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

                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                   -----------

                                    FORM 10-Q

                   Quarterly Report Under Section 13 or 15(d)
                     of the Securities Exchange Act of 1934


(Mark One)

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

For the quarterly period ended   MARCH 31, 2001
                                ----------------

                                       OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
    ACT OF 1934.

For the transition period from                    to
                               ------------------    ------------------



                         Commission file number 0-30828

                         PRECISE SOFTWARE SOLUTIONS LTD.
             (Exact Name of Registrant as Specified in Its Charter)


           Israel                                      Not Applicable
(State or Other Jurisdiction                (I.R.S. Employer Identification No.)
       of Organization)

                                1 Hashikma Street
                        P.O. Box 88 Savyon, 56518 Israel
               (Address of Principal Executive Offices) (Zip Code)


Registrant's Telephone Number, Including Area Code  972-(3)-635-2566


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

           At May 9, 2001, 26,460,543 of the registrant's ordinary shares (par
value, 0.03 NIS per share) were outstanding.
================================================================================
                                      -1-
<PAGE>

                                    FORM 10-Q

                  FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001

                                TABLE OF CONTENTS

                                                                            PAGE
PART I:    FINANCIAL INFORMATION

   ITEM 1.    Consolidated Financial Statements:

      Condensed Consolidated Balance Sheets as of March 31,
        2001 (unaudited) and December 31, 2000...............................4-5

      Condensed Consolidated Statements of Operations (unaudited)
        for the three months ended March 31, 2001 and 2000.....................6

      Condensed Consolidated Statements of Cash Flows (unaudited)
        for the three months ended March 31, 2001 and 2000...................7-8

      Notes to Condensed Consolidated Financial Statements (unaudited)......9-13

   ITEM 2    Management's Discussion and Analysis of Financial
             Condition and Results of Operations...........................14-19

   ITEM 3    Quantitative and Qualitative Disclosures About Market Risk.......19

PART II.   OTHER INFORMATION

   ITEM 1.    Legal Proceedings...............................................20

   ITEM 2.    Changes in Securities and Use of Proceeds........................*

   ITEM 3.    Defaults Upon Senior Securities..................................*

   ITEM 4.    Matters Submitted to a Vote of Security Holders..................*

   ITEM 5.    Other Information................................................*

   ITEM 6.    Exhibits and Reports on Form 8-K................................20


SIGNATURES....................................................................21

*No information provided due to inapplicability of item.

                                      -2-
<PAGE>

                         PRECISE SOFTWARE SOLUTIONS LTD.

                                    FORM 10-Q

                          QUARTER ENDED March 31, 2001


                          PART I. FINANCIAL INFORMATION


ITEM 1.   FINANCIAL STATEMENTS
















                                      -3-
<PAGE>

                                PRECISE SOFTWARE SOLUTIONS LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS

                                                    DECEMBER 31,     MARCH 31,
                                                        2000            2001
                                                    -----------     -----------
                                                                     UNAUDITED
                                                                    -----------
    ASSETS

CURRENT ASSETS:
  Cash and cash equivalents                         $    82,218     $    77,695
  Marketable securities                                  39,261          43,999
  Trade receivables, net of allowance for doubtful
    accounts (2000 - $74, 2001 - $89)                     5,834           6,323
  Other accounts receivable and prepaid expenses          3,688           3,510
                                                    -----------     -----------

Total current assets                                    131,001         131,527
                                                    -----------     -----------

MARKETABLE SECURITIES, NON CURRENT                       27,931          27,240
                                                    -----------     -----------

SEVERANCE PAY FUND                                          540             544
                                                    -----------     -----------

PROPERTY AND EQUPIMENT, NET                               2,696           3,044
                                                    -----------     -----------

OTHER ASSETS, NET OF ACCUMULATED AMORTIZATION
  (2000 - $99, 2001 - $737)                              16,513          15,265
                                                    -----------     -----------

                                                    $   178,681     $   177,620
                                                    ===========     ===========

The accompanying notes are an integral part of the condensed consolidated
financial statements.

                                      -4-
<PAGE>


                                PRECISE SOFTWARE SOLUTIONS LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS (EXCEPT SHARE DATA)

                                                    DECEMBER 31,     MARCH 31,
                                                        2000            2001
                                                    -----------     -----------
                                                                     UNAUDITED
                                                                    -----------
    LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
  Trade payables                                    $     1,452     $       909
  Deferred revenues                                       3,351           3,828
  Employees and payroll accruals                          3,903           2,713
  Accrued expenses                                        1,342             914
  Other accounts payable                                    806             436
                                                    -----------     -----------

Total current liabilities                                10,854           8,800
                                                    -----------     -----------

LONG-TERM LIABILITIES:
  Long-term debt                                            120             111
  Accrued severance pay                                     831             932
                                                    -----------     -----------

Total long-term liabilities                                 951           1,043
                                                    -----------     -----------

SHAREHOLDERS' EQUITY:
  Ordinary shares and additional paid-in capital        195,610         195,371
  Deferred stock compensation                            (2,717)         (2,004)
  Accumulated other comprehensive loss                      330             728
  Accumulated deficit                                   (26,347)        (26,318)
                                                    -----------     -----------

Total shareholders' equity                              166,876         167,777
                                                    -----------     -----------

                                                    $   178,681     $   177,620
                                                    ===========     ===========

The accompanying notes are an integral part of the condensed consolidated
financial statements.

                                      -5-
<PAGE>


                                PRECISE SOFTWARE SOLUTIONS LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS (EXCEPT PER SHARE DATA)

                                                         THREE MONTHS ENDED
                                                              MARCH 31,
                                                    ---------------------------
                                                        2000            2001
                                                    -----------     -----------
Revenues:
   Software licenses                                $     3,588     $     9,446
   Services                                                 954           2,064
                                                    -----------     -----------

                                                          4,542          11,510
                                                    -----------     -----------
Cost of revenues:
   Software licenses                                        116              70
   Services                                                 356             745
                                                    -----------     -----------

                                                            472             815
                                                    -----------     -----------

Gross profit                                              4,070          10,695
                                                    -----------     -----------

Operating expenses:
   Research and development                               1,019           2,236
   Selling and marketing                                  3,754           7,633
   General and administrative                               609           1,552
   Amortization of goodwill and intangible assets             -             638
   Amortization of deferred stock compensation              780             713
                                                    -----------     -----------

Total operating expenses                                  6,162          12,772
                                                    -----------     -----------

Operating loss                                           (2,092)         (2,077)
Financial income, net                                        37           2,106
                                                    -----------     -----------

Net income (loss)                                   $    (2,055)    $        29
                                                    ===========     ===========
Net income (loss) per share:

   Basic net income (loss) per share                $     (0.62)    $         -
                                                    ===========     ===========
   Weighted average number of shares used in
     computing basic net income (loss) per share
                                                          3,299          25,822
                                                    ===========     ===========

   Diluted net income (loss) per share              $     (0.62)    $         -
                                                    ===========     ===========
   Weighted average number of shares used in
     computing diluted net income (loss) per share
                                                          3,299          29,413
                                                    ===========     ===========

The accompanying notes are an integral part of the condensed consolidated
financial statements.

                                      -6-
<PAGE>

                                PRECISE SOFTWARE SOLUTIONS LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS


<TABLE><CAPTION>
                                                                                      THREE MONTHS ENDED
                                                                                           MARCH 31,
                                                                                 ---------------------------
                                                                                     2000            2001
                                                                                 -----------     -----------
                                                                                          UNAUDITED
                                                                                 ---------------------------
<S>                                                                             <C>             <C>
Cash flows from operating activities:

   Net income (loss)                                                             $    (2,055)    $        29
   Adjustments to reconcile net income (loss) to net cash provided by (used in)
     operating activities:
     Depreciation and amortization                                                       127             274
     Amortization of debenture premium                                                     -             (89)
     Amortization of deferred stock-based compensation                                   780             713
     Amortization of goodwill and intangible assets                                        -             638
     Increase in accrued severance pay, net                                              109              97
     Decrease (increase) in trade receivables, net                                       733            (515)
     Decrease (increase) in other accounts receivable and prepaid expenses              (525)            166
     Increase (decrease) in trade payables                                                80            (530)
     Increase in deferred revenues                                                       352             500
     Increase (decrease) in employee and payroll accrual                                 364          (1,173)
     Increase (decrease) in other accounts payable and accrued expenses                  109            (787)
     Other                                                                                10               -
                                                                                 -----------     -----------

Net cash provided by (used in) operating activities                                       84            (677)
                                                                                 -----------     -----------

Cash flows from investing activities:

   Purchase of property and equipment                                                   (205)           (635)
   Purchase of marketable securities                                                       -         (17,529)
   Purchase of other assets                                                                -             (73)
   Payment for acquisition of consolidated subsidiary (1)                               (250)              -
   Proceeds from sale of short term deposits                                             888               -
   Proceeds from redemption of marketable securities                                                  13,000
   Proceeds from sale of marketable securities                                             -           1,000
                                                                                 -----------     -----------

Net cash provided by (used in) investing activities                              $       433     $   (4,237)
                                                                                 -----------     -----------

The accompanying notes are an integral part of the condensed consolidated
financial statements.
</TABLE>
                                      -7-
<PAGE>

                                PRECISE SOFTWARE SOLUTIONS LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS

<TABLE><CAPTION>
                                                                                      THREE MONTHS ENDED
                                                                                           MARCH 31,
                                                                                 ---------------------------
                                                                                     2000            2001
                                                                                 -----------     -----------
                                                                                          UNAUDITED
                                                                                 ---------------------------
<S>                                                                             <C>             <C>
Cash flows from financing activities:

   Short-term bank credit, net                                                   $       (27)    $         -
   Proceeds from exercise of options                                                       -             444
   Repayment of long-term debt                                                            (6)             (9)
                                                                                 -----------     -----------
Net cash provided by (used in) financing activities                                      (33)            435
                                                                                 -----------     -----------

Effect of exchange rate change on cash and cash equivalents                                -             (44)
                                                                                 -----------     -----------

Increase (decrease) in cash and cash equivalents                                         484          (4,479)
Cash and cash equivalents at the beginning of the period                               6,693          82,218
                                                                                 -----------     -----------

Cash and cash equivalents at the end of the period                               $     7,177     $    77,695
                                                                                 ===========     ===========

(1) In February 2000, the Company acquired all of the outstanding shares
    of Knight Fisk Software Ltd. The net estimated fair value of the
    assets acquired and liabilities assumed at the date of the
    acquisition was as follows:
      Working deficiency, except cash and cash equivalents                       $        (8)
      Property and equipment                                                              41
      Long-term loans and other                                                          (45)
      Goodwill                                                                           718
                                                                                 -----------

                                                                                         706
      Options granted                                                                   (199)
      Payables                                                                          (257)
                                                                                 -----------

                                                                                 $       250
                                                                                 ===========


           Supplemental disclosure of cash flows activities:

           Cash paid during the period for:
              Interest                                                           $         1     $         5
                                                                                 ===========     ===========

           Non cash transactions:
              Adjustment to Savant Corporation acquisition                       $         -     $       683
                                                                                 ===========     ===========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.

                                      -8-



<PAGE>
PRECISE SOFTWARE SOLUTIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


NOTE 1:    BASIS OF PRESENTATION

           a.    Company:

                 Precise Software Solutions Ltd. (together with its
                 subsidiaries, "the Company") was established in Israel on
                 November 15, 1990. The Company is a provider of software
                 products that assist organizations in monitoring and optimizing
                 their information technology infrastructure, and of related
                 consulting, training and support services.

           b.    Accounting:

                 The condensed consolidated financial statements have been
                 prepared by Precise Software Solutions Ltd., pursuant to the
                 rules and regulations of the Securities and Exchange Commission
                 and include the accounts of Precise Software Solutions Ltd. and
                 its wholly-owned subsidiaries collectively (the "Company").
                 Certain information and footnote disclosures, normally included
                 in financial statements prepared in accordance with generally
                 accepted accounting principles, have been condensed or omitted
                 pursuant to such rules and regulations. While in the opinion of
                 the Company, the unaudited financial statements reflect all
                 adjustments (consisting only of normal recurring adjustments)
                 necessary for a fair presentation of the financial position at
                 March 31, 2001 and the operating results and cash flows for the
                 three months ended March 31, 2001 and 2000. These financial
                 statements and notes should be read in conjunction with the
                 Company's audited consolidated financial statements and notes
                 thereto, included in the Company's annual report on Form 10-K
                 filed with the Securities and Exchange Commission.

                 The results of operations for the three months ended March 31,
                 2001 are not necessarily indicative of results that may be
                 expected for any other interim period or for the full fiscal
                 year ending December 31, 2001.


NOTE 2:    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

           a.    Cash, cash equivalents and short-term deposits:

                 The Company considers all highly liquid investment securities
                 with maturities from date of purchase of three months or less
                 to be cash equivalents.

           b.    Marketable securities:

                 Management determines the proper classification of investments
                 with fixed maturities and marketable equity securities at the
                 time of purchase and reevaluates such designations as of each
                 balance sheet date. At March 31, 2001, all securities covered
                 by SFAS No. 115, "Accounting for Certain Investments in Debt
                 and Equity Securities", were designated as available-for-sale.
                 Accordingly, these securities are stated at fair value, with
                 unrealized gains and losses reported in a separate component of
                 shareholders' equity, accumulated other comprehensive income.
                 Amortization of premium and accretion of discounts are included
                 in financial income, net. Realized gains and losses on sales of
                 investments, as determined on a specific identification basis,
                 are included in the consolidated statement of operations.

                                       9
<PAGE>

           c.    Other assets:

                 Acquired workforce, acquired technology, purchased customer
                 relationships, internet site capitalization costs and goodwill
                 are stated at amortized cost. Amortization is calculated using
                 the straight-line method over the estimated useful lives, which
                 are three to ten years.

           d.    Revenue recognition:

                 In December 1999, the SEC issued Staff Accounting Bulletin No.
                 101 (SAB 101) "Revenue Recognition in Financial Statements" as
                 amended in June 2000, which summarizes the Staff's views in
                 applying generally accepted accounting principles to revenue
                 recognition in financial statements. The Company adopted SAB
                 101 during the forth quarter of 2000. The adoption did not have
                 a significant effect on the Company's consolidated result of
                 operations or financial position.

                 Revenues from software sales are recognized in accordance with
                 SOP 97-2 "Software Revenue Recognition", as amended. License
                 revenues are comprised of perpetual license fees, which are
                 derived from contracts with original equipment manufacturers
                 ("OEM"), resellers, and end-customers. The Company and its
                 subsidiaries generally do not grant rights of return. When a
                 right of return exists, the Company and its subsidiaries defer
                 the revenues until such right expires. The Company is entitled
                 to fees from its OEMs upon the sublicensing of the Company's
                 products to end-users. Fees due from each OEM are recognized
                 when such fees are reported to the Company upon the
                 sublicensing of the products by the OEMs. License revenues from
                 sales to resellers and end-customers are recognized upon
                 delivery of the software (1) when collection is probable, (2)
                 all license payments are due within one year, (3) the license
                 fee is fixed or determinable, (4) vendor-specific objective
                 evidence exists, (5) and persuasive evidence of an arrangement
                 exists.

                 Service revenues are comprised of revenues from maintenance and
                 support arrangements, consulting fees, and training, none of
                 which are considered essential to the functionality of the
                 software license. Revenues from support arrangements are
                 deferred and recognized on a straight-line basis as service
                 revenues over the life of the related agreement. Consulting and
                 training revenues are recognized at the time the services are
                 rendered. Customer advances in excess of revenue recognized are
                 recorded as deferred revenues. The Company defers revenues
                 associated with new products until these products are generally
                 available.

                 Where software arrangements involve multiple elements, revenue
                 is allocated to each element based on vendor specific objective
                 evidence ("VSOE") of the relative fair values of each element
                 in the arrangement, in accordance with the "residual method"
                 prescribed by SOP 98-9 "Modification of SOP 97-2, Software
                 Revenue Recognition With Respect to Certain Transactions." The
                 Company's VSOE used to allocate the sales price to consulting,
                 training and maintenance is based on the price charged when
                 these elements are sold separately. License revenues are
                 recorded based on the residual method. Under the residual
                 method, revenue is recognized for the delivered elements when
                 (1) there is VSOE of the fair values of all the undelivered
                 elements other than those accounted for using long-term
                 contract accounting, and (2) all revenue recognition criteria
                 of SOP 97-2, as amended, are satisfied.


                                       10

<PAGE>




           e.    Impact of recently issued accounting standards:

                 The Financial Accounting Standards Board issued SFAS No. 133
                 ("SFAS 133"), "Accounting for Derivative Instruments and
                 Hedging Activities" ("SFAS No. 133") in June 1999 and its
                 amendments, statements 137 and 138, in June 1999 and June 2000,
                 respectively. These statements establish accounting and
                 reporting standards regarding derivative instruments (including
                 certain derivative instruments embedded in other contracts).
                 The statement and related rule applies to all fiscal quarters
                 of all fiscal years beginning after June 15, 2000. The Company
                 does not expect the impact of this new statement on the
                 Company's consolidated balance sheets or results of operations
                 to be material.


NOTE 3:  SHAREHOLDERS' EQUITY

<TABLE><CAPTION>

                Stock options plans:

                        The following table summarizes information about stock options outstanding as of March 31, 2001:


                                                                                                    WEIGHTED AVERAGE
                                                                         NUMBER OF OPTIONS           EXERCISE PRICE
                                                                        ---------------------     ---------------------

                       <S>                                              <C>                       <C>
                        Outstanding at December 31, 2000                      5,384,175                 $ 6.10
                        Granted                                               1,352,405                 $ 14.70
                        Exercised                                              (473,819)                $ 1.09
                        Forfeited                                              (208,780)                $ 13.53
                                                                        --------------------     ----------------------

                        Outstanding at March 31, 2001 (unaudited)             6,053,981                 $ 8.16
                                                                        ====================     ======================

</TABLE>

NOTE 4:  NET INCOME (LOSS) PER SHARE

                 Basic net income (loss) per share is computed based on the
                 weighted average number of Ordinary shares outstanding during
                 each period. Diluted net income (loss) per share is computed
                 based on the weighted average number of Ordinary shares
                 outstanding during each period, plus dilutive potential
                 Ordinary shares considered outstanding during the period, in
                 accordance with FASB Statement No. 128, "Earnings per Share".

                                       11

<PAGE>

                 The following table presents the calculation of unaudited basic
                 and diluted net income (loss) per share (in thousands except
                 per share amounts):

<TABLE><CAPTION>
                                                                                            THREE MONTHS ENDED
                                                                                                 MARCH 31,
                                                                                   --------------------------------------
                                                                                         2000                 2001
                                                                                   -----------------     ----------------
                                                                                                 UNAUDITED
                                                                                   --------------------------------------
                <S>                                                               <C>                  <C>
                Net income (loss)                                                   $    (2,055)         $           29
                                                                                   =================     ================

                Shares used in computing basic net income (loss) per share                3,299                25,822
                Effect of dilutive stock options                                              -                 3,591
                                                                                   -----------------     ----------------
                Shares used in computing diluted net income per share                     3,299                29,413
                                                                                   =================     ================

                Basic net income per share                                          $      (0.62)        $        -
                                                                                   =================     ================

                Diluted net income per share                                        $      (0.62)        $        -
                                                                                   =================     ================
</TABLE>



NOTE 5:  COMPREHENSIVE INCOME (LOSS)

                The components of comprehensive income (loss), are as follows:

<TABLE><CAPTION>
                                                                                                 THREE MONTHS ENDED
                                                                                                     MARCH 31,
                                                                                       ---------------------------------------
                                                                                             2000                  2001
                                                                                       ------------------    -----------------
                                                                                                         UNAUDITED
                                                                                        --------------------------------------

                <S>                                                                          <C>               <C>
                 Net income (loss)                                                            $ (2,055)         $       29

                 Other comprehensive income (loss):
                    Change in net unrealized gains on investments                                    -                 429
                    Change in exchange rate differences                                              -                 (31)
                                                                                        -----------------    -----------------

                 Total                                                                        $ (2,055)            $   427
                                                                                        =================    =================
</TABLE>


                                       12


<PAGE>



NOTE 6:  SEGEMENTS INFORMATION


           a.    Summary information about geographical areas (in thousands):

                 The Company operates in one industry segment, the development
                 and marketing of performance software products. Operations in
                 Israel include research and development, selling and marketing.
                 Operations in the United States include selling and marketing.
                 The following is a summary of operations within geographic
                 areas based on customer's location.

<TABLE><CAPTION>

                                                                                                     THREE MONTHS ENDED
                                                                                                         MARCH 31,
                                                                                         -------------------------------------------
                                                                                                 2000                    2001
                                                                                         ----------------------     ----------------
                                                                                                         UNAUDITED
                                                                                         -------------------------------------------
                              <S>                                                        <C>                       <C>
                               Revenues from sales to unaffiliated customers:
                                 U.S.A.                                                      $  3,364                $   5,930
                                 North and South America (except U.S.A)                           156                      589
                                 Asia                                                             323                    1,539
                                 Europe and others                                                699                    3,452
                                                                                         --------------------     ------------------

                                                                                             $  4,542                 $ 11,510
                                                                                         ====================     ==================

           b.    Summary information about geographical areas (in thousands):

                                                                                         DECEMBER 31,                 MARCH 31,
                                                                                                 2000                     2001
                                                                                         --------------------     ------------------
                                                                                         --------------------     ------------------
                                                                                                                      UNAUDITED
                                                                                                                  ------------------
                               Long-lived assets, by geographic region:
                                 Israel                                                     $   1,187               $    1,394
                                 United States                                                 16,613                   15,394
                                 Europe and others                                              1,409                    1,521
                                                                                         -------------------- --- ------------------
                                                                                         -------------------- --- ------------------

                                                                                             $ 19,209                $  18,309
                                                                                         ====================     ==================

           c.    Major customer data as a percentage of total revenues:

                                                                                                     THREE MONTHS ENDED
                                                                                                         MARCH 31,
                                                                                         -------------------------------------------
                                                                                                 2000                    2001
                                                                                         ----------------------     ----------------
                                                                                                         UNAUDITED
                                                                                         -------------------------------------------

                               Customer A                                                        7.1%                   18.7%
                               Customer B                                                       19.7%                   23.9%

</TABLE>
                                       13

<PAGE>

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

     This Form 10-Q contains certain statements of a forward-looking nature
relating to future events or the future financial performance of Precise
Software Solutions Ltd. ("Precise"). Precise's actual future results may differ
significantly from these statements. In evaluating these statements, the various
factors identified in the caption "Factors Affecting Future Operating Results"
should be considered.

OVERVIEW

     Precise is a provider of software that assists organizations in monitoring
and optimizing the performance of their complex Information Technology
infrastructure. We were incorporated in November 1990. Initially, we focused on
developing and marketing performance management software for mainframe computer
systems. In 1995, we shifted our focus from performance management software for
mainframe systems to Information Technology infrastructure performance
management software for Oracle database environments. In 1996, we released the
initial version of our Precise/SQL software for database monitoring. In 1998, we
released several new products, including our Precise/Pulse! software for
proactive monitoring, Precise/Presto for EMC software for monitoring databases
along with EMC storage systems and Precise/Interpoint software for monitoring
ERP applications. We introduced Precise/Insight and Precise/Foresight in April
2000 and February 2001, respectively.

     In February 2000, we completed the acquisition of all of the capital stock
of Knight Fisk Software Ltd., or Knight Fisk, our U.K.-based distributor, for
cash and options to purchase our ordinary shares. The business combination has
been accounted for using the purchase method and, accordingly, the purchase
price has been allocated to the fair value of the tangible assets acquired and
the liabilities assumed. Our total revenues and operating expenses from the U.K.
have increased due to the Knight Fisk acquisition.

    In December 2000, we completed the acquisition of all of the capital stock
of Savant Corporation for $16.6 million in a combination of cash and ordinary
shares. The business combination has been accounted for using the purchase
method and, accordingly, the purchase price has been allocated to the fair value
of the tangible assets acquired and the liabilities assumed.

    We derive our revenues from the sale of software licenses and from services,
consisting primarily of annual maintenance fees, and, to a lesser extent,
professional services. Our products are sold worldwide through a combination of
our direct sales force and indirect sales channels, including original equipment
manufacturers, or OEMs, and resellers. Our services revenues consist primarily
of fees derived from annual maintenance agreements.

    On January 1, 1998, we adopted American Institute of Certified Public
Accountants Statement of Position 97-2, or SOP 97-2, related to revenue
recognition for software products, and on March 15, 1999, we adopted SOP 98-9,
related to software arrangements involving multiple elements. During the fourth
quarter of 2000, we adopted Staff Accounting Bulletin No. 101 (SAB 101), which
summarizes the views of the staff of the U.S. Securities and Exchange Commission
in applying generally accepted accounting principles to revenue recognition.
Revenues from our OEM are recognized when we receive reports of fees due upon
the sublicensing of our products by the OEM. Software license revenues on sales
to resellers and end users are recognized when:

                     PERSUASIVE EVIDENCE OF AN AGREEMENT EXISTS;

                     THE PRODUCT HAS BEEN DELIVERED;

                     ALL LICENSE PAYMENTS ARE DUE WITHIN ONE YEAR;


                                       14
<PAGE>

                     VENDOR-SPECIFIC OBJECTIVE EVIDENCE EXISTS;

                     THE LICENSE FEE IS FIXED OR DETERMINABLE; AND

                     COLLECTION OF THE FEE IS PROBABLE.

    Maintenance-related service revenues are recognized ratably over the term of
the maintenance agreement, which is typically one year. Consulting and training
revenues are recognized at the time the services are rendered.

     Where software arrangements involve multiple elements, revenue is allocated
to each element based on vendor specific objective evidence, or VSOE, of the
relative fair values of each element in the arrangement in accordance with the
"residual method" prescribed by SOP 98-9. Our VSOE used to allocate the sales
price to training and maintenance is based on the price charged when these
elements are sold separately. License revenues are recorded based on the
residual method. Under the residual method, revenue is recognized for the
delivered elements when (1) there is VSOE of the fair values of all the
undelivered elements other than those accounted for using long term contract
accounting and (2) all revenue recognition criteria of SOP 97-2, as amended, are
satisfied.

     Our condensed consolidated financial statements, which are included
elsewhere in this report, are prepared in accordance with U.S. generally
accepted accounting principles. The functional currency of our operations is the
U.S. dollar, which is the primary currency in the economic environment in which
we conduct the majority of our business. We have operations in the U.S., the
U.K., Israel, Benelux, Australia, Germany and France where business is usually
conducted using the local currencies. We do not engage in any currency or
exchange rate hedging activities to mitigate our exposure to these fluctuations.
We may, however, engage in these types of transactions in the future.


RESULTS OF OPERATIONS

     The following table presents certain consolidated statement of operations
data as a percentage of total revenues for the periods indicated:

                                                   Three months ended March 31,
Percent of Total Revenues:                             2000            2001
                                                       ----            ----
  Revenues:
   Software licenses...............................     79.0%          82.1%
   Services........................................     21.0           17.9
                                                        ----           ----
       Total revenues..............................     100.0          100.0
  Cost of revenues:
   Software licenses...............................      2.6            0.6
   Services........................................      7.8            6.5
                                                         ---            ---
       Total cost of revenues......................     10.4            7.1
                                                        ----            ---
Gross profit.......................................     89.6           92.9
Operating expenses:
  Research and development.........................     22.4           19.4
  Sales and marketing..............................     82.7           66.3
  General and administrative                            13.4           13.5
  Amortization of deferred stock compensation......
                                                        17.2            6.2
  Amortization of goodwill and intangible assets        0.0             5.5
                                                        ---             ---
       Total operating expenses....................     135.7          110.9
                                                        -----          -----
Operating loss.....................................    (46.1)         (18.0)
Financial income, net..............................      0.8           18.3
                                                         ---           ----
Net income (loss)..................................    (45.3)%         0.3%
                                                       =====           ===

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<PAGE>

REVENUES

     We derive our revenues from the sale of software licenses and from services
consisting primarily of maintenance fees, and, to a lesser extent, professional
services. Total revenues were $11.5 million for the three months ended March 31,
2001 and $4.5 million for the comparable quarter of 2000, representing an
increase of $7.0 million, or 153%.

     Revenues from sales of software licenses were $9.4 million for the three
months ended March 31, 2001 and $3.6 million for the comparable quarter of 2000,
representing an increase of $5.8 million, or 163%. The increase in software
license revenues during these periods is attributable to the expansion of our
direct sales force and indirect sales channels, recurring sales to our installed
customer base, an increased average deal size, and the strength of our OEM
relationship.

     Revenues from services were $2.1 million for the three months ended March
31, 2001 and $1.0 million for the comparable quarter of 2000, representing an
increase of $1.1 million, or 116%. The increase in services revenue is
attributable to additional maintenance agreements in the amount of approximately
$0.8 million resulting from new sales of software licenses and renewals of
annual maintenance agreements with existing customers. The professional
consulting business was expanded in 2000, and resulted in an increase of
approximately $0.3 million in consulting revenue for the first quarter of 2001
over the comparable quarter of 2000.

COST OF REVENUES

     Cost of revenues consists of costs associated with generating software
license and service revenues. Cost of revenues was $0.8 million for the three
months ended March 31, 2001 and $0.5 million for the comparable quarter of 2000,
representing an increase of $0.3 million, or 73%. Cost of revenues as a
percentage of total revenues was 7% for the three months ended March 31, 2001
and 10% for the comparable quarter of 2000.

     Cost of software license revenues consists primarily of royalties to the
government of Israel as consideration for royalty-bearing marketing and research
and development grants received in previous years and, to a lesser extent,
production costs. Cost of software license revenues was $70,000 for the three
months ended March 31, 2001 and $116,000 for the comparable quarter of 2000,
representing a decrease of $46,000, or 40%. The decrease is due to a decrease in
royalties accrued in connection with royalty-bearing marketing grants, as these
grants have been fully expensed. In addition, the decrease is due to a decrease
in the royalties accrued to the Chief Scientist of the Ministry of Industry and
Trade. The royalty was 3.5% on sales of products developed with the funds
provided by the Chief Scientist, and the last portion of royalties owed relating
to this grant were fully expensed in Q1 of 2001. Cost of software license
revenues as a percentage of total software license revenues was 1% for the three
months ended March 31, 2001 and 3% for the comparable quarter in 2000.

     Cost of service revenues consists primarily of costs related to personnel
providing customer support and professional services. Cost of service revenues
was $745,000 for the three months ended March 31, 2001 and $356,000 for the
comparable quarter of 2000, representing an increase of $389,000, or 109%. The
increases are due to the continued increase in the number of customer support
personnel hired to service our growing customer base and to the hiring of
additional personnel to provide professional services. Cost of service revenues
as a percentage of service revenues was 36% in the three months ended March 31,
2001 and 37% in the comparable quarter of 2000.

RESEARCH AND DEVELOPMENT

     Research and development expenses consist primarily of costs related to
research and development personnel, including salaries and other
personnel-related expenses, sub-contracting fees, facilities and computer
equipment used in our product and technology development. Research and
development expenses were $2.2 million for the three months ended March 31, 2001
and $1.0 million for the comparable

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<PAGE>

period of 2000, representing an increase of $1.2 million, or 119%. The increases
were primarily related to the increase in the number of software developers and
quality assurance personnel engaged in the continuing enhancement of our
software suite. Research and development expenses as a percentage of total
revenues were 19% in the three months ended March 31, 2001 and 22% in the
comparable quarter of 2000. We expect the amount of research and development
expenses to increase as we extend the functionality and development of our
software and as we hire additional personnel.

SALES AND MARKETING

     Sales and marketing expenses consist primarily of salaries and other
personnel-related expenses, commissions and other costs associated with our
sales and marketing efforts. Sales and marketing expenses were $7.6 million for
the three months ended March 31, 2001 and $3.7 million for the comparable
quarter of 2000, representing an increase of $3.9 million, or 103%. These
increases are attributable to the additional commission expenses from the
increase in software license revenues, increased travel expenditures, and an
increase in payroll and related expenses attributable to the increase in the
number of people comprising our direct sales force. Sales and marketing expenses
as a percentage of total revenues were 66% for the three months ended March 31,
2001 and 83% for the comparable period of 2000. We expect the amount of sales
and marketing expenses to increase as we expand our geographic reach and hire
additional personnel.

GENERAL AND ADMINISTRATIVE

     General and administrative expenses consist primarily of salaries and other
personnel-related expenses from our administrative and finance personnel,
facilities, computer equipment and professional services fees. General and
administrative expenses were $1.5 million for the three months ended March 31,
2001 and $0.6 million for the comparable quarter of 2000, representing an
increase of $0.9 million, or 155%. These increases are attributable to the
increased personnel in our finance department and the increase in professional
fees. General and administrative expenses as a percentage of total revenues were
14% for the three months ended March 31, 2001 and 13% for the comparable quarter
in 2000.

AMORTIZATION OF STOCK-BASED COMPENSATION

     Deferred stock-based compensation represents compensation costs related to
the grant of options to purchase ordinary shares at less than fair market value.
Our stock-based compensation expenses decreased from $0.8 million for the three
months ended March 31, 2000 to $0.7 million for the three months ended March 31,
2001, representing a decrease of $0.1 million, or 9%. The deferred compensation
is amortized over the vesting schedule of the underlying options, generally
three to four years. The decrease is due to a portion of the deferred
compensation balance being fully amortized at March 31, 2001. We had a $2.0
million deferred compensation balance at March 31, 2001.

AMORTIZATION OF GOODWILL AND INTANGIBLE ASSETS

     The goodwill and intangible asset amortization consists primarily of
charges to expense relating to reducing the goodwill related to the purchases of
Knight Fisk and Savant Corporation. There was no amortization expense relating
to the quarter ended March 31, 2000. Due to acquisitions and intangible asset
purchases during fiscal year 2000, our amortization expense was $0.6 million for
the three months ended March 31, 2001.

FINANCIAL INCOME, NET

     Financial income, net was $2.1 million for the three months ended March 31,
2001 and $37,000 for the comparable quarter of 2000, representing an increase of
$2.1 million. The increase is attributable to interest earned on the investment
of the initial public offering and secondary offering proceeds in marketable
securities.

                                       17
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

     Since our inception, we have funded operations primarily through the sales
of our equity securities, including cash generated from our initial public
offering, in June 2000, and our secondary public offering, in November 2000,
which resulted in total net proceeds of approximately $147 million, the issuance
of convertible notes to shareholders and, to a lesser extent, borrowings from
financial institutions. As of March 31, 2001, our principal source of liquidity
was $149 million of cash and cash equivalents and marketable securities. As of
March 31, 2001, we had $111,000 of debt outstanding relating to obligations
under capital leases and an obligation for severance pay to Israeli employees of
$0.9 million that is fully provided by monthly deposits with severance pay
funds, insurance policies and by an accrual. As of March 31, 2001, our
accumulated net deficit was $26.3 million.

     Net cash used in operating activities for the three months ended March 31,
2001 was $0.7 million compared to $84,000 in cash provided from operating
activities for the three months ended March 31, 2000. Net cash used in operating
activities for the three months ended March 31, 2001 was primarily the result of
decreases in accounts payable, employees and payroll accruals and accrued
expenses, an increase in trade receivables, offset by amortization of deferred
stock-based compensation, amortization of goodwill and intangible assets, and an
increase in deferred revenue for the period. Net cash provided in operating
activities for the three months ended March 31, 2000 was primarily the result of
a decrease in trade receivables, amortization of deferred stock-based
compensation, an increase in deferred revenue, increased accruals, offset by an
increase in other accounts receivables and prepaid expenses, and the net loss
for the period.

     Net cash used in investing activities for the three months ended March 31,
2001 was $4.2 million compared to $0.4 million in cash provided from investing
activities for the three months ended March 31, 2000. Investing activities for
the three months ended March 31, 2001 consisted of $17.5 million in purchases of
short-term and long-term marketable securities, $0.6 million related to capital
expenditures, offset by $14.0 million in proceeds from the redemption and sale
of marketable securities. Net cash provided by investing activities for the
three months ended March 31, 2000 consisted of $0.9 million in proceeds from the
sale of short-term deposits, offset by $0.2 million in capital expenditures and
$0.3 million in payments relating to the Knight Fisk acquisition. The majority
of our capital investments were for computers, peripheral equipment and
software.

     Net cash provided by financing activities for the three months ended March
31, 2001 was $0.4 million compared to $33,000 in cash used for financing
activities for the three months ended March 31, 2000. Net cash provided by
financing activities for the three months ended March 31, 2001 was primarily
from the proceeds from the exercise of options. Net cash used in financing
activities for the three months ended March 31, 2000 was primarily from the
repayment of short-term bank credit.

     We believe that our existing cash equivalents and marketable securities
will be sufficient to meet our anticipated cash needs for working capital and
capital expenditures for at least the next 12 months. Thereafter, if we do not
have available sufficient cash to finance our operations, we may be required to
obtain additional debt or equity financing. We cannot be certain that we will be
able to obtain, if required, additional financing on acceptable terms, or at
all.

FACTORS AFFECTING FUTURE OPERATING RESULTS

     This Form 10-Q contains forward-looking statements that involve risks and
uncertainties. These forward-looking statements include management's plans and
objectives for future operations, as well as statements regarding the strategy
and plans of Precise. Precise's actual experience may differ materially from
those discussed in the forward-looking statements. Factors that might cause such
a difference include the size, timing and recognition of revenue from major
customers; the status of Precise's continuing relationship with Oracle; the
status of Precise's continuing relationships with EMC, Amdocs and other sellers
of Precise product; the ability to establish and effectively manage indirect
distribution channels; the continued development of the market for Oracle
databases and related applications software; market

                                       18
<PAGE>

acceptance of new product offerings and Precise's ability to predict and respond
to market developments; the failure to keep pace with the rapidly changing
requirements of its customers; Precise's ability to attract and retain key
personnel; the development and expansion of Precise's direct sales force; risks
associated with management of growth; Precise being held liable for defects or
errors in its products; political, economic and business fluctuations in Israel
and Precise's international markets; as well as risks of downturns in economic
conditions generally, and in the information technology and software industries
specifically, and risks associated with competition, and competitive pricing
pressures. For a more detailed description of the risk factors associated with
Precise, please refer to Precise's Annual Report on Form 10-K filed with the
Securities and Exchange Commission.


ITEM 3.  QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK

     We own financial instruments that are sensitive to market risks as part of
our investment portfolio. The investment portfolio is used to preserve our
capital until it is required to fund operations, including research and
development activities. None of these market-risk sensitive instruments are held
for trading purposes. We do not own derivative financial instruments in our
investment portfolio. The investment portfolio contains instruments that are
subject to the risk of a decline in interest rates.

     Our investment portfolio includes debt instruments that are United States
government obligations. These investments are subject to interest rate risk, and
could decline in value if interest rates fluctuate. We do not engage in currency
hedging activities and hold no foreign currency related derivative instruments
that would subject our financial condition or results of operations to risks
associated with foreign currency exchange rate fluctuations. We do, however,
incur a portion of our expenditures in foreign currencies, such as NIS and
British pound sterling, that could cause our results of operations to fluctuate.

















                                       19
<PAGE>

                           PART II. OTHER INFORMATION

ITEM 1.   LEGAL PROCEEDINGS

     Precise is not a party to any material pending legal proceedings, other
than ordinary routine litigation incidental to its business.


ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K

     Precise did not file any current reports on Form 8-K during the quarter
ended March 31, 2001.






















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<PAGE>

                                   SIGNATURES

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


                                   PRECISE SOFTWARE SOLUTIONS LTD.


Date  05/14/01                  By  /s/ Shimon Alon
    -------------------------      ---------------------------------------------
                                   Shimon Alon, Chief Executive Officer


Date  05/14/01                  By  /s/ J. Benjamin Nye
    -------------------------      ---------------------------------------------
                                   J. Benjamin H. Nye, Chief Financial Officer

Date  05/14/01                  By  /s/ Dror Elkayam
    -------------------------      ---------------------------------------------
                                   Dror Elkayam, Chief Accounting Officer

























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