312,000 in the six months ended June 30, 1999. This increase was due to
purchases of additional computer equipment to support our growth and
amortization of intangibles of $426,000 associated with the acquisition of
Network Resource Consultants and Company.

                  NONCASH COMPENSATION EXPENSE. During 1999, we granted options
to purchase shares of common stock at exercise prices that were less than the
fair market value of the underlying shares of common stock. This will result in
noncash compensation expense over the period that these specific options vest.
During the six months ended June 30, 2000, we recorded approximately $38,000 of
noncash compensation expense related to these options compared to $10,000 for
the six months ended June 30, 1999.

                                       9
<PAGE>

                  OTHER INCOME (EXPENSE). Other income increased to $3.2
million in the six months ended June 30, 2000 from $3,000 of other expense in
the six months ended June 30, 1999. This increase was primarily due to an
increase in interest income related to net proceeds from both our initial public
and secondary offerings, which proceeds were invested in interest-bearing cash
equivalents and marketable securities.

                  INCOME TAXES. For the six months ended June 30, 2000, the
income tax provision was $2,104,000 on pre-tax income of $4.8 million. The
income tax was $361,000 on pre-tax income of $178,000 for the six months ended
June 30, 1999. The U.S. effective tax rate was 44% during the six months ended
June 30, 2000 and June 30, 1999.


LIQUIDITY AND CAPITAL RESOURCES

                  Since inception, we have financed our operations through the
sale of equity securities and cash flows from operations. As of June 30, 2000,
we had approximately $127.2 million in cash and cash equivalents. In April 2000,
we completed a follow-on public offering of 1.0 million shares of our common
stock and received net proceeds of approximately $40.1 million, after deducting
underwriter discounts and commissions, and expenses as payable by us.

                  Net cash used in operating activities was $45,000 for the six
months ended June 30, 2000. During the six months ended June 30, 2000, we
received a tax benefit of approximately $2.0 million related to the exercise of
non-qualified stock options by employees. The positive cash flow provided by
operating activities is offset by an increase of $5.8 million in accounts
receivables.

                  Net cash used in investing activities was $5.0 million for the
six months ended June 30, 2000. During the six months ended June 30, 2000, our
capital expenditures were $4.5 million. Capital expenditures of $3.4 million
related to leasehold improvements for our new corporate office and the remaining
$1.1 million related to purchases of computer equipment and office furniture.

                  We have a demand loan facility, secured by a lien on all our
assets, under which we may borrow up to the lesser of $10.0 million or 80.0% of
eligible accounts receivable. Amounts outstanding under the facility bear
interest at a rate of 11.25% per annum. At June 30, 2000, there were no amounts
outstanding under the facility.

                  We believe that our existing cash, cash equivalents and
marketable securities will be sufficient to meet our anticipated needs for
working capital and capital expenditures at least for the next twelve months. If
cash generated from operations is insufficient to satisfy our liquidity
requirements, we may seek to sell additional equity or debt securities or to
obtain a credit facility. The sale of additional equity or convertible debt
securities could result in dilution to our stockholders. The incurrence of
indebtedness would result in increased fixed obligations and could result in
operating covenants that would restrict our operations. We cannot assure you
that financing will be available in amounts or on terms acceptable to us, if at
all.

                                       10
<PAGE>

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

                  Risks Related to Our Financial Condition and Business Model

Our limited operating history, particularly in light of our recent growth, makes
it difficult for you to evaluate our business and to predict our future success

                  We commenced operations in February 1995 and therefore have
only a limited operating history for you to evaluate our business. Because of
our limited operating history, recent growth and the fact that many of our
competitors have longer operating histories, we believe that the prediction of
our future success is difficult. You should evaluate our chances of financial
and operational success in light of the risks, uncertainties, expenses, delays
and difficulties associated with operating a new business, many of which are
beyond our control. You should not rely on our historical results of operations
as indications of future performance. The uncertainty of our future performance
and the uncertainties of our operating in a new and expanding market increase
the risk that the value of your investment will decline.

Because most of our revenues are generated from a small number of clients, our
revenues are difficult to predict and the loss of one client could significantly
reduce our revenues

                  During the six months ended June 30, 2000, Qwest
Communications and NetCom/ICG, Inc. accounted for 11.8% and 11.3% of our
revenues, respectively. Our five largest clients accounted for 42.2% of our
revenues for the six months ended June 30, 2000. For the year ended December 31,
1999, our five largest clients accounted for 45.8% of our revenues. If one of
our major clients discontinues or significantly reduces the use of our services,
we may not generate sufficient revenues to offset this loss of revenues and our
net income will decrease. In addition, the non-payment or late payment of
amounts due from a major client could adversely affect us.


Our clients may terminate their contracts with us on short notice

                  Our services are often delivered pursuant to short-term
arrangements and most clients can reduce or cancel their contracts for our
services without penalty and with little or short notice. If a major client or a
number of small clients terminate our contracts or significantly reduce or
modify their business relationships with us, we may not be able to replace the
shortfall in revenues. Consequently, you should not predict or anticipate our
future revenues based upon the number of clients we have currently or the number
and size of our existing projects.


Our operating results may vary from quarter to quarter in future periods, and as
a result, we may fail to meet the expectations of our investors and analysts,
which may cause our stock price to fluctuate or decline

                  Our operating results have varied from quarter to quarter. Our
operating results may continue to vary as a result of a variety of factors.
These factors include:

     - the loss of key employees;

     - the development and introduction of new service offerings;

     - reductions in our billing rates;

     - the miscalculation of resources required to complete new or ongoing
       projects;

     - the utilization of our workforce; and

     - the timing and extent of training.

                                       11
<PAGE>

                  Many of these factors are beyond our control. Accordingly, you
should not rely on quarter-to-quarter comparisons of our results of operations
as an indication of our future performance. In addition, our operating results
may be below the expectations of public market analysts or investors in some
future quarter. If this occurs, the price of our common stock is likely to
decline.

We derive a substantial portion of our revenues from fixed-price projects, under
which we assume greater financial risk if we fail to accurately estimate the
costs of the projects

                  We derive a substantial portion of our revenues from
fixed-price projects. For the year ended December 31, 1999 and the six months
ended June 30, 2000, fixed-price projects accounted for 35.0% and 42.5% of our
revenue, respectively. We assume greater financial risks on a fixed-price
project than on a time-and-expense based project. If we miscalculate the
resources or time we need for these fixed-price projects, the costs of
completing these projects may exceed the price, which could result in a loss on
the project and a decrease in net income. Further, the average size of our
contracts has increased in recent quarters, resulting in a corresponding
increase in our exposure to the financial risks of fixed-price engagements. We
recognize revenues from fixed-price projects based on our estimate of the
percentage of each project completed in a reporting period. To the extent our
estimates are inaccurate, the revenues and operating profits, if any, that we
report for periods during which we are working on a fixed-price project may not
accurately reflect the final results of the project and we would be required to
record an expense for these periods equal to the amount by which our revenues
were previously overstated.


Our operating results may fluctuate due to seasonal factors which could result
in greater than expected losses

                  Our results of operations may experience seasonal fluctuations
as businesses typically spend less on network management services during the
summer and year-end vacation and holiday periods. Additionally, as a large
number of our employees take vacation during these periods, our utilization
rates during these periods tend to be lower, which reduces our margins and
operating income. Accordingly, we may report greater than expected losses for
these periods.


Our long sales cycle makes our revenues difficult to predict and could cause our
quarterly operating results to be below the expectations of public market
analysts and investors

                  The timing of our revenues is difficult to predict because of
the length and variance of the time required to complete a sale. Before hiring
us for a project, our clients often undertake an extensive review process and
may require approval at various levels within their organization. Any delay due
to a long sales cycle could reduce our revenues for a quarter and cause our
quarterly operating results to be below the expectations of public market
analysts or investors. If this occurs, the price of our common stock is likely
to decline.


We may need to raise additional capital to grow our business, which we may not
be able to do

Our future liquidity and capital requirements are difficult to predict because
they depend on numerous factors, including the success of our existing and new
service offerings and competing technological and market developments. As a
result, we may not be able to generate sufficient cash from our operations to
meet additional working capital requirements, support additional capital
expenditures or take advantage of acquisition opportunities. Accordingly, we may
need to raise additional capital in the future. Our ability to obtain additional
financing will be subject to a number of factors, including market conditions,
our operating performance and investor sentiment. These factors may make the

                                       12
<PAGE>

timing, amount, terms and conditions of additional financing unattractive for
us. If we are unable to raise additional funds when needed, our ability to
operate and grow our business could be impeded.


                    Risks Related to Our Strategy and Market

We may have difficulty managing our expanding operations, which may harm our
business

                  A key part of our strategy is to grow our business; however,
our rapid growth has placed a significant strain on our managerial and
operational resources. From January 1, 1997 to June 30, 2000, our staff
increased from approximately 123 to approximately 514 employees. To manage our
growth, we must continue to improve our financial and management controls,
reporting systems and procedures, and expand and train our work force. We may
not be able to do so successfully.


We may not be able to hire and retain qualified network systems consultants
which could affect our ability to compete effectively

                  Our continued success depends on our ability to identify,
hire, train and retain highly qualified network management consultants. These
individuals are in high demand and we may not be able to attract and retain the
number of highly qualified consultants that we need. If we cannot retain,
attract and hire the necessary consultants, our ability to grow, complete
existing projects and bid for new projects will be adversely affected.


Competition in the network consulting industry is intense, and therefore we may
lose projects to our competitors

                  Our market is intensely competitive, highly fragmented and
subject to rapid technological change. We expect competition to intensify and
increase over time. We may lose projects to our competitors, which could
adversely affect our business, results of operations and financial condition. In
addition, competition could result in lower billing rates and gross margins and
could require us to increase our spending on sales and marketing.

                  We face competition from systems integrators, value added
resellers, network services firms, telecommunications providers, and network
equipment and computer systems vendors. These competitors may be able to respond
more quickly to new or emerging technologies and changes in client requirements
or devote greater resources to the expansion of their market share.

                  Additionally, our competitors have in the past and may in the
future form alliances with various network equipment vendors that may give them
an advantage in implementing networks using that vendor's equipment.

                  We also compete with internal information technology
departments of current and potential clients. To the extent that current or
potential clients decide to satisfy their needs internally, our business will
suffer.


If we are unable to integrate our recent acquisition of Network Resource
Consultants and Company and any other future acquisitions, our business may be
disrupted

                  We recently acquired Network Resource Consultants and Company
B.V., a network consulting company based in The Netherlands. The integration of
this and other future acquisitions presents us with significant financial,
managerial and operational challenges. We may not be able to meet these
challenges effectively. To the extent our management is required to devote
significant time and attention to integrating the technology, operations and
personnel of acquired businesses, we may not be able to properly serve our
current clients or attract new clients. Any difficulties in integrating
acquisitions could disrupt our ongoing business, distract our management and
employees, increase our expenses and otherwise adversely affect our business.


If we are unable to find suitable acquisition candidates, our growth could be
impeded

                  A component of our growth strategy is the acquisition of, or
investment in, complementary businesses, technologies, services or products. Our
ability to identify and invest in suitable acquisition and investment candidates
on acceptable terms is crucial to this strategy. We may not be able to identify,
acquire or make investments in promising acquisition candidates on acceptable
terms. Moreover, in pursuing acquisition and investment opportunities, we may be
in competition with other companies having similar growth and investment
strategies. Competition for these acquisitions or investment targets could also
result in increased acquisition or investment prices and a diminished pool of
businesses, technologies, services or products available for acquisition or
investment.


Our acquisition strategy could have an adverse effect on client satisfaction
and our operating results

                                       13
<PAGE>

Acquisitions involve a number of risks, including:

   - adverse effects on our reported operating results due to accounting
     charges associated with acquisitions;

   - increased expenses, including compensation expense resulting from newly
     hired employees; and

   - potential disputes with the sellers of acquired businesses, technologies,
     services or products.

                  Client dissatisfaction or performance problems with an
acquired business, technology, service or product could also have a material
adverse impact on our reputation as a whole. In addition, any acquired business,
technology, service or product could significantly underperform relative to our
expectations.


Competition for experienced personnel is intense and our inability to retain key
personnel could interrupt our business and adversely affect our growth

                  Our future success depends, in significant part, upon the
continued service and performance of our senior management and other key
personnel, in particular Ronald G. Pettengill, Jr., our Chairman and Chief
Executive Officer, and Robert L. Belau, our President. Losing the services of
any of these individuals may impair our ability to effectively deliver our
services and manage our company, and to carry out our business plan. In
addition, competition for qualified personnel in the network consulting industry
is intense and we may not be successful in attracting and retaining these
personnel. There may be only a limited number of persons with the requisite
skills to serve in these positions and it may become increasingly difficult to
hire these persons. Our business will suffer if we encounter delays in hiring
additional personnel.


Our international expansion efforts, which are a key part of our growth
strategy, may not be successful

                  We expect to expand our international operations and
international sales and marketing efforts. In January 1999, we commenced
operations in England. In addition, in August 1999, we acquired Network Resource

                                       14
<PAGE>

Consultants and Company, a network consulting company based in The Netherlands.
We have had limited experience in marketing, selling and distributing our
services internationally. We may not be able to maintain and expand our
international operations or successfully market our services internationally.
Failure to do so may negatively affect our business, as well as our ability to
grow.


                  Our business may suffer if we fail to adapt appropriately to
the challenges associated with operating internationally


                  Operating internationally may require us to modify the way we
conduct our business and deliver our services in these markets.

We anticipate that we will face the following challenges internationally:

     - the burden and expense of complying with a wide variety of foreign laws
       and regulatory requirements;

     - potentially adverse tax consequences;

     - longer payment cycles and problems in collecting accounts receivable;

     - technology export and import restrictions or prohibitions;

     - tariffs and other trade barriers;

     - difficulties in staffing and managing foreign operations;

     - cultural and language differences;

     - fluctuations in currency exchange rates; and

     - seasonal reductions in business activity during the summer months in
       Europe.

                  If we do not appropriately anticipate changes and adapt our
practices to meet these challenges, our growth could be impeded and our results
of operations could suffer.

If we do not keep pace with technological changes, our services may become less
competitive and our business will suffer

                  Our market is characterized by rapidly changing technologies,
frequent new product and service introductions and evolving industry standards.
As a result of the complexities inherent in today's computing environments, we
face significant challenges in remaining abreast of such changes and product
introductions. If we cannot keep pace with these changes, we will not be able to
meet our clients' increasingly sophisticated network management needs and our
services will become less competitive.

       Our future success will depend on our ability to:

     - keep pace with continuing changes in industry standards, information
       technology and client preferences;

     - respond effectively to these changes; and

     - develop new services or enhance our existing services.

       We may be unable to develop and introduce new services or enhancements
to existing services in a timely manner or in response to changing market
conditions or client requirements.

                                       15
<PAGE>

If the use of large-scale, complex networks does not continue to grow, we may
not be able to successfully increase or maintain our client base and revenues

                  To date, a majority of our revenues have been from network
management services related to large-scale, complex networks. We believe that we
will continue to derive a majority of our revenues from providing network
design, performance, management and security services. As a result, our future
success is highly dependent on the continued growth and acceptance of
large-scale, complex computer networks and the continued trend among our clients
to use third-party service providers. If the growth of the use of enterprise
networks does not continue or declines, our business may not grow and our
revenues may decline.


If the Internet does not grow and continue to develop as a viable business tool,
demand for our services and our revenues may decline

         The growing demand for network management services has been driven in
part by the growth of the Internet. The Internet may not prove to be a viable
commercial marketplace because of:

   - inadequate development of the necessary infrastructure;

   - lack of development of complementary products (such as high speed modems
     and high speed communication lines);

   - implementation of competing technology;

   - delays in the development or adoption of new standards and protocols
     required to handle increased levels of Internet activity; or

   - governmental regulation.


                  Moreover, critical issues concerning the use of the Internet
remain unresolved and may affect the growth of the use of such technologies to
solve business problems. If the Internet fails to grow or grows more slowly as a
viable business tool than anticipated, there will be a significant decline in
the need for our services and our revenues will decline.



  Risks Related to Intellectual Property Matters and Potential Legal Liability

Unauthorized use of our intellectual property by third parties may damage our
brand

                  We regard our copyrights, trade secrets and other intellectual
property as critical to our success. Unauthorized use of our intellectual
property by third parties may damage our brand and our reputation. We rely on
trademark and copyright law, trade secret protection and confidentiality and/or
license and other agreements with our employees, customers, partners and others
to protect our intellectual property rights. However, we do not have any patents
or patent applications pending and existing trade secret, trademark and
copyright laws afford us only limited protection. Despite our precautions, it
may be possible for third parties to obtain and use our intellectual property
without our authorization. The laws of some foreign countries are also uncertain
or do not protect intellectual property rights to the same extent as do the laws
of the United States.


We may not be able to obtain trademark protection for some of our important
trademarks, which would significantly impair our ability to prevent others from
using those trademarks and may require us to replace them with new trademarks

                                       16
<PAGE>

                  The United States Patent and Trademark Office has raised
objections to the registration of our "BUSINESSFIRST" and Predictive logo
trademarks, including likelihood of confusion with pre-existing trademarks. We
have responded to these objections and are awaiting decisions on our responses.
We have not, however, received any objections from third parties asserting
likelihood of confusion claims with respect to our trademarks. Nonetheless, we
may not be able to obtain trademark registrations in the United States or
England, where we presently have pending trademark applications for our
"PREDICTIVE SYSTEMS" and "BUSINESSFIRST" marks, for one or more of these
trademarks, in which case we will be unable to enforce any statutory trademark
rights against third parties for these trademarks, and/or we must decide to
replace such trademarks with new trademarks.


We may have to defend against intellectual property infringement claims, which
could be expensive and, if we are not successful, could disrupt our business

                  We cannot be certain that our services, the finished products
that we deliver or materials provided to us by our clients for use in our
finished products do not or will not infringe valid patents, copyrights,
trademarks or other intellectual property rights held by third parties. As a
result, we may be subject to legal proceedings and claims from time to time
relating to the intellectual property of others in the ordinary course of our
business. We may incur substantial expenses in defending against these
third-party infringement claims, regardless of their merit. Successful
infringement claims against us may result in substantial monetary liability or
may materially disrupt the conduct of our business.


Because our services are often critical to our clients' operations, we may be
subject to significant claims if our services do not meet our clients
expectations

                  Many of our projects are critical to the operations of our
clients' businesses. If we cannot complete these projects to our clients'
expectations, we could materially harm our clients' operations. This could
damage our reputation, subject us to increased risk of litigation or result in
our having to provide additional services to a client at no charge. Although we
carry general liability insurance coverage, our insurance may not cover all
potential claims to which we are exposed or may not be adequate to indemnify us
for all liability that may be imposed.


Our stock price is likely to be highly volatile and could drop unexpectedly

                  The market price of our common stock is highly volatile and
may fluctuate substantially. As a result, investors in our common stock may
experience a decrease in the value of their common stock regardless of our
operating performance or prospects. In addition, the stock market has, from time
to time, experienced significant price and volume fluctuations that have
affected the market prices for the securities of technology companies. In the
past, following periods of volatility in the market price of a particular
company's securities, securities class action litigation was often brought
against that company. Many technology-related companies have been subject to
this type of litigation. We may also become involved in this type of litigation.
Litigation is often expensive and diverts management's attention and resources.

We are controlled by a small group of our existing stockholders, whose interests
may differ from other stockholders

                  Our directors, executive officers and affiliates currently
beneficially own approximately 48.6% of the outstanding shares of our common
stock. Accordingly, these stockholders will have significant influence in
determining the outcome of any corporate transaction or other matter submitted
to the stockholders for approval, including mergers, acquisitions,
consolidations and the sale of all or substantially all of our assets, and also
the power to prevent or cause a change in control. The interests of these
stockholders may differ from the interests of the other stockholders.

Our charter documents and Delaware law may inhibit a takeover that stockholders
may consider favorable

                  Provisions in our charter and bylaws may have the effect of
delaying or preventing a change of control or changes in our management that
stockholders consider favorable or beneficial. If a change of control or change
in management is delayed or prevented, the market price of our common stock
could decline.

                                       17
<PAGE>

PART II. OTHER INFORMATION

         ITEM 1. LEGAL PROCEEDINGS

Except as set forth below, we are not a party to any material legal proceedings.

                 In an action entitled Art Eckert vs. Predictive Systems, Inc.,
in October 1999, a former employee commenced an action against us in New York
Supreme Court (Putnam County) seeking damages for various claims relating to his
employment. The former employee is claiming damages totaling approximately $16
million. We will shortly file an answer to the former employee's claims, denying
all of his material allegations and interposing several affirmative defenses. We
believe that these claims are without merit and intend to continue to vigorously
defend ourselves against them.

         ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

                 On October 27, 1999, the Securities and Exchange Commission
declared effective a Registration Statement of our company on Form S-1 (File
No. 333-84045). Under the terms of the Registration Statement, we completed a
public offering of 4,600,000 shares of common stock at an offering price of
$18.00 per share. The public offering was managed by Robertson Stephens, Bear,
Stearns & Co. Inc., Donaldson, Lufkin & Jenrette and First Union Securities,
Inc. We received proceeds from the public offering of approximately $75.1
million after deducting underwriting commissions and discounts of approximately
$5.8 million and expenses of approximately $1.9 million. None of the expenses
incurred in our initial public offering were direct or indirect payments to our
directors, officers, general partners or their associates, to persons owning ten
percent or more of any class of our equity securities to our affiliates. As of
June 30, 2000, we have not used any of the proceeds from our initial public
offering.

         ITEM 3. DEFAULTS UPON SENIOR SECURITIES

                 NONE

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

                 We held our 2000 Annual Meeting of Stockholders on May 16,
2000. At that meeting, the stockholders approved the following proposals: (i)
the election of Ronald G. Pettengill, Jr., Robert L. Belau and Donald J. Duffy
as Class I directors to serve on the Board of Directors and (ii) the
ratification of the Board of Directors' decision to select Arthur Andersen LLP
as our independent public accountants for the year ending December 31, 2000.

                 There were 10,358,669 votes cast for, 99,772 votes cast against
and 0 abstentions in connection with the election of Ronald G. Pettengill, Jr.
as a Class I Director. There were 10,358,669 votes cast for, 99,772 votes cast
against and 0 abstentions in connection with the election of Robert L. Belau as
a Class I Director. There were 10,322,699 votes cast for, 135,772 votes cast
against and 0 abstentions in connection with the election of Donald J. Duffy as
a Class I Director. The remainder of our Board of Directors remains as
previously reported. There were 10,451,584 votes cast for, 630 votes cast
against and 6,277 abstentions in connection with ratification of the Board of
Director's decision to select Arthur Andersen LLP as our independent public
accountants for the year ending December 31, 2000.

         ITEM 5. OTHER INFORMATION

                 NONE

         ITEM 6. EXHIBITS AND REPORT ON FORM 8-K

              (a)     The following exhibits are filed as part of this report:

                      27.1 Financial Data Schedule

              (b)     The Company did not file any reports on Form 8-K during
                      the three months ended June 30, 2000.

         ITEM 7.  SIGNATURES

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

                            PREDICTIVE SYSTEMS, INC.
                            (Registrant)


Date: August 14, 2000         /s/ RONALD G. PETTENGILL, JR.
                            -----------------------------------------
                            Name: Ronald G. Pettengill, Jr.
                            Title: Chief Executive Officer
                                   (principal executive officer)


Date: August 14, 2000         /s/ GERARD E. DORSEY
                            ------------------------------------------
                             Name: Gerard E. Dorsey
                             Title: Chief Financial Officer
                                    (principal accounting and financial officer)

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