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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            ------------------------

                                   FORM 10-K
                                   (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, 1999

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

                FOR THE TRANSITION PERIOD FROM                TO

                         COMMISSION FILE NUMBER 0-23315

                                 PRT GROUP INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S>                                             <C>
                  DELAWARE                                       13-3914972
      (STATE OR OTHER JURISDICTION OF                         (I.R.S. EMPLOYER
       INCORPORATION OR ORGANIZATION)                       IDENTIFICATION NO.)
             80 LAMBERTON ROAD
            WINDSOR, CONNECTICUT                                   06095
  (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)                       (ZIP CODE)
</TABLE>

       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (860) 687-2200
          SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

<TABLE>
<CAPTION>
       TITLE OF EACH CLASS       NAME OF EACH EXCHANGE ON WHICH REGISTERED
       -------------------       -----------------------------------------
  <S>                            <C>
  Common Stock, $.001 par value                 Nasdaq NMS
</TABLE>

        SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE

    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 [X]  No [ ]

    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 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.  [ ]

    The aggregate market value of the registrant's voting and non-voting common
stock held by non-affiliates of the registrant as of March 10, 2000, was
approximately $50,476,000.

    The number of shares outstanding of each of the registrant's classes of
common stock as of March 10, 2000 was approximately 18,355,005 shares.
                      DOCUMENTS INCORPORATED BY REFERENCE

    There is incorporated herein by reference the registrant's Proxy Statement
for the 2000 Annual Meeting of Stockholders, expected to be filed with the
Securities and Exchange Commission on or before April 14, 2000, in Part III
hereof.

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                                     PART I

ITEM 1.  BUSINESS

     The following description of the business of PRT Group Inc. ("PRT" or the
"Company") contains certain forward-looking statements that involve substantial
risks and uncertainties. When used in this section and elsewhere in this Form
10-K Annual Report, the words "anticipate," "believe," "expect," and similar
expressions as they relate to the Company or its management are intended to
identify such forward-looking statements. The Company's actual results,
performance or achievements could differ materially from the results expressed
in, or implied by, such forward-looking statements. Factors that could cause or
contribute to such differences include, without limitation, those discussed in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" below.

GENERAL

     PRT Group Inc. was incorporated under the laws of the state of Delaware in
1996. The Company was first incorporated as PRT Corp. of America, a New York
corporation, in 1989. The Company maintains its principal executive offices at
80 Lamberton Road, Windsor, Conn. 06095. The Company's telephone number is (860)
687-2200.

     PRT is an information technology solutions integrator based in Windsor,
Connecticut. PRT creates complete, flexible IT solutions that meet or exceed its
clients' evolving business needs. From IT architecture and design through
implementation and ongoing support, PRT focuses on long-term customer
relationships and evolutionary IT services. Founded in 1989, the Company has
more than 470 employees in Solution Centers in Windsor, Connecticut, and
Barbados, West Indies; and in client-site operations throughout the Mid-Atlantic
and Northeastern United States.

     PRT introduced two new strategic lines of business in 1999. The new lines
of business capitalize on the capabilities and competencies of the PRT team. The
first -- eBusiness eNablement -- helps established companies and
commerce-oriented dot-com companies enter the Net economy at Internet speed,
prepared to execute large-scale transactions. The second -- IT Solutions
Outsourcing -- enables clients to turn over management of an IT project,
function or department -- improving efficiency and maximizing results. These two
lines of business, in combination with IT Staffing, form the Company's service
portfolio.

     Solution Centers.  PRT's Solution Centers in Windsor, Connecticut, and
Barbados, West Indies, provide centralized and comprehensive IT services that
combine skilled IT professionals, proven quality processes and knowledge
management systems. The Centers, each more than 50,000 square feet in size, have
parallel technology infrastructures, organizational units and human resource
practices that enable PRT to shift projects and personnel to meet client
requirements and maximize staff productivity.

     Quality Processes.  PRT's Balanced Quality System(TM) ensures that its
solutions meet industry standards while reflecting the realities of the client's
business priorities. The System is a dynamic approach that draws on four sources
for setting and meeting quality goals for each solution component: rigorous
quality principles based on the Software Engineering Institute's Capability
Maturity Model; iRAD, PRT's own iterative rapid application development process;
project management; and the business value of the function as stated by the
client.

     To ensure quality measurement and control, PRT keeps its quality assurance
teams independent from project management teams. It also maintains a
proprietary, Lotus Notes-based Knowledge Asset Database(TM) with best-practice
methods, tool sets and work products that are available to all project teams.

IT STAFFING

     This business line accounted for roughly 62 percent of the Company's
revenues in 1999. PRT's IT Staffing delivers individual or team staffing for a
full spectrum of IT application development and maintenance services, from
legacy systems and client server to Internet and network solutions. The Company
offers specific industry expertise in the insurance, finance, pharmaceutical and
high-tech sectors.
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     PRT built its reputation on the capabilities of its experienced project
managers skilled in the use of its Balanced Quality System and Knowledge Asset
Database. Other frequently filled positions include business analysts,
architectural designers, application and tools programmers, database designers
and programmers, usability engineers, testers, technical writers and help desk
support.

     PRT professionals have a wide range of skills, including state-of-the-art
Internet languages, operating systems, technologies, databases, applications,
tools and security, as well as legacy skills. To keep skills sharp, the Company
provides computer-based and classroom training for employees and subcontractors.

EBUSINESS ENABLEMENT

     Introduced in August 1999, this business line accounted for 9 percent of
the Company's revenues for the year. Through eBusiness eNablement, PRT ensures
the rapid development of focused, flexible solutions that meet or exceed its
clients' business goals. PRT solutions allow for easy implementation of new
applications, integration with existing platforms, and communication and
interaction with the client's supply chain and customers.

     PRT begins each e-business project with WebStarter(TM). WebStarter explores
the client's current situation and e-business goals and creates a clear picture
of the scope of the project, how work will proceed and how much the solution
will cost -- both to develop and operate. WebStarter results include: concept
design, the proposed architectural model, a high-level use case model, an
iteration schedule, a quality overview, high-risk sequence diagrams, a risk
assessment, a detailed project plan as well as a budget. After WebStarter is
complete, the project team and client move into iRAD -- PRT's iterative process
for rapid application development. The project team focuses on the most complex,
high-risk functional components of the solution first. Members construct,
implement and test the first set of components. As they add components, they
revisit each previous set to ensure compatibility and functionality. The overall
development process includes three phases: (1) Elaborate -- define, design, (2)
Build -- model and build, and (3) Deliver -- improve, test, deploy and document.

     PRT's iRAD process gives clients several major benefits, including clear,
accurate information up front about schedules and costs. It also provides
clients with early validation and less risk because the most complex components
are built first. Clients also benefit from flexible, scalable solutions which
are built to industry standards.

     After development is complete, PRT offers technical operations support to
manage and maintain the solution.

IT SOLUTIONS OUTSOURCING

     Launched in August 1999, this business line accounted for roughly 29
percent of the Company's 1999 revenues. PRT's IT Solutions Outsourcing gives
clients access to expert technical support without the expense and
administrative burden of maintaining facilities, technology or adding full-time
personnel. IT Solutions Outsourcing services include application development and
maintenance, networking, call centers and help desks, systems management and
Internet communications. PRT can manage an outsourced project in the customer's
facility or in one of its Solution Centers. PRT's IT Solutions Outsourcing
Services encompass: (1) Resources -- the acquisition, deployment, and use of
people, facilities, technology, equipment, support functions and supplies, (2)
Integration -- the linking of business processes, including the development of
interfaces, with related processes and applications, and (3)
Performance -- shared commitments for setting, measuring and achieving optimal
service.

TARGET MARKETS

     PRT's targeted industry sectors include financial services; banking and
capital markets; insurance; pharmaceuticals and health care; high-tech; dot-com;
and hospitality, travel and tourism. The Company recently formed a joint venture
with Interior Systems Inc. ("ISI"), a qualified SBA 8(a) minority supplier of

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facilities and real-estate management services. Though this joint venture, PRT
and ISI seek to provide IT solutions to commercial entities and government
agencies as a Tier 1 qualified minority supplier.

     PRT is active in several geographic markets, including the Mid-Atlantic
region from Washington, D.C., to New York; New England from Connecticut to
Maine; and the Caribbean and Latin America through PRT Solutions International
in Barbados, West Indies.

     Clients.  PRT focuses its marketing efforts in two chief
categories -- Fortune 1000-sized companies with significant IT and business
needs, and dot-com companies. In the 12 months ending Dec. 31, 1999, PRT's
largest clients, listed alphabetically, were Guy Carpenter, Hartford Insurance,
J.P. Morgan, Pfizer and Prudential Insurance. Other major clients include Allied
Domecq, Citigroup Travelers Insurance, Interior Systems Inc., Opus360, Phillip
Morris International and The Sun-Netscape Alliance.

COMPETITIVE INFORMATION

     eBusiness eNablement.  PRT's eBusiness eNablement solutions typically
compete with services offered by Scient, Sapient and Agency.com. Although these
competitors offer scalable, interactive solutions, their focus is primarily on
electronic business services. PRT can draw upon its other lines of business to
combine eBusiness eNablement solutions with IT outsourcing and staffing
services. This combination provides a true end-to-end solution encompassing
eBusiness applications, staff support and ongoing maintenance.

     IT Solutions Outsourcing.  PRT's IT Solutions Outsourcing offerings
typically compete with national companies such as Computer Horizons and Computer
Sciences Corporation. PRT is well positioned against industry competitors
through the operation of two large software engineering centers fully equipped
to quickly support client-outsourcing needs. In addition, PRT utilizes its
Balanced Quality System(TM) to ensure that processes reach the highest levels of
quality.

     IT Staffing.  PRT's IT Staffing solutions typically compete with services
offered by national competitors such as Keane and regional competitors such as
Command Systems and Howard Systems. PRT is well positioned against its
competition through the extensive industry knowledge maintained by its IT
Staffing team within various vertical markets. Also, PRT employs unique staffing
disciplines enabling PRT teams to meet and exceed rigorous quality guidelines
established by the Software Engineering Institute's Capability Maturity Model.

THE IT SERVICES INDUSTRY

     PRT believes that a number of key industry trends will continue to have a
major influence on the worldwide IT services market.

SHORTAGE OF IT PROFESSIONALS

     Top-level IT professionals continue to be in short supply. The population
of well-trained and highly skilled IT specialists is small -- and increasingly,
they're finding the best career opportunities with IT professional services
companies. This is creating a growing gap inside corporations between what can
be done in house and what has to be accomplished with outside IT help.

     As corporations move to e-business, there is more complex work to be
done -- integration of legacy systems, creation of and migration to new
applications architectures -- and fewer skilled internal resources to accomplish
it. This growing capability gap will generate more demand for the Company's
services.

     Gartner/Dataquest calls IT outsourcing and business process outsourcing
"dominant business strategies of the market leaders as legitimate means to gain
efficiencies, control costs and drive business value." The independent research
firm estimates that demand for outsourced IT professional services will continue
to grow at a rate of nearly 17 percent a year -- with total worldwide revenues
of $472 billion in 2002.

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<PAGE>   5

E-BUSINESS DEMAND

     In the next three to five years, firms struggling to reinvent business
processes and reach more online consumers will invest heavily in e-business
consulting and support. This demand is expected to increase the U.S. e-business
services market from $10.6 billion today to $64.8 billion in 2003, according to
Forrester Research Inc., an independent research organization that provides
information about the IT services industry.

     The need for e-business help will grow as Internet initiatives increase in
complexity. The average company budget for service providers is $750,000 in
1999 -- and is expected to will grow to $1.5 million in 2001, according to
Forrester Research. Companies are moving away from stand-alone commerce sites
toward Internet-enabled supply chains and customer service systems. They're
seeking help to create new business models, smooth out site architecture, reach
consumers and link with the middle market.

     Forrester Research identifies four key e-business services -- strategy,
marketing, design and technical services. Marketing and technical services are
in the highest demand. More than 63 percent of outsourcing dollars will go to
marketing help, application development and commerce package implementation. A
growing number of IT service companies will compete for service contracts.

     Few companies use vendors for end-to-end Web solutions, instead using
multiple service providers to get results -- an average of three per company.
PRT is well positioned to compete in this compartmentalized market. The
Company's eBusiness eNablement business line focuses on two of the most
in-demand categories: design and technical services for the Internet, intranet
and extranet. For clients who need additional help, PRT is poised to respond
through a growing strategic network of alliances and partnerships.

SOFTWARE ENGINEERING CHALLENGES

     Software engineering organizations face significant challenges in
delivering high-quality applications on time and on budget. Because software
development is plagued with problems, the push for standards and benchmarks will
intensify. One system -- the Capability Maturity Model (CMM) developed by the
Software Engineering Institute at Carnegie Mellon University -- is gaining
momentum in the industry. As Charles Connell stated in the February 15, 2000,
Boston Globe: "CMM is hot in the software development world. Companies are
committing to CMM as the blueprint for their improvement."

     CMM documents best practices for software development and provides an
orderly plan for improving software development methods gradually. CMM defines a
set of five maturity levels for software development organizations and details
the attributes of each level. Level 1, the entry level, covers any software
development process in existence. Level 5 characterizes a sophisticated software
development shop that consistently produces high-quality results, on time and in
budget. Level 5 organizations systematically improve themselves by
self-examination and internal process tuning. Levels, 2, 3 and 4 define various
steps along the road to improvement. PRT has achieved Level 3 certification at
its Barbados Solutions Center and is in the process of securing Level 2
certification at the Windsor, Conn., Center.

OFFSHORE AND NEAR-SHORE SOFTWARE ENGINEERING

     International Data Corporation, an independent research firm, cites a
number of reasons IT services firms are creating offshore and near-shore service
providers: industry-wide skills shortage, rapidly escalating cost of domestic or
onshore labor, proliferation of Internet technologies, urgency of IT projects
driven by Y2K and the euro and globalization of industries across global
markets.

     India, Mexico and the Caribbean, and South Africa are three of the most
active offshore regions. India is one of the hottest regions thanks to vast
access to skills, quality of workforce, lower costs, rapid time to market,
government support and fluency in English. Mexico and the Caribbean offer
similar advantages -- as well as proximity to the U.S. market and support of the
NAFTA agreement among Mexico, Canada and the U.S.

     IDC, an independent research organization, predicts that "the offshore
model will evolve to become a serious competitor to both U.S.-based services
firms and also for large global outsourcing vendors." PRT is

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taking advantage of the benefits of offshore and near-shore operations through
its Solutions Center in Barbados, West Indies.

PRT SERVICES OFFERED

IT STAFFING

     PRT has a wide range of experienced IT professionals available to help
customers with their IT staffing needs and goals. Our expertise includes
programming languages, operating systems, databases, applications and tools.
Technology environments served are mainframe, client server, Internet and
network.

     PRT has built its reputation on the capabilities of its experienced project
managers skilled in the use of its Knowledge Asset Database. This proprietary
resource includes software quality assurance; software configuration management;
project initiation, planning, tracking and closure; peer review; and customer
interaction allowing for the creation and use of best practices by all of our
project managers.

     PRT provides IT staffing to meet a range of client needs -- including
application development and implementation, project management and other IT
support, including business analysis, quality assurance, usability analysis,
documentation and help desk support.

EBUSINESS ENABLEMENT

     PRT's eBusiness eNablement business line focuses on two of the most
critically needed services for companies striving to harness the Internet,
intranet and extranet: design and technical services.

     PRT's eBusiness eNablement objective is to create and integrate Web
applications that enable customers to maximize business value, protect their
investment in legacy systems, and communicate and transact effectively with
customers, trading partners and employees. Typical customers include Fortune
1000 and dot-com companies in the commercial and government sectors.

     PRT begins its interactive process with the customer with WebStarter, a
fixed-price engagement that enables the client to evaluate and define its
commitment, and phase its e-business development. After Web Starter is complete,
the project moves through three consulting phases: elaboration, building, and
testing and deployment.

     PRT's proprietary Balanced Quality System(TM) guides both WebStarter and
the consulting phases. This System includes four components -- business value
determined by clients; PRT's iRAD engineering process, the Software Engineering
Institute's CMM process, and project management. The Balanced Quality System is
dynamic and high impact. Based on industry standards -- and balanced by the
client's own business priorities -- the System enables PRT to deliver
well-engineered, affordable solutions. Best practices are captured and reused by
all of PRT's experienced development teams.

     PRT's iRAD process is based on the industry-standard Unified Modeling
Language -- UML. During the WebStarter engagement, the project team breaks down
the functionality required by the customer into use cases. Use case definition
allows PRT to assess how the eventual system will work based upon the components
of the business model. This component analysis enables the team to validate the
architecture, isolate changes required and clearly identification software
change issues.

     The project team prioritizes each use case and focuses on the most complex,
high-risk functional components of the solution first. Members construct,
implement and test the first set of components. As they add components, they
revisit each previous set to ensure compatibility and functionality.

     PRT's iRAD process unifies best practices from project management; business
modeling; requirements management; analysis and design; testing; and change
control into one consistent, full life-cycle process. The benefits of the PRT
approach include: shorter development cycles through controlled iterative
development, increased developer productivity through model-driven development,
improved software quality through use-case and business-focused development,
significant software reuse through a focus on software architecture and
components and enhanced team communication through use of UML.

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     PRT has developed a Lotus Notes-based Knowledge Asset Database(TM) based on
CMM and critical to the Company's ongoing learning and improvement efforts. The
Knowledge Asset Database is a collaborative tool used by the development staff,
project managers, business analysts and graphic designers. The database includes
the following components: software quality assurance, data center library,
project initiation, site administration, customer interaction, configuration
management, voice and data LAN/WAN/MAN connections, planning, tracking and
closure, as well as peer review. PRT's project management model is based on
principles from the Project Management Institute. Clients can choose from three
management models -- customer-managed, collaboratively-managed and PRT-managed.
For all of these models, PRT supports knowledge transfer to the client and the
use of our tools and technology.

     PRT's engagement model focuses on customer requirements and allows for
development to be done at the client's site or in PRT's Solution Centers in
Windsor, Connecticut, or Barbados, West Indies. Client contact begins with a PRT
sales representative and is transferred to a project manager as a project gets
under way. The project manager is responsible for translating the customer needs
to the developers, business analyst, coders and graphic designer. The production
and development teams report to a unit manager. For large projects, these teams
are augmented with additional developers. All escalation issues are handled by
PRT's vice president and general manager, who oversees all sales representatives
and unit managers.

IT SOLUTIONS OUTSOURCING

     PRT's IT Solutions Outsourcing services include application development and
maintenance; networking; call centers and help desks; systems management; and
Internet communications. PRT can manage outsourced projects at the client's site
or from one of its Solution Centers.

     IT Solutions Outsourcing encompasses: (1) Resources -- the acquisition,
deployment, and use of people, facilities, technology, equipment, support
functions and supplies, (2) Integration -- the linking of business process,
including the development of interfaces, with related processes and applications
and (3) Performance -- the responsibility for service level metrics and
agreements

     For each outsourcing project, PRT completes a six-phase consulting process
that includes assessment, solution definition, transition planning,
implementation, testing and support.

     In application development and maintenance, PRT's outsourcing services
include: application development, project management consulting, application
infrastructure integration, system simulation, testing services, applications
maintenance and software performance improvement.

     In network support, PRT's outsourcing services include: managed network
solutions, network connectivity, network collaboration services and premise data
services.

     In systems management, PRT's outsourcing services include: data center
management, mid-range management, data transfer services as well as testing
services.

     In call center and help desk support, PRT's outsourcing services include
call center support and management.

     In Internet communications, PRT's outsourcing services include: legacy and
Internet connectivity, remote access service and Web hosting.

CERTAIN TRANSACTIONS

LOAN AND SECURITY AGREEMENT WITH BANK OF AMERICA

     In August 1999 PRT entered into a loan and security agreement with Bank of
America Commercial Finance, formerly known as Nations Credit Commercial
Corporation ("Bank of America"), the proceeds of which are to be used for
general working capital. The initial maturity date of the loan is August 4,
2001, however, PRT may terminate prior to that date on 30 days written notice to
Bank of America, plus an early termination fee of 1% of the Maximum Facility
Amount. The maximum loan facility is based on the amount of eligible accounts
receivable of the Company. This loan is secured by a security interest in all of
PRT's

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tangible and intangible personal property, and a first and only security
interest in and lien on all of PRT's fixed assets; and a first and only security
interest in and pledge of all of PRT's stock of its foreign subsidiaries. The
maximum loan amount is $13,500,000; however; the actual amount the Company may
borrow is substantially less due to restrictions on its eligible accounts
receivable. These limitations on borrowing include, but are not limited to,
eligible accounts receivable, as defined. In addition, the PRT cumulative net
loss before interest, taxes, depreciation and amortization for the period from
July 1, 1999 through August 4, 2001 cannot exceed $4,500,000. As of March 31,
2000 the current availability ranges from $500,000 to $1,200,000.

INSTITUTE FOR SOFTWARE PROCESS IMPROVEMENT ("ISPI")

     PRT discontinued operations of its ISPI subsidiary in June 1999. Effective
October, 1999 PRT sold all course materials and related intellectual property
rights of ISPI to Aimware Ltd. In addition, PRT agreed to waive certain
non-competition obligations of certain former PRT employees so that Aimware
could hire these employees to provide ISPI services. In exchange for the sale of
these ISPI assets, PRT is to receive a royalty payment equal to 5% of all
Aimware revenues generated from the assets sold during the first 18 months after
the sale.

COMPETITION

     The IT services industry is highly competitive and served by numerous
international, national, regional and local firms, all of which are either
existing or potential competitors of the Company. Primary competitors of PRT
include "Big Five" accounting firms, software consulting and implementation
firms, applications software firms, service groups of computer equipment
companies, general management consulting firms, programming companies and
temporary staffing firms, as well as internal IT staff of PRT's clients. The
Company believes that the principal competitive factors in the IT services
industry include the range of services offered, cost, technical expertise,
responsiveness to client needs, speed in delivering IT solutions, quality of
service and perceived value.

INTELLECTUAL PROPERTY RIGHTS

     The Company believes that its success and ability to compete is dependent
upon its proprietary systems and technology. The Company relies on a combination
of copyright, trademark and trade secret laws as well as confidentiality
agreements with its employees, subcontractors, key suppliers and customers and
other measures to establish and protect its technology and other proprietary
rights. The Company does not have any patents. The Company has copyright
protection with respect to certain of its proprietary software, its Web site and
certain marketing materials, as well as U.S. trademark registration for many of
its trade and service marks. While the Company relies on trademark, trade secret
and copyright laws to protect its proprietary rights, the Company believes that
the technical and creative skills of its personnel, high-quality service
standards, continued software development and maintenance needs of its
proprietary systems and technology, and brand name recognition are more
important to establish and maintain a leadership position and strengthen its
brand.

     As part of its confidentiality procedures, the Company typically enters
into agreements with its employees, subcontractors and certain clients which
limit access to and distribution of its software, documentation and other
proprietary information. There can be no assurance that steps taken by the
Company will be adequate to prevent misappropriation of its technology, that
agreements entered into for that purpose will be enforceable or that the Company
will be able to detect unauthorized use and take appropriate steps to enforce
its intellectual property rights. Policing unauthorized use of the Company's
proprietary rights is difficult. Any misappropriation of the Company's
technology or development of competitive technologies could have a material
adverse effect on the Company's business, results of operations or financial
condition. The Company could incur substantial costs and management's attention
could be diverted from the Company's operations in protecting and enforcing its
intellectual property. Moreover, there can be no assurance that claims asserting
that its intellectual property rights infringe on the intellectual property
rights of others will not arise. There can be no assurance that such a claim
will not result in litigation or that the Company would prevail in such
litigation or be able to obtain a license for the use of any infringing
intellectual
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property from a third party on commercially reasonable terms if at all in the
event of an adverse determination. The Company typically has agreed to indemnify
its customers and key suppliers for liability in connection with the
infringement of a third party's intellectual property. While the Company is not
currently subject to any such claims, any future claim, with or without merit,
could result in material adverse effect on the Company's business, results of
operations or financial condition.

ITEM 2.  PROPERTIES

     The Company leases all of its facilities, consisting of approximately
100,000 square feet of space in 4 locations. PRT currently operates in three
types of facilities: (i) Computer Software Engineering Centers ("CSECs"), (ii)
sales and account management offices, and (iii) administration and operations
offices in New York, New York; Windsor, Connecticut; Hawthorne, New York; and
Barbados, West Indies. PRT has sales and account management offices located in
Connecticut and New York. Currently, the Company operates two CSECs, located in
Barbados, West Indies and Windsor, Connecticut. The Company has shut down its
CSEC in Bombay, India as well as sales and account management offices in
Pennsylvania, Connecticut, Chicago and Colorado. The Company also sublet a
substantial part of its New York, New York facility to a third-party. It is
expected that no additional space will be required at this time, but that
operations may relocate in order to be closer to their growing customer base.
The Company has listed part of its Windsor, Connecticut space for sublet in
order to reduce costs. The Company has not received any suitable offers for all
of this space and cannot predict when such space might be sublet.

ITEM 3.  LEGAL PROCEEDINGS

     The Company, certain of its officers and directors and certain allegedly
controlling shareholders of the Company have been named as defendants in a
purported securities class action lawsuit filed on September 16, 1998 in the
United States District Court for the Southern District of New York, captioned
Steinberg V. PRT Group Inc. Douglas K. Mellinger, Lowell W. Robinson, Gregory S.
Mellinger and The Mellinger Group, 98 Civ 6550. The complaint purports to be
brought on behalf of all shareholders who purchased the Company's common stock
from November 21, 1997 through March 5, 1998. The complaint asserts that
defendants violated Sections 11, 12(a)(2) and/or 15 of the Securities Act of
1933 by purportedly misrepresenting and/or omitting material information
concerning PRT's business and operations in the registration statement and
prospectus issued in connection with PRT's initial public offering on or about
November 21, 1997. The lawsuit seeks unquantified compensatory damages, pre-and
post-judgment interest, attorneys' fees, expert witness fees and other costs,
rescission, equitable relief and such other and further relief as the Court may
find proper. On April 14, 1999, PRT filed a motion to dismiss the complaint in
the case on the grounds of legal insufficiency. On March 28, 2000, the Company's
motion to dismiss the class action lawsuit, was granted by the Court. The
plaintiffs' request for leave to amend the amended complaint was also denied.

     In the normal course of business, various claims may be made against the
Company. At this time, in the opinion of management, there are no pending
claims, aside from the above mentioned shareholder suite, the outcome of which
are expected to result in a material adverse effect on the consolidated
financial position or results of operations of the Company.

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

     By Proxy dated March 24, 2000 the Company submitted the following matter to
a vote of its shareholders: election of 3 Class III directors. In addition, the
Company will ask the shareholders to ratify the appointment of Ernst & Young as
auditors of the Company's financial statements for the year ending December 31,
2000.

                                        8
<PAGE>   10

                                    PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

     The Common Stock of the Company is traded on the Nasdaq National Market
("Nasdaq") under the symbol "PRTG." The Common Stock commenced trading on Nasdaq
on November 20, 1997 in connection with the underwritten initial public offering
of shares of the Company's Common Stock at an initial price to the public of
$13.00 per share (the "Offering").

     Set forth below are the high and low sales prices for shares of the Common
Stock commencing November 20, 1997:

<TABLE>
<CAPTION>
FISCAL PERIOD                                                 HIGH      LOW
-------------                                                ------    ------
<S>                                                          <C>       <C>
1997
November 20, 1997 through December 31, 1997................  $21.00    $11.00

1998
First Quarter..............................................   20.19      9.56
Second Quarter.............................................   12.00      8.75
Third Quarter..............................................   11.63      3.88
Fourth Quarter.............................................    3.50      2.63

1999
First Quarter..............................................   5.563     2.406
Second Quarter.............................................    3.50     2.000
Third Quarter..............................................   2.875      1.75
Fourth Quarter.............................................   2.625      1.75
</TABLE>

     The number of stockholders of record of the Common Stock as of March 10,
2000 was approximately 3,500 based on transfer agent reports; the closing price
of the Common Stock on Nasdaq on March 10, 2000 was $2.75.

     During the year ended December 31, 1997, the Company declared dividends of
$724,000. The 1997 dividends represented dividends paid to the former holders of
the Company's Series A Convertible Preferred Stock (the "Convertible Preferred
Stock") and distributions paid to the former holder of certain of the Company's
Unit Warrants (as hereinafter defined) at the time of the Company's initial
public offering. (See below, Note 6 to Consolidated Financial Statements under
Item 8, Financial Statements and Supplementary Data.) At the time of
consummation of the initial public offering of the Company's Common Stock, the
Convertible Preferred Stock and Unit Warrants were converted into shares of
Common Stock and are no longer outstanding. The Company does not intend to
declare or pay cash dividends in the foreseeable future. Management anticipates
that all earnings and other cash resources of the Company, if any, will be
retained by the Company for investment in its business.

                                        9
<PAGE>   11

ITEM 6.  SELECTED FINANCIAL DATA

                      SELECTED CONSOLIDATED FINANCIAL DATA
                     (In Thousands, Except Per Share Data)

<TABLE>
<CAPTION>
                                                    YEARS ENDED DECEMBER 31
                               ------------------------------------------------------------------
                                  1995          1996          1997          1998          1999
                               ----------    ----------    ----------    ----------    ----------
<S>                            <C>           <C>           <C>           <C>           <C>
STATEMENT OF OPERATIONS DATA:
Revenues.....................  $   20,346    $   23,801    $   59,816    $   85,607    $   65,359
Cost of revenues.............      15,594        17,965        40,898        64,096        47,815
                               ----------    ----------    ----------    ----------    ----------
Gross profit.................       4,752         5,836        18,918        21,511        17,544
Selling, general and
  administrative expenses....       4,110         9,235        19,332        34,214        31,441
Restructuring charges........          --            --            --            --         7,483
                               ----------    ----------    ----------    ----------    ----------
Income (loss) from
  operations.................  $      642    $   (3,399)   $     (414)   $  (12,703)   $  (21,380)
                               ==========    ==========    ==========    ==========    ==========
Net income (loss)............  $      115    $   (3,269)   $     (553)   $  (12,040)   $  (21,215)
                               ==========    ==========    ==========    ==========    ==========
Basic and diluted income
  (loss) per share...........  $     0.01    $    (0.23)   $     (.04)   $     (.66)   $    (1.16)
                               ==========    ==========    ==========    ==========    ==========
Number of shares used in
  computing basic and diluted
  net income (loss) per
  share......................  14,469,691    14,310,155    14,728,087    18,213,252    18,274,705
                               ==========    ==========    ==========    ==========    ==========
</TABLE>

<TABLE>
<CAPTION>
                                                               DECEMBER 31
                                            --------------------------------------------------
                                             1995      1996       1997       1998       1999
                                            ------    -------    -------    -------    -------
<S>                                         <C>       <C>        <C>        <C>        <C>
BALANCE SHEET DATA:
Working capital...........................  $1,277    $13,923    $51,253    $23,577    $ 9,034
Total assets..............................   4,860     23,960     75,914     62,782     40,535
Total stockholders' equity (deficit)......     781     (2,081)    64,089     52,387     31,271
</TABLE>

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

     The following "Management's Discussion and Analysis of Financial Condition
and Results of Operation" contains certain forward-looking statements that
involve substantial risks and uncertainties. When used in this section or
elsewhere in this Form 10-K Annual Report, the words "anticipate," "believe,"
"estimate," "expect" and similar expressions as they relate to the Company or
its management are intended to identify such forward-looking statements. The
Company's actual results, performance or achievements could differ materially
from the results expressed in, or implied by, these forward-looking statements.
Factors that could cause or contribute to such differences include those
discussed below under the caption "Certain Factors that May Affect Future
Results".

RESULTS OF OPERATIONS

     The following table sets forth selected statement of operations data as a
percentage of revenues for the periods indicated:

<TABLE>
<CAPTION>
                                                      YEARS ENDED DECEMBER 31
                                                      -----------------------
                                                      1997     1998     1999
                                                      -----    -----    -----
<S>                                                   <C>      <C>      <C>
Revenues............................................  100.0%   100.0%   100.0%
Cost of Revenues....................................   68.4     74.9     73.2
                                                      -----    -----    -----
Gross Profit........................................   31.6     25.1     26.8
SG&A................................................   32.3     39.9     48.1
Restructuring charges...............................     --       --     11.4
                                                      -----    -----    -----
Loss from operations................................   (0.7)%  (14.8)%  (32.7)%
                                                      =====    =====    =====
</TABLE>

                                       10
<PAGE>   12

FISCAL YEAR 1999 COMPARED TO FISCAL YEAR 1998

     Revenues.  Revenues decreased approximately 23.6 % to $65.4 million in
fiscal year 1999 from $85.6 million in fiscal year 1998. The decrease in revenue
was the result of several projects coming to an end and the non-renewal of
certain client assignments further compounded by a slow down during the fourth
quarter 1999 related to the approach of the Year 2000. Additionally, revenue
decreased as a result of the restructuring during the second quarter of 1999
which included the discontinuance of operations of the Institute for Software
Process Improvement ("ISPI") division.

     Cost of Revenues.  Cost of revenues decreased approximately 25.4% to $47.8
million in fiscal year 1999 from $64.1 million for the comparable period in
1998. As a percentage of revenues, cost of revenues decreased to approximately
73.2% in fiscal year 1999 from approximately 74.9% for fiscal year 1998. The
decrease in cost of revenues was in direct proportion to the decrease in
revenues, together with a reduction in professionals and a discontinuation of
relocation packages to the United States from the Barbados Computer Software
Engineering Centers ("CSECs").

     Gross Profit.  For the reasons set forth above, gross profit increased as a
percentage of revenues to approximately 26.8% from 25.1% for the comparable
period in 1998.

     SG&A Expenses.  SG&A expenses decreased approximately 8.1% to $31.4 million
in fiscal year 1999 from $34.2 million for the comparable period in 1998. As a
percentage of revenues, SG&A expenses increased to approximately 48.1% in fiscal
year 1999 from approximately 39.9% for the comparable period in 1998. The
decrease in SG&A expenses resulted from (i) cost cutting measures undertaken
offset by increases from costs associated with the hiring of a new Chief
Executive Officer and new management team, (ii) increased marketing and
promotional expenditures, and (iii) increased legal fees in connection with the
class action suit. In addition, the SG&A expenses as a function of revenues was
negatively affected by the lower revenue base.

     Restructuring.  The Company incurred $7.5 million in restructuring charges
comprised of $2 million in severance costs, $3 million in office closures and
$2.5 million for the write-off of goodwill related to the Institute for Software
Process Improvement, Inc. ("ISPI"). Furthermore, the Company moved its
headquarters to Windsor, Connecticut and has converted its former Manhattan
headquarters to a smaller sales office, and sub-let the excess space in the
former headquarters. As of December 31, 1999, the Company was unable to sub-let
the unproductive portion of the Hartford Software Engineering Center and
estimates that it could take 18-24 months to sub-lease, which accounts for a
provision of approximately $786,000 remaining at December 31, 1999. Additional
provisions for restructuring charges remaining as of December 31, 1999 consist
of legal and brokers' fees related to the sublease of the Hartford space of
approximately $213,000, continuing severance and related costs of approximately
$520,000, closure of India operations of approximately $59,000, and sublease of
a portion of the New York City office of approximately $81,000.

     Loss from Operations.  For the reasons set forth above, loss from
operations for the fiscal year 1999 was $21.4 million compared to a loss of
$12.7 million in the comparable period in 1998. As a percentage of revenues, the
loss from operations for the fiscal year 1999 was approximately (32.7)% compared
to approximately (14.8)% in the comparable period in 1998.

FISCAL YEAR 1998 COMPARED TO FISCAL YEAR 1997

     Revenues.  Revenues increased approximately 43.1% to $85.6 million in
fiscal year 1998 from $59.8 million in fiscal year 1997. This growth in revenue
is primarily attributable to acquisitions as well as increased business from a
major insurance client and the ramp-up of a new pharmaceutical client in the
second half of 1998. The number of IT professionals (including subcontractors)
remained essentially flat year over year at 698 consultants. For the year ended
December 31, 1998 and 1997, revenues generated from two clients who are also
stockholders were approximately $12.8 million and $18.1 million and $21.9
million and $13.7 million, respectively for these clients. The decrease from
1997 to 1998 is associated with the completion of Y2K projects.

     Cost of Revenues.  Cost of revenues increased approximately 56.7% to $64.1
million in fiscal year 1998 from $40.9 million for the comparable period in
1997. As a percentage of revenues, cost of revenues increased
                                       11
<PAGE>   13

to approximately 74.9% in fiscal year 1998 from approximately 68.4% for fiscal
year 1997. In 1998, the increase in cost of revenues as a percentage of revenues
reflects lower than anticipated utilization levels in PRT's Barbados and
Hartford CSECs, as well as a lower percentage of revenue in the higher margin
Y2K work.

     Gross Profit.  For the reasons set forth above, gross profit decreased as a
percentage of revenues to approximately 25.1% for the fiscal year 1998 from
31.6% for the comparable period in 1997.

     SG&A Expenses.  SG&A expenses increased approximately 77.0% to $34.2
million in fiscal year 1998 from $19.3 million for the comparable period in
1997. As a percentage of revenues, SG&A expenses increased to approximately
39.9% in fiscal year 1998 from approximately 32.3% for the comparable period in
1997. The increase in SG&A expenses is a function of (i) severance expenses and
termination of excess employee housing in Barbados (ii) overhead from the ACT
and ISPI acquisitions; (iii) build out and expansion of the Hartford SEC; (iv)
write-off of certain receivables and assets.

     Loss from Operations.  For the reasons set forth above, loss from
operations for fiscal year 1998 was $12.7 million compared to a loss of $414,000
in the comparable period in 1997. As a percentage of revenues, the loss from
operations for the fiscal year 1998 was (14.8)% compared to approximately (.7%)
in the comparable period in 1997.

QUARTERLY RESULTS

     The following table sets forth certain unaudited quarterly operation
information for the most recent eight quarters ending with the quarter ended
December 31, 1999. This information has been prepared on the same basis as the
audited consolidated financial statements and, in the opinion of management,
includes all adjustments, consisting only of normal recurring adjustments,
necessary for the fair presentation of the information for the periods
presented. This information should be read in conjunction with the Company's
Consolidated Financial Statements and related Notes thereto. Results of
operations for any previous fiscal quarter are not indicative of results for the
full year or any future quarter.

<TABLE>
<CAPTION>
                                                                     THREE MONTHS ENDED
                                      ---------------------------------------------------------------------------------
                                      MAR 31,   JUNE 30,   SEPT 30,   DEC 31,   MAR 31,   JUNE 30,   SEPT 30,   DEC 31,
                                       1998       1998       1998      1998      1999       1999       1999      1999
                                      -------   --------   --------   -------   -------   --------   --------   -------
<S>                                   <C>       <C>        <C>        <C>       <C>       <C>        <C>        <C>
STATEMENT OF INCOME DATA:
Revenues............................  $18,852   $22,669    $22,552    $21,534   $18,541   $ 18,468   $15,909    $12,441
Cost of revenues....................  15,317     16,530     16,011    16,238    14,902      14,072    10,098      8,743
                                      -------   -------    -------    -------   -------   --------   -------    -------
Gross Profit........................   3,535      6,139      6,541     5,296     3,639       4,396     5,811      3,698
SG&A................................   8,701      7,731      8,065     9,717    10,513       8,601     6,899      5,428
Restructuring charges...............      --         --         --        --        --       7,483        --         --
                                      -------   -------    -------    -------   -------   --------   -------    -------
Loss from operations................  $(5,166)  $(1,592)   $(1,524)   $(4,421)  $(6,874)  $(11,688)  $(1,088)   $(1,730)
                                      =======   =======    =======    =======   =======   ========   =======    =======
AS A PERCENTAGE OF REVENUE:
Revenues............................   100.0%     100.0%     100.0%    100.0%    100.0%      100.0%    100.0%     100.0%
Cost of revenues....................    81.2%      72.9%      71.0%     75.4%     80.4%       76.2%     63.5%      70.3%
                                      -------   -------    -------    -------   -------   --------   -------    -------
Gross profit........................    18.8       27.1       29.0      24.6      19.6        23.8      36.5       29.7
SG&A................................    46.2       34.1       35.8      45.1      56.7        46.6      43.3       43.6
Restructuring charges...............      --         --         --        --        --        40.5        --         --
                                      -------   -------    -------    -------   -------   --------   -------    -------
Loss from operations................   (27.4)%     (7.0)%     (6.8)%   (20.5)%   (37.1)%     (63.3)%    (6.8)%    (13.9)%
                                      =======   =======    =======    =======   =======   ========   =======    =======
</TABLE>

LIQUIDITY AND CAPITAL RESOURCES

     The Company's working capital decreased to $9.0 million at December 31,
1999 from $23.6 million at December 31, 1998. Cash and equivalents and
marketable debt securities were $6.9 million at December 31, 1999 compared to
$15.4 million at December 31, 1998. The primary uses of cash during the year
ended December 31, 1999 were to fund a net loss of $21.2 million and a decrease
in accrued compensation of $1.3 million offset by an increase in accounts
receivable of $5.9 million, an increase in prepaid expenses of $903,000, and an
increase in accounts payable and deferred revenue of $683,000. Cash and
equivalents of $2.4

                                       12
<PAGE>   14

million were used to purchase additional fixed assets during fiscal year ended
December 31, 1999. In addition, the Company used $518,000 in cash from financing
activities primarily for the repayment of capital lease obligations.

     The Company's working capital decreased to $23.6 million at December 31,
1998 from $51.3 million at December 31, 1997. Cash and equivalents and
marketable debt securities were $15.4 million at December 31, 1998 compared to
$44.1 million at December 31, 1997. The primary uses of cash during the years
ended December 31, 1998 were to fund a net loss of $12.0 million, a decrease of
$2.2 million in accrued compensation, accounts payable, accrued expenses and
deferred revenue offset by a decrease in accounts receivable of $1.8 million.
Cash and equivalents of $4.9 million were used to purchase additional fixed
assets during fiscal year ended December 31, 1998. In addition, the Company
purchased the net assets of ACT and ISPI for approximately $13.0 million and
$2.7 million, respectively, in 1998. For the year ended December 31, 1998, the
Company used $1.1 million in cash from financing activities, primarily relating
to the repayment of debt.

     In August 1999 PRT entered into a loan and security agreement with Bank of
America the proceeds of which are to be used for general working capital. The
initial maturity date of the loan is August 4, 2001, however, PRT may terminate
prior to that date on 30 days written notice to Bank of America, plus an early
termination fee of 1% of the Maximum Facility Amount. The maximum loan facility
is based on the amount of eligible accounts receivable of the Company. This loan
is secured by a security interest in all of PRT's tangible and intangible
personal property, and a first and only security interest in and lien on all of
PRTs fixed assets; and a first and only security interest in and pledge of all
of PRTs stock of its foreign subsidiaries. The maximum loan amount is
$13,500,000; however; the actual amount the Company may borrow is substantially
less due to restrictions on its eligible accounts receivable, as defined. These
limitations on borrowing include, but are not limited to, eligible accounts
receivable as defined. In addition, the PRT cumulative net loss before interest,
taxes, depreciation and amortization for the period from July 1, 1999 through
August 4, 2001 cannot exceed $4,500,000. As of March 31, 2000 the current
availability ranges from $500,000 to $1,200,000. As of December 31, 1999, there
was nothing outstanding under this credit facility.

     On April 13, 2000, the Company issued 8,000,000 shares of its Series A
Senior Participating Convertible Preferred Stock ("Preferred Stock") for
$8,000,000. The Company also issued a warrant to the Preferred Stock investors
to purchase 4,000,000 shares of the Company's Common Stock at an initial
exercise price of $1.00 per share subject to adjustment, as defined. The
Preferred Stock is convertible, subject to adjustment, as defined, in Common
Stock on a one for one basis at any time and is redeemable after April 14, 2005
at the option of the holder at its liquidation value plus accrued and unpaid
dividends. Each warrant is convertible into one share of Common Stock prior to
April 14, 2005 at the option of the holder. The guaranteed discount on the
conversion of the Preferred Stock and the value of the warrants, aggregating
approximately $5,700,000, was deemed to be a dividend for purposes of
calculating earnings (loss) per share. Accordingly, such deemed dividend will be
recorded as a reduction to amounts available to common shareholders during the
quarter ending June 30, 2000.

     The Company anticipates that its primary uses of working capital in the
near term will be the expansion of its lines of business, primarily e-business
and outsourcing, and the accounts receivable related thereto. The cash generated
from working capital may not be adequate to fund such uses and accordingly, the
Company may in the future be required to seek additional sources of financing,
including borrowing and/or sale of equity securities resulting in further
dilution to shareholders. No assurance can be given that any such additional
sources of financing will be available on acceptable terms.

YEAR 2000 DISCLOSURE

     In 1998 and 1999, the Company took steps to resolve the potential impact of
the Year 2000 on the processing of date-sensitive information by the Company's
computerized information systems. The Year 2000 problem is the result of
computer programs being written using two digits (rather than four) to define
the applicable year. As a result, those computer programs having time-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. This could cause a system failure or miscalculations,

                                       13
<PAGE>   15

causing disruptions of operation, including among other things a temporary
inability to process transactions, send incorrect invoices or engage in similar
normal business activities.

     The Company's internal computer information systems are Year 2000
compliant. PRT Group implemented new application systems effective during 1998,
to satisfy all finance, accounting, human resources, sales and recruiting
requirements. All internal computer hardware, operating systems, utilities and
tools have been tested and made compliant. As of the date of this document, the
Company has not encountered any material Year 2000 problems to its internal
systems. Furthermore, management believes that Year 2000 issues will not pose
significant operational problems for the Company.

     PRT's costs associated with Year 2000 compliance have been approximately
$750,000 of which $525,000 was capitalized in relation to new application
software purchased and $225,000 expensed as internal costs.

LITIGATION

     The Company, certain of its officers and directors and certain allegedly
controlling shareholders of the Company have been named as defendants in a
purported securities class action lawsuit filed on September 16, 1998 in the
United States District Court for the Southern District of New York, captioned
Steinberg V. PRT Group Inc. Douglas K. Mellinger, Lowell W. Robinson, Gregory S.
Mellinger and The Mellinger Group, 98 Civ 6550. The complaint purports to be
brought on behalf of all shareholders who purchased the Company's common stock
from November 21, 1997 through March 5, 1998. The complaint asserts that
defendants violated Sections 11, 12(a)(2) and/or 15 of the Securities Act of
1933 by purportedly misrepresenting and/or omitting material information
concerning PRT's business and operations in the registration statement and
prospectus issued in connection with PRT's initial public offering on or about
November 21, 1997. The lawsuit seeks unquantified compensatory damages, pre-and
post-judgment interest, attorneys' fees, expert witness fees and other costs,
rescission, equitable relief and such other and further relief as the Court may
find proper. On April 14, 1999, PRT filed a motion to dismiss the complaint in
the case on the grounds of legal insufficiency. On March 28, 2000, the Company's
motion to dismiss the class action lawsuit was granted by the Court. The
plaintiffs' request for leave to amend the amended complaint was also denied.

     In the normal course of business, various claims may be made against the
Company. At this time, in the opinion of management, there are no pending
claims, aside from the above mentioned shareholder suite, the outcome of which
are expected to result in a material adverse effect on the consolidated
financial position or results of operations of the Company.

                                       14
<PAGE>   16

FACTORS THAT MAY AFFECT FUTURE RESULTS

RECRUITMENT AND RETENTION OF IT PROFESSIONALS

     The Company's business is labor-intensive. The Company's success depends
upon its ability to attract, develop, motivate and retain IT consultants and IT
sales professionals who possess the necessary technical skills and experience or
can be trained to deliver the Company's services. Qualified IT consultants and
IT sales professionals are in high demand worldwide and are likely to remain a
limited resource for the foreseeable future. There can be no assurance that PRT
will continue to have access to qualified IT and IT sales professionals, will be
successful in retaining current or future IT professionals, or that the cost of
employing and subcontracting such IT professionals will not increase due to
shortages. Failure to attract or retain qualified IT professionals in sufficient
numbers could have a material adverse effect on the Company's business,
operating results and financial condition.

INCREASING SIGNIFICANCE OF AND RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS

     During the years ended December 31, 1997, 1998 and 1999, the percentage of
revenue generated outside the United States was 29%, 21% and 8.3%, respectively.
There were no revenues generated outside the United States prior to 1995. The
Company's international operations depend greatly upon business, immigration and
technology transfer laws in those countries and upon the continued development
of the local technology infrastructure. As a result, the Company's business is
subject to the risks generally associated with non-United States operations
including, among other things: (i) unexpected changes in regulatory
environments; (ii) difficulties in managing international operations; (iii)
potential adverse foreign tax consequences, including impact upon repatriation
of earnings; (iv) tariffs and other trade barriers and (v) political unrest and
changing conditions in countries in which the Company's services are provided or
facilities are located. In addition, although nearly all of the Company's
foreign sales are payable in U.S. Dollars, there can be no assurance that of the
Company's future contracts will be payable in U.S. Dollars; to the extent that
the Company's future contracts are payable in foreign currencies, the Company
could be exposed to fluctuations in currency exchange rates. Although the
Company does not engage in currency hedging transactions, to date the Company
has not sustained any foreign currency losses. If any of the above factors were
to render the conduct of business in a particular country undesirable or
impracticable, there could be a material adverse effect on the Company's
business, operating results and financial condition.

     PRT has operated its Barbados SEC for approximately three years. PRT
believes Barbados is one of the most stable countries in the Caribbean, has a
long tradition of democracy and that the Company currently has good relations
with the government of Barbados. While PRT (Barbados) Ltd. ("PRT Barbados") is
an international business company under Barbadian law, PRT has negotiated
special incentives with the Barbadian government including, among other things,
certain advantageous tax rates, an exclusivity and non-compete agreement (which
expires in 2011) and the ability to secure an unlimited number of employee work
permits and visas. There is no guarantee that this relationship will continue or
that these special incentives will not be curbed or eliminated. While the
Company believes that the expiration of the non-compete agreement will not have
a material adverse effect on PRT's business, operating results or financial
condition, there can be no assurance that this will be the case. If the
Barbadian government were to take any such action in the future, it could have a
material adverse effect on the Company's business, operating results and
financial condition.

LIMITED OPERATING HISTORY; LOSSES

     The Company has a limited operating history and has incurred losses from
the year ended December 31, 1995 until the year ended December 1999. In order to
operate profitably in the future, the Company must accomplish some of the
following objectives: (i) increase the amount of services rendered to existing
clients and develop new clients, (ii) develop and realize additional revenue
sources and (iii) reduce costs of providing services. There can be no assurance
that the Company will be successful in meeting these objectives or that the
Company will be able to sustain profitability.

                                       15
<PAGE>   17

FLUCTUATIONS IN OPERATING RESULTS

     The Company's revenues and operating results are subject to significant
variation from quarter to quarter depending on a number of factors, including,
but not limited to: (i) the timing and number of client projects commenced (or
delayed by the client) and completed during the quarter, (ii) the number of
working days in a quarter and (iii) employee hiring, attrition and utilization
rates. Because a high percentage of the Company's expenses, in particular
personnel and facilities costs, is relatively fixed, variations in revenues may
cause significant variations in operating results. Additionally, the Company
periodically incurs cost increases due to both the hiring of new employees and
strategic investments in its infrastructure in anticipation of future projects
and opportunities for revenue growth. Quarterly results are likely to fluctuate,
which may cause a material adverse effect on the market price of PRT's Common
Stock.

ABILITY TO SUSTAIN AND MANAGE GROWTH

     The Company's business has grown rapidly during the past several years due
to the increased demand for its services from existing clients, the addition of
new clients and the increased number of Company sales and account management
offices and CSECs. The Company's continued growth is dependent upon a number of
factors, including, but not limited to: (i) the continued profitable growth of
the Barbados and Hartford area CSECs; (ii) the ability of the CSECs to become
profitable in the future; (iii) the ability to cultivate additional business
from existing clients; (iv) the ability to obtain new clients; (v) the ability
to locate and hire IT professionals within new and existing markets; (vi) the
continued identification and training of corporate personnel; (vii) the ability
to anticipate, acquire, master and exploit new technologies as they develop,
(vii) the ability to anticipate the ramp-up rate of client projects and (ix) the
ability to manage expenses in anticipation of expected project revenue ramp-up.
There can be no assurance that the Company's historical revenue growth will
continue. Further, the Company's rapid growth and expansion has placed and could
continue to place a significant strain on the Company's management, personnel
and resources. The Company's ability to continue to manage its growth
successfully will require it to further enhance its management, financial and
information systems and controls. Finally, the Company's management has no
demonstrated experience in managing the Company during times of economic
downturn, and there can be no assurance that management can maintain
profitability or growth levels at such times. The failure to manage growth
effectively would have a material adverse effect on the Company's business,
operating results and financial condition.

CONCENTRATION OF REVENUES

     In fiscal year 1999, approximately 53% of the Company's revenues were
derived from five clients with one client, Prudential Insurance Company of
America, accounting for approximately 19% of the Company's revenues in 1999, 25%
of the Company's revenue in 1998 and 30% of the Company's revenue in 1997. J.P.
Morgan accounted for approximately 11% of the Company's revenues in 1999,
approximately 15% during fiscal year 1998 and 23% of revenues in 1997. During
fiscal years 1998 and 1997, approximately 58% and 79% were derived from its five
largest clients, respectively.

     Certain stockholders of the Company are significant PRT clients. Although
the Company has no reason to expect it, a client-stockholder could be less
inclined to maintain the same volume of business with the Company in the future
if such client-stockholder were to sell most or all of its shares of PRT Common
Stock.

POTENTIAL LIABILITY TO CLIENTS

     Many of the Company's engagements, including Year 2000 projects, involve
services that are critical to the operations of its clients' businesses and
provide benefits that may be difficult to quantify. Although the Company
attempts to contractually limit its liability for damages arising from errors,
mistakes, omissions or negligent acts in rendering its services, there can be no
assurance that its attempts to limit liability will be successful. Additionally,
the Company's attempts to contractually reduce liability with many of its
largest clients have met with limited success. The Company's failure or
inability to meet a client's expectations in the performance of its services
could result in a material adverse effect on the client's operations and,
therefore,

                                       16
<PAGE>   18

could give rise to claims against the Company or damage the Company's
reputation, which could have a material adverse effect on the Company's
business, operating results and financial condition.

RELIANCE ON KEY PERSONNEL

     The Company's future success depends on the continued services of certain
key management personnel, in particular, Dan S. Woodward, Chief Executive
Officer, and Stephen Michaelson, Chief Operating Officer, each of whom has
entered into an employment agreement with PRT. In addition, the Company's
continued growth depends on its ability to attract and retain capable management
personnel. Failure to do so or the loss of either of Messrs. Woodward or
Michaelson could have a material adverse effect on the Company's business,
operating results and financial condition.

CONTRACT RISK

     Most of the Company's contracts are terminable by the client following
limited notice and without early termination payments or liquidated damages due
to PRT. In addition, each stage of a project often represents a separate
contractual commitment at the end of which the client may elect to delay or not
to proceed to the next stage of the project. While, to date, none of the
Company's clients has terminated a material contract or materially reduced the
scope of a large project, there can be no assurance that one or more of the
Company's clients will not take such actions in the future. The delay,
cancellation or significant reduction in the scope of a large project or number
of projects could have a material adverse effect on the Company's business,
operating results and financial condition.

FIXED-PRICE ENGAGEMENTS

     The Company principally bills for its services on a time and materials or
line of code basis; however, some of the Company's contracts contain a cap on
the amount of fees the Company can charge. The Company occasionally has entered
into fixed-price billing engagements and may in the future enter into additional
engagements billed on a fixed-price basis. While the Company's business,
operating results and financial condition have not been materially adversely
affected by any failure of the Company to complete a fixed-price engagement
within budget in the past and the Company does not anticipate any such failure
in the future, any such failure could expose the Company to risks associated
with cost overruns, which could have a material adverse effect on the Company's
business, operating results and financial condition.

RISKS OF TECHNOLOGICAL CHANGE AND EVOLVING INDUSTRY STANDARDS

     The IT services industry is characterized by rapid technological change,
shifting client preferences and new product developments. The introduction of
competitive IT solutions embodying new technologies and the emergence of new
industry standards may render the Company's existing IT solutions, skills base
or underlying technologies obsolete or unmarketable. As a result, the Company
will be dependent in large part upon its ability to develop new IT solutions and
capabilities that address the increasingly sophisticated needs of its clients
and keep pace with new competitive service and product offerings and emerging
industry standards to achieve broad market acceptance. There can be no assurance
that: (i) the Company will be successful in developing and marketing new IT
solutions that respond to technological changes, shifting client requirements or
evolving industry standards; (ii) that the Company will not experience
difficulties that could delay or prevent the successful development,
introduction and marketing of these new IT solutions or (iii) its IT solutions
will adequately meet the requirements of the marketplace and achieve market
acceptance. Any failure to respond to technological change or evolving industry
standards could have a material adverse effect on the Company's business,
operating results and financial condition.

COMPETITION

     The Company experiences intense competition. The market for services such
as those PRT offers is very broad and such services are offered by a large
number of private and public companies, many of which are significantly larger
than, and have greater financial, technical and marketing resources than, PRT.
Addition-

                                       17
<PAGE>   19

ally, in certain sectors of the Company's business, particularly IT staffing,
there are few barriers to entry and new competitors do and are expected to enter
the market. As competitors enter the market to provide services similar to the
Company, PRT's ability to compete effectively will increasingly depend upon the
quality and price of its services. Competition could have a material adverse
effect on the Company's business, operating results and financial condition.

RISKS RELATED TO POSSIBLE ACQUISITIONS

     The Company has expanded and may continue to expand its operations through
the acquisition of additional businesses. See "Business -- Certain Acquisition
Transactions." There can be no assurance that the Company will be able to
identify, acquire or profitably manage additional businesses or successfully
integrate acquired businesses into the Company without substantial expenses,
delays or other operational or financial difficulty. Furthermore, acquisitions
may involve a number of special risks, including, but not limited to: (i)
diversion of management's attention, (ii) possible failure to retain key
acquired personnel, (iii) unanticipated events or circumstances, (iv) risks of
entering markets in which the Company has no or limited prior experience or (v)
legal liabilities and amortization of acquired intangible assets. Client
satisfaction or performance problems at a single acquired business could have a
material adverse effect on the reputation of the Company as a whole. In
addition, there can be no assurance that acquired businesses will achieve
anticipated financial performance. While the Company from time to time considers
acquisition opportunities, it has no existing binding agreements, understandings
or commitments to effect any material acquisition. The failure of the Company to
manage its acquisition strategy successfully could have a material adverse
effect on the Company's business, operating results and financial condition.

UNITED STATES GOVERNMENT REGULATION OF IMMIGRATION

     The Company recruits employees from around the world. Some of these
employees work in the United States under H-1B, L-1 or TN temporary work
permits. As of December 31, 1999, approximately 19% of PRT's worldwide workforce
was working under such temporary work permits in the United States. Although, to
date, PRT has not experienced difficulties in obtaining sufficient H-1B work
permits, in the future the Company may be unable to obtain work permits to bring
necessary employees to the United States for any number of reasons including,
without limitation, limits set by the United States Immigration and
Naturalization Service. Continued compliance with existing United States or
foreign immigration laws, or changes in such laws making it more difficult to
hire foreign nationals or limiting the ability of the Company to retain work
permit employees in the United States or employees working under work permits in
other countries, could increase the Company's cost of recruiting and retaining
the requisite number of IT professionals which could have a material adverse
effect on the Company's business, operating results and financial condition.

INTELLECTUAL PROPERTY RIGHTS

     In order to protect its proprietary rights in its various intellectual
properties, the Company currently relies on copyrights, trade secrets and
unpatented proprietary know-how which may be duplicated by others. The Company
employs various methods, including nondisclosure agreements and other
contractual arrangements with employees and suppliers and technical protective
measures to protect its proprietary know-how. As a signatory to the Berne
Convention, an international treaty, the government of Barbados has agreed to
recognize protections on copyrighted materials conferred under the laws of
foreign countries, including the laws of the United States. The Company believes
that laws, rules, regulations and treaties in effect in the United States and
Barbados are adequate to protect it from misappropriation or unauthorized use of
its intellectual property. However, there can be no assurance that such laws
will not change and, in particular, that the laws of Barbados will not change in
ways that may prevent or restrict the transfer of software components, libraries
and toolsets from Barbados to the United States. There can be no assurance that
the steps taken by the Company to protect its proprietary rights will be
adequate to deter misappropriation of its intellectual property, or that the
Company will be able to deter unauthorized use and take appropriate steps to
enforce its rights. In addition, the failure of such protective measures could
have a material adverse effect on the Company's business, operating results and
financial condition. There can be no assurance that other

                                       18
<PAGE>   20

persons will not independently develop such know-how or obtain access to it, or
independently develop technologies that are substantially equivalent or superior
to PRT's technology. The Company presently holds no patents or registered
copyrights, but PRT has several registered trademarks for "PRT" and the PRT
logo. A competitor of the Company recently announced the filing with the United
States Patent and Trademark Office of three patent applications relating to Year
2000 processes. The Company does not know the proprietary features of the
processes covered by such patent applications since United States patent
applications are not publicly available until the patents, if any, are issued.
Although the Company believes that its intellectual property rights, including
intellectual property rights licensed from third parties by the Company, do not
infringe on the intellectual property rights of others, there can be no
assurance that: (i) such a claim will not be asserted against the Company in the
future, (ii) assertion of such claims will not result in litigation or that the
Company would prevail in such litigation or be able to obtain a license for the
use of any infringed intellectual property from a third party on commercially
reasonable terms or (iii) any of PRT's software could be redesigned on an
economical basis or at all, or that any such redesigned software would be
competitive with the software of the Company's competitors. The Company expects
that the risk of infringement claims against the Company will increase if more
of PRT's competitors are able to successfully obtain patents for software
products and processes. Any such claims, regardless of their outcome, could
result in substantial costs and diversion of resources and could have a material
adverse effect on the Company's business, operating results and financial
condition.

CERTAIN ANTI-TAKEOVER EFFECTS

     The Company's Amended and Restated Certificate of Incorporation and Amended
and Restated By-Laws and the Delaware General Corporation Law include provisions
that may be deemed to have anti-takeover effects and may delay, deter or prevent
a takeover attempt that stockholders might consider in their best interests.
These include provisions under which only the Board of Directors, the Chairman
of the Board or the President may call meetings of stockholders and certain
advance notice procedures for nominating candidates for election to the Board of
Directors. Directors of the Company are divided into three classes and are
elected to serve staggered three-year terms. The Board of Directors of the
Company is empowered to issue up to 10,000,000 shares of preferred stock and to
determine the price, rights, preferences and privileges of such shares without
any further stockholder action. The existence of this "blank-check" preferred
stock could render more difficult or discourage an attempt to obtain control of
the Company by means of a tender offer, merger, proxy contest or otherwise. In
addition, this "blank-check" preferred stock, and any issuance thereof, may have
an adverse effect on the market price of the Company's Common Stock.

CONTROL BY PRINCIPAL STOCKHOLDERS

     As of March 10, 2000, the Mellinger family owned approximately 37.2% of the
outstanding shares of Common Stock and effectively controlled the vote on all
matters submitted to a vote of the Company's stockholders, including
extraordinary transactions such as mergers, sales of all or substantially all of
the Company's assets or going-private transactions. Such control may discourage
certain types of transactions involving an actual or potential change of control
of the Company, including transactions in which the holders of Common Stock
might receive a premium for their shares over prevailing market prices.

     The Mellinger family is comprised of: a) Douglas K. Mellinger,
Non-Executive Chairman of the Board of Directors and former Chief Executive
Officer of PRT. Douglas K. Mellinger beneficially owns approximately 10.7% of
the Company's outstanding shares; b) Gregory S. Mellinger, former Chief
Operating Officer, Director and President of the Company's Professional Services
division. Gregory S. Mellinger beneficially owns approximately 10.8% of the
Company's outstanding shares; c) Paul L. Mellinger, brother of Douglas and
Gregory Mellinger, who is not and never has been an employee of the Company.
Paul Mellinger owns approximately 11.2% of the Company's outstanding shares; d)
Jerome Mellinger and Barbara Davis Mellinger, parents of Douglas, Gregory and
Paul Mellinger, who beneficially own approximately 4.5% of the Company's
outstanding shares.

                                       19
<PAGE>   21

POSSIBLE VOLATILITY OF STOCK PRICE

     The stock market has from time to time experienced extreme price and volume
fluctuations that have often been unrelated to the operating performance of
particular companies. In addition, factors such as announcements of acquisitions
of businesses, technological innovations, new products or services or new client
engagements by the Company or its competitors or third parties, as well as
market conditions in the IT services industry or the flow of Company business,
may have a significant impact on the market price of the Company's Common Stock.

SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS

     As of December 31, 1999, the Company had an aggregate of 18,283,642 shares
of Common Stock and Non-Voting Common Stock outstanding, 4,600,000 of which were
freely tradeable without restriction or further registration under the
Securities Act of 1933 and the rules and regulations promulgated thereunder, as
amended (the "Securities Act"), except those shares, if any, owned or acquired
by affiliates of the Company. The remaining 13,683,642 shares in the aggregate
of Common Stock and Non-Voting Common Stock outstanding are "restricted
securities" within the meaning of Rule 144 under the Securities Act. The Company
and certain of the Company's stockholders have agreed not to offer, sell,
contract to sell or otherwise dispose of, directly or indirectly, any shares of
Common Stock, or any securities convertible into or Furthermore, on January 27,
2000, the Company filed a registration statement on Form S-8 registering
1,000,000 shares of Common Stock reserved for issuance to employees who elect to
purchase such Common Stock as an investment option under the Company's 401(k)
Plan.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

MARKET RISK

     Our accounts receivable are subject, in the normal course of business, to
collection risks. We regularly assess these risks and have established policies
and business practices to protect against the adverse effects of collection
risks. As a result, we do not anticipate any material losses in this area.

INTEREST RATE RISK

     Our investments are classified as cash and cash equivalents with original
maturities of three months or less. Therefore, changes in the market's interest
rates do not affect the value of the investments as recorded by us.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The Consolidated Financial Statements of PRT Group Inc. and Subsidiaries,
Exhibit 1.1 hereto, and the Independent Auditors' Report included therein, are
each incorporated by reference herein as Exhibit 1.1 hereto.

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

     There have been no disagreements with the Company's independent accountants
involving accounting and financial disclosure matters.

                                       20
<PAGE>   22

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     (a) The information called for by Item 10 with respect to identification of
directors of the Company is included in the Company's Proxy Statement for its
1999 Annual Meeting of Stockholders which is expected to be filed with the
Securities and Exchange Commission on or around April 14, 2000 (the "1999 Proxy
Statement").

     (b) The following table sets forth the executive officers of the Company
and their ages as of December 31, 1999 (collectively, the "Management").

<TABLE>
<CAPTION>
                NAME                   AGE                  POSITION WITH THE COMPANY
                ----                   ---                  -------------------------
<S>                                    <C>    <C>
Dan S. Woodward......................  39     President and Chief Executive Officer
Stephen E. Michaelson................  52     Chief Operating Officer and Executive Vice President
Rocco Mitarotonda....................  36     Chief Financial Officer and Senior Vice President,
                                              Finance
Jack D. Mullinax.....................  60     Executive Vice President, Human Resources
Kay E. Kienast.......................  50     Senior Vice President, Marketing and Strategy
Edward Williams......................  67     Executive Vice President, Sales
Stephen Barre........................  53     Senior Vice President, Sales
Richard L. Rosenfeld.................  43     General Counsel
</TABLE>

     Dan S. Woodward is President and Chief Executive Officer of PRT Group Inc.
Mr. Woodward came to PRT in May, 1999 from Electronic Data Systems (EDS), where
his last position was President of the Strategic Telecom Division, with
responsibility for EDS' global business relationships with clients such as AT&T,
BellAtlantic, GTE, TCI and Western Union. Prior to that, he served as Vice
President, Managed Network Solutions in the Communications Industry Group,
leading the strategy and market development teams for the EDS/BellSouth managed
network solutions marketing alliance. Prior to joining EDS in August 1997, Mr.
Woodward served in a variety of executive and management roles at IBM Technology
Service Solutions (TSS). Mr. Woodward was a winner of IBM's "National Branch of
the Year" award for two consecutive years. In 1993, he was appointed General
Manager of IBM's Network Solutions, creating the client/server consulting and
professional services unit of TSS which grew from a start-up under Mr.
Woodward's command to an $80 million new service-line for IBM in two years. In
1995, Mr. Woodward was named Vice President and Area General Manager, leading
all business lines for TSS in the southwestern U.S.

     Stephen E. Michaelson is Chief Operating Officer of PRT Group Inc. Mr.
Michaelson came to PRT in July 1997 with the acquisition of Computer Management
Resources, Inc. This was a 100-person IT services firm founded in 1981,
headquartered in Connecticut and led by Mr. Michaelson. Mr. Michaelson has been
involved in the IT services industry for most of his 30-year career. He began
his IT career as a programmer and software developer. Seeing the need in the
industry for software development professionals with a core competency in
structured development methods spurred Mr. Michaelson to form his own IT
services firm. Mr. Michaelson most recently served as the CIO of PRT,
spearheading the Y2K compliance readiness effort. This involved simplifying the
physical infrastructure, creating an internal customer care facility, and
negotiating service-level agreements with all other internal groups, including
measurement metrics and reporting.

     Rocco Mitarotonda is the Chief Financial Officer of PRT Group Inc. Mr.
Mitarotonda joined PRT Group Inc. in March 1997 as Corporate Controller and was
responsible for SEC reporting, financial analysis, mergers and acquisitions as
well as finance policy and procedures. Later he was named Treasurer and in June
of 1999 was named acting Chief Financial Officer with the formal appointment to
CFO in October 1999. While at PRT, Mr. Mitarotonda developed and implemented a
series of very effective management reporting tools, well crafted and effective
corporate finance policies as well as significantly improved the efficiency and
productivity of the finance and accounting organizations. Prior to working at
PRT Group, Mr. Mitarotonda was the Assistant Controller and Financial Reporting
Manager of EIS International, Inc. (NASDAQ: EISI),

                                       21
<PAGE>   23

a publicly traded software development corporation. Mr. Mitarotonda, in addition
to his private company experience, spent six years in public accounting at Ernst
& Young, as well as a mid-size firm, managing audit and tax matters. Mr.
Mitarotonda graduated from Pace University with a B.B.A. degree in accounting.
He is a member of the American Institute of Certified Public Accountants and the
New York State Society of Certified Public Accountants.

     Jack D. Mullinax is the Executive Vice President, Human Resources for PRT
Group Inc. Mr. Mullinax joined PRT Group Inc. in July 1999. During his 30 year
career at IBM, Mr. Mullinax rose through the ranks of the Field Engineering
Division to the posts of Branch Manager, Area Manager of Finance, Planning and
Administration, National Service Division Manager of Field Operations as well as
Region Manager, Southern California. In 1990, Mr. Mullinax took his experience
in the service operations and finance arena and moved into Human Resource
Management. He later moved to Technology Services Solutions (TSS), a subsidiary
of IBM, as the Senior Human Resources Manager supporting 4000 employees across
the United States. During his tenure at TSS he facilitated the ISO 9000
certification of the company. Mr. Mullinax did his undergraduate work at
Southern Illinois University in Edwardsville, Illinois and Colgate University in
Hamilton, New York and received an MBA from Southern Methodist University in
Dallas, Texas.

     Kay E. Kienast is the Senior Vice President, Marketing & Strategy for PRT
Group Inc. Ms. Kienast joined PRT in July 1999 and is responsible for developing
PRT's strategic portfolio; focusing on channels and alliances; refining and
defining service offerings; and marketing and branding the corporate identity.
In her previous positions, Ms. Kienast has served as Vice President, Global
Segment and Solutions Development for Newbridge Networks, leading the
development of mass-customized service offerings. Ms. Kienast has held a variety
of management and executive positions in sales and marketing at Unisys, DEC,
Bell Atlantic and Dell. Ms. Kienast holds BS and MS degrees from Kansas State
University, and an Ed.D. degree from East Texas State University. Ms. Kienast
resigned her employment with the Company as of March 31, 2000.

     Edward D. Williams is the Executive Vice President, Strategic Outsourcing
of PRT Group Inc. Mr. Williams joined PRT Group Inc. in August 1999. Prior to
joining PRT, Mr. Williams served as the Senior Vice President, Outsourcing for
Computer Horizons Corporation. Prior to that he was the President of Strategic
Outsourcing Services, which was acquired by Computer Horizons Corporation in
1994. Mr. Williams also served as the CIO at American Broadcasting Companies,
Inc. (ABC), for 16 years and later as CIO for Blue Cross/Blue Shield of New
Jersey. Earlier in his career, he held a variety of management and executive
positions with Union Carbide Corporation, Cresap, McCormick and Paget, General
Electric Company and Republic Aviation Corporation. He was President and founder
of three outsourcing companies, Business Information System Division of Science
Management Corporation, GBM Servicious De Informacion Tecnolo'gicos S.A.
(Central and South America) and Strategic Outsourcing Services Incorporated. Mr.
Williams has participated on various information technology committees for the
United States Navy (Civilian Advisor), the National Industrial Traffic League,
and the American Association for Railroads. A U.S. Army veteran, Mr. Williams
holds the Combat Infantry Badge, Purple Heart with two clusters, Bronze Star
with a V and the Silver Star with one cluster. He is a graduate of Hofstra
University in Hempstead, New York, where he received a B.B.A. in Industrial
Management. He studied for his M.B.A. at Fairleigh Dickinson University.

     Stephen Barre is the Executive Vice President, Sales for PRT Group Inc. Mr.
Barre, who joined PRT in September 1999, has overall responsibility for the
company's corporate wide sales strategy and sales operation. Mr. Barre's career
in the IT services industry spans some 26 years. Mr. Barre began his career as a
software sales professional at IBM and held a variety of positions with
increasing responsibility in sales and general management. At Technology Service
Solutions, the former IBM and Kodak joint venture, Mr. Barre led the design and
implementation of the Network Solutions Division global sales team, as well as
alliance and channel strategies, producing record growth as well as industry
recognized channel productivity programs. Mr. Barre earned his bachelor's degree
in English from the University of West Florida. He went on to graduate from
Officer Candidate School in Quantico, Va. and served as a navigator in the U.S.
Marine Corps. For combat duty served in Vietnam, Mr. Barre was awarded the
Single Mission Air Medal with a Bronze Star and six Air Medals.

                                       22
<PAGE>   24

     Richard L. Rosenfeld, Esq. is the Senior Vice President, General Counsel &
Secretary of PRT Group Inc. Mr. Rosenfeld joined PRT in July 1997 as General
Counsel and was named Secretary in 1999. Prior to joining PRT, Mr. Rosenfeld
served as Corporate Counsel & Assistant Secretary of EIS International Inc.
(NASDAQ: EISI), a provider of telecommunications technology for call centers.
Mr. Rosenfeld served as a staff Attorney at Reuters America, Inc., providing
legal counsel as well as developing and negotiating contracts supporting IT
transaction based services for Reuters trading room systems line of business.
Prior to his public company experience, Mr. Rosenfeld served as a prosecutor and
Assistant District Attorney for New York City. Mr. Rosenfeld graduated from
Wesleyan University with a BA degree and a JD from Tulane University Law School.

ITEM 11.  EXECUTIVE COMPENSATION

     The information called for by Item 11 with respect to management
remuneration and transactions is incorporated herein by reference to the
material under the caption "Executive Compensation" in the 2000 Proxy Statement.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The information called for by Item 12 with respect to security ownership of
certain beneficial owners and management is incorporated herein by reference to
the material under the caption "Certain Holders of Voting Securities" in the
2000 Proxy Statement.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

                              CERTAIN TRANSACTIONS

     The information called for by Item 13 with respect to transactions between
the Company and certain related entities is incorporated herein by reference to
the material under the caption "Certain Transactions" in the 2000 Proxy
Statement.

     On June 30, 1999, PRT announced that Douglas K. Mellinger, Chairman and
Chief Executive Officer of PRT(i) resigned his positions as Chairman of the
Board of Directors (the "Board") and Chief Executive Officer of the Company, and
all other offices of and its affiliates, and (ii) was appointed to the newly
created position of Non-Executive Chairman of the Board. Douglas Mellinger
continues to serve as a director of the Company. The Company further announced
that Gregory S. Mellinger, former Chief Operating Officer and current President
of PRT's Professional Services Group business unit resigned his positions as an
officer and director of PRT, and all other offices of PRT and its affiliates.
Each of Douglas Mellinger and Gregory Mellinger will remain employees of PRT to
consult with the senior management of PRT until October 1, 2000.

     Under the agreements with PRT and until October 1, 2000 Douglas Mellinger
and Gregory Mellinger shall receive continued payment of their salary at the
time of their resignation from the Company and are entitled during the Salary
Continuation Period to (i) participate in the Company's 401(k) plan and receive
a $1,500 per month automobile allowance. As part of the agreement with Messrs.
Mellinger the Company paid $25,000 of their legal fees and forgave $14,700 of
outstanding loans due from each former officer. No other employee benefits are
available to Douglas Mellinger and Gregory Mellinger.

     Also on June 30, 1999, PRT entered into a Nomination Agreement with Douglas
Mellinger, Gregory Mellinger and certain members of the Mellinger family,
pursuant to which the Mellinger family will have certain rights to nominate up
to three persons acceptable to the Board for appointment and election to the
Board, which shall include Douglas Mellinger and initially include Ronald
Weinberg. These nomination rights will diminish to two and one nomination as the
aggregate holdings of the Mellinger family decrease, and such rights will
terminate at the earlier to occur of (i) such time as the Mellinger family
collectively holds less than 10% of the outstanding common stock of PRT, and
(ii) June 30, 2005, unless the Nomination Agreement is earlier terminated at any
time at the option of the Mellinger family. In addition, pursuant to the
Nomination Agreement, for so long as the Mellinger family shall have the above
described nomination rights, the

                                       23
<PAGE>   25

Mellinger family has agreed to vote for the slate of directors nominated by PRT.
The Nomination Agreement also contains certain preemptive rights.

     The Company entered into an employment agreement with Dan S. Woodward
("Woodward Agreement"). The Woodward Agreement has a term of 3 years commencing
on May 17, 1999. Under the agreement Mr. Woodward shall serve as President and
Chief Executive Officer, earning a base salary of $318,000, with a target bonus
opportunity of 100% of the base salary under the annual incentive award plan
determined by the Board of Director's Compensation Committee. For 1999, Mr.
Woodward was guaranteed $150,000 performance bonus. The Company agreed to pay
Mr. Woodward a sign-on bonus in the aggregate sum (net of all payroll taxes) of
$200,000 in cash within three business days of the start of Mr. Woodward's
employment with the Company and an additional sign on bonus of the cash
equivalent of 40,000 shares of the Company's stock -- as of the date of the date
he joined the Company -- such additional sign on bonus to be paid on or before
January 15, 2000. In addition, the Company awarded Mr. Woodward 710,000 stock
options and agreed to pay over the term of the Woodward Agreement up to a total
of $125,000 as reimbursement for all reasonable and documented costs associated
with his relocating his residence, traveling to and from his residence, local
housing, automobile costs and other costs directly related to his relocation,
housing or travel. Future raises and other compensation to be determined by the
Board of Director's Compensation Committee.

     If Mr. Woodward's employment is terminated, without cause (as defined in
the Woodward Agreement) PRT shall continue to pay Mr. Woodward (i) the annual
base salary at the date of termination for the greater of one (1) year or
remainder of the term and (ii) Any earned performance bonus prorated as of the
date of termination. PRT shall also continue to pay the premiums for any
employee benefits including relocation allowance and vacation time for the
greater of one (1) year or remainder of the term.

     Any stock options granted to Mr. Woodward shall be exercisable as per the
original vesting schedule of the applicable option grant and the Common Stock
acquired pursuant to such exercise may be sold by Mr. Woodward subject to no
restrictions by PRT (other than those imposed by the PRT's then current insider
trading policy or by federal and state securities laws). If Mr. Woodward is
terminated without cause on or before July 29, 2000 and the total value to Mr.
Woodward of the options and any additional stock options granted to Mr. Woodward
are less than $1,000,000, then the PRT shall be liable to pay Mr. Woodward the
difference between $1,000,000 and the total value of the all options held by Mr.
Woodward. For purposes of this section the value of Mr. Woodward's options shall
be determined, as of the effective date of Mr. Woodward's termination without
cause, by multiplying the number of Mr. Woodward's vested stock options times,
the sum of the market price of the PRT's common stock less the grant price of
all vested options. This payment shall be made to Mr. Woodward in 12 equal
monthly installments, less any applicable taxes, unless otherwise agreed in
writing by the parties.

     Employment Agreements of the officers of PRT are described below. Under
their respective Employment Agreements, Mr. Stephen Michaelson will serve as
Chief Operating Officer, Vice President, and Executive Vice President of
Operations, earning a base salary of $200,000; Mr. Jack Mullinax will serve as
Vice President and EVP of Human Resources, earning a base salary of $150,000,
Ms. Kay Kienast will serve as Vice President and SVP of Marketing & Strategy,
earning a base salary of $200,000, Mr. Rocco Mitarotonda will serve as Chief
Financial Officer, Treasurer and SVP of Finance, earning a base salary of
$150,000 and Mr. Richard Rosenfeld will serve as General Counsel, Secretary, and
SVP of Finance earning a base salary of $150,000, in each case with future
raises and other compensation to be determined by the Board of Director's
Compensation Committee. The above mentioned officers of the Company (the
"Officers") each have a 2 year Term  -- commencing August 1, 1999 -- under their
respective employment agreements. The Officers were awarded the following stock
options upon entering into their employment agreements: Michaelson 100,000;
Mullinax 70,000; Kienast 70,000; Mitarotonda 41,500; and, Rosenfeld 40,000. If
an Officer employment is terminated, Without Cause (as defined in the applicable
employment agreements) during the Term, each Officer will be entitled to receive
one (1) year salary continuation of base salary and any performance bonus
pro-rated to the date of termination. In addition each all options of each
Officer shall vest will vest upon a termination Without Cause.

                                       24
<PAGE>   26

                                    PART IV

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

     (a)(1) Financial Statements

            See Index to Consolidated Financial Statements of PRT Group Inc. and
            Subsidiaries, Exhibit 1.1 hereto.

        (2) Financial Statement Schedules

            See Valuation and Qualifying Accounts.

        (3) Exhibits

<TABLE>
<CAPTION>
EXHIBIT
  NO.                            DESCRIPTION
-------                          -----------
<C>      <S>
  1.1    Employment Agreement of Dan S. Woodward
  2.1    Consent of Independent Auditors
 27.1    Financial Data Schedule
</TABLE>

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

(1) Incorporated by reference to the Current Report on Form S-8 filed with the
    Commission on January 24, 2000. (File No. 333-95247).

(2) Incorporated by reference to the Current Report on Form 8-K filed with the
    Commission on July 15, 1999.

(3) Incorporated by reference to the Current Report on Form 8-K filed with the
    Commission on April 15, 1998. (File No. 0-23315)

(4) Incorporated by reference to the Current Report on Form 8-K filed with the
    Commission on January 29, 1998.

                                       25
<PAGE>   27

                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                          PRT GROUP INC.

<TABLE>
<S>                                                      <C>
Date: April 14, 2000                                     By: /s/ DAN S. WOODWARD
                                                         ----------------------------------------------
                                                             Dan S. Woodward
                                                             President and Chief Executive Officer
</TABLE>

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons in the capacities indicated on
the dates indicated:

<TABLE>
<S>                                                      <C>
Date: April 14, 2000                                     By: /s/ DAN S. WOODWARD
                                                             ------------------------------------------
                                                             Dan S. Woodward
                                                             President and Chief Executive Officer

Date: April 14, 2000                                     By: /s/ ROCCO MITAROTONDA
                                                             ------------------------------------------
                                                             Rocco Mitarotonda
                                                             Chief Financial Officer

Date: April 14, 2000                                     By: /s/ ESTHER DYSON
                                                             ------------------------------------------
                                                             Esther Dyson
                                                             Director

Date: April 14, 2000                                     By: /s/ MICHAEL ENTHOVEN
                                                             ------------------------------------------
                                                             Michael Enthoven
                                                             Director

Date: April 14, 2000                                     By: /s/ ROBERT P. FORLENZA
                                                             ------------------------------------------
                                                             Robert P. Forlenza
                                                             Director

Date: April 14, 2000                                     By: /s/ CRAIG D. GOLDMAN
                                                             ------------------------------------------
                                                             Craig D. Goldman
                                                             Director

Date: April 14, 2000                                     By: /s/ ISAAC SHAPIRO
                                                             ------------------------------------------
                                                             Isaac Shapiro
                                                             Director

Date: April 14, 2000                                     By: /s/ IRWIN J. SITKIN
                                                             ------------------------------------------
                                                             Irwin J. Sitkin
                                                             Director

Date: April 14, 2000                                     By: /s/ JACK L. RIVKIN
                                                             ------------------------------------------
                                                             Jack L. Rivkin
                                                             Director

Date: April 14, 2000                                     By: /s/ RONALD E. WEINBERG
                                                             ------------------------------------------
                                                             Ronald Weinberg
                                                             Director
</TABLE>

                                       26
<PAGE>   28

                        PRT GROUP INC. AND SUBSIDIARIES

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<S>                                                           <C>
PRT GROUP INC. AND SUBSIDIARIES

Report of Independent Auditors..............................  F-2
Consolidated Balance Sheets as of December 31, 1998 and
  1999......................................................  F-3
Consolidated Statements of Operations for the years ended
  December 31, 1997, 1998 and 1999..........................  F-4
Consolidated Statements of Stockholders' Equity (Deficit)
  for the years ended December 31, 1997, 1998 and 1999......  F-5
Consolidated Statements of Cash Flows for the years ended
  December 31, 1997, 1998 and 1999..........................  F-6
Notes to Consolidated Financial Statements..................  F-7
</TABLE>

                                       F-1
<PAGE>   29

                         REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders
PRT Group Inc.

     We have audited the accompanying consolidated balance sheets of PRT Group
Inc. and Subsidiaries as of December 31, 1999 and 1998, and the related
consolidated statements of operations, stockholders' equity (deficit) and cash
flows for each of the three years in the period ended December 31, 1999. Our
audits also included the financial statement schedule listed in the Index at
Item 14(a). These financial statements and schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.

     We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the 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 consolidated financial position of
PRT Group Inc. and Subsidiaries at December 31, 1999 and 1998, the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.

                                                  /s/ ERNST & YOUNG LLP

New York, New York
January 31, 2000, except for
  paragraph 1 of Note 16 and
  Note 17, as to which the
  date is April 14, 2000

                                       F-2
<PAGE>   30

                        PRT GROUP INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS
                    (In thousands, except number of shares)

<TABLE>
<CAPTION>
                                                                  DECEMBER 31
                                                              --------------------
                                                                1998        1999
                                                              --------    --------
<S>                                                           <C>         <C>
ASSETS
Current assets:
  Cash and equivalents......................................  $ 14,772    $  5,052
  Marketable securities.....................................       609       1,810
  Accounts receivable, net of allowance of $539 in 1998 and
     $529 in 1999...........................................    14,639       8,712
  Prepaid expenses and other current assets.................     2,106       1,203
                                                              --------    --------
          Total current assets..............................    32,126      16,777
Fixed assets, net...........................................     9,696       6,507
Goodwill, net...............................................    20,504      16,863
Other assets................................................       456         388
                                                              --------    --------
          Total assets......................................  $ 62,782    $ 40,535
                                                              ========    ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accrued compensation......................................  $  3,610    $  2,350
  Accounts payable and other accrued expenses...............     3,972       4,534
  Current portion of capital lease obligations..............       456         227
  Deferred revenue..........................................       511         632
                                                              --------    --------
          Total current liabilities.........................     8,549       7,743
Note payable................................................     1,000       1,000
Capital lease obligations, net of current portion...........       424         135
Deferred rent...............................................       422         386
                                                              --------    --------
          Total liabilities.................................    10,395       9,264
Commitments.................................................        --          --
Series A redeemable preferred stock, $0.01 par value;
  authorized -- 5,000,000 shares; none issued and
  outstanding at December 31, 1998 and 1999.................        --          --
Common stockholders' equity:
  Common stock, $.001 par value; authorized -- 50,000,000
     shares; issued and outstanding -- 18,245,571 shares at
     December 31, 1998 and 18,283,642 shares at December 31,
     1999...................................................        18          18
  Additional paid-in capital................................    86,262      86,361
  Accumulated deficit.......................................   (33,893)    (55,108)
                                                              --------    --------
          Total common stockholders' equity.................    52,387      31,271
                                                              --------    --------
          Total liabilities and stockholders' equity........  $ 62,782    $ 40,535
                                                              ========    ========
</TABLE>

See accompanying notes.
                                       F-3
<PAGE>   31

                        PRT GROUP INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                     (In thousands, except per share data)

<TABLE>
<CAPTION>
                                                                YEARS ENDED DECEMBER 31
                                                         --------------------------------------
                                                            1997          1998          1999
                                                         ----------    ----------    ----------
<S>                                                      <C>           <C>           <C>
Revenues...............................................  $   59,816    $   85,607    $   65,359
Cost of revenues.......................................      40,898        64,096        47,815
                                                         ----------    ----------    ----------
Gross profit...........................................      18,918        21,511        17,544
Selling, general and administrative expenses...........      19,332        34,214        31,441
Restructuring charges..................................          --            --         7,483
                                                         ----------    ----------    ----------
Loss from operations...................................        (414)      (12,703)      (21,380)
Other income (expense):
  Interest expense.....................................        (577)         (455)         (203)
  Interest income......................................         613         1,118           368
                                                         ----------    ----------    ----------
Loss before income taxes...............................        (378)      (12,040)      (21,215)
Income tax expense.....................................         175            --            --
                                                         ----------    ----------    ----------
Net loss...............................................  $     (553)   $  (12,040)   $  (21,215)
                                                         ==========    ==========    ==========
Basic and diluted net loss per share...................  $     (.04)   $     (.66)   $    (1.16)
                                                         ----------    ----------    ----------
Number of shares used in computing basic and diluted
  net loss per share...................................  14,728,087    18,213,252    18,274,705
                                                         ==========    ==========    ==========
</TABLE>

See accompanying notes.
                                       F-4
<PAGE>   32

                        PRT GROUP INC. AND SUBSIDIARIES

           CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
                  YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
                    (In thousands, except number of shares)

<TABLE>
<CAPTION>
                                  COMMON STOCK       ADDITIONAL                 CUMULATIVE                          COMPREHENSIVE
                               -------------------    PAID-IN     ACCUMULATED   TRANSLATION   TREASURY                 INCOME
                                 SHARES     AMOUNT    CAPITAL       DEFICIT     ADJUSTMENT     STOCK      TOTAL        (LOSS)
                               ----------   ------   ----------   -----------   -----------   --------   --------   -------------
<S>                            <C>          <C>      <C>          <C>           <C>           <C>        <C>        <C>
Balance at December 31,
  1996.......................  10,537,500    $11      $   936      $ (2,617)       $(11)       $(400)    $ (2,081)    $ (3,280)
                                                                                                                      ========
  Net loss...................          --     --           --          (553)         --           --         (553)        (553)
  Exercise of stock
    options..................      19,000     --           82            --          --           --           82
  Issuance of common stock
    for compensation.........       7,407     --          100            --          --           --          100
  Accretion of redeemable
    preferred stock..........          --     --           --       (17,925)         --           --      (17,925)
  Dividends on redeemable
    preferred stock and
    common stock warrants....          --     --           --          (758)         --           --         (758)
  Issuance of common stock in
    connection with
    acquisition of CMR.......     119,181     --        1,430            --          --           --        1,430
  Issuance of common stock,
    net of issuance costs....   3,850,000      3       44,919            --          --           --       44,922
  Exchange of subsidiary
    warrants.................          --     --          551            --          --           --          551
  Issuance of common stock in
    connection with exercise
    of common stock
    warrants.................     936,365      1        3,524            --          --           --        3,525
  Conversion of redeemable
    preferred stock..........   2,759,610      3       34,782            --          --           --       34,785
  Foreign currency
    translation adjustment...          --     --           --            --          11           --           11           11
                               ----------    ---      -------      --------        ----        -----     --------     --------
Balance at December 31,
  1997.......................  18,229,063     18       86,324       (21,853)         --         (400)      64,089     $   (542)
                                                                                                                      ========
  Net loss...................          --     --           --       (12,040)         --           --      (12,040)     (12,040)
  Exercise of stock
    options..................      88,125     --          478            --          --           --          478
  Shares transferred into
    treasury.................          --     --           --            --          --          (44)         (44)
  Additional costs related to
    the initial public
    offering.................          --     --          (96)           --          --           --          (96)
  Retirement of treasury
    stock....................     (71,617)    --         (444)           --          --          444           --
                               ----------    ---      -------      --------        ----        -----     --------     --------
Balance at December 31,
  1998.......................  18,245,571     18       86,262       (33,893)         --           --       52,387     $(12,040)
                                                                                                                      ========
  Net loss...................          --     --           --       (21,215)         --           --      (21,215)     (21,215)
  Exercise of stock
    options..................      38,071     --           99            --          --           --           99
                               ----------    ---      -------      --------        ----        -----     --------     --------
Balance at December 31,
  1999.......................  18,283,642    $18      $86,361      $(55,108)       $ --        $  --     $ 31,271     $(21,215)
                               ==========    ===      =======      ========        ====        =====     ========     ========
</TABLE>

                                       F-5
<PAGE>   33

                        PRT GROUP INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                 YEARS ENDED DECEMBER 31
                                                             --------------------------------
                                                               1997        1998        1999
                                                             --------    --------    --------
<S>                                                          <C>         <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss...................................................  $   (553)   $(12,040)   $(21,215)
Adjustments to reconcile net loss to net cash used in
  operating activities net of business acquired:
  Depreciation and amortization............................     1,988       4,688       4,840
  Gain on sale of fixed assets.............................        --          --         (10)
  Compensation expense.....................................       100          --          --
  Amortization of debt discount............................       231          --          --
  Provision for doubtful accounts..........................       212         205         (10)
  Assets written off.......................................        --         633       1,729
  Goodwill impairment......................................        --          --       2,517
  Deferred income taxes....................................       (56)        (33)         --
  Change in foreign exchange rate..........................        11          --          --
  Deferred rent............................................        25         355         (36)
     Changes in operating assets and liabilities:
     Accounts receivable...................................    (9,410)      1,770       5,937
     Prepaid expenses and other current assets.............    (1,456)       (172)        903
     Other assets..........................................      (245)        141          98
     Accrued compensation..................................     1,356        (347)     (1,260)
     Accounts payable and other accrued expenses...........     1,961      (1,423)        562
Deferred revenue...........................................       108        (460)        121
                                                             --------    --------    --------
Net cash used in operating activities......................    (5,728)     (6,683)     (5,824)
                                                             --------    --------    --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of fixed assets..................................    (6,855)     (4,893)     (2,423)
Purchases of marketable securities.........................   (14,622)       (108)     (1,756)
Sales of marketable securities.............................        --      14,121         555
Proceeds from sale of fixed assets.........................        --          --          67
Purchase of net assets of CMR, net of cash acquired........    (2,750)         --          --
Purchase of net assets of ACT, net of cash acquired........        --     (13,010)         --
Purchase of net assets of ISPI, net of cash acquired.......        --      (2,745)         --
Return of cash paid for ISPI acquisition...................        --          --          80
Other assets...............................................        --        (300)         --
                                                             --------    --------    --------
Net cash used in investing activities......................   (24,227)     (6,935)     (3,477)
                                                             --------    --------    --------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings under line of credit............................     3,850          --          --
Repayments under line of credit............................    (3,850)         --          --
Advances received from client..............................       632          --          --
Repayment of note payable..................................        --      (1,182)         --
Issuance of common stock, net of issuance costs of
  $1,720...................................................    44,922         (96)         --
Exercise of stock options..................................        82         478          99
Dividends paid.............................................      (852)         --          --
Principal payments under capital lease obligations.........      (186)       (309)       (518)
                                                             --------    --------    --------
Net cash provided by (used in) financing activities........    44,598      (1,109)       (419)
                                                             --------    --------    --------
Net increase (decrease) in cash and equivalents............    14,643     (14,727)     (9,720)
Cash and cash equivalents at beginning of period...........    14,856      29,499      14,772
                                                             --------    --------    --------
Cash and equivalents at end of period......................  $ 29,499    $ 14,772    $  5,052
                                                             ========    ========    ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid..............................................  $    275    $    307    $    191
                                                             ========    ========    ========
Income taxes paid..........................................  $    569    $    244    $     98
                                                             ========    ========    ========
NONCASH FINANCING ACTIVITIES
Acquisition of fixed assets through capital leases.........  $    732    $     39    $     --
                                                             ========    ========    ========
</TABLE>

                                       F-6
<PAGE>   34

                        PRT GROUP INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999

1.  DESCRIPTION OF BUSINESS

     The accompanying consolidated financial statements include the accounts of
PRT Group Inc. ("PRT"), and its wholly-owned subsidiaries, (collectively, the
"Company"). PRT is a provider of information technology solutions including;
Strategic Consulting, Project Solutions and Staff Augmentation.

     The Company has sales and account management offices located in
Connecticut, New York, and Virginia and software development centers in
Barbados, W.I. and Connecticut.

     In November 1997, the Company consummated its Initial Public Offering
("IPO") and realized approximately $44,826,000, net of issuance costs of
$1,720,000, upon the sale of 3,850,000 shares of common stock. In addition,
750,000 shares were sold by existing shareholders. In December 1997, an
additional 140,000 shares were sold by existing shareholders upon exercise of
the underwriter's over-allotment option.

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

  Revenue Recognition

     Revenue from time and materials contracts is recognized during the period
in which the related services are provided. Revenue from fixed price contracts
is recognized using the percentage-of-completion method. Cash payments received
but unearned are recorded as deferred revenue.

  Principles of Consolidation

     The consolidated financial statements include the accounts of PRT and its
subsidiaries. All significant intercompany accounts and transactions have been
eliminated in consolidation.

  Research and Software Development Costs

     In accordance with Statement of Financial Accounting Standards No. 86,
"Accounting for Costs of Computer Software to be Sold, Leased or Otherwise
Marketed," the Company capitalizes costs incurred to develop new software
products upon determination that technological feasibility has been established
for the product, whereas costs incurred prior to the establishment of
technological feasibility are charged to expense. Research and software
development costs of approximately $43,000 were expensed by the Company and are
included in selling, general and administrative expenses. In 1997, the Company
capitalized $160,000 of software development costs. During 1998, the Company
determined that no future benefit would be derived from such assets and expensed
the unamortized balance in 1998. No software development costs were capitalized
in 1998 and 1999.

  Fair Value of Financial Instruments

     The carrying values of financial instruments approximate their estimated
fair value as a result of variable market interest rates and the short-term
maturity of these instruments.

  Cash and Equivalents and Marketable Securities

     Cash and equivalents includes all cash, demand deposits, money market
accounts and debt instruments purchased with an original maturity of three
months or less. Marketable securities are debt instruments purchased with a
maturity of more than three months.

     The Company classifies its investments in debt securities, including those
considered to be cash equivalents, as securities held-to-maturity and carries
them at amortized cost, which approximates market

                                       F-7
<PAGE>   35
                        PRT GROUP INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

value, in the accompanying consolidated balance sheets. The amortized cost of
such securities is included in either cash and equivalents or marketable debt
securities.

     The Company's investment in common stock is classified as trading
securities and stated at fair market value. Gains and losses, both realized and
unrealized, are included as a component of current earnings. Realized gains and
losses are determined based on specific identification of securities sold.

  Fixed Assets

     Fixed assets are stated at cost and depreciation on furniture and
equipment, computer equipment, and software is calculated on the straight-line
method over the estimated useful lives of the assets ranging from three to seven
years. Equipment held under capital leases and leasehold improvements are
amortized using the straight-line method over the shorter of the lease term or
estimated useful life of the asset.

  Income Taxes

     The Company accounts for income taxes on the liability method. Under this
method, deferred tax assets and liabilities are recognized with respect to the
future tax consequences attributable to differences between the financial
statement carrying values and tax bases of existing assets and liabilities 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 the period that includes the enactment date.

  Use of Estimates

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

  Goodwill

     Goodwill is being amortized over 20 years using the straight-line method.
The Company systematically reviews the recoverability of its goodwill by
comparing the unamortized carrying value to anticipated undiscounted future cash
flows. Any impairment is charged to expense when such determination is made.
Accumulated amortization was $1,188,000 and $2,070,000 as of December 31, 1998
and 1999, respectively.

  Net Loss Per Share

     The Company calculates net loss per share as required by SFAS No. 128,
"Earnings per Share". Basic earnings per share excludes any dilution for common
stock equivalents and is computed on the basis of net loss divided by the
weighted average number of common shares outstanding during the relevant period.
Diluted earnings per share reflects the potential dilution that could occur if
options or other securities or contracts entitling the holder to acquire shares
of common stock were exercised or converted, resulting in the issuance of
additional shares of common stock that would then share in earnings. However,
diluted earnings per shares does not consider such dilution if its effect would
be antidilutive.

                                       F-8
<PAGE>   36
                        PRT GROUP INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  Concentration of Credit Risk

     Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash, cash equivalents,
marketable securities and accounts receivables. Concentrations of credit risk
with respect to accounts receivables are limited due to the creditworthiness of
customers comprising the Company's customer base. Management regularly monitors
the creditworthiness of its customers and believes that it has adequately
provided for any exposure to potential credit losses.

  Reclassifications

     Certain amounts in the prior year's financial statements have been
reclassified to conform to the current year's presentation.

3.  CASH EQUIVALENTS AND MARKETABLE SECURITIES

     The following is a summary of the Company's marketable securities, which
are classified as cash equivalents and marketable securities (in thousands):

<TABLE>
<CAPTION>
                                                                GROSS         GROSS       ESTIMATED
                                                              UNREALIZED    UNREALIZED     MARKET
                                                    COST        GAINS         LOSSES        VALUE
                                                   -------    ----------    ----------    ---------
<S>                                                <C>        <C>           <C>           <C>
DECEMBER 31, 1998
Cash Equivalents.................................  $13,353       $ --          $--         $13,353
Marketable Debt Securities:
  Corporate Obligation...........................      502         --           --             502
  Common Stock...................................      152         --           45             107
                                                   -------       ----          ---         -------
                                                   $   654       $ --          $45         $   609
                                                   =======       ====          ===         =======
          Total..................................  $14,007       $ --          $45         $13,962
                                                   =======       ====          ===         =======
DECEMBER 31, 1999
Cash Equivalents.................................  $ 4,653       $ --          $--         $ 4,653
Marketable Debt Securities:
  Commercial Paper...............................      732       $ --          $--             732
  Corporate Obligation...........................    1,025       $ --           --           1,025
  Common Stock...................................      128       $ --           75              53
                                                   -------       ----          ---         -------
                                                   $ 1,885       $ --          $75         $ 1,810
                                                   -------       ----          ---         -------
          Total..................................  $ 6,538       $ --          $75         $ 6,463
                                                   =======       ====          ===         =======
</TABLE>

     All of the Company's investments in debt securities are classified as
held-to-maturity and, at December 31, 1999, have scheduled maturities of less
than one year. There were no gross realized gains or losses on sales of
marketable securities during 1998 or 1999.

                                       F-9
<PAGE>   37
                        PRT GROUP INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

4.  FIXED ASSETS

     Fixed assets consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                              DECEMBER 31
                                                           ------------------
                                                            1998       1999
                                                           -------    -------
<S>                                                        <C>        <C>
Furniture and equipment..................................  $ 5,064    $ 4,509
Computer equipment and software..........................    9,598     10,540
Leasehold improvements...................................      859        670
                                                           -------    -------
                                                            15,521     15,719
Less accumulated depreciation and amortization...........   (5,825)    (9,212)
                                                           -------    -------
                                                           $ 9,696    $ 6,507
                                                           =======    =======
</TABLE>

     During 1998, the Company capitalized approximately $568,000 of costs
related to the establishment of a new software testing service. In December
1998, the Company determined that the asset would provide no future benefit to
the Company and the Company expensed the unamortized asset balance, aggregating
$473,000.

     Fixed assets include assets under capital lease aggregating approximately
$1,569,000 and $1,378,000 at December 31, 1998 and 1999, respectively. The
accumulated amortization related to assets under capital leases is approximately
$722,000 and $982,000 at December 31, 1998 and 1999, respectively.

5.  ADVANCE PAYABLE TO CLIENT

     On August 15, 1995, a subsidiary of the Company entered into an agreement
with a client to perform services for which a cash advance of approximately
$1,050,000 was received. During 1996, additional advances totaling approximately
$2,000,000 were received. During 1997, additional advances totaling $632,000
were received and the repayment period was extended. No interest was payable on
these outstanding advances. Repayment was to commence in February 1998 in nine
equal monthly installments and to be credited to the client against actual
monthly charges pursuant to the agreement.

     In connection with the 1996 advances, the subsidiary issued warrants that
entitled the client to purchase approximately 24% of the total outstanding
shares of such subsidiary on a fully diluted basis, for approximately
$3,050,000, at any time between July 1996 and January 1999. In connection with
the 1997 advance, additional warrants were granted, allowing the client to
maintain their effective 24% interest in the subsidiary. The fair value of the
1996 and 1997 warrants was determined to be $496,000 and $55,000, respectively.
Such amounts were recorded as a discount to the cash advances received and
minority interest in the subsidiary. The fair value of the warrants was
determined based upon the advances received and the loan rates available to the
Company under its line of credit. The advances were being accreted up to the
face value of $3,682,000 using the interest method over the period the advances
were outstanding. For the year ended December 31, 1997, the amount accreted was
approximately $176,000.

     During the first quarter of 1997, the Company and the client agreed to,
among other matters, exchange the subsidiary warrants for warrants to purchase
936,365 shares of PRT's Common Stock (the "JPMVC PRT Warrant") with an aggregate
exercise price of $3,682,000. The JPMVC PRT Warrant was only exercisable by
forgiveness of the amounts outstanding under the advances payable to the client
in their entirety and was required to be exercised upon a consummation of an
IPO. The exchange was consummated in September 1997. Upon the consummation of
the IPO in November 1997, the client exercised the warrant and the amounts
outstanding under the advances payable to the client were forgiven.

                                      F-10
<PAGE>   38
                        PRT GROUP INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

6.  CREDIT FACILITY

     In August 1999 PRT entered into a loan and security agreement with Bank of
America the proceeds of which are to be used for general working capital. The
initial maturity date of the loan is August 4, 2001, however, PRT may terminate
prior to that date on 30 days written notice to Bank of America, plus an early
termination fee of 1% of the Maximum Facility Amount. The maximum loan facility
is based on the amount of eligible accounts receivable of the Company. This loan
is secured by a security interest in all of PRT's tangible and intangible
personal property, and a first and only security interest in and lien on all of
PRTs fixed assets; and a first and only security interest in and pledge of all
of PRTs stock of its foreign subsidiaries. The maximum loan amount is
$13,500,000; however; the actual amount the Company may borrow is substantially
less due to restrictions on its eligible accounts receivable. These limitations
on borrowing include, but are not limited to, eligible accounts receivable of
the Company's largest customer are substantially limited, invoices over 90 days
old are excluded from the asset base, and customers who have not contractually
waived their right to off set and set off payment based on customer claims are
excluded from the borrowing base. In addition, the PRT cumulative net loss
before interest, taxes, depreciation and amortization for the period from July
1, 1999 through August 4, 2001 cannot exceed $4,500,000.

7.  STOCKHOLDERS' EQUITY

  Non-Voting Common Stock

     Of the total shares of Common Stock issued and outstanding at December 31,
1997, 46,500 shares are non-voting. Each share of non-voting Common Stock is
convertible into one share of Voting Common Stock at any time at the option of
the holder.

  Stock Split

     In August 1997, the Company effected a ten-for-one stock split of Common
Stock and amended its certificate of incorporation to increase its authorized
shares from 5,000,000 to 50,000,000 shares with a par value of $0.001 per share.
All outstanding share amounts in the accompanying financial statements have been
adjusted to reflect the aforementioned stock splits.

  Private Placement

     In November 1996, the Company issued 2,759,610 shares of Series A
Redeemable Preferred Stock (the "Convertible Preferred Stock") at $6.56 per
share and 486,310 Warrants (the "Warrants") for $.60 per warrant in a private
placement.

     The Convertible Preferred Stock was convertible into Common Stock of the
Company at any time at the option of the holder or automatically upon the sale
of the Company's Common Stock in a qualifying IPO, as defined. Upon a request by
a holder of the Convertible Preferred Stock on or after November 21, 2002, the
Company was to redeem the requested number of shares if not previously converted
into shares of Common Stock. The redemption price was to be the greater of the
liquidation value of $6.56 per share plus accrued dividends or the current
market value, as defined, of the shares on the redemption date. Accordingly, the
Company adjusted the value of the Convertible Preferred Stock to reflect the
greater of the accreted value or the estimated fair value. The redemption
obligation of the Convertible Preferred Stock ceased upon the consummation of
the Company's IPO in November 1997, as the holders of the Convertible Preferred
Stock agreed to exercise their rights to convert each share of outstanding
Convertible Preferred Stock into one share of the Company's Common Stock.

     At the date of exercise the estimated fair value of the convertible
preferred stock was approximately $34,785,000 based upon the IPO market price.
As a result, $17,925,000 was recorded as a charge to retained earnings in 1997.

                                      F-11
<PAGE>   39
                        PRT GROUP INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Holders of the Convertible Preferred Stock were entitled to receive
cumulative dividends at the annual rate of 4%. Such dividends were payable
quarterly in cash if, as and when declared by the Company's Board of Directors
or otherwise upon conversion of the Convertible Preferred Stock into Common
Stock, redemption of the Convertible Preferred Stock or liquidation of the
Company. Upon consumption of the IPO, cumulative dividends in arrears
aggregating approximately $724,000 were paid.

     The Warrants were designed to give the holder certain benefits that holders
of the Company's Convertible Preferred Stock received. The Warrants entitled the
holder to receive cumulative distributions at the annual rate of 4%. These
distributions were payable in cash, if as and when declared by the Board of
Directors of the Company. Such distributions could be paid in cash or Common
Stock at the Company's option upon the sale of the Company's Common Stock in an
IPO or liquidation of the Company. A holder of a Warrant was entitled to receive
shares of Common Stock upon an exercise only if the Company did not attain
certain specified operating results in fiscal 1997, subject to further
adjustment, as defined, or issued Common Stock or securities convertible or
exchangeable for Common Stock at a price per share of less than $6.56 per share.
Upon consummation of the IPO, these Warrants expired and were not converted into
any shares of the Company's Common Stock. Upon consummation of the IPO,
cumulative dividends in arrears of approximately $128,000 were paid.

  Stock Option Plan

     In June 1996, the Company established a Stock Option Plan (the "Option
Plan") for officers, employees, consultants and non-employee directors to
purchase shares of the Company's Common Stock. The Option Plan requires the
Company to reserve a sufficient number of authorized shares for issuance upon
the exercise of all options that may be granted under the Option Plan. At
December 31, 1999 the Company had reserved 4,302,000 shares of Common Stock for
the exercise and future grants of stock options under such option plan.

     The Compensation Committee of the Board of Directors is responsible for
determining the type of award, when and to whom awards are granted, the number
of shares and terms of the awards and the exercise price. The exercise price
shall not be less than the fair market value of the Company's Common Stock at
the date the option is granted. As such, the Company has not recorded
compensation expense in connection with these awards. The options are
exercisable for a period not to exceed ten years from the date of the grant.
Vesting periods range from immediate vesting to five years.

     On December 15, 1998, the Company canceled substantially all options with
exercise prices greater than $6.50 and replaced them with options having an
exercise price of $2.75 per share, the fair market value at such date. The
vesting period for the newly granted options remained consistent with the
canceled options except for certain options which either vest upon the Company's
stock price reaching certain goals or after seven years from the date of grant.

                                      F-12
<PAGE>   40
                        PRT GROUP INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Activity in the Option Plan is summarized as follows (in shares):

<TABLE>
<CAPTION>
                                                                WEIGHTED AVERAGE
                                                    SHARES       EXERCISE PRICE
                                                  ----------    ----------------
<S>                                               <C>           <C>
Outstanding at December 31, 1996................     517,600         $ 4.55
Granted.........................................   1,150,450         $12.42
Exercised.......................................     (19,000)          4.38
Canceled and expired............................     (83,250)          7.68
                                                  ----------         ------
Outstanding at December 31, 1997................   1,565,800         $10.22
Granted.........................................   3,467,017         $ 8.05
Exercised.......................................     (88,125)          5.31
Canceled and expired............................  (2,804,669)         12.65
                                                  ----------         ------
Outstanding at December 31, 1998................   2,140,023         $ 3.68
Granted.........................................   2,837,453           2.52
Exercised.......................................     (38,071)          2.75
Canceled and expired............................  (1,976,813)          3.43
                                                  ----------         ------
Outstanding at December 31, 1999................   2,962,592         $ 2.75
                                                  ==========         ======
Exercisable at December 31, 1997................     419,814
                                                  ==========
Exercisable at December 31, 1998................     658,210
                                                  ==========
Exercisable at December 31, 1999................     413,647
                                                  ==========
Available for grant at December 31, 1999........   1,194,202
                                                  ==========
</TABLE>

     The weighted average fair value of options granted during the years ended
December 31, 1997, 1998 and 1999 was $8.75, $8.05 and $1.81, respectively. At
December 31, 1998 there were 123,966, 93,297, and 440,947 of 1996, 1997 and 1998
options exercisable, respectively.

     Information regarding the options outstanding under the Option Plan at
December 31, 1999 is as follows:

<TABLE>
<CAPTION>
                              NUMBER OF     WEIGHTED-     WEIGHTED-                    WEIGHTED-
                               OPTIONS       AVERAGE       AVERAGE                      AVERAGE
EXERCISE                      CURRENTLY     EXERCISE     CONTRACTUAL      NUMBER       EXERCISE
PRICE RANGE                  OUTSTANDING      PRICE         LIFE        EXERCISABLE      PRICE
-----------                  -----------    ---------    -----------    -----------    ---------
<S>                          <C>            <C>          <C>            <C>            <C>
$1.88 - $2.75..............   2,542,880      $ 2.34       9.1 years       247,191       $ 2.75
$3.63 - $4.38..............     339,655      $ 3.87       7.8 years        91,028       $ 4.38
$5.63 - $5.63..............      18,691      $ 5.63       6.3 years        14,996       $ 5.63
$9.50 - $13.00.............      61,366      $12.96        .1 years        60,432       $12.97
                              ---------                                   -------
                              2,962,592                                   413,647
                              =========                                   =======
</TABLE>

                                      F-13
<PAGE>   41
                        PRT GROUP INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Pro forma information regarding net income (loss) and earnings (loss) per
share is required by Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"), and has been determined
as if the Company had accounted for its employees' stock options under the fair
value method provided by that Statement. The fair value of the options was
estimated at the date of grant using the Black-Scholes option pricing model with
the following assumptions for vested and non-vested options:

<TABLE>
<CAPTION>
                                                           DECEMBER 31
                                                  -----------------------------
                   ASSUMPTION                      1997       1998       1999
                   ----------                     -------    -------    -------
<S>                                               <C>        <C>        <C>
Risk-free interest rate.........................     6.28%      7.26%      5.58%
Dividend yield..................................        0%         0%         0%
Volatility factor of the expected market price
  of the Company's common stock.................     .843       .923        .85
Average life....................................  5 years    5 years    5 years
</TABLE>

     The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.

     For purposes of pro forma disclosures, the estimated fair value of the
options under SFAS 123 is amortized to expense over the options' vesting period.
For the years ended December 31, 1997, 1998 and 1999, pro forma net loss under
SFAS 123 amounted to approximately $(3,974,000), $(15,937,000) and
$(23,747,000), respectively. The pro forma net loss per share under SFAS 123
amounted to $(.26), $(.87), and $(1.30) respectively, for the years ended
December 31, 1997, 1998 and 1999, respectively.

8.  ACQUISITIONS

     Effective July 1, 1997, the Company purchased all of the issued and
outstanding capital stock of Computer Management Resources, Inc. ("CMR") for
approximately $6,294,000. CMR is a provider of information technology services.
The excess of costs over net assets acquired, was approximately $6,180,000. The
purchase price consisted of $2,864,000 in cash, 119,181 shares of the Company's
Common Stock valued at such time at approximately $1,430,000, or $12.00 per
share, and a promissory note in the principal amount of $2,000,000 (the "CMR
Note"). The CMR Note, which is secured by a $1,000,000 letter of credit, bears
interest at 9.75% per annum with the principal balance due no later than July
18, 2002. Payment of the CMR Note, in part or in full prior to its maturity, is
subject to a prepayment premium, as defined. In 1998, the Company repaid
$1,000,000 of the CMR note.

     On January 31, 1998, the Company purchased substantially all of the assets
of Advanced Computing Techniques, Inc. ("ACT"), a Connecticut corporation, for
approximately $13,010,000, including acquisition costs, in cash. The excess of
cost over net assets acquired was approximately $12,129,000.

     On April 15, 1998, the Company consummated the purchase of substantially
all the assets of Institute For Software Process Improvements, Inc. ("ISPI"), a
Pennsylvania corporation, for approximately $2,745,000, including acquisition
costs, in cash. The excess of cost over net assets acquired was approximately
$2,758,000. During the quarter ended June 30, 1999, the Company wrote-off the
unamortized balance of the ISPI goodwill (see Note 9).

                                      F-14
<PAGE>   42
                        PRT GROUP INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The aforementioned acquisitions were accounted for by the purchase method
of accounting and the results of operations are included in the Company's
results of operations since the respective dates of acquisition.

     The table below sets forth the unaudited pro forma results of operations
for the years ended December 31, 1997 and 1998 assuming consummation of the CMR,
ACT and ISPI acquisitions as of January 1, 1997 and 1998, respectively.

<TABLE>
<CAPTION>
                                                        YEAR ENDED DECEMBER 31
                                                        -----------------------
                                                          1997          1998
                                                        --------      ---------
<S>                                                     <C>           <C>
Revenues..............................................  $80,142       $ 87,441
Net loss..............................................     (656)       (12,144)
Pro forma net loss per share..........................  $  (.04)      $   (.67)
</TABLE>

9.  RESTRUCTURING CHARGES

     On June 30, 1999, the Company announced a restructuring, the purpose of
which was to refocus the Company's efforts on its core business and reduce
costs. In connection with the restructuring, the Company recorded aggregate
charges of approximately $7,500,000 relating to $2,000,000 in severance costs,
$3,000,000 in office closures and the write-off of goodwill related to the ISPI
acquisition of $2,500,000.

     In accordance with SFAS No. 121 "Accounting For The Impairment Of
Long-Lived Assets And For Long-Lived Assets To Be Disposed Of" management
performed a discounted cash flow analysis of the ISPI operations. Management
concluded that this analysis warranted a write-down of the intangible assets of
ISPI of approximately $2,500,000. The aforementioned restructure and impairment
charges were recorded in the quarter ending June 30, 1999.

     In October 1999, the Company sold certain intangible and intellectual
property rights of ISPI in exchange for future royalty payments derived from the
sale of these assets. The royalty payment is equal to five percent of revenues
generated through April 2001 from the assets sold.

10.  INCOME TAXES

     The provision (benefit) for income taxes consists of the following (in
thousands):

<TABLE>
<CAPTION>
                                                            CURRENT    DEFERRED    TOTAL
                                                            -------    --------    -----
<S>                                                         <C>        <C>         <C>
DECEMBER 31, 1997
U.S. Federal..............................................   $194        $(42)     $152
State and local...........................................     37         (14)       23
                                                             ----        ----      ----
                                                             $231        $(56)     $175
                                                             ====        ====      ====
DECEMBER 31, 1998
U.S. Federal..............................................   $ --        $ --      $ --
State and local...........................................     33         (33)       --
                                                             ----        ----      ----
          TOTAL...........................................   $ 33        $(33)     $ --
                                                             ====        ====      ====
</TABLE>

     There were no current or deferred federal or state and local taxes for the
year ended December 31, 1999.

                                      F-15
<PAGE>   43
                        PRT GROUP INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The actual income tax expense differs from the "expected" tax expense
computed by applying the U.S. Federal corporate tax rate of 34% to income taxes,
as follows (in thousands):

<TABLE>
<CAPTION>
                                                                  DECEMBER 31
                                                          ---------------------------
                                                          1997      1998       1999
                                                          -----    -------    -------
<S>                                                       <C>      <C>        <C>
Computed "expected" tax expense (benefit)...............  $(129)   $(4,093)   $(7,213)
Nondeductible losses of foreign subsidiaries............    250      2,175      2,163
Non-deductible U.S. expenses............................     --         --        189
Valuation allowance relating primarily to U.S. net
  operating losses......................................     --      2,278      4,885
State and local income taxes, net of Federal income tax
  expense (benefit).....................................     15         --         --
Other...................................................     39       (360)       (24)
                                                          -----    -------    -------
                                                          $ 175    $    --    $    --
                                                          =====    =======    =======
</TABLE>

     The Company has net operating loss carry forwards of approximately $18.8
million to offset future taxable income expiring in 2018 and 2019.

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

<TABLE>
<CAPTION>
                                                              DECEMBER 31
                                                           ------------------
                                                            1998       1999
                                                           -------    -------
<S>                                                        <C>        <C>
Deferred tax assets:
  Accounts receivable allowances.........................  $    41    $    44
  Accrued restructuring charge...........................       --        691
  Net operating loss carryforwards.......................    2,497      8,147
  Amortization expense...................................       73         --
  Deferred rent expense..................................      164         89
  Other..................................................        7         32
                                                           -------    -------
Total gross deferred assets..............................    2,782      9,003
                                                           -------    -------
Deferred tax liabilities:
  Depreciation of fixed assets...........................  $  (332)   $  (230)
  Prepaid expenses.......................................     (172)        --
  Amortization expense...................................       --        (42)
  Section 481(a) adjustment..............................       --        (66)
                                                           -------    -------
Total gross deferred liabilities.........................     (504)      (338)
                                                           -------    -------
Net deferred tax asset (liability).......................    2,278      8,665
Valuation allowance......................................   (2,278)    (8,665)
                                                           -------    -------
Net deferred tax asset...................................  $    --    $    --
                                                           =======    =======
</TABLE>

                                      F-16
<PAGE>   44
                        PRT GROUP INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

11.  SIGNIFICANT CLIENTS

     During the years ended December 31, 1997, 1998 and 1999, approximately 79%,
58% and 53% of revenue was derived from the Company's five largest clients,
respectively. Three clients accounted for 30%, 23% and 12% of total revenues for
the year ended December 31, 1997. Two clients accounted for 25% and 15% of total
revenues for the year ended December 31, 1998. Two clients accounted for 19% and
11% of total revenues for the year ended December 31, 1999.

12.  COMMITMENTS

     The Company is obligated under capital leases for computer and office
equipment that expire at various dates through July 2004 with interest ranging
from 10% to 15%. Future minimum lease payments relating to office space under
noncancelable operating leases and future minimum capital lease payments as of
December 31, 1999 are as follows (in thousands):

<TABLE>
<CAPTION>
                                                            CAPITAL    OPERATING
                                                            LEASES      LEASES
                                                            -------    ---------
<S>                                                         <C>        <C>
December 31:
  2000....................................................   $ 284      $1,726
  2001....................................................      51       1,518
  2002....................................................      42       1,049
  2003....................................................      42         801
  2004....................................................      52         620
                                                             -----      ------
Total minimum lease payments..............................     471      $5,714
                                                                        ======
Less amount representing interest.........................    (109)
                                                             -----
Present value of net minimum capital lease payments.......     362
Less current installments of obligations under capital
  leases..................................................     227
                                                             -----
Obligations under capital leases, net of current
  installments............................................   $ 135
                                                             =====
</TABLE>

     Rent expense was approximately $1,380,000, $2,278,000 and $1,341,000 for
the years ended December 31, 1997, 1998, and 1999, respectively.

13.  DEFERRED COMPENSATION PLAN

     The Company maintains a 401(k) plan (the "Plan") covering all its eligible
employees. The Plan is currently funded by voluntary salary deductions by plan
members and is limited to the maximum amount that can be deducted for Federal
income tax purposes. The Company is not required to make contributions to the
Plan, however, employer contributions may be made on a discretionary basis. For
the years ended December 31, 1997, 1998, and 1999, the Company recognized
contributions of $94,000, $242,000 and $215,000, respectively.

14.  RELATED PARTY TRANSACTIONS

     Revenue generated from a client who is also a stockholder was approximately
$18,100,000, $12,500,000 and $7,100,000 for the years ended December 31, 1997,
1998 and 1999, respectively.

     On April 30, 1998, the Company purchased a database of software engineering
names and resumes from a partnership wholly-owned by the parents of the
Company's Non-Executive Chairman of the Board of Directors for approximately
$300,000. The Company was paying a licensing fee of $60,000 annually to access
the database.

                                      F-17
<PAGE>   45
                        PRT GROUP INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     On May 1, 1998, the Company agreed to pay Forum Computer Services, Inc.
("Forum") a one time fee of $200,000 in lieu of all past or future unpaid
finders fees relating to certain consultant contracts placed with Forum's
marketing assistance. In exchange for this one time payment, Forum agreed to
release the Company from all claims for finders fees related to these
consultants. Forum is owned 57% by the father of the Company's Non-Executive
Chairman of the Board of Directors and 43% by a stockholder of the Company.
Finders fees paid to Forum were approximately $318,000 and $122,000 for the
years ended December 31, 1997 and 1998, respectively.

15.  GEOGRAPHIC AREAS

     The Company operates in one industry segment; providing information
technology solutions to its clients. In addition to its domestic operations,
which include the United States, the Company has operations in the West Indies
and Asia (discontinued during 1999). The Company's operation in Asia are not
individually material and are included in foreign operations along with the West
Indies.

     Geographic information is as follows (in thousands):

<TABLE>
<CAPTION>
                                                                  DECEMBER 31
                                          ------------------------------------------------------------
                                                 1997                 1998                 1999
                                          ------------------   ------------------   ------------------
                                          DOMESTIC   FOREIGN   DOMESTIC   FOREIGN   DOMESTIC   FOREIGN
                                          --------   -------   --------   -------   --------   -------
<S>                                       <C>        <C>       <C>        <C>       <C>        <C>
Total identifiable assets...............  $64,742    $11,172   $54,669    $ 8,113   $ 36,529   $ 4,006
                                          =======    =======   =======    =======   ========   =======
Revenues................................  $42,618    $17,198   $67,871    $17,736   $ 59,915   $ 5,444
                                          =======    =======   =======    =======   ========   =======
Income (loss) before income taxes.......  $   337    $  (715)  $(5,728)   $(6,312)  $(12,545)  $(8,670)
                                          =======    =======   =======    =======   ========   =======
Depreciation and amortization expense...  $   714    $ 1,274   $ 2,551    $ 2,137   $  2,943   $ 1,897
                                          =======    =======   =======    =======   ========   =======
Capital expenditures....................  $ 2,998    $ 4,589   $ 4,685    $   547   $  1,870   $   553
                                          =======    =======   =======    =======   ========   =======
</TABLE>

16.  LITIGATION

     The Company, certain of its officers and directors and certain allegedly
controlling shareholders of the Company have been named as defendants in a
purported securities class action lawsuit filed on September 16, 1998 in the
United States District Court for the Southern District of New York (the
"Court"). The complaint purports to be brought on behalf of all shareholders who
purchased the Company's common stock from November 21, 1997 through March 5,
1998. The complaint asserts that defendants violated certain sections of the
Securities Act of 1933 by purportedly misrepresenting and/or omitting material
information concerning PRT's business and operations in the registration
statement and prospectus issued in connection with PRT's initial public offering
on or about November 21, 1997. The lawsuit seeks unquantified compensatory
damages, pre-and post-judgment interest, attorneys' fees, expert witness fees
and other costs, rescission, equitable relief and such other and further relief
as the Court may find proper. On April 14, 1999 PRT filed a motion to dismiss
the case. On March 28, 2000, the Company's motion to dismiss the class action
lawsuit was granted by the Court. The plaintiffs' request for leave to amend the
amended complaint was also denied.

     In the normal course of business, various claims are made against the
Company. At this time, in the opinion of management, there are no pending
claims, aside from the above mentioned shareholder suit, the outcome of which
are expected to result in a material adverse effect on the consolidated
financial position or results of operations of the Company.

                                      F-18
<PAGE>   46
                        PRT GROUP INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

17.  SUBSEQUENT EVENTS

     On April 13, 2000, the Company issued 8,000,000 shares of its Series A
Senior Participating Convertible Preferred Stock ("Preferred Stock") for
$8,000,000. The Company also issued a warrant to the Preferred Stock investors
to purchase 4,000,000 shares of the Company's Common Stock at an initial
exercise price of $1.00 per share subject to adjustment, as defined. The
Preferred Stock is convertible, subject to adjustment, as defined, into Common
Stock on a one for one basis at any time and is redeemable after April 14, 2005
at the option of the holder at its liquidation value plus accrued and unpaid
dividends. Each warrant is convertible into one share of Common Stock prior to
April 14, 2005 at the option of the holder. The guaranteed discount,
representing the difference between the market price of the Company's Common
Stock on April 13, 2000 and the $1.00 per share price and the fair value of the
warrants, aggregating approximately $5,700,000, was deemed to be a dividend for
purposes of calculating earnings (loss) per share. Accordingly, such deemed
dividend will be recorded as a reduction to amounts available to common
shareholders during the quarter ending June 30, 2000.

                                      F-19
<PAGE>   47

                        PRT GROUP INC. AND SUBSIDIARIES

                       VALUATION AND QUALIFYING ACCOUNTS
                                 (In Thousands)

<TABLE>
<CAPTION>
COLUMN A                                           COLUMN B      COLUMN C      COLUMN D     COLUMN E
--------                                           ---------    ----------    ----------    --------
                                                    BALANCE     ADDITIONS                   BALANCE
                                                      AT        CHARGED TO                     AT
                                                   BEGINNING    COSTS AND        (A)         END OF
                   DESCRIPTION                     OF PERIOD     EXPENSES     DEDUCTIONS     PERIOD
                   -----------                     ---------    ----------    ----------    --------
<S>                                                <C>          <C>           <C>           <C>
YEAR ENDED DECEMBER 31, 1997
Allowances deducted from assets to which they
  apply:
  Allowance for doubtful accounts................    $122          $212          $ --         $334
YEAR ENDED DECEMBER 31, 1998
Allowances deducted from assets to which they
  apply:
  Allowance for doubtful accounts................    $334          $926          $721         $539
YEAR ENDED DECEMBER 31, 1999
Allowances deducted from assets to which they
  apply:
  Allowance for doubtful accounts................    $539          $411          $421         $529
</TABLE>

---------------
(a) Uncollectible receivables written off.

                                      F-20