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

                       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 March 31, 2002

                                       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)


                              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


     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 7, 2002, 28,686,582 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, 2002

                                TABLE OF CONTENTS

                                                                            PAGE
PART I: FINANCIAL INFORMATION

     ITEM 1. Consolidated Financial Statements:

        Condensed Consolidated Balance Sheets as of
          March 31, 2002 (unaudited) and December 31, 2001..................4-5

        Condensed Consolidated Statements of Operations (unaudited)
          for the three months ended March 31, 2002 and 2001..................6

        Condensed Consolidated Statements of Cash Flows (unaudited)
          for the three months ended March 31, 2002 and 2001................7-8

        Notes to Condensed Consolidated Financial Statements (unaudited)...9-14

     ITEM 2. Management's Discussion and Analysis of Financial
             Condition and Results of Operations..........................14-18

     ITEM 3. Quantitative and Qualitative Disclosures About Market Risk......18

PART II: OTHER INFORMATION

     ITEM 1. Legal Proceedings...............................................19

     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................................19

SIGNATURES...................................................................20

*No information provided due to inapplicability of item.
                                                                               2
<PAGE>

                         PRECISE SOFTWARE SOLUTIONS LTD.

                                    FORM 10-Q

                          QUARTER ENDED MARCH 31, 2002

                          PART I. FINANCIAL INFORMATION



ITEM 1.   FINANCIAL STATEMENTS






















                                                                               3
<PAGE>

                            PRECISE SOFTWARE SOLUTIONS LTD. AND ITS SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS
<TABLE><CAPTION>
                                                              DECEMBER 31,       MARCH 31,
                                                                 2001              2002
                                                            --------------    --------------
                                                               AUDITED          UNAUDITED
                                                            --------------    --------------
    ASSETS

CURRENT ASSETS:
<S>                                                        <C>               <C>
  Cash and cash equivalents                                 $       35,144    $       39,574
  Marketable securities                                             39,752            41,327
  Trade receivables, net of allowance for
    doubtful accounts (2001 - $179, 2002 - $176)                    12,156            11,525
  Other accounts receivable and prepaid expenses                     3,168             4,097
                                                            --------------    --------------
Total current assets                                                90,220            96,523
                                                            --------------    --------------
MARKETABLE SECURITIES, NON CURRENT                                  60,935            60,742
                                                            --------------    --------------
SEVERANCE PAY FUND                                                     750               790
                                                            --------------    --------------
PROPERTY AND EQUPIMENT, NET                                          5,047             4,907
                                                            --------------    --------------
OTHER ASSETS, NET                                                   46,231            46,637
                                                            --------------    --------------
                                                            $      203,183    $      209,599
                                                            ==============    ==============
</TABLE>

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














                                                                               4
<PAGE>

                            PRECISE SOFTWARE SOLUTIONS LTD. AND ITS SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS
<TABLE><CAPTION>
                                                              DECEMBER 31,       MARCH 31,
                                                                 2001              2002
                                                            --------------    --------------
                                                               AUDITED           UNAUDITED
                                                            --------------    --------------
    LIABILITIES AND SHAREHOLDERS' EQUITY
<S>                                                        <C>               <C>
CURRENT LIABILITIES:
  Trade payables                                            $        1,394    $          922
  Deferred revenues                                                  6,673             7,855
  Employees and payroll accruals                                     5,161             6,617
  Accrued expenses                                                   2,014             2,202
  Other current liabilities                                            973             1,002
                                                            --------------    --------------
Total current liabilities                                           16,215            18,598
                                                            --------------    --------------

LONG-TERM LIABILITIES:
  Long-term debt and other liabilities                                 193               226
  Accrued severance pay                                              1,116             1,154
                                                            --------------    --------------
Total long-term liabilities                                          1,309             1,380
                                                            --------------    --------------

SHAREHOLDERS' EQUITY:
  Ordinary shares and additional paid-in capital                   210,436           214,331
  Deferred stock compensation                                         (544)             (291)
  Accumulated other comprehensive income                             1,191               355
  Accumulated deficit                                              (25,424)          (24,774)
                                                            --------------    --------------
Total shareholders' equity                                         185,659           189,621
                                                            --------------    --------------
                                                            $      203,183    $      209,599
                                                            ==============    ==============
</TABLE>

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

                                                                               5
<PAGE>


                            PRECISE SOFTWARE SOLUTIONS LTD. AND ITS SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS (EXCEPT PER SHARE DATA)
<TABLE><CAPTION>
                                                                   THREE MONTHS ENDED
                                                                        MARCH 31,
                                                            --------------------------------
                                                                 2001              2002
                                                            --------------    --------------
<S>                                                        <C>               <C>
Revenues:
   Software licenses                                        $        9,446    $       12,402
   Services                                                          2,064             4,692
                                                            --------------    --------------
Total revenues                                                      11,510            17,094
                                                            --------------    --------------
Cost of revenues:
   Software licenses                                                    70               132
   Services                                                            745             1,065
                                                            --------------    --------------
Total cost of revenues                                                 815             1,197
                                                            --------------    --------------
Gross profit                                                        10,695            15,897
                                                            --------------    --------------

Operating expenses:
   Research and development                                          2,236             3,250
   Sales and marketing                                               7,633             9,810
   General and administrative                                        1,552             2,165
   Amortization of deferred stock compensation                         713               188
   Amortization of goodwill and intangible assets                      638               765
                                                            --------------    --------------
Total operating expenses                                            12,772            16,178
                                                            --------------    --------------
Operating loss                                                      (2,077)             (281)
Financial income and other, net                                      2,106             1,003
                                                            --------------    --------------
Income before income taxes                                              29               722
Income taxes                                                             -                72
                                                            --------------    --------------
Net income                                                  $           29    $          650
                                                            ==============    ==============
Earnings per share:

   Basic and diluted earnings per share                     $         0.00    $         0.02
                                                            ==============    ==============
   Weighted average number of shares used in
     computing basic earnings per share                             25,822            28,240
                                                            ==============    ==============
   Weighted average number of shares used in
     computing diluted earnings per share                           29,413            31,668
                                                            ==============    ==============
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
                                                                               6
<PAGE>

                            PRECISE SOFTWARE SOLUTIONS LTD. AND ITS SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS
<TABLE><CAPTION>
                                                                                      THREE MONTHS ENDED
                                                                                          MARCH 31,
                                                                              --------------------------------
                                                                                   2001              2002
                                                                              --------------    --------------
                                                                                         UNAUDITED
                                                                              --------------------------------
<S>                                                                          <C>               <C>
Cash flows from operating activities:

   Net income                                                                 $           29    $          650
   Adjustments to reconcile net income to net cash provided by (used in)
     operating activities:
     Depreciation                                                                        274               488
     Loss on sale of property and equipment                                                -                40
     Accretion of discount (amortization of debenture premium) on
       available-for-sale marketable securities                                          (89)              262
     Amortization of deferred stock compensation                                         713               188
     Amortization of goodwill and intangible assets                                      638               765
     Decrease (increase) in trade receivables, net                                      (515)              618
     Decrease (increase) in other accounts receivable and prepaid expenses               166              (932)
     Decrease in other assets                                                              -               410
     Increase (decrease) in trade payables                                              (530)             (469)
     Increase in deferred revenues                                                       500               889
     Increase (decrease) in employees and payroll accruals                            (1,173)            1,458
     Decrease in other current liabilities and accrued expenses                         (787)              (85)
     Increase (decrease) in accrued severance pay, net                                    97                (2)
                                                                              --------------    --------------

Net cash provided by (used in) operating activities                                     (677)            4,280
                                                                              --------------    --------------
Cash flows from investing activities:

   Purchase of property and equipment                                                  (635)              (347)
   Purchase of available-for-sale marketable securities                             (17,529)           (14,732)
   Purchase of other assets                                                             (73)              (984)
   Proceeds from redemption of available-for-sale marketable securities              13,000             11,500
   Proceeds from sale of marketable securities                                        1,000                747
                                                                              --------------    --------------

Net cash used in investing activities                                         $       (4,237)   $       (3,816)
                                                                              --------------    --------------
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
                                                                               7
<PAGE>

                            PRECISE SOFTWARE SOLUTIONS LTD. AND ITS SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
U.S. DOLLARS IN THOUSANDS
<TABLE><CAPTION>
                                                                                     THREE MONTHS ENDED
                                                                                          MARCH 31,
                                                                              --------------------------------
                                                                                   2001              2002
                                                                              --------------    --------------
                                                                                         UNAUDITED
                                                                              --------------------------------
<S>                                                                          <C>               <C>
Cash flows from financing activities:

   Proceeds from exercise of options, net                                                444             3,960
   Repayment of long-term debt                                                            (9)               (7)
                                                                              --------------    --------------
Net cash provided by financing activities                                                435             3,953
                                                                              --------------    --------------
Effect of exchange rate change on cash and cash equivalents                              (44)               13
                                                                              --------------    --------------
Increase (decrease) in cash and cash equivalents                                      (4,523)            4,430
Cash and cash equivalents at the beginning of the period                              82,218            35,144
                                                                              --------------    --------------
Cash and cash equivalents at the end of the period                            $       77,695    $       39,574
                                                                              ==============    ==============

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

           Cash paid during the period for:
              Interest                                                        $            5    $            4
                                                                              ==============    ==============
           Non cash transactions:
              Purchased technology                                            $            -    $          597
                                                                              ==============    ==============
              Capital lease obligation                                        $            -    $           41
                                                                              ==============    ==============
              Adjustment to Savant Corporation acquisition, net               $          683    $            -
                                                                              ==============    ==============
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
                                                                               8
<PAGE>

PRECISE SOFTWARE SOLUTIONS LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1: BASIS OF PRESENTATION

        a.  Company:

            Precise Software Solutions Ltd. ("the Company") was established in
            Israel on November 15, 1990. The Company is a provider of software
            products that assist organizations in performance management,
            monitoring and tuning of database applications, and related
            consulting, training and support services. The Company has
            operations in the form of wholly owned subsidiaries in the United
            States, the United Kingdom, France, Germany, Holland, Malaysia and
            Australia.

        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 March 31, 2002 and
            the operating results and cash flows for the three months ended
            March 31, 2002 and 2001. 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, 2002
            are not necessarily indicative of results that may be expected for
            any other interim period or for the full fiscal year ending December
            31, 2002.

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

        a.  Cash and cash equivalents:

            Cash equivalents are short-term highly liquid investments that are
            readily convertible to cash with original maturities of three months
            or less.

        b.  Marketable securities:

            The Company accounts for investments in debt and equity securities
            in accordance with SFAS No. 115, "Accounting for Certain Investments
            in Debt and Equity 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, 2002, all
            securities covered by SFAS No. 115 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

                                                                               9
<PAGE>

            comprehensive income. Amortization of premium and accretion of
            discounts are included in financial income and other, net. Realized
            gains and losses on all sales of investments, as determined on a
            specific identification basis, are included in the consolidated
            statement of operations.

        c.  Other assets:

            Acquired assembled workforce, acquired technology, acquired
            trademark and customer relationships, acquired patents, 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:

            The Company and its subsidiaries generate revenues mainly from
            licensing the rights to use their software products and services.
            The Company and its subsidiaries sell its products primarily through
            its direct sales force, resellers and Original Equipment
            Manufacturers ("OEMs").

            The Company has implemented Statement of Position (SOP) 97-2,
            "Software Revenue Recognition", as amended. Revenues from software
            arrangements are recognized upon delivery of the product when no
            future obligation exists, when collection is probable, the product
            fee is either fixed or determinable and persuasive evidence of an
            arrangement exists. SOP 97-2 requires revenue earned on software
            arrangements involving multiple elements to be allocated to each
            element based on the relative fair value of the elements. The
            Company has also adopted SOP 98-9, "Modification of SOP 97-2,
            Software Revenue Recognition with Respect to Certain Transactions,"
            for all transactions entered into after January 1, 2000. The
            Company's Vendor Specific Objective Evidence ("VSOE") used to
            allocate the sales price to maintenance and support and professional
            services are based on renewal ratio or the price charged when these
            elements will be sold separately. SOP 98-9 requires that revenue be
            recognized under the "residual method" when (1) VSOE of fair value
            exists for all undelivered elements, and (2) all revenue recognition
            criteria of SOP 97-2, as amended, are satisfied. Under the residual
            method any discount in the arrangement is allocated to the delivered
            elements.

            The Company is entitled to fees from its OEMs upon the sublicensing
            of the Company's products to end-users. Generally, the fees due from
            the OEMs are recognized when such fees are reported to the Company
            upon the sublicensing of the products by the OEMs.

            The Company and its subsidiaries generally do not grant a right of
            return to their customers, except for time-limited warranty
            provisions. Historically, the Company has seen negligible returns.

            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 maintenance and support arrangements are
            deferred and recognized on a straight-line basis as service revenues
            over the life of the related agreement. Consulting fees and training
            revenues are recognized after the services are rendered.

            Deferred revenue includes unearned amounts received under
            maintenance and support contracts and professional services
            engagements, and amounts received from customers but not yet
            recognized as revenues.

                                                                              10
<PAGE>

        e.  Impact of recently issued accounting standards:

            In July 2001, the Financial Accounting Standards Board ("FASB"),
            issue Statement of Financial Accounting Standard No. 142 "Goodwill
            and Other Intangible Assets" ("SFAS 142"). SFAS No. 142 prohibits
            the amortization of goodwill and intangible assets with indefinite
            useful lives and instead requires that these assets be reviewed for
            impairment on a periodic basis. Intangible assets with finite lives
            will continue to be amortized over their estimated useful lives.
            Additionally, SFAS No. 142 requires that goodwill included in the
            carrying value of equity method investments no longer be amortized.
            In addition, within six months of adopting the accounting standard
            impairment test must be completed and any impairments identified
            must be treated as a cumulative effect of a change in accounting
            policies.

            The Company adopted SFAS No. 142, and in accordance with its
            guidelines the company is currently in the process of performing the
            goodwill impairment test. The Company has completed the transitional
            impairment test, which did not result in an impairment charge. The
            Company completed its reassessment of previously recognized
            intangible assets and ceased amortization of identified intangible
            assets with indefinite lives.

            In accordance with SFAS No. 142, prior period amounts were not
            restated. The unaudited pro forma reconciliation of previously
            reported net income and earnings per share for the three months
            ended March 31, 2001 to the amounts adjusted for the elimination of
            goodwill amortization is as follows:

<TABLE><CAPTION>
                                                                   THREE MONTHS ENDED
                                                                        MARCH 31,
                                                            --------------------------------
                                                                 2001              2002
                                                            --------------    --------------
                                                                       UNAUDITED
                                                            --------------------------------
           <S>                                             <C>               <C>
            Reported net income                             $           29    $          650
              Add:  Goodwill amortization                              316                 -
            Adjusted net income                             $          345    $          650
                                                            ==============    ==============

            Basic and diluted earnings per share            $         0.00    $         0.02
              Add:  Goodwill amortization                             0.01
                                                                                           -
            Adjusted basic and diluted earnings per share   $         0.01    $         0.02
                                                            ==============    ==============
</TABLE>

            FASB recently issued SFAS No. 144, "Accounting for the Impairment or
            Disposal of Long-Lived Assets," 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. This pronouncement is not
            expected to have a material effect on the Company's financial
            position or operating results.

                                                                              11
<PAGE>

NOTE 3: SHAREHOLDERS' EQUITY

        Stock options plans:

            The following table summarizes information about stock options
            outstanding as of March 31, 2002:
<TABLE><CAPTION>
                                                                                 WEIGHTED
                                                               NUMBER OF          AVERAGE
                                                                OPTIONS       EXERCISE PRICE
                                                            --------------    --------------
           <S>                                             <C>               <C>
            Outstanding at December 31, 2001                     7,038,372    $        11.18
            Granted                                                      -                 -
            Exercised                                             (515,741)             6.42
            Forfeited                                              (66,075)            15.26
                                                            --------------    --------------
            Outstanding at March 31, 2002 (unaudited)            6,456,556    $        11.52
                                                            ==============    ==============
</TABLE>
NOTE 4: EARNINGS PER SHARE

            Basic earnings per share is computed based on the weighted average
            number of ordinary shares outstanding during each period. Diluted
            earnings 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 earnings per share (in thousands, except per share amounts):
<TABLE><CAPTION>
                                                                                      THREE MONTHS ENDED
                                                                                            MARCH 31,
                                                                              --------------------------------
                                                                                   2001              2002
                                                                              --------------    --------------
                                                                                         UNAUDITED
                                                                              --------------------------------
           <S>                                                               <C>               <C>
            Net income                                                        $           29    $          650
                                                                              ==============    ==============
            Shares used in computing basic earnings per share                         25,822            28,240
            Effect of dilutive stock options                                           3,591             3,428
                                                                              --------------    --------------
            Shares used in computing diluted earnings per share                       29,413            31,668
                                                                              ==============    ==============

            Basic and diluted earnings per share                              $         0.00    $         0.02
                                                                              ==============    ==============
</TABLE>
                                                                              12
<PAGE>

NOTE 5: COMPREHENSIVE INCOME

        The components of comprehensive income are as follows (in thousands):
<TABLE><CAPTION>

                                                                   THREE MONTHS ENDED
                                                                      MARCH 31,
                                                            --------------------------------
                                                                 2001              2002
                                                            --------------    --------------
                                                                       UNAUDITED
                                                            --------------------------------
           <S>                                             <C>               <C>
            Net income                                      $           29    $          650

            Other comprehensive income:
              Change in net unrealized gains on investments            429              (841)
              Change in exchange rate differences                      (31)                5
                                                            --------------    --------------
            Total                                           $          427    $         (186)
                                                            ==============    ==============
</TABLE>
NOTE 6: GEOGRAPHIC INFORMATION


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

            The Company and its subsidiaries operate in one industry segment,
            the development and marketing of performance management software
            products. See Note 1 for a brief description of the Company's
            business. The following data is presented in accordance with SFAS
            No. 131, "Disclosure About Segments of an Enterprise and Related
            Information". The following is a summary of operations within
            geographic areas based on customer's location.

<TABLE><CAPTION>
                                                                   THREE MONTHS ENDED
                                                                        MARCH 31,
                                                            --------------------------------
                                                                 2001              2002
                                                            --------------    --------------
                                                                       UNAUDITED
                                                            --------------------------------
            Revenues from sales to unaffiliated customers:
             <S>                                           <C>               <C>
              U.S.A.                                        $        5,930    $       10,049
              North and South America (excluding U.S.A)                589               875
              Asia                                                   1,539             1,475
              United Kingdom                                         2,316             2,265
              Europe and others (excluding United Kingdom)           1,136             2,430
                                                            --------------    --------------

                                                            $       11,510    $       17,094
                                                            ==============    ==============

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

                                                              DECEMBER 31,       MARCH 31,
                                                                 2001              2002
                                                            --------------    --------------
                                                                                UNAUDITED
                                                                              --------------
            Long-lived assets, by geographic region:
              Israel                                        $        3,956    $        3,796
              United States                                         45,635            46,049
              Europe and others                                      1,687             1,699
                                                            --------------    --------------

                                                            $       51,278    $       51,544
                                                            ==============    ==============
</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 to Application 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. Since 1998, we have released or acquired new products and
continually updated our product suite making the following products generally
available:

   RELEASE     PRODUCT
   -------     -------

   1998        Precise/Pulse!, Precise/Presto for EMC, Precise/Interpoint

   2000        Precise/Insight, Precise/Savant

   2001        Precise/Foresight, Precise/Indepth for J2EE, Precise/Savvy for
               Oracle, Web, J2EE, SAP R/3, BEA Tuxedo, and Siebel,
               Precise/Indepth for DB2 UDB, Precise/Crosspoint, Precise/Storage
               Central SRM, Precise i3 Suite

   2002        Precise/SiteStor SRM, Luminate Analysis Suite for SAP R/3

     We derive our revenues from the sale of software licenses and from
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 and support agreements and consulting
and training, none of which are considered essential to the functionality of the
software license.

     Precise recognizes revenue in accordance with 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. Generally revenues from our OEMs are recognized when we
receive reports of fees due upon the sublicensing of our products by the OEMs.
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.

                                                                              14
<PAGE>

     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 after the services are rendered.

RESULTS OF OPERATIONS

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

                                                    Three months ended March 31,
Percent of Total Revenues:                              2001            2002
                                                       ------          ------
  Revenues:
   Software licenses..............................        82%             73%
   Services.......................................        18              27
                                                       ------          ------
       Total revenues.............................       100             100
  Cost of revenues:
   Software licenses..............................         1               1
   Services.......................................         6               6
                                                       ------          ------
       Total cost of revenues.....................         7               7
                                                       ------          ------
Gross profit......................................        93              93
Operating expenses:
  Research and development........................        19              19
  Sales and marketing.............................        66              57
  General and administrative                              14              13
  Amortization of deferred stock compensation.....         6               1
  Amortization of intangible assets                        6               5
                                                       ------          ------
       Total operating expenses...................       111              95
                                                       ------          ------
Operating income..................................       (18)             (2)
Financial income and other, net...................        18               6
                                                       ------          ------
Income before income tax provision................         -               4
Income tax provision..............................         -               0
                                                       ------          ------
Net income .......................................         0%              4%
                                                       ======          ======
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 $17.1 million for the three months ended March 31,
2002 and $11.5 million for the comparable quarter of 2001, representing an
increase of $5.6 million, or 49%.

     Revenues from sales of software licenses were $12.4 million for the three
months ended March 31, 2002 and $9.4 million for the comparable quarter of 2001,
representing an increase of $3.0 million, or 31%. The increase in software
license revenues is attributable to the expansion of our direct sales force and
indirect sales channels, increased recurring sales to our installed customer
base, the addition of new products, and increased average deal size.

     Revenues from services were $4.7 million for the three months ended March
31, 2002 and $2.1 million for the comparable quarter of 2001, representing an
increase of $2.6 million, or 127%. The increase in services revenues over the
comparable period of 2001 is attributable to additional maintenance agreements
resulting from new sales of software licenses, renewals of annual maintenance
agreements with existing customers and additional professional services revenue.

                                                                              15
<PAGE>

COST OF REVENUES

     Cost of revenues consists of costs associated with generating software
license and service revenues. Cost of revenues was $1.2 million for the three
months ended March 31, 2002 and $815,000 for the comparable quarter of 2001,
representing an increase of $382,000, or 47%.

     Cost of software license revenues in 2002 consists primarily of production
costs and in the comparable quarter of 2001, cost of software license revenues
consists primarily of royalties to the government of Israel as consideration for
research and development grants received in previous years and, to a lesser
extent, production costs. Cost of software license revenues was $132,000 for the
three months ended March 31, 2002 and $70,000 for the comparable quarter of
2001, representing an increase of $62,000, or 89%. Cost of software license
revenues as a percentage of total software license revenues was 1% for the three
months ended March 31, 2002 and 2001.

     Cost of service revenues consists primarily of costs related to personnel
providing customer support and professional services. Cost of service revenues
was $1.1 million for the three months ended March 31, 2002 and $745,000 for the
comparable quarter of 2001, representing an increase of $320,000, or 43%. The
increase is 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 23% in the three months ended March 31,
2002 and 36% in the comparable quarter of 2001.

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 $3.2 million for the three months ended March 31, 2002
and $2.2 million for the comparable period of 2001, representing an increase of
$1.0 million, or 45%. The increase primarily relates to the increase in the
number of software developers and quality assurance personnel engaged in the
continuing enhancement of our software suite.

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 $9.8 million for
the three months ended March 31, 2002 and $7.6 million for the comparable
quarter of 2001, representing an increase of $2.2 million, or 29%. The increase
is attributable to an increase in payroll and related expenses attributable to
the increase in the number of people comprising our direct sales force and
increased commission expenses associated with the increase in revenue.

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 $2.2 million for the three months ended March 31,
2002 and $1.6 million for the comparable quarter of 2001, representing an
increase of $0.6 million, or 39%. The increase is attributable to increased
number of employees in our finance department to support our growing
organization.

AMORTIZATION OF DEFERRED STOCK 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 expense decreased to $188,000 for the three months
ended March 31, 2002 from $713,000 for the comparable period in 2001,
representing a decrease of $525,000, or 74%. The deferred compensation is
amortized over the vesting

                                                                              16
<PAGE>

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, 2002. We had a $291,000 deferred compensation balance at March 31,
2002.

AMORTIZATION OF GOODWILL AND INTANGIBLE ASSETS

     The goodwill and intangible asset amortization consists primarily of
charges to expense reducing the goodwill and intangible assets associated with
acquisitions and purchased technology. Amortization expense was $765,000 for the
three months ended March 31, 2002 and $638,000 for the comparable quarter of
2001, representing an increase of $127,000, or 20%. The increase is primarily
related to our acquisition of W. Quinn Associates, Inc. in September of 2001,
partially offset by the elimination of goodwill amortization as a result of our
adoption of SFAS No. 142.

FINANCIAL INCOME AND OTHER, NET

     Financial income and other, net, was $1.0 million for the three months
ended March 31, 2002 and $2.1 million for the comparable quarter of 2001,
representing a decrease of $1.1 million, or 52%. The decrease is attributable to
less interest earned on our investments due to the decline in interest rates.

LIQUIDITY AND CAPITAL RESOURCES

     At March 31, 2002, our principal source of liquidity was $142 million of
cash and cash equivalents and marketable securities compared to $136 million at
December 31, 2001. As of March 31, 2002, we had $226,000 of debt outstanding
relating to obligations under capital leases and deferred rent expense and an
obligation for severance pay to Israeli employees of $1.2 million that is fully
provided for by monthly deposits with severance pay funds, insurance policies
and by an accrual. As of March 31, 2002, our accumulated deficit was $24.8
million.

     Net cash provided by operating activities for the three months ended March
31, 2002 was $4.3 million compared to $677,000 in cash used in operating
activities for the three months ended March 31, 2001. Net cash provided by
operating activities for the three months ended March 31, 2002 was primarily the
result of net income for the period, increases in employee and payroll accruals,
a decrease in accounts receivable, the amortization of deferred stock
compensation, amortization of intangible assets, depreciation, and an increase
in deferred revenue for the period. These additive cash items were offset
primarily by an increase in other accounts receivable and prepaid expenses 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 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 used in investing activities was $3.8 million and $4.2 million for
the three-month periods ended March 31, 2002 and 2001, respectively. Investing
activities for both the three months ended March 31, 2002 and 2001 consisted of
purchases of available-for-sale marketable securities and capital expenditures
and in 2002 the purchase of other assets, offset by proceeds from the sale and
redemption of marketable securities. The majority of our capital investments
were for computers, peripheral equipment and software.

     Net cash provided by financing activities was $4.0 million and $0.4 million
for the three-month periods ended March 31, 2002 and 2001, respectively. Net
cash provided by financing activities for both the three months ended March 31,
2002 and 2001 were from the proceeds from the exercise of options.

     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

                                                                              17
<PAGE>

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
acquired companies, 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 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, Euro and British pound sterling, that could
cause our results of operations to fluctuate.

                                                                              18
<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

     (a) Exhibits

     Exhibit
     number    Description
     ------    -----------

     10.1      Employment agreement dated February 28, 2002 between Precise and
               J. Benjamin H. Nye
     10.2      Amended 2000 Employee Share Purchase Plan

     (b) Precise did not file any current reports on Form 8-K during the quarter
         ended March 31, 2002.



















                                                                              19
<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      5/14/02               By  /S/ Shimon Alon
     ----------------------        ---------------------------------------------
                                   Shimon Alon, Chief Executive Officer

Date      5/14/02               By  /S/ J. Benjamin Nye
     ----------------------        ---------------------------------------------
                                   J. Benjamin H. Nye, Chief Financial Officer
                                   and Chief Operating Officer

Date      5/14/02               By  /S/ Richard Forcier
     ----------------------        ---------------------------------------------
                                   Richard L. Forcier, Chief Accounting Officer






















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