<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


--------------------------------------------------------------------------------

                                    FORM 10-Q

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

                  For the quarterly period ended June 30, 1998

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

             For the transition period from ________________________

                         Commission File Number: 0-29292


--------------------------------------------------------------------------------
                               HAGLER BAILLY, INC.
             (Exact name of registrant as specified in its charter)
--------------------------------------------------------------------------------


                                    Delaware
         (State or other jurisdiction of incorporation or organization)

                                   54-1759180
                      I.R.S. Employer Identification Number

              1530 Wilson Boulevard, Suite 400, Arlington, VA 22209
               (Address of principal executive offices) (Zip Code)


                                  703-351-0300
              (Registrant's telephone number, including area code)

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

As of July 31, 1998,  the  Registrant  had 9,647,616  shares of its common stock
outstanding.



<PAGE>






                                TABLE OF CONTENTS


                                     PART I

ITEM 1.  FINANCIAL STATEMENTS..................................................1

   CONSOLIDATED BALANCE SHEETS.................................................1
   CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)...........................2
   CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)...........................3
   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS..................................4



                                     PART II



ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K......................................10


SIGNATURES....................................................................14









<PAGE>




PART I

Item 1.  Financial Statements
<TABLE>
<CAPTION>

                                                Hagler Bailly, Inc.
                                            Consolidated Balance Sheets
                                                                                        June 30,       December 31,
                                                                                     ----------------------------------
                                                                                          1998             1997
<S>                                                                                     <C>              <C>
                                                                                     ----------------------------------
                                                                                       (unaudited)      (restated)
ASSETS

Current assets:
       Cash & cash equivalents                                                           $ 5,506,845       $ 3,967,527
       Investments                                                                         7,327,614         6,775,331
       Accounts receivable, net                                                           39,683,625        33,334,926
       Note receivable                                                                     1,000,000         1,000,000
       Prepaid expenses                                                                    3,765,808           731,067
       Other current assets                                                                  696,240         1,867,444
                                                                                          ----------        ----------
Total current assets                                                                      57,980,132        47,676,295
Property and equipment, net                                                                3,466,431         2,916,873
Software development costs, net                                                            2,474,319         2,463,174
Intangible assets, net                                                                     9,245,391         6,925,960
Other assets                                                                               1,143,151         1,289,349
Deferred income taxes                                                                         24,355           601,002
                                                                                          ----------        ----------
Total assets                                                                             $74,333,779       $61,872,653
                                                                                          ==========        ==========
LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
       Bank line of credit                                                               $   239,790       $         -
       Accounts payable and accrued expenses                                               6,175,979         5,543,664
       Accrued compensation and benefits                                                   4,158,829         5,096,818
       Billings in excess of cost                                                          1,061,812         1,757,208
       Notes payable-financial institution                                                         -           180,000
       Notes payable-related party                                                            14,877           620,417
       Current portion of long-term debt                                                     208,488                 -
       Deferred income taxes                                                                 887,210         1,383,689
       Income taxes payable                                                                   83,868         1,951,897
                                                                                          ----------        ----------
Total current liabilities                                                                 12,830,853        16,533,693
Long-term debt, net of current portion                                                             -            21,014
                                                                                          ----------        ----------
Total liabilities                                                                        $12,830,853       $16,554,707
Stockholders' equity:
       Preferred stock,  $0.01 par value, 5,000,000 shares authorized,
           none issued and outstanding                                                             -                 -
       Common stock, $0.01 par value,  20,000,000 shares  authorized;  9,606,579
           and 9,051,345 issued and outstanding in 1998 and 1997                              96,066            90,513
       Additional capital                                                                 54,889,128        41,436,216
       Retained earnings                                                                   6,713,696         3,791,217
       Foreign currency translation                                                        (195,964)                 -
                                                                                          ----------        ----------
Total stockholders' equity                                                                61,502,926        45,317,946
                                                                                          ----------        ----------
Total liabilities and stockholders' equity                                               $74,333,779       $61,872,653
                                                                                          ==========        ==========
                                               See accompanying notes.

</TABLE>

<PAGE>

<TABLE>
<CAPTION>


                                                Hagler Bailly, Inc.
                                       Consolidated Statements of Operations
                                                    (Unaudited)

                                                           Three months ended                   Six months ended
                                                                June 30,                            June 30,
                                                         1998              1997              1998             1997
<S>                                                   <C>              <C>
                                                    ---------------------------------   ---------------------------------
Revenues:
  Consulting revenues                                   $27,716,194      $24,356,488       $50,043,272       $45,459,241
  Other revenues                                          1,139,095          542,710         2,454,237           785,521
                                                         ----------       ----------        ----------        ----------
Total revenues                                           28,855,289       24,899,198        52,497,509        46,244,762
Cost of services                                         21,402,167       18,613,188        40,156,548        35,015,935
                                                         ----------       ----------        ----------        ----------
Gross profit                                              7,453,122        6,286,010        12,340,961        11,228,827
Merger related costs                                        995,672                -         1,362,930                 -
Selling, general and administrative expenses              3,822,835        2,976,792         5,758,265         5,490,660
Stock and stock option compensation                               -                -                 -            64,869
                                                         ----------       ----------        ----------        ----------
Income from operations                                    2,634,615        3,309,218         5,219,766         5,673,298
Other income (expense)                                       83,059        (152,486)           117,348         (446,804)
                                                         ----------       ----------        ----------        ----------           
Income before income tax expense                          2,717,674        3,156,732         5,337,114         5,226,494
Income tax expense                                        1,059,893        1,506,524         2,081,319         2,310,560
                                                         ----------       ----------        ----------        ----------
Net income before extraordinary gain                      1,657,781        1,650,208         3,255,795         2,915,934

Extraordinary gain, net of income tax expense
    of $55,906 tax for the three months ended
    June 30, 1997                                                 -          737,709                 -           737,709
                                                         ----------       ----------       -----------        ----------           
Net income                                               $1,657,781       $2,387,917        $3,255,795        $3,653,643
                                                         ==========       ==========       ===========        ==========

Net income per share:
  Basic:
    Net income before extraordinary gain                      $0.18            $0.25             $0.36             $0.46
    Extraordinary gain, net of income tax expense          $      -            $0.11           $     -             $0.12
    Net income                                                $0.18            $0.36             $0.36             $0.58
  Diluted:
    Net income before extraordinary gain                      $0.17            $0.23             $0.33             $0.41
    Extraordinary gain, net of income tax expense          $      -            $0.10          $      -             $0.10
    Net income                                                $0.17            $0.33             $0.33             $0.51
Weighted average shares outstanding:
  Basic                                                   9,188,013        6,550,873         9,028,838         6,342,627
                                                         ==========       ==========        ==========        ==========

  Diluted                                                10,029,667        7,236,602         9,844,817         7,138,113
                                                         ==========       ==========        ==========        ==========


Comprehensive income:
Net Income                                              $ 1,657,781      $ 2,387,917       $ 3,255,795       $ 3,653,643
  Foreign currency translation adjustment, net
    Of $20,849 and $76,426 tax, for the three
    Months and six months ended June 30, 1998              (32,610)                -         (119,538)                 -
                                                         ----------       ----------        ----------        ----------           
Comprehensive income                                    $1,625,171       $2,387,917        $3,136,257        $3,653,643
                                                        ===========   =  ===========    =  ===========   =   ==========

                                                See accompanying notes.

</TABLE>

<PAGE>

<TABLE>
<CAPTION>


                                                Hagler Bailly, Inc.
                                       Consolidated Statements of Cash Flows
                                                    (Unaudited)
                                                                              Six months ended June 30,
                                                                    ------------------------------------------
                                                                               1998                1997
<S>                                                                           <C>                <C>
                                                                    ------------------------------------------
OPERATING ACTIVITIES
Net income                                                                      $3,255,795         $3,653,643
Adjustments to reconcile net income to net cash used in
 operating activities:
       Depreciation and amortization                                             1,682,032          1,150,070
       Extraordinary gain                                                                -          (737,709)                      
       Provision for deferred income taxes                                          80,168          1,625,341
       Provision for possible losses                                                82,418            164,177
       Amortization of deferred stock compensation                                       -             64,869

       Changes in operating assets and liabilities:
            Accounts receivable                                                (6,431,114)        (4,460,520)
            Prepaid expenses                                                   (3,034,741)           (70,967)
            Other current assets                                                 1,171,204        (2,189,313)
            Other assets                                                           146,198          (798,142)
            Accounts payable and accrued expenses                                  632,315          1,087,593
            Accrued compensation and benefits                                    (937,989)          1,587,497
            Billings in excess of cost                                           (695,396)          (971,364)
            Income taxes payable                                               (1,868,029)            207,178
                                                                              ------------       ------------
Net cash provided by (used in) operating activities                            (5,917,139)            312,353

INVESTING ACTIVITIES
Acquisition of property and equipment                                          (1,362,469)          (637,491)
Purchase of investments                                                          (552,283)           (78,022)
Purchase of 100% interest in Estudio "Q" and PT Indonesia                      (1,099,765)                  -
Investment in software development                                               (500,000)                  -
                                                                              ------------       ------------
Net cash used in investing activities                                          (3,514,517)          (715,513)

FINANCING ACTIVITIES
Issuance of common stock, net of offering costs                                 11,858,529            116,969
Repurchase of common stock                                                               -           (45,857)
Dividends paid by Izsak Grapin                                                   (333,315)          (233,333)

Net borrowings from bank line of credit                                            239,790          3,625,000
Principal payments on debt                                                       (598,066)          (849,031)
                                                                              ------------       ------------
Net cash provided by financing activities                                       11,166,938          2,613,748
Net increase in cash and cash equivalents                                        1,735,282          2,210,588
Foreign currency gain (loss)                                                     (195,964)                  -
Cash and cash equivalents, beginning of period                                   3,967,527          2,043,567
                                                                              ------------       ------------
Cash and cash equivalents, end of period                                        $5,506,845         $4,254,155
                                                                              ============       ============

                                           See accompanying notes.
</TABLE>


<PAGE>


                               HAGLER BAILLY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1.  Basis of Presentation

     The accompanying  unaudited interim  consolidated  financial  statements of
Hagler Bailly,  Inc. (the "Company") have been prepared pursuant to the rules of
the Securities  and Exchange  Commission  ("SEC") for quarterly  reports on Form
10-Q and do not include all of the information and note disclosures  required by
generally  accepted  accounting  principles.  The information  furnished  herein
reflects  all  adjustments,  of a normal  recurring  nature,  which are,  in the
opinion of management,  necessary for a fair  presentation  of results for these
interim periods.

     The interim  results of operations  are not  necessarily  indicative of the
results to be expected for the entire fiscal year ending December 31, 1998.

     As a result of a business combination completed in the second quarter which
was  accounted  for as a pooling of interest as described  in Note 3 below,  all
consolidated  financial  statements  presented for the three-month and six-month
periods  ended  June 30,  1998 and 1997 and as of  December  31,  1997 have been
restated to include the results of operations  and financial  position of Izsak,
Grapin et Associes, S.A.R.L. ("Izsak Grapin"). These financial statements should
be read  in  conjunction  with  the  Company's  audited  consolidated  financial
statements and notes thereto for the year ended  December 31, 1997,  included in
the Form 10-K and restated in the Form 8-K filed on June 12, 1998.

Note 2. Earnings per Share

     Basic earnings per share is computed  based on the weighted  average number
of shares of common stock  outstanding  during the respective  periods.  Diluted
earnings  per share is inclusive of the  dilutive  effect of  unexercised  stock
options using the treasury stock method.

Note 3. Pooling of Interests

     On June 30, 1998, the Company  acquired all of the stock of Izsak Grapin in
exchange for 183,550 shares of the Company's  common stock.  The transaction was
accounted for as a pooling of interests.  Accordingly,  the Company's  financial
statements  have been  restated to include  the results of Izsak  Grapin for all
periods presented.

Note 4.  Cash Dividend

     Retained earnings for 1998 were reduced by a cash dividend of $333,316 paid
by Izsak Grapin, the pooling of interest  transaction  detailed in Note 3 above,
prior to its  acquisition by the Company.  The dividends per share for the Izsak
Grapin stock were $1.82.

<PAGE>





                                     PART II




Item 6. Exhibits and Reports on Form 8-K
<TABLE>
<CAPTION>

(a)      Exhibits

     Exhibit
        No.                                          Description

       <S>          <C>                                                                                             <C>
        2            Sale Agreement between RCG International, Inc., and Hagler Bailly Consulting, Inc. (1)
        2.1          Agreement  and Plan of Merger by and among Hagler  Bailly,  Inc.,  Hagler  Bailly  Acquisition
                     Corp. 1997-1 and Apogee Research, Inc., dated as of November 18, 1997. (3)
        2.2          Agreement and Plan of Merger by and among Hagler  Bailly,  Inc.,  PHB  Acquisition  Corp.  and
                     Putnam, Hayes and Bartlett, Inc., dated as of June 11, 1998. (5)
        3.1          Amended and Restated Certificate of Incorporation of the Company (1)
        3.2          By-Laws of the Company, as amended
        4            Specimen Stock Certificates (1)
        4.1          Escrow  Agreement  dated  December 1, 1997 by and among Hagler  Bailly,  Inc.,  Hagler  Bailly
                     Acquisition Corp.  1997-1,  Richard R. Mudge as Stockholders'  Representative and State Street
                     Bank and Trust Company, as Escrow Agent. (3)
        4.2          Registration  Rights Agreement dated November 18, 1997 by and between Hagler Bailly,  Inc. and
                     Richard R. Mudge, acting as Stockholders' Representation. (3)
        10.1         Hagler  Bailly,  Inc.  Amended and Restated 1996 Employee  Incentive and  Non-Qualified  Stock
                     Option and Restricted Stock Plan (including forms of option agreements). (1)
        10.2         Form of Non-Compete,  Confidentiality  and Registration  Rights Agreement  between the Company
                     and each stockholder. (1)
        10.3         Form of Amended and Restated  Employment  Agreement  between the Company and  Henri-Claude  A.
                     Bailly. (1)
        10.4         Lease by and between Wilson Boulevard  Venture and RCG/Hagler  Bailly,  Inc. dated October 25,
                     1991. (1)
        10.5         First  Amendment  to Lease by and between  Wilson  Boulevard  Venture and  RCG/Hagler  Bailly,
                     Inc., dated February 26, 1993. (1)
        10.6         Second  Amendment to Lease by and between  Wilson  Boulevard  Venture and  RCG/Hagler  Bailly,
                     Inc., dated December 12, 1994. (1)
        10.7         Lease by and between  Bresta Futura V.B.V.  and Hagler Bailly  Consulting,  Inc.  dated May 8,
                     1996. (1)
        10.8         Lease by and between L.C.  Fulenwider,  Inc., and RCG/Hagler  Bailly,  Inc. dated December 14,
                     1994. (1)
        10.9         Lease by and between  University of Research Park  Facilities  Corp.  and  RCG/Hagler  Bailly,
                     Inc., dated April 1, 1995. (1)
        10.10        Credit  Agreement  by and between  Hagler  Bailly  Consulting,  Inc. and State Street Bank and
                     Trust Company, dated May 17, 1995. (1)
        10.11        Amendment to Credit Agreement by and between Hagler Bailly  Consulting,  Inc. and State Street
                     Bank and Trust Company, dated as of June 20, 1996. (1)
        10.12        Extension  Agreement by and between Hagler Bailly  Consulting,  Inc. and State Street Bank and
                     Trust Company, dated as of August 1, 1996. (1)
        10.13        Amendment to Credit Agreement by and between Hagler Bailly  Consulting,  Inc. and State Street
                     Bank and Trust Company, dated as of November 12, 1996. (1)
        10.14        Term Note by and between  Hagler  Bailly  Consulting,  Inc.,  and State  Street Bank and Trust
                     Company, dated May 26, 1995. (1)
        10.15        Revolving  Credit Note by and between  Hagler  Bailly  Consulting,  Inc. and State Street Bank
                     and Trust Company dated May 26, 1995. (1)
        10.16        Amendment  to Credit  Agreement  by and between  Hagler  Bailly  Consulting,  Inc.,  and State
                     Street Bank and Trust Company, dated as of June 12, 1997. (1)
        10.17        Credit Agreement by and among Hagler Bailly  Consulting,  Inc.,  Hagler Bailly Services,  Inc.
                     and State Street Bank and Trust Company, dated as of September 30, 1997. (2)
        10.18        Promissory Note by Hagler Bailly  Consulting,  Inc. and Hagler Bailly Services,  Inc. to State
                     Street Bank and Trust Company, dated September 30, 1997. (2)
        10.19        Security  Agreement by and between  Hagler Bailly  Consulting,  Inc. and State Street Bank and
                     Trust Company, dated as of September 30, 1997. (2)
        10.20        Security  Agreement  by and between  Hagler  Bailly  Services,  Inc. and State Street Bank and
                     Trust Company, dated as of September 30, 1997. (2)
        10.21        Guaranties by Hagler  Bailly,  Inc. to State Street Bank and Trust  Company,  dated  September
                     30, 1997. (2)
        10.22        Guaranties by HB Capital,  Inc. to State Street Bank and Trust  Company,  dated  September 30,
                     1997. (2)
        10.23        Subordination  Agreement  and Negative  Pledge/Sale  Agreement by and between  Hagler  Bailly,
                     Inc.  and State  Street  Bank and Trust  Company for Hagler  Bailly  Consulting,  Inc.,  dated
                     September 30, 1997. (2)
        10.24        Subordination  Agreement  and Negative  Pledge/Sale  Agreement by and between  Hagler  Bailly,
                     Inc.  and State  Street  Bank and Trust  Company  for  Hagler  Bailly  Services,  Inc.,  dated
                     September 30, 1997. (2)
        10.25        Guaranty of Monetary  Obligations to Bresta Futura V.B.V. by Hagler Bailly,  Inc.,  dated July
                     23, 1997. (2)
        10.26        Amendment to Credit Agreement by and between Hagler Bailly  Consulting,  Inc. and State Street
                     Bank and Trust Company dated May 18, 1998.
        10.27        Sublease  Agreement by and between  Coopers and Lybrand L.L.P.  and Hagler Bailly,  Inc. dated
                     December 5, 1997.
        21           Subsidiaries (4)
        24           Powers of Attorney (included on Signature Pages) (1)
        27.1         Financial Data Schedule - June 30, 1998
        27.2         Restated Financial Data Schedule - March 31, 1998
        27.3         Restated Financial Data Schedule - December 31, 1997
        27.4         Restated Financial Data Schedule - September 30, 1997
        27.5         Restated Financial Data Schedule - June 30, 1997
        27.6         Restated Financial Data Schedule - March 31, 1997
        27.7         Restated Financial Data Schedule - December 31, 1996

-------------------------------------------------------------------------------------------------------------------
         (1)         Included in the Company's Registration Statement on Form S-1 (No. 333-22207)
         (2)         Included in the Company's  Quarterly  Report on Form 10-Q for the quarter ended  September 30,
                     1997.
         (3)         Included in the Company's Current Report on Form 8-K filed on December 16, 1998.
         (4)         Included in the Company's Annual Report on Form 10-K for the year ended December 31, 1997.
         (5)         Included in the Company's Proxy  Statement for Special Meeting of Stockholders  dated July 27,
                     1998 on Form DEF 14A.

(b)      Reports on Form 8-K

     On June 12,  1998 the  Company  filed a current  report on Form 8-K,  which
restated the Hagler  Bailly's 1997 audited  financial  statements to reflect the
merger of one of the  Company's  wholly  owned  subsidiaries  with and into TB&A
Group, Inc. which took place after December 31, 1997.

</TABLE>



<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.


                                    /s/ Henri-Claude Bailly
                                    ------------------------
Date:  August 21, 1998              Henri-Claude Bailly
                                    President, Chief Executive Officer and
                                    Chairman of the Board



                                    /s/ Daniel M. Rouse
                                    --------------------------
 Date: August 21, 1998              Daniel M. Rouse
                                    Vice President, Chief Financial Officer and
                                    Treasurer