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

                       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

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

         For the quarterly period ended SEPTEMBER 30, 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 of             (I.R.S. Employer Identification No.)
          Organization)

                              10 Hata'Asiya Street
                     P.O. Box 1066, Or-Yehuda, 60408 Israel
                     --------------------------------------
               (Address of Principal Executive Offices) (Zip Code)

Registrant's Telephone Number, Including Area Code  972-(3)-634-5111
                                                    ----------------
                                1 Hashikma Street
                        P.O. Box 88 Savyon, 56518 Israel
                        --------------------------------
          (Former Name or Former Address, if Changed Since Last Report)

         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 November 13, 2001, 27,867,503 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 SEPTEMBER 30, 2001

                                TABLE OF CONTENTS

                                                                            PAGE
PART I:    FINANCIAL INFORMATION

     ITEM 1.  Consolidated Financial Statements:

          Condensed Consolidated Balance Sheets as of September 30,
          2001 (unaudited) and December 31, 2000............................4-5

          Condensed Consolidated Statements of Operations (unaudited)
          for the three and nine months ended September 30,
          2001 and 2000.......................................................6

          Condensed Consolidated Statements of Cash Flows (unaudited)
          for the nine months ended September 30, 2001 and 2000.............7-8

          Notes to Condensed Consolidated Financial
          Statements (unaudited)...........................................9-15

     ITEM 2   Management's Discussion and Analysis of Financial
              Condition and Results of Operations.........................15-21

     ITEM 3   Quantitative and Qualitative Disclosures About Market Risk.....21

PART II.   OTHER INFORMATION

     ITEM 1.  Legal Proceedings..............................................22

     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...............................22


SIGNATURES...................................................................23


*No information provided due to inapplicability of item.

                                       2
<PAGE>

                         PRECISE SOFTWARE SOLUTIONS LTD.
                                    FORM 10-Q
                        QUARTER ENDED SEPTEMBER 30, 2001

                         PART I. FINANCIAL INFORMATION

ITEM 1.   FINANCIAL STATEMENTS

                                PRECISE SOFTWARE SOLUTIONS LTD. AND SUBSIDIARIES


CONDENSED CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS
<TABLE><CAPTION>
                                                                     DECEMBER 31,          SEPTEMBER 30,
                                                                         2000                  2001
                                                                     ------------          ------------
                                                                        AUDITED             UNAUDITED
                                                                     ------------          ------------
<S>                                                                  <C>                   <C>
   ASSETS

CURRENT ASSETS:
  Cash and cash equivalents                                          $     82,218          $     43,071
  Marketable securities                                                    39,261                38,093
  Trade receivables, net of allowance for doubtful accounts
   (2000 - $74, 2001 - $182)                                                5,834                10,046
  Other accounts receivable and prepaid expenses                            3,688                 3,787
                                                                     ------------          ------------

Total current assets                                                      131,001                94,997
                                                                     ------------          ------------

MARKETABLE SECURITIES, NON CURRENT                                         27,931                53,611
                                                                     ------------          ------------

SEVERANCE PAY FUND                                                            540                   639
                                                                     ------------          ------------

PROPERTY AND EQUPIMENT, NET                                                 2,696                 4,415
                                                                     ------------          ------------

GOODWILL AND INTANGIBLE ASSETS, NET OF ACCUMULATED
AMORTIZATION (2000 - $99, 2001 - $2,224)                                   16,513                46,497
                                                                     ------------          ------------
OTHER ASSETS                                                                 --                     590
                                                                     ------------          ------------

                                                                     $    178,681          $    200,749
                                                                     ============          ============


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



                                       4
<PAGE>
                                PRECISE SOFTWARE SOLUTIONS LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS
<TABLE><CAPTION>
                                                                     DECEMBER 31,           SEPTEMBER 30,
                                                                         2000                   2001
                                                                     ------------           ------------
                                                                       AUDITED               UNAUDITED
                                                                     ------------           ------------
<S>                                                                  <C>                   <C>
   LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
  Trade payables                                                     $      1,452           $      1,682
  Deferred revenues                                                         3,351                  5,522
  Employees and payroll accruals                                            3,903                  5,588
  Accrued expenses                                                          1,342                  2,477
  Other accounts payable                                                      806                    593
                                                                     ------------           ------------

Total current liabilities                                                  10,854                 15,862
                                                                     ------------           ------------

LONG-TERM LIABILITIES:
  Other long-term debt                                                        120                    193
  Accrued severance pay                                                       831                  1,020
                                                                     ------------           ------------

Total long-term liabilities                                                   951                  1,213
                                                                     ------------           ------------

SHAREHOLDERS' EQUITY:
  Ordinary shares and additional paid-in capital                          195,610                208,842
  Deferred stock compensation                                              (2,717)                (1,019)
  Accumulated other comprehensive income                                      330                  1,507
  Accumulated deficit                                                     (26,347)               (25,656)
                                                                     ------------           ------------

Total shareholders' equity                                                166,876                183,674
                                                                     ------------           ------------

                                                                     $    178,681           $    200,749
                                                                     ============           ============

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



                                       5
<PAGE>

                                PRECISE SOFTWARE SOLUTIONS LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS (EXCEPT PER SHARE DATA)
<TABLE><CAPTION>
                                                               THREE MONTHS ENDED                NINE MONTHS ENDED
                                                                  SEPTEMBER 30,                    SEPTEMBER 30,
                                                           -------------------------         -------------------------
                                                             2000             2001             2000             2001
                                                           --------         --------         --------         --------
                                                                                    UNAUDITED
                                                           -----------------------------------------------------------
<S>                                                        <C>              <C>             <C>              <C>
Revenues:
  Software licenses                                        $  6,412         $ 11,300         $ 14,875         $ 30,741
  Services                                                    1,227            3,028            3,051            7,804
                                                           --------         --------         --------         --------
          Total revenues                                      7,639           14,328           17,926           38,545
                                                           --------         --------         --------         --------
Cost of revenues:
  Software licenses                                             187               69              484              181
  Services                                                      407              766            1,174            2,213
                                                           --------         --------         --------         --------
          Total cost of revenues                                594              835            1,658            2,394
                                                           --------         --------         --------         --------

Gross profit                                                  7,045           13,493           16,268           36,151
                                                           --------         --------         --------         --------
Operating expenses:
  Research and development                                    1,386            2,850            3,437            7,774
  Sales and marketing                                         5,478            8,688           13,787           24,442
  General and administrative                                  1,240            1,887            2,577            5,025
   Amortization of intangible assets and in-process
   research and development                                      33              833               63            2,125
   Amortization of deferred stock compensation                1,235              404            4,953            1,586
                                                           --------         --------         --------         --------

Total operating expenses                                      9,372           14,662           24,817           40,952
                                                           --------         --------         --------         --------

Operating loss                                               (2,327)          (1,169)          (8,549)          (4,801)
Financial income, net                                         1,236            1,621            1,372            5,492
                                                           --------         --------         --------         --------

Net income (loss)                                          $ (1,091)        $    452         $ (7,177)        $    691
                                                           ========         ========         ========         ========
Net income (loss) per share:

   Basic net income (loss) per share                       $  (0.05)        $   0.02         $  (0.76)        $   0.03
                                                           ========         ========         ========         ========
   Weighted average number of shares used in
   computing basic net income (loss) per share               21,571           26,942            9,451           26,390
                                                           ========         ========         ========         ========

   Diluted net income (loss) per share                     $  (0.05)        $   0.02         $  (0.76)        $   0.02
                                                           ========         ========         ========         ========
   Weighted average number of shares used in
   computing diluted net income (loss) per share             21,571           29,757            9,451           29,710
                                                           ========         ========         ========         ========

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

</TABLE>
                                       6
<PAGE>

                                PRECISE SOFTWARE SOLUTIONS LTD. AND SUBSIDIARIES

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

<TABLE> <CAPTION>
                                                                                            NINE MONTHS ENDED
                                                                                               SEPTEMBER 30,
                                                                                        ---------------------------
                                                                                          2000               2001
                                                                                        --------           --------
                                                                                                 UNAUDITED
                                                                                        ---------------------------
<S>                                                                                     <C>               <C>
Cash flows from operating activities:

  Net income (loss)                                                                     $ (7,177)          $    691
  Adjustments to reconcile net income (loss) to net cash provided by (used in)
    operating activities:
    Depreciation                                                                             341                923
     Amortization of debenture premium                                                      --                  (37)
    Amortization of deferred stock compensation                                            4,953              1,586
     Amortization of intangible assets and in-process research and development                63              2,125
    Decrease (increase) in trade receivables, net                                            703             (3,562)
    Decrease (increase) in other accounts receivable and prepaid expenses                 (2,831)               701
    Increase in other assets                                                                --                 (109)
    Increase (decrease) in trade payables                                                  1,104               (235)
     Increase in deferred revenues                                                           455                953
     Increase in employees and payroll accruals                                              177              1,462
    Increase in accrued expenses                                                             909              1,004
    Increase (decrease) in other accounts payable                                            193               (818)
    Increase in accrued severance pay, net                                                   119                 90
     Other                                                                                     9               --
                                                                                        --------           --------

Net cash provided by (used in) operating activities                                         (982)             4,774
                                                                                        --------           --------

Cash flows from investing activities:

  Purchase of property and equipment                                                      (1,337)            (2,170)
  Purchase of marketable securities                                                      (55,173)           (67,638)
  Purchase of other assets                                                                  (112)            (1,315)
  Payment for acquisition of consolidated subsidiary                                        (507)              --
  Payment for acquisition of consolidated subsidiary (1)                                    --              (20,120)
  Proceeds from sale of short term deposits                                                  888               --
   Proceeds from redemption of marketable securities                                        --               41,210
  Proceeds from sale of marketable securities                                               --                3,785
                                                                                        --------           --------

Net cash used in investing activities                                                   $(56,241)          $(46,248)
                                                                                        --------           --------



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>
                                                                            NINE MONTHS ENDED
                                                                              SEPTEMBER 30,
                                                                     -------------------------------
                                                                        2000                 2001
                                                                     ----------           ----------
                                                                                UNAUDITED
                                                                     -------------------------------
<S>                                                                  <C>                 <C>
Cash flows from financing activities:

  Short-term bank credit, net                                        $      (24)          $     --
   Proceeds from issuance of shares, net                                 75,948                 --
   Proceeds from exercise of options, net                                   304                2,285
  Repayment of long-term debt                                              (251)                 (20)
                                                                     ----------           ----------

Net cash provided by financing activities                                75,977                2,265
                                                                     ----------           ----------

Effect of exchange rate change on cash and cash equivalents                --                     62
                                                                     ----------           ----------

Increase (decrease) in cash and cash equivalents                         18,754              (39,147)
Cash and cash equivalents at the beginning of the period                  6,693               82,218
                                                                     ----------           ----------

Cash and cash equivalents at the end of the period                   $   25,447           $   43,071
                                                                     ==========           ==========

(1)   Payment for acquisition of consolidated subsidiary:

        In September 2001, the Company acquired all of the outstanding
        ordinary shares of W. Quinn Associates, Inc.  The net fair value
        of the assets acquired was as follows:

        Working deficiency, except cash and cash equivalents                                    (478)
         Fixed assets                                                                            475
         Long term loans                                                                         (93)
         Other assets                                                                            481
         Intangible assets                                                                    32,134
         In-process research and development                                                      86
                                                                                          ----------
                                                                                              32,605
         Issuance of shares, net                                                             (12,485)
                                                                                          ----------
                                                                                              20,120

         Supplemental disclosure of cash flows activities:
         -------------------------------------------------

         Cash paid during the period for:

           Interest                                                  $        1           $       14
                                                                     ==========           ==========
         Non cash transactions:
            Adjustment to Savant Corporation acquisition, net        $        -           $    1,426
                                                                     ==========           ==========

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



                                       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 accompanying condensed interim consolidated financial
                     statements have been prepared by Precise Software Solutions
                     Ltd. in accordance with generally accepted accounting
                     principles in the United States, 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. Certain
                     information and footnote disclosures, normally included in
                     financial statements prepared in accordance with generally
                     accepted accounting principles in the United States, have
                     been condensed or omitted pursuant to such rules and
                     regulations. 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 September 30,
                     2001 and the operating results and cash flows for the nine
                     months ended September 30, 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, as amended, filed with the Securities and
                     Exchange Commission.

                     The results of operations for the three and nine months
                     ended September 30, 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.

              c.     Reclassification:

                     Certain prior period amounts have been reclassified to
                     conform to current period presentation.

NOTE 2:       ACQUISITION OF W. QUINN ASSOCIATES, INC.

                     In September 2001, the Company acquired all the outstanding
                     ordinary shares of W. Quinn Associates ("W. Quinn") in
                     consideration of approximately $34.1 million. The total
                     purchase price consisted of $21.6 million paid in cash and
                     $12.5 million paid in the form of 774,413 ordinary shares.
                     The consideration included $1.5 million of transaction
                     costs, consisting primarily of legal, finders fee,
                     accounting, and valuation fees.

                     In addition, W. Quinn's shareholders received the right to
                     receive additional ordinary shares in an amount equal to
                     $17.5 million, based on the achievement of certain
                     post-acquisition revenue and performance targets relating
                     to the next year. The acquisition of W. Quinn was accounted
                     for under the purchase method.

                                       9
<PAGE>

                     In connection with the W. Quinn acquisition, the Company
                     recorded a one-time expense of $86,000 to write-off
                     software acquired from W. Quinn for which technological
                     feasibility has not yet been established and for which no
                     alternative future use exists.

                     The Company acquired tangible assets amounting to $1.9
                     million. Other intangible assets acquired had an estimated
                     fair value of $32.1 million. Based upon the preliminary
                     valuation of tangible and intangible assets acquired,
                     Precise has allocated the total cost of the acquisition to
                     W. Quinn assets as follows:

                                                                SEPTEMBER 30,
                                                                    2001
                                                             ------------------
                                                              (IN THOUSANDS)
                                                             ------------------
                                                                 UNAUDITED
                                                             ------------------
                         Intangible assets, patents,
                         trademarks, and relationships       $       5,264
                         Developed technology                        1,317
                         Goodwill                                   25,553
                                                             ------------------

                                                             $      32,134

         Pro forma financial information:

                     W. Quinn's results of operations are included in the
                     Company's consolidated results of operations from September
                     5, 2001. The following unaudited pro forma information
                     represents the results of operations for the Company and W.
                     Quinn for the periods ended September 30, 2000 and
                     September 30, 2001, as if the acquisition had been
                     consummated as of January 1, 2000 and January 1, 2001,
                     respectively. This pro forma information does not purport
                     to be indicative of what may occur in the future.

                                                     NINE MONTHS ENDED
                                                       SEPTEMBER 30,
                                             ----------------------------------
                                                  2000               2001
                                             ---------------     --------------
                                                       IN THOUSANDS
                                                  (EXCEPT PER SHARE DATA)
                                             ----------------------------------
                                                         UNAUDITED
                                             ----------------------------------

                     Total revenues          $     24,753         $   45,700
                                             ===============     ==============

                     Net loss                      (6,707)            (1,683)
                                             ===============     ==============
                     Basic and diluted net
                     loss per share          $      (0.66)       $     (0.06)
                                             ===============     ==============

NOTE 3:       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

              a.     Cash and cash equivalents:

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

                                       10
<PAGE>

              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 September
                     30, 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.

              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 fourth quarter of
                     2000. The adoption did not have a significant effect on the
                     Company's consolidated results 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, and (5) 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

                                       11
<PAGE>

                     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.

              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.

                     In July 2001, the Financial Accounting Standards Board, or
                     FASB, issued Statement of Financial Accounting Standard No.
                     141 "Business Combinations" ("SFAS 141") and Statement of
                     Financial Accounting Standard No. 142 "Goodwill and Other
                     Intangible Assets" ("SFAS 142"). SFAS 141 requires all
                     business combinations initiated after June 30, 2001 to be
                     accounted for using the purchase method. Under SFAS 142,
                     goodwill and intangible assets with indefinite lives are no
                     longer amortized but are reviewed annually (or more
                     frequently if impairment indicators arise) for impairment.
                     Separable intangible assets that are not deemed to have
                     indefinite lives will continue to be amortized over their
                     useful lives (but with no maximum life). The amortization
                     provisions of SFAS 142 apply to goodwill and intangible
                     assets acquired after June 30, 2001. With respect to
                     goodwill and intangible assets acquired prior to July 1,
                     2001, the Company is required to adopt SFAS 142 effective
                     January 1, 2002. During 2002, the Company will perform the
                     first of the required impairment tests of goodwill and
                     indefinite lived intangible assets as of January 1, 2002
                     and has not yet determined what the effect of these tests
                     will be on the earnings and financial position of the
                     Company. Application of the non-amortization provisions of
                     SFAS No. 142 may result in an increase in net income.

                     FASB recently issued SFAS No. 144, "Accounting for the
                     Impairment or Disposal of Long-Lived Assets," ("SFAS 144")
                     that is applicable to financial statements issued for
                     fiscal years beginning after December 15, 2001. FASB's new
                     rules on the asset impairment supersede FASB Statement 121,
                     "Accounting for the Impairment of Long-Lived Assets and for
                     Long-Lived Assets to be Disposed Of," and portions of APB
                     Opinion 30, "Reporting the Results of Operations." SFAS No.
                     144 provides a single accounting model for long-lived
                     assets to be disposed of and significantly changes the
                     criteria that must be met to classify an asset as
                     "held-for-sale." Classification as "held-for-sale" is an
                     important distinction since such assets are not depreciated
                     and are stated at the lower of fair value and carrying
                     amount. SFAS No. 144 also requires expected future
                     operating losses from discontinued operations to be
                     displayed in the period(s) in which the losses are
                     incurred, rather than as of the measurement date as
                     presently required. The provisions of SFAS No. 144 are not
                     expected to have a material effect on the Company's
                     financial position or operating results.

                                       12
<PAGE>

NOTE 4:       SHAREHOLDERS' EQUITY

                     Stock options plans:

                            The following table summarizes information about
                            stock options outstanding as of September 30, 2001:
<TABLE><CAPTION>
                                                                                                        WEIGHTED AVERAGE
                                                                                  NUMBER OF OPTIONS      EXERCISE PRICE
                                                                                  ------------------    ------------------

                           <S>                                                    <C>                   <C>
                            Outstanding at December 31, 2000                          5,384,175              $  6.10
                            Granted                                                   1,659,752              $ 15.41
                            Exercised                                                (1,180,175)             $  1.59
                            Forfeited                                                  (275,328)             $ 13.74
                                                                                  ------------------    ------------------

                            Outstanding at September 30, 2001 (unaudited)             5,588,424              $  9.44
                                                                                  ==================    ==================
</TABLE>

NOTE 5:       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".

                     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 SEPTEMBER       NINE MONTHS ENDED SEPTEMBER
                                                                        30,                               30,
                                                          --------------------------------   -------------------------------
                                                               2000            2001               2000           2001
                                                               ----            ----               ----           ----
               <S>                                          <C>            <C>                 <C>             <C>
                                                                                      UNAUDITED
                                                          ------------------------------------------------------------------

                Net Income (loss)                            $ (1,091)      $    452            $ (7,177)       $   691
                                                          --------------------------------   -------------------------------

                Shares used in computing basic net
                income (loss) per share                        21,571         26,942               9,451         26,390
                Effect of dilutive stock options                    -          2,815                   -          3,320
                                                          --------------------------------   -------------------------------
                Shares used in computing diluted net
                income (loss) per share                        21,571         29,757               9,451         29,710

                Basic net income (loss) per share            $  (0.05)         $0.02            $  (0.76)       $  0.03
                                                          ================================   ===============================

                Diluted net income (loss) per share          $  (0.05)      $   0.02            $  (0.76)       $  0.02
                                                          ================================   ===============================
</TABLE>
                                       13
<PAGE>

NOTE 6:       COMPREHENSIVE INCOME (LOSS)

              The components of comprehensive income (loss) are as follows (in
thousands):
<TABLE><CAPTION>
                                                           THREE MONTHS ENDED SEPTEMBER       NINE MONTHS ENDED SEPTEMBER
                                                                        30,                               30,
                                                          --------------------------------   -------------------------------
                                                               2000            2001               2000           2001
                                                               ----            ----               ----           ----
                                                                                      UNAUDITED
                                                          ------------------------------------------------------------------
                   <S>                                   <C>               <C>              <C>               <C>
                    Net Income (loss)                     $   (1,091)       $    452         $   (7,177)       $     691
                                                          --------------------------------   -------------------------------
                    Other comprehensive income (loss):
                       Change in net unrealized gains
                          on investments                         43              808                 43            1,115
                       Change in accumulated foreign
                          currency translation adjustment        (2)             104                 (2)              62
                                                          --------------------------------   -------------------------------
                                                          $  (1,050)        $  1,364         $   (7,136)       $   1,868
                                                          ================================   ===============================
</TABLE>

NOTE 7:       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 and the United States include research
                     and development, sales and marketing. Operations in Europe
                     and Australia include selling and marketing. The following
                     is a summary of operations within geographic areas based on
                     customer location.
<TABLE> <CAPTION>
                                                           THREE MONTHS ENDED SEPTEMBER       NINE MONTHS ENDED SEPTEMBER
                                                                        30,                               30,
                                                          --------------------------------   -------------------------------
                                                               2000            2001               2000           2001
                                                               ----            ----               ----           ----
                                                                                      UNAUDITED
                                                          ------------------------------------------------------------------
          <S>                                              <C>           <C>                 <C>              <C>
          Revenues from sales to unaffiliated customers:
             U.S.A.                                         $     4,863   $      7,795        $     12,216     $   22,417
             North and South America (except U.S.A.)                630            876                 879          2,290
             Asia                                                   762            748               1,631          3,259
             Europe and others                                    1,384          4,909               3,200         10,579
                                                          ------------------------------------------------------------------
                                                            $     7,639   $     14,328        $     17,926     $   38,545
                                                          ================================   ===============================
</TABLE>
                                       14
<PAGE>

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

<TABLE><CAPTION>
                                                                                  DECEMBER 31,            SEPTEMBER 30,
                                                                                     2000                     2001
                                                                              -------------------      --------------------
                                                                                    AUDITED                UNAUDITED
                                                                              -------------------      --------------------
         <S>                                                                    <C>                      <C>
          Long-lived assets, by geographic region:
              Israel                                                             $     1,187              $    3,104
              United States                                                           16,613                  46,757
              Europe and others                                                        1,409                   1,641
                                                                              -------------------      --------------------

                                                                                 $    19,209              $   51,502
                                                                              ===================      ====================
</TABLE>

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

<TABLE><CAPTION>
                                                           THREE MONTHS ENDED SEPTEMBER       NINE MONTHS ENDED SEPTEMBER
                                                                        30,                               30,
                                                          --------------------------------   -------------------------------
                                                               2000            2001               2000           2001
                                                               ----            ----               ----           ----
            <S>                                               <C>             <C>                <C>            <C>
                                                                                      UNAUDITED
                                                          ------------------------------------------------------------------

             Customer A                                        3.7 %           25.8 %              5.2 %         17.9 %
             Customer B                                       27.6 %           19.1 %             26.2 %         20.3 %
</TABLE>

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, now called Precise Indepth for
Oracle, 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 December 2000, we added Precise/Savant (formerly Savant
Diagnostic Center) to our product suite through the acquisition of Savant
Corporation. In April 2001, we introduced Precise/Indepth for BEA WebLogic
Server targeting the growing Java application market and Precise/Savvy for SAP
R/3, which enhances Precise/Insight in ERP performance monitoring. In July 2001,
we introduced Precise/Indepth for DB2 UDB targeting the substantial DB2
installed base, new customers moving to DB2, and business application ISVs
embracing DB2 as their primary platform. In August 2001, we introduced
Precise/Crosspoint, Precise/Indepth for IBM Websphere, and Precise/Savvy for BEA
Tuxedo.

    In September 2001, we completed the acquisition of all of the capital stock
of W. Quinn Associates, Inc. for approximately $34.1 million in a combination of
cash and ordinary shares. The total purchase price consisted of $21.6 million
paid in cash and $12.5 million paid in the form of 774,413 ordinary shares. In
addition, W. Quinn shareholders

                                       15
<PAGE>

received the right to receive additional ordinary shares in an amount equal to
$17.5 million, based on achievement of certain post-acquisition revenue and
performance targets for next year. 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. The Company acquired tangible assets of $1.9 million. Of the total
purchase price, which included direct acquisition costs, $25.6 million was
allocated to goodwill-type assets, representing the excess of the aggregate
purchase price over the fair value of net assets assumed, $1.3 million was
allocated to purchased technology, $5.2 million was allocated to patents,
trademarks and relationships, and a one-time charge of approximately $86,000 was
charged on our statement of operations for acquired in-process research and
development was taken in September 2001.

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;

                  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

                                       16
<PAGE>

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 condensed consolidated statement of
operations data as a percentage of total revenues for the periods indicated:

<TABLE><CAPTION>
                                                             Three months ended       Nine months ended
                                                               September 30,            September 30,

Percent of Total Revenues:                                   2000         2001         2000        2001
                                                             ----         ----         ----        ----
<S>                                                         <C>          <C>          <C>         <C>
 Revenues:
   Licenses...............................................    83.9%       78.9%         83.0%      79.8%
   Services...............................................    16.1        21.1          17.0       20.2
                                                              ----        ----          ----       ----
      Total revenues......................................   100.0       100.0         100.0      100.0
 Cost of revenues:
   Licenses...............................................     2.4         0.5           2.7        0.5
   Services...............................................     5.3         5.3           6.5        5.7
                                                               ---         ---           ---        ---
      Total cost of revenues..............................     7.7         5.8           9.2        6.2
                                                               ---         ---           ---        ---
Gross profit..............................................    92.3        94.2          90.8       93.8
Operating expenses:
  Research and development................................    18.1        19.9          19.2       20.2
  Sales and marketing.....................................    71.7        60.6          76.9       63.4
 General and administrative                                   16.2        13.2          14.4       13.0
  Amortization of intangible assets and in-process
  research and development..............................       0.4         5.8           0.4        5.5
 Amortization of deferred stock compensation.........         16.2         2.8          27.6        4.1
                                                              ----         ---          ----        ---
      Total operating expenses............................   122.6       102.3         138.5      106.2
                                                              -----       -----         -----      -----
Operating income (loss)...................................   (30.3)       (8.1)        (47.7)     (12.4)
Financial income, net.....................................    16.2        11.3           7.7       14.2
                                                              ----        ----           ---       ----
Net income (loss).........................................   (14.1)%       3.2%        (40.0)%      1.8%
                                                             =====         ===         =====        ===
</TABLE>

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 $14.3 million for the three months ended September
30, 2001 and $7.6 million for the comparable quarter of 2000, representing an
increase of $6.7 million, or 88%, and were $38.5 million for the nine months
ended September 30, 2001 and $17.9 million for the comparable period of 2000,
representing an increase of $20.6 million, or 115%.

    Revenues from sales of software licenses were $11.3 million for the three
months ended September 30, 2001 and $6.4 million for the comparable quarter of
2000, representing an increase of $4.9 million, or 76%, and were $30.7 million
for the nine months ended September 30, 2001 and $14.9 million for the
comparable period in 2000, representing an increase of $15.9 million, or 107%.
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, the addition of new products, an
increased average deal size, and the strength of our OEM relationship.

    Revenues from services were $3.0 million for the three months ended
September 30, 2001 and $1.2 million for the comparable quarter of 2000,
representing an increase of $1.8 million, or 147%, and were $7.8 million for the
nine months ended September 30, 2001 and $3.1 million for the comparable period
of 2000, representing an increase of $4.8 million, or 156%. The increase in
services revenue during the three and nine month periods ended September 30,
2001 over the comparable periods of 2000 is attributable to additional
maintenance agreements in the amount of approximately $1.4 million and $3.6
million, respectively, resulting from new sales of software licenses and
renewals of annual maintenance agreements

                                       17
<PAGE>

with existing customers. Our professional consulting business was expanded and
resulted in an increase of approximately $0.4 million and $1.1 million in
consulting revenue for the three and nine-month periods ended September 30, 2001
over the comparable periods of 2000.

COST OF REVENUES

    Cost of revenues consists of costs associated with generating software
license and service revenues. Cost of revenues was $835,000 for the three months
ended September 30, 2001 and $594,000 for the comparable quarter of 2000,
representing an increase of $241,000, or 41%, and were $2.4 million for the nine
months ended September 30, 2001 and $1.7 million for the comparable period of
2000, representing an increase of $0.7 million, or 44%. Cost of revenues as a
percentage of total revenues was 6% for the three and nine month periods ended
September 30, 2001 and 8% and 9% for the three and nine-month periods ended
September 30, 2000, respectively.

    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 $69,000 for the three
months ended September 30, 2001 and $187,000 for the comparable quarter of 2000,
representing a decrease of $118,000, or 63%, and were $181,000 for the nine
months ended September 30, 2001 and $484,000 for the comparable period of 2000,
representing a decrease of $303,000, or 63%. The decrease for these periods 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 the first
quarter of 2001. Cost of software license revenues as a percentage of total
software license revenues was 1% for the three and nine months ended September
30, 2001 and 3% for the comparable periods of 2000.

    Cost of service revenues consists primarily of costs related to personnel
providing customer support and professional services. Cost of service revenues
was $766,000 for the three months ended September 30, 2001 and $407,000 for the
comparable quarter of 2000, representing an increase of $359,000, or 88%, and
were $2.2 million for the nine months ended September 30, 2001 and $1.2 million
for the comparable period of 2000, representing an increase of $1.0 million, or
89%. The increase for these periods 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 25% in the three
months ended September 30, 2001 and 33% in the comparable quarter of 2000 and
was 28% for the nine months ended September 30, 2001 and 38% for the comparable
period of 2000.

                                       18
<PAGE>

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 $2.9 million for the three months ended September 30,
2001 and $1.4 million for the comparable period of 2000, representing an
increase of $1.5 million, or 106%, and were $7.8 million for the nine months
ended September 30, 2001 and $3.4 million for the comparable period of 2000,
representing an increase of $4.3 million, or 126%. The increases for these
periods was primarily related to the increase in the number of software
developers and quality assurance personnel engaged in the continuing enhancement
of our software suite, which included the release of seven new products in the
nine month period ended September 30, 2001, including four new products released
in the third quarter of 2001. Research and development expenses as a percentage
of total revenues were 20% in the three months ended September 30, 2001 and 18%
in the comparable quarter of 2000 and were 20% for the nine month period ended
September 30, 2001 and 19% for the comparable period 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 $8.7 million for
the three months ended September 30, 2001 and $5.5 million for the comparable
quarter of 2000, representing an increase of $3.2 million, or 59%, and were
$24.4 million for the nine months ended September 30, 2001 and $13.8 million for
the comparable period in 2000, representing an increase of $10.7 million, or
77%. The increases for these periods are attributable to the additional
commission expenses resulting 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 61%
for the three months ended September 30, 2001 and 72% for the comparable period
of 2000 and were 63% for the nine months ended September 30, 2001 and 77% 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 $1.9 million for the three months ended September
30, 2001 and $1.2 million for the comparable quarter of 2000, representing an
increase of $0.6 million, or 52%, and were $5.0 million for the nine months
ended September 30, 2001 and $2.6 million for the comparable period in 2000,
representing an increase of $2.4 million, or 95%. 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 13% for both the three and nine month periods
ended September 30, 2001 and were 16% for three months ended September 30, 2000
and 14% for the nine month period ended September 30, 2000.

AMORTIZATION OF INTANGIBLE ASSETS AND IN-PROCESS RESEARCH AND DEVELOPMENT

    The intangible asset and in-process research and development (IPR&D)
amortization consists primarily of charges to expense relating to reducing the
goodwill related to the purchases of Knight Fisk, Savant Corporation, and W.
Quinn Associates, Inc. Due to acquisitions and intangible asset purchases during
2000 and 2001, our amortization expense was $0.8 million for the three months
ended September 30, 2001 and $33,000 for the comparable quarter of 2000, and
$2.1 million for the nine months ended September 30,

                                       19
<PAGE>

2001 and $63,000 for the comparable period of 2000. The increase in the three
and nine month periods ended September 30, 2001 is related to the Savant
acquisition, which closed on December 5, 2000 and one month of amortization
relating to the W. Quinn acquisition in September 2001, which includes an IPR&D
charge of $86,000. Amortization of intangible assets and IPR&D as a percentage
of total revenues were 6% for both the three and nine-month periods ended
September 30, 2001.

AMORTIZATION OF DEFERRED STOCK COMPENSATION

    Deferred stock 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 to $0.4 million for the three months
ended September 30, 2001 from $1.2 million for the comparable period in 2000,
representing a decrease of $0.8 million, or 67%, and decreased to $1.6 million
for the nine months ended September 30, 2001 from $5.0 million for the
comparable period of 2000, representing a decrease of $3.4 million, or 68%. The
deferred compensation is amortized over the vesting schedule of the underlying
options, generally three to four years. The decrease for these periods is due to
a portion of the deferred compensation balance being fully amortized at
September 30, 2001. We had a $1.0 million deferred compensation balance at
September 30, 2001.

FINANCIAL INCOME, NET

    Financial income, net, was $1.6 million for the three months ended September
30, 2001 and $1.2 million for the comparable quarter of 2000, representing an
increase of $0.4 million and was $5.5 million for the nine months ended
September 30, 2001 and $1.4 million for the comparable period in 2000,
representing an increase of $4.1 million. The increase is attributable to
interest earned on the investment of the initial public offering and secondary
public offering proceeds in marketable securities.

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 September 30, 2001, our principal source of
liquidity was $135 million of cash and cash equivalents and marketable
securities. As of September 30, 2001, we had $193,000 of debt outstanding
relating to obligations under capital leases and deferred rent expense and an
obligation for severance pay to Israeli employees of $1.0 million that is fully
provided for by monthly deposits with severance pay funds, insurance policies
and by an accrual. As of September 30, 2001, our accumulated net deficit was
$25.7 million.

    Net cash provided by operating activities for the nine months ended
September 30, 2001 was $4.8 million compared to $982,000 in cash used in
operating activities for the nine months ended September 30, 2000. Net cash
provided by operating activities for the nine months ended September 30, 2001
was primarily the result of net income for the period, increases in accrued
expenses, increases in employee and payroll accruals, the amortization of
deferred stock compensation, amortization of intangible assets and in-process
research and development, depreciation, and an increase in deferred revenue for
the period. These additive cash items were offset primarily by an increase in
accounts receivable and a decrease in other accounts payable, which reduced the
cash provided by operations for the period. Net cash used in operating
activities for the nine months ended September 30, 2000 was primarily the result
of the net loss of $7.2 million for the period. This loss was offset by the
amortization of deferred stock compensation, depreciation and amortization, a
decrease in accounts receivable, an increase in deferred revenues, an increase
in employees and payroll accruals, an increase in accrued expenses, and an
increase in other accounts payable.

    Net cash used in investing activities was $46.2 million and $56.2 million
for the nine-month periods ended September 30, 2001 and 2000, respectively.
Investing activities for the nine months ended September 30, 2001 consisted of
$67.6 million in purchases of short-term and long-term marketable

                                       20
<PAGE>

securities, $1.3 million related to other asset purchases, $2.2 million in
capital expenditures, $20.1 million in payments relating to the W. Quinn
acquisition, offset by $45.0 million in proceeds from the redemption and sale of
marketable securities. Net cash used in investing activities for the nine months
ended September 30, 2000 consisted of $1.3 million in capital expenditures,
$55.2 million in purchases of marketable securities, and $0.5 million in
payments relating to the Knight Fisk acquisition, offset by $0.9 million in
proceeds from the sale of short-term deposits. The majority of our capital
investments were for computers, peripheral equipment and software.

    Net cash provided by financing activities was $2.3 million and $76.0 million
for the nine-month periods ended September 30, 2001 and 2000, respectively. Net
cash provided by financing activities for the nine months ended September 30,
2001 was from the proceeds from the exercise of options. Net cash provided by
financing activities for the nine months ended September 30, 2000 was from the
issuance of shares during our initial public offering, offset by repayment of
long-term debt.

    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 the ability to attract
customers for Precise's products, ability to execute as designed, acceptance of
Precise's products in the market place, ability to manage existing and future
strategic relationships, ability to successfully integrate the operations of W.
Quinn, Inc., as well as statements regarding the financial performance, 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 of the market; timing and acceptance of Precise's
products in the market place; the future growth and acceptance of Precise's
products in the market place; Precise's ability to predict and respond to market
developments; the development, expansion and training of Precise's sales force;
risks associated with management of growth; risks associated with existing and
future strategic relationships and acquisitions; Precise being held liable for
defects or errors in its products; political, economic and business fluctuations
in the United States, Israel and Precise's international markets; as well as
risks of downturns in economic conditions generally or as a result of recent
events, 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 recent Registration Statement on Form S-3 on file 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.

                                       21
<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 filed a current report on Form 8-K on September 19, 2001 reporting
the acquisition of W. Quinn Associates, Inc. Precise filed an amendment to that
current report on Form 8-K/A on November 9, 2001 in order to file the required
financial statements with respect to the acquisition of W. Quinn Associates,
Inc.






















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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            11/14/01              By      /S/ Shimon Alon
       ---------------------------          ------------------------------------
                                            Shimon Alon, Chief Executive Officer

Date            11/14/01              By      /S/ J. Benjamin Nye
       ---------------------------          ------------------------------------
                                            J. Benjamin H. Nye, Chief Financial
                                            Officer

Date            11/14/01              By      /S/ Richard Forcier
       ---------------------------          ------------------------------------
                                            Richard L. Forcier, Controller





















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