UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
 
                                 _______________
 
 
                                    FORM 10-Q
 
(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE ACT
OF 1934 
For the  quarterly  period  ended  March 31, 1999
 
                                       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 000-22327


                             PSW TECHNOLOGIES, INC.
             (Exact name of registrant as specified in its charter)

Delaware                                               
(State or other jurisdiction of incorporation or organization)    
       
74-2796054
(I.R.S. Employer Identification No.)


6300 Bridgepoint Parkway, Building 3, Suite 200, Austin Texas            78730  
(Address of principal executive offices)                              (Zip Code)

Registrant's telephone number, including area code   (512) 343-6666           


   Former name, former address and former fiscal year, 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 __________


     Indicate the number of shares  outstanding of each of the issuer's  classes
of common stock,  as of the latest  practicable  date:  9,357,236  shares of the
Company's Common Stock, $.01 par value, were outstanding as of April 30, 1999.
<PAGE>
                             PSW TECHNOLOGIES, INC.

                       Index to March 31, 1999, Form 10-Q

<TABLE>
<CAPTION>
                                                                                                                     


                                                                                                               Page
                                            Part I - Financial Information
<S>         <C>                                                                                               <C>
Item 1.     Financial Statements..................................................................................3

            Condensed Balance Sheets - March 31, 1999 and December 31, 1998.......................................3

            Condensed Statements of Operations - Three Months Ended
            March 31,1999 and 1998................................................................................4

            Condensed Statements of Cash Flows - Three Months Ended March 31,
            1999 and 1998.........................................................................................5

            Notes to Condensed Financial Statements...............................................................6

Item 2.     Management's Discussion and Analysis of
            Financial Condition and Results of Operations.........................................................8

Item 3.     Quantitative and Qualitative Disclosures about Market Risks..........................................16


                                            Part II - Other Information

Item 1.     Legal Proceedings....................................................................................17

Item 2.     Changes in Securities................................................................................17

Item 3.     Defaults upon Senior Securities......................................................................17

Item 4.     Submission of Matters to a Vote of Security Holders..................................................17

Item 5.     Other Information....................................................................................17

Item 6.     Exhibits and Reports on Form 8-K.....................................................................17

            Signatures...........................................................................................18
</TABLE>

                                       2
<PAGE>

                         Part 1 - FINANCIAL INFORMATION

Item 1. Financial Statements
<TABLE>
<CAPTION>

                             PSW Technologies, Inc.
                            Condensed Balance Sheets
                        (in thousands, except share data)

                                                                    March 31,
                                                                      1999             December 31,
                                                                   (Unaudited)            1998
                                                                   -----------         ------------
<S>                                                                <C>                 <C>>
Assets
Current assets:
   Cash                                                                   $ 875          $ 1,167
   Short-term investments                                                18,976           19,136
   Accounts receivable, net of allowance for doubtful
      accounts of  $267 at March 31, 1999 and $260
      at December 31, 1998                                                6,719            6,171
   Unbilled revenue under customer contracts                              1,944            1,070
    Income tax receivable                                                   551              896
    Net deferred taxes                                                      334              334
                                                                            750              572
Prepaid expenses and other current assets                             ---------        ---------   
Total current assets                                                     30,149           29,346
Property and equipment, net                                               4,220            4,005
                                                                      ---------        --------- 
Total assets                                                           $ 34,369         $ 33,351
                                                                      ==========       =========

Liabilities and stockholders' equity
Current liabilities:
   Trade payables                                                           522              460
   Accrued expenses and other current liabilities                         2,193            1,507
                                                                       ---------       ---------
Total current liabilities                                                 2,715            1,967

Net deferred taxes                                                          316              316

Stockholders' equity:
  Preferred stock, par value $.01 per share, 1,000,000
     shares authorized and none issued and outstanding                        -                -
  Common stock, par value $.01 per share, 34,000,000
     shares authorized, 9,356,438 and 9,293,866 shares
     issued and outstanding at March 31, 1999 and
     December 31, 1998, respectively                                         94               93
  Additional paid-in capital                                             29,998           29,995
  Deferred compensation                                                      (21)            (44)
  Accumulated other comprehensive income                                     22              (69)
  Retained earnings                                                       1,245            1,093
                                                                       ---------       ---------
Total stockholders' equity                                               31,338           31,068
                                                                       ---------       ---------
Total liabilities and stockholders' equity                              $ 34,369        $ 33,351

                                                                      ==========      ==========
                            See accompanying notes.
</TABLE>

                                       3
<PAGE>

                             PSW Technologies, Inc.
                       Condensed Statements of Operations
                      (in thousands, except per share data)
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                           Three Months
                                                                          Ended March 31,
                                                                   ------------------------------
                                                                         1999          1998
                                                                         ----          ----

<S>                                                                     <C>            <C>
Revenue                                                                 $10,394        $9,758

Operating expenses:
   Technical staff                                                        6,070         5,803
   Selling and administrative staff                                       2,229         2,549
   Other expenses                                                         2,093         1,927
   Special compensation expense                                               -            43
                                                                        --------      -------
Total operating expenses                                                 10,392        10,322
                                                                        --------      -------
Income (loss) from operations                                                 2          (564)

Interest income, net                                                        250           252
                                                                        --------      -------
Income (loss) before provision (benefit) for income taxes                   252          (312)
                                                                        --------      -------
Provision (benefit) for income taxes                                        100          (100)
                                                                        --------      -------
Net income (loss)                                                        $  152        $ (212)
                                                                        ========      ========
Basic earnings (loss) per share                                          $ 0.02       $ (0.02)
                                                                        ========      ========
Diluted earnings (loss) per share                                        $ 0.01       $ (0.02)
                                                                        ========      ========
Shares used in basic earnings (loss) per share calculation                9,325         8,990
                                                                        ========      ========
Shares used in diluted earnings (loss) per share calculation             10,230         8,990
                                                                        ========      ========


                            See accompanying notes.
</TABLE>

                                       4
<PAGE>

                             PSW Technologies, Inc.
                       Condensed Statements of Cash Flows
                                 (in thousands)
                                   (unaudited)

<TABLE>
<CAPTION>

                                                                            Three Months
                                                                            Ended March 31,
                                                                 -------------------------------------
                                                                            1999            1998
                                                                            ----            ----
<S>                                                                       <C>               <C>
Operating activities
Net income (loss)                                                          $ 152           $(212)
Adjustments to reconcile net income to net cash used in
   operating activities:
     Amortization of deferred compensation                                     -              43
     Depreciation and amortization                                           292             236
     Bad debt expense                                                          7              10
     Changes in operating assets and liabilities:
        Accounts receivable                                                 (555)             84
        Unbilled revenue under customer contracts                           (874)             (1)
        Prepaid expenses and other current assets                           (178)           (166)
        Income tax receivable                                                345               -
        Accounts payable and accrued expenses                                685            (391)
        Deferred revenue                                                       -               -
        Deferred income taxes                                                  -            (100)
                                                                         --------         -------
Net cash used in operating activities                                       (126)           (497)
                                                                         --------         -------
Investing activities
Proceeds from the sale of short-term investments                             251             762
Acquisition of property and equipment                                       (444)           (311)
                                                                         --------         -------
Net cash provided by (used in) investing activities                         (193)            451
                                                                         --------         -------
Financing activities
Proceeds from issuance of common stock, net of issuance cost                  27              20
                                                                         --------         -------
Net cash provided by (used in) financing activities                           27              20
                                                                         --------         -------
Net decrease in cash                                                        (292)            (26)
Cash, beginning of period                                                  1,167             835
                                                                         --------         -------
Cash, end of period                                                       $  875           $ 809
                                                                         ========        ========
Non-cash activities:
Unrealized gain on investments                                            $   91           $  39
Reduction of income taxes payable associated with the
     exercise of stock options                                            $    -           $  75




See accompanying notes.
</TABLE>

                                       5
<PAGE>

                             PSW Technologies, Inc.
                     Notes to Condensed Financial Statements
                                 March 31, 1999
                                   (unaudited)

1.       Basis of Presentation

PSW  Technologies,  Inc.  (the  "Company")  commenced  operations as a separate,
stand-alone  corporation  effective October 1, 1996. The accompanying  unaudited
financial statements have been prepared by the Company pursuant to the rules and
regulations  of the  Securities and Exchange  Commission  (the "SEC")  regarding
interim  financial  reporting.   Accordingly,   they  do  not  include  all  the
information and notes required by generally accepted  accounting  principles for
complete  financial  statements  and  should  be read in  conjunction  with  the
financial  statements  and notes  thereto for the year ended  December  31, 1998
included in the Company's annual report on Form 10-K. The accompanying financial
statements reflect  adjustments,  all of which are of a normal recurring nature,
which are, in the opinion of management,  necessary for a fair presentation. The
results for interim periods are not necessarily indicative of full year results.

2.       Significant Accounting Policies

Use of Estimates

The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires management to make estimates and assumptions that
could affect the financial  statements and  accompanying  notes.  Actual results
could differ from those estimates.

3.       Comprehensive Income

As of January 1, 1998, the Company adopted SFAS No. 130, Reporting Comprehensive
Income.  SFAS No. 130  establishes  new rules for the  reporting  and display of
comprehensive income and its components; however, the adoption of this Statement
had no impact on the Company's net income or shareholders'  equity. SFAS No. 130
requires  unrealized  gains  or  losses  on  the  Company's   available-for-sale
securities,  which prior to adoption were reported  separately in  shareholders'
equity, to be included in other comprehensive income.

The components of  comprehensive  income for the three month periods ended March
31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
                                                                                           1999              1998
                                                                                        ------------     -------------
<S>                                                                                         <C>              <C>  

Net income (loss)                                                                             $  152          $  (212)

Unrealized gain on short term investments                                                        152               39
Income tax expense related to items of other comprehensive income                                (61)             (12)
                                                                                        ____________     _____________
Comprehensive income (loss)                                                                   $  243          $  (185)
                                                                                        ============     =============
</TABLE>


The components of accumulated other  comprehensive  income at March 31, 1999 and
December 31, 1998 are as follows:

<TABLE>
<CAPTION>

                                                                                           1999              1998
                                                                                        ------------     -------------
<S>                                                                                       <C>               <C>

Unrealized gain (loss) on short term investments                                             $   22           $   (69)
                                                                                        ============     =============
</TABLE>


                                       6
<PAGE>


                             PSW Technologies, Inc.
               Notes to Condensed Financial Statements (Continued)
                                   (unaudited)

4.       Earnings per Share

The following table sets forth the computation of basic and diluted earnings per
share (in thousands, except per share data) for the three months ended March 31:
<TABLE>
<CAPTION>

                                                                       1999                 1998
                                                                  ---------------      ---------------
<S>                                                                    <C>                <C>
Numerator:
  Net income (loss)                                                     $    152           $    (212)
                                                                  ===============      ===============

Denominator:
  Shares used in basic earnings (loss) per
    share calculation                                                      9,325                8,990

  Effect of dilutive securities:
    Employee stock options                                                   424                    -
    Warrants                                                                 481                    -
                                                                  ---------------      ---------------
  Shares used in diluted earnings (loss) per
    share calculation                                                     10,230                8,990
                                                                  ===============      ===============

Basic earnings (loss) per share                                          $  0.02            $   (0.02)
                                                                  ===============      ===============

Diluted earnings (loss) per share                                        $  0.01            $   (0.02)
                                                                  ===============      ===============

</TABLE>

Options to purchase 1.74 million  shares of Common Stock at an average  exercise
price of $2.73 per share were  outstanding  at December 31, 1998,  respectively,
but were not included in the computation of diluted loss per share as its effect
would be anti-dilutive.


                                       7
<PAGE>


Item 2.

MANAGEMENT'S  DISCUSSION  AND  ANALYSIS OF  FINANCIAL  CONDITION  AND RESULTS OF
OPERATIONS

The discussion and analysis below contains  forward-looking  statements,  within
the meaning of Section 27A of the  Securities Act of 1933 and Section 21E of the
Securities  Exchange Act of 1934, that involve risks and uncertainties,  such as
statements for the plans,  objectives,  expectations and intentions of PSW. Such
forward  looking  statements are generally  accompanied by words such as "plan",
"estimate", "expect", "believe", "could", "would", "anticipate", "may", or other
words  that   convey   uncertainty   of  future   events  or   outcomes.   These
forward-looking  statements and other  statements  made elsewhere in this report
are made in reliance on the Private  Securities  Litigation  Reform Act of 1995.
The section below  entitled  "Certain  Factors That May Affect  Future  Results,
Financial  Condition and Market Price of Securities"  sets forth certain factors
that could cause actual future results of the Company to differ  materially from
these statements.

Overview

PSW  Technologies,  Inc.  (the  "Company"),  is a  software  services  firm that
provides high value  solutions to information  technology  ("IT") vendors and IT
users by mastering and applying  critical emerging  technologies,  including Web
based distributed  computing,  object oriented  development,  advanced operating
systems and systems  management  technologies.  IT vendors  primarily consist of
software  companies  who  utilize  the  Company's  services  to help bring their
products to market faster. IT users generally utilize the Company's  services to
help  define,  develop and  complete  high value,  mission  critical  enterprise
software systems for internal use. PSW provides joint project-based development,
porting  and testing  services  to  selected  IT vendor  clients and applies the
technical expertise learned to the design and development of high value, mission
critical enterprise business systems for its IT user clients.

To  date,  revenue  has  been  generated  principally  from   time-and-materials
contracts for the Company's software services.  Revenue from  time-and-materials
contracts is  recognized  during the period in which the services are  provided.
The Company also enters into fixed price  contracts  for its software  services.
Revenue    from   fixed    price    contracts    is    recognized    using   the
percentage-of-completion  method over the term of the client contract,  measured
by the labor  incurred  as a  percentage  of the  estimated  total labor used at
completion.  The  cumulative  impact of revisions in  percentage  of  completion
estimates is reflected in the period in which the revisions are made. Provisions
for estimated losses on uncompleted contracts are made on a contract-by-contract
basis and are  recognized  in the  period in which such  losses are  determined.
There  can  be no  assurance  of  the  accuracy  of the  Company's  future  work
completion  estimates,  and  operating  results  may be  adversely  affected  by
inaccurate estimates of contract related labor.




                                       8
<PAGE>


Results of Operations

The  following  table sets  forth the  percentage  of  revenue of certain  items
included in the  Company's  condensed  statement  of  operations  for the period
indicated:

                                                      Three Months
                                                     Ended March 31,
                                                ---------------------------
                                                       1999       1998
                                                       ----       ----

Revenue..................................               100%      100%
Operating expenses:
   Technical staff.......................                58        59
   Selling and administrative staff......                22        26
   Other expenses........................                20        20
   Special compensation expense..........                 -         1
Total operating expense..................               100       106
Income (loss) from operations............                 -        (6)
Interest income (expense), net...........                 2         3
Provision (benefit) from income taxes....                 1        (1)
                                                      ------     ------
Net income (loss)........................                 1%       (2)%
                                                      ======     ======


First Three Months of 1999 Compared with First Three Months of 1998

Revenue

The Company's revenue consists primarily of fees for software services provided.
Revenue was $10.4  million in the first three months of 1999,  an increase of 7%
from  $9.8  million  for the  first  three  months  of  1998.  The  increase  is
principally  due to an increase in IBM business and higher  average  revenue per
client offset  slightly by a decline in the number of clients  served during the
quarter.  Revenue  attributable to software  services rendered to IT vendors was
$6.5  million and $6.3 million in first three months of 1999 and the first three
months of 1998,  respectively,  an increase  of 3% in the first three  months of
1999 over the first  three  months of 1998.  Revenue  attributable  to  software
services  rendered to IT users was $3.9  million and $3.5  million for the first
three  months  of 1999 and the  first  three  months  of 1998,  respectively,  a
increase of 11% in the first three months of 1999 over the first three months of
1998.

IBM,  including  its wholly  owned  subsidiaries,  accounted  for 35% and 34% of
revenue  in each of the  first  three  months  of 1999 and  1998,  respectively.
Another client  accounted for 11% of revenue for the first three months of 1999.
No other client accounted for more than 10% of revenue for either period.

Technical Staff

Technical staff expenses consist of the cost of salaries,  payroll taxes, health
insurance,   other  benefits  and  workers'  compensation  for  technical  staff
personnel assigned to client projects and unassigned  technical staff personnel,
and fees paid to any  subcontractors  for work  performed in  connection  with a
client  project.  Technical  staff expenses were $6.1 million in the first three
months of 1999,  an increase of 5% over $5.8  million for the first three months
of 1998.  The increase in technical  staff  expenses was primarily due to higher
average salaries offset slightly by a lower headcount.  Technical staff expenses
decreased  to 58% of revenue in the first  three  months of 1999 from 59% in the
first three months of 1998, primarily as a result of higher revenue.

                                       9
<PAGE>


Selling and Administrative Staff

Selling  and  administrative  staff  expenses  consist of the cost of  salaries,
payroll taxes,  health insurance,  other benefits and workers'  compensation for
selling,  marketing  and  administrative  personnel,  and  all  commissions  and
bonuses.  Selling and  administrative  staff  expenses  were $2.2 million in the
first three  months of 1999,  a decrease  of 13% from $2.5  million in the first
three months of 1998. The decrease in selling and administrative  staff expenses
was  primarily  due to the  higher  efficiency  which  resulted  from  hiring  a
dedicated  sales staff.  Selling and  administrative  staff expenses were 22% of
revenue  in the first  three  months of 1999  compared  to 26% of revenue in the
first three  months of 1998,  primarily  as a result of increases in revenue and
less technical staff involvement in sales.

Other Expenses

Other expenses consist of all non-staff  related costs, such as occupancy costs,
travel,  business  insurance,  business  development,  recruiting,  training and
depreciation.  Other  expenses  were $2.1  million in the first three  months of
1999,  an increase of 9% over other  expenses of $1.9 million in the first three
months of 1998,  principally due to facility additions.  Other expenses were 20%
of revenue in the first three months of 1999 and the first three months of 1998.

Special Compensation Expense

Special compensation expense consists of stock-based  compensation in connection
with  the  grants  of  replacement   options  to  the  Company's  employees  who
participated  in the Pencom  Systems  Incorporated  stock option  plan.  Special
compensation  expense  was  $43,000 in the first  three  months of 1998 or 1% of
revenue.

Income (Loss) from Operations

The Company  recorded income from operations of $2,000 in the first three months
of 1999,  up from a $564,000  loss of income from  operations in the first three
months of 1998.  Income from operations was less than 1% of revenue in the first
three  months of 1999,  up from a loss from  operations  of 6% of revenue in the
first three months of 1998.

Income Taxes

The provision for income taxes of $100,000 for the quarter ended March 31, 1999,
is computed using an estimated  annual  effective tax rate of 40%, which differs
from the federal  statutory rate of 34% as a result of state taxes and permanent
differences for meals and entertainment expenses.

The benefit for income taxes of $100,000  for the quarter  ended March 31, 1998,
is computed using an estimated  annual  effective tax rate of 32%, which differs
from the federal statutory rate of 34% as a result of state taxes and tax-exempt
income.

Net Income (Loss)

Net  income  was  $152,000  in the first  three  months of 1999 and net loss was
$212,000 in the first three months of 1998.  Net income was 1% of revenue in the
first  three  months of 1999 and net loss was 2% of revenue  in the first  three
months of 1998.


                                       10
<PAGE>


Liquidity and Capital Resources

At March 31,  1999,  the  Company had cash and short term  investments  totaling
$19.9 million, a decrease from $20.3 million at December 31, 1998,  primarily as
a result of funding working capital requirements.

The  Company  maintains  a Credit  Facility  with a  bank,  which  provides  for
borrowings of up to $10 million,  subject to a borrowing base  requirement.  The
Credit Facility expires on May 1, 1999 and the company does not intend to renew.
Available  borrowings  under the Credit  Facility are based upon a percentage of
the Company's  eligible  accounts  receivable.  At March 31, 1999, no amount was
outstanding  under the Credit  Facility and the available  borrowing  amount was
$7.5 million.

The Company anticipates that its existing capital resources described above will
be adequate to fund the  Company's  operations  for at least the next 12 months.
There can be no  assurance  that  changes  will not  occur  that  would  consume
available capital resources before such time. The Company's capital requirements
depend on numerous factors, including potential acquisitions,  the timing of the
receipt of accounts  receivable,  employee growth and the percentage of projects
performed at the Company's facilities. There can be no assurance that additional
funding, if necessary, will be available on favorable terms, if at all.

Year 2000 Compliance

Many older computer systems and software products  currently in use are coded to
accept  only two digit  entries in the date code  field.  These date code fields
will need to accept four digit  entries to  distinguish  21st century dates from
20th century dates. As a result,  computer  systems and/or software used by many
companies will need to be upgraded to comply with such "Year 2000" requirements.

All of the  services  currently  offered by the Company are  designed to be Year
2000 compliant.  However, the Company's services are often integrated or used in
conjunction with third-party software;  such software may not be compatible with
the Company's services or Year 2000 compliant.  The Company may in the future be
subject  to claims  based on Year 2000  problems  in  other's  products,  custom
scripts  created by third parties to interface  with the  Company's  services or
issues arising from the  integration of multiple  products and systems within an
overall system. The costs of defending and resolving Year 2000-related disputes,
and any  liability  of the  Company  for Year  2000-related  damages,  including
consequential  damages,  could have a material  adverse  effect on the Company's
business, operating results and financial condition.

Over the past three years,  the Company has made Year 2000 compliance a priority
in IT purchasing and installation decisions.  The Company's internal information
technology  group has  adopted  a Year 2000  compliance  program  to assess  and
address any Year 2000 issues which remain related to the Company's IT and non-IT
systems.  The program  consists of the following  phases:  identifying Year 2000
application  issues,  updating  applications,  identifying Year 2000 systems and
operating  systems  issues,  collecting  manufacturer's  compliance  statements,
verifying  solutions  to Year 2000  issues,  updating  firmware  and phasing out
unsupported  hardware (such phases are complete),  and updating  and/or patching
operating  systems,  (such phase is in process and  scheduled to be completed in
the second  quarter of fiscal 1999).  As of April 1, 1999, the Company has spent
approximately  $29,000  of the  currently  estimated  $30,000  total cost of the
program.  Costs  incurred and expected to be incurred  consist  primarily of the
cost of Company  personnel  involved  in  updating  applications  and  operating
systems  and the  costs of  software  updates  and  patches  (many of which  are
provided  free of charge from the vendors).  Funds for the Year 2000  compliance
program are expected to be provided from available working capital.  The Company
has utilized the Company's internal technical personnel, and intends to continue
to use such  personnel,  to address Year 2000 issues,  rather than contract with
third-party consultants.


                                       11
<PAGE>


The  Company  has  completed  its  survey of third  parties  with which it has a
material  relationship  and it appears that the supply chain has competent  Year
2000 plans in place. The majority of the Company's  customers are  sophisticated
IT  vendors  and users who are  addressing  their own Year 2000  issues  and the
Company relies primarily on its own technical personnel and internal IT systems,
rather  than third  party  suppliers.  The  Company  has not  formulated  a most
reasonably likely worst case scenario or formulated a contingency plan.

Significant  uncertainty still exists as to the global  implications of the Year
2000 issue. The Company  believes that the purchasing  patterns of customers and
potential  customers  may be  affected by Year 2000 issues in a variety of ways.
Many companies  (including  customers of the Company, and customers or potential
customers of the Company's  customers)  are expending  significant  resources to
correct or patch  their  current  hardware  and  software  systems for Year 2000
compliance.  Such  expenditures  may result in reduced  funds  available for the
Company's  customers  to  pursue  product  development  programs  or IT  systems
enhancements for which the Company's  services would otherwise be utilized.  Any
of the foregoing,  including costs of defending and resolving Year  2000-related
disputes,  reductions  in  development  programs or IT systems  enhancements  by
customers  and their  customers  or the  failure of the  Company  to  adequately
resolve internal Year 2000 compliance  issues could result in a material adverse
effect on the Company's business, operating results and financial condition.

Certain Factors That May Affect Future Results, Financial Condition
   and Market Price of Securities

     Industry  Concentration;  Dependence  on Large  Projects.  The  Company has
derived and  believes it will  continue to derive a  significant  portion of its
revenue  from  the  technology  vendor  industry.  As a  result,  the  Company's
business,  financial  condition  and results of  operations  are  influenced  by
economic  and  other  conditions  affecting  such  industry,  such  as  economic
downturns  which could lead to a reduction in spending on IT projects,  which in
turn could lead to fewer new research and development outsourcing projects being
undertaken. Further, several of the Company's client contracts limit its ability
to provide  services to competitors  of such clients,  thereby  restricting  the
field of  potential  future  clients.  In  addition,  as a result of the dynamic
nature  of the IT vendor  industry,  the  Company  may lose  clients  due to the
acquisition, merger or consolidation of existing clients with entities which are
not current clients of the Company. The occurrence of any of the foregoing could
have a material adverse effect on the Company's  business,  financial  condition
and results of operations.

     Fixed-Price  Contracts and Other Project  Risks.  During 1998 and the first
three months of 1999, approximately 16% and 21%, respectively,  of the Company's
revenue was generated on a fixed price,  fixed-delivery-schedule ("fixed price")
basis,  rather than on a  time-and-materials  basis.  The  Company's  failure to
accurately  estimate the  resources  required  for a fixed price  project or its
failure to complete its  contractual  obligations in a timely manner  consistent
with the project plan upon which its fixed price  contract is based could have a
material  adverse  effect on the  Company's  business,  financial  condition and
results of operations. In the past, the Company has found it necessary to revise
project  plans  after  commencement  of the  project  and  commit  unanticipated
additional  resources  to  complete  certain  projects,  which  have  negatively
affected the profitability of such projects.  The Company may experience similar
situations  in the  future,  which could have a material  adverse  effect on the
Company's business,  financial condition and results of operations. In addition,
the  Company  may  establish   contract   prices   before  the  project   design
specifications are finalized, which could result in a fixed price that proves to
be too low and therefore  adversely  affects the Company's  business,  financial
condition and results of operations.


                                       12
<PAGE>


     Many of the Company's  engagements  involve  projects which are critical to
the operations of its clients' businesses and which provide benefits that may be
difficult to quantify.  The Company's failure to meet a client's expectations in
the  performance  of its services  could  damage the  Company's  reputation  and
adversely  affect its ability to attract new  business,  and may have a material
adverse effect upon its business, financial condition and results of operations.
The Company has undertaken,  and may in the future undertake,  projects in which
the Company guarantees  performance based upon defined operating  specifications
or guaranteed  delivery dates. The Company has also undertaken projects in which
a material  portion  of total  revenue is earned  based upon  meeting  specified
delivery  dates.  Unsatisfactory  performance or  unanticipated  difficulties or
delays in completing  such projects may result in client  dissatisfaction  and a
reduction  in payment  to, or payment of damages by, the  Company,  any of which
could  have a  material  adverse  effect on the  Company's  business,  financial
condition and results of operations.  There can be no assurance that the Company
will be able to limit its liability to clients, including liability arising from
the  Company's  failure to meet  clients'  expectations  in the  performance  of
services, through contractual provisions, insurance or otherwise.

     Management of Growth. The Company's growth has placed  significant  demands
on its  management  and  other  resources.  For  example,  the  Company's  staff
increased  from 167 full-time  employees at  December 31,  1994 to 379 full-time
employees  at March 31,  1999.  In order to manage its growth  effectively,  the
Company will need to continue to develop and improve its operational,  financial
and other internal systems,  as well as its business  development  capabilities,
and to continue to attract, train, retain, motivate and manage its employees. In
addition,  the Company's future success will depend in large part on its ability
to continue to maintain high rates of employee utilization, set fixed price fees
accurately, maintain project quality and meet delivery dates, all as the Company
seeks to increase the number of projects in which it is engaged.  If the Company
is unable to manage its growth and projects  effectively,  such inability  would
have a material  adverse  effect on the quality of the Company's  services,  its
ability  to retain key  personnel  and its  business,  financial  condition  and
results of operations.  No assurance can be given that the Company's growth will
continue to be achieved, or if achieved,  will be maintained or that the Company
will be successful in managing any such growth.

     Variability  of  Quarterly  Operating  Results.   The  Company's  quarterly
revenue,  expenses and operating  results have varied  significantly in the past
and are likely to vary significantly from quarter to quarter in the future. Such
quarterly  fluctuations are based on a number of factors,  including the number,
size and scope of  projects in which the  Company is  engaged,  the  contractual
terms and  degree  of  completion  of such  projects,  any  delays  incurred  in
connection  with a project,  the Company's  success in earning  bonuses or other
contingent  payments,  employee  hiring and utilization  rates,  the adequacy of
provisions  for losses,  the  accuracy of  estimates  of  resources  required to
complete ongoing projects and general economic  conditions.  Other factors which
may effect  operating  results  include  customer  budget  cycles  and  customer
spending priorities such as the Year 2000 compliance issue. A high percentage of
the Company's operating expenses,  particularly personnel and rent, are fixed in
advance of any particular quarter. For example, while the number of professional
staff the  Company  employs may be adjusted  to reflect  active  projects,  such
adjustments  take time and the  Company  must  maintain a  sufficient  number of
senior  professionals  to oversee  existing  client  engagements and to focus on
securing new client engagements.  As a result,  unanticipated  variations in the
number or progress  toward  completion of the Company's  projects or in employee
utilization rates may cause  significant  variations in operating results in any
particular  quarter  and  could  result  in  adverse  changes  to the  Company's
business,  financial  condition  and results of  operations.  Any  shortfall  in
revenue or earnings from expected levels or other failures to meet  expectations
of securities  analysts or the market in general regarding results of operations
could have an immediate and material  adverse  effect on the market price of the
Company's Common Stock. Given the possibility of such quarterly  fluctuations in
revenue or earnings,  the Company  believes  that  comparisons  of its quarterly
results of operations are not  necessarily  meaningful and that such results for
one quarter should not be relied upon as an indication of future performance.


                                       13
<PAGE>


     Need to Attract  and  Retain  Professional  Staff.  The  Company's  success
depends in large part upon its ability to attract,  train, retain,  motivate and
manage highly skilled employees,  particularly project managers and other senior
technical  personnel.  Significant  competition  exists for  employees  with the
skills required to perform the services offered by the Company,  and the Company
requires that a significant  number of such employees  travel to client sites to
perform services on its behalf,  which may make a position with the Company less
attractive  to  potential  employees.   Qualified  project  managers,   software
architects  and senior  technical  and  professional  staff are in great  demand
worldwide  and are  likely  to  remain a limited  resource  for the  foreseeable
future.  Furthermore,  there is a high rate of attrition  among such  personnel.
There can be no assurance that a sufficient  number of highly skilled  employees
will continue to be available to the Company,  that potential  employees will be
willing to travel to client  sites,  or that the Company will be  successful  in
training,  retaining and motivating  current or future employees.  The Company's
inability  to  attract,  train and retain  skilled  employees  or the  Company's
employees'  inability to achieve expected levels of performance could impair the
Company's  ability to adequately  manage and staff its existing  projects and to
bid for or obtain new  projects,  which in turn  would  have a material  adverse
effect on the Company's business, financial condition and results of operations.

     Rapid Technological Advances; Risk of Targeting Emerging Technologies.  The
Company has derived,  and will continue to derive, a substantial  portion of its
revenue  from  projects  based  on  client/server  and  internet  systems.   The
client/server  and  internet  systems  market is  continuing  to develop  and is
subject to rapid  technological  change.  The Company's future success will also
depend in part on its  ability  to  develop  IT  solutions  which keep pace with
continuing  changes in  information  processing  technology,  evolving  industry
standards and changing  client  preferences.  There can be no assurance that the
Company will be successful in addressing  these  developments in a timely manner
or that, if addressed,  the Company will be successful in the  marketplace.  The
Company's delay or failure to address these  developments  could have a material
adverse  effect on the Company's  business,  financial  condition and results of
operations. In addition, there can be no assurance that products or technologies
developed,  or services offered,  by third parties will not render the Company's
services noncompetitive or obsolete. The Company's Software Technology Unit also
seeks to identify  emerging  technologies  which it believes  will  develop into
critical technologies with broad application and longevity. Once identified, the
Company may commit  substantial  resources to provide services to the developers
of such technologies. No assurance can be given that the technologies identified
by the Company will develop into critical  technologies  with broad  application
and  longevity.  The failure of the Company to align  itself with such  critical
emerging  technologies  would have a material  adverse  affect on its  business,
financial condition and results of operations.

Changes  in Senior  Management.  The  Company  has  recently  announced  several
additions  and  changes in its  senior  management  team.  The  Company's  Chief
Executive  Officer,  Timothy D. Webb, joined the Company during 1998 and John M.
Velasquez,  Vice President of Enterprise Solutions, and Pedro A. Fernandez, Vice
President of Corporate  Strategy and  Marketing  joined the Company in the first
quarter of 1999.  With recently  named Vice  President of Software  Research and
Development  Solutions,  Kenneth L.  Drake and the Vice  President  of  Embedded
Systems  Solutions,  Brent R. Terry, the above team comprises the new operations
senior  management.  There can be no assurances  that such changes in the senior
management  of the Company will not adversely  affect the  Company's  results of
operations or financial  condition,  that the new members of the management team
will succeed in their roles in a timely or efficient manner or that they will be
satisfactorily    assimilated,   or   that   new   and   additional   management
responsibilities can be allocated effectively among such executives.  Failure by
the Company to assimilate new  executives,  or the failure of any such executive
to perform  effectively,  could have a material  adverse effect on the Company's
business, financial condition and results of operations.

Dependence on Key  Personnel.  The Company's  future success will depend in part
upon  the  continued   services  of  a  number  of  key  management   employees,
particularly  Timothy D. Webb,  Keith D.  Thatcher,  Kenneth L. Drake,  Pedro A.
Fernandez,  John M. Velasquez and Brent R. Terry,  and a number of key technical
employees.  The loss of the services of any of the Company's key personnel could
have a material adverse effect on the Company's  business,  financial  condition
and results of operations. The Company does not maintain key-person life

                                       14
<PAGE>


insurance on any of its employees.  In addition, if one or more of the Company's
key  employees  resigns  from  the  Company  to join a  competitor  or to form a
competing  company,  any resulting loss of existing or potential  clients to any
such competitor could have a material adverse effect on the Company's  business,
financial  condition and results of operations.  In the event of the loss of any
such  personnel,  there can be no  assurance  that the Company  would be able to
prevent the unauthorized disclosure or use of its technical knowledge, practices
or procedures by such personnel.

     System  Interruption  and Security  Risks.  The  Company's  operations  are
dependent on its ability to protect its  intranet  from  interruption  by damage
from  telecommunications  failure,  fire, earthquake,  power loss,  unauthorized
entry or other  events  beyond  the  Company's  control.  Most of the  Company's
computer equipment,  including its processing equipment, is currently located at
a single site.  There can be no assurance that  unanticipated  problems will not
cause any significant  system outage or data loss. Despite the implementation of
security  measures,  the  Company's  infrastructure  may also be  vulnerable  to
computer  viruses,  hackers or similar  disruptive  problems  caused by Internet
users.  Persistent problems continue to affect public and private data networks.
For example,  it is common for Internet service  providers to experience  system
interruptions which cause the Company to lose access to the Internet,  the means
by which the Company posts  internal  information  and provides  e-mail and time
sheet query and entry.  Any damage or failure that causes  interruptions  in the
Company's  operations  could have a  material  adverse  effect on the  Company's
business, financial condition and results of operations.

     Effect of Certain Antitakeover Provisions. The Company's Board of Directors
has the  authority  to issue  shares of  Preferred  Stock and to  determine  the
designations,  preferences and rights and the  qualifications or restrictions of
those shares without any further vote or action by the stockholders.  The rights
of the holders of Common Stock will be subject to, and may be adversely affected
by, the rights of the holders of any  Preferred  Stock that may be issued in the
future.  The issuance of Preferred Stock could have the effect of making it more
difficult  for a third  party to acquire a majority  of the  outstanding  voting
stock of the Company.  In addition,  the Company is subject to the  antitakeover
provisions of Section 203 of the Delaware General  Corporation Law (the "DGCL").
In general,  this statute  prohibits a publicly held Delaware  corporation  from
engaging in a "business  combination"  with an  "interested  stockholder"  for a
period of three  years  after the date of the  transaction  in which the  person
became an interested stockholder, unless the business combination is approved in
a prescribed  manner.  Furthermore,  certain  other  provisions of the Company's
Amended and  Restated  Certificate  of  Incorporation  and Amended and  Restated
Bylaws may have the effect of  discouraging,  delaying or  preventing  a merger,
tender offer or proxy contest,  which could adversely affect the market price of
the Company's Common Stock.

     Uncertainty Related to the Year 2000 Compliance Issues. Many older computer
systems  and  software  products  currently  in use are coded to accept only two
digit entries in the date code field. These date code fields will need to accept
four digit entries to distinguish 21st century dates from 20th century dates. As
a result,  in less than nine months,  computer  systems and/or  software used by
many  companies  will need to be  upgraded  to  comply  with  such  "Year  2000"
requirements. Significant uncertainty still exists as to the global implications
of the Year 2000 issue.  The Company  believes that the  purchasing  patterns of
customers  and  potential  customers  may be  affected  by Year 2000 issues in a
variety  of ways.  Many  companies  (including  customers  of the  Company,  and
customers  or potential  customers of the  Company's  customers)  are  expending
significant  resources to correct or patch their  current  hardware and software
systems for Year 2000 compliance.  Such expenditures may result in reduced funds
available for the Company's customers to pursue product development  programs or
IT systems  enhancements  for which the Company's  services  would  otherwise be
utilized. Any of the foregoing,  including costs of defending and resolving Year
2000-related  disputes,   reductions  in  development  programs  or  IT  systems
enhancements  by customers and their  customers or the failure of the Company to
adequately  resolve  internal  Year 2000  compliance  issues  could  result in a
material  adverse  effect  on the  Company's  business,  operating  results  and
financial condition.


                                       15
<PAGE>


Item 3.  Quantitative and Qualitative Disclosures about Market Risks

     The  Company  does  not  use  derivative   financial   instruments  in  its
non-trading  investment  portfolio.   The  Company  places  its  investments  in
instruments  that  meet high  credit  quality  standards,  as  specified  by the
Company's investment policy.

     The  Company is  exposed  to cash flow and fair value risk from  changes in
interest rates, which may affect its financial  position,  results of operations
and  cash  flows.   In  seeking  to  minimize  the  risks  from   interest  rate
fluctuations,  the Company manages exposures  through ongoing  evaluation of its
investment portfolio. The Company does not use financial instruments for trading
or other speculative purposes.
 
     The  table  below  provides  information  about the  Company's  non-trading
investment portfolio.  For investment  securities,  the table presents principal
cash  flows and  related  weighted  average  fixed  interest  rates by  expected
maturity dates.

<TABLE>
<CAPTION>
                                                     Investments
                                                       Maturing          Weighted           Fair Value
                                                        Before            Average               At
              At March 31, 1999                       March 31,          Interest           March 31,
    (in thousands, except interest rates)                2000              Rate                1999
-----------------------------------------------    -----------------    ------------    -------------------
<S>                                                       <C>                <C>                <C>

Money market funds                                         $  3,800           4.81%              $   3,800
Government issues                                             4,173           4.80%                  4,175
Corporate issues                                             11,023           5.41%                 11,001
                                                   -----------------    ------------    -------------------
                                                          $  18,996           5.16%             $   18,976
                                                   =================    ============    ===================


                                                     Investments         Weighted           Fair Value
                                                       Maturing           Average               At
             At December 31, 1998                       During           Interest          December 31,
    (in thousands, except interest rates)                1999              Rate                1998
-----------------------------------------------    -----------------    ------------    -------------------

Money market funds                                         $  1,571           4.70%              $   1,571
Government issues                                             2,723           4.79%                  2,710
Corporate issues                                             13,411           5.42%                 13,234
Commercial paper                                              1,635           5.14%                  1,621
                                                   -----------------    ------------    -------------------
                                                          $  19,340           5.25%             $   19,136
                                                   =================    ============    ===================

</TABLE>

                                       16
<PAGE>


                       PART II - OTHER INFORMATIONPART II


Item 1.   Legal Proceedings

          The Company is not a party to any material legal proceedings.

Item 2.   Changes in Securities

          None.

Item 3.   Defaults Upon Senior Securities

          None.

Item 4.   Submission of Matters to a Vote of Security Holders

          None.

Item 5.   Other Information

          None.

Item 6.   Exhibits and Reports on Form 8-K

          (a)Exhibits

Number            Description 
------            ----------- 
 
27.1 Financial Data Schedule
_________
 
          (b) Reports on Form 8-K


                None.



                                       17
<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.



                                       PSW TECHNOLOGIES, INC.
                                       (Registrant)



Date:  May 14, 1999                    /s/ Timothy D. Webb
                                       Timothy D. Webb
                                       President and Chief Executive Officer
                                       (Principal Executive Officer)





Date:  May 14, 1999                    /s/ Keith D. Thatcher
                                       Keith D. Thatcher
                                       Vice President of Finance, Treasurer and
                                       Chief Financial Officer
                                       (Principal Financial Officer)



Date:  May 14, 1999                    /s/ Kasaundra L. Smith
                                       Kasaundra L. Smith
                                       Controller
                                       (Principal Accounting Officer)

                                       18
<PAGE>