<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

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

                                    FORM 10-K

                        FOR ANNUAL AND TRANSITION REPORTS
                        PURSUANT TO SECTIONS 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

(MARK ONE)

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

                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000

                                       OR

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

                          COMMISSION FILE NO. 000-27269

                            BREAKAWAY SOLUTIONS, INC.
             (Exact Name of Registrant as Specified in Its Charter)

         DELAWARE                                    04-3285165
         (State or Other Jurisdiction of             (I.R.S. Employer
         Incorporation or Organization)              Identification No.)


         1000 RIVER ROAD, SUITE 400
         CONSHOHOCKEN, PENNSYLVANIA                   19428
         (Address of Principal Executive Offices)     (Zip Code)

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

                                 (610) 828-5800
              (Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:  None

Securities registered pursuant to Section 12(g) of the Act: Common Stock,
$0.000125 par value per share

     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 for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

                                 Yes [ ] No [ X]


<PAGE>

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.

     As of June 22, 2001, the aggregate market value of the Registrant's voting
Common stock held by non-affiliates of the Registrant was approximately
$3,402,686 (reference is made to Part II, Item 5 of this Annual Report on Form
10-K for a statement of assumptions upon which this calculation is based). As of
that date, there were outstanding 51,222,494 shares of the Registrant's common
stock, $0.000125 par value per share ("Common Stock"). The Registrant has no
shares of non-voting Common Stock authorized or outstanding.

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

                           FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K includes forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934 that are subject to a number of risks and
uncertainties. All statements, other than statements of historical facts
included in this Annual Report on Form 10-K, regarding our strategy, future
operations, financial position, estimated revenues, projected costs, prospects,
plans and objectives of management are forward-looking statements. When used in
this Annual Report on Form 10-K, the words "will", "believe", "anticipate",
"intend", "estimate", "expect", "project" and similar expressions are intended
to identify forward-looking statements, although not all forward-looking
statements contain these identifying words. We cannot guarantee future results,
levels of activity, performance or achievements and you should not place undue
reliance on our forward-looking statements. Our forward-looking statements do
not reflect the potential impact of any future acquisitions, mergers,
dispositions, joint ventures or strategic alliances. Our actual results could
differ materially from those anticipated in these forward-looking statements as
a result of important factors, including the risks described in "Factors that
May Affect Future Results" and elsewhere in this Annual Report on Form 10-K. The
forward-looking statements provided by Breakaway in this Annual Report on Form
10-K represent our estimates as of the date this report is filed with the SEC.
We anticipate that subsequent events and developments will cause our estimates
to change. However, while we may elect to update these forward-looking
statements at some point in the future, we specifically disclaim any obligation
to do so. These forward-looking statements should not be relied upon as
representing our estimates as of any date subsequent to the date this report is
filed with the SEC.

                            BREAKAWAY SOLUTIONS, INC.
                                    FORM 10-K
                                  ANNUAL REPORT

PART I

                                     ITEM 1
                                    BUSINESS
OVERVIEW

     Breakaway Solutions, Inc. (the "Company," "Breakaway," or "Breakaway
Solutions"), is a leading Full Service Provider ("FSP") of collaborative
business solutions. Late in 2000, Breakaway experienced a significant reduction
in demand for mid-market e-business services, and in particular from
venture-backed dot-com companies. In addition, a number of clients were unable
to pay for services Breakaway performed late in the year. In response to this
reduction in demand, the Company reset its strategy and restructured. Breakaway
realigned its target market towards the Global 3000, closed a number of offices
and refocused on the U.S. marketplace, significantly reduced billable and
non-billable headcount, and established reserves for overdue accounts
receivables. These changes were quickly executed. Breakaway has gained
significant traction in the Global 3000 enterprise market segment, has
eliminated the in balance between resources and demand, and continues to deliver
high quality solutions for our customers.


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     Our target market segment, the Global 3000 enterprise, is comprised of
companies with revenues greater than $250 million or project budgets greater
than $10 million that seek to create additional revenue streams or obtain
operational efficiencies. We offer our clients integrated services for business
strategy, branding and user experience, e-business implementation and package
customization. Complementing these services, we offer full application hosting
and operations support. All of these services are designed to provide a strong
focus on customer value and satisfaction.

     We believe that there are eight key elements contributing to our ability to
deliver e-business solutions to Global 3000 enterprises:

-        FULL SERVICE PROVIDER MODEL. Breakaway is positioned to provide
         customers with an integrated, end-to-end delivery model consisting of
         strategy, branding and user experience, e-business implementation and
         application hosting solutions.

-        TEAM SOLUTIONS AND EXPERIENCE. Breakaway provides a teaming approach
         across all company divisions aimed at solving our clients' challenges.
         This organizational approach allows Breakaway to offer very flexible
         services and offerings tailored to our clients' needs, while still
         maintaining highly productized services and offerings in the
         marketplace. The collective experience of the team provides a highly
         focused and specialized effort focused on our clients' challenges.

-        BUILT-TO-OPERATE APPROACH. Breakaway builds its applications for
         long-term reliability and operating efficiency. Breakaway has a
         spectrum of expertise to maximize the opportunity for our customers to
         receive long-term efficiency and cost savings.

-        END-TO-END ACCOUNTABILITY. With Breakaway's FSP model, customers get a
         single point of accountability throughout the engagement, rather than
         experiencing the inefficiencies associated with multiple service
         providers - from strategy through application hosting.

-        RELATIONSHIP MANAGEMENT, EXCHANGES AND PROCUREMENT, SUPPLY CHAIN
         MANAGEMENT ("SCM"), MOBILE BUSINESS ("M-BUSINESS") AND APPLICATION
         SERVICE PROVIDER ("ASP") EXPERTISE. Breakaway provides deep
         concentrated experience in five practice areas delivered by experienced
         professionals with a total of over 250 business-to-business ("B2B")
         engagements.

-        PRAGMATIC PHASED OR MILESTONE APPROACH. Clients' projects are delivered
         in a series of quick value phases to enable their e-Business initiative
         to start realizing functionality and value more rapidly.

-        MICROSOFT TECHNOLOGY. Clients' projects are delivered using the latest
         versions of Microsoft technology with a strong focus on, and history
         of, time-to-market, cost controls, and operating capabilities.

-        JAVA TECHNOLOGY. Clients' projects are delivered using the latest
         versions of Java technology with a strong focus on open standards and
         systems, operational capabilities and scalability.

     The Company has been in business since 1992 and, as of June 11, 2001,
employs approximately 338 employees throughout our regional offices located
in Maynard, Minneapolis, New York, Orlando, Conshohocken, and Redwood Shores.
We provide application hosting solutions through facilities in North America
and Europe.

     The Company headquarters recently relocated to 1000 River Road, Suite 400,
Conshohocken, Pennsylvania 19428. The telephone number in our relocated
corporate office is (610) 828-5800. Our stock is available for trading on the
Pink Sheets under the symbol "BWAY." (See "Item 5. - Market Price for
Registrant's Common Equity and Related Matters"). Our Internet address is
http://www.breakaway.com. Information contained on our web site is not
incorporated in this Form 10-K by reference.


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BREAKAWAY STRATEGY

     Our objective is to become the leading Full Service Provider, or FSP, of
collaborative business solutions for enterprises. Our mission is for Breakaway
to be the only FSP with the expertise to offer Global 3000 companies greater
return on their e-business investment.

     Our strategy for achieving this objective is as follows:

FURTHER PENETRATE THE GLOBAL 3000 MARKETPLACE

The Global 3000 marketplace has typically engaged traditional consulting firms
for its e-business solutions needs. These customers are now seeking other
e-services partners who have extensive e-business experience combined with a
specific vertical industry approach without prolonged strategy and scoping
phases. Traditional consulting firms can take up to 6 months in creating an
e-business strategy. We believe that these Global 3000 businesses find value in
an e-service provider that is flexible in delivery and provides a coherent
vision for the end product after the initial stage. It is these reasons, along
with Breakaway's ability to provide rapid time-to-value and proven solutions,
that are helping us penetrate the Global 3000 market. In the fourth quarter of
2000, although we experienced a significant decrease in revenues overall from
the third quarter, we experienced an increase in revenue from Global 3000
companies as a percentage of overall revenues, from 24% to 44%. Currently, the
majority of our business is generated from non-dot-coms.

ATTRACT, TRAIN AND RETAIN HIGH QUALITY INFORMATION TECHNOLOGY PROFESSIONALS

     We believe that attracting and retaining outstanding professionals are
essential to our growth. We perform most of our development work in our Solution
Centers which are our development centers. The existence of our Solution Centers
greatly limits the travel required of our professionals. We believe that
extensive travel is one of the primary causes of employee turnover in our
industry. Through our Solution Centers and regional offices, our employees
participate in a culture that is entrepreneurial and promotes enterprise-wide,
collaborative knowledge sharing. We believe that the combination of our lower
travel requirements and unique culture helps us to attract and retain highly
skilled, experienced senior information technology professionals. Even during
our restructuring, which has reduced headcount from a high of near 1,100 in the
third quarter 2000 to 338 as of June 11, 2001, Breakaway Solutions has
experienced only limited voluntary turnover, and Breakaway Solutions has been
able to retain key personnel.

EXPAND ALLIANCES

     We have a number of working alliances with independent software providers
("ISP"s) and Internet technology providers. These relationships provide a range
of benefits, including new sales leads, co-marketing and co-branding
opportunities and discounts on software licenses.

     In addition, our alliances allow us to gain access to training, product
support and technology developed by the companies with whom we have alliances.
These relationships also provide an accelerated path to developing expertise
regarding hardware, software and applications. We plan to pursue alliances with
both market leading companies as well as emerging companies. We will seek
alliances that provide us with the opportunity both to use applications in our
solutions and to host these applications.

     We are also expanding the alliance program into our regional offices, so
that the responsibility of the execution of alliances falls locally and can be
managed between our local management and our alliance partners local sales
organization. In this way we can tailor our offerings for alliances to best
address the needs of our customers, those companies with whom we have alliances
and local market needs.

EXPAND REGIONAL DELIVERY MODEL

     Our regional office strategy enables us to place senior service delivery
personnel near our clients and to better address the particular demands of local
markets with field sales and field marketing professionals. Senior


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delivery professionals in each regional office participate in the sales process
for each client and play a significant role in the design, architecting and
program management of the solution for that client. We believe that it improves
our responsiveness and client satisfaction by providing a single point of
contact throughout our relationship with the client.

PROVIDE APPLICATION HOSTING AND OPERATIONS THROUGH STRATEGICALLY OUTSOURCING
COMMODITIES

We lease space from third party facilities, known as co-location facilities,
for the equipment which we use for our application hosting services. We
currently lease space from multiple providers at five co-location facilities
worldwide. We believe that leasing space and related commodity services, such
as uninterrupted power supplies and high speed telecommunications access,
permits us to expand quickly into new markets while reducing the capital
investment required for expansion.

THE BREAKAWAY SOLUTION

     Breakaway is an experienced FSP with the expertise to offer Global 3000
businesses with the opportunity for heightened returns on their e-business
investments. Breakaway created its FSP model by integrating an application
hosting solution into its core business services. Besides having the ability to
operate applications that are built by our development team, Breakaway also
delivers to our customers the opportunity for a powerful value creation and
return on investment. We believe that this approach, in conjunction with
Breakaway's single point of accountability model, expertise in several core
practice areas and specific industry focuses, are key differentiators when
customers are choosing to work with Breakaway. Our 2001 Global 3000 customers
continue to select Breakaway as their e-business provider and re-iterate our
value proposition as the justification for Breakaway's selection.

         Here are key components to Breakaway's value proposition:

         -    BUILT-TO-OPERATE APPROACH. We build our applications for long-term
              reliability and operating efficiency. Breakaway has a spectrum of
              expertise to provide the opportunity for long-term efficiency and
              cost savings.

         -    CUSTOMER AND SUPPLIER RELATIONSHIP MANAGEMENT, B2B COLLABORATION,
              WORKFORCE COLLABORATION, M-BUSINESS AND ASP EXPERTISE. We offer
              deep concentrated experience in five practice areas delivered by
              experienced professionals who have collectively worked on over 250
              B2B engagements.

         -    END-TO-END ACCOUNTABILITY. Breakaway's FSP model offers a single
              point of accountability throughout the engagement -- from strategy
              to creative to implementation through hosting -- rather than
              experiencing the inefficiencies associated with multiple service
              providers.

         -    PRAGMATIC MILESTONE APPROACH. Each initiative is delivered in a
              series of quick value phases to enable the client to start
              realizing functionality from their initiative more rapidly.

     Typically, Global 3000 companies have medium to large information
technology ("IT") organizations that have been involved with maintaining
databases, client server applications and IT structure. In order to improve core
business practices and make IT organizations a profitable company component,
businesses are outsourcing the integration, operation, and maintenance of
collaborative e-business applications. These applications can be integrated
enterprise wide, and as a result can improve return on investment ("ROI")
initiatives across the board.

     Breakaway's FSP delivery, incorporating strategy, implementation, and
application hosting, is designed to meet the needs of collaborative
e-businesses. We believe that the FSP approach is the best delivery model for
collaborative solutions because these applications are naturally hosted and
require many integration requirements; there is a shortage of skills to maintain
and secure these applications; there are significant time and cost investments
required and there is rarely a single application solution. Since Breakaway
builds applications that can require multiple integrations and has expertise in
operating these solutions, we are well positioned to enhance our long-term
relationship with our customers.

                                       5
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SERVICES

     As a Full Service Provider, we specialize in delivering comprehensive
strategy, branding and user experience, e-business implementation, and
application hosting solutions across five key practice areas. These core
practice areas are:

         -    Customer and Supplier Relationship Management

         -    B2B Collaboration (Procurement and Exchanges)

         -    Workforce Collaboration

         -    m-Business (Mobile Business)

         -    Application Hosting (ASP)

     By focusing on a select set of core practices, we are able to provide our
customers FSP solutions based on our business experience and expertise. We
deliver these services using business processes that we have designed to provide
rapid, high quality and cost-effective implementations.

BREAKAWAY CUSTOMER AND SUPPLIER RELATIONSHIP MANAGEMENT ("RM") SOLUTIONS

     Our Customer and Supplier RM Practice uses Breakaway's Relationship
Management experience and best practices to help e-Businesses better understand,
attract, sell to, and serve their customers, employees, partners and suppliers.
The Customer Relationship Management ("CRM") Practice is built upon industry
alliances and expertise in e-Service, e-Marketing, Sales Force Automation,
Content Management/Personalization and Data Analytics across a broad range of
industries.

BREAKAWAY B2B COLLABORATION SOLUTIONS

     Our B2B Practice provides customers with a comprehensive set of e-Business
options to quickly develop, build and grow thriving B2B public and private
exchanges. Breakaway has developed custom solutions and allied itself with
best-of-breed application vendors to help our customers rapidly and
cost-effectively capitalize on the promise of the B2B Exchanges.

BREAKAWAY WORKFORCE COLLABORATION SOLUTIONS

     Our Workforce Collaboration Solutions provide customers with powerful tools
to make their internal employees work effectively and efficiently, resulting in
cost savings. Workforce Collaboration focuses on automating the internal
business processes and information, using tools and techniques that are scalable
and reliable and are consistent with Internet standards.

BREAKAWAY M-BUSINESS SOLUTIONS

     Our m-Business Practice consists of three core offerings, m-Commerce,
m-Operate, m-Collaborate -- all targeted to mobile customers, employees and
partners of an enterprise. These offerings are designed to provide customers
with new opportunities through applications such as Relationship Management,
e-Commerce, as well as key industries such as healthcare, finance, insurance,
telecommunications, manufacturing, transportation and logistics.

BREAKAWAY APPLICATION HOSTING

     Our Application Hosting Solutions enable customers to deploy an e-business
solution quickly and affordably, and without the procurement and management of
applications, servers, and networks. This enables our customers to begin
realizing value from their e-Business initiative in substantially less time, and
at substantially less

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cost than most in-house solutions. We employ best-of-breed technologies for a
variety of customized and packaged applications, provide twenty-four-hour-a-day
support, and operate a high-availability global service delivery infrastructure,
with multiple hosting centers around the world.

SALES AND MARKETING

MARKETING

Our marketing goal is to generate sales opportunities among Global 3000
enterprises by increasing awareness of the Breakaway e-Commerce capabilities.
Our corporate marketing department has overall responsibility for
communications, advertising, public relations and our website. Our direct
marketing activities include direct mail, web promotions, targeted HTML or text
e-mail and seminars for senior executives and other information technology
decision-makers. In addition, to heighten our public profile, we seek
opportunities for our professionals to publish articles and deliver speeches in
their respective areas of expertise through our industry associations and
participation in conferences.

SALES

     Our direct sales professionals employ a consultative sales approach,
working with the prospective client's senior executives to identify and solve
their e-Business problems. Group Directors, who also participate in the sales
process, are service professionals located alongside our sales team. Once the
client has engaged us, our sales people maintain their relationship with the
client by working collaboratively with the Group Director assigned to that
client.

ALLIANCES

     As part of our sales and marketing efforts, we have established working
relationships with a number of companies including Allaire, Cisco Systems, Dell,
Firstwave, IcanSP, Level(3), Mercury Interactive, Microsoft, Onyx,
Participate.com, SilverStream, Sun Microsystems, Palm, and Vignette. These
alliances generally entail sharing sales leads, installation services
agreements, joint presentations, negotiating discounts on license fees or other
charges, and conducting similar activities. Our arrangements with many of these
companies are informal and are not the subject of definitive written agreements.
We believe we have been successful in establishing alliances with a strong group
of companies who are either industry leaders or well-regarded new entrants.
During the restructuring, Breakaway has refocused on key alliances, and has
maintained all the critical relationships and joint programs.

CLIENTS

     We have refocused our marketing and sales activity on Global 3000
collaborative e-business customers since the downturn in the dot-com segment.
The Global 3000 is comprised of companies with revenues greater than $250
million or project budgets greater than $10 million that seek to create
additional revenue streams or obtain operational efficiencies. They are
generally focused on growth and reinvention as collaborative e-business
enterprises and include Global 3000 spin-offs, divisions, consortia, Internet
software vendors ("ISV"s) and Vertical ASPs (companies that host
industry-specific applications).

     The functionality of many of our solutions is applicable across a variety
of industries. Accordingly, we provide our services to a number of types of
businesses. Our clients' industries include commodity trading, services, high
tech and manufacturing, healthcare, finance, insurance, telecommunications,
manufacturing, transportation, and logistics.

     We offer our Strategy and Internet services on either a time and material
or a fixed price basis. Due to the challenges faced by Global 3000 companies in
an increasingly competitive and difficult market, we work closely with
prospective clients prior to engagement to understand their business model,
timing, and available resources, so that we can tailor our solution to their
needs.

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     We provide our application hosting services for an initial set-up fee plus
a monthly service fee. The monthly service fee is subject to maintaining stated
service levels. Our hosting fees vary depending upon the scope of the particular
client's requirements. During 1998 and 2000, one customer accounted for 27% and
12%, respectively, of the Company's Strategy and Internet Consulting Services
revenue. During 1999, no single customer accounted for 10% or more of the
Company's Strategy and Internet Consulting Services revenue.

     During 1999 and 2000, one customer accounted for 24% and 19%, respectively,
of the Company's Application and Web Hosting Services revenue. In addition,
during 2000, a second customer accounted for 11% of the Company's Application
and Web Hosting Services revenue.

     For the year ended December 31, 2000, our largest customer accounted for
11% of our total revenues. For the year ended December 31, 1999 no single
customer accounted for more than 10% of total revenue. For the year ended
December 31, 1998 our largest customer accounted for 27% of our total revenue.

     Our five largest customers accounted for 27% of total revenues for the year
ended December 31, 2000, compared to 25% for the year ended December 31, 1999,
and 54% for the year ended December 31, 1998.

PEOPLE AND PROFESSIONAL ENVIRONMENT

     Given the reduction in demand for e-business services that we experienced
late in 2000, we have significantly reduced our billable and non-billable
resources. In addition, we closed a number of Solution Centers and Regional
Offices based upon demand and profitability in those geographic regions. We have
successfully maintained our teams of experienced professionals who have the high
level of information technology skills and experience needed to provide our
sophisticated services. We believe that the combination of professional support,
intellectual challenge, reduced travel, corporate culture, and compensation we
offer will continue to attract these information technology professionals. In
addition, the targeted reductions in resources have resulted in a balance of
skill sets that allows us to more effectively and efficiently serve our clients.

PROFESSIONAL DEVELOPMENT

     We believe that providing our professionals with a wide variety of
challenging projects and the opportunity to demonstrate ability and achieve
professional advancement are keys to retaining them. We create a professional
development plan for our information technology professionals that identifies
the individual's training and objectives. We encourage all of our strategy and
systems integration professionals to rotate through our strategy services and
e-business solutions groups in order to achieve exposure to the breadth of our
service offerings. This policy creates a high level of intellectual challenge
for our professionals and provides them with the opportunity to display their
capabilities across a range of disciplines. In addition, our clients benefit
from the resulting broad service experience of our professionals. We also
believe that the working relationships which develop in our Solution Centers
provide valuable formal and informal mentoring and knowledge sharing.

CULTURE

     Our culture is critically important to hiring and retaining information
technology professionals. Our culture reflects the entrepreneurial spirit that
built the Internet industry. Our compensation plan ties a significant portion of
compensation to the achievement of individual performance goals, team goals, and
company financial performance goals. Our employees have been intimately involved
in the restructurings of Breakaway Solutions and are the drivers behind all the
strategy realignments. Overall, the culture is still strong despite the required
restructuring.

     As of June 11, 2001, we had approximately 338 employees, including 225 in
Professional Services which includes Systems Integration and Strategy, 71 in
Application Hosting, and 42 in Corporate finance, administration and support. Of
the 338 employees, an additional 61 employees have been notified of their
pending termination as a result of the Company's on-going restructuring plan.
Our success depends on our ability to recruit and train highly qualified
technical, sales, and managerial professionals. The competition for these
professionals is intense. None of


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our employees is represented by a labor union, and we consider our employee
relations to be good. In order to retain our existing employees we continue to
offer them opportunities on cutting edge technologies, and we have restructured
our bonus plan. In addition we still have a very competitive benefits plan.

COMPETITION

     Our service offerings consist of strategy consulting, e-business solutions,
implementation, and application hosting. We face a high level of competition in
each of these service offerings. Our competitors include consulting companies,
Internet professional services firms, systems integration firms, application
hosting firms and Web hosting firms. Barriers to entry in the strategy
consulting and systems integration markets are low. Therefore, we expect
additional competitors to enter these markets. Since Breakaway Solutions was one
of the first companies to face the realities of the post-dot com marketplace,
our rapid restructuring has positioned us as a leader and has increased our
competitiveness.

STRATEGY CONSULTING

     We believe that the principal competitive factors in the strategy
consulting market are quality of services, technical and strategic expertise and
ability to provide services in a timely and cost-effective manner. We believe
that we compete successfully with respect to these factors because of the strong
experience and expertise of our professionals and our focus on e-business
solutions. We also believe that our ability to provide consulting services in
combination with systems integration and hosting provides us with a competitive
advantage.

SYSTEMS INTEGRATION

We believe that the principal competitive factors in the systems integration
market are the ability to implement high quality, value-creating solutions
rapidly, and in a cost-effective manner. Through the use of our Solution Centers
and commitment to results, we believe that we are able to provide high quality
systems integration of e-business solutions on a rapid, cost-effective basis. We
believe our ability to offer application hosting to systems integration clients
also is a distinct competitive advantage.

APPLICATION HOSTING

     We believe that the principal competitive factors in the application
hosting market are quality and reliability of service and overall cost. We
believe that we will continue to compete effectively because of:

         -    the high level of expertise of our application hosting service
              professionals;

         -    our recent restructuring from a factory model to a more
              customer-centric model which has resulted in improved quality of
              service, as well as operating efficiencies in the complex
              environments in which we operate;

         -    the quality, security and reliability of our application hosting
              infrastructure;

         -    our relationships with application vendors which allow our clients
              to have access to packaged applications on a cost-effective basis;

         -    our ability to host both complex customized applications and
              packaged applications; and

         -    our ability to provide application hosting in combination with our
              sophisticated strategy consulting and systems integration
              services.

INTELLECTUAL PROPERTY

     We have developed proprietary methodologies, tools, processes and software
in connection with delivering our services. We rely on a combination of trade
secret, copyright and trademark laws to protect our proprietary

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rights. In particular, we require each of our employees to sign an invention and
non-disclosure agreement which provides that they must maintain the
confidentiality of our intellectual property and that any intellectual property
which they develop while performing work for us is our property. We have been
careful to protect our intellectual property during the restructuring. We have
done targeted reductions to ensure a balance of skills and knowledge and we have
utilized our Asset Library and Knowledge Portal to capture information and best
practices.

     We have registered the trademark "Breakaway Solutions" with the United
States Patent and Trademark Office. We intend to make such other state, federal
and foreign filings we believe appropriate to protect our intellectual property
rights.

                                     ITEM 2
                                   PROPERTIES

     Our principal executive offices are now located in Conshohocken,
Pennsylvania where we rent approximately 56,302 square feet of space under a
lease that expires on April 30, 2007. We perform professional services in that
office and other offices in the United States and at offices in London, England
and Dublin, Ireland. These facilities comprise approximately 402,000 square feet
in the aggregate. Our London and Dublin facilities are scheduled to be closed by
mid-2001. These facilities comprise approximately 18,000 square feet in the
aggregate. In addition, we support and host e-business solutions through
facilities at five rented locations worldwide. We lease all of our facilities
either from month to month or pursuant to leases with remaining terms through
November 2007. Currently, we sublease approximately 62,000 square feet of space
to other tenants in: Dallas, Texas; King of Prussia, Pennsylvania; and Boca
Raton, Florida.

                                     ITEM 3
                                LEGAL PROCEEDINGS

     From time to time, we are involved in litigation that arises in the normal
course of business operations. As of the date of this Annual Report on Form
10-K, we believe that the litigation to which we are a party will not have a
material adverse effect on our business or results of operations, except for
litigation filed by the landlord of our former corporate headquarters in Boston
seeking to collect unpaid rent through the remainder of the lease term.

                                     ITEM 4
               SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     During the fourth quarter of the fiscal year ended December 31, 2000, there
were no matters submitted to a vote of security holders, through the
solicitation of proxies or otherwise.


PART II

                                     ITEM 5
       MARKET PRICE FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
                                    MATTERS


MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS

     Our Common Stock traded on the Nasdaq National Market under the symbol
"BWAY" from October 6, 1999 through April 19, 2001, and from April 20 through
June 20, 2001 under the ticker symbol "BWAYE." Thereafter, our Common Stock has
been available on the Pink Sheets under the symbol "BWAY." Prior to October 6,
1999, there was no established public trading market for our Common Stock. On
April 20, 2001, our Common Stock began trading under the symbol "BWAYE." The
following table sets forth the range of high and low sale prices of our Common
Stock for the periods indicated, as quoted on the Nasdaq National Market.
Information in the table is adjusted to give retroactive effect to a two-for-one
stock split in the form of a stock dividend paid on March 23, 2000 to the
holders of record of our Common Stock as of March 7, 2000. Quotations since June
21, 2001 may

                                       10
<PAGE>

reflect interdealer prices, without retail mark-ups, mark-downs or commissions,
and do not reflect actual transactions.

<TABLE>
<CAPTION>

PERIOD                                                                        HIGH                LOW
------                                                                        ----                ---
<S>                                                                           <C>                <C>

Fourth Quarter of Fiscal 1999 (commencing October 6, 1999)........            $ 38.50            $ 18.06
First Quarter of Fiscal 2000......................................            $ 85.50            $ 27.50
Second Quarter of Fiscal 2000.....................................            $ 50.00            $16.875
Third Quarter of Fiscal 2000......................................            $38.375            $ 6.563
Fourth Quarter of Fiscal 2000.....................................            $ 8.875            $ 0.625
First Quarter of Fiscal 2001......................................            $ 3.125            $ 0.313
Second Quarter of Fiscal 2001 (through June 25, 2001).............            $  0.72            $  0.12
</TABLE>



     As of June 25, 2001, there were 456 holders of record of our Common Stock.
This number does not include stockholders who hold their shares in "street name"
or through broker or nominee accounts.

     Effective June 21, 2001, our common stock was delisted from the Nasdaq
National Market. We have requested that the Nasdaq Listing and Hearing Review
Council review the decision to delist our common stock. This request does not
stay the decision to delist our common stock. During the pendency of this
review, our common stock is available for trading on the Pink Sheets. There can
be no assurance that any review of the decision to delist our common stock from
the Nasdaq National Market will result in the relisting of our common stock on
the Nasdaq National Market.

     The closing per share sale price of our Common Stock on June 25, 2001 was
$0.12. For purposes of calculating the aggregate market value of the outstanding
shares of our Common Stock held by non-affiliates, as shown on the cover page of
this report, it has been assumed that all the outstanding shares were held by
non-affiliates, except for the outstanding shares beneficially held by our
directors and executive officers, ICG Holdings, Inc. ("ICG Holdings"), Invest,
and SCP Private Equity Partners II, L.P. ("SCP"). However, this should not be
deemed to be an admission that all these persons are, in fact, affiliates of
ours, or that there are not other persons who may be deemed to be affiliates of
ours.

     We have never paid cash dividends on our Common Stock. Moreover, we cannot
pay any cash dividends without the consent of the holders of a majority of our
outstanding shares of Breakaway's Series A preferred stock, par value $0.0001
per share (the "Series A Preferred Stock") and of certain of the lessors under
our equipment leases presently in effect. If we obtain additional financing, it
is likely that any financing agreement with new sources of funding may also
limit or prohibit our ability to declare or pay dividends. We intend to retain
any earnings for use in our business and, therefore, do not anticipate paying
any cash dividends on our Common Stock in the foreseeable future.

     The shares of Series A Preferred Stock will be entitled to receive
dividends out of funds legally available therefore at the rate of 8.0% per
annum. Such dividends will be payable, when and if declared, at the option of
the Company either in cash or in additional shares of Series A Preferred Stock
valued based upon the original $70.00 per share issue price therefor. Dividends
will be cumulative and accrue quarterly. In the event of a Qualified Public
Offering or a Qualified Public Sale within three years after the closing of the
Purchase Agreement, all issued and outstanding shares of Series A Preferred
Stock issued as dividends will be canceled.

RECENT SALES OF UNREGISTERED SECURITIES

     Since September 30, 2000, Breakaway issued the following securities that
were not registered under the Securities Act of 1933, as summarized below.

              1.   On December 12, 2000, Breakaway issued to Invest 2,631,579
                   shares of Common Stock and warrants to purchase up to 921,053
                   shares of Common Stock at a per share exercise


                                       11

<PAGE>

                   price of $2.28, subject to adjustment, for consideration of
                   (i) $3.0 million in cash and (ii) a promissory note payable
                   to Breakaway in the amount of $2.0 million at an interest
                   rate of 6.19% per annum, secured by 1,052,631 shares of
                   Common Stock.

              2.   On January 19, 2001, Breakaway issued to ICG Holdings
                   warrants to purchase up to 9,737,447 shares of Common Stock
                   at a per share exercise price of $0.6875, subject to
                   adjustment, in connection with entering into definitive
                   agreements with ICG Holdings with respect to a $5.0 million
                   secured financing of Breakaway which bore interest at an
                   interest rate of 12% per annum.

              3.   On February 6, 2001, in connection with a restructuring of
                   Breakaway's December 12, 2000 transaction with Invest and the
                   related surrender by Invest of its warrants to purchase up to
                   921,053 shares of Common Stock, Breakaway issued to Invest an
                   additional 1,654,135 shares of Common Stock and warrants to
                   purchase up to 4,285,714 shares of Common Stock at a per
                   share exercise price of $0.70, subject to adjustment and
                   incurred an income statement charge of $9.2 million.

              4.   On February 16, 2001, in connection with (i) Breakaway's
                   entering into a second amendment to its secured loan
                   agreement with ICG Holdings increasing to $10.0 million the
                   total amount which could be borrowed thereunder, (ii)
                   Breakaway's entering into a similar secured loan agreement
                   with SCP under which Breakaway could borrow up to $10.0
                   million at an interest rate of 12% per annum, (iii) the
                   related surrender by ICG Holdings of its warrants to purchase
                   up to 9,737,447 shares of Common Stock and (iv) Breakaway's
                   entering into a preferred stock purchase agreement with both
                   ICG Holdings and SCP, Breakaway issued to ICG Holdings and to
                   SCP warrants to purchase up to 3,245,816 shares of Common
                   Stock and 6,491,631 shares of Common Stock, respectively. All
                   of these warrants are exercisable at a per share exercise
                   price of $0.6875, subject to adjustment.

              5.   On April 6, 2001, Breakaway issued the following securities
                   to ICG Holdings and SCP in connection with the closing of the
                   preferred stock purchase agreement Breakaway entered into
                   with such entities on February 16, 2001 and for aggregate
                   consideration of $8,141,667 in cash and $16,858,333 in
                   cancellation of outstanding principal and interest under
                   Breakaway's loan agreements with such entities: (i) 142,858
                   shares of Series A Preferred Stock at a per share price of
                   $70.00 and warrants to purchase up to 14,285,720 shares of
                   Common Stock at a per share exercise price of $0.70, subject
                   to adjustment, to ICG Holdings and (ii) 214,286 shares of
                   Series A preferred stock and warrants to purchase up to
                   28,571,429 shares of Common Stock at a per share exercise
                   price of $0.70 subject to adjustment, to SCP. Each share of
                   Series A Preferred Stock issued by Breakaway is convertible
                   into Common Stock at a rate, subject to adjustment, of 100
                   shares of Common Stock for each share of Series A Preferred.

              6.   On April 20, 2001, Breakaway's Board of Directors authorized
                   the grant of a five-year warrant to Phoenix Management, an
                   advisor to the Company retained to provide financial and
                   other management services, to purchase 1-1/4% of Breakaway's
                   issued and outstanding shares at a per share price of $0.70.
                   The warrant will have a five year term and vest in eighteen
                   equal monthly installments as long as Phoenix Management
                   continues to provide services for Breakaway. The parties have
                   not yet executed a Warrant instrument to reflect the
                   issuance.

              7.   On July 2, 2001, Breakaway issued to SCP warrants to purchase
                   20,000 shares of its Series A Preferred Stock at a per share
                   exercise price of $70.00 in connection with SCP entering into
                   a guarantee of Breakaway's obligations under a Loan and
                   Security Agreement entered into by Breakaway with Silicon
                   Valley Bank on that date.


                                       12
<PAGE>

     No underwriters were involved in any of the foregoing sales of securities.
Such sales were made in reliance upon an exemption from the registration
provisions of the Securities Act set forth in Section 4(2) thereof relative to
sales by an issuer not involving any public offering or the rules and
regulations thereunder. All of the foregoing securities are deemed restricted
securities for the purposes of the Securities Act.

                                     ITEM 6
                      SELECTED CONSOLIDATED FINANCIAL DATA


     The following selected historical consolidated financial data should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and our audited consolidated financial
statements and related notes thereto included elsewhere in this Annual Report on
Form 10-K.

     The selected consolidated financial data presented below as of December 31,
1999 and 2000 and for each of the years ended December 31, 1998, 1999 and 2000
are derived from the audited consolidated financial statements of Breakaway
which appear elsewhere in this Annual Report on Form 10-K. The selected
consolidated financial data presented below as of December 31, 1996, 1997 and
1998 and for each of the years ended December 31, 1996 and 1997 are derived from
the audited consolidated financial statements of Breakaway which are not
included in this Annual Report on Form 10-K. The selected consolidated financial
data for 2000 are not necessarily indicative of the results that may be expected
for the year ended December 31, 2001 or any other future period.

     From its inception until December 31, 1998, Breakaway was an S Corporation
and, accordingly, was not subject to federal and state income taxes, except for
certain Massachusetts income taxes on S Corporations with annual revenues in
excess of $6.0 million. The pro forma net income (loss) and pro forma net income
(loss) per share--basic and diluted information presented below have been
computed as if Breakaway were subject to all federal and all applicable state
corporate income taxes since 1996, based on the statutory tax rates and the tax
laws then in effect.


<TABLE>
<CAPTION>
                                                                               YEARS ENDED DECEMBER 31,
                                                           -----------------------------------------------------------------
                                                               1996         1997         1998           1999          2000
                                                           -----------   -----------  -----------    ----------    ---------

                                                                         (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                        <C>            <C>         <C>             <C>         <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenue............................................         $3,462        $6,118       $10,018        $25,390     $102,479
Operating expenses:
     Project costs.................................          1,430         2,543         5,904         13,388        68,116
     Selling, general and administrative...........          1,368         2,559         4,814         20,865        89,507
     Amortization of deferred costs................             --            --            --          1,000        23,199
Amortization of goodwill and intangible assets.....             --            --            --          1,002       331,519
Restructuring costs................................             --            --            --             --         2,065
                                                           -----------   -----------  -----------    ----------    ---------
         Total operating expenses..................          2,798         5,102        10,718         36,255       514,406
Income (loss) from operations......................            664         1,016          (700)       (10,865)     (411,927)
Interest income (expense), net.....................            (25)           60           (32)           475         1,390
Other income (expense).............................            (21)           (2)          157             23       (14,813)
                                                           -----------   -----------  -----------    ----------    ---------
Income before benefit for income taxes.............         $  618       $ 1,074       $  (575)      $(10,367)    $(425,350)

Benefit for income taxes...........................             --            --            --             --        35,499
                                                           -----------   -----------  -----------    ----------    ---------
Net income (loss)..................................         $  618       $ 1,074       $  (575)      $(10,367)    $(389,851)
                                                           -----------   -----------  -----------    ----------    ---------

</TABLE>

                                       13

<PAGE>

<TABLE>
<CAPTION>
                                                                               YEARS ENDED DECEMBER 31,
                                                           -----------------------------------------------------------------
                                                               1996         1997         1998           1999          2000
                                                           -----------   -----------  -----------    ----------    ---------

                                                                         (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                        <C>            <C>         <C>             <C>         <C>

Net income (loss) per share --
     basic and diluted.............................         $ 0.05       $  0.08        $(0.05)         $(0.59)      $(9.84)
                                                           -----------   -----------  -----------    ----------    ---------
Weighted average shares outstanding................         13,282        12,826        12,680          17,440       39,598
                                                           -----------   -----------  -----------    ----------    ---------
Pro forma net income (loss)........................         $  371       $   644       $  (380)             --           --
Pro forma net income (loss) per share --
     basic and diluted.............................         $ 0.03       $  0.05       $ (0.03)             --           --
</TABLE>


<TABLE>
<CAPTION>

                                                                                  AS OF DECEMBER 31,
                                                           -----------------------------------------------------------------
                                                               1996         1997         1998           1999          2000
                                                           -----------   -----------  -----------    ----------    ---------
                                                                                    (IN THOUSANDS)
<S>                                                        <C>            <C>         <C>             <C>         <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents..........................        $    84       $   879       $    17        $ 3,920       $ 5,453
Working capital (deficit)..........................          1,143           786           386         39,849        (5,276)
Total assets.......................................          1,120         2,533         2,743         77,461        77,272
Total long-term liabilities........................             55            84            67          2,001         5,050
Stockholders' equity...............................            948         1,492           913         68,340        42,392
</TABLE>


                                     ITEM 7
         MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                             RESULTS OF OPERATIONS


     YOU SHOULD READ THE FOLLOWING DISCUSSION TOGETHER WITH THE CONSOLIDATED
FINANCIAL STATEMENTS AND RELATED NOTES APPEARING ELSEWHERE IN THIS ANNUAL REPORT
ON FORM 10-K. THIS ITEM CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING
OF SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES
AND EXCHANGE ACT OF 1934 THAT INVOLVE RISKS AND UNCERTAINTIES. ACTUAL RESULTS
MAY DIFFER MATERIALLY FROM THOSE INCLUDED IN SUCH FORWARD-LOOKING STATEMENTS.
FACTORS WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY INCLUDE THOSE SET
FORTH UNDER "FACTORS THAT MAY AFFECT FUTURE RESULTS" COMMENCING ON PAGE 26, AS
WELL AS THOSE OTHERWISE DISCUSSED IN THIS SECTION AND ELSEWHERE IN THIS ANNUAL
REPORT ON FORM 10-K. SEE "FORWARD-LOOKING STATEMENTS."

OVERVIEW

     Breakaway is a Delaware corporation. We were incorporated in Massachusetts
under the name The Counsell Group, Inc. in 1992, and reincorporated in Delaware
in August 1995. In October 1998, we changed our name to Breakaway Solutions,
Inc.

     Breakaway is a Full Service Provider of business-to-business solutions.
Prior to the year 2000, our focus was on growing enterprises, typically with
sales less than $500 million, and start-up entities in the dot-com space. During
the year 2000, we began to transition the focus of our solutions more towards
collaborative Global 3000 companies. Our services consist of Breakaway strategy
solutions, Breakaway e-business solutions, and Breakaway application hosting.
From our inception in 1992 through 1998, our operating activities primarily
consisted of providing Internet and Customer Relationship Management solutions.
Prior to our acquisition of Applica Corporation ("Applica"), we derived no
revenues from application hosting. We believe that application hosting, which is
an integral part of our FSP strategy, will account for a significant portion of
our total revenue in the future. As a result of the acquisition of Applica, we
began offering application hosting services in 1999.


                                       14
<PAGE>

     Historically, we have offered our services to clients primarily under time
and materials contracts. For these projects, we recognize revenues based on the
number of hours worked by consultants at a rate per hour agreed upon with our
clients. We have also performed some services under fixed-fee contracts. We
recognize revenues from fixed-fee contracts on a percentage of completion method
based on the ratio of costs incurred to total estimated costs.

     We generally derive our initial pricing for a contract from our internal
cost and fixed-fee pricing model. This model helps our professionals estimate
pricing based on the scope of work and materials required. The model also takes
into account project complexity and technical risks.

     We seek to mitigate our risks under fixed-fee contracts by providing
fixed-fee quotes for discrete phases of each project. Using this approach, we
are able to price more accurately the next phase of the engagement by virtue of
having greater knowledge of our client's needs and the project's complexity. We
reflect any losses on projects in process in the period in which they become
known.

     We price our application hosting contracts on a fixed-fee basis. We
recognize revenues from these contracts as services are provided each month. In
addition, we charge our application hosting clients a one time set-up fee, which
we recognize ratably over the term of the contract. Pricing varies for each
client based on the prospective application to be hosted. Factors which
determine pricing generally include telecommunications bandwidth required,
physical space requirements in our leased hosting facilities, the technological
complexity of supporting the hosted application, customer specific service level
agreements, and the complexity of the hardware and software set-ups based upon
customer requirements.

     Our expense items include project personnel costs, sales and marketing
expenses and general and administrative expenses:

         -        Project costs consist of payroll and payroll-related expenses
                  for personnel dedicated to client assignments in the Strategy
                  and Internet Consulting Services segment, and payroll and
                  payroll-related expenses for personnel dedicated to providing
                  client services, rent expenses for leased data centers, and
                  network bandwidth charges in the Application and Web Hosting
                  Services segment.

         -        Sales and marketing expenses consist primarily of salaries
                  (including sales commissions), consulting fees, trade show
                  expenses, advertising and the cost of marketing literature.

         -        General and administrative expenses consist primarily of
                  administrative salaries, fees for professional services,
                  marketing expenses, training costs, communications and
                  hardware costs and facilities costs.

     In December 1999, we formed Breakaway Capital I LLC ("Breakaway Capital"),
a wholly-owned venture capital fund, for the primary purpose of making minority
interest investments in clients. The Company has invested approximately $2.6
million in Breakaway Capital at this time. As of December 31, 2000, the fair
value of these investments was estimated at $0.5 million, and management has
concluded their value is permanently impaired. Therefore, we recorded an
impairment charge of approximately $2.1 million in the year ended December 31,
2000, which has been included as part of "Other Income (Expense)" in the
Consolidated Statement of Operations for the year ended December 31, 2000. We
intend to distribute approximately 50% of any profits, if ever realized, by
Breakaway Capital to certain employees who are not our executive officers. Those
employees eligible to receive any profits will be selected based upon
performance-related criteria determined by us. We have committed to make cash
distributions to these employees if Breakaway Capital liquidates any investment
at a profit, provided that the employee is employed by us at the time of the
distribution. This commitment by us means that we will incur compensation
expense with respect to amounts to be paid to employees.

     The determination of the amount of compensation expense, due to any
potential future gains in Breakaway Capital, if ever realized, and the timing of
when we must recognize that expense, are subject to a number of factors, based
primarily on the nature and performance of investments by Breakaway Capital. It
is therefore not possible to predict if and when such compensation expense will
occur. For the same reasons, it is not possible to predict when

                                       15
<PAGE>

we will recognize any gains from the investments of Breakaway Capital or whether
those gains will occur in the same fiscal quarter that compensation expense
occurs. If Breakaway Capital realizes any returns or further losses on its
investments, we could experience variations in our quarterly results unrelated
to our business operations. These variations could be due to significant gains,
losses, or to significant compensation expenses. While any gains may offset
compensation expenses in a particular quarter, there can be no assurance that
related gains and compensation expenses will occur in the same quarter.

     From inception through December 31, 1998, the Company funded operations
primarily through cash provided by a line of credit. In 1999, the Company funded
operations through the issuance of preferred and common stock, and to a lesser
extent, through a line of credit and equipment leases. In 2000, the Company
funded operations primarily through the issuance of common stock, including
proceeds from its initial public offering and the May 2000 sale of $39 million
of stock to various Putnam funds, and to a lesser extent, through a line of
credit and equipment leases.

     In both late 2000 and early 2001, many of the Company's customers,
primarily venture-backed "dot-coms" and other startups, experienced financial
difficulties which, in many instances, affected the Company's ability to collect
monies owed it from consulting engagements and hosting services. These payment
issues prevented the Company from recognizing approximately $6.9 million of
revenue in the fourth quarter of 2000 and also resulted in the additional write
off of approximately $2.1 million of accounts receivable in the fourth quarter
of 2000, since the collection of these accounts receivable was no longer
expected. Additionally, the Company added approximately $8.6 million to the
reserve for doubtful accounts in the fourth quarter of 2000 for work performed
and billed prior to the fourth quarter, which was now deemed uncollectible. This
contributed to a cash flow shortage for the Company.

     To improve its cash flow position, in December 2000, the Company entered
into an agreement to sell shares of its common stock and issue warrants to
purchase its common stock to Invest, a Delaware corporation. The agreement was
revised to resolve matters which arose subsequent to entering into the agreement
and prior to December 31, 2000. On February 6, 2001, Invest consummated the
revised investment in the Company under which the total amount of cash invested
was reduced by $2.0 million, and Invest, Inc. received an aggregate of 4,285,714
shares of common stock at a per share purchase price of $0.70 and warrants to
purchase up to 4,285,714 shares of common stock at a per share exercise price of
$0.70. Total consideration received by the Company was $3.0 million in cash. A
former director of the Company is the sole director and sole stockholder of
Invest. This settlement resulted in a charge of approximately $9.2 million,
which has been recorded in the consolidated statement of operations for the year
ended December 31, 2000.

     In January 2001, Breakaway issued to ICG Holdings warrants to purchase up
to 9,737,447 shares of Common Stock at a per share exercise price of $0.6875,
subject to adjustment, in connection with entering into definitive agreements
with ICG Holdings with respect to a $5.0 million secured financing of Breakaway,
which bore interest at a rate of 12% per annum.

     In February 2001, to further improve its cash position, the Company entered
into bridge loan facilities with ICG Holdings, and SCP Private Equity Partners
II, L.P. ("SCP"), both of which are currently affiliates of the Company, for an
aggregate of up to $20 million (see note 18). As of April 6, 2001, the Company
had borrowed an aggregate of $16,858,333 under these facilities at a per annum
interest rate of 12%. All principal and interest under these facilities was due
on April 9, 2001. On April 6, 2001, the Company closed a sale of an aggregate of
357,144 shares of Series A Preferred Stock at a per share price of $70.00 and
warrants to purchase up to 42,857,149 shares of common stock at a per share
exercise price of $0.70 pursuant to the terms of a stock purchase agreement the
Company entered into on February 16, 2001 with ICG Holdings and SCP. As
consideration for the issuance of these securities, ICG Holdings and SCP paid to
the Company an aggregate of $8,141,667 in cash and cancelled an aggregate of
$16,858,333 in outstanding principal and interest balances (representing the
total of such balances) under the bridge loan facilities. We may not reborrow
additional amounts under the bridge loan facilities. In conjunction with the
equity transaction closed with SCP on April 6, 2001, the Company may, upon
meeting certain conditions (there must be sufficient unissued Series A Preferred
Stock and the Company's request must be between July 31, 2001 and February 1,
2002), cause SCP to purchase an additional 71,249 shares of Series A Preferred
Stock.

                                       16
<PAGE>

     In an effort to reduce costs, the Company has undertaken various
restructurings in late 2000 and early 2001. On October 4, 2000, the Company
announced its first restructuring, which included a staff reduction of
approximately 82 people, resulting in termination costs of approximately $0.5
million. Further staff reductions followed as part of the overall restructuring
plan as follows: January 163, February 121, March 9, April 100, and May 38. The
Company has accrued costs of $1.6 million related to the January headcount
reduction and closure of the Boston Seaport and Dallas offices which were
announced on December 29, 2000, bringing the restructuring costs for 2000 to
$2.1 million, and has written off approximately $1.8 million of leasehold
improvements related to the closure of the Boston Seaport office in the year
ended December 31, 2000, which was also announced on December 29, 2000. The
additional costs we expect to incur in 2001 associated with this restructuring
will be recorded as a period expense in the appropriate periods. Restructuring
costs in 2001 associated with headcount reductions through May 31, 2001 were
approximately $1 million.

     In April 2001, the Company announced the appointment of a new CEO and five
new members of the Board of Directors. The new leadership implemented a plan of
reorganization responsive to the changes in the market place in which planned
operations are limited to the Company's profitable core competencies, directed
at financially sound Global 3000 companies, and delivered from consolidated
profitable operating locations. The reorganized entity has consolidated
operations to five primary locations from eleven, adopted a regional marketing
and sales model and adopted a strong regional governance model, resulting in
streamlined corporate overhead and decision-making and support, positioned
closer to the customer. Additionally, the Company has reorganized its ASP
business from a factory model based on scale and the resale of commodity inputs
to a team model based on team based customer service focused on selling
knowledge based services. At the completion of the reorganization, the Company
expects to have approximately 280 to 300 employees.

     In June 2001 the Company entered into financing arrangements with Silicon
Valley Bank providing for $7 million in equipment lease financing. The loan
bears interest at 9% per annum and is due and payable on June 1, 2004. The
Company may make certain draws to finance equipment until December 31, 2001. The
loan is secured by a lien on the Company's equipment, accounts receivable (which
will be subordinated to an accounts receivable loan) and intellectual property
rights. The equipment financing is guaranteed by SCP.

     The Company's management believes that cash flows from operations and
the proceeds from the sale of securities to ICG Holdings and SCP along with
the additional financings discussed above, and a continuing relationship with
one of our investors who has demonstrated an ability and intent to continue
to financially support our operations, will be sufficient to finance the
Company's capital requirements for at least the next 12 months, from December
31, 2000. There can be no assurance, however, that our actual needs will not
exceed expectations or that we will be able to fund our operations on a
long-term basis in the absence of other sources. There also can be no
assurance that any additional required longer term financing will be
available through additional bank borrowings, debt or equity offerings or
otherwise, or that if such financing is available, that it will be available
on terms acceptable to us.

ACQUISITIONS

     We completed four acquisitions in 2000. These acquisitions enabled us to
expand our service offerings, and expand geographically including
internationally. These acquisitions were:

         -        DATACYR. In February 2000, we acquired DataCyr Corporation
                  ("DataCyr"). DataCyr develops and markets software designed to
                  allow enterprises to seamlessly move and transform data from
                  multiple incompatible sources to common databases. We acquired
                  DataCyr for 110,000 shares of our Common Stock. These shares
                  are subject to our right, which lapses incrementally over a
                  four-year period, to repurchase the shares from the applicable
                  employee for a nominal amount upon the employee's resignation
                  without good reason or our termination of the employee for
                  cause.

         -        EGGROCK PARTNERS. Effective April 1, 2000, we acquired Eggrock
                  Partners, Inc. ("Eggrock"), a full service consulting and
                  systems integration firm that focuses on delivering
                  customer-centered business solutions to emerging enterprises.
                  The total consideration for this acquisition was 7,272,000
                  shares of Common Stock. Of these shares, approximately
                  6,176,331 shares were issued to Eggrock stockholders and
                  approximately 1,095,669 shares were reserved for


                                       17
<PAGE>

                  issuance to Eggrock option holders. At closing, Eggrock
                  options were converted into options to acquire Common Stock on
                  the same basis as Eggrock stock was converted into the right
                  to receive Common Stock. Of the shares of our Common Stock
                  issued to former Eggrock stockholders at closing,
                  approximately 30.5% are subject to vesting over a four-year
                  period from the closing date.

         -        ZARTIS.COM. Effective July 28, 2000, we acquired all of the
                  issued and outstanding share capital of Zartis.com Limited
                  ("Zartis"), a Dublin, Ireland-based e-business consultancy,
                  for the purposes of expanding our European operations. Zartis
                  is a full service consulting and systems integration firm that
                  focuses on delivering customer-centered e-business solutions
                  to emerging enterprises. As consideration for the share
                  purchase, we issued 430,456 shares of Common Stock, assumed
                  64,441 outstanding options, and incurred an obligation to pay
                  $2 million to the former Zartis shareholders. The parties
                  subsequently amended the payment obligation to reduce the
                  amount owed by $500,000 in total and to alter the payment
                  schedule therefor. Of the shares of the Common Stock issued to
                  the former Zartis shareholders, who are now employees of the
                  Company, approximately 75% are subject to Breakaway's right,
                  which lapses incrementally over a four year period, to
                  repurchase the shares from the employees for a nominal amount
                  upon the resignation of such employee or upon Breakaway's
                  termination of the employee for cause. During the second
                  quarter of 2001, the Company adopted a plan and initiated the
                  closing of this business.

         -        NORSEC, INC. Effective August 11, 2000, we acquired all of the
                  issued and outstanding share capital of Norsec, Inc.
                  ("Norsec"), a Massachusetts based e-business security
                  consultancy. As consideration for the share purchase, we
                  issued 273,019 shares of our Common Stock to the former Norsec
                  shareholders and assumed 30,299 outstanding options. Of the
                  shares of the Common Stock issued to the former Norsec
                  shareholders, who are now employees of the Company,
                  approximately 75% are subject to Breakaway's right, which
                  lapses incrementally over a four year period, to repurchase
                  the shares from the employees for a nominal amount upon the
                  resignation of such employee or upon the Company's termination
                  of the employee for cause.

     All four acquisitions were accounted for using the purchase method of
accounting, resulting in approximately $341 million of intangible assets and
deferred costs.

     We completed three acquisitions in 1999. These acquisitions enabled us to
become a full service provider by substantially expanding our capabilities in
providing systems integration services for e-business and by adding the
capability to host applications. The three acquisitions were:

         -        APPLICA. In March 1999, we acquired all of the outstanding
                  shares of Applica Corporation ("Applica"), a New York-based
                  application hosting service provider. We acquired Applica for
                  1,447,398 shares of Common Stock.

         -        WPL. In May 1999, we acquired WPL Laboratories, Inc. ("WPL"),
                  a Philadelphia, Pennsylvania-based Web development company.
                  WPL focused primarily on enabling companies to conduct
                  business using the Internet as a distribution channel. The
                  total acquisition consideration paid consisted of
                  approximately $5.0 million in cash to be paid over a four-year
                  period and 2,728,280 shares of our Common Stock. Each WPL
                  stockholder received 50% of his cash consideration at closing
                  and will receive the remainder incrementally over a four-year
                  period so long as the stockholder does not resign and is not
                  terminated for cause. Of the shares of our Common Stock issued
                  to the former WPL stockholders, approximately 50% are subject
                  to our right, which lapses incrementally over a four-year
                  period, to repurchase the shares of the stockholder, at their
                  value at the time of the acquisition, upon the stockholder's
                  resignation or our termination of the stockholder for cause.
                  Also, as a part of the acquisition, we assume all outstanding
                  WPL stock options, which became exercisable for 629,608 shares
                  of our Common Stock at an exercise price of $1.18 per share
                  with a four-year vesting period.

         -        WEB YES. In June 1999, we acquired Web Yes, Inc.("Web Yes"), a
                  Cambridge, Massachusetts-based application hosting service
                  provider. This acquisition strengthened our application
                  hosting capabilities, providing us with additional domestic
                  and international hosting facilities. We

                                       18
<PAGE>

                  acquired Web Yes for 913,816 shares of our Common Stock. Of
                  the shares of our Common Stock issued to the former Web Yes
                  stockholders, 685,360 are subject to our right, which lapses
                  incrementally over a four year period, to repurchase the
                  shares of a particular stockholder upon the termination of his
                  employment with us. The repurchase price will be either at the
                  share value at the time of the acquisition if the stockholder
                  terminates employment or we terminate for cause, or at their
                  fair market value if we terminate the stockholder's employment
                  without cause.

     All three acquisitions were accounted for using the purchase method of
accounting. These acquisitions resulted in approximately $14.7 million of
intangible assets and deferred costs. Intangible assets and deferred costs were
being amortized over a three to five-year period from the date of each
acquisition.

IMPAIRMENT OF INTANGIBLE ASSETS

     The Company's management performs on-going business reviews and, based on
quantitative and qualitative measures, assesses the need to record impairment
losses on long-lived assets used in operations when impairment indicators are
present. Where impairment indicators were identified, management determined the
amount of the impairment charge by comparing the carrying value of goodwill and
certain other intangible assets to their fair value. Management determines fair
value based on the discounted cash flow methodology, which is based upon
converting expected future cash flows to present value. As a result, during
management's review of the value and periods of amortization of both goodwill
and other intangible assets, it was determined that the carrying value of
goodwill and certain other intangible assets were not fully recoverable. During
the fourth quarter of fiscal 2000, the Company recorded an impairment charge of
approximately $296 million. Subsequent to December 31, 2000, the Company
determined to consolidate and restructure the businesses conducted by its
subsidiaries Eggrock, Applica, WPL, and Web Yes, and to exit the business
conducted by Zartis.com. In connection with these decisions, the Company expects
to record impairment charges in the first quarter fiscal 2001 and the second
quarter 2001 relating to employee terminations, net realizable value of
property, equipment and leasehold improvements, and lease terminations of an
estimated $5 million. Each of the companies for which impairment charges were
recorded have experienced significant declines in operating and financial
metrics over the past several quarters in comparison to the metrics forecasted
at the time of their respective acquisitions. The impairment analysis considered
that these companies were recently acquired and that the intangible assets
recorded upon acquisition of these companies was generally being amortized over
a three- to five-year useful life. However, sufficient monitoring was performed
over the course of the past several quarters and the companies have each
completed an operating cycle since acquisition.

     The amount of the impairment charge was determined by comparing the
carrying value of goodwill and certain other intangible assets to fair value at
December 31, 2000. The most significant assumptions in our analysis were our
projected revenues growth rate and the after tax discount rate used as of
December 31, 2000, both of which ranged between 20% to 25%. The discount rate
was determined by an analysis of the risks associated with certain goodwill and
other intangible assets. The resulting net cash flows to which the discount rate
was applied was based upon management's estimate of revenue, operating expense,
and income taxes. The revenue growth rate was based upon what management
estimated to be sustainable rates of growth that could be financed with existing
and committed facilities. Accordingly, the Company has recorded an impairment
charge of approximately $296 million during the fourth quarter of fiscal 2000,
which is reflected in amortization expense in the consolidated statement of
operations.

     In October 2000, the Company, along with ICG Asiaworks, an entity partially
owned by ICG, Hutchinson Whampoa and Li Ka-shing Foundation, established
Breakaway Asia Pacific. This new entity is expected to provide services similar
to those provided by the Company in the Asia Pacific market, other than Japan.
In exchange for use of the Company's intellectual property, the Company received
a 19.9% ownership interest in Breakaway Asia Pacific. The Company accounts for
this investment using the equity method of accounting. In June 2001, the Company
sold its equity interest in Breakaway Solutions Asia Pacific Limited (the "Joint
Venture") to the other shareholder, ICG Asia Limited (formerly, ICG AsiaWorks
Limited) for $500,000. The transaction is expected to close in July 2001 upon
obtaining regulatory approval and satisfaction of certain other closing
conditions. As part of the parties' ongoing relationship, the Company may be
obligated until April 2002 to provide services for certain projects relating to
the Joint Venture at a 15% discount from standard fees. In addition, the Company
may be required to refund certain fees paid it as a retainer upon the occurrence
of certain events.

                                       19

<PAGE>

RESULTS OF OPERATIONS

The following tables set forth certain items included in our consolidated
statements of operations as a percentage of revenues for the periods indicated:

<TABLE>
<CAPTION>
                                                                             YEARS ENDED DECEMBER 31
                                                                    1998               1999               2000
                                                                ------------        ----------         ----------
<S>                                                             <C>                 <C>                <C>
Revenues.............................................              100.0%              100.0%            100.0%
Project costs........................................               59.0                52.7              66.5
Selling, general and administrative..................               48.0                82.2              87.3
Amortization and impairment expense..................                 --                 7.9             346.1
Restructuring costs..................................                 --                  --               2.0
Operating loss.......................................               (7.0)%             (42.8)%          (401.9)%
</TABLE>

     The following table sets forth the revenues from our core service offerings
for the periods indicated:

<TABLE>
<CAPTION>
                                                                     REVENUE FOR THE YEARS ENDED DECEMBER 31
                                                                ------------        ----------         ----------
                                                                                 (IN THOUSANDS)
                                                                    1998                1999               2000
<S>                                                             <C>                 <C>                <C>
Strategy and Internet Consulting Services............             $10,018             $23,298            $81,851
Percentage of revenues...............................               100.0%               91.7%              79.9%
Application and Web Hosting Services.................                 --              $ 2,092            $20,628
Percentage of revenues...............................                 --                  8.3%              20.1%
</TABLE>

     As the preceding tables indicate, our revenues in the past were derived
from providing strategy and systems integration solutions services. We developed
and began implementation of our strategy to become a leading full service
provider of Internet solutions for businesses in late 1998. As part of this
strategy, we acquired companies which gave us the ability to provide application
hosting services and expanded our ability to provide Internet solutions services
during the first six months of 1999. We began recognizing revenues from these
services in the second quarter of 1999. Due to the sharp decline in available
funding for Internet enterprises and the resulting decrease in revenue in the
sector for us, we began to shift the focus of our service offerings and
marketing to companies in the Global 3000, which we believe is a more stable
customer base.

YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999

     REVENUES. Revenues for the year ended December 31, 2000 increased by $77.1
million, or 303.6%, to $102.5 million from $25.4 million for the year ended
December 31, 1999. The increase was due primarily to increased market demand for
both Internet professional services and our hosting line of business, which
generated $20.6 million, or 20.1%, of our total revenues for the year ended
December 31, 2000 compared to $2.1 million, or 8.3% of our total revenues for
the year ended December 31, 1999. Additionally, we acquired several companies
and expanded geographically, both within the United States and internationally,
which increased our market presence and revenues. During the fourth quarter of
2000 and into early 2001, the Company realized unexpected declining revenues
resulting from significant market changes effecting the Company's customers. The
Company began to change its market focus to the Global 3000 in late 2000.

     PROJECT COSTS. Project costs for the year ended December 31, 2000 increased
by $54.7 million, or 408.8%, to $68.1 million from $13.4 million for the year
ended December 31, 1999. Project costs related to the Strategy and Internet
Consulting business increased by $38.6 million or 334.9% to $49.9 million from
$11.3 million for the year ended December 31, 1999. This increase was due
primarily to an increase in the number of employees hired to perform the client
services delivered. Project costs related to the Application and Web Hosting
business increased by $16.1 million or 753.8% to $18.2 million from $2.1 million
for the year ended December 31, 1999. This increase was due primarily to an
increase in the number of employees hired to perform the client services
delivered, increased rent due to the use of additional data centers, and
increased bandwidth charges due to an expanding customer base.

                                       20
<PAGE>

     Project costs represented 66.5% of revenues for the year ended December 31,
2000, as compared to 52.7% of revenues for the year ended December 31, 1999.
Project costs related to the Strategy and Internet Consulting business
represented 61.0% of revenues for the year ended December 31, 2000, as compared
to 48.3% of revenues for the year ended December 31, 1999. Project costs
increased as a percentage of revenues for the year ended December 31, 2000 due
primarily to significant decrease in employee utilization rate during the fourth
quarter of 2000 before the Company implemented employee terminations. Project
costs related to the Application and Web Hosting business represented 88.2% of
revenues for the year ended December 31, 2000, as compared to 101.8% of revenues
for the year ended December 31, 1999. This decrease was due to improved
utilization of existing infrastructure.

     SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses for the year ended December 31, 2000 increased by $68.6 million, or
329.0%, to $89.5 million from $20.9 million for the year ended December 31,
1999. As a percentage of revenues, selling, general and administrative expenses
increased to 87.3% for the year ended December 31, 2000 from 82.2% for the year
ended December 31, 1999. These increases were due primarily to increases in
personnel related expenses to support increased administrative employees,
increased bad debt expense, increased depreciation, costs associated with more
and larger facilities, increased sales and marketing and associated travel
related expenses, and increased recruiting costs associated with expanding our
professional staff.

     AMORTIZATION AND IMPAIRMENT EXPENSE. Amortization of deferred costs,
goodwill and intangible assets increased to $354.7 million for the year ended
December 31, 2000, from $2.0 million for the year ended December 31, 1999. The
increase is primarily attributable to the one time charge of $296.0 million
incurred to properly value goodwill and other acquisition intangibles at
December 31, 2000. The remainder of the increase was due to amortization related
to intangible assets recorded upon the acquisitions of Eggrock, DataCyr, Zartis,
and Norsec. We were deferring costs and intangible assets over their estimated
useful lives, ranging from three to five years. The current value of the
intangibles were reduced to fair market value resulting in a write down of all
of the intangibles.

     RESTRUCTURING COSTS. Restructuring costs of approximately $2.1 million in
2000 resulted primarily from the involuntary termination of 278 employees and a
strategic decision to consolidate the Company's two Massachusetts offices and
close the Dallas office. Of the total charges, approximately $1.5 million
relates to termination benefits and $0.6 million relates to facility lease costs
(net of estimated sublease income). Substantially all of the termination
benefits were paid in the first quarter of 2001.

     INTEREST INCOME. Interest income, net, for the year ended December 31, 2000
increased to $1.4 million from $0.5 million for the year ended December 31,
1999. The increase in 2000 was due primarily to interest income earned on the
invested portion of proceeds from our initial public offering of Breakaway
common stock in October 1999, offset by increased interest expense incurred on
capital lease arrangements.

     OTHER EXPENSE. Other expense, net, increased to $14.8 million for the year
ended December 31, 2000 from $23,000 of income for the year ended December 31,
1999. The increase in 2000 is primarily due to the $9.2 million of expense
incurred as a result of the equity transaction with Invest and a $4.7 million
write-down of investments in equity securities.

     DEFERRED TAX BENEFIT. The tax benefit for the year ended December 31, 2000
of $35,499 is a result of the deferred tax liabilities established in purchase
accounting for the Company's acquisitions and has been written-off in
conjunction with the write-off of goodwill and other acquisition related
intangible assets.

YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998

     REVENUES. Revenues for the year ended December 31, 1999 increased by $15.4
million, or 154.0%, to $25.4 million from $10.0 million for the year ended
December 31, 1998. The increase was due primarily to increased market demand for
Internet professional services and the addition of our hosting line of business,
which generated $2.1 million, or 8.3%, of our total revenues for the year ended
December 31, 1999. Additionally, we acquired several companies and expanded
geographically, which increased our market presence and revenues.

                                       21
<PAGE>

     PROJECT COSTS. Project costs for the year ended December 31, 1999 increased
by $6.0 million, or 100.0%, to $11.9 million from $5.9 million for the year
ended December 31, 1998. Project personnel costs represented 59.0% of revenues
for the year ended December 31, 1998, as compared to 46.8% of revenues for the
year ended December 31, 1999. The increase in absolute dollars was due primarily
to an increase in the number of employees hired to perform the client services
delivered. Project costs decreased as a percentage of revenues for the year
ended December 31, 1999 due primarily to an increase in the average hourly
billable rate of our professionals over the comparable period in 1998 and, to a
lesser extent, due to an increase in the average employee utilization rate.

     SELLING, GENERAL AND ADMINISTRATIVE. Selling general and administrative
expenses for the year ended December 31, 1999 increased by $16.1 million, or
335.4%, to $20.9 million from $4.8 million for the year ended December 31, 1998.
As a percentage of revenues, selling, general and administrative expenses
increased from 48.0% for the year ended 1998 to 82.2% for the year ended 1999.
The increase in 1999 was due primarily to increases in personnel-related
expenses to support increased administrative employees, outside professional
fees for recruiting, the recruiting and hiring of a senior executive management
team, the hiring of dedicated sales and marketing employees, a brand name
marketing campaign, the investment in our hosting service line infrastructure,
amortization of acquisition intangible assets and deferred costs and the opening
of additional offices.

     AMORTIZATION EXPENSE. Amortization of deferred costs, goodwill and
intangible assets increased $2.0 million or 100% for the year ended December 31,
1999, representing 7.9% of revenues, The increase is attributable to
amortization related to intangible assets recorded upon the acquisitions of
Applica Corporation, WPL Laboratories, Inc., and Web Yes, Inc. We amortize
deferred costs and intangible assets over their estimated useful lives, ranging
from three to five years.

     INTEREST INCOME. Interest income, net, for the year ended December 31, 1999
increased to $0.5 million from $11,191 for the year ended December 31, 1998. The
increase in 1999 was due primarily to interest income earned on the invested
portion of proceeds from our preferred stock financings in January and July
1999, as well as our initial public offering of Breakaway common stock in
October 1999.

LIQUIDITY AND CAPITAL RESOURCES

     From inception through December 31, 1998, we funded our operations
primarily through cash provided by a line of credit. In 1999, we funded our
operations through the issuance of preferred and common stock, and to a lesser
extent, through a line of credit and equipment leases. In 2000, we funded our
operations primarily through the proceeds from our initial public offering,
private placements, and to a lesser extent, equipment leases.

     Our operating activities used cash of $37.7 million in 2000 and $14.0
million in 1999. The increase in cash used in 2000 primarily resulted from costs
incurred in connection with a larger professional staff and facilities, new
business acquisitions and increased overhead. In addition, in both late 2000 and
early 2001, many of the Company's customers, primarily venture-backed "dot-coms"
and other startups, experienced financial difficulties which in many instances
affected the Company's ability to collect monies owed it from consulting
engagements and hosting services. These payment issues prevented the Company
from recognizing approximately $6.9 million of revenue in the fourth quarter of
2000 and also resulted in the additional write off of approximately $2.1 million
of accounts receivable in the fourth quarter of 2000, since the collection of
these accounts receivable was no longer expected. Additionally, the Company
added approximately $8.6 million to the reserve for doubtful accounts in the
fourth quarter of 2000 for work performed and billed prior to the fourth
quarter, which was now deemed uncollectible. This resulted in a cash flow
shortage for the Company.

     Net cash used in investing activities was $1.9 million in 2000, and $45.4
million in 1999. Capital expenditures totaled $35.9 million and $5.9 million in
the years ended December 31, 2000 and 1999, respectively. These expenditures
were primarily for computer equipment, telecommunications equipment and
furniture and fixtures to support our rapid growth through 2000, and to build
our application hosting service line.

     Net cash provided from financing activities was $50.4 million in 2000, and
$63.2 million in 1999. The decrease in cash provided was mainly due to a
decrease in proceeds from issuance of stock.


                                       22
<PAGE>

     Our operating activities used cash of $14.0 million in 1999 and $0.3
million in 1998. The increase in cash used in 1999 primarily resulted from costs
we incurred in connection with hiring a new management team and implementing new
business acquisitions and increasing overhead. In addition, we experienced an
increase in our accounts receivable resulting from both increased days
outstanding and the extended payment terms of fixed-fee contracts.

     Cash used in investing activities was $45.4 million in 1999 and $493,000 in
1998. The increase in cash used in 1999 primarily reflects additional
investments funded with the proceeds of our initial public offering in October
1999. In addition, in 1999, we used $2.1 million in cash for our acquired
businesses.

     We used cash for capital expenditures of $5.9 million and $0.5 million in
the years ended December 31, 1999 and 1998, respectively. These expenditures
were primarily for computer equipment, telecommunications equipment and
furniture and fixtures to support our growth, and to build our application
hosting service line.

LOAN AGREEMENTS

     On January 19, 2001, the Company entered into a loan agreement (the
"Original ICG Holdings Loan"), with ICG Holdings, a Delaware corporation, which
is a wholly-owned subsidiary of ICG, a Delaware corporation and an affiliate of
the Company. On February 8, 2001, the Original ICG Holdings Loan was amended to
increase the maximum amount which could be borrowed thereunder to $7,400,000. On
February 16, 2001, the Company again amended the Original ICG Holdings Loan (the
"Amended ICG Holdings Loan"), together with the Original ICG Holdings Loan (the
"ICG Holdings Loan"), primarily to increase the maximum amount which the Company
could borrow under, and extend the maturity date of, the Original ICG Holdings
Loan, as well as to facilitate the Company entering into a loan agreement with
SCP on substantially the same terms on the same date. The maximum amount which
the Company could borrow under both the ICG Holdings Loan and its loan from SCP
was $20,000,000. All principal and interest under the loans were due and payable
in full on April 9, 2001. The interest rate applied to borrowings under the
loans was 12% per annum (or 18% after an event of default), and all principal
and interest was fully secured by substantially all of the Company's assets. All
borrowings under the loans were subject to the discretion of ICG Holdings and
SCP. The Company borrowed an aggregate of $16,858,333 under these loans.

     On April 6, 2001, Breakaway issued the following securities to ICG Holdings
and SCP in connection with the closing of the preferred stock purchase agreement
Breakaway entered into with such entities on February 16, 2001 and for aggregate
consideration of $8,141,667 in cash and $16,858,333 in cancellation of
outstanding principal and interest under Breakaway's loan agreements with such
entities: (i) 142,858 shares of Series A Preferred and warrants to purchase up
to 14,285,720 shares of Common Stock at a per share exercise price of $0.70,
subject to adjustment, to ICG Holdings and (ii) 214,286 shares of Series A
Preferred and warrants to purchase up to 28,571,429 shares of Common Stock at a
per share exercise price of $0.70 subject to adjustment, to SCP. Each share of
Series A Preferred issued by Breakaway is convertible into Common Stock at a
rate, subject to adjustment, of 100 shares of Common Stock for each share of
Series A Preferred. The shares of the Series A Preferred will be entitled to
receive dividends out of funds legally available therefore at the rate of 8.0%
per annum. Such dividends will be payable, when and if declared, at the option
of the Company either in cash or in additional shares of Series A Preferred
Stock valued based upon the original $70.00 per share issue price therefore.
Dividends will be cumulative and accrue quarterly. In the event of a Qualified
Public Offering or a Qualified Public Sale within three years after the closing
of the Purchase Agreement, all issued and outstanding shares of Series A
Preferred Stock issued as dividends will be canceled. At any time after January
20, 2006, each holder of Series A Preferred Stock will be entitled to have the
Company redeem all, but not less than all, of such holder's shares of Series A
Preferred Stock for a per share price equal to $70.00 (as adjusted for stock
splits, stock dividends and similar events), plus all accrued but unpaid
dividends.

     The Company, among other things, will be prohibited from incurring any
additional indebtedness without the consent of a majority of the then
outstanding shares of Series A Preferred Stock and dividends will continue to
accrue on the shares of Series A Preferred Stock required to be redeemed. The
warrants issued by the Company to SCP and ICG Holdings at the closing of the
Purchase Agreement are exercisable at any time during the ten years after the
date they were issued at a per share exercise price of $0.70. The number of
shares issuable upon exercise and the per share exercise price of the warrants
is subject to adjustment in certain events. In addition, the warrants

                                       23
<PAGE>

may be exercised by means of a "net exercise" feature under which the Company
does not receive any cash, but rather, the number of shares issued upon exercise
is net of the number of shares withheld by the Company in lieu of payment of the
exercise price.

OTHER FINANCING ARRANGEMENTS

     We have various equipment lease financing facilities. The terms of these
equipment lease financings, as described below, average two years. The annual
interest rates on borrowings range from 12.7% to 13.3%.

     In December 1999, we entered into a Master Lease Agreement with Silicon
Valley Bank, ("SVB") accounted for as a capital lease, to finance up to $4.0
million of equipment and software. Leases under the Master Lease Agreement will
have terms of 36 months. Payments under the leases are determined based on an
annual interest rate equal to the annual rate on U.S. treasury securities of a
comparable term plus 2.5%. In connection with the Master Lease Agreement, we
issued Silicon Valley Bank warrants for 174,544 shares of our common stock at
$0.6875 per share. The warrants are exercisable until December 21, 2002. As of
December 31, 2000 $2.7 million was outstanding under the lease line.

     In January 1999, we issued 5,853,000 shares of preferred stock for $8.3
million. We used the proceeds to purchase Common Stock from an existing
stockholder and to fund our operations. All of these shares of preferred stock
converted into common stock on our October 1999 initial public offering.

     In May 1999, we borrowed $4.0 million from ICG and issued ICG a promissory
note for $4.0 million bearing interest at the prime interest rate plus one
percent. This promissory note converted into shares of our preferred stock in
our July 1999 preferred stock financing. We used the proceeds of the borrowing
to help finance our acquisition of WPL and to fund operations. These securities
were converted to common shares in October 1999 upon our initial public
offering.

     In July 1999, we issued 2,931,849 shares of preferred stock for
approximately $19.0 million. We used the proceeds for working capital and other
general corporate purposes. These securities were converted to common shares in
October 1999, concurrent with our initial public offering.

     In October 1999, we consummated an initial public offering and issued
6,900,000 shares of our Common Stock for approximately $42.0 million, net of
underwriter's discounts, commissions and expenses. We used using the proceeds
for working capital and other general corporate purposes.

     In May 2000, the Company issued and sold 1,500,000 shares of its common
stock through a private placement to five mutual funds managed by either Putnam
Investment Management, Inc. or the Putnam Advisory Company, Inc., the net
proceeds of which were approximately $39.0 million. The proceeds of the
offerings were used for general corporate purposes.

     Between July and October 2000, we entered into lease agreements with
Deutsche Financial Services, accounted for as a capital lease, to finance $0.7
million of capital equipment. The terms call for 33 equal monthly payments,
totaling of $22,873, with the final payments due between April 2003 and July
2003. As of December 31, 2000, $.6 million was outstanding under the lease.
Subsequent to year-end, the Company terminated the lease agreements and settled
the obligation with Deutsche Financial Services for $225,000 and return of the
equipment.

     In September 2000, we entered into an agreement with FleetBoston for a
working capital line of $10 million. As of December 31, 2000, the line of credit
was paid off and cancelled.

     In November 2000, we entered into a lease agreement with Transamerica
Equipment Financial Services Corporation to finance $3.0 million of capital
equipment. The terms call for 45 equal monthly payments of $92,142.66, with the
final payment of $225,000 due on May 30, 2003. The amount outstanding at
December 31, 2000 was $2.9 million. Under the agreement, the Company is required
to maintain a $2.25 million letter of credit, that is collateralized by a
certificate of deposit.

                                       24
<PAGE>

     In December 2000, the Company entered into an agreement to sell shares of
its common stock and issue warrants to purchase its common stock to Invest, a
Delaware corporation. The agreement was revised to resolve matters which arose
subsequent to entering into the agreement and prior to December 31, 2000. On
February 6, 2001, Invest consummated the revised investment in the Company under
which the total amount of cash invested was reduced by $2.0 million, and Invest,
Inc. received an aggregate of 4,285,714 shares of common stock at a per share
purchase price of $0.70 and warrants to purchase up to 4,285,714 shares of
common stock at a per share exercise price of $0.70. Total consideration
received by the Company was $3.0 million in cash. A former director of the
Company is the sole director and sole stockholder of Invest. This settlement
resulted in a charge of approximately $9.2 million, which has been recorded in
the consolidated statement of operations for the year ended December 31, 2000.

     In February 2001, to further improve its cash position, the Company entered
into bridge loan facilities with ICG Holdings, and SCP Private Equity Partners
II, L.P. ("SCP"), both of which are currently affiliates of the Company, for an
aggregate of up to $20 million (see note 18). As of April 6, 2001, the Company
had borrowed an aggregate of $16,858,333 under these facilities at a per annum
interest rate of 12%. All principal and interest under these facilities was due
on April 9, 2001. On April 6, 2001, the Company closed a sale of an aggregate of
357,144 shares of Series A Preferred Stock at a per share price of $70.00 and
warrants to purchase up to 42,857,149 shares of common stock at a per share
exercise price of $0.70 pursuant to the terms of a stock purchase agreement the
Company entered into on February 16, 2001 with ICG Holdings and SCP. As
consideration for the issuance of these securities, ICG Holdings and SCP paid to
the Company an aggregate of $8,141,667 in cash and cancelled an aggregate of
$16,858,333 in outstanding principal and interest balances (representing the
total of such balances) under the bridge loan facilities. We may not reborrow
additional amounts under the bridge loan facilities. In conjunction with the
equity transaction closed with SCP on April 6, 2001, the Company may, upon
meeting certain conditions (there must be sufficient unissued Series A Preferred
Stock and the Company's request must be between July 31, 2001 and February 1,
2002), cause SCP to purchase an additional 71,249 shares of Series A Preferred
Stock.

     At the end of 2000, we had $5.4 million in unrestricted cash.

         CURRENT PLANS TO FUND FUTURE OPERATIONS

     In an effort to reduce costs, the Company has undertaken various
restructurings in late 2000 and early 2001. On October 4, 2000, the Company
announced its first restructuring, which included a staff reduction of
approximately 82 people, resulting in termination costs of approximately $0.5
million. Further staff reductions followed as part of the overall restructuring
plan as follows: January 163, February 121, March 9, April 100, and May 38. The
Company has accrued costs of $1.6 million related to the January headcount
reduction and closure of the Boston Seaport and Dallas offices which were
announced on December 29, 2000, bringing the restructuring costs for 2000 to
$2.1 million, and has written off approximately $1.8 million of leasehold
improvements related to the closure of the Boston Seaport office in the year
ended December 31, 2000, which was also announced on December 29, 2000. The
additional costs we expect to incur in 2001 associated with this restructuring
will be recorded as a period expense in the appropriate periods. Restructuring
costs in 2001 associated with headcount reductions through May 31, 2001 were
approximately $1 million.

     In April 2001, the Company announced the appointment of a new CEO and five
new members of the Board of Directors. The new leadership implemented a plan of
reorganization responsive to the changes in the market place in which planned
operations are limited to the Company's profitable core competencies, directed
at financially sound Global 3000 companies, and delivered from consolidated
operating locations. The reorganized entity has consolidated operations to five
primary locations from eleven, adopted a regional marketing and sales model and
adopted a strong regional governance model, resulting in streamlined corporate
overhead and decision-making and support, positioned closer to the customer.
Additionally, the Company has reorganized its ASP business from a factory model
based on scale and the resale of commodity inputs to a team model based on team
based customer service focused on selling knowledge based services. At the
completion of the reorganization, the Company expects to have approximately 280
to 300 employees.

     In June 2001 the Company entered into financing arrangements with Silicon
Valley Bank providing for $7 million in equipment lease financing. The loan
bears interest at 9% per annum and is due and payable on June 1,

                                      25
<PAGE>

2004. The Company may make certain draws to finance equipment until December 31,
2001. The loan is secured by a lien on the Company's equipment, accounts
receivable (which will be subordinated to an accounts receivable loan) and
intellectual property rights. In exchange for warrants to purchase the Company's
Series A Preferred Stock, SCP has guaranteed the equipment financing.

     The Company's management believes that cash flows from operations and
the proceeds from the sale of securities to ICG Holdings and SCP along with
the additional financings discussed above, and a continuing relationship with
one of our investors who has demonstrated an ability and intent to continue
to financially support our operations, will be sufficient to finance the
Company's operating requirements for at least the next 12 months, from
December 31, 2000. There can be no assurance, however, that our actual needs
will not exceed expectations or that we will be able to fund our operations
on a long-term basis in the absence of other sources. There also can be no
assurance that any additional required longer term financing will be
available through additional bank borrowings, debt or equity offerings or
otherwise, or that if such financing is available, that it will be available
on terms acceptable to us.

FACTORS THAT MAY AFFECT FUTURE RESULTS

     We caution you that the following important factors, among others, in the
future could cause our actual results to differ materially from those expressed
in forward-looking statements made by or on behalf of Breakaway in filings with
the Securities and Exchange Commission, press releases, communications with
investors and oral statements.

WE HAVE A HISTORY OF OPERATING LOSSES, EXPECT TO INCUR LOSSES IN THE FUTURE AND
WILL NOT BE SUCCESSFUL UNLESS WE CAN REVERSE THIS TREND.

     We expect to continue to incur substantial costs associated with recent
office closures and discontinuing various real estate and other obligations. As
a result, we will need to maintain revenues at current levels to achieve
operating profitability. We experienced net losses of $10.4 million and $390
million for the fiscal years ended December 31, 1999 and 2000, respectively. We
expect to reduce our operating losses significantly; however, we may incur
restructuring costs for the foreseeable future. Even if we do achieve operating
profitability, we may not be able to sustain or increase profitability on a
long-term basis in the future, or to raise capital.

WE HAVE RECENTLY CHANGED OUR CORPORATE MANAGEMENT AND THE COMPOSITION OF OUR
BOARD OF DIRECTORS AND MAY SUFFER DISRUPTION FROM SUCH CHANGES.

     During the past several months, our management team has experienced
significant change. In April of 2001, William Loftus, a Company Senior Vice
President, was elected by the Board of Directors ("Board") as our Chief
Executive Officer ("CEO") and President. In addition, several of our senior
executives (including our former Chief Executive Officer and Chief Operating
Officer) have ceased to serve in these capacities. In addition, several of our
prior directors have resigned and five new members have been added to our Board.
As a result, we have substantially fewer members of our senior executive team,
and those members have significantly more responsibility. In addition, due to
the competitive nature of our industry, we may not be able to retain all of our
senior managers. We anticipate having to hire certain key managers in 2001
(including a new Chief Financial Officer to replace Mr. Kevin Comerford), and
there can be no assurance that we will be able to hire qualified individuals on
terms acceptable to us

OUR COMMON STOCK WAS DELISTED FROM THE NASDAQ NATIONAL MARKET, AND SHAREHOLDERS
MAY FACE A DECREASED MARKET FOR THEIR SHARES.

     Our Common Stock ceased to be listed on the Nasdaq National Market
effective June 21, 2001 by reason of a determination by the Nasdaq National
Market on June 20, 2001 that the Company failed to meet the listing standards
required by Nasdaq. Trading of the Common Stock is now available in the Pink
Sheets of the over-the-counter market which could make it more difficult for an
investor to dispose of, or obtain accurate quotations as to the market value of,
the Common Stock. This delisting may negatively impact the value of common stock
as stocks trading on the over-the-counter market are typically less liquid and
trade with larger variations between the bid and ask price. In addition, there
are additional sales practice requirements on broker-dealers who sell such
securities to

                                       26
<PAGE>

persons other than established customers and accredited investors. For
transactions covered by this rule, the broker-dealer must make a special
suitability determination for the purchaser and must have received the
purchaser's written consent to the transaction prior to sale. If the trading
price of the Common Stock is below $5.00 per share, trading in the Common Stock
would also be subject to the requirements of certain rules promulgated under the
Securities Exchange Act of 1934, which require additional disclosure by
broker-dealers in connection with any trades involving a stock defined as a
penny stock (generally any non-NASDAQ equity security that has a market price of
less than $5.00 per share, subject to certain exceptions). Such rules require
the delivery, prior to any penny stock transaction, of a disclosure schedule
explaining the penny stock market and the risks associated therewith, and impose
various sales practice requirements on broker-dealers who sell penny stocks to
persons other than established customers and accredited investors (generally
institutions). For these types of transactions, the broker-dealer must make a
special suitability determination for the purchaser and have received the
purchaser's written consent to the transaction prior to sale. The additional
burdens imposed upon broker-dealers by such requirements may discourage broker-
dealers from effecting transactions in our Common Stock, which could severely
limit the market liquidity of the Common Stock and the ability of purchasers in
this offering to sell the Common Stock in the secondary market.

     We have requested that the Nasdaq Listing and Hearing Review Council review
the decision to delist our common stock. This request does not stay the decision
to delist our common stock. During the pendency of this review, our common stock
is available for trading on the Pink Sheets. There can be no assurance that any
review of the decision to delist our common stock from the Nasdaq National
Market will result in the relisting of our common stock on the Nasdaq National
Market.

IF WE SEEK TO RELIST OUR SECURITIES, WE MAY NEED TO EFFECT A REVERSE STOCK SPLIT
TO ADDRESS CERTAIN ISSUES.

     We may seek to relist our Common Stock for trading on the Nasdaq National
Market or some other market. In such event, we may need to affect a reverse
split in order to meet certain minimum share price requirements. In addition,
the Nasdaq Stock Market or other markets may apply additional or more stringent
criteria for the continued listing of our Common Stock. At present, we have made
no decision with respect to this course of action but will continue to evaluate
this alternative in light of all other options. A reverse stock split could
negatively impact the value of our Common Stock by allowing additional downward
pressure on the stock price as its relative value becomes greater following the
reverse split. Stated differently, the stock, at its new, higher price, has
farther to fall and therefore more opportunity for investors to "short" or
otherwise trade the value of the stock downward.

WE INCURRED SIGNIFICANT COSTS ARISING FROM THE TRANSACTIONS WITH SCP AND ICG.
SCP AND ICG CONTROL A MAJORITY OF OUR STOCK AND OUR BOARD OF DIRECTORS.

     We were required to pay the fees for SCP's and ICG Holdings' professional
advisors and consultants arising from the loans and the equity transactions. In
addition, we were required to retain and pay certain outside consultants
selected by SCP and ICG Holdings and SCP's finder's fees, several of whom were
entitled to receive partial payment in warrants to purchase our stock. Certain
of the persons or entities receiving remuneration are affiliated with SCP.

     As a result of the closing of the SCP transaction and earlier financings,
SCP and ICG (including its ICG Holdings affiliate) own or have the right to
purchase in the aggregate 56.0% (taking into account conversion of the preferred
stock) or 74.2% (taking into account conversion of preferred stock and exercise
of warrants) of our common stock, and will have the right to appoint a majority
of our directors. As a result, these persons, acting together, have the ability
to control all matters submitted to our stockholders for approval, and to
control our management and affairs. For example, these persons, acting together,
can control the election and removal of directors and any merger, consolidation
or sale of all or substantially all of our assets. This control could have the
effect of delaying or preventing a change of control of Breakaway that
stockholders may believe would result in better management. In addition, this
control could depress our stock price because it may be more difficult for
potential purchasers to acquire a controlling interest in us.

THE ASP MARKET HAS NOT DEVELOPED AS WE ANTICIPATED AND WE MAY NOT BE ABLE TO
BENEFIT FROM THE ASP MARKET WHEN, AND IF, IT DEVELOPS.

                                       27
<PAGE>

     Our ability to increase revenues and achieve profitability depends on the
adoption and acceptance of application hosting services by our target market. If
the market for our ASP services does not grow, grows more slowly than we
anticipate, or we cannot offer these services due to capital constraints, our
business, financial condition, and operating results will be materially and
adversely affected.

IF THE ASP MARKET DEVELOPS, WE MAY NOT BE ABLE TO COMPETE SUCCESSFULLY WITH NEW
ENTRANTS INTO THE ASP MARKET.

     To the extent that the ASP market develops and begins to grow and we are
able to offer such services profitably, we believe established companies in
complementary industries, such as telecommunications, consulting services and
computer networking, could be future competitors, may have greater access to
capital than we have or are expected to have, and may offer services at lower
rates than we can. We may not be able to compete successfully against either
current or future competitors. Increased competition could result in significant
price erosion, reduced revenue, lower margins or loss of market share, any of
which would significantly harm our business. Furthermore, larger companies in
other related industries, such as the telecommunications industry, may apply
their significantly greater resources, including their distribution channels,
existing infrastructure, personnel, other resources, and brand name recognition,
to capture significant market share.

OUR BUSINESS WILL SUFFER IF GROWING ENTERPRISES DO NOT ACCEPT E-BUSINESS
SOLUTIONS.

     Our ability to increase revenues and achieve profitability depends on the
widespread acceptance of e-business solutions by commercial users. The market
for e-business solutions is relatively new and is undergoing significant change.
The acceptance and growth of e-business solutions will be limited if the
Internet does not prove to be a viable and profitable commercial market. In
addition, due to our increasing focus on larger organizations, we expect that
our sales environment may be more competitive and it will take longer to close
sales and conclude contracting.

OUR QUARTERLY REVENUES AND OPERATING RESULTS HAVE VARIED IN THE PAST AND ARE
LIKELY TO VARY SIGNIFICANTLY FROM OUR OWN EXPECTATIONS AND THE EXPECTATIONS OF
EXTERNAL PARTIES. THESE VARIATIONS MAY CAUSE THE MARKET PRICE OF OUR COMMON
STOCK TO DECLINE.

     Our quarterly revenues and operating results are volatile and difficult to
predict. Our quarterly operating results have varied in the past and are likely
to vary significantly from quarter to quarter in the future. As has happened in
recent quarters, it is possible that in some future quarter or quarters our
operating results will be below the expectations of public market analysts or
investors. If so, the market price of our Common Stock may decline
significantly. Factors that may cause our results to fluctuate include:

         o    The amount and timing of demand by our clients for application
              hosting and e-business solution services;

         o    our ability to obtain new and follow-on client engagements;

         o    the number, size and scope of our projects;

         o    the length of the sales cycle associated with our service
              offerings and the likely increased duration of the sales cycle as
              we sell to larger and more sophisticated organizations;

         o    the introduction of new services by us or our competitors;

         o    changes in our pricing policies or those of our competitors;

         o    the amount and timing of certain restructuring expenses that we
              have taken and may realize in the future;

                                       28
<PAGE>

         o    our ability to attract, train and retain skilled personnel in all
              areas of our business;

         o    our ability in a consistent and accurate manner to manage costs,
              including personnel costs and support services costs; and

         o    the timing and cost of anticipated closings, openings or
              expansions of new regional offices and new Solution Centers.

         We derive a substantial portion of our revenues from providing
professional services. We generally recognize revenues as we provide services.
Personnel and related costs constitute a substantial portion of our operating
expenses. Because we establish the levels of these expenses in advance of any
particular quarter, underutilization of our professional services employees may
cause significant reductions in our operating results for a particular quarter.

WE HAD EXPANDED RAPIDLY AND HAVE RECENTLY REDUCED STAFF AND FACILITIES
SIGNIFICANTLY; IF WE CANNOT MANAGE THIS DIFFICULT TRANSITION SUCCESSFULLY, OUR
RESULTS WILL LIKELY SUFFER.

     During 1999 and until the third quarter of 2000, we rapidly and
extensively expanded our operations. This growth placed significant strains
on our management, operating and financial systems, and sales, marketing and
administrative resources. In the fourth quarter of 2000 and the first and
second quarters of 2001 we reduced our billable and nonbillable staff
significantly, closed certain offices and curtailed certain operations. The
combination of escalating operating costs due to our growth and the costs of
our more recent reductions in staff may have a significant and adverse effect
on our future results.

WE RELY ON A SMALL NUMBER OF CLIENTS FOR MOST OF OUR REVENUES; OUR REVENUES WILL
DECLINE SIGNIFICANTLY IF WE CANNOT KEEP OR REPLACE THESE CLIENTS.

     In 1998, revenues from a single client accounted for approximately 27% of
our total revenues, and revenues from our five largest clients accounted for
54.0% of total revenues. In 1999, while no single client accounted for more than
10% of our total revenues, ICG and companies related to or owned in part by ICG
accounted for 17.9% of total revenues. Revenues from our five largest clients
accounted for approximately 26% of total revenues in 1999. Revenue from one
customer, an ICG affiliate, accounted for 11% of our revenues for 2000, and
revenues from our five largest clients (including 2 ICG affiliates) accounted
for 27% of our total revenues in 2000. If these clients do not need or want to
engage us to perform additional services for them and we are not able to sell
our services to new clients at comparable or greater levels, our revenues will
decline.

OUR FUTURE SUCCESS IS UNCERTAIN BECAUSE WE HAVE SIGNIFICANTLY CHANGED OUR
BUSINESS AND CUSTOMER FOCUS.

     Prior to 1999, we primarily provided traditional systems integration
services along with limited strategic planning and Internet systems integration
services. In 1999, we added application hosting to our service offerings and
substantially increased our capacity to provide strategic planning and Internet
systems integration services through three acquisitions and significant hiring
of professionals. In 2000, we significantly expanded our consulting and systems
implementation services in connection with our acquisition of Eggrock. In part,
due to these recent significant changes, we are subject to the risk that we will
fail to successfully implement our business model and strategy. This risk is
heightened because we are operating in the new and rapidly evolving e-business
solutions market and seeking customers which have a different profile and
require longer sales cycles as compared to our historic customer base. We have
also refocused our sales efforts to larger organizations. This new focus will
likely mean that we will face increased competition for our offerings and longer
sales cycles. Consequently, our historical operating results, or those from
other companies, may not give you an accurate indication of how we will perform
in the future.

OUR GROWTH COULD BE LIMITED IF WE ARE UNABLE TO ATTRACT AND RETAIN QUALIFIED
PERSONNEL

                                       29
<PAGE>

     We believe that our success depends largely on our ability to attract and
retain highly skilled technical, consulting, managerial, sales and marketing
personnel. We may not be able to hire or retain the necessary personnel to
implement our business strategy. While we have recently instituted new
incentives to retain our existing employees, due to likely variations in the
price of our stock, a significant portion of our employees may not have vested
stock options which permit them to acquire stock on favorable terms, thus making
employee retention less likely. In addition, we may need to pay higher
compensation for employees than we currently expect. Individuals with e-business
solutions skills or prior histories of success in selling complex e-business
solutions, particularly those with the significant experience which we generally
require, are in very short supply. Competition to hire from this limited pool is
intense.

WE MAY LOSE MONEY ON FIXED-FEE CONTRACTS AND PERFORMANCE-BASED CONTRACTS.

     We derive a portion of our revenues from fixed-fee contracts. If we
misjudge the time and resources necessary to complete a project, we may incur a
loss in connection with the project or experience a substantial delay in getting
paid. These risks are heightened because we work with complex technologies in
compressed time frames. In addition, revenue recognition on performance-based
contracts is more complex and is less certain because of the contingent nature
of the resulting payment obligations.

WE HAVE REQUIRED ADDITIONAL CAPITAL AND HAVE SUBSTANTIALLY DILUTED OUR EQUITY
STRUCTURE. WE MAY NEED ADDITIONAL CAPITAL, WHICH MAY NOT BE AVAILABLE TO US, AND
WHICH, IF RAISED, MAY FURTHER DILUTE YOUR OWNERSHIP INTEREST IN US.

     In the fourth quarter of 2000 and the first quarter of 2001, we sold stock
and/or issued warrants allowing the holders of these warrants to acquire
approximately 87 million shares of our stock, equating to a 63% ownership
interest in Breakaway Solutions. We may require additional funds through public
or private equity or debt financings in order to:

         -        support additional capital expenditures;

         -        develop new services; or

         -        address additional working capital needs.

     The recent decline in our stock price, market conditions, and our recent
dilutive issuances has negatively impacted our ability to raise capital through
the equity markets. In addition, on June 21, 2001, our Common Stock ceased
trading on the Nasdaq National Market. This delisting of our shares will likely
make it significantly more difficult to raise capital. If we cannot obtain
financing on terms acceptable to us or at all, we may be forced to curtail some
or all of these activities or otherwise curtail certain of our operations. Any
additional capital raised through the sale of equity will dilute your ownership
interest in us and may be on terms that are unfavorable to holders of our Common
Stock.

 WE MAY UNDERTAKE ADDITIONAL ACQUISITIONS THAT MAY LIMIT OUR ABILITY TO MANAGE
AND MAINTAIN OUR BUSINESS, MAY RESULT IN ADVERSE ACCOUNTING TREATMENT AND MAY BE
DIFFICULT TO INTEGRATE INTO OUR BUSINESS.

     From January 1, 1999 to date, we acquired seven companies. We may undertake
additional acquisitions in the future. Acquisitions involve a number of risks,
including:

         -        diversion of management attention;

         -        amortization of substantial goodwill, adversely affecting our
                  reported results of operations;

         -        inability to retain the management, key personnel and other
                  employees of the acquired business;

         -        inability to establish uniform standards, controls, procedures
                  and policies;


                                       30
<PAGE>

         -        inability to retain the acquired company's customers; and

         -        exposure to legal claims for activities of the acquired
                  business prior to acquisition.

Integrating the operations of an acquired business can be a complex process that
requires integration of service personnel, sales and marketing groups, hosting
infrastructure and service offerings, and coordination of our development
efforts. Client satisfaction or performance problems with an acquired business
also could affect our reputation as a whole. In addition, any acquired business
could significantly underperform relative to our expectations.

WE FACE INCREASED RISKS IN CONDUCTING BUSINESS ABROAD WHICH MAY DAMAGE OUR
BUSINESS RESULTS

     One component of our business strategy had been to expand into
international markets. In 2000, we opened an office in London and acquired
Zartis, a company based in Dublin, Ireland. In 2001 Breakaway closed the
international offices except for Hosting Centers.

     Despite the recent curtailment of our operations outside the U.S., there
can be no assurance that one or more of these factors will not have a material
adverse effect on our operations, and, consequentially, our business, operating
results, and financial condition.

OUR FAILURE TO MEET CLIENT EXPECTATIONS OR DELIVER ERROR-FREE SERVICES COULD
RESULT IN LOSSES AND NEGATIVE PUBLICITY.

     Many of our engagements involve information technology solutions that are
critical to our clients' businesses. Any defects or errors in these solutions or
failure to meet clients' specifications or expectations could result in:

         -        delayed or lost revenues due to adverse client reaction;

         -        requirements to provide additional services to a client at no
                  charge;

         -        refunds of monthly application hosting fees for failure to
                  meet service level obligations;

         -        negative publicity about Breakaway and our services, which
                  could adversely affect our ability to attract or retain
                  clients; or

         -        claims for substantial damages against us, regardless of our
                  responsibility for such failure, which may not be covered by
                  our insurance policies and which may not be limited by the
                  contractual terms of our engagement.

         There can be no assurance that the Company has or can obtain adequate
insurance coverage at acceptable rates for these risks.

WE MAY NOT BE ABLE TO PREVENT UNAUTHORIZED ACCESS TO OUR CUSTOMERS' NETWORKS.

     Despite our focus on Internet security, we may not be able to stop
unauthorized attempts, whether made unintentionally or by computer "hackers," to
gain access to or disrupt the network operations of our customers. Accordingly,
our success is substantially dependent on the continued confidence of our
current and potential customers that we provide superior network security
protection. Any failure by us to stop unauthorized access from the Internet or
disruptions to related Internet operations of our customers could materially
harm such customers and us.

     Although we typically limit warranties and liabilities in our customer
contracts, our customers may seek to hold us responsible for any losses suffered
as a result of unauthorized access to customers' network systems from the

                                       31
<PAGE>

Internet. This could result in liability to us, which could have a material
adverse effect upon our business. Moreover, computer "hackers" from the Internet
could infiltrate our network and sabotage our network or services by creating
bugs or viruses. Any adverse publicity resulting from unauthorized access could
deter future customers from using our services and could cause current customers
to cease using our services, which could have a material, adverse effect upon
our business. There can be no guarantee that we have or can obtain adequate
insurance coverage at acceptable rates for these risks.

WE GENERATE A SIGNIFICANT PORTION OF OUR REVENUES FROM SERVICES RELATED TO
PACKAGED SOFTWARE APPLICATIONS OF A LIMITED NUMBER OF VENDORS; WE WOULD
EXPERIENCE A REDUCTION IN REVENUES IF ANY OF THOSE VENDORS CEASED DOING BUSINESS
WITH US.

     We derive a significant portion of our revenues from projects in which we
customize, implement or host packaged software applications developed by third
parties. We do not have contractual arrangements with most of these software
vendors. As a result, those software vendors with whom we do not have
contractual arrangements can cease making their products available to us at
their discretion. Even in the case of software vendors with whom we do have
contractual arrangements, those arrangements are either terminable at will by
either party, or are for short terms. In addition, these software vendors may
choose to compete against us in providing strategic consulting, systems
integration, or application hosting services. Moreover, our success is dependent
upon the continued popularity of the product offerings of these vendors and on
our ability to establish relationships with new vendors in the future. While we
currently have good relationships with our vendors, if we are unable to obtain
packaged applications from these or comparable vendors, or if our vendors choose
to compete with us, or the popularity of our products declines, our business and
operating results may be adversely affected.

OUR MARKETS ARE HIGHLY COMPETITIVE AND OUR FAILURE TO COMPETE SUCCESSFULLY WILL
LIMIT OUR ABILITY TO RETAIN AND INCREASE OUR MARKET SHARE.

     Our markets are new, rapidly evolving, and highly competitive. We expect
this competition to persist and intensify in the future. Our failure to maintain
and enhance our competitive position will limit our ability to maintain and
increase our market share, which would result in serious harm to our business.
Many of our competitors are substantially larger than we are, and have
substantially greater financial, infrastructure, and personnel resources than we
have. Furthermore, many of our competitors have well-established, large and
experienced marketing and sales capabilities, and greater name recognition than
we have. As a result, our competitors may be in a stronger position to respond
quickly to new or emerging technologies and changes in client requirements. They
may also develop and promote their services more effectively than we do.
Moreover, barriers to entry, particularly in the strategic consulting and
systems integration markets, are low. We therefore expect additional competitors
to enter these markets.

IF WE ARE UNABLE TO REUSE SOFTWARE CODE AND METHODOLOGIES, WE MAY NOT BE ABLE TO
DELIVER OUR SERVICES RAPIDLY AND COST-EFFECTIVELY.

     Our business model depends to a significant extent on our ability to reuse
software code and methodologies that we develop in the course of client
engagements. If we generally are unable to negotiate contracts to permit us to
reuse code and methodologies, we may be unable to provide services to our
growing enterprise clients at a cost and within time frames that these clients
find acceptable. Our clients may prohibit us from such reuse or may severely
limit or condition reuse.

WE MAY NOT BE ABLE TO DELIVER OUR APPLICATION HOSTING SERVICES IF THIRD PARTIES
DO NOT PROVIDE US WITH KEY COMPONENTS OF OUR HOSTING INFRASTRUCTURE.

     We depend on other companies to supply key components of the computer and
telecommunications equipment as well as the telecommunications services we use
to provide our application hosting services. Some of these components are
available only from sole or limited sources in the quantities and quality we
demand Although we lease redundant capacity from multiple suppliers, a
disruption in our ability to provide hosting services could prevent us from
maintaining the required standards of service, which would cause us to incur
contractual penalties.

                                       32

<PAGE>

INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS AGAINST US, EVEN WITHOUT MERIT, COULD
COST A SIGNIFICANT AMOUNT OF MONEY TO DEFEND AND MAY DIVERT MANAGEMENT'S
ATTENTION.

     As the number of e-business applications in our target market increases and
the functionality of these applications overlaps, we may become subject to
infringement claims. We cannot be certain that our services, the solutions that
we deliver, or the software used in our solutions, do not or will not infringe
valid patents, copyrights or other intellectual property rights held by third
parties. In addition, certain of our current and former employees who formerly
worked for Eggrock may not have signed assignment of inventions/confidentiality
agreements, and there is a risk that one or more of these present or former
employees could claim ownership in and to intellectual property created for
third parties, or otherwise compromise Breakaway's intellectual property rights
or trade secrets. If there is infringement, we could be liable for substantial
damages. Any infringement claim, even if without merit, can be time consuming
and expensive to defend, and may divert management's attention and resources and
could cause service implementation delays. They also could require us to enter
into costly royalty or licensing agreements.

WE MAY NOT BE ABLE TO PROTECT OUR INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS.

     If third parties infringe or misappropriate our trade secrets, copyrights,
trademarks or other proprietary information, our business could be seriously
harmed. The steps that we have taken to protect our proprietary rights may not
be adequate to deter misappropriation of our intellectual property. In addition,
we may not be able to detect unauthorized use of our intellectual property and
take appropriate steps to enforce our rights.

OUR BUSINESS MAY SUFFER IF THERE IS A DECLINE IN THE GROWTH IN THE USE OF THE
INTERNET.

     Our business is dependent upon continued growth in the use of the Internet
by our clients, prospective clients, and their customers and suppliers. If the
number of users of the Internet does not increase, and commerce over the
Internet does not become more accepted and widespread, demand for our services
may decrease and, as a result, our revenues would decline. Factors that may
affect Internet usage or electronic commerce adoption include:

         -        actual or perceived lack of security of information and the
                  actual or threatened threat of computer "viruses" or other
                  malicious code;

         -        lack of access and ease of use;

         -        congestion of Internet traffic;

         -        inconsistent quality of service;

         -        increases in access costs to the Internet;

         -        excessive governmental regulation or the imposition of
                  taxation on Internet transactions;

         -        uncertainty regarding intellectual property ownership;

         -        reluctance to adopt new business methods; and

         -        costs associated with the obsolescence of existing
                  infrastructure.

                                     ITEM 7A
           QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


     To date, we have not utilized derivative financial instruments or
derivative commodity instruments. We do not expect to employ these or other
strategies to hedge market risk in the foreseeable future. We invest our cash in

                                       33
<PAGE>

money market funds, which are subject to minimal credit and market risk. We
believe the market risks associated with these financial instruments are
immaterial.


                                     ITEM 8
                              FINANCIAL STATEMENTS

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                                                          PAGE
                                                                                                          ----
<S>                                                                                                       <C>
CONSOLIDATED FINANCIAL STATEMENTS OF BREAKAWAY SOLUTIONS, INC.
Independent Auditors' Report.........................................................................      34
Consolidated Balance Sheets as of December 31, 1999 and 2000.........................................      35
Consolidated Statements of Operations for the years ended
     December 31, 1998, 1999, and 2000...............................................................      36
Consolidated Statements of Stockholders' Equity (Deficit) and Comprehensive
     Income (Loss) for the years ended December 31, 1998, 1999, and 2000.............................      37
Consolidated Statements of Cash Flows for the years ended
     December 31, 1998, 1999, and 2000...............................................................      38
Notes to Consolidated Financial Statements...........................................................      40
</TABLE>

                          INDEPENDENT AUDITORS' REPORT

The Board of Directors
Breakaway Solutions, Inc.:

     We have audited the accompanying consolidated balance sheets of Breakaway
Solutions, Inc. as of December 31, 1999 and 2000, and the related consolidated
statements of operations, stockholders' equity and comprehensive income (loss)
and cash flows for each of the years in the three-year period ended December 31,
2000. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

     We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

    In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Breakaway
Solutions, Inc. and subsidiaries as of December 31, 1999 and 2000, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 2000, in conformity with accounting
principles generally accepted in the United States of America.


                                        /s/ KPMG LLP

Boston, Massachusetts
June 15, 2001, except for paragraph 5 of note 18,
which is dated July 3, 2001



                                       34
<PAGE>


                            BREAKAWAY SOLUTIONS, INC.
                           CONSOLIDATED BALANCE SHEETS
                    (IN THOUSANDS, EXCEPT SHARE-RELATED DATA)

<TABLE>
<CAPTION>
                                                                 DECEMBER 31,
                                                              -------------------
                                                                1999       2000
                                                              --------   --------
<S>                                                           <C>        <C>
                                ASSETS (note 15)
Current assets:
  Cash and cash equivalents.................................   $3,920     $5,453
  Short-term investments....................................   28,227         --
  Accounts receivable, net of allowance for doubtful
    accounts of $357 in 1999 and $5,737 in 2000,
    respectively............................................    7,559     10,441
  Accounts receivable from related parties, net of
     allowance for doubtful accounts of zero in 1999
     and $2,964 in 2000.....................................    3,991      2,919
   Unbilled revenue on contracts............................      725        662
  Prepaid expenses and other current assets.................    2,548      5,079
                                                              -------    -------
    Total current assets....................................   46,970     24,554
Investments.................................................    9,705      1,010
Restricted cash.............................................       --      6,485
Loan to officer.............................................       --      1,057
Loans to employees..........................................      568        608
Property and equipment, net.................................    7,541     42,173
Other assets................................................      496      1,385
Intangible assets, net of accumulated amortization..........    6,188         --
Deferred costs, net of accumulated amortization.............    5,993         --
                                                              -------    -------
    Total assets............................................  $77,461    $77,272
                                                              =======    =======

                      LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Due to stockholders-current portion.......................     $625     $1,625
  Capital lease obligations-current portion.................      533      2,000
  Accounts payable..........................................    2,955     12,729
  Accrued compensation and related benefits.................    1,477      2,048
  Accrued expenses..........................................    1,306      9,765
  Deferred revenue..........................................      224      1,663
                                                              -------    -------
    Total current liabilities...............................    7,120     29,830
                                                              -------    -------
Due to stockholders---long-term portion.....................    1,625        785
Capital lease obligations-long-term portion.................      376      4,265
                                                              -------    -------
    Total long-term liabilities.............................    2,001      5,050
                                                              -------    -------
      Total liabilities.....................................    9,121     34,880
                                                               ------    -------
Commitments and contingencies

Stockholders' equity:
  Common stock, $0.000125 par value, 80,000,000 shares
    authorized; 37,889,084 shares and 53,685,025 shares
    issued in 1999 and 2000, respectively, and 34,778,684
    shares and 50,574,625 shares outstanding in 1999 and
    2000, respectively;.....................................        4          6
  Additional paid-in capital................................   78,868    442,985
  Less: deferred compensation...............................     (253)      (181)
  Less: treasury stock, at cost.............................       --         --
  Accumulated deficit.......................................  (10,367)  (400,218)
  Accumulated other comprehensive income....................       88       (200)
                                                              -------    -------
    Total stockholders' equity..............................   68,340     42,392
                                                              -------    -------
      Total liabilities and stockholders' equity............  $77,461     77,272
                                                              =======    =======
</TABLE>

          See accompanying notes to consolidated financial statements.


                                       35
<PAGE>

                            BREAKAWAY SOLUTIONS, INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                 YEARS ENDED DECEMBER 31,
                                                              ------------------------------
                                                                1998       1999      2000
                                                              --------   --------   --------
<S>                                                          <C>        <C>         <C>
Revenue, including revenue from related parties of $4,548
  and $36,648 in 1999 and 2000, respectively................  $10,018    $ 25,390    $102,479
                                                             ---------  ----------  ----------
Operating expenses:
  Project costs.............................................    5,904      13,388      68,116
  Selling, general and administrative expenses..............    4,814      20,865      89,507
  Amortization and impairment of deferred costs.............       --       1,000      23,199
  Amortization and impairment of goodwill and
    intangible assets.......................................       --       1,002     331,519
  Restructuring costs.......................................       --          --      2,065
                                                             ---------  ----------  ----------
    Total operating expenses................................   10,718      36,255     514,406
                                                             ---------  ----------  ----------
    Loss from operations....................................     (700)    (10,865)   (411,927)

Other income (expense):
  Other income ..............................................     160          23         718
  Settlement of dispute with Invest, Inc.....................      --          --      (9,214)
  Other expense .............................................      --          --      (1,484)
  Write down of investments in equity securities.............      --          --      (4,680)
  Loss on disposal of equipment..............................      (3)         --        (153)
  Interest income............................................      11         673       2,049
  Interest expense, including $128 and $176 to related
    parties in 1999 and 2000, respectively...................      (43)       (198)       (659)
                                                             ---------  ----------  ----------
    Total other income (expense) ...........................      125         498     (13,423)
                                                             ---------  ----------  ----------
    Loss before benefit for income taxes ...................  $  (575)   $(10,367)   (425,350)

    Deferred income tax benefit  ...........................       --          --      35,499
                                                             ---------  ----------  ----------
    Net loss ...............................................   $ (575)   $(10,367)  $(389,851)
                                                             =========  ==========  ==========
Net loss per share:
  Basic and diluted.........................................  $ (0.05)   $  (0.59)    $ (9.84)
                                                             =========  ==========  ==========
Weighted average common shares outstanding:
  Basic and diluted.........................................   12,680      17,440      39,598
                                                             =========  ==========  ==========
Pro forma information (unaudited) (note 16)
  Loss before taxes, as reported............................  $  (575)
Pro forma income taxes (benefit)............................     (195)
                                                             ---------
Pro forma net loss..........................................  $  (380)
                                                             =========
Pro forma net loss per share:
  Basic and diluted.........................................  $ (0.03)
                                                             =========
Pro forma weighted average common shares outstanding:
  Basic and diluted.........................................   12,680
                                                             =========
</TABLE>


          See accompanying notes to consolidated financial statements.


                                       36
<PAGE>


                            BREAKAWAY SOLUTIONS, INC.
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME (LOSS)
                                 (in thousands)

<TABLE>
<CAPTION>
                                  PREFERRED STOCK       COMMON STOCK      ADDITIONAL                   TREASURY STOCK
                                 -----------------    -----------------    PAID-IN       DEFERRED     ----------------
                                 SHARES     AMOUNT    SHARES     AMOUNT    CAPITAL     COMPENSATION   SHARES    AMOUNT
                                 ------     ------    ------     ------   ----------   ------------   ------    ------
<S>                              <C>        <C>       <C>        <C>      <C>          <C>            <C>       <C>
BALANCE, DECEMBER 31, 1997.....      --    $   --     15,360      $ 2         --         $    --      (2,534)   $ --

Purchase of treasury stock.....      --        --         --       --         --                        (576)     --
Distribution to stockholders...      --        --         --       --         --              --          --      --
Net loss.......................      --        --         --       --         --              --          --      --


Comprehensive loss


BALANCE, DECEMBER 31, 1998.....      --        --     15,360        2         --              --      (3,110)     --
S Corporation termination......      --        --         --       --        911              --          --      --
Issuance of preferred stock....   5,853         1         --       --      8,291              --          --      --
Repurchase and retirement of
  common stock.................      --        --     (5,048)      (1)    (4,468)             --          --      --
Issuance of common stock for
  acquired businesses..........      --        --      5,089        1      9,192              --          --      --
Issuance of stock options......      --        --         --       --        856              --          --      --
Issuance of common stock for
  services.....................      --        --        104       --        419            (289)         --      --
Exercise of stock options......      --        --      1,376       --        533              --          --      --
Issuance of Series B preferred
  stock........................   2,932        --         --       --     19,050              --          --      --
Amortization of deferred
  compensation.................      --        --         --       --         --              36          --      --
Conversion of Series A and B
  preferred stock to common
  stock........................  (8,785)       (1)    14,056        1         --              --          --      --
Issuance of common stock in
  connection with initial
  public offering, net of
  $2,980 in offering costs.....      --        --      6,900        1     41,967              --          --      --
Issuance of common stock in
  connection with
  investment...................      --        --         52       --      1,413              --          --       --
Issuance of warrants...........      --        --         --       --        704              --          --       --
Change in unrealized gains on
  investments..................      --        --         --       --         --              --          --       --
Net loss.......................      --        --         --       --         --              --          --       --
                                 -------   --------   -------    -----   --------          ------     -------    -----
Comprehensive loss.............

BALANCE, DECEMBER 31, 1999.....      --    $   --     37,889     $  4   $ 78,868           $(253)     (3,110)    $ --

Issuance of common stock for
  acquired businesses..........      --        --      6,989        1    309,772              --          --       --
Private placement of common stock    --        --      1,500       --     38,672              --          --       --
Private sale to investor.......      --        --      4,286        1     12,213              --          --       --
Exercise of stock options......      --        --      2,986       --      2,839              --          --       --
Amortization of deferred
  compensation.................      --        --         --       --         --              72          --       --
Purchase of stock under
  employee stock purchase plan.      --        --         35       --        621              --          --       --
Change in unrealized gains on
  investments..................      --        --         --       --         --              --          --       --
Currency translation adjustment      --        --         --       --         --              --          --       --
Net loss.......................      --        --         --       --         --              --          --       --
                                 -------   --------   -------    -----   --------          ------     -------    -----
Comprehensive loss.............


BALANCE, DECEMBER 31, 2000.....      --    $   --     53,685     $  6   $442,985           $(181)     (3,110)    $ --
                                ========   ========  ========   ======  ========          =======     =======    =====
</TABLE>


<TABLE>
<CAPTION>
                                        OTHER       RETAINED        TOTAL        ACCUMULATED
                                    COMPREHENSIVE   EARNINGS    STOCKHOLDERS'   COMPREHENSIVE
                                       INCOME       (DEFICIT)      EQUITY       INCOME (LOSS)
                                    -------------   ---------   -------------   -------------
<S>                                 <C>             <C>         <C>             <C>
BALANCE, DECEMBER 31, 1997.....          --        $  1,490      $  1,492       $  1,074
                                                                                ========
Purchase of treasury stock.....          --              --            --
Distribution to stockholders...                          (4)           (4)
Net loss.......................          --            (575)         (575)          (575)

                                                                                --------
Comprehensive loss                                                              $    499

                                                                                ========
BALANCE, DECEMBER 31, 1998.....          --             911           913
S Corporation termination......          --            (911)           --
Issuance of preferred stock....          --              --         8,292
Repurchase and retirement of
  common stock.................          --              --        (4,469)
Issuance of common stock for
  acquired businesses..........          --              --         9,193
Issuance of stock options......          --              --           856
Issuance of common stock for
  services.....................          --              --           130
Exercise of stock options......          --              --           533
Issuance of Series B preferred
  stock........................          --              --        19,050
Amortization of deferred
  compensation.................          --              --            36
Conversion of Series A and B
  preferred stock to common
  stock........................          --              --            --
Issuance of common stock in
  connection with initial
  public offering, net of
  $2,980 in offering costs.....          --              --        41,968
Issuance of common stock in
  connection with
  investment...................          --              --         1,413
Issuance of warrants...........          --              --           704
Change in unrealized gains on
  investments..................          88              --            88             88
Net loss.......................          --         (10,367)      (10,367)       (10,367)
                                      ------        --------      --------       --------
Comprehensive loss.............                                                 $ (9,780)
                                                                                ========
BALANCE, DECEMBER 31, 1999.....       $  88        $(10,367)     $ 68,340

Issuance of common stock for
  acquired businesses..........          --              --       309,773
Private placement of common stock        --              --        38,672
Private sale to investor.......          --              --        12,214
Exercise of stock options......          --              --         2,839
Amortization of deferred
  compensation.................          --              --            72
Purchase of stock under
  employee stock purchase plan.          --              --           621
Change in unrealized gains on
  investments..................         (88)             --           (88)            --
Currency translation adjustment        (200)             --          (200)          (200)
Net loss.......................          --        (389,851)     (389,851)      (389,851)
                                      ------        --------      --------      --------
Comprehensive loss.............                                                 (399,831)
                                                                                ========

BALANCE, DECEMBER 31, 2000.....       $(200)      $(400,218)     $ 42,392
                                      ======        ========     ========
</TABLE>


          See accompanying notes to consolidated financial statements.


                                       37

<PAGE>

                            BREAKAWAY SOLUTIONS, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS


                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                       YEARS ENDED
                                                                       DECEMBER 31,
                                                              ------------------------------
                                                                1998       1999       2000
                                                              --------   --------   --------
<S>                                                           <C>        <C>        <C>
Cash flows from operating activities:
  Net income (loss).........................................   $ (575)  $(10,367)   $(389,851)
  Adjustments to reconcile net income (loss) to net cash
    provided by (used in) operating activities:
    Depreciation and amortization...........................      332      3,285      364,225
    Deferred tax benefit....................................       --         --      (35,499)
    Settlement of dispute with Invest, Inc..................       --         --        9,213
    Compensation expense for issuance of common stock
     options................................................       --        223           72
    Loss (gain) on disposal of fixed assets.................        3         --           --
    Change in operating assets and liabilities, net of
     impact of acquisition of businesses:
      Accounts receivable...................................     (485)    (5,182)         844
      Unbilled revenues on contracts........................     (393)       (99)         156
      Amounts due from related parties......................       --     (3,991)       1,072
      Prepaid expenses and other current assets.............      (18)    (1,546)      (3,307)
      Accounts payable......................................      568      1,943        8,916
      Accrued compensation and other related benefits.......       94        604          538
      Accrued expenses and deferred revenue.................      196      1,134        5,874
                                                               ------     ------     --------
        Net cash used in operating
        activities..........................................     (278)   (13,996)     (37,747)
                                                               ------     ------     --------
Cash flows from investing activities:
  (Purchase) sale of investments............................       --    (37,360)      30,149
  Purchase of property and equipment........................     (503)    (5,886)     (35,871)
  Cash paid for acquired businesses net of cash
   acquired..............................,,.................       --     (2,103)       3,822
  Increase in cash surrender value of life insurance........       --        (26)          --
  Proceeds from disposals of fixed assets...................       10         --           --
                                                               ------     ------     --------
        Net cash used in investing activities...............     (493)   (45,375)      (1,900)
                                                               ------     ------     --------
Cash flows from financing activities:
  Repurchase and retirement of common stock.................       --     (4,469)          --
  Proceeds from issuances of preferred stock................       --     23,289           --
  Proceeds from (repayment of) note payable to
    stockholders............................................       --      4,000       (1,840)
  Proceeds from exercise of stock options and purchases
    under employee stock purchase plan......................       --        533        3,461
  Proceeds from issuance of common stock, net of offering
    costs...................................................       --     41,968       41,672
  Advances to employees.....................................      (13)      (554)      (1,095)
  Payments on long-term debt................................      (10)       (67)        (180)
  Proceeds from credit line.................................      426         --       10,000
  Repayments on credit line.................................       --       (426)     (10,000)
  Increase in deposits......................................       (5)      (767)          --
  Payments on capital lease obligations.....................      (50)      (233)        (838)
  Distribution to stockholders..............................     (439)        --           --
                                                               ------     ------     --------
        Net cash (used in) provided by financing
        activities..........................................      (91)    63,274       41,180
                                                               ------     ------     --------
        Net (decrease) increase in cash and cash
        equivalents.........................................     (862)     3,903        1,533
Cash and cash equivalents, at beginning of year.............      879         17        3,920
                                                               ------     ------     --------
Cash and cash equivalents, at end of year...................   $   17     $3,920     $  5,453
                                                               ======     ======     ========
</TABLE>


                                       38

<PAGE>

<TABLE>
<CAPTION>
                                                                       YEARS ENDED
                                                                       DECEMBER 31,
                                                              ------------------------------
                                                                1998       1999       2000
                                                              --------   --------   --------
<S>                                                           <C>        <C>        <C>
Supplemental disclosure of cash flow information:
  Cash paid for interest....................................   $   43     $  105          371
                                                               ======     ======     ========
Supplemental disclosures of non-cash investing and financing
  activities:
  Issuance of common stock in connection with investment in
    Internet services company...............................   $   --     $1,413          --
                                                               ======     ======     ========
  Issuance of warrants in connection with capital lease
    obligations.............................................   $   --     $  704          --
                                                               ======     ======     ========
  Issuance of note payable to stockholders..................   $   --     $2,175          --
                                                               ======     ======     ========
  Conversion of notes payable and accrued interest to common
    stock...................................................   $   --     $4,053          --
                                                               ======     ======     ========
  Capital lease obligations.................................   $   14     $1,632     $  6,184
                                                               ======     ======     ========
  Conversion of preferred stock to common stock.............   $   --    $27,289          --
                                                               ======     ======     ========
  Issuance of common stock in connection with acquisition of
    businesses..............................................   $   --     $9,193     $309,773
                                                               ======     ======     ========
  Acquisition of businesses:
    Assets acquired.........................................   $   --    $16,358     $352,377
    Liabilities assumed and issued..........................       --     (4,299)     (42,604)
    Common stock and stock options issued...................       --     (9,956)    (309,773)
                                                               ------     ------     --------
        Net cash paid for acquisition of businesses.........   $   --    $(2,103)    $     --
                                                               ======     ======     ========
</TABLE>


          See accompanying notes to consolidated financial statements.


                                      39

<PAGE>



                            BREAKAWAY SOLUTIONS, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 1999 AND 2000

1.       THE COMPANY

NATURE OF BUSINESS

     Breakaway Solutions, Inc. (the "Company"), is a full service provider
("FSP") who offers customers an integrated strategy, branding and user
experience, e-business implementation and application hosting solutions.

     In December 1999, the Company formed Breakaway Capital I LLC ("Breakaway
Capital"), a wholly-owned venture capital fund, for the primary purpose of
making minority interest investments in clients. See note 5 for a discussion of
these investments.

     In March 2000, the Company formed Breakaway Friends I LLC ("Breakaway
Friends"), to allow executive officers of the Company to invest their own
personal funds in the same clients as Breakaway Capital. The Company intends to
distribute all the profits earned by Breakaway Friends, if any, to its
individual investors.

     In October 2000, the Company, along with ICG AsiaWorks, an entity partially
owned by Internet Capital Group, Hutchinson Whampoa, and Hi Ka-Shing Foundation,
established Breakaway Asia Pacific, which provides services similar to those
provided by the Company in the Asia Pacific market, excluding Japan. In exchange
for use of the Company's intellectual property, the Company received a 19.9%
interest in Breakaway Asia Pacific. The Company has accounted for this
investment using the equity method of accounting, as the Company exerts
significant influence over the operations of the investee. In June 2001, the
Company signed an agreement to sell its equity interest in this joint venture to
ICG Asia Limited (formerly, ICG AsiaWorks Limited) for $500,000, with a closing
expected to occur in July 2001.

LIQUIDITY

     From inception through December 31, 1998, the Company funded operations
primarily through cash provided by a line of credit. In 1999, the Company funded
operations through the issuance of preferred and common stock, and to a lesser
extent, through a line of credit and equipment leases. In 2000, the Company
funded operations primarily through the issuance of common stock, including
proceeds from its initial public offering and the May 2000 sale of $39 million
of stock to various Putnam funds, and to a lesser extent, through a line of
credit and equipment leases.

     In both late 2000 and early 2001, many of the Company's customers,
primarily venture-backed "dot-coms" and other startups, experienced financial
difficulties which in many instances affected the Company's ability to collect
monies owed it from consulting engagements and hosting services. These payment
issues prevented the Company from recognizing approximately $6.9 million of
revenue in the fourth quarter of 2000 and also resulted in the additional write
off of approximately $2.1 million of accounts receivable in the fourth quarter
of 2000, since the collection of these accounts receivable was no longer
expected. Additionally, the Company added approximately $8.6 million to the
reserve for doubtful accounts in the fourth quarter of 2000 for work performed
and billed prior to the fourth quarter, which was now deemed uncollectible. This
contributed to a cash flow shortage for the Company.

     In December 2000, the Company entered into an agreement to sell shares of
its common stock and issue warrants to purchase its common stock to Invest, a
Delaware corporation. The agreement was revised to resolve matters which arose
subsequent to entering into the agreement and prior to December 31, 2000. On
February 6, 2001, Invest consummated the revised investment in the Company under
which the total amount of cash invested was reduced by $2.0 million, and Invest,
Inc. received an aggregate of 4,285,714 shares of common stock at a per share
purchase price of $0.70 and warrants to purchase up to 4,285,714 shares of
common stock at a per share exercise price of $0.70. Total consideration
received by the Company was $3.0 million in cash. A former director

                                       40
<PAGE>

of the Company is the sole director and sole stockholder of Invest. This
settlement resulted in a charge of approximately $9.2 million, which has been
recorded in the consolidated statement of operations for the year ended December
31, 2000.

     In January 2001, Breakaway issued to ICG Holdings warrants to purchase up
to 9,737,447 shares of Common Stock at a per share exercise price of $0.6875,
subject to adjustment, in connection with entering into definitive agreements
with ICG Holdings with respect to a $5.0 million secured financing of Breakaway,
which bore interest at a rate of 12% per annum.

     In February 2001, to further improve its cash position, the Company entered
into bridge loan facilities with ICG Holdings, an affiliate of the Company, and
SCP Private Equity Partners II, L.P. ("SCP"), for an aggregate of up to $20
million including the $5.0 million borrowed from ICG Holdings in January 2001
(see note 18). As of April 6, 2001, the Company had borrowed an aggregate of
$16,858,333 under these facilities at a per annum interest rate of 12%. All
principal and interest under these facilities was due on April 9, 2001. On April
6, 2001, the Company closed a sale of an aggregate of 357,144 shares of Series A
Preferred Stock at a per share price of $70.00 and warrants to purchase up to
42,857,149 shares of common stock at a per share exercise price of $0.70
pursuant to the terms of a stock purchase agreement the Company entered into on
February 16, 2001 with ICG Holdings and SCP. As consideration for the issuance
of these securities, ICG Holdings and SCP paid to the Company an aggregate of
$8,141,667 in cash and cancelled an aggregate of $16,858,333 in outstanding
principal and interest balances (representing the total of such balances) under
the bridge loan facilities. We may not reborrow additional amounts under the
bridge loan facilities. In conjunction with the equity transaction closed with
SCP on April 6, 2000, the Company may, upon meeting certain conditions (there
must be sufficient unissued Series A Preferred Stock and the Company's request
must be between July 31, 2001 and February 1, 2002), cause SCP to purchase an
additional 71,249 shares of Series A Preferred Stock.

     In an effort to reduce costs, the Company has undertaken various
restructurings in late 2000 and early 2001. On October 4, 2000, the Company
announced its first restructuring, which included a staff reduction of
approximately 82 people, resulting in termination costs of approximately $0.5
million. Further staff reductions followed as part of the overall restructuring
plan as follows: January 163, February 121, March 9, April 100, and May 38. The
Company has accrued costs of $1.6 million related to the January headcount
reduction and closure of the Boston Seaport and Dallas offices which were
announced on December 29, 2000, bringing the restructuring costs for 2000 to
$2.1 million, and has written off approximately $1.8 million of leasehold
improvements related to the closure of the Boston Seaport office in the year
ended December 31, 2000, which was also announced on December 29, 2000. The
additional costs we expect to incur in 2001 associated with these restructurings
will be recorded as an expense in the period the plan requirements are finalized
and communicated to employees. Restructuring costs associated with headcount
reductions through May 31, 2001 were approximately $1 million.

     In April 2001, the Company announced the appointment of a new CEO and five
new members of the Board of Directors. The new leadership implemented a plan of
reorganization responsive to the changes in the market place in which planned
operations are limited to the Company's profitable core competencies, directed
at financially sound Global 3000 companies, and delivered from consolidated
profitable operating locations. The reorganized entity has consolidated
operations to five primary locations from eleven, adopted a regional marketing
and sales model and adopted a strong regional governance model, resulting in
streamlined corporate overhead and decision-making and support positioned closer
to the customer. Additionally, the Company has reorganized its ASP business from
a factory model based on scale and the resale of commodity inputs to a team
model based on team based customer service focused on selling knowledge based
services. At the completion of the reorganization, the Company expects to have
approximately 280 to 300 employees.

     In June 2001 the Company entered into financing arrangements with Silicon
Valley Bank providing for $7 million in equipment lease financing. The loan
bears interest at 9% per annum and is due and payable on June 1, 2004. The
Company may make certain draws to finance equipment until December 31, 2001. The
loan is secured by a lien on the Company's equipment, accounts receivable (which
will be subordinated to an accounts receivable loan) and intellectual property
rights. SCP, in exchange for Series A Preferred Stock warrants, has guaranteed
the equipment financing.


                                       41
<PAGE>

     The Company's management believes that cash flows from operations and
the proceeds from the sale of securities to ICG Holdings and SCP along with
the additional financings discussed above, and a continuing relationship with
one of our investors who has demonstrated an ability and intent to continue
to financially support our operations, will be sufficient to finance the
Company's operating requirements for at least the next 12 months, from
December 31, 2000. There can be no assurance, however, that our actual needs
will not exceed expectations or that we will be able to fund our operations
on a long-term basis in the absence of other sources. There also can be no
assurance that any additional required longer term financing will be
available through additional bank borrowings, debt or equity offerings or
otherwise, or that if such financing is available, that it will be available
on terms acceptable to us.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CONSOLIDATION POLICY

     The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries: Breakaway Securities Corporation, Breakaway
Capital I LLC, Breakaway Friends I LLC, Celtic Acquisition Corporation, WYI
Acquisition Corporation, DataCyr Corporation, Eggrock Partners, Inc., Norsec,
Inc., Breakaway Solutions Limited (an English company) and Breakaway Solutions
Europe Limited (an Irish company.)

     All intercompany balances and transactions have been eliminated in
consolidation.

USE OF ESTIMATES

     The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenue and
expenses during the reported period. Actual results could differ from those
estimates.

CASH AND CASH EQUIVALENTS AND RESTRICTED CASH

     All highly liquid cash investments purchased with a maturity of three
months or less at the date of purchase are considered to be cash equivalents.

     As of December 31, 2000, restricted cash consisted primarily of the
uninvested portion of the Breakaway Capital funds (see note 5), the certificate
of deposit securing the Transamerica Lease (see note 11) and the deposit held by
the landlord of the former corporate headquarters (see note 11).

INVESTMENTS IN MARKETABLE SECURITIES

     The Company determines the appropriate classification of marketable
securities at the time of acquisition and reevaluates such designation at each
balance sheet date. At December 31, 1999, the Company's investments in
marketable securities are classified as available-for-sale and, as such, are
carried at fair value, with unrealized gains and losses, net of deferred taxes,
reported as a separate component of stockholders' equity (see note 5).

REVENUE RECOGNITION

     Revenue pursuant to time and material contracts are recognized as services
are provided. Revenue pursuant to fixed-price contracts are recognized as
services are rendered on the percentage-of-completion method of accounting
(based on the ratio of costs incurred to total estimated costs). Unbilled
revenues on contracts are comprised of costs plus earnings. Billings in excess
of costs plus earnings are classified as deferred revenues. Revenues for
recurring monthly services are recognized as the services are performed.
Revenues for fixed-price components of contracts (set up fees) are deferred and
recognized over the life of the contract.

     Provisions for estimated losses on uncompleted contracts are made on a
contract-by-contract basis and are recognized in the period in which such losses
become probable and can be reasonably estimated. To date, such

                                       42
<PAGE>

losses have not been significant. The Company reports revenues net of
reimbursable expenses which are billed to and collected from customers.

CONCENTRATION OF CREDIT RISK

     Financial instruments that potentially subject the Company to a
concentration of credit risk consist primarily of cash and cash equivalents,
trade accounts receivable, and debt instruments. The fair values of these
financial instruments at both December 31, 1999 and 2000 approximate their
carrying values.

     Accounts receivable are typically unsecured and are derived from revenue
earned from customers primarily located in the United States and Europe. The
Company evaluates the credit worthiness of customers and maintains an adequate
allowance for potential uncollectible accounts based upon the expected
collectibility of total accounts receivable.

PROPERTY AND EQUIPMENT

     Property and equipment are recorded at cost and are depreciated using the
straight-line basis over the estimated useful life of the related assets which
range from three to five years.

     Equipment held under capital leases is stated at the present value of the
minimum lease payments at the inception of the lease and is amortized using the
straight-line method over the lease term.

     Maintenance and repairs are charged to operations as incurred.

LOANS TO EMPLOYEES

     Loans have been made to employees of the acquired company WPL Laboratories,
Inc. totaling $0.5 million in the form of promissory notes which bear interest
at 8.75% annually. The principal amount of these promissory notes and interest
accrued thereon shall be payable upon the earlier to occur of: (i) the date on
which debtor receives any proceeds from the debtor's sale of Breakaway capital
stock pledged to Breakaway under a stock pledge agreement, to the extent of such
proceeds (net of any tax payable in connection with such sale) or (ii) the
fourth anniversary of the date of the stock pledge agreement to the full extent
of any remaining principal and interest that is outstanding on such date.

     In December 1999, the Company authorized an unsecured loan to Gordon
Brooks, then its Chief Executive Officer in the amount of $1.0 million, which is
due together with interest at 6.21% annually on the first to occur of either the
third anniversary of the loan or thirty days after his ceasing to be employed by
the Company. In connection with the termination of Mr. Brooks' employment with
the Company in April 2001, the Company agreed to forgive the original principal
balance of the loan and accrued interest in April 2002 if Mr. Brooks complies
with his obligations under his severance agreement. The loan is evidenced by a
February 2000 Promissory Note. The Promissory Note was written off in March
2001.

     The Company also periodically makes short-term loans to employees.

INTANGIBLE ASSETS AND DEFERRED COSTS

     Intangible assets consist principally of goodwill and deferred costs
related to the Company's acquisitions and include customer base, workforce in
place and goodwill. Deferred costs primarily represent compensation costs
arising from cash and stock issuances to certain employees of businesses
acquired, for which continued employment at the Company is required.

     The Company evaluates its intangible assets for impairment as events or
changes in circumstances indicate that the carrying value of those assets may
not be fully recoverable. Where impairment indicators are identified, management
determines the amount of the impairment charge by comparing the carrying value
of goodwill and certain other intangible assets to their fair market value. Fair
market value is determined based upon expected future discounted cash flows (see
note 8).


                                       43
<PAGE>

IMPAIRMENT OF LONG-LIVED ASSETS

     The Company records impairment losses on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the carrying value
of the asset.

SEGMENT INFORMATION

     The Company has adopted Statement of Financial Accounting Standard No. 131
("SFAS 131"), DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
INFORMATION which requires companies to present financial descriptive segment
information. The Company currently operates in two segments: Strategy and
Internet Consulting Services and Application and Web Hosting Services (see note
13).

PROJECT COSTS

     Project costs consist of payroll and payroll-related expenses for personnel
dedicated to client assignments in the Strategy and Internet Consulting Services
segment, and payroll and payroll-related expenses for personnel dedicated to
providing client services, rent expenses for data centers, and network bandwidth
charges and payroll related expenses in the Application and Web Hosting Services
segment.

INCOME TAXES

     Prior to 1999, the Company was taxed under the provisions of Subchapter S
of the Internal Revenue Code. Under those provisions, the Company did not pay
corporate Federal income taxes on taxable income; the corporate income was taxed
to the individual shareholders based on their proportionate share of the
Company's taxable income.

     Effective January 1, 1999, the Company terminated its S Corporation
election and is subject to Federal income taxes on taxable income. Accordingly,
the accompanying consolidated statement of operations for the year ended
December 31, 1998 includes a pro forma income tax presentation (see note 16) for
the income taxes that would have been recorded had the Company been taxed as a C
Corporation for all periods presented.

     Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.

STOCK-BASED COMPENSATION

     The Company has adopted the disclosure only provision of Statement of
Financial Accounting Standards No. 123 ("SFAS 123"), ACCOUNTING FOR STOCK-BASED
COMPENSATION, for stock based compensation issued to employees. As permitted by
SFAS 123, the Company measures compensation costs in accordance with Accounting
Principles Board Opinion No. 25 ("APB 25"), ACCOUNTING FOR STOCK ISSUED TO
EMPLOYEES, and related interpretations. Accordingly, no accounting recognition
is given to stock options issued to employees that are granted at fair market
value until they are exercised. Stock options issued to non-employees are
recorded at the fair value of the stock at the date of grant. The pro forma
impact on income (loss) per share has been disclosed in the notes to the
consolidated financial statements as required by SFAS 123 (see note 10).

NET LOSS PER SHARE

     The Company has adopted the provisions of Statement of Financial Accounting
Standards No. 128 ("SFAS 128"), EARNINGS PER SHARE. SFAS 128 requires the
presentation of basic and diluted net income (loss) per share for

                                       44
<PAGE>

all periods presented. As the Company has been in a net loss position for the
years ended December 31, 1998, 1999, and 2000, common stock equivalents of
1,348,948 for the year ended December 31, 1998, 15,262,340 for the year ended
December 31, 1999, and 20,899,899 for the year ended December 31, 2000 were
excluded from the diluted loss per share calculation as they would be
anti-dilutive. As a result, diluted loss per share is the same as basic loss per
share, and has not been presented separately.

FOREIGN CURRENCY TRANSLATION

     Amounts in the consolidated financial statements related to foreign
currency translation are determined utilizing the principles of Financial
Accounting Standards Board Statement No. 52 ("SFAS 52"), FOREIGN CURRENCY
TRANSLATION. Assets and liabilities denominated in foreign functional currencies
are translated at the exchange rate as of the balance sheet date. Translation
adjustments are recorded as a separate component of stockholder's equity.
Revenues, costs and expenses denominated in foreign functional currencies are
translated at the weighted average exchange rate for the period.

OTHER INCOME

     Other income in 1998 consists primarily of a payment received by the
Company in connection with the early termination of an office lease. Other
income in 2000 consisted mainly of a project settlement with a related party.

RECLASSIFICATIONS

     Certain amounts in the 1998 and 1999 consolidated financial statements have
been reclassified to conform to the 2000 presentation.

NEW ACCOUNTING PRONOUNCEMENTS

     In March 2000, the Financial Accounting Standard Board ("FASB") issued FASB
Interpretation No. 44 ("FIN 44"), ACCOUNTING FOR CERTAIN TRANSACTIONS INVOLVING
STOCK COMPENSATION--AN INTERPRETATION OF APB OPINION NO. 25 , which clarifies
the application of APB Opinion No. 25 and among other issues clarifies the
following: the definition of an employee for purposes of applying APB Opinion
No. 25, the criteria for determining whether a plan qualifies as a
noncompensatory plan, the accounting consequence of various modifications to the
terms of previously fixed stock options or awards, and the accounting for an
exchange of stock compensation awards in a business combination. FIN 44 is
effective July 1, 2000, but certain conclusions in FIN 44 cover specific events
that occurred after either December 15, 1998 or January 12, 2000. The Company
adopted FIN 44 in 2000 and such adoption had no significant impact on the
Company's results of operations or financial position.

     In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"), REVENUE RECOGNITION IN FINANCIAL
STATEMENTS subsequently updated by SAB 101A and SAB 101B. SAB 101 summarizes
certain of the SEC's views in applying generally accepted accounting principles
to revenue recognition in financial statements. The Company adopted SAB 101 in
the fourth quarter of fiscal 2000. The adoption of SAB 101 had no significant
impact on the Company's results of operations or financial position.

     In June 1998, FASB issued Statement of Financial Accounting Standards No.
133 ("SFAS 133") ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES,
as amended by SFAS No. 138, which was issued in June 2000. SFAS No. 133 requires
that all derivative instruments be recorded on the balance sheet at their fair
value. Changes in the fair value of derivatives are recorded each period in
current earnings or other comprehensive income, depending on whether a
derivative is designated as part of a hedge transaction and, if it is, the type
of hedge transaction. The Company did not use derivative instruments or engage
in hedging activities in fiscal 2000. Accordingly, the Company does not expect
the required adoption of SFAS 133 in fiscal 2001 to have a significant impact on
the Company's results of operations or financial position.

3. ACCOUNTS RECEIVABLE--ALLOWANCE FOR DOUBTFUL ACCOUNTS


                                       45
<PAGE>

     The activity in the allowance for doubtful accounts for the years ended
December 31, 1998, 1999, and 2000 are presented below. Included in the category
"net increase/deductions from allowance," for the years ended December 31, 1998,
1999, and 2000 were write-offs totaling approximately $123, $143 and $3,587,
respectively, net of recoveries of previously written-off accounts.

<TABLE>
<CAPTION>
                                     Balance                            Net
                                       at            Provision       Deductions    Balance
                                    Beginning        Charged to         from       at End
                                    of Period        Operations      Allowance    of Period
                                    ---------        ----------      ---------    ---------
<S>                                 <C>              <C>             <C>          <C>
Description

Allowance for doubtful accounts:
Year ended December 31, 2000          $ 357           $ 11,931        $ 3,587        $8,701
Year ended December 31, 1999            131                369            143           357
Year ended December 31, 1998             65                189            123           131
</TABLE>


4.  PREPAID EXPENSES AND OTHER CURRENT ASSETS:
         Prepaid expenses and other current assets were as follows at December
31:

<TABLE>
<CAPTION>
                                                                 1999           2000
                                                                 ----           ----
<S>                                                             <C>            <C>

         Current prepaid deposits                              $  370          $1,446
         Prepaid service contracts                              1,204           2,076
         Related party note receivable (see note 5)               753             210
         Prepaid expenses                                         151             994
         Other current assets                                      70             353
                                                               ------          ------
                                                               $2,548          $5,079
                                                               ======          ======
</TABLE>


5. INVESTMENTS IN EQUITY SECURITIES

Katalyst LLC

     During 1999, the Company made a 19.9% equity investment in Katalyst LLC, a
privately held Internet services company, including a secured note of $0.8
million. The carrying value of the investment at December 31, 1999 was
approximately $2.9 million, which approximated fair value. At December 31, 2000,
management determined that, due to market conditions, an other than temporary
decline in fair value had occurred. As a result, the carrying value of the
investment was reduced to $0.5 million. The $2.4 million impairment charge is
recorded as a component of other expense in the consolidated statement of
operations for the year ended December 31, 2000.

     The secured note, which bears interest at 8%, was originally payable on
December 15, 2000, but was renegotiated to an amount of $0.2 million payable in
equal monthly installments, with the final payment due on October 15, 2001.
These amounts are classified as a component of prepaid expenses and other
current assets in the accompanying consolidated balance sheets as of December
31, 1999 and 2000. The impairment on the secured loan has been recorded as a
component of other expense and recorded in the consolidated statement of
operations for the year ended December 31, 2000.

Breakaway Capital I LLC

     In December 1999, the Company formed Breakaway Capital I, LLC, a
wholly-owned venture capital fund, for the primary purpose of making minority
investments in clients. The Company accounts for these investments using the
cost method. At December 31, 1999, the cost basis of the investments owned by
the Company was approximately $2.6 million, which approximated fair value. At
December 31, 2000, management determined that, due to market conditions, an
other than temporary decline in fair value had occurred. As a result, the
carrying value

                                       46
<PAGE>

of these investments was reduced to $0.5 million. The resulting $2.1 million
impairment charge is recorded as a component of other expense in the
consolidated statement of operations for the year ended December 31, 2000.

AVAILABLE-FOR-SALE MARKETABLE SECURITIES

     The cost of available-for-sale marketable securities carried at fair value
was $34.9 million at December 31, 1999. Gross unrealized gains and losses
related to securities held as available-for-sale for the years ended December
31, 1999 are as follows (in thousands):

<TABLE>
<CAPTION>
<S>                                                                    <C>
         Gross unrealized gains......................................  $94
         Gross unrealized losses.....................................   (6)
                                                                       ---
           Net unrealized gains......................................  $88
                                                                       ===
</TABLE>

         There were no investments held as available-for-sale as of December 31,
2000.

     At December 31, 1999, $28.2 million in marketable securities were
classified as short-term and $6.8 million were recorded as long-term and
included in Investments in the accompanying balance sheet.

6. ACQUISITIONS

During 2000, the Company acquired the following companies:

<TABLE>
<CAPTION>

DATE                                        COMPANY                                   LOCATION
----                                        -------                                   --------
<S>                                         <C>                                       <C>
February 18, 2000....................       DataCyr Corporation                       McLean, VA
April 1, 2000.........................      Eggrock Partners, Inc.                    Concord, MA
July 28, 2000........................       Zartis.com, Limited                       Dublin, Ireland
August 11, 2000.......................      Norsec, Inc.                              Norwood, MA
</TABLE>

The aggregate purchase price paid in connection with the acquisitions made in
2000 consisted of (i) 6,989,806 shares of common stock of the Company; (ii) $1.0
million in cash; and (iii) $1.0 million in promissory notes.

     The total consideration paid for DataCyr Corporation ("DataCyr"), a
software development company, was 110,000 shares of the Company's common stock.
Of these shares, approximately 85% are owned by two individuals who became
employees of the Company. These shares are subject to the Company's right, which
lapses incrementally over a four-year period, to repurchase the shares from the
applicable employee for a nominal amount upon the resignation of such employee
or on the Company's termination of the employee for cause.

     The total consideration paid for Eggrock Partners, Inc. ("Eggrock"), a full
service consulting and system integration firm that focuses on delivering
customer-centered business solutions to emerging enterprises, was 7,272,000
shares of the Company's common stock. Of these shares, 6,176,331 shares were
issued to Eggrock stockholders and an additional 1,095,669 shares were reserved
for issuance to Eggrock option holders. Eggrock options were converted into
options to acquire the common stock of the Company on the same basis as Eggrock
stock was converted into the right to receive Breakaway common stock. Of the
shares of the Company's common stock issued to former Eggrock stockholders at
closing, who became employees of the Company, approximately 30.5% are subject to
the Company's right, which lapses incrementally over a four-year period, to
repurchase the shares from the employees for a nominal amount upon the
resignation of such employee or on the Company's termination of the employee for
cause.

     The total consideration paid for Zartis.com Limited ("Zartis"), an
e-business consultancy, was 430,456 shares of common stock of the Company, the
assumption of 64,441 outstanding options, and $2.0 million in cash to the former
Zartis shareholders payable as follow: (i) $1.0 million at closing and (ii) $1.0
million on the first anniversary of the closing. The parties subsequent to
December 31, 2000 renegotiated the amount and terms of the second payment (see
note 18). Of the shares of the common stock issued to the former Zartis
shareholders, who are

                                       47
<PAGE>

now employees of the Company, approximately 75% are subject to the Company's
right, which lapses incrementally over a four-year period, to repurchase the
shares from the employees for a nominal amount upon the resignation of such
employee or on the Company's termination of the employee for cause.

     The total consideration paid for Norsec, Inc. ("Norsec"), an e-business
security consultancy, was 273,019 shares of common stock of the Company and the
assumption of 30,299 outstanding options. Of the shares of the common stock
issued to the former Norsec shareholders, who became employees of the Company,
approximately 75% are subject to Breakaway's right, which lapses incrementally
over a four year period, to repurchase the shares from the employees for a
nominal amount upon the resignation of such employee or on the Company's
termination of the employee for cause.

     During 1999, the Company acquired the following companies:

<TABLE>
<CAPTION>
DATE                                                  COMPANY                                LOCATION
----                                                  -------                                --------
<S>                                                   <C>                                    <C>

March 25, 1999.......................           Applica Corporation                         New York, NY
May 17, 1999.........................           WPL Laboratories, Inc.                      Haverford, PA
June 10, 1999........................           Web Yes, Inc.                               Somerville, MA
</TABLE>

     The aggregate purchase price paid in connection with the acquisitions made
in 1999 consisted of (i) 5,089,494 shares of common stock of the Company; (ii)
$2.5 million in cash; and (iii) $2.2 million in promissory notes.

     The total consideration paid for Applica Corporation ("Applica"), an
application hosting service provider, was 1,447,398 shares of the Company's
common stock.

     The total acquisition consideration paid for WPL Laboratories, Inc.
consisted of approximately $5.0 million in cash to be paid over a four-year
period and 2,728,280 shares of Breakaway common stock. Each WPL stockholder
received 50% of his cash consideration at closing and will receive the remainder
incrementally over a four-year period so long as the stockholder does not resign
and is not terminated for cause. Of the shares of Breakaway common stock issued
to the former WPL stockholders, approximately 50% are subject to Breakaway's
right, which lapses incrementally over a four-year period, to repurchase the
shares of the stockholder, at their value at the time of the acquisition, upon
the stockholder's resignation or Breakaway's termination of the stockholder for
cause.

     The total consideration paid for Web Yes, Inc. consisted of 913,816 shares
of Breakaway common stock. Of the shares of Breakaway common stock issued to the
former Web Yes stockholders, 685,360 are subject to Breakaway's right, which
lapses incrementally over a four year period, to repurchase the shares of a
particular stockholder upon the termination of his employment with Breakaway.
The repurchase price will be either at the share value at the time of the
acquisition if the stockholder terminates employment or Breakaway terminates for
cause, or at their fair market value if Breakaway terminates the stockholder's
employment without cause.

     All acquisitions were accounted for using the purchase method of
accounting. The purchase price was allocated to the assets acquired and
liabilities assumed based on their estimated fair values. Results of operations
for the acquired companies have been included with those of the Company for
periods subsequent to the date of acquisition. The excess of the total purchase
price for each acquired company over the allocation of fair values to the net
assets has been recorded as intangible assets, as follows (in thousands):

<TABLE>
<CAPTION>
                                                             December 31,
                                                             ------------
                                                           1999       2000
                                                           ----       ----
<S>                                                        <C>        <C>

Working capital...........................                $  508    $(2,853)
Other non-current assets..................                   706      3,808
Non-current liabilities...................                  (134)   (30,180)
                                                           -----    -------
                                                           1,080    (29,225)
</TABLE>


                                       48

<PAGE>

<TABLE>
<CAPTION>
                                                             December 31,
                                                             ------------
                                                           1999       2000
                                                           ----       ----
<S>                                                        <C>        <C>
Intangible assets and deferred costs:
  Assembled workforce.....................                   852      3,815
  Customer base...........................                 1,463         --
  Goodwill................................                 4,875    239,913
  Deferred costs..........................                 6,993     97,270
                                                          ------    -------
    Total intangible assets and
      deferred costs......................                14,183    340,998
                                                          ------    -------
     Purchase price                                      $15,263   $311,773
                                                          ======    =======
</TABLE>


     At December 31, 2000, the Company determined that the recoverability of the
intangible assets associated with the above acquisitions was permanently
impaired and thus recorded an impairment charge of approximately $296 million
(see note 8 ).

     The following unaudited pro forma results of operations give effect to all
the acquisitions accounted for as purchases as if the transactions had occurred
at the beginning of 1999. Such pro forma financial information reflects certain
adjustments, including amortization of goodwill, income tax effects and an
increase in the weighted average shares outstanding. This pro forma information
does not necessarily reflect the results of operations that would have occurred
had the acquisitions taken place at the beginning of 1999 and is not necessarily
indicative of results that may be obtained in the future (in thousands, except
for per share amounts):

<TABLE>
<CAPTION>
                                                                          1999         2000
                                                                          ----         ----
         <S>                                                            <C>         <C>

         Total revenue.........................................         $ 39,618    $ 110,451
         Net loss..............................................          (93,969)    (415,101)
         Net loss per share....................................         $  (3.60)   $  (10.10)
         Weighted average common shares outstanding............           26,087       41,099
</TABLE>



7. PROPERTY AND EQUIPMENT

     Property and equipment consisted of the following at December 31 (in
thousands):


<TABLE>
<CAPTION>
                                                                   1999          2000
                                                                   ----          ----
<S>                                                                <C>           <C>

Computer equipment..........................................     $ 7,158       $29,373
Computer software...........................................       1,383         5,675
Furniture and fixtures......................................         699        11,024
Leasehold improvements......................................         137         7,291
Construction-in-progress....................................         214            12
                                                                 --------      --------
                                                                   9,591        53,375
Less: Accumulated depreciation and amortization.............      (2,050)      (11,202)
                                                                 --------      --------
                                                                  $7,541       $42,173
                                                                 ========      ========
</TABLE>

     Property and equipment under capital leases at December 31 are as follows
(in thousands):

<TABLE>
<CAPTION>
                                                                   1999          2000
                                                                   ----          ----
<S>                                                                <C>           <C>
Cost........................................................     $1,787       $ 3,692
Less: Accumulated amortization..............................       (450)       (1,071)
                                                                 ------       -------
                                                                 $1,337       $ 2,621
                                                                 ======       =======
</TABLE>


                                       49

<PAGE>

8. ASSET IMPAIRMENTS AND RESTRUCTURING CHARGES

     The Company continues to experience a reduced level of operating activity
and results for its strategy and Internet consulting and application and web
hosting services businesses. As a result, based on management's review of the
carrying value and periods of amortization of both goodwill and other
identifiable intangible assets, it was determined that the carrying value of
these assets were not fully recoverable. Accordingly, during the fourth quarter
of fiscal 2000, the Company recorded an impairment charge of approximately $296
million. Subsequent to December 31, 2000, the Company determined to consolidate
and restructure the businesses conducted by its subsidiaries Eggrock, Applica,
WPL, and Web Yes, and to exit the business conducted by Zartis.com. In
connection with these decisions, the Company will record impairment charges in
the first quarter fiscal 2001 and the second quarter 2001 relating to employee
terminations, net realizable value of property, equipment and leasehold
improvements, and lease terminations of an estimated $5 million. Each of the
companies for which impairment charges were recorded have experienced declines
in operating and financial metrics over the past several quarters in comparison
to the metrics forecasted at the time of their respective acquisitions. The
impairment analysis considered that these companies were recently acquired and
that the intangible assets recorded upon acquisition of these companies were
generally being amortized over a three- to five-year useful life. However,
sufficient monitoring was performed over the course of the past several quarters
and the companies have each completed an operating cycle since acquisition.

     The amount of the impairment charge was determined by comparing the
carrying value of goodwill and certain other intangible assets to fair value at
December 31, 2000. The most significant assumptions in the impairment analysis
were the projected revenue growth rate and the after tax discount rate used as
of December 31, 2000, both of which ranged from 20% to 25%. The discount rate
was determined by an analysis of the risks associated with certain goodwill and
other intangible assets. The resulting net cash flows to which the discount rate
was applied were based upon management's estimate of revenue, operating expense,
and income taxes. The revenue growth rate was based upon what management
estimated to be sustainable rates of growth that could be financed with existing
and committed facilities. Accordingly, the Company recorded an impairment charge
of approximately $296 million during the fourth quarter of fiscal 2000 which is
reflected in amortization expense in the consolidated statement of operations.

     The Company recognized an impairment charge of approximately $1.8 million
associated with the disposal of certain leasehold improvements at its Corporate
office. The amount is included as additional depreciation expense in the
consolidated statement of operations for the year ended December 31, 2000.

     Additionally, restructuring charges of approximately $2.1 million resulted
primarily from the involuntary termination of 278 employees and a strategic
decision to consolidate the Company's two Massachusetts offices and close the
Dallas office. Of the total charges, approximately $1.5 million relates to
termination benefits and $0.6 million relates to facility lease costs (net of
estimated sublease income). Substantially all of the termination benefits were
paid in the first quarter of 2001.

9. ACCRUED LIABILITIES

     Accrued liabilities consisted of the following at December 31 (in
thousands):

<TABLE>
<CAPTION>
                                                    1999          2000
                                                    ----          ----
<S>                                               <C>          <C>
         Restructuring accrual (note 8)           $   --        $1,601
         Deferred rent                                --         1,180
         Accrued taxes                               316           502
         Accrued expenses                            990         6,482
                                                  -------        -----
                                                   1,306         9,765
                                                  -------        -----
</TABLE>


                                       50
<PAGE>


10. CAPITAL STOCK (See also note 6)

STOCKS SPLITS

     In June and December 1998 and in September 1999, the Board of Directors
approved 2-for-1, and 3-for-1 stock splits effected through stock dividends and
a 4-for-5 stock split of the Company's common stock, respectively. All prior
periods have been restated to reflect these stock splits effected as a
recapitalization.

     In March 2000, the Board of Directors approved a 2-for-1 stock split
effected through a stock dividend of the Company's common stock. All prior
periods have been restated to reflect the split effected as a recapitalization.

COMMON STOCK

Putnam Investments Offering

     In May 2000, the Company issued and sold 1,500,000 shares of its common
stock through a private placement to five mutual funds managed by either Putnam
Investment Management, Inc. or the Putnam Advisory Company, Inc., the net
proceeds of which were approximately $39.0 million. The proceeds of the
offerings were used for general corporate purposes.

     The Company has never declared nor paid dividends on any of its capital
stock and does not expect to in the foreseeable future.

INVEST, INC.

     In December 2000, the Company entered into an agreement to sell shares of
its common stock and issue warrants to purchase its common stock to Invest, a
Delaware corporation. The agreement was revised to resolve matters which arose
subsequent to entering into the agreement and prior to December 31, 2000. On
February 6, 2001, Invest consummated the revised investment in the Company under
which the total amount of cash invested was reduced by $2.0 million, and Invest,
Inc. received an aggregate of 4,285,714 shares of common stock at a per share
purchase price of $0.70 and warrants to purchase up to 4,285,714 shares of
common stock at a per share exercise price of $0.70. Total consideration
received by the Company was $3.0 million in cash. A former director of the
Company is the sole director and sole stockholder of Invest. This settlement
resulted in a charge of approximately $9.2 million, which has been recorded in
the consolidated statement of operations for the year ended December 31, 2000.

SERIES A PREFERRED STOCK

     In October 1998, the Company's stockholders authorized 5,853,000 shares of
Series A Preferred Stock. In January 1999 the Company issued 5,853,000 shares of
Series A Preferred Stock at $1.42 per share. The Series A Preferred Stock was
converted into common stock upon the completion of the Company's initial public
offering in October 1999. (see note 18)

SERIES B PREFERRED STOCK

     In July 1999, the Company issued 2,931,849 shares of Series B Preferred
Stock, $0.0001 par value, for $6.50 per share. The Series B Preferred Stock was
converted into common stock upon the completion of the Company's initial public
offering in October 1999.

WARRANTS

     In May 1999, the Company issued Internet Capital Group a warrant to
purchase 147,744 shares of common stock at an exercise price of $4.07 per share.
The warrant is exercisable through May 2002. As of December 31, 2000, the
warrant has not been exercised.

     In September 1999, the Company entered into a Master Lease Agreement with
Silicon Valley Bank to finance up to $4.0 million of equipment and software. In
connection with the Master Lease Agreement, the Company issued Silicon Valley
Bank a warrant to purchase 21,818 shares of common stock at an exercise price of
$5.50 per share. The warrant is exercisable through December 21, 2002. As of
December 31, 2000, the warrant has not been exercised.


                                       51
<PAGE>


     Subsequent to December 31, 2000, the Company has issued warrants to various
parties in connection with financing transactions (see note 18).

1999 EMPLOYEE STOCK PURCHASE PLAN

     In July of 1999, the Company's Board of Directors adopted a
non-compensatory Employee Stock Purchase Plan ("the ESPP"). Under the ESPP,
employees of the Company who elect to participate are granted options to
purchase common stock at a 15% discount from the market value of such stock. An
individual must be employed with the Company for one month in order to be
eligible to enroll in the ESPP. The ESPP permits an enrolled employee to make
contributions to purchase shares of common stock by having withheld from his or
her salary an amount between 1% and 10% of compensation. The Board of Directors
administers the ESPP. The total number of shares of common stock that may be
issued pursuant to options granted under the ESPP is 800,000. As of December 31,
2000, 34,609 shares of common stock have been issued under the ESPP.

STOCK PLANS

     The Company's 1998 Stock Plan (the "1998 Stock Plan") authorizes the
Company to grant options to purchase common stock, to make awards of restricted
common stock, and to issue certain other equity-related awards to employees and
directors of, and consultants to, the Company. The total number of shares of
common stock that may be issued under the Stock Plan is 16,240,536 shares. The
Stock Plan is administered by the Board of Directors, which selects the persons
to whom stock options and other awards are granted and determines the number of
shares, the exercise or purchase prices, the vesting terms and the expiration
date. Non-qualified stock options may be granted at exercise prices which are
above, equal to, or below the grant date fair market value of the common stock.
The exercise price of options qualifying as incentive stock options may not be
less than the grant date fair market value of the common stock.

     Stock options granted under the Stock Plan are nontransferable, generally
become exercisable over a four-year period, and expire ten years after the date
of grant (subject to earlier termination in the event of the termination of the
optionee's employment or other relationship with the Company).

     In July 1999, the Company adopted the Stock Incentive Plan (the "1999 Stock
Plan"). The 1999 Stock Incentive Plan was adopted in July 1999. The 1999 Plan is
intended to replace the 1998 Stock Plan. Up to 9,600,000 shares of common stock
(subject to adjustment in the event of stock splits and other similar events)
may be issued pursuant to awards granted under the 1999 Stock Plan.

     The 1999 Stock Plan provides for the grant of incentive stock options,
nonstatutory stock options, restricted stock awards and other stock-based
awards.

     The following table presents the combined activity of the two option plans
in which offerings have occurred for the years ended December 31, 1998, 1999,
and 2000:

<TABLE>
<CAPTION>
                                                     --------1998--------   ---------1999--------   --------2000--------
                                                                 WEIGHTED                WEIGHTED               WEIGHTED
                                                      NUMBER     AVERAGE      NUMBER     AVERAGE     NUMBER      AVERAGE
                                                        OF      EXERCISE       OF       EXERCISE       OF       EXERCISE
                                                     OPTIONS     PRICE       OPTIONS     PRICE      OPTIONS      PRICE
                                                     -------    ---------   --------    ---------   -------     --------
                                                        (IN THOUSANDS)         (IN THOUSANDS)         (IN THOUSANDS)
<S>                                                  <C>        <C>         <C>         <C>         <C>         <C>
Outstanding options at beginning of year.........         --         $  --     9,588      $0.63       16,050     $ 2.59
  Granted........................................      9,792         $0.62     8,378      $4.39        7,992     $20.64
  Exercised......................................         --         $  --    (1,376)     $0.39       (2,986)    $ 0.96
  Cancelled......................................       (204)        $0.38      (540)     $1.30       (2,077)    $18.29
                                                       -----         -----    ------      -----       -------    ------
Outstanding options at end of year...............      9,588         $0.63    16,050      $2.59       18,979     $ 7.86
                                                       =====         =====    ======      =====       -------    ------
Exercisable options at end of year...............      4,178         $0.50    10,054      $0.78        9,447     $ 1.47
                                                       =====         =====    ======      =====       -------    ------
Weighted average fair value of options granted
  during the year................................      $ .25                  $ 4.18                  $19.09
                                                       =====                  ======                  -------
</TABLE>


                                       52
<PAGE>


     The following table presents weighted average price and life information
about significant option groups outstanding at December 31, 2000:

<TABLE>
<CAPTION>
                              OPTIONS OUTSTANDING         OPTIONS EXERCISABLE
                                           WEIGHTED
                                           AVERAGE
                              NUMBER      REMAINING      WEIGHTED    WEIGHTED
                                OF       CONTRACTUAL     AVERAGE     AVERAGE
                             OPTIONS         LIFE        NUMBER      EXERCISE
EXERCISE PRICES            OUTSTANDING     (YEARS)     EXERCISABLE    PRICE
-------------------        -----------   -----------   -----------   --------
<S>                        <C>           <C>           <C>           <C>
$0.00    - $6.28              14,474         7.2           9,267     $ 0.96
$6.28    - $12.56             12,395         9.6               3     $ 9.49
$12.56   - $18.83              1,705         6.7               -     $    -
$18.83   - $25.11                270         6.3              23     $21.33
$25.11   - $31.39              1,185         6.5             152     $28.77
$31.39   - $37.67                723         7.0               -     $    -
$37.67   - $43.95                  -         0.0               -     $    -
$43.95   - $50.22                  -         0.0               -     $    -
$50.22   - $56.50                 77         8.0               -     $    -
$56.50   - $62.78                532         4.9               2     $60.00
                              ------         ---       -----------   ------
                              18,979         7.0           9,447     $ 1.47
                              ======                                 ======

Weighted-average fair value of options Granted during the year       $20.64
                                                                     ======
</TABLE>

     Had the Company determined compensation cost based on the fair value at the
grant date for its stock options under SFAS 123 for 1998, 1999 and 2000 grants,
the net loss would have been increased to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
                                       1998                      1999               2000
                            -----------------------    -----------------------   --------------------
                             AS REPORTED   PRO FORMA   AS REPORTED   PRO FORMA   AS REPORTED   PRO FORMA
                             -----------   ---------   -----------   ---------   -----------   ---------
<S>                            <C>         <C>          <C>          <C>          <C>          <C>
Net loss (in thousands)......  $ (575)     $ (687)      $(10,367)    $(17,713)    $(389,851)   $(411,344)
Net loss per share...........  $(0.05)     $(0.05)      $  (0.59)    $  (1.02)    $ (  9.84)   $ (10.39)
</TABLE>


     The fair value of options at the date of grant were estimated using the
Black-Scholes option pricing model with the following weighted-average
assumptions:

<TABLE>
<CAPTION>
                                                   1998       1999      2000
                                                 --------   --------  -------
<S>                                              <C>       <C>         <C>
Volatility.....................................    70.0%     135.0%      159.0%
Expected option life (years)...................    10          9           4.5
Interest rate (risk free)......................     7.0%       6.5%        6.5%
</TABLE>


11. COMMITMENTS AND CONTINGENCIES (see note 18)

LINE OF CREDIT

     In September 2000, the Company entered into a $10.0 million bank revolving
line of credit that was terminated in December 2000. There were no borrowings
outstanding at December 31, 2000.

LEASES

     The Company leases its facilities under various operating leases
expiring through 2003. Such leases include provisions that may require the
Company to pay its proportionate share of operating costs, which exceed
specific thresholds. Rent expense for the years ended December 31, 1998, 1999
and 2000 was $0.6 million, $1.5 million, and $8.8 million (see note 18),
respectively.

                                       53
<PAGE>


     The Company leases certain computer and office equipment under capital
leases. Lease terms vary from two to seven years, with annual interest rates
ranging from 6.2% to 18.7%. The leased equipment collateralizes the capital
leases.

     In September 1999, the Company entered into a Master Lease Agreement with
Silicon Valley Bank to finance up to $4.0 million of equipment and software.
Leases under the Master Lease Agreement have terms of thirty-six months.
Interest payments are determined based on an annual interest rate equal to the
annual rate on U.S. Treasury securities of a comparable term plus 2.5% (6.2% at
December 31, 2000). In connection with the Master Lease Agreement, the Company
issued Silicon Valley Bank warrants to purchase 21,818 shares of Breakaway
common stock (see note 10).

     In April 2000, the Company financed an additional $2.6 million of equipment
and software. This lease arrangement fell under the Master Lease Agreement and
is subject to the terms noted above.

     In July 2000, the Company entered into a 3-year Master Lease Arrangement
with Deutsche Financial Services to finance $0.7 million of telephone equipment,
with an interest rate of 11.23%. The lease is secured by the equipment itself.

     In November 2000, the Company entered into a 30-month leasing agreement
with Transamerica Equipment Financial Services Corporation to finance $3.0
million of furniture with an interest rate of 18.7%. Under the agreement, the
Company is required to maintain a $2.25 million letter of credit, that is
collateralized by a certificate of deposit. This amount is classified as
restricted cash in the consolidated balance sheet.

     The following is a schedule of future minimum rental payments required
under the above operating and capital leases as of December 31, 2000 (in
thousands):

<TABLE>
<CAPTION>
                                                            OPERATING   CAPITAL
                                                             LEASES      LEASES
                                                            ---------   --------
<C>                                                          <C>         <C>
2001......................................................   $ 7,746     $2,857
2002......................................................     6,353      2,909
2003......................................................     6,381      1,652
2004......................................................     6,477      1,077
2005......................................................     5,222       --
thereafter................................................     3,019       --
                                                             -------     ------
                                                             $35,198     $8,495
                                                             -------     ------
Less: amount representing interest
                                                                          2,229
                                                                         ------
Net present value of minimum lease payments...............                6,266
Less: current portion of capital lease obligations........                2,000
                                                                         ------
Capital lease obligations, net of current portion.........               $4,265
                                                                         ======
</TABLE>



     The Company abandoned its corporate headquarters in February of 2001. The
landlord of the space continues to hold a security deposit of $3.6 million,
which will be drawn upon for the monthly rent payment of $0.3 million from March
1, 2001 until the time when the space is occupied by another tenant. As such,
rent expense relating to the facility subsequent to February 28, 2001 is not
reflected in the future minimum lease payments noted above.

12. SIGNIFICANT CUSTOMERS

     The following table summarizes revenues from major customers (revenues in
excess of 10% for the year) as a percentage of total revenues:

<TABLE>
<CAPTION>
                                                                      YEARS ENDED
                                                                      DECEMBER 31,
                                                             ------------------------------
                                                               1998       1999       2000
                                                             --------   --------   --------
<S>                                                             <C>
Customer A.................................................     27%        --         --
Customer B.................................................     --         --         11%
</TABLE>


                                       54
<PAGE>


13. OPERATING SEGMENTS

     Historically, the Company has operated in a single segment: strategy and
Internet consulting services. With the acquisitions of Applica Corporation and
Web Yes, Inc. during 1999, the Company expanded its operations to include a
second segment: application and web hosting services.

     The following tables set forth certain components of the Application and
Web Hosting Services segment and the Strategy and Internet Consulting Services
segment as of and for the year ended December 31, 1999 (in thousands):

Strategy and Internet Consulting Services:

<TABLE>
<CAPTION>
                                                     Strategy and
                                      Application      Internet
                                      Web Hosting     Consulting
                                       Services        Services      Corporate      Total
                                      -----------    ------------    ---------    ---------
<S>                                   <C>            <C>             <C>          <C>
       Revenue...................      $  2,092       $  23,298            --      $25,390
       Project costs.............         2,130          11,258            --       13,388
       Gross Margin..............           (38)         12,040            --       12,002
       Net loss..................            --              --       (10,367)     (10,367)
       Total assets..............        11,546          20,451        45,464       77,461
</TABLE>

     The following tables set forth certain components of the Application and
Web Hosting Services segment and the Strategy and Internet Consulting Services
segment as of and for the year ended December 31, 2000 (in thousands):

<TABLE>
<CAPTION>
                                                     Strategy and
                                      Application      Internet
                                      Web Hosting     Consulting
                                       Services        Services      Corporate      Total
                                      -----------    ------------    ---------    ---------
<S>                                   <C>            <C>             <C>          <C>
       Revenue..................       $20,628         $ 81,851             --     $ 102,479
       Project costs............        18,187           49,929             --        68,116
       Gross Margin.............         2,441           31,922             --        34,363
       Net loss.................            --               --       $(389,851)    (389,851)
       Total assets.............        33,246           39,308           4,718       77,272
</TABLE>

     During 1998 and 2000, one customer accounted for 27% and 12%, respectively,
of the Company's Strategy and Internet Consulting Services revenue. During 1999,
no single customer accounted for 10% or more of the Company's Strategy and
Internet Consulting Services revenue.

     During 1999 and 2000, one customer accounted for 24% and 19%, respectively,
of the Company's Application and Web Hosting Services revenue. In addition,
during 2000, a second customer accounted for 11% of the Company's Application
and Web Hosting Services revenue.

     Substantially, all of the Company's assets are located within the United
States. During 2000, the Company began to sell its services internationally.
Sales to customers based outside of the United States for fiscal year 2000
totaled $4.7 million, or 4.6% of total sales. $4.5 million of these sales were
in Europe, primarily in Ireland and the United Kingdom, and the remaining $0.2
million were in the Far East.


                                       55
<PAGE>


14. RELATED PARTIES (See also note 18)

INTERNET CAPITAL GROUP

     In May 1999, Internet Capital Group ("ICG"), holder of the Company's Series
A Preferred Stock, provided $4.0 million in advances which were converted into
equity in July 1999 during the Company's Series B Preferred Stock offering. In
connection with this transaction, the Company issued ICG a warrant to purchase
147,744 shares of common stock (see note 10).

     Subsequent to June 30, 1999, the Company began providing services to ICG
and some of ICG's affiliated entities. During the years ended December 31, 1999
and 2000, revenues derived from engagements with ICG and ICG affiliated entities
totaled approximately $4.5 million and $36.6 million, respectively. Accounts
receivable, net of reserves, from ICG and ICG affiliated entities totaled
approximately $4.0 million and $2.9 million at December 31, 1999 and 2000,
respectively.

     In October 1999, ICG's holdings in the Company's Series A Preferred Stock
and the Series B Preferred Stock were converted to common stock upon the
completion of the Company's initial public offering. At December 31, 1999 and
2000, ICG held approximately 40.0% and 32.8%, respectively, of the Company's
outstanding common stock.

     Subsequent to December 31, 2000, the Company entered into a series of
financings with ICG and SCP Equity Partners II, L.P. ("SCP") (see note 18).

     In October 2000, the Company, along with ICG AsiaWorks, an entity
partially owned by ICG, Hutchinson Whampoa and Li Ka-shing Foundation,
established Breakaway Asia Pacific. This new entity is expected to provide
services similar to those provided by the Company in the Asia Pacific market,
other than Japan. In exchange for use of the Company's intellectual property,
the Company received a 19.9% ownership interest in Breakaway Asia Pacific.
The Company has accounted for this investment using the equity method of
accounting; however, as its share of the losses for 2000 exceeded its $90,000
cost basis in the investment, the carrying value has been reduced to zero. In
June 2001, the Company signed an agreement to sell its equity interest in
Breakaway Solutions Asia Pacific Limited (the "Joint Venture") to the other
shareholder, ICG Asia Limited (formerly, ICG AsiaWorks Limited) for $500,000.
The transaction is expected to close in July 2001 upon obtaining regulatory
approval and satisfaction of certain other closing conditions.

DUE TO STOCKHOLDERS

     The Company's acquisition of WPL Laboratories, Inc. in May 1999 included
$5.0 million in cash purchase consideration, which was payable to the former
stockholders as follows: (i) one half at closing and (ii) the remainder
incrementally over a four-year period so long as the stockholder does not
voluntarily terminate his employment and is not terminated for cause. This
amount, which has been discounted at 7%, is reflected as due to stockholders in
the accompanying consolidated balance sheet.

     The Company's acquisition of Zartis included $2.0 million in cash which was
payable to the former stockholders as follows: (i) $1.0 million at closing and
(ii) $1.0 million on the first anniversary of the closing date of the
transaction. Interest accrues on the unpaid balance at a rate equal to the
weighted-average of the rates on overnight federal-funds transactions (6.2% at
December 31, 2000). The parties subsequent to December 31, 2000 renegotiated the
amount and terms of the second payment. (see note 18)

     Interest expense for the above arrangements was approximately $0.1 million
and $0.2 million for the years ended December 31, 1999 and 2000, respectively.
The combined outstanding balances, including accrued interest expense, on both
notes was $2.25 million and $2.41 million at December 31, 1999 and 2000,
respectively.

KATALYST LLC

     During the fourth quarter of 1999, the Company made an investment in
Katalyst LLC of $2.9 million, and made a secured loan to Katalyst LLC of $0.8
million, which has been recorded as a note receivable. During the year ended
December 31, 2000 the former CEO of the Company was a member of the Board of
Directors of Katalyst, LLC. The carrying value of the investment at December
31, 2000 was deemed to be impaired and adjusted to $0.5 million,

                                       56
<PAGE>


which approximates fair value. The secured loan, originally payable on December
15, 2000, was amended to an amount of $0.2 million at December 31, 2000. The
note is payable in equal monthly installments, with the final payment due on
October 15, 2001 (see note 8). During the year ended December 31, 2000, total
revenues derived from engagements with Katalyst LLC and its affiliates were
approximately $0.5 million.

MEDIABRIDGE TECHNOLOGIES, INC.

     The former Chief Executive Officer of the Company was, during the year
ended December 31, 2000, a member of the Board of Directors of MediaBridge
Technologies, Inc. ("MediaBridge"), a customer of the Company. The former
Chairman of the Board of Directors of the Company, during the year ended
December 31, 2000, also served as Chairman of the Board of Directors of
MediaBridge. In May 2000, Breakaway Capital purchased approximately $0.3 million
of MediaBridge common stock, which represents less than 1% of the common stock
outstanding. During the year ending December 31, 2000, total revenues derived
from engagements with MediaBridge were approximately $0.5 million. Accounts
receivable from MediaBridge totaled $0.2 million at December 31, 2000. No
services were provided to MediaBridge in 1999.

INVEST INC.

     In December 2000, the Company entered into an agreement to sell shares of
its common stock and issue warrants to purchase its common stock to Invest, a
Delaware corporation. The agreement was revised to resolve matters which arose
subsequent to entering into the agreement and prior to December 31, 2000. On
February 6, 2001, Invest consummated the revised investment in the Company under
which the total amount of cash invested was reduced by $2.0 million, and Invest,
Inc. received an aggregate of 4,285,714 shares of common stock at a per share
purchase price of $0.70 and warrants to purchase up to 4,285,714 shares of
common stock at a per share exercise price of $0.70. Total consideration
received by the Company was $3.0 million in cash. A former director of the
Company is the sole director and sole stockholder of Invest. This settlement
resulted in a charge of approximately $9.2 million, which has been recorded in
the consolidated statement of operations for the year ended December 31, 2000.

15. DEFERRED COMPENSATION PLAN

     The Company sponsors a qualified 401(k) deferred compensation plan (the
"Plan"), which covers substantially all of its domestic employees. Participants
are permitted, in accordance with the provisions of Section 401(k) of the
Internal Revenue Code, to contribute up to 15% of their earnings into the Plan.
During 1998, the plan did not provide for company matching contributions. During
1999, the plan was amended to allow the Company to make matching contributions
at its discretion. The Company did not contribute to the Plan for the year ended
December 31, 2000. During 1999, the Company made a contribution of $0.1 million
to the Plan.

16. INCOME TAXES

     Income tax benefit attributable to loss before benefit for income taxes
consists of (in thousands):

<TABLE>
<CAPTION>
                                            Current         Deferred          Total
<S>                                         <C>             <C>               <C>
Year ended December 31, 2000
         U.S. Federal                           --           (25,051)        (25,051)
         State and Local                        --            (7,753)         (7,753)
         Foreign                                44            (2,739)         (2,695)
                                            -------         ---------       ---------
                                             $  44          $(35,543)       $(35,499)
                                            =======         =========       =========
Year ended December 31, 1999
         U.S. Federal                           --                --              --
         State and Local                        --                --              --
         Foreign                                --                --              --
                                            -------         ---------       ---------
                                             $  --          $     --        $     --
                                            =======         =========       =========
Year ended December 31, 1998
         U.S. Federal                           --                --              --
         State and Local                        --                --              --
         Foreign                                --                --              --
                                            -------         ---------       ---------
                                             $  --          $     --        $     --
                                            =======         =========       =========
</TABLE>


                                       57

<PAGE>


Income tax benefit differed from the amounts computed by applying the U.S.
federal corporate rate of 34% to the loss before income tax benefit as a result
of the following:

<TABLE>
<CAPTION>
                                                          1998           1999           2000
                                                        --------       --------       --------
<S>                                                      <C>            <C>            <C>
Statutory Federal tax rate (benefit).............        (34.0%)        (34.0%)        (34.0%)
State income taxes, (net of Federal tax benefits)..        (--%)         (7.9%)         (1.2%)
Valuation reserve movement.......................           --%          36.1%           5.3%
S Corporation effect.............................         34.0%            --              --
Amortization.....................................           --            5.0%          20.0%
Other differences................................           --            0.8%           1.6%
                                                            --             --              --
Effective income tax rate........................          0.0%           0.0%          (8.3%)
                                                        ========       ========       ========
</TABLE>

     The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1999 and 2000 are as follows (in thousands):

Deferred tax assets:
<TABLE>
<CAPTION>
                                                                    1999       2000
                                                                   -----       ----
<S>                                                               <C>          <C>
Accounts receivable, principally due to allowance for
  doubtful accounts.........................................      $  199       $3,504
Deferred revenue............................................          97          669
Accrued liability relating to compensation-related
  expenses..................................................         120          385
Other accrued liabilities...................................           4        3,221
Fixed assets, principally attributable to differences in
  depreciation methods......................................           5
Basis difference in stock of joint ventures.................          --          882
Operating loss and credit carryforwards.....................       3,294       21,012
                                                                  ------      -------
Total gross deferred tax assets.............................       3,719       29,673
  Less valuation allowance..................................      (2,560)     (29,370)
                                                                  ------      -------
Net deferred tax assets.....................................       1,159          303
                                                                  ------      -------
Deferred tax liabilities:
Intangible assets / cash to accrual.........................      (1,159)        (221)
Fixed Assets, principally attributable to differences in
   Depreciation methods.....................................          --          (82)
                                                                  ------      -------
  Total gross deferred tax liabilities......................      (1,159)        (303)
                                                                  ------      -------
  Net deferred tax asset....................................      $   --           --
                                                                  ======      =======
</TABLE>

     The valuation allowance for deferred tax assets as of December 31, 2000 and
1999 was $29,370,000 and $2,560,000, respectively. The net change in the total
valuation allowance for the years ended December 31, 2000 and 1999 was an
increase of $26,810,000 and $2,560,000 respectively. The Company has recorded a
full valuation allowance against its deferred tax assets since management
believes that, after considering all the available objective evidence, both
positive and negative, historical and prospective, with greater weight given to
historical evidence, it is not more likely than not that the net assets will be
realized.

     At December 31, 2000, the Company has net operating loss carryforwards for
federal income tax purposes of approximately $52,177,000 which are available to
offset future taxable income, if any, through 2020. The utilization of these net
operating losses may be limited pursuant to Internal Revenue Code Section 382 as
a result of prior and future ownership changes.

     Subsequently recognized tax benefits relating to the valuation allowance
for deferred tax assets as of December 31, 2000, will be allocated as follows
(in thousands):




<TABLE>
<S>                                                        <C>
Income tax benefit that would be reported in
  the consolidated statement of operations                 $26,376
Additional paid-in capital                                 $ 2,994
                                                          ---------
                                                           $29,370
                                                          =========
</TABLE>


                                       58
<PAGE>

     As discussed in note 2, effective January 1, 1999, the Company terminated
its S Corporation election and is subject to corporate-level federal and
certain, state income taxes. Upon termination of the S Corporation status,
deferred income taxes are recorded for the tax effect of cumulative temporary
differences between the financial reporting and tax bases of certain assets and
liabilities, primarily deferred revenue that must be recognized currently for
tax purposes, accrued expenses that are not currently deductible, cumulative
differences between tax depreciation and financial reporting allowances, and the
impact of the conversion from the cash method to the accrual method of reporting
for tax purposes.

     Income tax expense (benefit), assuming the Company had been a C Corporation
and applying the tax laws in effect during the periods presented, for the year
ended December 31, 1998 would have been as follows (in thousands):

<TABLE>
<CAPTION>
                                                                             1998
                                                                            ------
                                                                          (UNAUDITED)
<S>                                                                         <C>
Federal tax........................................................         $(195)
State taxes, net of federal.................................                   --
                                                                            ------
                                                                            $(195)
                                                                            ======
</TABLE>

17. SELECTED QUARTERLY INFORMATION (UNAUDITED)


<TABLE>
<CAPTION>
                                                                          2000
                                                  -----------------------------------------------------
                                                  1ST QUARTER   2ND QUARTER   3RD QUARTER   4TH QUARTER
                                                  -----------   -----------   -----------   -----------
                                                          (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                 <C>           <C>           <C>           <C>
Revenue.........................................    $18,147       $35,179       $34,601       $14,552
Loss from operations............................     (3,594)      (20,226)      (23,941)     (364,166)
Net loss........................................     (3,223)      (16,902)      (19,955)     (349,771)
Loss per share--basic and diluted................   $ (0.09)      $ (0.39)      $ (0.48)        (8.88)
</TABLE>

<TABLE>
<CAPTION>
                                                                          1999
                                                  -----------------------------------------------------
                                                  1ST QUARTER   2ND QUARTER   3RD QUARTER   4TH QUARTER
                                                  -----------   -----------   -----------   -----------
                                                          (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                 <C>           <C>           <C>           <C>
Revenue.........................................    $ 3,111       $ 4,452       $ 7,181       $10,646
Loss from operations............................       (274)       (2,270)       (4,501)       (3,820)
Net loss........................................       (236)       (2,283)       (4,466)       (3,382)
Loss per share--basic and diluted...............    $ (0.02)      $ (0.21)      $ (0.33)      $ (0.03)
</TABLE>


18. SUBSEQUENT EVENTS

AGREEMENTS WITH RELATED PARTIES

     In January 2001, Breakaway issued to ICG Holdings warrants to purchase up
to 9,737,447 shares of Common Stock at a per share exercise price of $0.6875,
subject to adjustment, in connection with entering into definitive agreements
with ICG Holdings with respect to a $5.0 million secured financing of Breakaway,
which bore interest at a rate of 12% per annum.


                                       59
<PAGE>


     In February 2001, to further improve its cash position, the Company
entered into bridge loan facilities with ICG Holdings, and SCP Private Equity
Partners II, L.P. ("SCP"), both of which are currently affiliates of the
Company, for an aggregate of up to $20 million (see note 18). As of April 6,
2001, the Company had borrowed an aggregate of $16,858,333 under these
facilities at a per annum interest rate of 12%. All principal and interest
under these facilities was due on April 9, 2001. On April 6, 2001, the
Company closed a sale of an aggregate of 357,144 shares of Series A Preferred
Stock at a per share price of $70.00 and warrants to purchase up to
42,857,149 shares of common stock at a per share exercise price of $0.70
pursuant to the terms of a stock purchase agreement the Company entered into
on February 16, 2001 with ICG Holdings and SCP. As consideration for the
issuance of these securities, ICG Holdings and SCP paid to the Company an
aggregate of $8,141,667 in cash and cancelled an aggregate of $16,858,333 in
outstanding principal and interest balances (representing the total of such
balances) under the bridge loan facilities. We may not reborrow additional
amounts under the bridge loan facilities. In conjunction with the equity
transaction closed with SCP on April 6, 2001, the Company may, upon meeting
certain conditions (there must be sufficient unissued Series A Preferred
Stock and the Company's request must be between July 31, 2001 and February 1,
2002), cause SCP to purchase an additional 71,429 shares of Series A
Preferred Stock and warrants. Should the Company decide to draw on these
funds, SCP will receive additional warrants.

     On February 6, 2001, in connection with a restructuring of Breakaway's
December 12, 2000 transaction with Invest and the related surrender by Invest of
its warrants to purchase up to 921,053 shares of Common Stock, Breakaway issued
to Invest an additional 1,654,135 shares of Common Stock and warrants to
purchase up to 4,285,714 shares of Common Stock at a per share exercise price of
$0.70, subject to adjustment. In addition, Breakaway entered into a Registration
Rights Agreement with Invest with respect to the above mentioned securities.

     In June 2001, the Company sold its equity interest in Breakaway Solutions
Asia Pacific Limited (the "Joint Venture") to the other shareholder, ICG Asia
Limited (formerly, ICG AsiaWorks Limited) for $500,000. The transaction is
expected to close in July 2001 upon obtaining regulatory approval and
satisfaction of certain other closing conditions. As part of the parties'
ongoing relationship, the Company may be obligated until April 2002 to provide
services for certain projects relating to the joint venture at a 15% discount
from standard fees. In addition, the Company may be required to refund certain
fees paid it as a retainer upon the occurrence of certain events.

     In June 2001, the Company entered into financing arrangements with
Silicon Valley Bank providing for $7 million in equipment lease financing.
The loan bears interest at 9% per annum and is due and payable on June 1,
2004. The Company may make certain draws to finance equipment until December
31, 2001. The loan is secured by a lien on the Company's equipment, accounts
receivable (which will be subordinated to an accounts receivable loan) and
intellectual property rights. SCP, in exchange for warrants to purchase the
Company's Series A Preferred Stock, has guaranteed the equipment financing.

     At the closing of the Preferred Stock Purchase Agreement discussed below,
the outstanding principal balance under both the ICG Holdings Loan and the SCP
Loan, plus accrued interest, was used to fund the purchase price for the shares
of Series A preferred stock.

OPERATING LEASES

     Between July and October 2000, the Company entered into lease agreements
with Deutsche Financial Services, accounted for as a capital lease, to finance
$0.7 million of capital equipment. The terms call for 33 equal monthly payments,
totaling of $22,873, with the final payments due between April 2003 and July
2003. As of December 31, 2000, $0.6 million was outstanding under the lease.
Subsequent to year-end, the Company terminated the lease agreements and settled
the obligation with Deutsche Financial Services for $225,000 and return of the
equipment.

     Subsequent to year end, at certain of the Company's locations, the
landlords were notified of our desire to terminate the leases early, and these
notifications are considered to be technical defaults. The Company is
negotiating settlements and/or subleasing the properties.

PREFERRED STOCK PURCHASE AGREEMENT

     In addition to entering into the loan agreements described above, on
February 16, 2001, the Company also entered into a Series A Preferred Stock
Purchase Agreement with ICG Holdings and SCP (the "Purchase


                                       60
<PAGE>


Agreement"). Under the terms of the Purchase Agreement, the Company agreed to
issue to SCP and to ICG Holdings (i) an aggregate of up to 428,572 shares of the
Company's Series A Preferred Stock, $0.0001 par value per share (the "Series A
Preferred"), at a per share purchase price of $70.00 and (ii) warrants to
purchase an aggregate of up to 42,857,200 shares Common Stock at a per share
exercise price of $0.70 (the "Purchase Agreement Warrants"). With the consent of
the shareholders, the transaction with SCP effectively closed on April 6, 2001.

     The preferred shares are convertible into common shares at an exchange
ratio of 100 shares of common for each preferred share. Additionally, the
preferred shares are redeemable at the option of the holders on, or after,
January 20, 2006, and carry a dividend rate of 8% per annum. Such dividends will
be payable, when and if declared, at the option of the Company either in cash or
in additional shares of Series A Preferred Stock valued based upon the original
$70.00 per share issue price therefore. Dividends will be cumulative and accrue
quarterly. In the event of a Qualified Public Offering or a Qualified Public
Sale within three years after the closing of the Purchase Agreement, all issued
and outstanding shares of Series A Preferred Stock issued as dividends will be
canceled. For financial reporting purposes, beginning in the second quarter of
2001, the fair value of the warrants will be recorded as a discount to the
preferred shares and amortized as a dividend up to the preferred redemption
amount on January 20, 2006.

ZARTIS

     In April 2001, the parties to the July 2000 stock purchase agreement
renegotiated the terms of the deferred cash payment for the acquisition of
Zartis. The Company's obligation to pay $1 million payment to the former Zartis
shareholders on the first anniversary of the closing was reduced to $500,000 in
total, payable in equal installments of $250,000 each on May 9, 2001 and June
14, 2001. Under the terms of the letter agreement amending the stock purchase
agreement, if the Company fails to make any payment within 60 days of the due
date, the original $1 million obligation is reinstated. The Company did not pay
the June 14th installment in a timely manner, but expects that it will make the
payment within the 60 day cure period.

WARRANTS

     On April 20, 2001 the Company's Board of Directors authorized the grant of
a five-year warrant to Phoenix Management, an advisor to the Company, to
purchase 1-1/4% of the Company's issued and outstanding shares at a per share
price of $0.70. The warrant will have a five year term and vest in eighteen
equal monthly installments as long as Phoenix Management continues to provide
services for the Company. The parties have not yet executed a Warrant instrument
to reflect the issuance.

                                     ITEM 9
         CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
                              FINANCIAL DISCLOSURE

     The information required by Item 304 of Regulation S-K was previously
reported in our Registration Statement on Form S-1 (Commission File No.
333-83343).


                                       61
<PAGE>


PART III

                                     ITEM 10
               DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     Our executive officers and directors and their respective ages as of May
31, 2001 are as follows:

<TABLE>
<CAPTION>
Name                            Age           Current Office(s)
<S>                             <C>          <C>
William Loftus (1)              38            President, Chief Executive Officer,
                                                 Treasurer, and Director
Kevin Comerford (2)             37            Senior Vice President, Administration,
                                                 and Chief Financial Officer
Maureen Ellenberger (3)         46            Senior Vice President, Chief Operations
                                                 Officer  and Chief People and
                                                 Innovation Officer
John Loftus, Jr. (1)            39            Senior Vice President, Professional
                                                 Services
Wayne Weisman                   45            Chairman of the Board
E. Talbot Briddell              58            Director
Jerry Marcus                    51            Director
Henry Nassau                    46            Director
Richard Wallman                 50            Director
</TABLE>
-------------------------------------------------------------------------------
(1) William Loftus and John Loftus, Jr. are brothers.

(2) Mr. Comerford has indicated to Breakaway that he intends to resign from all
    offices held with Breakaway effective subsequent to the filing of this
    Annual Report on Form 10K.

(3) Ms. Ellenberger has resigned from all offices held with Breakaway effective
    June 1, 2001.

     Each officer serves at the discretion of our Board of Directors and holds
office until his successor is elected and qualified or until his earlier
resignation or removal. The Board of Directors is divided into three classes.
Messrs. Briddell and Wallman serve in the class whose term expires at the 2001
Annual Meeting, Messrs. Loftus and Marcus serve in the class whose term expires
at the 2002 Annual Meeting and Messrs. Nassau and Weisman serve in the class
whose term expires at the 2003 Annual Meeting.

     On April 6, 2001, the Company entered into an Investor Rights Agreement
with SCP and ICG Holdings (the "Rights Agreement"), under which the Company
agreed that for so long as SCP held at least 50% of the shares of Series A
Preferred originally issued to SCP on April 6, 2001, the Company would use its
best efforts to (i) maintain a board of directors consisting of seven members,
two of which would be selected by SCP and one of which would be selected by both
SCP and ICG and (ii) reserve one seat on each committee of the board of
directors for one of the directors selected by SCP, to the extent consistent
with applicable director independence requirements. Wayne Weisman, E. Talbott
Bridell, and Henry Nassau were elected to the Board of Directors consistent with
the terms of the Rights Agreement.

     In addition, SCP and ICG Holdings have agreed that for so long as ICG
Holdings holds at least 10% of the Company on a primary basis, SCP will support
a director designated by ICG Holdings to fill an additional seat on the Board of
Directors. Henry Nassau presently occupies that seat. Finally, Jerry Marcus was
elected to the Board of Directors consistent with another agreement between SCP
and ICG Holdings to fill a vacancy on the Board of Directors.

     WILLIAM LOFTUS has served as our President and Chief Executive Officer and
as one of our directors since April 2001. From August 2000 until April 2001 he
served as our Senior Vice President and Chief Delivery Officer. From March 2000
through July 2000, he served as our Senior Vice President, Operations. From May
1999 through February 2000, he served as our Vice President, e-Solutions and in
various other offices with Breakaway. From 1990 through April 1999, William
Loftus served as President and Chief Executive Officer of WPL, which we acquired
in May 1999.

     KEVIN COMERFORD has served as our Vice President, Administration, Chief
Financial Officer, Treasurer and Secretary since June 1998. From April 1998
through May 1998, Mr. Comerford was engaged as an independent management
consultant. In March 1993, Mr. Comerford co-founded Boston Sales Automation,
Inc., an enterprise resource planning systems integrator, where he served in
various capacities through March 1998. Mr. Comerford is a Certified Public
Accountant.

     JOHN LOFTUS, Jr. has served as our Senior Vice President, e-Solutions since
our acquisition of WPL in May 1999. From February 1997 until May 1997, Mr.
Loftus served as Vice President, e-Solutions and Chief Technology Officer of
WPL. Prior to joining WPL, Mr. Loftus was the Director of Enterprise Systems at
PECO


                                       62
<PAGE>


Energy, a public utility, from September 1992 through February 1997. From
February 1983 through September 1992, Mr. Loftus held various executive and
management positions at General Electric, a large, diversified industrial
corporation.

     MAUREEN ELLENBERGER has served as our Senior Vice President, Chief
Operating Officer, and Chief People and Innovation Officer since August 2000.
Ms. Ellenberger became our Vice President, Chief People and Innovation Officer
upon our acquisition of Eggrock in April 2000. From August 1997 to April 2000,
Ms. Ellenberger served as President and Chief Executive Officer of Eggrock. From
1993 to July 1997, Ms. Ellenberger served in various capacities at Cambridge
Technology Partners, an international management consulting and systems
integration company, most recently as Southeast Regional Business Manager and
Group Manager of the Innovations Group.

     E. TALBOT BRIDDELL has served as a director of the Company since April
2001. Mr. Briddell founded Phoenix Management Services (Phoenix), an operational
turnaround management and strategic consulting company, in 1985 and has served
as its President since then. In 1989, he launched Phoenix Capital Resources, the
investment banking arm of Phoenix, to focus on investment banking services and
has served as its President since that time. In 1998, he established Phoenix
Governmental Services, a consulting company, to provide management assistance
for municipal and governmental entities and has served as its President since
that time.

     JERRY MARCUS has served as a director of the Company since April 2001. From
January 1998 until May 2001, Mr. Marcus has served as Vice President of Business
Development for Metromedia Fiber Network, Inc., a company which provides
end-to-end fiber optical networks and Internet infrastructure solutions. Prior
to Metromedia Fiber Network, Inc., from January 1995 until January 1998 he was
Vice President at ICon CMT Corporation, which was acquired by Qwest
Communications, a Broadband Internet-based communications company.

     HENRY NASSAU became a director of the Company in April 2001. Mr. Nassau is
Managing Director, General Counsel, and Secretary of Internet Capital Group,
Inc., a business-to-business e-commerce company, arriving there in May 1999. For
the twelve years before joining ICG, Mr. Nassau was a partner and chairman of
the business and finance department at Dechert Price & Rhoads, a law firm. Mr.
Nassau is also a director of Erie Indemnity Company and ICG Asia Limited, which
trades on the Hong Kong Exchange.

     RICHARD WALLMAN has served as a director of the Company since November
2000. Mr. Wallman joined AlliedSignal, the predecessor of Honeywell
International, a diversified technology and manufacturing company, as Senior
Vice President and Chief Financial Officer in March 1995, from International
Business Machines Corporation, where he was Vice President and Controller from
1994 to 1995 and General Assistant Controller from 1993 to 1994. Mr. Wallman is
a Director of two privately held companies, Core Express and Huber.

     WAYNE WEISMAN has served as a director and Chairman of the Board of the
Company since April 2001. Mr. Weisman is a member of SCP Private Equity
Management Company, LLC, which manages SCP and a separate fund named SCP Private
Equity Partners, L.P. Mr. Weisman has also been Vice President of Churchill
Investment Partners Capital, L.P., an SBIC, since its formation in 1990. He is a
director of several companies, including CommerceQuest, Inc., CinemaStar Luxury
Theaters, Inc., and Anystream, Inc., where he serves as Chairman of the Board.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

     Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors, executive officers and
holders of more than 10% of the Common Stock ("Reporting Persons"), to file with
the SEC initial reports of ownership and reports of changes in ownership of
Common Stock and other equity securities of the Company. Based solely on its
review of copies of Section 16(a) reports filed by the Reporting Persons and
furnished to the Company or written representations from certain reporting
persons that no Form 5 filing was required for such person, the Company believes
that during 2000 and part of 2001 all filings required to be made by the
Reporting Persons were timely made in accordance with the requirements of the
Exchange Act other than the following:


                                       63
<PAGE>


     On July 7, 2000, ICG filed a Form 4 amendment to its Form 4 filed on May 8,
2000 reporting that it had acquired 1,600,000 shares of the Company's Common
Stock on April 5, 2000. On February 14, 2001, Walter Buckley, III, then a
director of the Company, filed a Form 5 reporting that ICG, of which Mr. Buckley
is President, Chief Executive Officer and a director, had acquired 1,600,000
shares of the Company's Common Stock on April 5, 2000.

     On June 20, 2000 Kevin Comerford filed a Form 4 reporting that he had
exercised an option and therefore acquired 54,000 shares of the Company's Common
Stock on April 24, 2000. On July 27, 2000, Kevin Comerford filed a Form 4
reporting that he had sold 20,500 shares of the Company's Common Stock between
June 6, 2000 and June 15, 2000. On December 14, 2000 Kevin Comerford filed a
Form 4 reporting that he had sold 70,000 shares of the Company's Common Stock
between November 9, 2000, and November 14, 2000.

     On July 19, 2000 Maureen Ellenberger filed an amendment to her Form 4,
originally filed on April 25, 2000, reporting that 115,061 shares of the
Company's Common Stock were being held for her in escrow for one year. On August
1, 2000, Maureen Ellenberger filed a Form 4 reporting that she had gifted 30,000
shares of the Company's Common Stock on April 20, 2000 and that she had
transferred 30,000 shares of the Company's Common Stock to a revocable trust. On
August 1, 2000, Maureen Ellenberger filed a Form 4 reporting that between June
8, 2000 and June 15, 2000 she had sold 25,000 shares of the Company's Common
Stock.

     On July 7, 2000, Babak Farzami, then an executive officer of the Company,
filed a Form 4 reporting that he had exercised an option and therefore acquired
600 shares of the Company's Common Stock on December 27, 1999. On July 7, 2000,
Babak Farzami filed a Form 4 reporting that he had exercised an option and
therefore acquired 157,293 shares of the Company's Common Stock on April 24,
2000. On July 19, 2000, Babak Farzami filed a Form 4 reporting that he had sold
35,000 shares of the Company's Common Stock between June 6, 2000 and June 14,
2000.

     On June 9, 2000 Christopher Harding, then an executive officer of the
Company, filed a Form 4 reporting that he had exercised an option and therefore
acquired 212,920 shares of the Company's Common Stock on April 14, 2000 and that
he had sold 55,000 shares of the Company's Common Stock between May 16, 2000 and
May 31, 2000.

     On August 25, 2000, Dev Ittycheria, then an executive officer of the
Company, filed a Form 4 reporting that he had exercised an option and therefore
acquired 1,100 shares of the Company's Common Stock on December 20, 1999. On
August 25, 2000 Dev Ittycheria filed a Form 4 reporting that he had exercised an
option and therefore acquired 167,003 shares of the Company's Common Stock on
April 24, 2000. On August 25, 2000, Dev Ittycheria filed a Form 4 reporting that
he had sold 35,500 shares of the Company's Common Stock between June 6, 2000 and
June 15, 2000.

     On April 18, 2000, John Loftus, Jr. filed a Form 3 reporting his stock
ownership as of March 6, 2000, the date he became an executive officer of the
Company. On September 11, 2000, John Loftus, Jr. filed a Form 4 reporting that
he had sold 3,000 shares of the Company's Common Stock on August 1, 2000 and
that he had gifted 2,000 shares of the Company's Common Stock on August 28,
2000.

     On August 15, 2000, William Loftus filed a Form 4 reporting that he had
sold 50,000 shares of the Company's Common Stock between June 2, 2000 and June
15, 2000.

     On April 18, 2000, Paul Stedman, then an executive officer of the Company,
filed a Form 3 reporting his stock ownership as of March 6, 2000, the date he
became an executive officer of the Company. On June 26, 2000, Paul Stedman
filed a Form 4 reporting that he had exercised an option and therefore acquired
20,000 shares of the Company's Common Stock on May 9, 2000. On August 15, 2000,
Paul Stedman filed a Form 4 reporting that he had exercised an option and
therefore acquired 1,666 shares of the Company's Common Stock on June 21, 2000.
On August 15, 2000, Paul Stedman filed a Form 4 reporting that he had exercised
an option and therefore had acquired 1,667 shares of the Company's Common Stock
on July 10, 2000.

     On August 18, 2000, Janet Tremlett, then an executive officer of the
Company, filed a Form 4 reporting that she had exercised an option and therefore
acquired 18,000 shares of the Company's Common Stock on June 9, 2000 and that
she had sold 18,000 shares of the Company's Common Stock between June 9, 2000
and June 15, 2000.


                                       64

<PAGE>




                                     ITEM 11
                             EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

     The following table sets forth certain information with respect to the
compensation of certain of our executive officers (the "Named Executive
Officers") for the years ended December 31, 1998 and December 31, 1999 and
December 31, 2000, if applicable:

<TABLE>
<CAPTION>
                                                                                      Long-Term
                                                        Annual Compensation (1)      Compensation
                                                   -----------------------------   ------------------
                                                                                      Awards (2)
                                                                                   ------------------
                                                   Gross Regular                      Securities           All Other
      Executive Officer                 Year          Salary         Gross Bonus   Underlying Options    Compensation
      -----------------                 ----       -------------     -----------   ------------------    ------------
<S>                                     <C>        <C>               <C>           <C>                   <C>
Gordon Brooks, President & Chief        2000       $295,833.34       $55,500.00             --                 --
Executive Officer (3)                   1999       $250,125.08       $79,500.00        350,000                 --
                                        1998        $21,794.97          $125.00      4,893,596                 --

William Loftus, Senior Vice             2000       $241,666.71       $45,600.00             --
President, Operations (4)               1999       $133,333.00       $44,000.00             --            $346,678.00(5)

John Loftus, Vice President,            2000       $222,083.27       $38,325.00         87,500                  --
e-Solutions (6)                         1999       $106,971.15       $16,500.00             --                  --

Maureen Ellenberger, Senior Vice        2000       $172,695.94       $54,000.00             --                  --
President, Chief Operating Officer &
Chief People & Innovation Officer (7)

Kevin Comerford, Vice President,        2000       $223,452.61       $41,640.00         20,000                  --
Administration & Chief Financial        1999       $157,500.00       $57,365.00         80,000                  --
Officer (8)                             1998        $69,048.00          $125.00        216,000                  --


</TABLE>

                                       65
<PAGE>




(1)  In accordance with the rules of the SEC, the compensation set forth in the
     table above does not include (i) medical, group life or other benefits
     which are available to all of the Company's salaried employees, and (ii)
     perquisites and other personal benefits, securities or property which do
     not exceed the lesser of $50,000 or 10% of the total annual salary and
     bonuses for each of the Named Executives Officers.

(2)  As of December 31, 2000 William Loftus held 431,100 shares of restricted
     stock at a value of $377,213, John Loftus held 126,796 shares of restricted
     stock at a value of $110,947 and Maureen Ellenberger held 575,831shares of
     restricted stock at a value of $503,852. Neither Gordon Brooks nor Kevin
     Comerford held shares of restricted stock as of December 31, 2000. The
     preceding values of such holdings are calculated based upon the fair market
     value of the Common Stock on December 31, 2000 ($0.875). The 431,100 shares
     of restricted stock held by William Loftus identified above represent that
     portion of an award of 713,549 shares of restricted stock acquired by
     William Loftus on May 14, 1999 which remained subject to the Company's
     repurchase right as of December 31, 2000. Those 713,549 shares vest
     pursuant to the following schedule: 25% vested on May 14, 2000, with the
     remaining 75% vesting ratably in equal monthly installments over the
     succeeding 36 months. The 126,796 shares of restricted stock held by John
     Loftus identified above represent that portion of an award of 209,867
     shares of restricted stock acquired by John Loftus on May 14, 1999 which
     remained subject to the Company's repurchase right as of December 31, 2000.
     Those 209,867 shares vest pursuant to the following schedule: 25% vested on
     May 14, 2000, with the remaining 75% vesting ratably in equal monthly
     installments over the succeeding 36 months. The 575,831 shares of
     restricted stock held by Maureen Ellenberger identified above represent all
     shares of restricted stock acquired by Maureen Ellenberger on March 31,
     2000 which remained subject to the Company's repurchase right as of
     December 31, 2000. Those 575,831 shares vest pursuant to the following
     schedule: 25% vested on March 31, 2001, with the remaining 75% vesting
     ratably in equal monthly installments over the succeeding 36 months.

(3)  Mr. Brooks joined the Company as an executive officer in October 1998 and
     ceased serving in this capacity in late March 2001.

(4)  William Loftus joined the Company as an executive officer in May 1999.  In
     April 2001, the Board of Directors elected Mr. Loftus President, Chief
     Executive Officer and Treasurer.

(5)  This amount represents an amount loaned to William Loftus by the Company
     for the payment of taxes. William Loftus had a large tax obligation in 1999
     due to his election to include in income in 1999 the fair market value of
     shares of stock that he received in connection with the sale of WPL
     Laboratories, Inc. to the Company in May 1999. The loan bears interest at
     the rate of 8.75% per annum and is secured by William Loftus's stock in the
     Company. William Loftus has no personal liability for the loan beyond the
     stock he has pledged. All principal and accrued interest on the loan is due
     on the first to occur of (i) the sale by William Loftus of any of the
     pledged shares and (ii) the fourth anniversary of the note. See "Certain
     Relationships and Related Transactions-Acquisitions-WPL Laboratories, Inc."

(6)  John Loftus joined the Company as an executive officer in May 1999 until
     August 2000.  Mr. Loftus was re-elected as an executive officer (Senior
     Vice President, Professional Services) in April 2001.

(7)  Ms. Ellenberger joined the Company as an executive officer in April 2000
     and ceased serving as an officer or employee effective June 1, 2001.

(8)  Mr. Comerford joined the Company as an executive officer in June 1998.
     Mr. Comerford was removed from the offices of Secretary and Treasurer in
     April 2001.


                                       66
<PAGE>


OPTION GRANTS IN LAST FISCAL YEAR

     The following table sets forth certain information concerning grants of
stock options during the year ended December 31, 2000 to each of the Named
Executive Officers. The Company granted no stock appreciation rights during the
year ended December 31, 2000.

<TABLE>
<CAPTION>

                                                      Individual Grants
                      ---------------------------------------------------------------------------- Potential Realizable Value
                       Number of               Percent of                                           at Assumed Annual Rates of
                      Securities              Total Options                                        Stock Price Appreciation for
                      Underlying                Granted to                                               OPTION TERM (1)
                       Options                 Employees in    Exercise or Base                          ---------------
Executive Officer      Granted    Grant Date    Fiscal Year   Price Per Share (2)  Expiration Date        5%           10%
-----------------     ----------  ----------  -------------   -------------------  --------------- -------------  -------------
<S>                   <C>         <C>           <C>           <C>                  <C>               <C>          <C>
Gordon Brooks                -          -             -                  -                 -               -             -

William Loftus               -          -             -                  -                 -               -             -

John Loftus           70,000 (3)    4/14/00        0.97%            $17.50             4/14/10        $770,700    $1,915,900
                      17,500 (4)   10/12/00        0.24%             $2.81            10/12/10        $ 30,975    $   78,400

Maureen Ellenberger          -          -             -                  -                 -               -             -

Kevin Comerford       20,000 (5)   10/12/00        0.28%             $2.81            10/12/10        $ 35,400    $   89,583
</TABLE>


(1)  As required by the rules of the SEC, amounts represent hypothetical gains
     that could be achieved for the respective options if exercised at the end
     of the option term. These gains are based on the prescribed assumed rates
     of stock appreciation of 5% and 10% compounded annually from the date the
     respective options were granted to their expiration date. Actual gains, if
     any, on stock option exercises will depend on the future performance of the
     Common Stock and the date on which the options are exercised. No gain to
     the optionees is possible without an appreciation in stock price, which
     will benefit all stockholders commensurately.

(2)  Equal to the per share fair market value of the underlying shares of Common
     Stock on the date of grant.

(3)  25% of these options will vest on the anniversary of the date of grant with
     the remaining shares vesting yearly in equal increments over a three year
     period.

(4)  25% of these options will vest on the anniversary of the date of grant with
     the remaining shares vesting monthly in equal increments over a three year
     period.

(5)  This option vests 25% on the anniversary of the date of grant and vests
     monthly thereafter over a three year period.


                                       67
<PAGE>


AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION VALUES

     The following table sets forth certain information concerning options
exercised during 2000 and the number and value of unexercised stock options held
by each of the Named Executive Officers as of December 31, 2000.

<TABLE>
<CAPTION>
                                                       Number of Securities Underlying    Value of Unexercised
   Executive          Shares Acquired     Value            Unexercised Options at         In-The-Money Options
    Officer             on Exercise     Realized (2)          Fiscal Year End             at Fiscal Year End (1)
   ---------          ---------------   ------------   -------------------------------  -------------------------
                                                          Exercisable/Unexercisable     Exercisable/Unexercisable
                                                       -------------------------------  -------------------------
<S>                   <C>               <C>            <C>                              <C>
Gordon Brooks             15,000        $  576,407             4,853,158/262,500                    $0/$0
William Loftus                -                 -                      -/-                           -/-
John Loftus                   -                 -                  8,543/112,769                    $0/$0
Maureen Ellenberger           -                 -                      -/-                           -/-
Kevin Comerford           90,000        $1,566,154.80             43,000/183,000                    $0/$0
</TABLE>

(1) Based on the aggregate fair market value of the underlying shares of Common
    Stock on December 31, 2000 ($0.875), less the aggregate option exercise
    price.

(2) Represents the difference between the aggregate fair market value of the
    underlying shares of Common Stock on the date of exercise and the aggregate
    exercise price.


                                       68
<PAGE>


DIRECTOR COMPENSATION

     We reimburse our directors for reasonable out-of-pocket expenses incurred
in attending meetings of the board of directors and any meetings of its
committees. We may, in our discretion, grant stock options and other equity
awards to our non-employee directors from time to time under our stock incentive
plans. We have not granted any options under our 1999 Stock Option Plan in this
reporting period to any of our directors.

EMPLOYMENT AND OTHER AGREEMENTS

     In March 2001, the Company entered into an Employment Agreement with
William Loftus, under which the Company agreed to employ William Loftus as the
Company's President and Chief Executive Officer. The agreement is for a
three-year term and is automatically extended on a year-by-year basis
thereafter, unless either party provides not less than three months notice of
termination prior to any such renewal. The agreement provides that William
Loftus will receive an annual base salary of $285,000, a maximum annual bonus of
up to 60% of the annual base salary and the grant of options to purchase
3,500,000 shares of the Company's common stock at a per share exercise price
equal to $0.70, which options vest (i) one-ninth on March 31, 2001, (ii)
one-ninth on September 27, 2001, (iii) one-ninth on March 31, 2002 and (iv) the
balance in equal monthly installments over a period of three years beginning on
March 31, 2002. If William Loftus is terminated by the Company other than for
cause, these options will continue to be exercisable, but shall not continue to
vest, as if his employment had not been terminated. While employed by the
Company under the agreement and for a period of nine months thereafter, William
Loftus has agreed not to compete against the Company; provided, that, if the
Company terminates William Loftus' employment without cause, the applicable
succeeding noncompetition period will be six months. If the Company terminates
William Loftus' employment without cause or if William Loftus terminates his
employment for good reason, William Loftus will continue to receive his base
salary and benefits for the following nine months. Upon a change in control of
the Company under which the Company's common stockholders receive cash or
property having a value equal to at least $2.10 per share (as adjusted for stock
dividends, stock splits and similar events), all unvested options to purchase
the Company's common stock will immediately vest in full.

     In March 2001, the Company entered into an Employment Separation Agreement
with Gordon Brooks, the Company's former President and Chief Executive Officer.
Under the agreement, Mr. Brooks will continue to be employed by the Company on a
limited basis through April 6, 2001 and will continue to receive his base salary
of $25,000 per month through that date. Mr. Brooks will also continue to receive
his existing benefits through that date, at a cost to the Company not to exceed
an aggregate of $10,000. Under the agreement Mr. Brooks agreed to waive the
severance to which he would otherwise be entitled under the terms of his
existing employment agreement. The Company agreed to retire an outstanding
unsecured loan in the original principal amount of $1,000,000, plus accrued
interest, made by the Company to Mr. Brooks. The loan had been authorized by the
Company's Board of Directors in December 1999 and had an interest rate of 6.21%
per annum. Mr. Brooks also agreed to forfeit all of his outstanding options to
purchase common stock of the Company, except for the options to purchase 300,000
shares which were already fully vested. If the Company terminates Mr. Brooks'
employment prior to April 6, 2002, those 300,000 options will nonetheless be
exercisable until April 6, 2002.

     In May 1998, the Company entered into an employment agreement with Kevin
Comerford, the Company's Vice President, Administration, Chief Financial
Officer, Treasurer and Secretary. Mr. Comerford receives a monthly salary of
$15,000 and is eligible to receive a bonus of up to 30% of his annual base
salary.

     In April 2001, The Company entered into a Transitional Services Agreement
with Maureen Ellenberger, the Company's Senior Vice President, Chief Operations
Officer and Chief People and Innovation Officer. Under the agreement, the
parties agreed that Ms. Ellenberger's responsibilities as an officer and
employee of the Company will be limited to certain transitional services
generally relating to consolidating the Company's business and operations.
Provided that Ms. Ellenberger remains employed by the Company through June 1,
2001 and certain targets with respect to Ms. Ellenberger's transitional services
during the interim period are satisfied, any termination of her employment
either by Ms. Ellenberger or the Company thereafter will be deemed to be a
termination by the Company for cause for purposes of Ms. Ellenberger's existing
employment and restricted stock arrangements with the Company. Under the terms
of Ms. Ellenberger's existing employment agreement with the Company, she
receives a base salary of $15,000 per month and she is eligible to receive an
annual bonus of up to 25% of her annual salary. Also under the terms of that
agreement, if Ms Ellenberger's employment is terminated by the Company without
cause, by Ms. Ellenberger for good reason, or by Ms. Ellenberger upon a change
in control of the Company or a sale of substantially all of the Company's
assets, Ms. Ellenberger will continue to be paid her salary for six months and
she will be paid any bonus for which she is eligible at such time. Upon a change
of control of the Company or if Ms. Ellenberger's employment is terminated by
the Company without cause, all unvested shares of restricted stock held by Ms.
Ellenberger will immediately vest in full.

     In May 1999, the Company entered into an employment agreement with John
Loftus, Jr., the Company's, Vice President, e-Solutions. John Loftus receives a
base salary of $16,667 per month and is eligible to receive a bonus of up to 25%
of his annual base salary.



                                       69
<PAGE>
                                    ITEM 12
        SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The following table sets forth certain information, as of May 31, 2001,
with respect to the beneficial ownership of shares of Common Stock by (i) each
person known to the Company to beneficially own more than 5% of the outstanding
shares of Common Stock, (ii) each of the directors of the Company, (iii) each of
The Named Executive Officers and (iv) all executive officers and directors of
the Company, as a group.

<TABLE>
<CAPTION>
                                                                  Amount And Nature Of
                                                                Beneficial Ownership (1)
                                           ------------------------------------------------------------
                                                          Number of
                                           Number Of      Shares of
                                           Shares of      Series A                   Percent of Series
                                            Common       Preferred     Percent of       A Preferred
Name Of Beneficial Owner(2)                 Stock        Stock (3)    Common Stock          Stock
------------------------------             ---------      ---------   ------------   -----------------
<S>                                       <C>            <C>          <C>            <C>
5% STOCKHOLDERS:
Gordon Brooks (4)                           5,206,445          -           9.3%              -
ICG Holdings, Inc. (5)                     47,093,429      142,858        56.6%             40%
Internet Capital Group, Inc. (6)           47,093,429      142,858        56.6%             40%
Invest Inc. (7)                             8,571,428          -          15.5%              -
Henry Nassau (8)                           47,093,429      142,858        56.6%             40%
SCP Private Equity Partners II, L.P.       56,491,660      214,286        52.5%             60%
(9)
Frank Selldorff (10)                        4,139,400          -           8.0%              -
Wayne Weisman (11)                         56,491,660      214,286        52.5%             60%
OTHER DIRECTORS AND EXECUTIVE OFFICERS:
E. Talbot Briddell                                -            -             -               -
Kevin Comerford (12)                           89,001          -             *               -
Maureen Ellenberger (13)                    1,011,039          -           2.0%              -
John Loftus (14)                              521,552          -           1.1%              -
William Loftus (15)                         1,854,232          -           3.7%              -
Jerry Marcus                                      -            -             -               -
Richard Wallman                                   -            -             -               -
All executive officers and directors      105,960,873      357,144        75.8%            100%
as a group (16)
</TABLE>

* Less than 1.0%.

(1)  The inclusion herein of any shares of Common Stock deemed beneficially
     owned does not constitute an admission of beneficial ownership of those
     shares. Unless otherwise indicated, to the knowledge of the Company based
     upon information provided by such persons, each person listed above has
     sole voting and investment power with respect to the shares listed. For
     purposes of this table, each person is deemed to beneficially own any
     shares subject to stock options, warrants or other securities convertible
     into Common Stock, held by such person which are currently exercisable (or
     convertible) within 60 days after May 31, 2001. As of May 31, 2001, the
     Company had 51,237,706 shares of Common Stock outstanding.

(2)  Unless otherwise specified, the address of each beneficial owner is
     c/o Breakaway Solutions, Inc., 1000 River Road, Suite 400, Conshohocken,
     Pennsylvania 19428.

(3)  Each outstanding share of Series A Preferred is presently convertible at
     any time, by the holder thereof, into 100 shares of Common Stock. All
     shares of Series A Preferred described below are also included, on an as
     converted basis, as shares of Common Stock beneficially owned by the holder
     thereof, pursuant to the rules of the SEC (See footnote below).


                                       70
<PAGE>


(4)  Includes 25,538 shares held in a trust of which Mr. Brooks is the sole
     beneficiary and 87,400 shares transferred to a limited liability company of
     which Mr. Brooks is the sole manager. In addition, this number includes
     5,093,507 shares subject to outstanding stock options, that are exercisable
     within the 60-day period following May 31, 2001. Mr. Brooks ceased serving
     as an executive officer in March 2001.

(5)  Includes 17,726,138 shares issuable upon the exercise of warrants. In
     addition, includes 14,285,800 shares issuable upon the conversion of
     142,858 shares of Series A Preferred Stock. The Company believes Internet
     Capital Group and ICG Holdings share voting and investment power over these
     securities. The exercise and conversion, as the case may be, of these
     securities may result in a change of control of the Company. The address of
     ICG Holdings is Pencador Corporate Center, 100 Lake Drive, Suite 4, Newark,
     Delaware 19702.

(6)  Consists of 47,093,429 shares owned by ICG Holdings, Inc., a wholly owned
     subsidiary of Internet Capital Group, Inc. The Company believes Internet
     Capital Group and ICG Holdings share voting and investment power over these
     securities. The address of Internet Capital Group is 435 Devon Park Drive,
     Building 600, Wayne, Pennsylvania 19087.

(7)  Includes 4,285,714 shares issuable upon the exercise of a warrant.  The
     sole director and sole stockholder of Invest Inc. is a former director of
     the Company. The address of Invest Inc. is c/o Capital Investment
     Corporation, Inc., 350 Park Avenue, 19th Floor, New York, New York 10022.

(8)  Consists of an aggregate of 47,093,429 shares beneficially owned by
     ICG Holdings, Inc. Mr. Nassau is a Director, Vice President and Secretary
     of ICG Holdings. Mr. Nassau disclaims beneficial ownership of all shares
     held by ICG Holdings.

(9)  Includes an aggregate of 35,063,060 shares issuable upon the exercise of
     warrants. In addition, includes 21,428,600 shares issuable upon the
     conversion of 214,286 shares of Series A Preferred Stock. The Company
     believes SCP Private Equity Partners II, L.P. shares voting call investment
     power over these securities with SCP Private Equity II, LLC. The exercise
     and conversion, as the case may be, of these securities may result in a
     change of control of the Company. The address of SCP Private Equity
     Partners II, L.P. is 435 Devon Park Drive, Building 300, Wayne,
     Pennsylvania 19087.

(10) The address of Mr. Selldorff is c/o Livesky Solutions, Inc., One Faneuil
     Hall Marketplace, Boston, Massachusetts 02109.

(11) Consists of an aggregate of 56,491,660 shares beneficially owned by
     SCP Private Equity Partners II, L.P. Mr. Weisman is a member of SCP Private
     Equity Management Company, LLC, which manages SCP and a separate fund named
     SCP Private Equity Partners, L.P. Mr. Weisman disclaims beneficial
     ownership of all shares held by SCP.

(12) Includes 89,000 shares subject to outstanding options that are exercisable
     within the 60-day period following May 31, 2001. Mr. Comerford will cease
     serving as an executive officer upon the filing of this Annual Report.

(13) Includes 30,000 shares held in a revocable trust of which Ms. Ellenberger
     is the sole beneficiary. Ms. Ellenberger ceased serving as an executive
     officer on June 1, 2001.

(14) Includes 34,405 shares subject to outstanding options that are exercisable
     within the 60-day period following May 31, 2001. John Loftus is the brother
     of William Loftus who is also included in this table.

(15) Includes an aggregate of 1,000 shares held by William Loftus's children.
     William Loftus disclaims beneficial ownership of such shares. William
     Loftus is the brother of John Loftus who is also included in this table.

(16) Includes an aggregate of 34,405 shares issuable upon the exercise of stock
     options held by such executive officers and directors. Also includes an
     aggregate of 32,011,938 shares issuable upon the exercise of warrants and
     the conversion of preferred stock beneficially owned by ICG Holdings, all
     of which are attributable to one director of the Company. Also includes an
     aggregate of 56,491,660 shares issuable upon the exercise of warrants and
     conversion of preferred stock beneficially owned by SCP, all of which are
     attributable to another director of the Company. Excludes shares
     beneficially owned by three former executive officers named above.


                                       71
<PAGE>

                                     ITEM 13
                 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS


LOAN AGREEMENTS

     On January 19, 2001, the Company entered into a loan agreement with ICG
Holdings, Inc. ("ICG Holdings") under which it borrowed $5.0 million from ICG
Holdings at an interest rate of 12% per annum. Principal and interest under the
loan were due and payable in full on March 12, 2001 and were fully secured by
substantially all of the Company's assets. In connection with the loan
agreement, the Company issued to ICG Holdings warrants to purchase up to
9,737,447 shares of Common Stock at a per share exercise price of $0.6875,
subject to adjustment in certain events. The warrants are exercisable at any
time through January 11, 2006 and may be exercised by means of a "net exercise"
feature under which the Company does not receive any cash, but rather, the
number of shares issued upon exercise is net of the number of shares withheld by
the Company in lieu of payment of the exercise price. The Company entered into a
registration rights agreement with ICG Holdings on January 19, 2001 with respect
to the shares of Common Stock issuable upon exercise of these warrants. On
February 8, 2001, the Company and ICG Holdings amended the loan agreement to
increase to $7.4 million the maximum amount which the Company could borrow
thereunder. On February 16, 2001, the Company and ICG Holdings amended the loan
agreement primarily to (i) increase to $10.0 million the maximum amount which
the Company could borrow thereunder, (ii) extend to April 9, 2001 the due date
for payment in full of outstanding interest and principal under the loan
agreement and (iii) facilitate the Company entering into a similar loan
agreement with SCP Private Equity Partners II, L.P. ("SCP").

     Mr. Walter W. Buckley, III is President, Chief Executive Officer and a
Director of Internet Capital Group, Inc. and served as a Director of the Company
from January 1999 to March 2001. Mr. Nassau, who began serving as a Director of
the Company in April 2001, is Managing Director, General Counsel and Secretary
of Internet Capital Group, Inc., the sole stockholder of ICG Holdings. Wayne
Weisman is a member of SCP Private Equity Management Company, LLC, which manages
SCP and a separate fund named SCP Private Equity Partners, L.P. Mr. Weisman
began serving as the Company's Chairman of the Board in April 2001.

     Also on February 16, 2001, the Company entered into a loan agreement with
SCP under substantially the same terms as its loan agreement with ICG Holdings.
Under the terms of the Company's loan agreement with SCP, the Company could
borrow up to $10.0 million at an interest rate of 12% per annum (or 18% after an
event of default). Principal and interest under the loan agreement with SCP were
fully secured by substantially all of the Company's assets and were due and
payable in full on April 9, 2001. In connection with the Company entering into
the loan agreement with SCP, ICG Holdings surrendered to the Company warrants to
purchase up to 6,491,631 shares of Common Stock from the warrants the Company
issued to ICG Holdings on January 19, 2001. The Company immediately reissued the
surrendered warrants to SCP. SCP became a party to the registration rights
agreement entered into between the Company and ICG Holdings on January 19, 2001
with respect to the shares issuable upon exercise of the surrendered warrants.

     The Company borrowed an aggregate of $16.9 million under its loan
agreements with ICG Holdings and SCP.

PREFERRED STOCK PURCHASE AGREEMENT

     On April 6, 2001, the Company closed the transactions contemplated by a
Series A Preferred Stock Purchase Agreement it entered into with SCP and ICG
Holdings on February 16, 2001 (the "Purchase Agreement"). At the closing, the
Company issued to SCP 214,286 shares of its Series A Preferred Stock and
warrants to purchase 28,571,429 shares of its Common Stock and to ICG Holdings
142,858 shares of its Series A Preferred Stock and warrants to purchase
14,285,720 shares of its Common Stock. The per share purchase price of the
shares of Series A Preferred Stock issued pursuant to the Purchase Agreement was
$70.00. The Company received from SCP and ICG Holdings aggregate consideration
of $25 million, consisting of $8,141,667 in cash and $16,858,333 in


                                       72
<PAGE>


cancellation of all outstanding balances of principal and interest under the
Company's loan agreements with SCP and ICG Holdings. The issuance of these
securities pursuant to the Purchase Agreement and certain related matters were
approved by the Company's stockholders at a special meeting held on April 2,
2001.

     Also pursuant to the Purchase Agreement, at the closing of the Purchase
Agreement the Company entered into an Investor Rights Agreement with SCP and ICG
Holdings (the "Rights Agreement") under which it granted to SCP and ICG Holdings
certain registration rights with respect to the shares of Common Stock issuable
by the Company upon conversion of the Series A Preferred Stock and upon exercise
of the warrants issued at the closing for resale by SCP and ICG Holdings.

     The Rights Agreement also provides that for so long as SCP holds at least
50% of the shares of Series A Preferred originally issued to SCP under the
Purchase Agreement, the Company shall use its best efforts to (i) maintain a
board of directors consisting of seven members, two of which shall be selected
by SCP and one of which shall be selected by both SCP and ICG Holdings and (ii)
reserve one seat on each committee of the board of directors for one of the
directors selected by SCP, to the extent consistent with applicable director
independence requirements.

     The rights, preferences and powers of the Series A Preferred Stock include
the following:

     VOTING RIGHTS. In general, shares of the Series A Preferred Stock vote on
an as-converted basis with the shares of Common Stock as the same class. In
addition, the vote of the holders of at least a majority of the outstanding
shares of Series A Preferred Stock required for the Company to effect certain
transactions, including, without limitation, (i) issuing stock with rights,
preferences or privileges senior to or on a parity with the Series A Preferred
Stock or otherwise amending the Company's corporate charter or the Company's
by-laws or recapitalizing or reclassifying the Company's securities so as to
adversely affect or diminish the rights, preferences or privileges of the Series
A Preferred Stock, (ii) increasing the shares of capital stock authorized for
issuance by the Company, (iii) entering into a reorganization, merger or
consolidation of the Company involving a change in control of the Company or a
sale of substantially all of the assets of the Company, (iv) liquidating,
dissolving or winding-up the Company, (v) effecting certain redemptions and
repurchases of the Company's capital stock and (vi) effecting certain dividend
payments on any shares of the Company's capital stock.

     LIQUIDATION PREFERENCE. Upon a voluntary or involuntary liquidation,
dissolution or winding up of the Company, the holders of the Series A Preferred
Stock will be entitled to be paid out of the Company's assets available for
distribution prior to any distribution to the holders of Common Stock an amount
equal to $70.00 per share (as adjusted for stock splits, stock dividends and
similar events), plus accrued but unpaid dividends on the Series A Preferred.
After payment of these preferential amounts, the remaining assets available for
distribution will be distributed ratably to the holders of the Series A
Preferred, on an as-converted basis, and the holders of the Common Stock. A
merger, consolidation, change of control or sale of all or substantially all of
the Company's assets will be deemed to be a liquidation of the Company.

     CONVERSION. The holders of the Series A Preferred Stock have the right,
at any time and at their option to convert the Series A Preferred Stock into
a number of shares of Common Stock determined by dividing $70.00 by the
conversion price of $0.70 per share (the "Conversion Price"). In addition,
each share of Series A Preferred Stock will automatically convert, in
accordance with the same formula, upon (i) the written consent of the holders
of at least a majority of the then outstanding shares of Series A Preferred
Stock, (ii) the closing of a firmly underwritten public offering by the
Company pursuant to an effective registration statement under the Securities
Act of 1933, as amended, the gross cash proceeds of which are at least
$60,000,000 (a "Qualified Public Offering") or (iii) a consolidation or
merger of the Company involving a change in control of the Company or sale of
all or substantially all of the Company's assets for a minimum consideration
payable for each share of Common Stock (on a fully diluted basis) equal to
three times the Conversion Price then in effect payable in cash or liquid
securities (a "Qualified Sale"). The Conversion Price is subject to
adjustment in certain events.

     DIVIDENDS. The shares of Series A Preferred Stock will be entitled to
receive dividends out of funds legally available therefore at the rate of
8.0% per annum. Such dividends will be payable, when and if declared, at the
option of the Company either in cash or in additional shares of Series A
Preferred Stock valued based upon the original $70.00 per share issue price
therefore. Dividends will be cumulative and accrue quarterly. In the event of
a Qualified

                                       73
<PAGE>


Public Offering or a Qualified Public Sale within three years after the closing
of the Purchase Agreement, all issued and outstanding shares of Series A
Preferred Stock issued as dividends will be canceled.

     REDEMPTION. At any time after January 20, 2006, each holder of Series A
Preferred Stock will be entitled to have the Company redeem all, but not less
than all, of such holder's shares of Series A Preferred Stock for a per share
price equal to $70.00 (as adjusted for stock splits, stock dividends and similar
events), plus all accrued but unpaid dividends. If the Company, among other
things, will be prohibited from incurring any additional indebtedness without
the consent of a majority of the then outstanding shares of Series A Preferred
Stock and dividends will continue to accrue on the shares of Series A Preferred
Stock required to be redeemed.

     The warrants issued by the Company to SCP and ICG Holdings at the closing
of the Purchase Agreement are exercisable at any time during the ten years after
the date they were issued at a per share exercise price of $0.70. The number of
shares issuable upon exercise and the per share exercise price of the warrants
is subject to adjustment in certain events. In addition, the warrants may be
exercised by means of a "net exercise" feature under which the Company does not
receive any cash, but rather, the number of shares issued upon exercise is net
of the number of shares withheld by the Company in lieu of payment of the
exercise price.

PHOENIX MANAGEMENT SERVICES, INC. AGREEMENT

     On April 20, 2001 the Company's Board of Directors authorized the grant of
a five-year warrant to Phoenix Management, an advisor to the Company, to
purchase 1-1/4% of the Company's issued and outstanding shares at a per share
price of $0.70. The warrant will have a five year term and vest in eighteen
equal monthly installments as long as Phoenix Management continues to provide
services for the Company. The parties have not yet executed a Warrant instrument
to reflect the issuance. Mr. Briddell is President and Founder of Phoenix
Management Services and was elected a Director of the Company in April 2001.

WPL LABORATORIES PAYMENTS

     On May 17, 1999, the Company entered into an Agreement and Plan of
Reorganization with WPL Laboratories, Inc. Under the terms of the agreement with
WPL stockholders, our purchase price consisted of cash in the aggregate amount
of $4,999,860 and 1,364,140 shares of our Common Stock, of which $3,399,905 in
cash and 1,159,520 shares were issued to William Loftus and $999,972 in cash and
272,828 shares were issued to John Loftus, Jr. One-half of the aggregate cash
consideration was paid at the closing of the acquisition. Twenty-five percent of
the cash consideration was paid pro rata on May, 17, 2000 and the remaining 75%
will be paid pro rata to him in equal monthly installments over the ensuing 36
months for as long as the respective recipient does not voluntarily terminate
his employment with Breakaway and is not terminated by Breakaway for cause.

     The Company has paid all payments due up until December 31, 2000. The
Company has made no payments to William Loftus or John Loftus in 2001.

EGGROCK PARTNERS, INC.

     On January 26, 2000, the Company entered into an Agreement and Plan of
Merger with Eggrock and Benedict Acquisition Corp., a wholly owned subsidiary of
the Company pursuant to which on March 31, 2000, Benedict Acquisition Corp.
merged with and into Eggrock with Eggrock surviving as the Company's wholly
owned subsidiary. As consideration for the acquisition, the Company issued
approximately 6,176,331 shares of Common Stock to the former Eggrock
stockholders and assumed options to purchase an aggregate of approximately
1,095,669 shares of Common Stock.

     Immediately after the closing, Maureen Ellenberger, the President of
Eggrock, was appointed the Company's Vice President, Chief People and Innovation
Officer. Of the approximately 6,176,332 shares of Common Stock issued in the
acquisition of Eggrock, Ms. Ellenberger received 1,151,662 shares. Half of Ms.
Ellenberger's shares are subject to the terms of a Restricted Stock Agreement,
granting the Company a repurchase right for the shares in the event Ms.
Ellenberger's employment at the Company is terminated voluntarily by Ms.
Ellenberger without good reason or for cause by the Company. The Company's right
to repurchase expires as to


                                       74
<PAGE>


25% of the shares subject to the agreement one year after the closing of the
acquisition of Eggrock and as to the remaining 75% of the shares ratably over
the ensuing 36 months. The Company's repurchase rights under these agreements
terminate upon a change of control of the Company or if Ms. Ellenberger is
terminated by the Company for reasons other than for cause.

INTERNET CAPITAL GROUP, INC.

     We provide services to Internet Capital Group and some of its affiliated
entities. In 2000, our total revenues derived from engagements with Internet
Capital Group and its affiliates were approximately $35.66 million.

INVEST INC.

     In December 2000, the Company entered into and funded an agreement to sell
shares of its common stock and issue warrants to purchase its common stock to
Invest, a Delaware corporation. The agreement was subsequently revised to
resolve matters which arose subsequent to entering into the agreement and prior
to December 31, 2000. On February 6, 2001, Invest consummated the revised
investment in the Company under which it received an aggregate of 4,285,714
shares of common stock at a per share purchase price of $0.70 and warrants to
purchase up to 4,285,714 shares of common stock at a per share exercise price of
$0.70. Total consideration received by the Company was $3.0 million in cash. A
former director of the Company is the sole director and sole stockholder of
Invest. This settlement resulted in a charge of approximately $9.2 million,
which has been recorded in the consolidated statement of operations for the year
ended December 31, 2000.

BREAKAWAY ASIA PACIFIC

     In October 2000, the Company, along with ICG AsiaWorks, an entity partially
owned by ICG, Hutchinson Whampoa and Li Ka-shing Foundation, established
Breakaway Asia Pacific. This new entity is expected to provide services similar
to those provided by the Company in the Asia Pacific market, other than Japan.
In exchange for use of the Company's intellectual property, the Company received
a 19.9% ownership interest in Breakaway Asia Pacific. The Company accounts for
this investment using the equity method of accounting. In June 2001, the Company
sold its equity interest in Breakaway Solutions Asia Pacific Limited (the "Joint
Venture") to the other shareholder, ICG Asia Limited (formerly, ICG AsiaWorks
Limited) for $500,000. The transaction is expected to close in July 2001 upon
obtaining regulatory approval and satisfaction of certain other closing
conditions. As part of the parties' ongoing relationship, the Company may be
obligated until April 2002 to provide services for certain projects relating to
the Joint Venture at a 15% discount from standard fees. In addition, the Company
may be required to refund certain fees paid it as a retainer upon the occurrence
of certain events.


PART IV

                                     ITEM 14
         EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K


(a) (1) FINANCIAL STATEMENTS

     The consolidated financial statements filed as part of this Annual Report
on Form 10-K are listed on the Index to Consolidated Financial Statements under
Item 8, which Index to Consolidated Financial Statements is incorporated herein
by reference.

(a) (2) FINANCIAL STATEMENT SCHEDULES

     The information required relating to the Company's Valuation and Qualifying
Accounts is included in the notes to the consolidated financial statements.


                                       75
<PAGE>


     Schedules other than those listed above are omitted because they are either
not required or not applicable.

(a) (3) EXHIBITS

     The Exhibits filed as part of this Form 10-K are listed on the Exhibit
Index immediately preceding such Exhibits, which Exhibit Index is incorporated
herein by reference. Documents listed on such Exhibit Index, except for
documents identified by footnotes, are being filed as exhibits herewith.
Documents identified by footnotes are not being filed herewith and, pursuant to
Rule 12b-32 under the Securities Exchange Act of 1934, reference is made to such
documents as previously filed as exhibits filed with the Securities and Exchange
Commission. Breakaway's file number under the Securities Exchange Act of 1934 is
000-27269.

(b) REPORTS ON FORM 8-K

     On November 13, 2000, Breakaway filed a Current Report on Form 8-K dated
October 4, 2000 reporting under Item 5 (i) a press release dated October 4, 2000
announcing, among other things, Breakaway's preliminary third quarter financial
results and a 9% reduction in staff, (ii) a press release dated October 26, 2000
announcing Breakaway's third quarter 2000 financial results and (iii)
Breakaway's October 24, 2000 acquisition of a 19.9% interest in Breakaway
Solutions Asia Pacific Limited and related matters.

     On December 29, 2000, Breakaway filed a Current Report on Form 8-K dated
December 28, 2000 reporting under Item 5 a press release dated December 28, 2000
announcing, among other things, Breakaway's preliminary fourth quarter 2000
financial results.

     On January 22, 2001 Breakaway filed a Current Report on Form 8-K dated
January 19, 2001. Breakaway amended that Current Report on Form 8-K on January
29, 2001. As amended, the Current Report on Form 8-K reports under Item 5 that
on January 19, 2001, Breakaway entered into definitive agreements with respect
to a secured financing with ICG Holdings, Inc. and related matters.

     On March 2, 2001, Breakaway filed a Current Report on Form 8-K dated
February 6, 2001 reporting under Item 5 that (i) on February 16, 2001 Breakaway
entered into several financing arrangements with ICG Holdings, Inc. and SCP,
including (a) an amendment to Breakaway's outstanding loan agreement with ICG
Holdings, (b) a separate loan agreement with SCP and (c) a stock purchase
agreement with both ICG Holdings and SCP Private Equity Partners and (ii) on
February 6, 2001 Invest Inc. consummated an investment in Breakaway under which
it received common stock and warrants to purchase common stock of Breakaway.

     On June 27, 2001, Breakaway filed a Current Report on Form 8-K dated
June 21, 2001 reporting under Item 5 a press release dated June 21, 2001
announcing that Breakaway's Common Stock has been delisted from the Nasdaq
National Market.



                                       76
<PAGE>


                                   SIGNATURES

     Pursuant to the requirements of Section 13 or Section 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this Annual
Report on Form 10-K to be signed on its behalf by the undersigned, thereunto
duly authorized, in the city of Conshohocken, Commonwealth of Pennsylvania, on
July 3, 2001.

                                       BREAKAWAY SOLUTIONS, INC.



                                       By:/s/ William Loftus
                                          -------------------------------------
                                          President and Chief Executive Officer

     Pursuant to the requirements of the Securities Act of 1934, this Annual
Report on Form 10-K has been signed below by the following persons in the
capacities and on the dates indicated.

<TABLE>
<CAPTION>
   SIGNATURE                              TITLE                                 DATE
   ---------                              -----                                 ----
<S>                            <C>                                           <C>
/S/ WILLIAM LOFTUS             President and Chief Executive Officer         July 3, 2001
------------------             (Principal Executive Officer)
William Loftus                 and Director


/S/ KEVIN COMERFORD            Vice President, Administration and            July 3, 2001
-------------------            Chief Financial Officer (Principal
Kevin Comerford                Financial Officer and Principal
                               Accounting Officer)


/S/ WAYNE WEISMAN              Chairman of the Board of Directors            July 3, 2001
-----------------
Wayne Weisman


/S/ E.  TALBOT BRIDDELL        Director                                      July 3, 2001
-----------------------
E.  Talbot Briddell


/S/ JERRY MARCUS               Director                                      July 3, 2001
----------------
Jerry Marcus


/S/ HENRY NASSAU               Director                                      July 3, 2001
----------------
Henry Nassau


/S/ RICHARD WALLMAN            Director                                      July 3, 2001
-------------------
Richard Wallman
</TABLE>

                                       77
<PAGE>


                                       S-I
              INDEX TO EXHIBITS [SEE ADDITIONAL EXHIBITS ATTACHED.]

<TABLE>
<CAPTION>
EXHIBIT NO.                              DESCRIPTION
<S>                <C>
2.1 (2)             Agreement and Plan of Merger, dated as of January 26, 2000,
                    by and among the Registrant, Benedict Acquisition Corp. and
                    Eggrock Partners, Inc.

3.1(1)              Third Amended and Restated Certificate of Incorporation of
                    the Registrant.

3.2                 Certificate of Designation of Series A Preferred Stock of
                    Breakaway Solutions, Inc., dated April 6, 2001.

3.3 (1)             Amended and Restated Bylaws of the Registrant.

4.1 (1)             Specimen certificate for shares of the Registrant's common
                    stock.

10.1 (1)*           1998 Stock Incentive Plan.

10.2 (1)*           1999 Stock Incentive Plan, as amended.

10.3 (3)*           Promissory Note in favor of the Registrant, made by Gordon
                    Brooks payable to the Registrant, dated June 23, 1999.

10.4 (1)            Employment Agreement, dated November 13, 1998, by and
                    between the Registrant and Gordon Brooks.

10.5 (3)*           Employment letter, dated January 26, 2000, by and between
                    the Registrant and Maureen Ellenberger.

10.6 (1)*           Employment Agreement, dated May 29, 1998, by and between the
                    Registrant and Kevin Comerford.

10.7 (2)            Form of Escrow Agreement to be entered into at closing of
                    the Merger, by and among the Registrant, Eggrock, Maureen
                    Ellenberger, as Indemnification Representative, and State
                    Street Bank and Trust Company, as Escrow Agent.

10.8 (1)*           Employment Agreement, dated May 14, 1999, by and between the
                    Registrant and William Loftus.

10.9 (1)*           Option Agreement, by and between the Registrant and Kevin
                    Comerford, effective July 1, 1998.

10.10 (1)*          Option Agreement, by and between the Registrant and
                    Christopher Greendale, effective July 1, 1998.

10.11 (1)*          Option Agreement, by and between the Registrant and Kevin
                    Comerford, effective October 1, 1998.

10.12 (1)*          Option Agreement, by and between the Registrant and Gordon
                    Brooks, effective December 23, 1998.

10.13 (1)*          Option Agreement, by and between the Registrant and Gordon
                    Brooks, effective December 23, 1998.

10.14 (1)*          Option Agreement, by and between the Registrant and Gordon
                    Brooks, effective December 23, 1998.

10.15 (1)*          Option Agreement, by and between the Registrant and Gordon
                    Brooks, effective December 23, 1998.

10.16 (1)*          Option Agreement, by and between the Registrant and Gordon
                    Brooks, effective December 23, 1998.

10.17 (1)*          Option Agreement, by and between the Registrant and
                    Christopher Greendale, effective February 18, 1999.
</TABLE>


                                       78
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT NO.                              DESCRIPTION
<S>                <C>
10.18 (3)*          Promissory Note in favor of the Registrant, made by William
                    Loftus payable to the Registrant, dated June 23, 1999.

10.19 (3)*          Restricted Stock Agreement, dated January 26, 2000, by and
                    between the Registrant and Maureen Ellenberger.

10.20 (1)           Lease Agreement dated as of July 22, 1998, by and between
                    the Registrant and Equity Office Properties Trust.

10.21 (3)*          Option Agreement, by and between the Registrant and Gordon
                    Brooks, effective December 1999.

10.22 (1)           Warrant to purchase the Registrant's common stock, dated May
                    13, 1999, issued by the Registrant to Internet Capital
                    Group.

10.23 (1)*          Stock Pledge Agreement, dated as of May 14, 1999, by and
                    between the Registrant and William Loftus.

10.24 (1)*          Stock Restriction Agreement, dated as of May 14, 1999, by
                    and between the Registrant and William Loftus.

10.25 (1)*          Amended and Restated Investors' Rights Agreement, dated as
                    of July 2, 1999, by and between the Registrant and the
                    investors named therein.

10.26 (3)           Promissory Note in favor of the Registrant made by Gordon
                    Brooks payable to the Registrant, dated February 6, 2000.

10.27 (1)           Master Lease Agreement, dated as of September 29, 1999, by
                    and between the Registrant and Silicon Valley Bank.

10.28 (1)*          Warrant to purchase the Registrant's common stock, dated
                    September 29, 1999, issued by the Registrant to Silicon
                    Valley Bank.

10.29 (2)           Registration Rights Agreement, dated as of March 31, 2000,
                    by and among the Company and the stockholders of Eggrock
                    named therein.

10.30 (2)*          Promissory Note in favor of the Registrant, made by John
                    Loftus payable to the Registrant, dated June 23, 1999.

10.31 (2)*          Offer letter to John Loftus from the Registrant, dated May
                    14, 1999.

10.32 (2)*          Stock Restriction Agreement, dated as of May 14, 1999, by
                    and between the Registrant and John Loftus.

10.33 (4)*          Eggrock Partners, Inc. 1999 Stock Option and Grant Plan.

10.34 (5)           Technology Assignment and License Back Agreement between the
                    Registrant and Satori, Inc. dated September 29, 2000.

10.35 (5)           Shareholders Agreement among the Registrant, ICG AsiaWorks
                    Limited, and Breakaway Solutions Asia Pacific Limited dated
                    October 24, 2000.

10.36 (5)           License Agreement between the Registrant and Breakaway
                    Solutions Asia Pacific Limited, dated October 24, 2000.

10.37               Securities Purchase Agreement, dated as of December 11,
                    2000, by and among the Registrant and Invest, Inc.

10.38               Secured Promissory Note in favor of the Registrant, made by
                    Invest, Inc. payable to the Registrant, dated December 11,
                    2000.

10.39               Registration Rights Agreement, dated as of December 11,
                    2000, by and among the Registrant and Invest, Inc.

10.40               Settlement Agreement and Mutual Release of Claims, dated as
                    of February 6, 2001, by and between the Registrant and
                    Invest, Inc.
</TABLE>

                                       79

<PAGE>

<TABLE>
<CAPTION>
EXHIBIT NO.                              DESCRIPTION
<S>                <C>
10.41               Warrant to purchase the Registrant's common stock, dated as
                    of February 6, 2001, issued by the Registrant to Invest,
                    Inc.

10.42 (6)           Loan and Security Agreement dated as of January 19, 2001 by
                    and between ICG Holdings, Inc. and the Registrant.

10.43 (6)           Registration Rights Agreement dated as of January 19, 2001
                    by and between the Registrant and ICG Holdings, Inc.

10.44 (7)           Series A Preferred Stock Purchase Agreement, dated as of
                    February 16, 2001, by and among the Registrant, SCP Private
                    Equity Partners II, L.P. and ICG Holdings, Inc.

10.45 (7)           Letter Agreement, dated as of February 16, 2001, by and
                    among the Registrant, ICG Holdings, Inc. and SCP Private
                    Equity Partners II, L.P.

10.46 (7)           Amendment to Loan and Security Agreement, dated February 16,
                    2001, by and between the Registrant and ICG Holdings, Inc.

10.47 (7)           Second Amendment to Loan and Security Agreement, dated
                    February 16, 2001, by and among the Registrant, ICG
                    Holdings, Inc. and SCP Private Equity Partners II, L.P.

10.48 (7)           Amendment to Registration Rights Agreement, dated as of
                    February 16, 2001, by and among the Registrant, ICG
                    Holdings, Inc. and SCP Private Equity Partners II, L.P.

10.49 (7)           Loan and Security Agreement, dated February 16, 2001, by and
                    between the Registrant, as borrower, and SCP Private Equity
                    Partners II, L.P., as lender and agent thereunder.

10.50 (7)           Common Stock Purchase Warrant, issued by the Registrant to
                    ICG Holdings, Inc., dated February 16, 2001.

10.51 (7)           Common Stock Purchase Warrant, issued by the Registrant to
                    SCP Private Equity Partners II, L.P., dated February 16,
                    2001.

10.52               Lease Agreement between River Park Office Associates,L.P.
                    and Breakaway Solutions, Inc. dated December 6, 1999.

10.53               Commencement Date Agreement, dated June 30, 2000 between
                    River Park Office Associates, L.P. and Breakaway Solutions,
                    Inc.

10.54*              Employment Agreement, dated March 31, 2001 by and between
                    the Company and William Loftus.

10.55*              Employment Separation Agreement by and between the Company
                    and Gordon Brooks (undated).

10.56*              Transitional Services Agreement by and between the Company
                    and Maureen Ellenberger April 2001.

10.57               Common Stock Purchase Warrant, issued by the Company to ICG
                    Holdings, dated April 6, 2001.

10.58               Common Stock Purchase Warrant, issued by the Company to SCP,
                    dated April 6, 2001.

10.59               Investor Rights Agreement by and between Breakaway
                    Solutions, Inc., SCP Private Equity Partners II, L.P. and
                    ICG Holdings, Inc., dated April 6, 2001.

10.60*              Separation Agreement, dated November 22, 2000 by and between
                    the Company and Christopher Harding.

10.61               Letter Agreement, dated February 16, 2001 by and between
                    Phoenix Management Services, Inc. and the Company.

10.62               Share Purchase Agreement, dated June 21, 2001 by and among
                    ICG Asia Limited, Breakaway Solutions, Inc. and Breakaway
                    Solutions Asia Pacific Limited.

10.63               Preferred Stock Purchase Warrant, issued by the Company to
                    SCP Private Equity Partners II, L.P., dated July 2, 2001.
</TABLE>

                                       80

<PAGE>



<TABLE>
<CAPTION>
EXHIBIT NO.                              DESCRIPTION
<S>                <C>
10.64               Guarantee Issuance Agreement, dated July 2, 2001, by and
                    among the Company and SCP Private Equity Partners II, L.P.

21.1                Schedule of subsidiaries of the Registrant.

23.1                Consent of KPMG LLP.
</TABLE>

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

*        Management contract or compensation plan or arrangement required to be
         filed as an exhibit pursuant to Item 14(c) of Form 10-K.

(1) Incorporated herein by reference to the Registrant's Registration Statement
    on Form S-1 (File No. 333-83343), as declared effective by the Securities
    and Exchange Commission on October 5, 1999.

(2) Incorporated herein by reference to the Registrant's Registration Statement
    on Form S-4 (File No. 333-31194), as declared effective by the Securities
    and Exchange Commission on March 10, 2000.

(3) Incorporated herein by reference to the Registrant's Registration Statement
    on Form S-1 (File No. 333-33468), as filed with the Securities and Exchange
    Commission on June 23, 2000 and amended on August 4, 2000.

(4) Incorporated herein by reference to the Registrant's Registration Statement
    on Form S-8 (File No. 333-34314), as filed with the Securities and Exchange
    Commission on April 7, 2001.

(5) Incorporated herein by reference to the Registrant's Quarterly Report on
    Form 10-Q for the quarterly period ended September 30, 2000, as filed with
    the Securities and Exchange Commission on November 14, 2000.

(6) Incorporated herein by reference to the Registrant's Current Report on
    Form 8-K dated January 19, 2001, as filed with the Securities and Exchange
    Commission on January 22, 2001 and amended on January 29, 2001.

(7) Incorporated herein by reference to the Registrant's Current Report on Form
    8-K dated February 6, 2001, as filed with the Securities and Exchange
    Commission on March 2, 2001.

                                       81