<PAGE>

================================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                              Washington D.C. 20549


                                    FORM 10-Q


                QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                     FOR THE PERIOD ENDED DECEMBER 31, 1998

                        Commission file number: 000-23735
                                                --------- 


                         PRECEPT BUSINESS SERVICES, INC.
             (Exact name of registrant as specified in its charter)

             Texas                                          75-2487353
   (State or other jurisdiction of                       (I.R.S. Employer
   incorporation or organization)                       Identification No.)

1909 Woodall Rodgers Freeway, Suite 500                        75201
(Address of principal executive offices)                     (Zip Code)

       Registrant's telephone number, including area code: (214) 754-6600



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



As of January 31, 1999, there were 7,866,333 outstanding shares of Class A
Common Stock, 592,142 outstanding shares of Class B Common Stock and 333,929
outstanding warrants to purchase shares of Class A Common Stock.

================================================================================

<PAGE>

                          PRECEPT BUSINESS SERVICES, INC.

                                 INDEX TO FORM 10-Q

<TABLE>
<CAPTION>
DESCRIPTION                                                                PAGE
-----------                                                                ---- 
<S>       <C>                                                              <C>
PART I    FINANCIAL INFORMATION

Item 1    Condensed Consolidated Balance Sheets as of
              December 31, 1998 and June 30, 1998 .......................    3
          Condensed Consolidated Statements of Operations
              for the six-month and the three-month periods ended
              December 31, 1998 and 1997.................................    4
          Condensed Consolidated Statements of Cash Flows for the
              six-month periods ended December 31, 1998 and 1997.........    6
          Condensed Consolidated Statements of Changes in
              Shareholders' Equity for the six-month periods ended
              December 31, 1998 and 1997.................................    7
          Notes to Condensed Consolidated Financial Statements...........    8

Item 2    Management's discussion and analysis of financial
              condition and results of operations........................   14

PART II   OTHER INFORMATION

Item 1    Legal proceedings..............................................   22

Item 2    Changes in securities and use of proceeds......................   22

Item 3    Defaults by the company on its senior securities...............   22

Item 4    Results of votes of holders....................................   22

Item 5    Other information..............................................   22

Item 6    Exhibits.......................................................   23

          Signatures.....................................................   23
</TABLE>


                                       2
<PAGE>

                             PRECEPT BUSINESS SERVICES, INC.
                         CONDENSED CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                December 31,     June 30,
                                                                                   1998             1998
                                                                               ------------    ------------  
                                                  ASSETS
<S>                                                                            <C>             <C>
Current assets:
   Cash and cash equivalents.............................................      $  2,747,719    $  2,291,303  
   Trade accounts receivable, net of $650,000 and $404,000
       allowance for doubtful accounts, respectively.....................        18,728,699      15,595,234  
   Accounts receivable from affiliates...................................         1,124,676       1,186,908  
   Other accounts receivable.............................................         3,068,613       1,609,529  
   Inventory.............................................................         7,258,282       5,133,484  
   Other current assets..................................................         1,291,357         805,151  
   Deferred income taxes.................................................           486,875         499,264  
   Net assets of discontinued operations.................................              -          1,115,125  
                                                                               ------------    ------------  
       Total current assets..............................................        34,706,221      28,235,998  

Property and equipment, net..............................................         9,005,655       5,751,487  
Intangible assets, net...................................................        39,558,073      19,558,050  
Deferred income taxes....................................................         1,075,365       1,102,372  
Other assets.............................................................         1,974,692       1,838,697  
                                                                               ------------    ------------  
           Total assets..................................................      $ 86,320,006    $ 56,486,604  
                                                                               ------------    ------------  
                                                                               ------------    ------------  

                        LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
   Trade accounts payable................................................      $  9,085,627    $  5,844,671  
   Accrued compensation..................................................         2,400,743       1,943,964  
   Other accounts payable and accrued expenses...........................         7,187,479       5,189,268  
   Current portion of long-term debt.....................................         2,751,880       1,421,477  
                                                                               ------------    ------------  
       Total current liabilities.........................................        21,425,729      14,399,380  

Long-term debt...........................................................        29,008,312      20,084,756  
Commitments and contingencies
Shareholders' equity:
   Preferred stock, $1.00 par value; 3,000,000 authorized shares, none 
       issued............................................................              -               -     
   Class A common stock, $0.01 par value; 100,000,000 authorized
       shares and 7,934,739 and 6,870,126 issued shares,
       Respectively......................................................            79,347          68,701   
   Class B common stock, $0.01 par value; 10,500,000 authorized
       shares and 592,142 shares outstanding.............................             5,921           5,921   
   Additional paid-in capital............................................        36,048,341      23,515,022   
   Retained earnings (accumulated deficit)...............................           (56,373)     (1,395,905)  
                                                                               ------------    ------------   
                                                                                 36,077,236      22,193,739   
   Class A treasury stock - 68,406 shares................................          (191,271)       (191,271)  
                                                                               ------------    ------------   
       Total shareholders' equity........................................        35,885,965      22,002,468   
                                                                               ------------    ------------   
           Total liabilities and shareholders' equity....................      $ 86,320,006    $ 56,486,604   
                                                                               ------------    ------------   
                                                                               ------------    ------------   
</TABLE>

              See accompanying notes to consolidated financial statements.

                                             3

<PAGE>

                             PRECEPT BUSINESS SERVICES, INC.
                     CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                            Six months ended
                                                                              December 31,
                                                                       ----------------------------   
                                                                           1998            1997       
                                                                       ------------    ------------  
<S>                                                                    <C>             <C>
Revenue:
   Business products................................................   $ 68,777,067    $ 51,940,783  
   Transportation services..........................................     10,876,726       3,426,633  
                                                                       ------------    ------------  
                                                                         79,653,793      55,367,416  

Costs and expenses:
   Cost of goods sold...............................................     53,001,370      36,791,311   
   Sales commissions................................................      9,179,607       6,928,461   
   Selling, general and administrative..............................     12,178,157       9,587,346   
   Depreciation and amortization....................................      1,526,940         774,395   
                                                                       ------------    ------------   
                                                                         75,886,074      54,081,513   
Operating income....................................................      3,767,719       1,285,903   

Interest expense....................................................      1,191,695         286,573   
                                                                       ------------    ------------   

Income from continuing operations before income taxes...............      2,576,024         999,330   

Income tax provision ...............................................      1,236,492         399,732   
                                                                       ------------    ------------   

Income from continuing operations...................................      1,339,532         599,598   

Loss from discontinued operations, net of applicable income taxes...           -           (244,308)  
                                                                       ------------    ------------   

Net income..........................................................   $  1,339,532    $    355,290   
                                                                       ------------    ------------   
                                                                       ------------    ------------   
Basic net income per share:
   Income from continuing operations................................   $       0.17   $        0.10   
   Loss from discontinued operations................................           -              (0.04)  
                                                                       ------------    ------------   
   Net income.......................................................   $       0.17    $       0.06
                                                                       ------------    ------------   
                                                                       ------------    ------------   

   Weighted average shares outstanding..............................      8,057,836       6,089,047   

Diluted net income per share:
   Income from continuing operations................................   $       0.16    $       0.10   
   Loss from discontinued operations................................           -              (0.04)  
                                                                       ------------    ------------   
   Net income.......................................................   $       0.16    $       0.06    
                                                                       ------------    ------------   
                                                                       ------------    ------------   

   Weighted average shares outstanding..............................      8,265,520       6,089,047   
</TABLE>

              See accompanying notes to consolidated financial statements.

                                             4

<PAGE>

                           PRECEPT BUSINESS SERVICES, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                          Three months ended        
                                                                             December 31,            
                                                                     ----------------------------   
                                                                         1998           1997        
                                                                     -------------   ------------   
<S>                                                                  <C>             <C>
Revenue:
   Business products...............................................  $ 37,843,754    $ 24,711,619   
   Transportation services.........................................     6,992,112       1,623,738   
                                                                     -------------   ------------   
                                                                        44,835,866     26,335,357   

Costs and expenses:
   Cost of goods sold..............................................     30,002,472     16,516,867   
   Sales commissions...............................................      4,900,262      3,366,158   
   Selling, general and administrative.............................      6,698,664      5,551,280   
   Depreciation and amortization...................................        877,025        487,617   
                                                                     -------------   ------------   
                                                                        42,478,423     25,921,922   
                                                                     -------------   ------------   
Operating income...................................................      2,357,443        413,435   

Interest expense...................................................        723,609        110,925   
                                                                     -------------   ------------   

Income from continuing operations before income taxes..............      1,633,834        302,510   

Income tax provision ..............................................        784,144        121,004   
                                                                     -------------   ------------   

Income from continuing operations..................................        849,690        181,506   

Loss from discontinued operations, net of applicable income taxes..           -           (79,331)  
                                                                     -------------   ------------   

Net income.........................................................  $     849,690   $    102,175   
                                                                     -------------   ------------   
                                                                     -------------   ------------   

Basic net income per share:
   Income from continuing operations...............................  $        0.10   $       0.03   
   Loss from discontinued operations...............................           -             (0.01)  
                                                                     -------------   ------------   
   Net income......................................................  $        0.10   $       0.02   
                                                                     -------------   ------------   
                                                                     -------------   ------------   

   Weighted average shares outstanding.............................      8,458,534      6,089,047   

Diluted net income per share:
   Income from continuing operations...............................  $        0.10   $       0.03   
   Loss from discontinued operations...............................           -             (0.01)  
                                                                     -------------   ------------   
   Net income......................................................  $        0.10   $       0.02   
                                                                     -------------   ------------   
                                                                     -------------   ------------   

   Weighted average shares outstanding.............................      8,753,122      6,089,047   
</TABLE>

              See accompanying notes to consolidated financial statements.


                                             5
<PAGE>

                           PRECEPT BUSINESS SERVICES, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                               Six months ended
                                                                                  December 31,
                                                                          ----------------------------   
                                                                              1998            1997
                                                                          ------------    ------------   
<S>                                                                       <C>             <C>
Cash flows from operating activities:
  Net income............................................................. $  1,339,532    $    355,290    
  Adjustments to reconcile net income to net cash provided by (used in)                                            
    operating activities:                                                                                 
    Depreciation and amortization........................................    1,526,940         774,395    
    Changes in operating assets and liabilities, net of effects from                                      
      acquisitions                                                                                        
      Trade accounts receivable..........................................      806,235      (1,314,935)   
      Accounts receivable from affiliates................................       62,232        (236,926)   
      Other accounts receivable..........................................   (1,459,084)       (288,234)   
      Inventory..........................................................     (540,540)     (1,787,135)   
      Other current assets...............................................      153,695        (171,801)   
      Income taxes refundable............................................         -            (12,277)   
      Net assets of discontinued operations..............................         -            972,582    
      Trade accounts payable.............................................     (817,500)      1,666,792    
      Accrued compensation...............................................   (1,943,964)       (635,005)   
      Other assets and liabilities, net..................................    3,126,804        (897,858)   
                                                                          ------------    ------------    
    Net cash provided by (used in) operating activities..................    2,254,350      (1,575,112)   
                                                                          ------------    ------------    

Cash flows provided by (used in) investing activities:
  Acquisitions of businesses, including earnout payments.................   (9,192,545)       (435,000)   
  Sale of net assets of discontinued operations..........................    1,115,125            -       
  Acquisition of property and equipment, net.............................     (327,198)       (254,645)   
                                                                          ------------    ------------    
    Net cash used in investing activities................................   (8,404,618)       (689,645)   
                                                                          ------------    ------------    

Cash flows provided by (used in) financing activities:
  Repayment of shareholder notes receivable..............................         -            208,060   
  Payments on long-term debt.............................................     (749,092)       (227,305)  
  Increase in (payments of) capital lease obligations....................     (448,746)        422,351   
  Borrowings on revolving line of credit.................................    7,804,522         525,000   
                                                                          ------------    ------------   
      Net cash provided by financing activities..........................    6,606,684         928,106   
                                                                          ------------    ------------   

Net increase (decrease) in cash and cash equivalents.....................      456,416      (1,336,651)  
Cash and cash equivalents at beginning of period.........................    2,291,303       2,432,202   
                                                                          ------------    ------------   
Cash and cash equivalents at end of period............................... $  2,747,719    $  1,095,551   
                                                                          ------------    ------------   
                                                                          ------------    ------------   

Cash paid for:
  Interest............................................................... $  1,287,896    $    380,816   
  Income taxes........................................................... $    394,406    $    422,783   
</TABLE>

                 See accompanying notes to consolidated financial statements


                                             6
<PAGE>

                                PRECEPT BUSINESS SERVICES, INC.
          CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                        RETAINED
                                CLASS A    CLASS B     ADDITIONAL       EARNINGS                        TOTAL       
                                 COMMON     COMMON      PAID-IN      (ACCUMULATED                    SHAREHOLDERS'  
                                 STOCK      STOCK       CAPITAL         DEFICIT)        OTHER           EQUITY      
                                --------   --------   ------------   -------------   ------------    ------------   
<S>                             <C>        <C>        <C>            <C>             <C>             <C>            
Balance, June 30, 1998.......   $ 68,701   $  5,921   $ 23,515,022   $ (1,395,905)   $   (191,271)     22,002,468   

Issuance of shares to
   acquire businesses........     10,646       -        12,533,319             -             -         12,543,965    
Net income...................       -          -              -         1,339,532            -          1,339,532    
                                --------   --------   ------------   ------------    ------------    ------------    

Balance, December 31, 1998...   $ 79,347   $  5,921   $ 36,048,341   $    (56,373)   $   (191,271)   $ 35,885,965    
                                --------   --------   ------------   ------------    ------------    ------------    
                                --------   --------   ------------   ------------    ------------    ------------   

Balance, June 30, 1997.......   $ 46,458   $ 14,433   $ 17,803,121   $   (750,062)   $ (1,012,307)   $ 16,101,643    

Repayment of shareholder
   notes receivable..........       -          -              -              -            208,060         208,060     

Net income...................       -          -              -           355,290           -             355,290     
                                --------   --------   ------------   ------------    ------------    ------------    

Balance, December 31, 1997...   $ 46,458   $ 14,433   $ 17,803,121   $   (394,772)   $   (804,247)   $ 16,664,993   
                                --------   --------   ------------   ------------    ------------    ------------   
                                --------   --------   ------------   ------------    ------------    ------------   
</TABLE>

              See accompanying notes to consolidated financial statements.


                                             7
<PAGE>
                                       
                       PRECEPT BUSINESS SERVICES, INC.
            NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                              DECEMBER 31, 1998


1.       BUSINESS

         Precept Business Services, Inc. and its subsidiaries ("Precept" or 
the "Company") primarily engage in business products distribution management 
and services and, to a lesser extent, in executive chauffeured limousine, 
livery and courier services. The business products management business 
comprises arranging for the manufacture, storage, and distribution of 
business forms, computer supplies, advertising information and other related 
business products for small-to large-sized corporate customers. Precept 
operates from offices throughout the United States. The transportation 
services are provided from locations in the tri-state New York metropolitan 
area and in the states of Texas, Michigan, Kentucky and Ohio.

         PUBLICLY TRADED COMPANY

         Precept's Class A common stock trades under the NASDAQ symbol "PBSI" 
and its warrants trade under the NASDAQ symbol "PBSIW."

         CONSOLIDATED FINANCIAL STATEMENTS

         The consolidated financial statements comprise the accounts of the 
Company and its subsidiaries. All significant intercompany accounts and 
transactions have been eliminated in consolidation.

         PRO FORMA INFORMATION

         The pro forma information included in these financial statements and 
notes is unaudited.

         FISCAL YEAR END AND QUARTERLY REPORTING PERIODS

         The Company maintains a June 30 fiscal year end and ends its 
quarterly reporting periods on September 30, December 31, and March 31, 
respectively. For purposes of the Company's current report on Form 10-Q, 
references to 1999 and 1998 are meant to be the three-month or six-month 
reporting periods ended December 31, 1998 and 1997, respectively.

         REVERSE STOCK SPLIT

         On November 11, 1998, the shareholders of the Company approved a one 
for seven reverse stock split that became effective December 4, 1998. All 
financial and share information presented in this report has been restated to 
give effect to this reverse stock split.

2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         Significant accounting policies followed in the preparation of the 
consolidated financial statements are consistent with the accounting policies 
described in the Company's notes to consolidated financial statements 
included in the Company's Annual Report to Shareholders and Form 10-K for the 
fiscal year ended June 30, 1998.

         INTERIM FINANCIAL INFORMATION

         The accompanying interim financial statements are unaudited. Certain 
information and disclosures normally included in financial statements 
prepared in accordance with generally accepted accounting principles have 
been condensed or omitted, although the Company believes that the disclosures 
included herein are adequate to make the information presented not 
misleading. These interim financial statements should be read in conjunction 
with the Company's consolidated financial statements for the year ended June 
30, 1998. The interim financial statements include all adjustments, 
consisting only of normal recurring adjustments, necessary for a fair 
presentation of the Company's financial position, its results of 

                                       8
<PAGE>
                                       
                       PRECEPT BUSINESS SERVICES, INC.
            NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                              DECEMBER 31, 1998

operations and its cash flows. Operating results for any particular interim 
period are not necessarily indicative of the operating results for a full 
fiscal year.

         The financial information for the year ended June 30, 1998 is 
derived from the Company's audited financial statements for the same year as 
included in the Company's Form 10-K for fiscal year 1998.

         COMPREHENSIVE INCOME

         The Company adopted the new accounting standard on comprehensive 
income in the first quarter of fiscal year 1999, which requires companies to 
disclose comprehensive income separately from net income from operations. 
Comprehensive income is defined as the change in equity during a period from 
transactions and other events and circumstances from non-ownership sources. 
It includes all changes in equity during a period, except those resulting 
from investments by owners and distributions to owners. Comprehensive income 
(loss) is equal to net earnings as presented in the consolidated statements 
of operations for the three and six months ended December 31, 1998 and 1997.

3.       ACQUISITIONS

         In the quarter ended December 31, 1998, the Company acquired one 
corporate transportation services company located in North Arlington, New 
Jersey, which provides executive limousine and town car service to the 
tri-state New York metropolitan area with annual revenues of $14.0 million. 
This acquisition was accounted for using the purchase method of accounting. 
For this purchase acquisition, the aggregate acquisition cost was allocated 
to the net assets acquired based on the fair market value of such net assets. 
The operating results of this company have been included in the Company's 
historical results of operations for all periods following the acquisition. 
The aggregate acquisition cost for this purchased business amounted to $9.0 
million and consisted of $3.4 million in cash, funded by working capital and 
the Company's revolving line of credit, 0.3 million shares of Class A common 
stock with an aggregate fair market value of $2.9 million, and $2.7 million 
in assumed debt and transaction costs.

         During the first quarter of fiscal year 1999, Precept acquired four 
business products distribution companies with combined annual revenues of 
$34.3 million. These acquisitions were accounted for using the purchase 
method of accounting. For each of these purchase acquisitions, the aggregate 
acquisition cost was allocated to the net assets acquired based on the fair 
market value of such net assets. The operating results of such companies have 
been included in the Company's historical results of operations for all 
periods following the acquisition. The aggregate acquisition cost for such 
purchased businesses amounted to $18.6 million and consisted of $5.7 million 
in cash, funded by working capital and the Company's revolving line of 
credit, 0.7 million shares of Class A common stock with an aggregate fair 
market value of $9.6 million, and $3.3 million in seller notes and assumed 
debt.

         In the second quarter of fiscal year 1998, the Company completed the 
acquisition of two business products companies located in Tempe, Arizona and 
Austin, Texas and one corporate transportation service company located in 
Dallas, Texas. Total annual revenues for the two business products companies 
amounted to $3.5 million. These companies were acquired with seller notes and 
assumed debt of $1.3 million. The transportation company's annual revenues 
totaled $3.4 million. This acquisition was paid for with a seller note of 
$0.4 million and assumed debt of $0.2 million.

         During the first quarter of fiscal year 1998, the Company completed 
the purchase of two business products distributors for a total of $0.5 
million. The acquisitions were accounted for using the purchase method of 
accounting with the majority of the purchase price attributable to accounts 
receivable, inventory, equipment and goodwill. The combined annual revenues 
for these two companies were $0.6 million.

         In fiscal year 1998, the Company issued 0.9 million shares of its 
Class A common stock with an aggregate fair market value of $18.3 million at 
the date of acquisition in order to acquire two business products 
distribution companies, InfoGraphix Inc. and MBF Corproation. These 
acquisitions have been 

                                       9
<PAGE>
                                       
                       PRECEPT BUSINESS SERVICES, INC.
            NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                              DECEMBER 31, 1998

accounted for using the pooling of interests method of accounting. The 
Company's consolidated financial statements give retroactive effect to the 
acquisitions of such companies for all periods presented.

         The following presents the separate results from continuing 
operations, in the second quarter and for the first six months of fiscal year 
1998, of the Company (excluding the results of InfoGraphix and MBF prior to 
the dates on which they were acquired) and of InfoGraphix and MBF up to the 
dates on which they were acquired.

<TABLE>
<CAPTION>
                                                          Six months ended         Three months ended
                                                          December 31, 1997         December 31, 1997
                                                          -----------------        ------------------
<S>                                                       <C>                      <C>
  Revenue:
     Company (excluding InfoGraphix and MBF).........        $ 37,879,392             $ 18,943,914
     InfoGraphix.....................................           9,789,883                4,367,115
     MBF.............................................           7,698,141                3,024,328
                                                             ------------             ------------
     Company.........................................        $ 55,367,416             $ 26,335,357
                                                             ------------             ------------
                                                             ------------             ------------

  Net income:
     Company (excluding InfoGraphix and MBF).........        $    323,602             $     95,392
     InfoGraphix.....................................             496,719                  197,067
     MBF.............................................             179,009                   10,051
                                                             ------------             ------------
     Company.........................................        $    999,330             $    302,510
                                                             ------------             ------------
                                                             ------------             ------------
</TABLE>

         The following table summarizes the consideration for the purchase 
acquisitions completed and the fair value of the assets acquired.

<TABLE>
<CAPTION>
                                                                                 Six months ended
                                                                                   December 31,
                                                                           ------------------------------
Purchase consideration:                                                        1998             1997
                                                                           -------------    -------------
<S>                                                                        <C>              <C>
     Cash paid.....................................................        $   9,165,000    $     435,000
     Amounts due sellers of acquired businesses....................            1,380,000          354,435
     Common stock issued...........................................           12,544,000           -
     Liabilities assumed...........................................            1,777,000        1,971,000
     Other.........................................................              179,000            -
                                                                           -------------    -------------
Fair value of net assets acquired..................................        $  25,045,000    $   2,760,435
                                                                           -------------    -------------
                                                                           -------------    -------------
<CAPTION>
                                                                                  Six months ended
                                                                                    December 31,
                                                                           ------------------------------
Allocation of fair value of net assets acquired:                               1998              1997
                                                                           -------------    -------------
<S>                                                                        <C>              <C>
     Goodwill and intangible assets................................        $  20,771,000    $   2,353,763
     Accounts receivable...........................................            3,939,000            -
     Inventory and other, net......................................              335,000          406,672
                                                                           -------------    -------------
                                                                           $  25,045,000    $   2,760,435
                                                                           -------------    -------------
                                                                           -------------    -------------
</TABLE>

         The following table presents the pro forma results of continuing 
operations as if all the acquisitions described above had occurred at the 
beginning of each period presented. Pro forma adjustments reflect additional 
amortization expense since the excess of acquisition cost over the fair value 
of the assets acquired is amortized for a full period. Pro forma adjustments 
also reflect additional interest expense due to the related debt being 
outstanding for a full period. The income tax effect of the pro forma 
adjustments has also been reflected. These pro forma results are presented 
for comparative purposes only and do not purport to be indicative of what 
would have occurred had the businesses actually been acquired as of those 
dates or of results which may occur in the future.

                                       10
<PAGE>

                       PRECEPT BUSINESS SERVICES, INC.
            NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                              DECEMBER 31, 1998

<TABLE>
<CAPTION>
                                                 Six months ended                     Three months ended
                                                   December 31,                          December 31,
                                          ------------------------------        ------------------------------
                                              1998             1997                 1998              1997
                                          -------------    -------------        -------------    -------------
<S>                                       <C>              <C>                  <C>              <C>
     Total revenues...................    $  86,250,943    $  87,532,457        $  45,049,943    $  45,042,457
     Income before income taxes ......    $   3,235,086    $   4,237,757        $   1,905,086    $   2,414,757
     Net income.......................    $   1,787,345    $   2,349,674        $   1,096,345    $   1,255,674
     Diluted net income per share.....    $        0.21    $        0.27        $        0.13    $        0.15
</TABLE>

         Since December 31, 1998, Precept has acquired one corporate 
transportation services company which provides executive town car and 
limousine service primarily in the tri-state New York metropolitan area with 
annual revenues of $2.0 million. The aggregate consideration for this 
transaction amounted to $1.4 million, paid $0.2 million in cash and 
approximately $1.2 million in seller notes and debt assumed. Assets with a 
preliminary aggregate fair value of $0.9 million were acquired, with a 
preliminary allocation as follows: $1.6 million to goodwill and intangible 
assets, $0.4 million to property, plant, and equipment, and $1.1 million 
(net) to other liabilities.

         The operational results of this acquisition are not considered to be 
significant enough to significantly affect the pro forma results presented 
above; therefore, the pro forma effect of this acquisition on the Company's 
pro forma operating results has not been separately disclosed.

4.       PROPERTY AND EQUIPMENT

         Property and equipment consists of the following:

<TABLE>
<CAPTION>
                                                                            December 31,      June 30,
                                              Estimated Lives                  1998             1998
                                              ---------------              -------------    -------------
<S>                                           <C>                          <C>              <C>
     Land                                                                  $     455,661    $     411,000
     Buildings                                15 to 40 years                   1,778,279        1,670,926
     Leasehold improvements                    1 to 10 years                     496,156          455,118
     Equipment and vehicles                    3 to 5 years                   11,392,268        7,020,965
     Capitalized leasehold rights              3 to 5 years                    1,385,137        1,353,279
                                                                           -------------    -------------
                                                                              15,507,501       10,911,288
     Accumulated depreciation and amortization....................             6,501,846        5,159,801
                                                                           -------------    -------------
                                                                           $   9,005,655    $   5,751,487
                                                                           -------------    -------------
                                                                           -------------    -------------
</TABLE>

5.       INTANGIBLE ASSETS

         Intangible assets consist of the following:

<TABLE>
<CAPTION>
                                                                            December 31,       June 30,
                                                                               1998              1998
                                                                           -------------    -------------
<S>                                                                        <C>              <C>
     Goodwill..........................................................    $  44,140,607    $  23,955,689
     Non-compete agreements............................................          755,659          755,659
                                                                           -------------    -------------
                                                                              44,896,266       24,711,348
     Accumulated amortization..........................................        5,338,193        5,153,298
                                                                           -------------    -------------
                                                                           $  39,558,073    $  19,558,050
                                                                           -------------    -------------
                                                                           -------------    -------------
</TABLE>

                                       11
<PAGE>

                       PRECEPT BUSINESS SERVICES, INC.
            NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                              DECEMBER 31, 1998

6.       LONG-TERM DEBT

         Long-term debt consists of the following:

<TABLE>
<CAPTION>
                                                                            December 31,      June 30,
                                                                               1998             1998
                                                                           -------------    -------------
<S>                                                                        <C>              <C>
     Revolving line of credit..........................................    $  23,770,000    $  15,965,478
     Note payable and long-term liability to shareholder...............          510,730          813,803
     Convertible notes payable to sellers..............................        3,054,436        2,114,435
     Capitalized lease obligations and other notes payable.............        4,425,026        2,612,517
                                                                           -------------    -------------
                                                                              31,760,192       21,506,233
     Less current portion due within one year..........................        2,751,880        1,421,477
                                                                           -------------    -------------
     Long-term debt....................................................    $  29,008,312    $  20,084,756
                                                                           -------------    -------------
                                                                           -------------    -------------
</TABLE>

         REVOLVING LINE OF CREDIT

         The Company has a $25 million revolving line of credit with its bank 
for borrowing to finance working capital and acquisition needs. The line of 
credit bears interest at prime (7.75% at December 31, 1998) or at LIBOR plus 
a maximum margin of 2.75%. The margin rate may be lower based on the 
Company's ratio of debt to earnings before interest, taxes, depreciation and 
amortization ("EBITDA"). As of December 31, 1998, the margin rate was 2.5%. 
The revolving line of credit includes restrictions as to the current ratios 
and debt service coverage as well as borrowing restrictions based upon 
accounts receivable, inventory and property and equipment. The line of credit 
is secured by substantially all of the assets of the Company. The revolving 
line of credit is due and payable on March 31, 2001.

7.       SEGMENT INFORMATION

         The table below presents certain segment information from continuing 
operations for the three- and the six-month periods ended December 31, 1998 
and 1997. Intersegment sales included in operating income below amounted to 
$0 and $3,474 for the business products segment and $150,996 and $165,120 for 
the transportation services segment for the second quarters ended December 
31, 1998 and 1997, respectively. For the first six months in 1999 and 1998, 
intersegment sales included in operating income below totaled $1,671 and 
$34,070 for the business products segment and $292,376 and $329,468 for the 
transportation services segment.

<TABLE>
<CAPTION>
                                               Six months ended                   Three months ended
                                                 December 31,                        December 31,   
                                        ------------------------------      ------------------------------
                                            1998             1997               1998               1997
                                        -------------    -------------      -------------      -----------
<S>                                     <C>              <C>                <C>                <C>
Operating income:
     Business products.............     $   5,098,693    $   4,367,049      $   2,425,647      $   1,453,522
     Transportation services.......         1,722,311         (283,136)         1,151,074            (99,131)
     Other.........................        (3,053,285)      (2,798,010)        (1,219,278)          (940,956)
                                        -------------    -------------      -------------      -------------
         Total operating income....         3,767,719        1,285,903          2,357,443            413,435
Interest expense...................        (1,191,695)        (286,573)          (723,609)          (110,925)
                                        -------------    -------------      -------------      -------------
Income before income taxes.........     $   2,576,024    $     999,330      $   1,633,834      $     302,510
                                        -------------    -------------      -------------      -------------
                                        -------------    -------------      -------------      -------------
</TABLE>

<TABLE>
<CAPTION>
                                                                                     December 31,
                                                                            --------------------------------
                                                                                1998               1997
                                                                            -------------      -------------
<S>                                                                         <C>                <C>
Identifiable assets:                                                                                           
     Business products................................................      $  52,517,901      $  31,690,326 
     Transportation services..........................................         27,582,295          2,403,033 
     Other............................................................          6,219,810          9,100,198 
                                                                            -------------      -------------
         Total identifiable assets....................................      $  86,320,006      $  43,193,557
                                                                            -------------      -------------
                                                                            -------------      -------------
</TABLE>

                                       12
<PAGE>

                       PRECEPT BUSINESS SERVICES, INC.
            NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                              DECEMBER 31, 1998

8.       WEIGHTED AVERAGE SHARES OUTSTANDING

         The following table provides information to reconcile the basic and 
diluted weighted average shares outstanding for the three-month and six-month 
periods ended December 31, 1998 and 1997.

<TABLE>
<CAPTION>
                                                                Six  months ended              Three months ended
                                                                  December 31,                    December 31,
                                                           -------------------------       ---------------------------
                                                              1998            1997            1998             1997
                                                           ----------      ---------       ----------       ----------
<S>                                                        <C>             <C>             <C>              <C>
Basic weighted average shares outstanding:

     Common shares, Class A and Class B, outstanding                                                        
         at the beginning of the period..............       7,393,919      6,089,047        8,122,565        6,089,047
     Common shares used to acquire businesses during                                                     
         the period..................................       1,064,615           -             335,969             -
                                                           ----------      ---------       ----------       ----------
     Common shares, Class A and Class B, outstanding                                                     
         at the end of the period....................       8,458,534      6,089,047        8,458,534        6,089,047
                                                           ----------      ---------       ----------       ----------
                                                           ----------      ---------       ----------       ----------
     Weighted average number of common shares
         outstanding during the period based on the                                                      
         number of days outstanding (A)..............       8,057,838      6,089,047        8,458,534        6,089,047
                                                           ----------      ---------       ----------       ----------
                                                           ----------      ---------       ----------       ----------

Diluted weighted average shares outstanding:
     Common stock options:                                                                 
         Number of outstanding options...............         663,832         46,405          663,832           46,405
         Number of options vested....................          66,405         46,405           66,405           46,405
         Number of options which would be exercised     
              based on average market value of                                                              
              common stock during the period.........          46,405           -              46,405             -
         Proceeds from exercise of options...........      $   68,218      $    -          $   68,218       $     -
         Common shares repurchased with proceeds.....          21,593           -              23,058             -
         Common shares issued from exercise of
              options, net (B).......................          24,812           -              23,349             -
                                                           ----------      ---------       ----------       ----------
                                                           ----------      ---------       ----------       ----------
     Warrants to purchase common stock:
         Number of warrants outstanding..............         333,930           -             333,930             -
         Number of warrants which would be exercised  
              based on average market value of
              common stock during the period.........            -              -                -                -
         Net proceeds from exercise of warrants......      $     -         $    -          $     -          $     -
         Common shares repurchased with proceeds.....            -              -                -                -
         Common shares issued from exercise of
              warrants (C)...........................            -              -                -                -
                                                           ----------      ---------       ----------       ----------
                                                           ----------      ---------       ----------       ----------
     Convertible notes payable:
         Face value of notes which would be
              converted based on average market         
              value of common stock during the 
              period.................................      $2,470,000      $ 440,000       $2,470,000       $  440,000
         Common shares issued upon conversion (D)....         182,870           -             271,239             -
                                                           ----------      ---------       ----------       ----------
                                                           ----------      ---------       ----------       ----------

     Diluted weighted average common shares                                                 
         outstanding  (A + B + C + D)................       8,265,520      6,089,047        8,753,122        6,089,047
                                                           ----------      ---------       ----------       ----------
                                                           ----------      ---------       ----------       ----------
</TABLE>

                                       13
<PAGE>

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

OVERVIEW

         Precept is an independent distributor of custom and stock business 
products and is a provider of document management services ("Business 
Products") to businesses in a variety of industries throughout the United 
States. Precept also operates seven corporate transportation service 
("Transportation Services") companies in the United States.

         Precept was one of the first organizations to begin nationwide 
consolidation of operating companies in the Business Products industry. Since 
1991, Precept has acquired 21 companies in the Business Products industry 
plus 10 in the Transportation Services industry.

         A component of Precept's business strategy is to increase the size 
of its operations through strategic acquisitions and internally generated 
growth. Precept places substantial emphasis on improving operational and 
information system capabilities while integrating acquired operations. 
Precept's operational focus also includes continuous upgrading of management 
systems allowing improved customer access to financial inventory and order 
status information; new product and service offerings; preferred vendor 
programs incorporating volume purchasing; regional and district management 
oversight; and recruiting experienced sales individuals. Precept believes 
that these strategies will lead to lower cost of goods and increased sales of 
various products and services to existing and new customers.

         This section should be read in conjunction with the Company's 
financial statements included in this report and with the Company's annual 
report on Form 10-K for the year ended June 30, 1998.

         ACQUISITIONS

         The Company's results of operations and the comparability of the 
Company's results of operations from period to period have been significantly 
affected by businesses acquired in each period. From 1991 through the end of 
the second quarter of fiscal year 1999, the Company completed 30 
acquisitions: 21 business products distribution companies and 9 
transportation service companies. Two business products companies acquired in 
fiscal year 1998 were accounted for using the pooling-of-interests method 
and, as a result, the consolidated financial statements of the Company have 
been restated to combine the financial statements of the Company with the 
pooled companies' financial statements for all periods presented. The 
remaining acquisitions have been accounted for following the purchase method 
and, as a result, the results of operations of the acquired companies have 
been included in the Company's results of operations from the dates of 
acquisition.

         In the three-month period ended December 31, 1998, the Company 
acquired one corporate transportation services company located in North 
Arlington, New Jersey, which provides executive limousine and town car 
service to the tri-state New York metropolitan area with annual revenues of 
$14.0 million. This acquisition was paid for with $3.4 million in cash, 
financed by the Company's revolving line of credit, $3.0 million in fair 
market value of 336,000 shares of Class A common stock, and $2.6 million in 
assumed debt.

                                       14
<PAGE>

         In the three-month period ended September 30, 1998, the Company 
completed the acquisitions of four business products companies located in 
Salt Lake City, Utah; Houston, Texas; Bangor, Maine; and Florence, South 
Carolina with combined annual revenues of $34.3 million. Such acquisitions 
were paid for with an aggregate of $5.8 million in cash, financed by the 
Company's working capital and revolving line of credit, $1.4 million in 
seller notes, 729,000 shares of Class A common stock with a fair market value 
of $9.6 million, and $1.8 million in assumed debt.

         In January 1999, the Company acquired one corporate transportation 
services company in Canbery, New Jersey, which provides executive limousine 
and town car service to the tri-state New York metropolitan area with annual 
revenues of $2.0 million. The aggregate consideration for this transaction 
amounted to $1.4 million, paid with $0.2 million in cash and approximately 
$1.2 million in seller notes and debt assumed.

         In the three month period ended December 31, 1997, the Company 
completed the acquisition of two business products companies located in 
Tempe, Arizona and Austin, Texas and one corporate transportation service 
company located in Dallas, Texas. Total annual revenues for the two business 
products companies amounted to $3.5 million. These companies were acquired 
with seller notes and assumed debt of $1.3 million. The transportation 
company's annual revenues totaled $3.4 million. This acquisition was paid for 
with a seller note of $0.4 million and assumed debt of $0.2 million.

         In the three month period ended September 30, 1997, the Company 
completed the acquisition of two business products companies located in New 
York and Fort Worth, Texas with annual revenues of $0.6 million. These 
acquisitions were paid for with $0.5 million in cash, financed by the 
Company's revolving line of credit.

         PURCHASE ACCOUNTING EFFECTS

         The Company's acquisitions have been primarily accounted for using 
the purchase accounting method. The acquisitions have currently affected, and 
will prospectively affect, the Company's results of operations in certain 
significant respects. The Company's revenues and operating expenses will be 
directly affected by the timing of the acquisitions. The aggregate 
acquisition costs, including assumption of debt, are allocated to the net 
assets acquired based on the fair market value of such net assets. The 
allocations of the purchase price results in an increase in the historical 
book value of certain assets, including property and equipment, and will 
generally result in the allocation of a portion of the purchase price to 
goodwill, which results in incremental annual and quarterly amortization 
expense.

                                       15
<PAGE>

RESULTS OF OPERATIONS

         The following table sets forth various items from continuing 
operations as a percentage of revenues for the three-month and six-month 
periods ended December 31, 1998 and 1997.

<TABLE>
<CAPTION>
                                                                           Six months ended      Three months ended
                                                                              December 31,          December 31,
                                                                           -----------------     -----------------
                                                                            1998       1997       1998       1997
                                                                           ------     ------     ------     ------
<S>                                                                        <C>        <C>        <C>        <C>
Revenue:
     Business products............................................          86.2%      93.2%      84.4%      93.8%
     Transportation services......................................          13.8%       6.8%      15.6%       6.2%
                                                                           ------     ------     ------     ------
                                                                           100.0%     100.0%     100.0%     100.0%
Costs and operating expenses:
     Cost of goods sold...........................................          66.5%      66.4%      66.9%      62.7%
     Sales commissions............................................          11.5%      12.5%      10.9%      12.8%
     Selling, general and administrative..........................          15.3%      17.4%      14.9%      21.1%
     Depreciation and amortization................................           1.9%       1.4%       2.0%       1.9%
                                                                           ------     ------     ------     ------
                                                                            95.2%      97.7%      94.7%      98.5%
                                                                           ------     ------     ------     ------
Operating income..................................................           4.8%       2.3%       5.3%       1.5%
Interest expense..................................................           1.5%       0.5%       1.7%       0.4%
                                                                           ------     ------     ------     ------
Income before income taxes........................................           3.3%       1.8%       3.6%       1.1%
Income tax provision..............................................           1.6%       0.7%       1.7%       0.5%
                                                                           ------     ------     ------     ------
Net income........................................................           1.7%       1.1%       1.9%       0.6%
                                                                           ------     ------     ------     ------
                                                                           ------     ------     ------     ------
</TABLE>

SIX MONTHS ENDED DECEMBER 31, 1998 COMPARED TO SIX MONTHS ENDED DECEMBER 31, 
1997

         REVENUE for 1999 increased by $24.3 million, or 43.9%, from $55.4 
million in 1998 to $79.7 million in 1999. In 1999, Business Products revenue 
increased by $16.8 million or 32.4% and Transportation Services revenue 
increased by $7.5 million or 217.4%. The increase in Business Products 
revenue was due to the acquisition of nine business products companies during 
fiscal years 1998 and 1999, which accounted for $12.5 million, and internal 
growth of $4.3 million. Business Products internal revenue grew 8.4% for the 
first six months of 1999. Of the total increase in Transportation Services 
revenue in 1999, $7.2 million was due to the acquisition of five 
transportation companies.

         COST OF GOODS SOLD for 1999 increased by $16.2 million, or 44.1%, 
from $36.8 million in 1998 to $53.0 million in 1999. Cost of goods sold for 
Business Products increased by $11.7 million of which approximately $8.4 
million was due to companies acquired after the beginning of fiscal year 
1998. Transportation Services cost of goods sold increased by $4.5 million 
due primarily to the five transportation companies acquired since the 
beginning of 1998. As a percentage of revenue, cost of goods sold for 1999 
increased by 0.1% from 66.4% in 1998 to 66.5% in 1999. This increase was 
primarily due to the mix of products sold.

         SALES COMMISSIONS increased by $2.3 million, or 32.5%, in 1999, from 
$6.9 million in 1998 to $9.2 million in 1999 due primarily to the increased 
level of Business Products revenue. Sales commissions for the Business 
Products division remained consistent at 13.3% of Business Products revenue. 
Total commission expense decreased by 1.0% from 12.5% in 1998 to 11.5% in 
1999 because the Transportation Services division contributed a higher 
proportion of consolidated revenue in 1999.

                                       16
<PAGE>

         SELLING, GENERAL AND ADMINISTRATIVE EXPENSE increased by $2.6 
million or 27% in 1999 from $9.6 million in 1998 to $12.2 million in 1999, 
which included increased expenses of $2.4 million from business products and 
transportation services companies acquired. As a percentage of revenue, 
selling, general and administrative expenses have declined by 2.1% from 17.4% 
in 1998 to 15.3% in 1999. The reduced expenses in existing operations are 
primarily a result of the Company's continuing efforts and strategy to 
realize synergies from acquisitions by merging common administrative and 
support functions.

         DEPRECIATION AND AMORTIZATION EXPENSE increased $0.7 million in 1999 
from $0.8 million in 1998 to $1.5 million in 1999 due largely to the size and 
timing of the companies acquired since the beginning of 1998.

         INTEREST EXPENSE increased by $0.9 million or 315.8% during 1999, 
from $0.3 million in 1998 to $1.2 million in 1999 principally due to 
additional debt incurred by the Company in 1998 and 1999 to finance its 
business acquisitions.

         INCOME TAXES are provided at a 48.0% effective rate in 1999 compared 
to a 40.0% rate in 1998. This increase is due primarily to an increase in the 
level of non-deductible expenses, primarily goodwill amortization.

         NET INCOME FROM CONTINUING OPERATIONS increased by $0.7 million or 
123.4% in 1999, from $0.6 million in 1998 to $1.3 million in 1999, due to the 
reasons described above. Diluted earnings per share increased $0.06 from 
$0.10 in 1998 to $0.16 in 1999. Diluted earnings per share for the six months 
ended December 31, 1999 are not equal to the sum of the quarterly earnings 
per share due to the difference in the weighted average number of shares 
caused by the timing of acquisitions where common stock was used as part of 
the purchase consideration.

THREE MONTHS ENDED DECEMBER 31, 1998 COMPARED TO THREE MONTHS ENDED DECEMBER 
31, 1997

         REVENUE for 1999 increased by $18.5 million, or 70.2%, from $26.3 
million in 1998 to $44.8 million in 1999. In 1999, Business Products revenue 
increased by $13.1 million or 53.1% and Transportation Services revenue 
increased by $5.4 million or 330.6%. The increase in Business Products 
revenue was due to the acquisition of eight business products companies 
during fiscal years 1998 and 1999, which accounted for $9.5 million, and 
internal growth of $3.7 million. Business Products internal revenue grew 
15.0% for the second quarter of 1999. Of the total increase in Transportation 
Services revenue in 1999, $5.1 million was due to the acquisition of five 
transportation companies, one of which was acquired in the second quarter of 
fiscal year 1998, three of which were acquired at the end of the third 
quarter of fiscal year 1998 and one of which was acquired during the second 
quarter of fiscal 1999.

         COST OF GOODS SOLD for 1999 increased by $13.5 million, or 81.6%, 
from $16.5 million in 1998 to $30.0 million in 1999. Cost of goods sold for 
Business Products increased by $10.3 million, of which approximately $6.4 
million was due to companies acquired after the first quarter of fiscal year 
1998. Transportation Services cost of goods sold increased by $3.2 million 
due primarily to the five transportation companies acquired since the 
beginning of the second quarter of 1998. As a percentage of revenue, cost of 
goods sold for 1999 increased by 4.2% from 62.7% in 1998 to 66.9% in 1999. 
This percentage increase was primarily the result of proportionately higher 
sales of lower gross profit product categories and the effect of competitive 
pricing.

                                       17
<PAGE>

         SALES COMMISSIONS increased by $1.5 million, or 45.6%, in 1999, from 
$3.4 million in 1998 to $4.9 million in 1999 due primarily to the increased 
level of Business Products revenue. Sales commissions for the Business 
Products division decreased by 0.6% from 13.5% in 1998 to 12.9% in 1999 due 
to a lower level of gross profit, in proportion to revenue, during the second 
quarter of 1999. Total commission expense decreased by 1.9% from 12.8% in 
1998 to 10.9% in 1999 because the Transportation Services division 
contributed a higher proportion of consolidated revenue in 1999.

         SELLING, GENERAL AND ADMINISTRATIVE EXPENSE increased by $1.1 
million or 20.7% in 1999 from $5.6 million in 1998 to $6.7 million in 1999. 
Increased expenses of $2.1 million from business products and transportation 
services companies acquired were offset by $1 million in reduced expenses in 
existing business products and transportation companies. As a percentage of 
revenue, selling, general and administrative expenses have declined by 6.2% 
from 21.1% in 1998 to 14.9% in 1999. The reduced expenses in existing 
operations are primarily a result of the Company's continuing efforts and 
strategy to realize synergies from acquisitions by merging common 
administrative and support functions.

         DEPRECIATION AND AMORTIZATION EXPENSE increased $0.4 million in 1999 
from $0.5 million in 1998 to $0.9 million in 1999 due largely to the size and 
timing of the companies acquired in 1998 and the first two quarters of 1999.

         INTEREST EXPENSE increased by $0.6 million or 552.3% during 1999, 
from $0.1 million in 1998 to $0.7 million in 1999 principally due to 
additional debt incurred by the Company in 1998 and 1999 to finance its 
business acquisitions.

         INCOME TAXES are provided at a 48.0% effective rate in 1999 compared 
to a 40.0% rate in 1998. This increase is due primarily to an increase in the 
level of non-deductible expenses, primarily goodwill amortization.

         NET INCOME FROM CONTINUING OPERATIONS increased by $0.7 million or 
368.1% in 1999, from $0.2 million in 1998 to $0.8 million in 1999, due to the 
reasons described above.

LIQUIDITY AND CAPITAL RESOURCES

         NET CASH FLOWS FROM OPERATING ACTIVITIES. In the first six months of 
fiscal year 1999, the Company generated $2.0 million in cash from operations 
as compared to cash use of $1.6 million in the first six months of fiscal 
year 1998. During the first six months of 1999, the Company's net income, 
adjusted for non-cash depreciation and amortization charges, amounted to $2.9 
million. In addition, the Company reduced its working capital by $0.6 
million. During the first six months of 1998, the Company's net income from 
continuing operations generated the cash flow from operating activities as 
the Company maintained a relatively stable level of working capital.

         NET CASH FLOWS FROM INVESTING ACTIVITIES. During the first six 
months of fiscal year 1999, Precept used $8.2 million in cash for investing 
activities as compared to a use of $0.7 million for investing activities in 
the first six months of fiscal year 1998. During 1999, the Company acquired 
four products businesses and one corporate transportation service company and 
used $9.2 million in cash to finance these acquisitions and to pay for 
contingent consideration on previous acquisitions. In addition, the Company 
purchased $0.1 million of equipment for its existing operations. During 1998, 
the Company acquired three products distribution businesses 

                                       18
<PAGE>

and one corporate transportation service company for $0.4 million in cash and 
acquired $0.3 million of equipment.

         NET CASH FLOWS FROM FINANCING ACTIVITIES. In the first six months of 
1999, $6.6 million of cash was generated by financing activities as compared 
to $0.9 million of cash generated by financing activities in the first six 
months of fiscal year 1998. During the first six months of 1999, Precept 
increased its outstanding revolving line of credit balance by approximately 
$7.8 million, primarily to finance acquisitions. In addition, the Company 
repaid $1.1 million of existing long-term debt, including capital lease 
obligations. During the first six months of 1998, the Company increased its 
long-term debt and capital lease obligations by $0.2 million, increased its 
outstanding revolving line of credit balance by $0.5 million., and received 
$0.2 million in payments in shareholder notes receivable.

         Management believes that the current levels of operations and the 
cash flow from such operations, the existing revolving line of credit 
agreement and the available cash on hand at December 31, 1998 of $2.7 million 
will be adequate for fiscal year 1999 to make required payments of principal 
and interest on the Company's indebtedness, to fund anticipated capital 
expenditures of approximately $1.5 million for the remainder of fiscal year 
1999, and to meet working capital needs.

         The amount of debt available under the Company's current revolving 
line of credit is $25.0 million. The revolving line of credit bears interest 
at the lower of prime or LIBOR plus a margin range. The Company has the 
option of electing a prime or LIBOR based interest rate. The margin range is 
determined based on the Company's performance against certain ratios, 
primarily debt and interest coverage. Substantially all the Company's 
operating assets are pledged as collateral under this line of credit. As of 
February 8, 1999, the Company had approximately $25.0 million outstanding 
under the credit facility at an annual interest rate of approximately 8.5%.

         During the first quarter of fiscal year 1999, the Company modified 
its revolving line of credit from an asset-based facility to a cash flow 
based facility. Under terms of the revolving line of credit agreement, the 
Company may borrow up to $25.0 million with the availability determined by a 
2.75 multiple of pro forma EBITDA. EBITDA is defined as earnings before 
interest, taxes, depreciation and amortization. Such amount is adjusted, on a 
pro forma basis, for the EBITDA of companies acquired by Precept for the 
portion of a trailing twelve-month period when not owned by Precept. In 
addition, the pro forma EBITDA includes adjustments for certain costs, 
principally owners' compensation, which Precept identifies as non-recurring 
after the acquisition is completed. As of December 31, 1998, Precept's pro 
forma annual EBITDA amounted to $12.2 million. The Company is in the process 
of working with its current lender and other commercial lenders to implement 
a larger debt facility.

         During the first six months of fiscal year 1999 and through the date 
of this report, the Company has continued to evaluate the debt and equity 
capital markets. Based on current market conditions, the Company believes 
that financing strategies available in connection with incurring subordinated 
debt or a secondary offering of equity are unattractive. The Company is 
continuing to explore debt and equity financing strategies. Until favorable 
financing is available to the Company, it is likely that the rate at which 
the Company acquires companies will be reduced as compared with the rate of 
acquisitions in the first quarter of fiscal year 1999 or during fiscal year 
1998. It is also likely that the Company's rate of growth in revenue, 
operating income and net income related to acquisitions will likewise be 
reduced as compared to the first six months of fiscal year 1999 and fiscal 
year 1998.

                                       19
<PAGE>

OTHER

         INFLATION

         Certain of Precept's business product offerings, particularly paper 
products, have been and are expected to continue to be subject to significant 
price fluctuations due to inflationary and other market conditions. In the 
last five to ten years, the prices for commodity grades of paper have shown 
considerable volatility. Precept generally is able to pass such increased 
costs on to its customers through price increases, although it may not be 
able to adjust its prices immediately. Significant increases in paper and 
other costs in the future could materially affect Precept's profitability if 
these costs cannot be passed on to customers. In general, Precept does not 
believe that inflation has had a material effect on its results of operations 
in recent years. However, there can be no assurance that Precept's business 
will not be affected by inflation in the future.

         YEAR 2000 ISSUE

         During the second quarter of fiscal year 1999 as part of its year 
2000 review, the Company's management identified one additional subsidiary 
that has key information systems that may not be year 2000 compliant. The 
Company is in the process of working with its software vendors to determine 
if an upgrade to the key information systems will be sufficient to solve the 
year 2000 compliance issues. If the upgrade solution does not solve the 
compliance issues, the Company will implement a plan to integrate the 
subsidiary's operations into the Company's primary information system by the 
end of calendar year 1999. The Company's cost to resolve the year 2000 
compliance issues at this subsidiary is expected to range from $200,000 to 
$500,000 during the remainder of calendar year 1999.

         FINANCIAL ACCOUNTING STANDARDS

         The Financial Accounting Standards Board ("FASB") issued Statement 
of Financial Accounting Standards No. 133, ACCOUNTING FOR DERIVATIVE 
INSTRUMENTS AND HEDGING ACTIVITIES, that is effective for reporting periods 
beginning after June 15, 1999. As this statement requires only additional 
disclosures or does not cover matters relating to Precept, it will have no 
effect on Precept's financial position, results of operations or cash flows. 
Precept intends to adopt the disclosure requirements of this standard during 
its fiscal year ended June 30, 2000.

         DISCLOSURE ABOUT MARKET RISK

         The Company's revolving line of credit provides for interest to be 
charged at the prime rate or at a LIBOR rate plus a margin of 2.75%. Based on 
the Company's current level of outstanding revolving line of credit, a 1.0% 
change in interest rate would result in a $0.3 million annual change in 
interest expense. The remainder of the Company's debt is at fixed interest 
rates that are not subject to changes in interest rates. The Company does not 
own nor is the Company obligated for other significant debt or equity 
securities that would be affected by fluctuations in market risk.

FORWARD-LOOKING STATEMENTS

                  The Company is including the following cautionary statement 
in this Form 10-Q to make applicable and take advantage of the safe harbor 
provisions of the Private Securities Litigation Reform Act of 1995 for any 
forward-looking statements made by, or on behalf of, the 

                                       20
<PAGE>

Company. This section should be read in conjunction with the "Risk Factors 
Affecting the Company's Prospects" located in Item I of the Company annual 
report on Form 10-K for the year ended June 30, 1998. Forward-looking 
statements include statements concerning plans, objectives, goals, 
strategies, future events or performance, and underlying assumptions and 
other statements which are other than statements of historical facts. From 
time to time, the Company may publish or otherwise make available 
forward-looking statements of this nature. All such subsequent 
forward-looking statements, whether written or oral and whether made by or on 
behalf of the Company, are also expressly qualified by these customary 
statements. Certain statements contained herein are forward-looking 
statements and accordingly involve risks and uncertainties that could cause 
actual results or outcomes to differ materially from those expressed in the 
forward-looking statements. The forward-looking statements contained herein 
are based on various assumptions, many of which are based, in turn, upon 
further assumptions. The Company's expectations, beliefs and projections are 
expressed in good faith and are believed by the Company to have a reasonable 
basis, including without limitation, management's examination of historical 
operating trends, data contained in the Company's records and other data 
available from third parties, but there can be no assurance that management's 
expectations, beliefs or projections will result or be achieved or 
accomplished. In addition to the other factors and matters discussed 
elsewhere herein, the following are important factors that, in the view of 
the Company, could cause actual results to differ materially from those 
discussed in the forward-looking statements.

1.       Changes in economic conditions, in particular those that affect the 
         end users of business products and transportation services, primarily
         corporations.
2.       Changes in the availability and/or price of paper, in particular if
         increases in the price of paper are not passed along to the Company's
         customers.
3.       Changes in executive and senior management or control of the Company. 
4.       Inability to obtain new customers or retain existing customers.
5.       Significant changes in competitive factors, including product-pricing
         conditions, affecting the Company. 
6.       Governmental and regulatory actions and initiatives, including those 
         affecting financing.
7.       Significant changes from expectations in operating expenses.
8.       Occurrences affecting the Company's ability to obtain funds from
         operations, debt or equity to finance needed capital acquisitions and
         other investments.
9.       Significant changes in rates of interest, inflation or taxes.
10.      Significant changes in the Company's relationship with its employees
         and the potential adverse effects if labor disputes or grievance were
         to occur.
11.      Changes in accounting principles and/or the application of such 
         principles to the Company.
12.      Vendors and customers inability to address year 2000 issues on a 
         timely basis.

         The foregoing factors could affect the Company's actual results and 
could cause the Company's actual results during fiscal year 1999 and beyond 
to be materially different from any anticipated results expressed in any 
forward-looking statement made by or on behalf of the Company.

         The Company disclaims any obligation to update any forward-looking 
statements to reflect events or other circumstances after the date of this 
report on Form 10-Q.

DISCONTINUED OPERATIONS

         As part of its business strategy, Precept has decided to focus on 
its core businesses and discontinue certain non-core business operations. 
During the first six months of 1998, the losses from discontinued operations 
consisted principally of the losses from Precept Holdings, Inc., 

                                       21
<PAGE>

which owned and operated certain real estate related investments. In 
September 1998, the Company sold the remaining assets of its discontinued 
operations consisting of land, a building and an interest in a restaurant to 
the Company's majority shareholder for $1.2 million in cash.

ITEM 1   LEGAL PROCEEDINGS

         During the second quarter of fiscal year 1999 and through the date 
of this report, there have been no significant changes to the legal 
proceedings which affect the Company and are disclosed in the Company's Form 
10-K for the year ended June 30, 1998.

ITEM 2   CHANGES IN SECURITIES AND USE OF PROCEEDS

         As discussed more fully in Item 4 and as disclosed in the Company's 
Proxy to shareholders, a 1 for 7 reverse stock split was voted upon and 
approved by the Company's shareholders at the Company's annual shareholder 
meeting. In addition, the Company's shareholders approved an amendment to the 
Company's articles of incorporation to change the vote required for certain 
actions. The exhibits to this Form 10-Q include the Proxy and the amendment 
to the articles of incorporation.

ITEM 3   DEFAULTS BY THE COMPANY ON ITS SENIOR SECURITIES

         As of December 31, 1998, the Company was not in default of any of 
its debt or equity securities.

ITEM 4   RESULTS OF VOTES OF HOLDERS

         The Company's annual shareholder meeting was held in Dallas, Texas 
on November 11, 1998. At such meeting, the following proposals were voted 
upon and approved by the Company's shareholders. The Class B shareholder 
voted all 592,142 shares in favor of all four proposals.

<TABLE>
<CAPTION>
                                                                          Class A and Common Shares Voted
                                                                    -------------------------------------------
                                                                                                      Withheld/
Proposal   Description                                                For             Against         Abstained
--------   -----------                                              ---------         --------        ---------
<S>        <C>                                                      <C>               <C>             <C>
1.         Election of the following directors:                                                 
                    J. Livingston Kosberg                           6,179,680                           15,744
                    William W. Solomon, Jr.                         5,311,080                          884,344
                    Sheldon I. Stein                                6,179,247                           16,177
2.         Approval of a 1:7 reverse stock split.                   5,789,079         399,777            6,568
3.         Amendment to the Company's articles of
                    incorporation to change vote required
                    for certain actions.                            5,813,591         108,023          273,810
4.         Ratification of Ernst & Young LLP as independent
                    auditors for the fiscal year ending
                    June 30, 1999.                                  6,095,457          91,235            8,732
</TABLE>

ITEM 5   OTHER INFORMATION

         There is no other significant information that the Company believes 
should be disclosed in this report other than the information that is 
presented herein and by exhibit.


                                       22
<PAGE>

ITEM 6            EXHIBITS AND REPORTS ON FORM 8-K

ITEM 6(a)         EXHIBITS

<TABLE>
<CAPTION>
Exhibit No.       Description
-----------       -----------
<S>               <C>
2.1               Form of Amended and Restated Articles of Incorporation approved by the Company's 
                  shareholders and to be filed with the Texas Secretary of State. (1)
22.1              Form of Proxy mailed to the Company's shareholders in connection with the Company's 
                  annual shareholder meeting. (1)
27.1              Financial Data Schedule (2)
</TABLE>

(1)  Previously included with the Company's Form 10-Q filed November 12, 1998.
(2)  Included as an exhibit to this report.

ITEM 6(b)        REPORTS ON FORM 8-K FILED DURING THE PERIOD FROM  OCTOBER 1, 
                 1998 THROUGH FEBRUARY 12, 1999 (not filed as exhibits to this 
                 report)

         No reports on Form 8-K were filed during the period from October 1,
1998 through February 12, 1999.

                                       
                                   SIGNATURES

         Pursuant to the requirements of the Securities Exchange Act of 1934, 
the registrant has duly caused this report to be signed on its behalf by the 
undersigned thereunto duly authorized, as of February 12, 1999.

PRECEPT BUSINESS SERVICES, INC.


/s/ David L. Neely                          /s/ William W. Solomon, Jr.
-------------------------------------       -----------------------------------
David L. Neely                              William W. Solomon, Jr.
Chairman and Chief Executive Officer        Senior Vice President and Chief 
                                            Financial Officer








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