<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 September 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 October 31, 1998, the Registrant had 16,212,602 shares of its common stock
outstanding.


<PAGE>


                                TABLE OF CONTENTS


                                     PART I

Item 1.  Financial Statements..................................................1

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




                                     PART II



Item 1.  Legal Proceedings....................................................12


Item 2.  Changes in Securities................................................12


Item 4. Submission of Matters to a Vote of Security Holders...................12


Item 6. Exhibits and Reports on Form 8-K......................................13


SIGNATURES....................................................................17




<PAGE>
<TABLE>
<CAPTION>






                                     PART I

Item 1.  Financial Statements

                                                          Hagler Bailly, Inc.
                                                      Consolidated Balance Sheets

                                                                                      September 30,        December 31,
                                                                                           1998                1997
                                                                                    ---------------------------------------
<S>                                                                                        <C>              <C>    
                                                                                                            (restated               
Assets                                                                                 (unaudited)          unaudited)
Current assets:
       Cash & cash equivalents                                                            $  7,560,450       $  11,813,067
       Accounts receivable, net of allowance of $3,247,015 and $3,872,703
            in 1998 and 1997, respectively                                                  66,805,838          51,856,553
       Prepaid expenses                                                                      6,458,801           1,501,447
       Other current assets                                                                  4,781,593           2,867,444
                                                                                    ---------------------------------------
Total current assets                                                                        85,606,682          68,038,511

Property and equipment, net of accumulated depreciation of $12,823,124
        and $11,063,142, respectively                                                        6,640,658           5,512,634
Software development costs, net of accumulated amortization of $515,648
        and $49,000, respectively                                                            1,399,929           2,463,173
Intangible assets, net of accumulated amortization of $2,333,100
        and $1,752,712, respectively                                                         9,045,270           6,925,960
Deferred taxes                                                                                  24,355           1,269,684
Other assets                                                                                 1,333,845           1,598,410
                                                                                    ---------------------------------------
Total assets                                                                             $ 104,050,739       $  85,808,372
                                                                                    =======================================         
Liabilities and stockholders' equity 
Current liabilities:
       Bank line of credit                                                                $  4,700,000        $  1,500,000
       Accounts payable and accrued expenses                                                 7,837,460           9,555,716
       Accrued compensation and benefits                                                    11,918,217          17,033,297
       Billings in excess of cost                                                            2,584,733           3,125,738
       Current portion of long-term debt                                                       249,647             947,367
       Income taxes currently payable                                                        4,360,804           3,107,946
       Deferred taxes                                                                          887,210                   -
                                                                                    ------------------- -------------------
Total current liabilities                                                                   32,538,071          35,270,064
Long-term debt, net of current portion                                                               -             305,424
Deferred income taxes                                                                                -           1,383,688
                                                                                    ------------------- -------------------         
Total liabilities                                                                           32,538,071          36,959,176
Stockholders' equity:
       Common stock, $0.01 par value, 50,000,000 shares authorized;
           16,210,102 and 15,473,735 issued and outstanding                                    162,101             154,737
       Additional capital                                                                   70,701,275          53,837,452
       Retained earnings (deficit)                                                             841,669         (5,161,356)
       Foreign currency translation                                                          (192,377)              18,363
                                                                                    ------------------- -------------------         
Total stockholders' equity                                                                  71,512,668          48,849,196
                                                                                    ------------------- -------------------
                                                                                    =================== ===================
Total liabilities and stockholders' equity                                               $ 104,050,739        $ 85,808,372
                                                                                    =================== ===================
                             See accompanying notes.

</TABLE>
<PAGE>
<TABLE>
<CAPTION>


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

                                                                 Three months ended                       Nine months ended
                                                                    September 30,                           September 30,
                                                               1998               1997                1998                1997
                                                                               (restated)                              (restated)
                                                       -----------------  -----------------   -----------------  -------------------
<S>                                                         <C>                <C>                <C>                  <C>    
Revenues:
  Consulting revenues                                      $ 44,201,405        $42,441,400       $ 127,339,475         $ 119,665,349
  Other revenues                                              2,288,712            910,954           4,742,949             1,696,475
                                                       -----------------  -----------------   -----------------  -------------------
Total revenues                                               46,490,117         43,352,354         132,082,424           121,361,824
Cost of services                                             33,130,823         33,445,979          94,812,408            92,647,211
                                                       -----------------  -----------------   -----------------  -------------------
Gross profit                                                 13,359,294          9,906,375          37,270,016            28,714,613
Merger and related costs                                      2,493,213                  -           4,212,143                     -
Selling, general and administrative expenses                  6,905,116          6,790,595          18,297,979            18,596,898
Stock and stock option compensation                                   -                  -           2,595,200                64,869
                                                       -----------------  -----------------   -----------------  -------------------
Income from operations                                        3,960,965          3,115,780          12,164,694            10,052,846
Other income (expenses), net                                    258,230            217,033             179,684             (409,075)
                                                       -----------------  -----------------   -----------------  -------------------
Income before income tax expense                              4,219,195          3,332,813          12,344,378             9,643,771
Income tax expense                                            1,713,593          1,150,187           6,008,042             3,992,671
                                                       -----------------  -----------------   -----------------  -------------------
Net income before extraordinary gain                          2,505,602          2,182,626           6,336,336             5,651,100
Extraordinary gain, net of income tax expense of                                                                             
    $1,739 and $57,645 for the three and nine months                                                                                
    ended September 30, 1997                                          -             22,943                   -               760,652


                                                       -----------------  -----------------   -----------------  -------------------
Net income                                                  $ 2,505,602        $ 2,205,569          $6,336,336          $  6,411,752
                                                       =================  =================   =================  ===================
Net income per share:
  Basic:
    Net income before extraordinary gain                       $   0.15           $   0.15            $   0.38              $   0.44
    Extraordinary gain, net of income tax expense              $      -           $      -            $      -              $   0.06
    Net income                                                 $   0.15           $   0.15            $   0.38              $   0.50
  Diluted:
    Net income before extraordinary gain                       $   0.15           $   0.14            $   0.36              $   0.41
    Extraordinary gain, net of income tax expense              $      -           $      -            $      -              $   0.06
    Net income                                                 $   0.15           $   0.14            $   0.36              $   0.47
Weighted average shares outstanding:
  Basic                                                      16,195,462         14,611,447          16,635,737            12,790,923
                                                       =================  =================   =================  ===================
  Diluted                                                    16,939,346         15,439,613          17,427,411            13,715,075
                                                       =================  =================   =================  ===================

Comprehensive income:
Net Income                                                   $2,505,602        $ 2,205,569         $ 6,336,336          $  6,411,752
Foreign currency translation adjustment, net of tax                                                                                 
   expense (benefit) of ($12,292) and $82,199 for the                                                                               
   three and nine months in 1998, and $6,084 and                                                                                    
   $7,772 for the three and nine months in 1997                  19,227            (9,517)           (128,551)              (12,156)
                                                       -----------------  -----------------   -----------------  -------------------

                                                       =================  =================   =================  ===================
Comprehensive income                                        $ 2,524,829        $ 2,196,052         $ 6,207,785          $  6,399,596
                                                       =================  =================   =================  ===================
                                                       See accompanying notes.

</TABLE>
<PAGE>

<TABLE>
<CAPTION>

                                                          Hagler Bailly, Inc.
                                                 Consolidated Statements of Cash Flows
                                                              (Unaudited)

                                                                             Nine months ended September 30,
                                                                               1998                  1997
                                                                                                  (restated)
                                                                        -------------------   --------------------
<S>                                                                           <C>                    <C>    
Operating activities

Net income                                                                     $ 6,336,336           $  6,411,752
Adjustments to reconcile net income to net cash (used in)
   provided by operating activities:

       Depreciation and amortization                                             2,864,637              1,981,391
       Amortization of software development costs                                  615,798                      -                   
       Extraordinary gain                                                                -               (22,943)
       Provision for deferred income taxes                                         748,850              1,502,494
       Provision for accounts receivable                                         (625,689)              (553,718)
       Disposal of fixed assets                                                    174,650                      -
       Asset impairment                                                            456,493                      -
       Amortization of deferred stock compensation                               2,595,200                 64,869

       Changes in operating assets and liabilities:

             Accounts receivable                                              (14,323,597)            (9,831,411)
             Prepaid expenses                                                  (4,957,354)            (1,294,315)                   
             Other current assets                                              (1,914,149)            (1,007,626)                   
             Other assets - non current                                            264,562              (179,519)                   
             Accounts payable and accrued expenses                             (1,718,250)                644,900                   
             Accrued compensation and benefits                                 (5,115,080)              8,094,547                   
             Billings in excess of cost                                          (541,005)              (918,295)
             Income taxes payable                                                1,252,858                124,065
                                                                        -------------------   --------------------                  
Net cash (used in) provided by operating activities                           (13,885,740)              5,016,191

Investing activities

Acquisition of property and equipment                                          (3,595,971)            (1,841,659)                   
Investment in common stock of subsidiaries                                     (1,099,765)                      -                   
                                                                        -------------------   --------------------
Net Cash used in investing activities                                          (4,695,736)            (1,841,659)
Financing activities

Issuance of common stock, net of offering costs                                          -             30,579,973
Sale of common stock                                                            12,676,054                      -                   

Dividends paid by foreign subsidiary                                             (333,311)              (233,333)                   
Net borrowings (payments) from bank line of credit                               3,200,000            (3,750,000)                   
Principal payments on debt                                                     (1,003,144)           (10,696,818)
                                                                        -------------------   --------------------
Net cash provided by financing activities                                       14,539,599             15,899,822
Net (decrease) increase in cash and cash equivalents                           (4,041,877)             19,074,354                   
Foreign currency loss                                                            (210,740)               (19,928)

Cash and cash equivalents, beginning of period                                  11,813,067              3,218,708
                                                                        -------------------   --------------------
Cash and cash equivalents, end of period                                       $ 7,560,450           $ 22,273,134
                                                                        ===================   ====================

                                             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 third quarter which
was  accounted  for as a pooling of interests as described in Note 3 below,  all
consolidated  financial  statements presented for the three-month and nine-month
periods ended  September 30, 1998 and 1997 and as of December 31, 1997 have been
restated to include the results of operations and financial  position of Putnam,
Hayes & Bartlett,  Inc.  ("PHB").  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 Company's
Proxy Statement for its Special Meeting of Stockholders  dated July 24, 1998 and
the Form 8-K filed on November 13, 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 August 28, 1998, the Company exchanged 6,548,953 shares of the Company's
common stock for all of the stock of PHB. The transaction was accounted for as a
pooling of interests.  Accordingly, the Company's financial statements have been
restated to include the results of PHB for all periods presented.

Note 4. Cash Dividend

     Retained  earnings  for 1998 were reduced by the payment of the annual cash
dividend of $333,311 paid to shareholders by Izsak,  Grapin et Associes  ("IGA")
consistent  with IGA's  historical  practice  and prior to its  merger  with the
Company. The acquisition was accounted for as a pooling of interests transaction
in the second quarter.

Note 5. Merger and Related Costs

     Cost of effecting  mergers and  subsequently  integrating the operations of
the various  merged  companies  are  recorded  as merger and related  costs when
incurred.  These  costs  consist  primarily  of  direct  merger  costs  such  as
investment banking,  legal, accounting and filing fees, as well as related costs
incurred  to  realign  corporate,   administrative,   and  personnel  functions,
implement  efficiencies with regard to information  systems and offices,  change
the corporate identity for the acquired  companies,  and other expenses incurred
to integrate  operations.  Also included were  non-recurring  charges  including
certain asset impairments  relating to software development costs as a result of
the Company's evaluation of the fair value of these assets.


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 24,
1998.

     The Company,  together  with its wholly owned  subsidiaries  Hagler  Bailly
Services,  Inc.,  Hagler  Bailly  Consulting,  Inc.,  HB Capital,  Inc.,  Apogee
Research, Inc. ("Apogee"), TB&A Group, Inc. ("TB&A"), and as of August 28, 1998,
PHB,  and  several of its  foreign  wholly  owned  subsidiaries,  is a worldwide
provider of consulting, research and other professional services to corporations
and   governments  on  energy,   telecommunication,   transportation,   and  the
environment.  As of September 1, 1998, Hagler Bailly employed a staff of 700, of
which over two-thirds were consulting and technical professionals. The Company's
common stock is quoted on the NASDAQ National Market under the symbol, "HBIX".

     The Company's  revenues consist of consulting  revenues and other revenues.
Consulting  revenues  represent  revenues  associated with  professional  staff,
subcontractors and independent consultants, and client reimbursable expenses and
are associated with the Company's primary business of offering corporate clients
strategy and business  operations  consulting,  economic  counsel and litigation
support,  and market research and survey analysis.  Other revenues include those
derived from  information-based  product and services,  and  financial  advisory
services. The Company's client base includes both the public and private sector.
Revenue  from the private  sector is  typically  characterized  by higher  gross
margins than the public sector,  yet generally  requires a higher relative level
of infrastructure support.  Consequently, the Company's operating performance is
affected by its public sector / private sector business mix.  Through  strategic
acquisitions and internal  growth,  the Company has increased its private sector
client base, and will continue to pursue such opportunities in the future.

     On February 23, 1998, the Company issued 454,994 shares of its common stock
in exchange for all the stock of TB&A.  The  transaction  was accounted for as a
pooling of interests.

     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.  The
Company expects the joint venture to turn profitable sometime late in the fiscal
year ending December 31, 1999.

     On June 30, 1998,  the Company issued 183,550 shares of its common stock in
exchange for all of the stock of IGA. The  transaction  was  accounted  for as a
pooling of interests.

     On August 28, 1998, the Company issued 6,548,953 shares of its common stock
in exchange for all of the stock of PHB. The  transaction was accounted for as a
pooling of interests.

     On  September  30, 1998,  the Company  exited from  certain  public  sector
environmental consulting business.

<PAGE>


Results of Operations

     The following  table  presents for the periods  indicated the percentage of
revenues  represented by certain  income and expense  items,  and the percentage
period-to-period increase (decrease) in such items:


                                                                               
<TABLE>
<CAPTION>
                                                                                                 
                                                                                                  
                                                                                                 
                                                           
                                                                                                         % Period-to-Period
                   
                                                       Percentage of Revenues                      Increase (Decrease) of Dollars
                                          ------------------------------------------------------------------------------------------
                                                                                                  Three months          Nine months 
                                                                                                   ended Sept.          ended Sept.
                                            Three months ended          Nine months ended           30, 1998             30, 1998
                                               September 30,              September 30,           compared to           compared to 
                                          ------------------------     --------------------       three months          nine months 
                                             1998         1997           1998       1997           ended Sept            ended Sept
                                                                                                    30, 1998             30, 1997
                                          ------------------------------------------------------------------------------------------
<S>                                           <C>         <C>            <C>       <C>            <C>                    <C>
Revenues: 
  
  Consulting                                    95.1        97.9           96.4      98.6             4.1                   6.4 
  Other                                          4.9         2.1            3.6       1.4           151.2                 179.6
    Total revenues                             100.0       100.0          100.0     100.0             7.2                   8.8
Cost of services                                71.3        77.2           71.8      76.3           (0.9)                   2.3
Merger and related costs                         5.4           -            3.2         -           100.0                 100.0
Selling,   general,  and  administrative
 expenses                                       14.9        15.7           13.9      15.3             1.7                 (1.6)
Compensation    in    connection    with
 subscriptions for common stock                    -           -            2.0       0.1               -                     -
Income from operations                           8.5         7.2            9.2       8.3            27.1                  21.0
  Other income (expenses), net                   0.6         0.5            0.1     (0.3)            19.0                 100.0
Income before income taxes                       9.1         7.7            9.3       8.0            26.6                  28.0
Income tax expense                               3.7         2.7            4.5       3.3            49.0                  50.5
Net income before extraordinary gain             5.4         5.0            4.8       4.7            14.8                  12.1
Extraordinary gain                                 -         0.1              -       0.6         (100.0)               (100.0)
Net income                                       5.4         5.1            4.8       5.3            13.6                 (1.2)

</TABLE>


THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED WITH THREE MONTHS ENDED SEPTEMBER
30, 1997

     Revenues for the three months ended  September  30, 1998  increased by $3.1
million,  or 7.2%,  to $46.5  million from the three months ended  September 30,
1997. Of this increase, $1.8 million is attributable to consulting revenues, and
$1.3 million is attributable to other revenues.  Consulting  revenues  increased
4.1%  for the  three  months  ended  September  30,  1998,  as  compared  to the
comparable  period of the prior year.  This increase was primarily the result of
internal growth.  Other revenues  increased by 151.2% for the three months ended
September 30, 1998, as compared to the comparable period of the prior year. This
increase was attributable to increased revenues from information-based  products
and services  associated  with a contract the Company was awarded in the current
fiscal year. In the three months ended September 30, 1998,  approximately  95.1%
of the Company's  revenues were derived from  consulting  revenues,  as compared
with 97.9% in the three months ended September 30, 1997.

     Cost of services for the three months ended September 30, 1998 decreased by
approximately  $315,000,  or 0.9%,  to $33.1 million from the three months ended
September 30, 1997.  Cost of services as a percentage of revenue  decreased from
77.2% in the three  months  ending  September  30,  1997,  to 71.3% in the three
months  ending  September  30,  1998,  primarily  the  result  of  cost  savings
associated  with  integration  of the  Company's and PHB's  operations,  and the
diversion of direct billable professional staff to support the merger.

     Selling,  general and administrative expenses ("SG&A") for the three months
ended September 30, 1998 increased by approximately  $115,000,  or 1.7%, to $6.9
million from the three months ended  September 30, 1997. The increase was due an
increase in the overall volume of business as compared to the comparable  period
of the prior year.  Expressed as a percentage of total  revenues,  SG&A expenses
decreased  from 15.7% in the three months ended  September  30, 1997 to 14.9% in
the three months ended  September 30, 1998.  This decrease is reflective of cost
savings resulting from the integration of the Company and PHB.

     Merger and related costs for the three months ended September 30, 1998 were
$2.5  million,  or 5.4%  expressed  as a percentage  of revenues.  There were no
merger and related  costs for the three months  ended  September  30, 1997.  The
majority of these costs were associated  with PHB, as well as residual  expenses
associated with the business combinations of TB&A, Apogee, and IGA.

     Other income  (expenses),  net includes interest expense,  interest income,
and other  non-operating  income,  including the proceeds  from exiting  certain
environmental consulting business. For the three months ended September 30, 1998
other income  (expenses),  net increased  approximately  $40,000,  or 19.0%,  to
approximately $255,000 from the three months ended September 30, 1997.

     The  Company's  effective  tax rate  increased to 40.6% in the three months
ended  September  30, 1998 from 34.5% in the three  months ended  September  30,
1997.  Historically,  the Company has accrued income tax at 39% of income before
tax expense. The three months ended September 30, 1997 had a decreased effective
tax rate due to a tax credit.
    
     Net income for the three  months  ended  September  30, 1998  increased  by
approximately  $300,000,  or 13.6%, to $2.5 million, from the three months ended
September 30, 1997, due to reasons discussed above.


Nine months ended  September 30, 1998 compared with nine months ended  September
30, 1997

     Revenues for the nine months ended  September  30, 1998  increased by $10.7
million,  or 8.8%,  to $132.1  million from the nine months ended  September 30,
1997. Of this increase, $7.7 million is attributable to consulting revenues, and
$3.0 million is attributable to other revenues.  Consulting  revenues  increased
6.4% for the nine months ended September 30, 1998, as compared to the comparable
period  of the  prior  year.  This  increase  was  primarily  the  result of the
Company's  focus on the growth of  international  private sector  engagements by
increasing  capacity  through the  purchase of Estudio Q,  Ingenieros  Asociados
S.R.L ("Estudio Q"), an Argentinean  company,  and the merger with IGA, a French
company.  Other revenues increased by 179.6% for the nine months ended September
30, 1998, as compared to the  comparable  period of the prior year. The increase
in other  revenues  was  primarily  driven  by  information-based  products  and
services  associated  with a contract  the  Company  was  awarded in the current
fiscal year, as well as an increase in financial advisory services.  In the nine
months ended September 30, 1998,  approximately  96.4% of the Company's revenues
were derived from consulting revenues, as compared with 98.6% in the nine months
ended September 30, 1997.

     Cost of services for the nine months ended  September 30, 1998 increased by
$2.2 million, or 2.3%, to $94.8 million from the nine months ended September 30,
1997.  Cost of services as a percentage of revenue  decreased  from 76.3% in the
nine months  ending  September  30,  1997,  to 71.8% in the nine  months  ending
September  30,  1998,  primarily  the  result of cost  savings  associated  with
integration of the Company's and PHB's  operations,  and the diversion of direct
billable professional staff to support the merger.

     SG&A  for  the  nine  months  ended   September   30,  1998   decreased  by
approximately  $300,000 or 1.6%,  to $18.3  million  from the nine months  ended
September 30, 1997.  Expressed as a percentage of total revenues,  SG&A expenses
decreased  from 15.3% in the three months ended  September  30, 1997 to 13.9% in
the nine months ended  September  30, 1998.  This decrease is reflective of cost
savings resulting from the integration of the Company and PHB.

     Merger and related costs for the nine months ended  September 30, 1998 were
$4.2  million,  or 3.2%  expressed  as a percentage  of revenues.  There were no
merger and related  costs for the nine months  ended  September  30,  1997.  The
majority of these costs were associated with PHB, as well as expenses associated
with the business combinations of TB&A, Apogee, and IGA.

     Stock and stock option compensation for the nine months ended September 30,
1998 increased by $2.5 million,  from the nine months ended  September 30, 1997,
to $2.6  million.  Substantially  all of these  costs  were  related  to PHB and
include  non-cash,  non-tax  deductible  compensation  based  on the  difference
between  the fair  market and book  values of PHB common  stock  issuable  under
subscriptions within one year of the merger's close.

     Other income  (expenses),  net  increased  by  approximately  $590,000,  to
approximately  $180,000 in the nine  months  ended  September  30, 1998 from the
comparable  prior  period.  The primary  reasons for this increase were proceeds
from exiting certain  environmental  consulting business, as well as an increase
in interest income from the nine months ended September 30, 1997.

     The  Company's  effective  tax rate  increased  to 48.7% in the nine months
ended September 30, 1998 from 41.4% in the nine months ended September 30, 1997.
This increase in effective tax rate for the nine months ended September 30, 1998
is primarily attributable to PHB non-cash, non-tax deductible compensation.
        
     Net income before  extraordinary  gains for the nine months ended September
30, 1998 increased by approximately  $685,000,  or 12.1%, to $6.3 million,  from
the nine months ended September 30, 1997, due to reasons discussed above.

     In the nine months ended  September 30, 1998,  there were no  extraordinary
gains, compared to approximately  $760,000 in extraordinary gains, net of income
tax expense, for the nine months ended September 30, 1997.


Liquidity and Capital Resources

     As of September 30, 1998,  working capital was $53.1 million as compared to
$32.8  million,  at December 31, 1997.  The  increase  was  primarily  due to an
increase in the volume of business in the nine months ended  September 30, 1998,
which resulted in significantly higher accounts receivable balances,  as well as
a decrease in accrued compensation and benefits.

     Net cash of  approximately  $13.9 million was used in operating  activities
during the nine months ended September 30, 1997. The net use of funds is largely
attributable  to a  significant  increase  in  accounts  receivable,  along with
increases in prepaid  expenses,  distribution of bonuses,  and funding of 401(k)
matching and profit sharing benefits, for the nine months of 1998.
         
     Investment  activities  used $4.7  million  during  the nine  months  ended
September 30, 1998. The Company  invested $3.6 million in the purchase of office
and computer  related  equipment,  leasehold  improvements,  and other resources
necessary for the growth of the Company, as well as $1.1 million to purchase the
stock of Estudio Q and the balance of the  company's  interest  in a  previously
majority owned foreign subsidiary PT Hagler Bailly Indonesia.

     Financing  activities  provided  $14.5  million for the nine  months  ended
September  30,  1998.  Cash  provided by the  issuance of 470,975  shares of the
Company's  common  stock,  for  consideration  of $12.5  million  to Cap  Gemini
America,  Inc.  in  connection  with the  formation  of a joint  venture  and an
increase in net borrowings from the Company's line of credit,  partially  offset
by principal  payments on debt. 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 12 months has been
cash flows from equity sources,  periodically supplemented by borrowings under a
bank line of credit.  During the year ended  December  31,  1997,  the  Company,
through its subsidiaries, established $19 million in revolving credit facilities
through two sources and began borrowing under the facilities.  The balance under
the line of  credit at  September  30,  1998 was $4.7  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
historical dividend policy, IGA paid cash dividends of $333,311 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  formal,  phased  plan  for  Y2K
information  systems  compliance.  Detailed below are the status of progress and
timetables for each of the phases of the plan.

<TABLE>
<CAPTION>

                        --------------------- ------------------------- -------------------------- ----------------------
                        ASSESSMENT            REMEDIATION               TESTING                    IMPLEMENTATION
<S>                    <C>                   <C>                       <C>                        <C>    
                        --------------------- ------------------------- -------------------------- ----------------------
----------------------- --------------------- ------------------------- -------------------------- ----------------------

IT - Domestic           Completed             Current                   Current                    By 2nd quarter 1999
----------------------- --------------------- ------------------------- -------------------------- ----------------------
----------------------- --------------------- ------------------------- -------------------------- ----------------------

IT - International      By 1st quarter 1999   During 2nd quarter 1999   During 2nd quarter 1999    By 3rd quarter 1999
----------------------- --------------------- ------------------------- -------------------------- ----------------------
----------------------- --------------------- ------------------------- -------------------------- ----------------------

Accounting              Completed             By year end 1998          By year end 1998           By year end 1998
----------------------- --------------------- ------------------------- -------------------------- ----------------------
----------------------- --------------------- ------------------------- -------------------------- ----------------------

Embedded                By year end 1998      1st - 3rd quarter 1999    1st - 3rd quarter 1999     1st - 3rd quarter
                                                                                                   1999
----------------------- --------------------- ------------------------- -------------------------- ----------------------
----------------------- --------------------- ------------------------- -------------------------- ----------------------

3rd Party               By year end 1998      By 1st quarter 1999       1st - 3rd quarter 1999     1st - 3rd quarter
                                                                                                   1999
----------------------- --------------------- ------------------------- -------------------------- ----------------------
</TABLE>


     The Company plans to implement a Y2K compliant  upgrade to its current core
financial and reporting systems software by the end of the year.

     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.
Historical   and   estimated   costs  are,  at  this  time  deemed   immaterial.
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.  Implementation  of Y2K solutions will not have an impact on
other  IT  projects.  The  Company  plans  to  evaluate  the  status  of the Y2K
compliance  plan in the first quarter of 1999 to determine  risks and whether or
not a contingency plan is necessary.



                                     PART II

Item 1. Legal Proceedings

     The  Company'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 Group,  Inc. ("TB&A") held by Mr. Laros,  prejudgment  interest and
costs and fees. Theodore Barry & Associates 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 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.
Apogee has  provided  records in response to the  subpoena.  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.

     The  Company  and  its  subsidiaries  are  from  time to  time  parties  to
litigation  arising in the ordinary course of business.  Neither the Company 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 the Company or its business,  financial  condition or
results of operations.

Item 2. Changes in Securities

     On August 28, 1998, the Company acquired PHB, a Massachusetts  corporation,
for stock.  The Company  issued an aggregate  of 6,548,953  shares of its common
stock  to the  shareholders  of PHB.  The  shares  of  common  stock  issued  in
connection with the acquisition were exempt from  registration  pursuant to Rule
506 of the Securities and Exchange Commission's Regulation D and Section 4(2) of
the Securities Act of 1933.


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

     At the  Company's  Special  Meeting  of  Stockholders  on August  27,  1998
stockholders  approved the issuance of additional shares of the Company's common
stock to  stockholders  of PHB as part of the  Company's  acquisition  of PHB as
follows:

For            Against             Abstain             Broker Non-Vote
7,531,736      11,000              2,500               309,096

     At the meeting,  stockholders  also  approved an amendment to the Company's
Certificate  of  Incorporation  to increase the number of  authorized  shares of
Hagler Bailly's common stock from 20,000,000 to 50,000,000 as follows:

For            Against             Abstain             Broker Non-Vote
6,918,461      933,471             2,500               0

     At  the  meeting,  the  stockholders  also  approved  an  amendment  to the
Company's Employee Incentive and Non-Qualified Stock Option and Restricted Stock
Plan to increase  the number of shares  authorized  to be issued  under the plan
from 3,200,000 to 5,000,000 as follows:

For            Against             Abstain             Broker Non-Vote
4,914,902      2,614,266           14,200              311,064


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


(a)      Exhibits

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. (6)
3.3       Amended Certificate of Incorporation of the Company. 
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)
4.3       Form of Escrow Agreement by and among the Company, PHB Acquisition Corp., William E. Dickenson as Stockholders'
          Representative and State Street Bank and Trust Company, as Escrow Agent. (5)
4.4       Form of Registration Rights Agreement between the Company and certain PHB Stockholders. (5)
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. (6)
10.27     Sublease Agreement by and between Coopers and Lybrand L.L.P. and Hagler Bailly, Inc. dated December 5, 1997. (6)
10.28     Employment Agreement between the Company and Henri-Claude A. Bailly, dated June 10, 1998.
10.29     Employment Agreement between the Company and William E. Dickenson, dated June 10, 1998.
10.30     Employment Agreement between the Company and Howard W. Pifer III, dated June 10, 1998.
10.31     Hagler Bailly, Inc. Amended and Restated Employee Incentive and Non-Qualified Stock Option and Restricted Stock Plan.
21        Subsidiaries (4)
24        Powers of Attorney (included on Signature Pages) (1)
27.1      Financial Data Schedule - September 30, 1998
27.2      Restated Financial Data Schedule - June 30, 1998
27.3      Restated Financial Data Schedule - March 31, 1998
27.4      Restated Financial Data Schedule - December 31, 1997
27.5      Restated Financial Data Schedule - September 30, 1997
27.6      Restated Financial Data Schedule - June 30, 1997
27.7      Restated Financial Data Schedule - March 31, 1997
27.8      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,  1997.  

(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 24, 1998 on Form DEF 14A.

(6)  Included in the Company Quarterly Report on Form 10Q for the quarter ended June 30, 1998.

(b)  Reports on Form 8-K

     On September  14, 1998 the Company  filed a current  report on Form 8-K. On
     November 13, 1998 the Company  filed an amendment to the current  report on
     Form 8-K that was filed on September 14, 1998.


</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:  November 14, 1998        Henri-Claude Bailly
                                President, Chief Executive Officer and 
                                Chairman of the Board
                                         


                            /s/ Glenn J. Dozier
                            ----------------------------------------------------
 Date: November 14, 1998        Glenn J. Dozier
                                Senior Vice President, Chief Financial Officer
                                and Treasurer
                                   


<PAGE>