<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


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

                                    FORM 10-Q

       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

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
         AND RESULTS OF OPERATIONS.............................................5


                                     PART II


ITEM 1.  LEGAL PROCEEDINGS.....................................................9


ITEM 2.  CHANGES IN SECURITIES.................................................9


ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS...................10


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


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









<PAGE>

<TABLE>
<CAPTION>



                                     PART I
Item 1.  Financial Statements

                               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                 -
       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>              <C>               <C>
                                                    ---------------------------------   ---------------------------------

Revenues:
  Consulting revenues                                   $27,716,194      $24,356,488       $50,043,272       $45,459,241
  Other revenues                                          1,139,095                                              785,521
                                                    ---------------      ------------     ------------        ----------
                                                                             542,710         2,454,237
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                                            5,673,298
                                                                           3,309,218         5,219,766
Other income (expense)                                       83,059        (152,486)           117,348         (446,804)
                                                    --------------    --------------    --------------      ------------

                                                            -------        ---------          -------
Income before income tax expense                          2,717,674                                            5,226,494
                                                                           3,156,732         5,337,114
Income tax expense                                       1,059,893                                            2,310,560
                                                    ---------------   -----             -----            --------------
                                                                          1,506,524         2,081,319
Net income before extraordinary gain                      1,657,781                                            2,915,934
                                                                           1,650,208         3,255,795
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                                            6,342,627
                                                    ===============   =====             =====            ==============
                                                                          6,550,873         9,028,838
  Diluted                                               10,029,667                                            7,138,113
                                                    === ===========   =====             =====            ==============
                                                                          7,236,602         9,844,817

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                                                (119,538)
                                                    --------          ------------------     ---------
                                                           (32,610)               -                                 -
                                                           --------               --                                -
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,
<S>                                                                           <C>                <C>
                                                                    ------------------------------------------
                                                                               1998                1997
                                                                    ------------------------------------------
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                                                          1,625,341
                                                                                    80,168
       Provision for possible losses                                                                  164,177
                                                                                    82,418
       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                                                                            (798,142)
                                                                                   146,198
            Accounts payable and accrued expenses                                  632,315          1,087,593
            Accrued compensation and benefits                                                       1,587,497
                                                                                 (937,989)
            Billings in excess of cost                                                              (971,364)
                                                                                 (695,396)
            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                                                                              (78,022)
                                                                                 (552,283)
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                                                                      (233,333)
                                                                                 (333,315)
Net borrowings from bank line of credit                                                             3,625,000
                                                                                   239,790
Principal payments on debt                                                                          (849,031)
                                                                                 (598,066)
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.





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

Overview

         Statements   included  in  Management's   Discussion  and  Analysis  of
Financial  Condition  and  Results of  Operations  which are not  historical  in
nature,  are  intended to be, and are hereby  identified  as,  "forward  looking
statements"  for  purposes  of the safe  harbor  provided  by Section 21E of the
Securities   Exchange   Act  of  1934,   as  amended   by  Public  Law   104-67.
Forward-looking  statements may be identified by words  including  "anticipate,"
"believe,"  "estimate," "expect" and similar  expressions.  The Company cautions
readers that  forward-looking  statements,  including without limitation,  those
relating to the Company's future business prospects,  revenues, working capital,
liquidity, and income, are subject to certain risks and uncertainties that would
cause  actual  results  to  differ   materially  from  those  indicated  in  the
forward-looking   statements,   due  to  several   important   factors  such  as
concentration  of the  Company's  revenues from a relatively  limited  number of
public and private clients  involved in the energy and network  industries,  the
Company's ability to attract,  retain and manage professional and administrative
staff, fluctuations in quarterly results, risks related to acquisitions, and the
fact that historical  operations and performance are not necessarily  indicative
of future operations and performance,  among others, and other risks and factors
identified  from  time to time in the  Company's  reports  filed  with  the SEC,
including the risk factors  identified in the Company's  Registration  Statement
(No.  333-22207) on Form S-1, the  Company's  Annual Report on Form 10-K for the
year ended December 31, 1997, and the Company's  Proxy Statement for its Special
Meeting of Stockholders dated July 27, 1998.


         The Company,  together with its wholly owned subsidiaries Hagler Bailly
Services,  Inc.,  Hagler  Bailly  Consulting,  Inc.,  HB Capital,  Inc.,  Apogee
Research,  Inc.,  TB&A Group,  Inc.,  and several of its  foreign  wholly  owned
subsidiaries,  provides  professional  services to corporations  and governments
worldwide.  The  Company's  focus  is on  energy,  network  industries  and  the
environment.

Recent Events

         On June 11, 1998 the Company  signed a definitive  agreement to combine
with Putnam, Hayes & Bartlett,  Inc. ("PHB"). The Company anticipates issuing up
to 6.6  million  shares  of its  common  stock  to  the  shareholders  of PHB in
connection with the  transaction.  PHB had gross revenues of  approximately  $63
million in 1997. For a copy of the definitive agreement, see the Company's Proxy
Statement for its Special Meeting of Stockholders dated July 27, 1998.

     On June 16,  1998 the  Company  and Cap Gemini  S.A.  and its wholly  owned
subsidiary Cap Gemini America,  Inc.  entered into an exclusive joint venture to
deliver  information  technology  consulting services and solutions to electric,
gas and water utilities and service providers in the U.S. and Canada.

     On June 30, 1998 the Company  acquired  all of the stock of Izsak Grapin in
exchange for 183,550 shares of its common stock.  The  transaction was accounted
for as a pooling of interests.
Results of Operations

     Revenues.  Revenues  increased 15.9% to $28.9 million for the quarter ended
June 30, 1998 from $24.9  million in the quarter  ended June 30, 1997.  Revenues
increased 13.5% to $52.5 million for the six months ended June 30, 1998 compared
to $46.2  million in the six months  ended June 30,  1997.  Consulting  revenues
increased 13.8% to $27.7 million for the quarter ended June 30, 1998 compared to
$24.4 million in the comparable period in 1997.  Consulting  revenues  increased
10.1% to $50.0  million for the six months ended June 30, 1998 compared to $45.5
million for the six months ended June 30, 1997.  These  increases are the result
of the Company's focus on the growth of international private sector engagements
by increasing capacity through the purchase of Estudio Q, S.R.L.  ("Estudio Q"),
an Argentinean  company,  and the acquisition of Izsak Grapin, a French company,
increased  volume in selected  public sector work, and the development of "other
revenues".    Other   revenues,   the   Company's   revenues   associated   with
information-based   products  and  services  and  financial  advisory  services,
increased 109.9% to $1.1 million for the quarter ended June 30, 1997 compared to
$0.5 million in the comparable period in 1997.

     Cost of Services. Cost of services increased 15.0% to $21.4 million for the
quarter  ended June 30, 1998 from $18.6  million for the quarter  ended June 30,
1997. Cost of services  increased 14.7% to $40.2 million in the six months ended
June 30, 1998  compared to $35.0 million for the six months ended June 30, 1997.
Cost of services increased due to the increase in revenue.

     Gross Profit.  Gross profit increased 18.6% to $7.5 million for the quarter
ended June 30, 1998 from $6.3 million for the quarter ended June 30, 1997. Gross
profit  increased  9.9% to $12.3  million in the six months  ended June 30, 1998
compared  to  $11.2  million  for  the  comparable  period.  Gross  profit  as a
percentage  of revenues  was 25.8% and 23.5% for the second  quarter and the six
months ended June 30, 1998 as compared to 25.2% and 24.3% for the second quarter
and the six months  ended June 30,  1997.  The  increase in gross margin for the
quarter is the result of the  additional  high margin  business from the private
sector   and   the   increased   profitability   in   "other   revenues",    the
information-based products and services and financial advisory services.

     Selling,  General  and  Administrative   Expenses.   Selling,  general  and
administrative  expenses  ("SG&A")  increased  to $4.8  million and $7.1 million
($3.8  million and $5.8  million,  exclusive  of merger  related  costs) for the
quarter and six months ended June 30, 1998.  As a  percentage  of revenue,  SG&A
increased to 16.7% (13.2%  without  merger  related costs) for the quarter ended
June  30  from  12%  for  the  comparable  1997  quarter.  The  increase  can be
attributable  to  costs  associated  with  continued   integration  of  business
combinations  and to the  merger  activity  related to PHB of $1.0  million.  In
addition,  the Company  significantly  increased marketing efforts in the second
quarter.

     Income From  Operations.  Income from  operations  was $2.6 million for the
quarter  ended June 30, 1998 compared to $3.3 million for the quarter ended June
30,  1997.  Income from  operations  decreased to $5.2 million in the six months
ended June 30, 1998  compared to $5.7  million for the six months ended June 30,
1997.  These  decreases  can  be  attributed  to the  merger-related  activities
described above.

     Other Income (Expense).  Other income (expense) was $0.08 million of income
for the  quarter  ended  June 30,  1998 and $(0.2)  million  of expense  for the
quarter  ended June 30,  1997,  $0.1  million  of income  and $(0.4)  million of
expense for the six months ended June 30, 1998 and June 30, 1997,  respectively.
The net change is due to the interest  income earned from the investment of cash
received  from the  issuance of common  stock in 1998 and the  reduction  of the
Company's debt in 1997.

     Income Tax  Expense.  Income tax expense  was $1.1  million for the quarter
ended June 30,  1998  compared to $1.5  million  for the quarter  ended June 30,
1997. Income tax expense was $2.1 million for the six months ended June 30, 1998
compared  to $2.3  million  for the six  months  ended  June 30,  1997.  For the
quarters  ended June 30,  1998 and 1997 income tax  expense as a  percentage  of
income before income tax expense was 39.0% and 47.7%, respectively,  and for the
six  month  periods  ended  June 30,  1998  and 1997  income  tax  expense  as a
percentage   of  income   before   income  tax  expense  was  39.0%  and  44.2%,
respectively.  The  company  accrues  income  tax at 39% of  income  before  tax
expense.  The additional amounts expensed in 1997 for the quarter and six months
ended June 30 are related to taxes associated with the extraordinary  gains from
the extinguishment of debt at more favorable terms to the Company.

     Net Income.  As a result of the preceding  information,  net income for the
quarter  ended June 30, 1998 was $1.7  million  compared to $2.4 million for the
quarter ended June 30, 1997.  Net income as a percentage  of revenue  (excluding
merger  related  costs of $1.0  million) was 7.9% for the quarter ended June 30,
1998 as compared to 6.6%,  excluding the extraordinary  gain, for the comparable
1997 period. Net income for the six months ended June 30, 1998 and 1997 was $3.2
million and $3.7 million, respectively. The decrease from 1997 to 1998 is due to
the extraordinary gain recognized in 1997. Liquidity and Capital Resources

     At June 30, 1998 and December 31, 1997, the Company had working  capital of
$45.1 million and $31.1  million,  respectively.  The $14.0 million  increase in
1998  is  primarily  due to the  private  placement  of  470,975  shares  of the
Company's  common  stock,  for  consideration  of $12.5  million,  to Cap Gemini
America,  Inc.  These shares were issued  concurrently  with the  formation of a
joint venture with Cap Gemini America, Inc., Cap Gemini Hagler Bailly L.L.C. The
increase can also be attributed to the growth in accounts receivable.

     Net cash used in operations consisted primarily of net income plus elements
of cash flows  related to accounts  receivable  and related  billings,  accounts
payable  and  accrued   compensation   adjusted  for  non-cash  items  including
depreciation and provision for possible  losses.  The use of funds in operations
of $5.9  million  for the six  months  ended  June  30,  1998 can  primarily  be
attributed to the growth in accounts receivable, the payment of bonuses, and the
payment of estimated taxes for the first and second quarters of 1998.

     Investment activities used $3.5 million and $0.7 million for the six months
ended  June 30,  1998  and  1997,  respectively.  Investment  expenditures  have
primarily been to purchase the stock of Estudio Q and the remaining  interest in
PT Hagler Bailly Indonesia,  the continued capital  expenditures for information
technology, software development and other resources necessary for the growth of
the Company.

     Financing  activities  provided  $11.2 million and $2.6 million for the six
months  ended June 30,  1998 and 1997,  respectively.  The funds  were  provided
primarily  through the issuance of common stock in  connection  with the private
placement  mentioned  above,  and in  1997,  primarily  through  the  use of the
Company's  credit  facility.  Net proceeds from equity financing are invested in
short-term, interest-bearing investment grade securities.

     The  Company's  primary  source of liquidity for the past twelve months has
been cash flows from financing,  periodically supplemented by borrowings under a
bank line of credit.  During the year ended  December  31,  1997,  the  Company,
through two of its  subsidiaries,  established  a $15 million  revolving  credit
facility and began borrowing  under the facility.  The balance under the line of
credit at June 30, 1998 was $0.2 million.  Currently,  the Company is evaluating
proposals  to  increase  its bank  line of credit to $50  million.  The  Company
believes that current  projected  levels of cash flows and the  availability  of
financing,  including borrowings under the Company's current and proposed credit
facility, will be adequate to fund its anticipated cash needs, which may include
future  acquisitions  of  complementary  businesses,  for at  least  the next 12
months. The Company,  depending on market conditions, may consider other sources
of financing, including equity financing.

     Prior to its  acquisition by Hagler Bailly and consistent with its dividend
policy, Izsak Grapin paid cash dividends of $333,315 in 1998.

     The Company  currently  anticipates that it will retain all of its earnings
for  development of the Company's  business and does not  anticipate  paying any
cash dividends in the foreseeable future.

Year 2000

         The Year 2000 ("Y2K") issue is a result of certain  information systems
and programs using a two-digit  format,  as opposed to four digits,  to indicate
the years. Such systems and programs will be unable to correctly interpret dates
beyond  the year 1999,  which  could  lead to system  failure  or certain  other
problems,  leading  to  disruption  in  operations.  The  Company  is  currently
developing  a plan for Y2K  information  systems  compliance.  The  Company  has
completed  a  preliminary  evaluation  of its  domestic  systems  and  does  not
anticipate  incurring any material  costs in connection  with assuring that they
are Y2K compliant.

         In the Company's  networked  systems area, all  applications  have been
identified as Y2K compliant due to their recent scheduled upgrade. The Company's
core  financial and reporting  systems are not Y2K compliant but the Company has
already  scheduled  their  replacement  by early 1999. In addition,  the Company
anticipates  being  provided  with a Y2K  compliant  upgrade to its current core
financial and reporting  systems software by the end of August 1998. The Company
believes it will incur a cost of approximately  $2.0 million to replace the core
financial and reporting systems.  This cost was budgeted for 1998 along with the
networked  systems  upgrade  and is not  considered  by  the  Company  as a cost
incurred to ensure Y2K compliance.  The Company has not yet assessed the cost of
ensuring  Y2K  compliance  of its  embedded  systems  but  does  not  anticipate
incurring material costs in connection with such compliance.

         The Company has not yet assessed the Y2K  compliance of (i) its foreign
operations  or  (ii)  its  suppliers  and  customers.  The  Company  anticipates
undertaking an assessment of the costs of ensuring Y2K compliance of its foreign
operations  by the end of  1998.  The  Company  is also  currently  planning  an
assessment of its exposure to Y2K non-compliance by its suppliers and customers.

         At the present time, the Company's  management  believes that the costs
associated with Y2K compliance  should not have a material adverse effect on the
results of  operations or financial  position of the Company in future  periods.
Nevertheless,  the  Company  is not  certain  that it has fully  identified  all
potential  impacts or effects on it that could  result from Y2K  non-compliance,
either  internally or with respect to the various  third-party  enterprises with
which it interacts.

                                     PART II

Item 1.  Legal Proceedings

         Hagler Bailly's indirect subsidiary,  Theodore Barry & Associates, is a
defendant  in a lawsuit  brought in the  United  States  District  Court for the
Northern District of Illinois,  Michael A. Laros v. Theodore Barry & Associates,
No.  95-C4175,  by one of its former  executives  seeking payment of a bonus and
salary allegedly due him and payment of principal and interest on a subordinated
note of TB&A held by Mr. Laros, prejudgment interest and costs and fees. TB&A is
defending the suit.  Hagler Bailly does not believe that the  resolution of this
lawsuit will have a material adverse effect on its business, financial condition
or results of operations.

         Apogee Research,  Inc. ("Apogee"),  one of Hagler Bailly's wholly owned
subsidiaries,  has received a subpoena from the Office of the Inspector  General
of the Environmental Protection Agency (the "EPA") requesting records from April
1993 through October 1995  pertaining to a contract  between Apogee and the EPA.
The work under this  contract  has been  completed.  The  subpoena was served in
connection  with an EPA  investigation  relating to the  submission of potential
false statements and false claims under the contract. Hagler Bailly is unable to
determine at this time what effect, if any, the  investigation  will have on its
business, financial condition or results of operations.

         Hagler  Bailly and its  subsidiaries  are from time to time  parties to
litigation arising in the ordinary course of business. Neither Hagler Bailly nor
any of its  subsidiaries is a party to any pending  material  litigation nor are
any of them aware of any  pending  or  threatened  litigation  that would have a
material adverse effect on Hagler Bailly or its business.


Item 2.  Changes in Securities

         On April 30, 1998 the Company acquired Estudio Q S.R.L.  ("Estudio Q"),
an Argentinean  company, for cash and stock. The Company issued 64,306 shares of
the  Company's  common  stock to the  shareholders  of  Estudio Q. The shares of
common  stock  issued  in  connection  with the  acquisition  were  exempt  from
registration  because they were issued in a transaction outside the jurisdiction
of the United States.

         On June 16, 1998 Cap Gemini America,  Inc.  purchased 470,975 shares of
the Company's common stock for $12.5 million.  The shares of common stock issued
in connection with this  transaction were exempt from  registration  pursuant to
Section 4(2) of the Securities Act of 1933.

         On June 30, 1998 the  Company  acquired  all the stock of Izsak  Grapin
("IGA"),  a French  company.  The Company issued 183,550 shares of the Company's
common  stock to the  shareholders  of IGA. The shares of common stock issued in
connection with this acquisition were exempt from registration because they were
issued in a transaction outside the jurisdiction of the United States.

         The Company issued 3,457 shares of its common stock in June 1998 to one
of its officers upon  exercise of options.  The shares of common stock issued in
connection  with this  transaction  were  exempt from  registration  pursuant to
Section 4(2) of the Securities Act 1933.


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

         At the Company's  annual meeting of stockholders  held on May 14, 1998,
the  stockholders  voted on the election of two directors to the Company's Board
of  Directors.  Vinod K.  Dar and  Fred M.  Schriever  were  elected  to serve a
three-year  term ending at the 2001 annual meeting of  stockholders.  The voting
for each director was as follows: <TABLE> <CAPTION>

<S>                                                 <C>                                     <C>
Name                                                     For                                 Withheld
Vinod K. Dar                                          6,635,056                               59,561
Fred M. Schriever                                     6,682,491                               12,126
</TABLE>


         At the meeting,  the stockholders also voted on the ratification of the
selection,  by the Audit Committee of the Board of Directors of the Company,  of
Ernst & Young LLP as  independent  auditors  of the  Company for its fiscal year
ending December 31, 1998.

                 For              Against                                Abstain
              6,693,187            1,400                                   30


Item 6. Exhibits and Reports on Form 8-K

(a)      Exhibits
<TABLE>
<CAPTION>

     Exhibit
        No.                                          Description
       <S>          <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.
</TABLE>


(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.




<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.



Date:  August 14, 1998                -----------------------
                                         Henri-Claude Bailly
                     President, Chief Executive Officer and
                                         Chairman of the Board


                                      /s/ Daniel M. Rouse
                                      -------------------
 Date: August 14, 1998                   Daniel M. Rouse
                                         Vice President, Chief Financial
                                         Officer and Treasurer