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

                                    FORM 10-K

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

                For the Fiscal Year Ended Commission File Number.
                            December 31, 1998 0-29292

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

                               Delaware 54-1759180
                  (State or other jurisdiction (I.R.S. Employer
              of incorporation or organization) Identification No.)

              1530 Wilson Boulevard, Suite 400, Arlington, Virginia
                                      22209
               (Address of principal executive offices) (zip code)

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

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

          Securities registered pursuant to Section 12(g) of the Act:

                     COMMON STOCK, PAR VALUE $0.01 PER SHARE
                                (Title of Class)

      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.

                                   [X]  Yes [ ]  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.
      As of March 1, 1999,  16,551,994 shares of the Registrant's  common stock,
par value $0.01 per share, were  outstanding.  The aggregate market value of the
voting stock held by non-affiliates* of the Registrant,  (based upon the closing
price of such  shares  on the  Nasdaq  National  Market  on March 1,  1999)  was
approximately $322,763,883.

      The  Registrant's  Proxy  Statement for the Annual Meeting of Stockholders
scheduled to be held May 13, 1999, is incorporated by reference into Part III of
this Annual Report on Form 10-K.

* For the purposes of this  calculation,  the registrant is not including  stock
held by executive  officers,  directors and beneficial  owners of more than five
percent (5%) of the registrant's outstanding common stock.
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<PAGE>


i

                      HAGLER BAILLY, INC. AND SUBSIDIARIES
                             FORM 10-K ANNUAL REPORT
                        FOR YEAR ENDED DECEMBER 31, 1998

                                TABLE OF CONTENTS

                                                                         Page

ITEM 1.   BUSINESS........................................................2


ITEM 2 -PROPERTIES........................................................19


ITEM 3 -- LEGAL PROCEEDINGS...............................................20


ITEM 4 -- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.............20


ITEM 5 -- MARKET FOR THE REGISTRANT'S  COMMON STOCK AND RELATED 
          STOCKHOLDER MATTERS.............................................21

ITEM 6 -- SELECTED FINANCIAL DATA.........................................21


ITEM 7 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
          CONDITION AND RESULTS OF OPERATIONS.............................24


ITEM 8 -- CONSOLIDATED FINANCIAL STATEMENTS AND
          SUPPLEMENTAL DATA...............................................39


ITEM 9 -- CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING
          AND FINANCIAL DISCUSSIONS.......................................39


ITEM 10 -- DIRECTORS AND EXECUTIVE OFFICERS OF HAGLER BAILLY..............40


ITEM 11 -- EXECUTIVE COMPENSATION.........................................40


ITEM 12 -- SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND............40
           MANAGEMENT

ITEM 13 -CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...................40


ITEM 14 -- EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K.........41







<PAGE>



      Except  for any  historical  information  contained  herein,  the  matters
discussed  in this Annual  Report on Form 10-K of Hagler  Bailly,  Inc.  and its
subsidiaries   ("Hagler  Bailly"  or  the  "Company")  contain   forward-looking
statements.  For this  purpose,  any  statements  contained  herein that are not
statements  of historical  fact,  are intended,  and are hereby  identified  as,
"forward-looking  statements"  for the  purpose of the safe  harbor  provided by
Section 21E of the  Securities  Exchange  Act of 1934,  as amended by Public Law
104-67.  Without limiting the foregoing,  the words  "anticipates,"  "believes,"
"estimates,"  "expects," "intends," "plans" and similar expressions are intended
to identify forward-looking statements. The important factors discussed below in
this  Item 1  under  the  caption  "Risk  Factors",  as well  as  other  factors
identified in the Company's filings with the Securities and Exchange  Commission
("SEC") and those  presented  elsewhere by management  from time to time,  could
cause   actual   results  to  differ   materially   from  those   indicated   by
forward-looking statements made herein.

      The Company is subject to the  reporting  requirements  of the  Securities
Exchange Act of 1934 and files periodic  reports,  including  Current Reports on
Form 8-K,  Quarterly Reports on Form 10-Q, Annual Reports on Form 10-K and Proxy
Statements with the SEC.

      The public may read and copy  materials  filed by the Company with the SEC
at the SEC's Public Reference Room at 450 Fifth Street, N.W.,  Washington,  D.C.
20549.  The  public  may  obtain  information  on the  operation  of the  Public
Reference  Room by  calling  the SEC at  1-800-SEC-0300.  The SEC  maintains  an
Internet site that contains reports,  proxy and information statements and other
information  regarding companies that file electronically  (such as the Company)
with  the  SEC   (http://www.sec.gov).   The  Company's   Internet   address  is
http://haglerbailly.com.


PART I

ITEM 1.   BUSINESS

INTRODUCTORY NOTE

      On March 22,  1999,  the  Company  announced  that its Board of  Directors
authorized  the  repurchase of up to 1,500,000  shares of the  Company's  common
stock.  The  purchases  will be made from time to time in the open  market or in
privately negotiated transactions.

      On March 2, 1999, certain of the Company's domestic  subsidiaries (Putnam,
Hayes & Bartlett,  Inc., Hagler Bailly  Consulting,  Inc., TB&A Group, Inc., and
Theodore  Barry &  Associates)  were merged  with and into a newly  incorporated
Delaware  corporation,  PHB Hagler Bailly,  Inc., through which the Company will
provide its commercial rate consulting activities.

      On February 8, 1999, the Company acquired all of the outstanding  stock of
Lacuna Consulting Limited, a United Kingdom corporation,  in exchange for 65,000
shares of the Company's common stock.

      On November 20, 1998, the Company completed a new, three-year, $50 million
revolving  credit  facility  with  NationsBank,  N.A., a  subsidiary  of Bank of
America.  This credit facility  replaced  Hagler Bailly's $15 million  revolving
line of credit and Putnam, Hayes & Bartlett, Inc.'s $4 million revolving line of
credit.

      On November 17, 1998,  the Company  completed the  acquisition  of certain
assets of The  Fieldston  Company  ("TFC") and all of the  outstanding  stock of
Fieldston Publications, Inc. ("FPI"). Total consideration of the acquisition was
approximately  $2.3 million in cash and 232,558  shares of Hagler  Bailly common
stock. The acquisition was accounted for using the purchase method. Accordingly,
the consolidated  financial  statements reflect the results of operations of TFC
and FPI  since the date of  acquisition.  As a result  of the  transaction,  the
Company recorded intangible assets of approximately $4.8 million.



GENERAL

The predecessor of the Company was founded in 1980 as Hagler,  Bailly & Company,
Inc. In July 1984, RCG International,  Inc. ("RCG"),  an indirect  subsidiary of
Reliance Group  Holdings,  Inc.,  acquired the Company,  and in 1987 was renamed
RCG/Hagler Bailly,  Inc. In May 1995, the management of RCG/Hagler Bailly,  Inc.
completed the purchase of RCG/Hagler Bailly,  Inc. from RCG and the successor to
RCG/Hagler Bailly, Inc. became a wholly owned subsidiary of the Company. In July
1997, the Company completed its initial public offering.

      For  almost  20 years the  Company  has  maintained  its  industry  focus,
providing consulting,  research and other professional services to corporate and
government clients in energy, network industries and the environment.

      The  Company  believes  that  several  factors  distinguish  it  from  its
competitors.  In addition  to industry  focus,  its full  service  capabilities,
existing global infrastructure,  established client relationships, public sector
insight,  knowledge base and  experienced  team of management  and  consultants,
position it to capitalize on the growing demand for consulting services in these
industries.

BUSINESS MODEL

      The Company provides  solutions  custom-tailored  to the client's needs by
combining content, including proprietary research and industry information, with
superior  consulting  processes.  The  Company  then  offers  resources  such as
information technologies needed to implement and sustain the solution,  creating
tangible long-term value for the client.

      Through PHB Hagler  Bailly,  Inc.  ("PHB Hagler  Bailly"),  a wholly-owned
subsidiary  of the  Company,  it provides  strategic  advice and  analysis  that
assists  decision makers in business and  governments in developed  countries as
they solve issues involving energy,  telecommunications,  transportation,  water
resources,  the environment,  litigation and other matters.  PHB Hagler Bailly's
consulting   professionals  have  first-hand   experience  in  developing  sound
strategies and applying  business  principles that focus on the unique issues of
each client matter and increase  enterprise value. PHB Hagler Bailly has been at
the forefront of assessing  market  strength,  providing  asset  valuations  and
performance measurements,  analyzing competition, measuring risks, and improving
financial and operating performance.

      Through Hagler Bailly Services,  Inc. ("Hagler Bailly Services"),  another
wholly-owned  subsidiary  of the Company,  it provides  advisory  and  technical
services  to  public  sector  clients   worldwide  in  the  energy  and  network
industries, particularly transportation, water, and telecommunications,  and the
environment.  In addition to U.S. federal and state  governments,  Hagler Bailly
Services assists  multilateral and bilateral donor and financial  organizations,
foreign  governments,  and selected  private  clients in emerging or  developing
markets.  Hagler  Bailly  Services'  consulting  experts  provide  public policy
assistance  by advising  governments  and business  leaders on the  evolution of
specific policies in each country and construct a global view of policy reforms.
Hagler  Bailly  Services  has been at the  forefront  of  developing  policy and
pricing frameworks,  formulating  national and provincial strategy and planning,
drafting laws and regulations,  managing the transition to competitive  markets,
promoting  investment and business  creation,  evaluating  assets, and promoting
sustainable development.

SERVICE OFFERINGS

      The Company offers its clients a broad array of consulting services,  from
assisting in shaping the clients' vision through strategic planning to selection
of appropriate  solutions,  implementation  and on-going  management advice. The
Company's  services are delivered to clients  worldwide  primarily through seven
specialized  practices focused on energy,  including electric and gas utilities;
network   industries,    including   fuels,   water,    telecommunications   and
transportation; and the environment.

      These seven specialized practices are:

o        The Strategy practice  provides  strategic counsel and related services
         to the  executive  leadership  of energy and other  network  companies.
         Hagler Bailly has carefully developed methods that increase shareholder
         value in an environment  of rapid industry  change and new pressures on
         financial  performance.  Each  method  is a  discipline  to help  guide
         executives to value creation.

o        The   Management   and   Operations   practice   advises   utility  and
         telecommunications  companies on all aspects of business management and
         operations.  Hagler Bailly is experienced in helping clients understand
         and respond to both the internal  operational and external customer and
         market challenges that affect businesses today.

o        The Economics & Analytics  practice  provides  practical and innovative
         solutions  to  economic  problems,   providing  economic  analysis  and
         analytical tools to support  strategic  decision making.  Hagler Bailly
         offers a unique combination of academic rigor and hands-on professional
         experience to advise clients on regulatory economics, policy evaluation
         and business strategy.

o        The Market and Survey Analysis practice provides a full range of market
         research and survey  analysis that clients need in order to solve their
         mission-critical  business  problems.  Hagler Bailly helps clients gain
         insight on their customers,  competitors,  and the changing dynamics of
         their market through  state-of-the-art  study design,  quantitative and
         qualitative data collection, and analysis.

o        The Litigation Support practice assists law firms and corporate counsel
         with  litigation,   mediation,   and  arbitration  matters,   including
         liability  and   causation   issues,   determination   of  damages  and
         prejudgment interest,  litigation strategy and settlement negotiations.
         Hagler  Bailly  provides  economic  and  business  analysis  and expert
         testimony on liability and damages  issues in some of the largest civil
         litigation cases of recent decades.

o        The IT practice delivers information technology consulting services and
         solutions to electric,  gas and water utilities,  and service providers
         in the US and Canada.  The Company  provides these services through its
         exclusive  joint  venture,  Cap Gemini Hagler Bailly LLC, which designs
         information  technology  frameworks that pass  information  efficiently
         between and among organizations of all shapes and sizes.

o        The Environment  Management practice assists domestic and international
         clients manage environmental issues and prevent environmental problems,
         whether  of  local,   regional,   and/or   global  impact  by  offering
         environmental economics, scientific,  managerial and technical research
         and services.

     These  specialized  practices  are  designed  to work  together  to provide
clients the full range of services  and  capabilities  of the  Company.  From an
operational  standpoint,  the Company  regularly  reviews  and, as  appropriate,
restructures  these practice areas and services to address the changing business
problems, strategic alternatives and policy issues of its clients.

      In 1998,  the Company  provided its services to more than 1,150 clients in
both the private and public sectors.

COMPETITION

      The market for consulting  services in the energy,  network industries and
the environment is intensely competitive, highly fragmented and subject to rapid
change.  The market  includes a large number of  participants  from a variety of
consulting  market  segments,  both in the United  States  and  internationally,
including  general  management  consulting  firms,  the consulting  practices of
accounting firms,  consulting engineering firms, technical and economic advisory
firms and market research firms.  Many information  technology-consulting  firms
also maintain significant energy,  network industry and environmental  practices
and  others  may enter  the field in the  future.  Many of these  companies  are
national and  international in scope and may have greater  financial,  technical
and marketing resources than the Company.

      Hagler Bailly  believes that it is in a strong position to compete in this
market.  The Company  believes that several factors  distinguish it from many of
its current and potential competitors in the consulting industry.

o        Industry Focus. Since its inception in 1980, the Company has maintained
         its focus on  providing  a broad  array of  consulting  services to the
         energy,   network   industries   and  the   environment.   This   focus
         differentiates  the Company from general  management  consulting  firms
         that serve a full range of industries and firms with limited skill sets
         and  capabilities.  The Company  believes  that the insights  gained by
         working   worldwide  allow  it  to  customize   leading-edge-consulting
         concepts and tools to specific  situations  and thus  provide  tangible
         value, rather than just theories, to its clients.

o        Full Service  Capabilities.  The Company's  strategy is to partner with
         its  clients  in  conceptualizing  and  implementing  solutions,  which
         significantly  increase  enterprise value, by building a broad range of
         consulting platforms enabling it to meet its clients' consulting needs.
         These  include  corporate  strategy,   marketing  and  sales,   product
         development,   energy  supply  and  logistics,  operations  management,
         information systems and technology, economic analysis and environmental
         management.  In addition,  the Company conducts its own market research
         using  a   state-of-the-art   survey  center   equipped  with  26  CATI
         (Computer-Assisted Telephone Interview) stations.

o        Existing Global Infrastructure.  The Company operates from 12 principal
         offices in the United  States at the  following  locations:  Arlington,
         Virginia;  Boulder,  Colorado;   Cambridge,   Massachusetts;   Chicago,
         Illinois;  Houston,  Texas;  Los Angeles,  California (two  locations);
         Madison,  Wisconsin;  New York, New York;  Palo Alto,  California;  San
         Francisco,  California  and The  District of  Columbia  and from eleven
         principal  locations  abroad in the  following  cities:  Buenos  Aires,
         Argentina;  Daventry,  England;  Dublin, Ireland;  Jakarta,  Indonesia;
         Islamabad,  Pakistan;  Melbourne,  Australia;  London,  England; Paris,
         France;  San Paulo,  Brazil;  Sydney,  Australia;  Toronto,  Canada and
         Wellington, New Zealand.

o        Established Client  Relationships.  In the year ended 1998, the Company
         received repeat business from  approximately 42% of the clients who had
         engaged the Company in the year ended 1997.  Further, in the year ended
         1998,  revenues  from  clients  served  in the  year  ended  1997  were
         approximately 60% of the Company's total revenues.  Over the past year,
         the clients have included  approximately  220 electric or gas utilities
         located throughout the world and four international  development banks.
         Relationships with clients, many of which date back over a decade, span
         various  levels within  client  organizations,  ranging from  corporate
         boards,  chief  executive  officers  and  other  senior  management  to
         functional managers.

o        Public Sector  Insight.  The Company has worked with a number of public
         sector   organizations,   including   the  United   States  Agency  for
         International   Development  ("USAID"),  the  Environmental  Protection
         Agency,   the  European  Union,  the  U.K.  Knowlton  Fund,  the  Asian
         Development  Bank and the World  Bank for many  years.  This  gives the
         Company a special perspective on the energy,  utility and environmental
         industries and enhances the Company's reputation and ability to compete
         successfully for consulting business.

o        Knowledge  Base.  The Company has developed an extensive  knowledge and
         information  base. The Company owns several  proprietary  databases and
         software  packages  --  OPECSM  and  NPESM,  two  nuclear  power  plant
         operations  databases,  and IPPSM, a worldwide  information database on
         independent power producers.  The Company has recently developed and is
         aggressively  marketing its proprietary database,  RampUpSM, to provide
         clients with  unprecedented  information on U.S. utility operations and
         cost structure.  Finally,  through the Company's  proprietary  Business
         Information  and Knowledge  Exchange  Intranet  ("BIKEnetSM"),  Company
         personnel have direct access to the Company's proprietary knowledge and
         warehouse of  information.  This system is  accessible  from all of the
         Company's offices.

o        Experienced   Team  of  Management  and   Consultants.   The  Company's
         management  and  senior  consultants  have  a  wide  range  of  energy,
         telecommunications,   transportation   and   environmental   consulting
         expertise and experience.  In addition,  many of the senior  management
         and consultants have worked extensively with one another.  Management's
         average  tenure  with the  Company  is  approximately  13  years.  This
         consistency of leadership and teamwork, combined with training provided
         by the  Company,  has  fostered a strong  company  culture and employee
         loyalty.

o        Established Global Visibility. The Company's staff frequently publishes
         articles  and  is  invited  to  present  at  industry   gatherings  and
         conferences.  The staff is also active in several  industry  groups and
         professional  associations  including elected or appointed positions to
         the  United  States  Energy   Association   (member  of  the  Board  of
         Directors),  the National Coal Council  (member) and the Association of
         Energy Services Professionals (member of the Board of Directors).

      As a result of these  competitive  factors,  the  Company  believes it has
emerged as one of the leading management consulting firms focused on energy, the
network and environmental industries.

MARKETING AND SALES

      The Company  markets its  services  from its  headquarters  in  Arlington,
Virginia and through each of its  subsidiaries.  The Company employs a number of
business  development and marketing  strategies to communicate  with prospective
and current  clients,  including,  but not limited  to,  on-site  presentations;
industry  seminars  featuring  persentations  by the  Company's  management  and
consultants;  speeches;  articles in  industry,  business,  economic,  legal and
scientific journals; and through other publications and press releases regarding
the energy, network and environment industries and the Company's methodologies.

      A  significant  portion  of the new  business  arises  from  prior  client
engagements.  The Company often leverages the client  relationships  of firms it
acquires by cross-selling its existing services.  Clients often expand the scope
of engagements during delivery to include follow-on complementary activities.

      Also, the Company's  on-site  presence  affords it opportunities to become
aware of,  and to help  define,  additional  project  opportunities  as they are
identified  by the  client.  Strong  client  relationships  arising  out of many
engagements   often  facilitate  the  Company's  ability  to  market  additional
capabilities to its clients in the future.

     The  Company  establishes  a  client  development  goal  for  each  of  its
consulting  officers and principals and  systematically  reviews  individual and
group  performance  against  these goals.  The  Company's  compensation  system,
particularly  in the award of bonuses and stock  options,  is  weighted  towards
success in meeting these client development goals.

o        Commercial Sector Clients. In the commercial sector, client acquisition
         techniques  include  referrals and focused  presentations  to boards of
         directors,  chief executive and operating officers and other executives
         of  prospective  client  companies.  Presentations  generally  focus on
         opportunities  in the market  segments most relevant to the prospective
         clients,  examples of the Company's previous work in related industries
         and the Company's international capabilities.

o         Public Sector Clients.  In the public sector,  contracts are awarded
          primarily on the basis of  competitive  solicitation.  The Company has
          developed  strong  capabilities  to prepare  proposals that respond to
          complex requests and often require the integration and coordination of
          the services of several  subcontractors  and independent  consultants.
          The Company has also developed a detailed  understanding of government
          and other institutional  procurement  regulations in the United States
          and  internationally.  In  addition,  in  order to  obtain  government
          contracts,  consultants must adhere to stringent cost,  accounting and
          regulatory  controls.  In order to comply with such requirements,  the
          Company  regularly holds training  seminars to ensure  compliance with
          applicable   government   regulations   and   uses   a   sophisticated
          computer-based  accounting  system  that  allows it to track  costs in
          adherence  to  government  standards.  The Company  also meets  public
          sector clients' cost guidelines through competitive pricing.


HUMAN RESOURCES

      As of  December  31,  1998,  the  Company's  personnel  consisted  of  780
full-time employees.

      The Company supplements its consultants on certain engagements with highly
skilled  independent  contractors.  The Company  believes  that its  practice of
retaining  independent  contractors on a  per-engagement  basis provides it with
greater  flexibility in adjusting  professional  personnel levels in response to
changes in demand for its services.




<PAGE>


RISK FACTORS

      Attraction,  Retention and Management of Professional  and  Administrative
Staff. The Company's business involves the delivery of professional services and
is labor intensive.  The Company's future performance depends in large part upon
its ability to attract, develop, motivate and retain highly skilled consultants,
research associates and administrative staff,  particularly senior professionals
with business development skills.

      In connection  with its recruiting  efforts,  the Company seeks  employees
from top graduate schools with prior relevant  consulting  experience and strong
project  management,  analytic  and  communications  skills in  competitive  and
regulated industries, especially those with meaningful international experience.
The Company also hires  professionals with senior executive  experience directly
from industry.

      Qualified  consultants  are in great  demand,  and  there  is  significant
competition for employees with these skills from other consulting and investment
banking  firms,   research  firms,  energy  companies  and  many  other  related
enterprises.  Although the Company  attracts and motivates its  professional and
administrative staff by offering competitive packages of base and incentive cash
compensation,  stock  options,  bonuses and attractive  benefits,  many of these
firms have greater financial  resources than the Company,  which they may use to
attract and compensate qualified  personnel.  There can be no assurance that the
Company will be able to attract and retain sufficient  numbers of highly skilled
consultants in the future.  The loss of the services of a significant  number of
consultants,  research  associates  or  administrative  personnel  could  have a
material  adverse  effect  on the  Company's  business,  operating  results  and
financial condition, including its ability to secure and complete engagements.

      Concentration  of  Revenues.  Over half of the revenues of the Company are
derived from private and institutional  clients involved in the energy,  network
and environmental industries. As a result of this focus, the Company's business,
financial  condition  and  results  of  operations  are  influenced  by  factors
affecting these industries,  including,  but not limited to, changing political,
economic and regulatory influences that may affect the procurement practices and
operations of such  industries.  In particular,  many electric and gas utilities
are consolidating to create larger organizations or strategic  alliances.  These
consolidations  and alliances will reduce the number of potential  customers for
the Company and may also  create  conflicts  of  interest  between  clients.  In
addition,  these  consolidations  and alliances may result in the acquisition of
certain  of the  Company's  key  clients,  and such  clients  may scale  back or
terminate  their  relationship  with the Company  following  their  acquisition.
Similarly,  cutbacks  in the energy,  network  industries  and/or  environmental
budgets of the United  States and other  governments  could  result in the scale
back or termination of some of the Company's public sector contracts. The impact
of these developments in the energy,  utility,  transportation and environmental
industries is difficult to predict and could have a material  adverse  effect on
the Company's business, financial condition and results of operations.



      Ability to Sustain and Manage Growth.  The Company has  experienced  rapid
growth in  recent  years.  The  Company  completed  five  acquisitions  in 1998,
including  the  acquisition  of Putnam,  Hayes and  Bartlett,  Inc.  The Company
believes that sustaining  such growth places a strain on operational,  human and
financial resources. In order to manage its growth, the Company must continue to
improve  its  operating  and  administrative  systems  and to attract and retain
qualified  management  and  professional,   scientific  and  technical-operating
personnel.   Foreign  operations  also  may  involve  the  additional  risks  of
assimilating  differences in foreign  business  practices,  hiring and retaining
qualified  personnel,  and overcoming language barriers.  Failure to manage such
growth  effectively  could  have a  material  adverse  effect  on the  Company's
business.

      Risks  Related to  Possible  Acquisitions.  An  element  of the  Company's
strategy is to expand its operations  through the  acquisition of  complementary
businesses. There can be no assurance that the Company will be able to identify,
acquire,  profitably  manage or successfully  integrate any acquired  businesses
into the Company without  substantial  expenses,  delays or other operational or
financial  problems.  Moreover,  competitors of the Company are also  soliciting
acquisition  candidates,  which  could  result  in an  increase  in the price of
acquisition  targets  and a  decrease  in the  number  of  attractive  companies
available for acquisition. Further, acquisitions may involve a number of special
risks,  including  diversion of  management's  attention,  failure to retain key
acquired  personnel,   increased  costs  to  improve  managerial,   operational,
financial and  administrative  systems,  unanticipated  events or circumstances,
legal  liabilities,  increased  interest  expense and  amortization  of acquired
intangible  assets,  some or all of which could have a materially adverse impact
on the Company's  business,  operating results and financial  condition.  Client
satisfaction  or  performance  problems at a single  acquired  firm could have a
materially  adverse  impact on the  reputation  of the  Company  as a whole.  In
addition,  there can be no assurance  that  acquired  businesses,  if any,  will
achieve anticipated revenues and earnings.  The failure of the Company to manage
its acquisition  strategy  successfully  could have a material adverse effect on
Hagler Bailly's business, operating results and financial condition.

      Dependence on Key Clients.  The Company  derives a significant  portion of
its revenues from a relatively limited number of clients. For example,  revenues
from the Company's ten most significant clients accounted for approximately 39%,
35% and 42% of its total revenues in 1998, 1997 and 1996,  respectively.  A U.S.
government  agency,  USAID,  is the Company's  largest  client,  accounting  for
approximately  22%, 20% and 18% of Hagler  Bailly's total revenues in 1998, 1997
and 1996,  respectively.  Clients  typically  retain the Company as needed on an
engagement basis rather than pursuant to long-term  contracts,  and a client can
usually  terminate  an  engagement  at any time without a  significant  penalty.
Moreover,  there can be no assurance  that the Company's  existing  clients will
continue to engage it for  additional  assignments  or do so at the same revenue
levels.  The loss of any significant client could have a material adverse effect
on the Company's  business,  results of operations and financial  condition.  In
addition,  the  level  of  the  Company's  consulting  services  required  by an
individual  client  can  diminish  over  the life of its  relationship  with the
Company,  and there can be no assurance  that the Company will be  successful in
establishing relationships with new clients as this occurs.



      Professional and Other Liability.  The Company's services involve risks of
professional  and  other  liability.  If the  Company  were  found to have  been
negligent  or to have  breached  its  obligations  to its  clients,  it could be
exposed  to  significant  liabilities  and its  reputation  could  be  adversely
affected. In connection with many of its public sector engagements,  the Company
employs the  services of local staff and uses  consultants  who are  independent
contractors.   Negligent  or  illegal  acts,  or  ethical  violations  by  these
independent contractors could adversely affect the Company.

      Public  Sector  Market and  Contracting  Risks.  Approximately  31% of the
Company's  total revenues in 1998 and 34% in 1997 were derived from contracts or
subcontracts with public sector clients. Providing consulting services to public
sector  clients  is  subject  to  detailed  regulatory  requirements  and public
policies as well as to funding priorities.  Contracts with public sector clients
may be conditioned  upon the continuing  availability of public funds,  which in
turn depends upon lengthy and complex budgetary  procedures,  and may be subject
to certain pricing constraints.  Moreover, public sector contracts may generally
be  terminated  for a  variety  of  factors,  including  when it is in the  best
interests of the  respective  government.  There can be no assurance  that these
factors or others unique to contracts with governmental entities will not have a
material  adverse  effect on the Company's  business,  results of operations and
financial condition.

      Intense  Competition.  The market for  consulting  services in the energy,
network  and the  environmental  industries  is  intensely  competitive,  highly
fragmented  and  subject  to rapid  change,  and such  competition  is likely to
increase  in  the  future.  Many  of  the  Company's  competitors  have  greater
personnel,  financial,  technical and marketing resources than the Company.  The
Company also competes with its clients' internal  resources,  particularly where
such resources  represent a fixed cost to the client. This source of competition
may  heighten  as  consolidation  of electric  and gas utility and other  energy
industry companies creates larger organizations.  There can be no assurance that
the Company will be able to compete  successfully with its existing  competitors
or with any new competitors.

      Risk of International Operations. The Company operates either permanent or
project  offices  in a total of 22 foreign  countries.  The  Company  expects to
continue to expand its international operations and offices primarily in Western
Europe, Latin America and the Pacific Rim. Expansion into new geographic regions
requires  considerable  management  and financial  resources and may  negatively
impact  the   Company's   near-term   results  of   operations.   The  Company's
international operations are subject to numerous potential challenges and risks,
including war, civil  disturbances,  other political and economic  conditions in
various jurisdictions such as tariffs and other trade barriers,  longer accounts
receivable  collection cycles,  fluctuations in currency and potentially adverse
tax consequences. There can be no assurance that such international factors will
not have a  material  adverse  effect  on the  Company's  business,  results  of
operations and financial condition.




      Dependence on Key Employees.  The Company's business consists primarily of
the delivery of professional  services and,  accordingly,  its future success is
highly dependent upon the efforts,  abilities,  business generation capabilities
and  project  execution  of its  consultants.  The  Company's  success  is  also
dependent upon the  managerial,  operational  and  administrative  skills of its
officers.  The loss of the  services  of any  consultant  or the  failure of the
Company's  consultants  to generate  business or  otherwise  perform at or above
historical  levels  could  have a  material  adverse  effect  on  the  Company's
business,  financial  condition and results of operations.  The Company does not
have  employment or  non-competition  agreements with many of its consultants or
officers;  accordingly,  such individuals may terminate their  relationship with
the Company at will and without notice and immediately begin to compete with the
Company.

       Concentration  of  Ownership.  As of March 1,  1999,  the  directors  and
executive officers of the Company  beneficially owned approximately 31.3% of the
Company's  outstanding  shares of common stock. As a result,  these stockholders
will  have  substantial  influence  over the  outcome  of  matters  requiring  a
stockholder  vote,  including  the  election  of the  members  of the  Board  of
Directors. Such control could adversely affect the market price of the Company's
common  stock or delay or prevent a change of control of the  Company at a price
which might represent a premium over the market price of its common stock.

      Need to Develop New Offerings. The Company's future success will depend in
significant  part on its  ability to  successfully  develop  and  introduce  new
service offerings and improved versions of existing service offerings. There can
be no assurance that the Company will be successful in  developing,  introducing
on a timely  basis and  marketing  such service  offerings,  or that any service
offerings will be accepted in the market.  Moreover,  services offered by others
may render the Company's services non-competitive or obsolete.

      Project Risks.  Many of the Company's  engagements  involve projects which
are critical to the  operations of its  customers'  businesses and which provide
benefits that may be difficult to quantify.  The Company's  failure or inability
to meet a customer's  expectations  in the  performance  of its  services  could
result in the incurrence by the Company of a financial loss and could damage the
Company's  reputation and adversely  affect its ability to attract new business.
In addition,  an unanticipated  difficulty in completing a project could have an
adverse effect on the Company's business and results of operations. Fees for the
Company's  engagements  can be  based on the  project  schedule,  the  Company's
staffing  requirements,  the level of customer  involvement and the scope of the
project as agreed upon with the customer at the project's inception. The Company
generally  seeks  to  obtain  an  adjustment  in its  fees in the  event  of any
significant  change in any of the assumptions  upon which the original  estimate
was  based.  However,  there  can be no  assurance  that  the  Company  will  be
successful in obtaining any such adjustment in the future.

      Intellectual  Property  Rights.  The  Company's  performance  is  in  part
dependent upon its internal  information and communication  systems,  databases,
tools,  and the methods and  procedures  that it has developed  specifically  to
serve its clients.  The Company  relies on a combination  of  nondisclosure  and
other contractual arrangements and copyright, trademark and trade secret laws to
protect its proprietary  systems,  information  and procedures.  There can be no
assurance that the steps taken by the Company to protect its proprietary  rights
will be adequate to prevent  misappropriation of such rights or that the Company
will be able to detect  unauthorized use and take  appropriate  steps to enforce
its proprietary rights. The Company believes that its systems and procedures and
other proprietary rights do not infringe upon the rights of third parties. There
can be no assurance,  however,  that third parties will not assert  infringement
claims  against  the  Company  in the  future or that any such  claims  will not
require  the  Company to enter into  costly  litigation  or  materially  adverse
settlements to litigation, regardless of the merits of such claims.

      Government  Regulation of Immigration.  Certain of the Company's employees
are foreign  nationals  working in the United  States  under U.S.  visas or work
permits. Congress and administrative agencies with jurisdiction over immigration
matters  have  periodically  expressed  concerns  over the  levels  of legal and
illegal immigration into the U.S. These concerns have often resulted in proposed
legislation,  rules and regulations aimed at reducing the number of work permits
that may be issued.  Any changes in such laws making it more  difficult  to hire
foreign  nationals  or limiting  the  ability of the  Company to retain  foreign
employees could require the Company to incur  additional  unexpected labor costs
and expenses.

      Fluctuations of Operating Results.  The Company's future operating results
will continue to be subject to quarterly  fluctuations based upon a wide variety
of  factors,  including  the  number  and  significance  of  client  engagements
commenced and completed during a quarter,  delays incurred in connection with an
engagement,  the  number of  business  days in a  quarter,  employee  hiring and
utilization  rates,  the  ability of clients to  terminate  engagements  without
penalties, the size and scope of engagements, the nature of the fee arrangement,
the seasonality of the spending cycle of public sector clients  (especially that
of the United States government),  the timing of new office openings,  return on
investment  capital,  and the general  economy,  such as  recessionary  periods,
political  instability,  changes in trade policies,  fluctuations in interest or
currency exchange rates and other competitive factors.  Seasonality also affects
the Company's  operating results,  particularly in the third and fourth quarters
of  each  fiscal  year.  In  addition,  the  Company's  operating  expenses  are
increasing  as the  Company  continues  to expand  its  operations,  and  future
operating  results  will be  adversely  affected  if  revenues  do not  increase
accordingly.  Additionally,  the Company plans to continue to evaluate and, when
appropriate,  make  acquisitions of  complementary  businesses.  As part of this
process the Company will continue to evaluate the changing  value of its assets,
and when necessary,  make adjustments thereto.  While the Company cannot predict
what  effect  these  various  factors  may have on its  financial  results,  the
aggregate  effect  of these  and  other  factors  could  result  in  significant
volatility in the Company's future performance and stock price.

      Fluctuations  in the  General  Economy.  The  general  level  of  economic
activity  significantly affects demand for the Company's  professional services.
When economic activity slows, clients may delay or cancel plans that involve the
hiring of  consultants.  The  Company is unable to predict the level of economic
activity at any particular  time, and  fluctuations in the general economy could
adversely  affect  the  Company's  business,  operating  results  and  financial
condition.

      Employment  Liability  Risks.  The Company,  as a provider of professional
services,  employs and places  individuals in the workplace of other businesses.
Inherent risks of such activity include possible claims of errors and omissions,
misuse   of  client   proprietary   information,   misappropriation   of  funds,
discrimination and harassment, theft of client property, other criminal activity
or torts and other claims. Although historically the Company has not experienced
any material  claims of these types,  there can be no assurance that the Company
will not experience such claims in the future.

      Certain   Anti-takeover   Effects.  The  Company's  Amended  and  Restated
Certificate of Incorporation,  By-laws, and the Delaware General Corporation Law
include  provisions  that may be deemed to have  anti-takeover  effects  and may
delay,  defer or prevent a takeover attempt that stockholders  might consider in
their best  interests.  These include a Board of Directors which is divided into
three classes, each of which is elected to serve staggered three-year terms, and
by-law  provisions  under which only the  President,  a majority of the Board of
Directors or stockholders owning at least 50% of the Company's capital stock may
call meetings of the  stockholders.  Also, the Board of Directors of the Company
is  authorized  to  issue up to  5,000,000  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.
Furthermore,  the Company is subject to the anti-takeover  provisions of Section
203 of the Delaware  General  Corporation Law that prohibits  Hagler Bailly from
engaging in a "business combination" with an "interested stockholder" unless the
business  combination is approved in a prescribed manner. These provisions could
also have the  effect of  delaying  or  preventing  a change of  control  of the
Company, which could adversely affect the market price of the common stock.

      Fluctuations  in Stock  Price.  The market price of the  Company's  common
stock  may  fluctuate  substantially  due to a  variety  of  factors,  including
quarterly  fluctuations in results of operations,  announcements or terminations
of new services, offices, contracts,  acquisitions or strategic alliances by the
Company or its competitors,  as well as changes in the market  conditions in the
energy, network and environmental  industries,  changes in earnings estimates by
analysts, changes in accounting principles,  sales of the Company's common stock
by existing holders,  loss of key personnel,  a relatively small float of shares
that  are  freely  tradable  without   restriction  or  registration  under  the
Securities Act of 1933 and other factors. The stock market has from time to time
experienced  extreme  price  and  volume  fluctuations  that  have  particularly
affected the market price for many companies and which,  on occasion,  have been
unrelated to operating performance.  To the extent the Company's performance may
not meet  expectations  published by external  sources,  public  reaction  could
result in a sudden and  significantly  adverse impact on the market price of the
Company's  securities,  particularly on a short-term  basis.  In addition,  such
stock price  volatility  may provoke the  initiation of  securities  litigation,
which may divert substantial management resources and may have an adverse effect
on the  management  of business  operations.  Any of these  results could have a
material  adverse  effect  on the  Company's  business,  operating  results  and
financial condition.


<PAGE>




EXECUTIVE OFFICERS

      The Company's Executive Officers and their respective ages,  positions and
biographical information is as follows:

Name                       Age    Positions

John R. Armstrong           54    Senior Vice President and Chief Operating 
                                  Officer of Hagler Bailly Services

Henri-Claude A. Bailly      52    President and Chief Executive Officer 
                                  of Hagler Bailly

Frederick T. Baird          50    Senior Vice President of PHB Hagler Bailly

John C. Butler, III         48    Senior Vice President of PHB Hagler Bailly

Jasjeet S. Cheema           54    Executive Vice President, U.S./Canada 
                                  Operations of Hagler Bailly and of PHB 
                                  Hagler Bailly

William E. Dickenson        50    Executive Vice President and Chief Operating 
                                  Officer of Hagler Bailly, and President and  
                                  Chief Executive Officer of PHB Hagler Bailly

Glenn J. Dozier             48    Senior Vice President,Chief Financial Officer,
                                  Treasurer and Secretary of Hagler Bailly, PHB
                                  Hagler Bailly and Hagler Bailly Services

Neill W. Freeman, III       54    Senior Vice President of PHB Hagler Bailly

Derek W. HasBrouck          38    Senior Vice President of PHB Hagler Bailly

James N. Heller             50    Senior Vice  President of PHB Hagler  Bailly 
                                  and President of Fieldston Publications, Inc.

David A. Keith              48    Senior Vice President of Hagler Bailly Service

Steven A. Mitnick           46    Senior Vice President of PHB Hagler Bailly

Howard W. Pifer, III        56    Chairman of the Board of Hagler Bailly and of 
                                  PHB Hagler Bailly

James M. Speyer             54    Senior Vice President of PHB Hagler Bailly

Alain M. Streicher          50    Executive  Vice  President,  International  
                                  Operations of Hagler Bailly, and President and
                                  Chief Executive Officer of Hagler Bailly 
                                  Services

Walter H. A. Vandaele       54    Senior Vice President of PHB Hagler Bailly

Kent D. Van Liere           46    Senior Vice President of PHB Hagler Bailly

Stephen V.R. Whitman        52    Senior Vice President and General  Counsel of 
                                  Hagler Bailly, PHB Hagler Bailly and Hagler
                                  Bailly Services




John R.  Armstrong is a senior vice  president  and chief  operating  officer of
Hagler Bailly Services,  Inc., a wholly-owned  subsidiary of the Company. He has
over 24 years  experience  in  designing  and  implementing  state and  national
programs to promote  energy  efficiency  and  renewable  energy in the U.S.  and
developing  countries.  Prior to joining  Hagler  Bailly,  Mr.  Armstrong  was a
director of energy conservation and development for the Minnesota  Department of
Energy and Economic Development, and director of the Wisconsin Energy Office.

Henri-Claude A. Bailly has served as the Company's chief executive officer since
its founding in 1980.  From 1984 to 1987 and from May 1995 to date,  Mr.  Bailly
has been the firm's  president;  he served as chairman of the board of directors
from 1984 to August 1998 and  continues to serve as a member of the board.  From
1984 to 1995,  RCG  International,  Inc.,  the  consulting arm of Reliance Group
Holdings, employed Mr. Bailly in a series of management positions culminating in
senior vice president,  and chairman of the board and chief executive officer of
RCG/Hagler Bailly, Inc. Prior to founding Hagler Bailly, Mr. Bailly was employed
in successive positions from associate to managing director of Resource Planning
Associates,  an international  energy,  utilities and  environmental  management
consulting  firm.  Mr.  Bailly  serves on the board of  directors  of the United
States Energy  Association,  the Alliance to Save Energy, and is a member of the
National Coal Council.

Frederick T. Baird is a senior vice president of PHB Hagler Bailly.  Since 1996,
he has worked primarily in Putnam,  Hayes & Bartlett - Asia Pacific Ltd, the New
Zealand  subsidiary  of PHB  Hagler  Bailly.  Prior to joining  Putnam,  Hayes &
Bartlett,  Inc.  ("PHB"),  the  predecessor of PHB Hagler Bailly,  Mr. Baird was
managing director of CORE Management  System Ltd ("CORE"),  which specializes in
the design and  development  of complex  computer-based  business  models  using
optimization  and  simulation  and which is now part of PHB Hagler  Bailly- Asia
Pacific Ltd. Mr. Baird  established  CORE following a joint venture with Ernst &
Young LLP in which he headed a management  science practice.  From 1982 to 1988,
Mr.  Baird  was a  member  of the  Faculty  of  Commerce  at the  University  of
Canterbury.

John C. Butler III is a senior vice president of PHB Hagler  Bailly.  Formerly a
managing  director  of  PHB,  he  specializes  in the  economic,  financial  and
strategic  analysis of environmental,  product liability and insurance  coverage
issues.  He has extensive  experience  analyzing both domestic and international
environmental  and insurance  issues,  having served as a consultant to numerous
multinational  companies,  law firms and government  agencies.  Prior to joining
PHB, he worked with the  Environmental  Protection  Agency,  the United  Nations
Environment Programme and the World Health Organization.

Jasjeet S. Cheema is executive vice  president,  U.S/Canada  operations for
Hagler Bailly and PHB Hagler Bailly. Mr. Cheema joined Hagler Bailly through its
acquisition  of TB&A Group,  Inc.  ("TB&A") in February  1998.  At TB&A, he held
various positions and served as its president since 1980. Prior to joining TB&A,
he  worked  for Getty  Oil  Company  as a  manager  of its  corporate  technical
applications  group.  Mr. Cheema was elected to the Company's board of directors
in March 1999.


William E. Dickenson is executive vice president and chief operating  officer of
Hagler Bailly and president and chief executive officer of PHB Hagler Bailly. He
served as PHB's  president and chief  executive  officer since 1992, and was the
managing  director  responsible  for its litigation  support  practice from 1983
through  1992.  From  1978  to  1983,  Mr.  Dickenson  managed  major  antitrust
litigation and consulting assignments at Dickenson,  O'Brien & Associates, which
he  founded  and  served  as its  president.  Prior to that he was  employed  at
Cambridge  Research  Institute  and also served in a variety of positions at the
Tennessee Valley Authority.  Mr. Dickenson was elected to the Company's board of
directors in March 1999.

Glenn J.  Dozier  has been  senior  vice  president,  chief  financial  officer,
treasurer  and  secretary of Hagler  Bailly since  joining the firm in September
1998. Mr. Dozier was a financial and management  consultant  from September 1996
to  September  1998 and from April  1990 to  September  1996 he was senior  vice
president and chief financial  officer of Owens & Minor,  Inc. From January 1987
to April 1990, he was chief financial officer of AMF. For the prior 12 years, he
was employed by Dravo  Corporation  where his last position was vice  president,
finance for Dravo Constructors, Inc.

Neill W. Freeman,  III is a senior vice president of PHB Hagler Bailly. He was a
managing  director and member of the board of directors of PHB since 1994,  when
the consulting firm he founded and in which he was a principal, Freeman & Mills,
combined its consulting  practice with PHB. Prior to founding Freeman & Mills in
1978, Mr. Freeman was an auditor  consultant at several  accounting  firms. From
1966 to 1969, Price Waterhouse & Co. employed Mr. Freeman;  from 1969-1974,  Mr.
Freeman was  employed by BDO  Seidman;  and from  1974-1978,  he was employed by
Coopers & Lybrand.  Mr.  Freeman was also a founder of the 1st Business  Bank of
Los Angeles.

Derek W.  HasBrouck is a senior vice  president of PHB Hagler  Bailly.  Mr.
HasBrouck joined Hagler Bailly through its acquisition of TB&A in February 1998.
At TB&A,  he was a  managing  director  in charge of the firm's  retail  utility
management  practice,  as  well as a  member  of its  board  of  directors.  Mr.
HasBrouck  joined TB&A in 1987,  specializing in the issues facing retail energy
providers,  both in the U.S. and  internationally.  Prior to joining  TB&A,  Mr.
HasBrouck  was  employed  at Florida  Power & Light and Jones & Laughlin  Steel.

James N.  Heller is a senior  vice  president  of PHB  Hagler  Bailly  and chief
operating  officer of Fieldston  Publications,  Inc. In 1981, Mr. Heller founded
The Fieldston  Company and Fieldston  Publications,  Inc.  Prior to founding the
Fieldston  companies,  Mr. Heller was the senior  analyst at Teknekron,  Inc. of
Berkeley,  California  from 1979 to 1980. From 1975 to 1979, he was the director
of Management Studies of Energy and Environmental  Analysis,  Inc. and from 1972
to 1975, he was the section chief for the U.S. Environmental  Protection Agency,
Office of Water Quality Planning and Standards.

David A. Keith is a senior vice president of Hagler Bailly Services. He has been
involved in energy research,  development and consulting  projects  continuously
since 1974. From 1974-1983,  at Georgia Tech Research Institute,  he was project
director  for some of the first  industrial  energy  conservation  programs  and
renewable  energy  projects in the U.S. In 1983, Mr. Keith joined Hagler Bailly,
and from 1983-1989  served as resident  advisor for national energy  development
programs in Jamaica and Indonesia. Since 1990, he has served as project director
on energy  sector  institutional  reform  projects in more than 20  countries in
Central and Eastern Europe and the former Soviet Union.

Steven A.  Mitnick is Senior Vice  President  and since  February  1999 has
served as Co-Managing  Director of PHB Hagler Bailly's Strategy Practice,  which
provides  strategic counsel to the executive  leaderships of energy companies in
the U.S. or regional markets. Since 1993, Hagler Bailly has employed Mr. Mitnick
in various positions.  From 1991-1993,  Mr. Mitnick served as vice president and
chief economist to Science Applications  International  Corporation (SAIC). From
1989-1991,  Mr. Mitnick served as senior consultant to Putnam, Hayes & Bartlett,
Inc.  From  1980-1989,  he was  president  of S.A.  Mitnick &  Associates.  From
1980-1982,  Mr. Mitnick was of member of Georgetown  University's faculty, where
he  taught  courses  in  microeconomics,  macroeconomics  and  statistics.  From
1976-1980,  Mr. Mitnick served as a consultant to various  government  agencies.
Mr.  Mitnick  is a member of the  Editorial  Advisory  Board of The  Electricity
Journal.

Howard  W.  Pifer,  III has  served as  chairman  of  Hagler  Bailly's  board of
directors  since August 1998. He served as chairman of the board of directors of
PHB since 1991,  having previously served as PHB's president and chief executive
officer.  Dr.  Pifer also serves as chairman of PHB Hagler  Bailly and leads its
energy global business  sector.  Dr. Pifer  specializes in rigorous  analysis of
corporate  strategies  and public  policies and has advised  senior  management,
boards of directors and  governments  in Australia,  Canada,  England and Wales,
Hong Kong,  New  Zealand,  Norway,  Scotland,  Singapore  and Spain,  as well as
throughout  the United  States.  Prior to founding PHB in 1976,  Dr. Pifer was a
member of the  Harvard  Business  School  faculty,  where he taught  courses  in
managerial economics,  finance,  public policy and strategic planning. From 1973
to 1976,  Dr. Pifer was a Vice  President of the Energy &  Environment  Group at
Temple, Barker & Sloane, Inc.

James M.  Speyer is a senior vice  president  of PHB Hagler  Bailly.  Formerly a
managing  director and member of the board of directors of PHB, Mr. Speyer is an
expert  in  the  strategic   analysis  of  energy  and   environmental   issues,
particularly  those  affecting the coal, gas,  electric  utility and independent
power industries. Prior to joining PHB, Mr. Speyer was a principal with ICF Inc.
from 1979 to 1982.  Mr.  Speyer has also held  various  positions in the federal
government, including working on President Carter's White House Energy Staff and
at the Department of Energy and the Environmental Protection Agency.

Alain M. Streicher is executive  vice  president,  international  operations for
Hagler  Bailly  and  president  and chief  executive  officer  of Hagler  Bailly
Services.  He has been employed by Hagler Bailly in various management positions
including  senior  vice  president  and  acting  chief  operating  officer.  Mr.
Streicher has served as a member of the Company's  board of directors  since May
1995. From 1976 to 1980, Mr.  Streicher was chief energy analyst at the CEREN in
Paris.

Walter H. A. Vandaele is a senior vice president of PHB Hagler Bailly.  Formerly
a managing director and member of the board of directors of PHB, Dr. Vandaele is
an expert in competition and regulatory  policy analysis.  Prior to joining PHB,
Dr. Vandaele was assistant  director for regulatory  evaluation at the Bureau of
Consumer  Protection  and an  Economic  Advisor  at the  Bureau of  Competition,
Federal  Trade  Commission.  He  taught  at the  Harvard  Business  School,  the
Department of Economics at Harvard University, and the University of Chicago.

Kent D. Van Liere is a senior vice president of PHB Hagler Bailly. Over the past
15  years  he  has  directed  a  wide  range  of  value  of  service,   customer
loyalty/satisfaction,  market  segmentation,  and new product assessment studies
with  residential,  commercial and  industrial  customers for clients in several
industries. Prior to its acquisition by Hagler Bailly, he was President of HBRS,
a nationally  recognized  market research firm.  Before joining HBRS in 1985, he
was an associate professor of sociology at the University of Tennessee.

Stephen  V.R.  Whitman is senior vice  president  and General  Counsel of Hagler
Bailly.  Prior to joining the firm in July 1997,  he spent four years in private
practice  in his own firm,  was  associated  with the law firms of Kelley Drye &
Warren and White & Case and  served as  attorney  advisor  (and  regional  legal
advisor  in  Lima,  Peru)  for  the  United  States  Agency  for   International
Development.  He earned his J.D. in 1975 from the University of Virginia  School
of Law.


ITEM 2 - PROPERTIES

      The Company's  headquarters is currently  located in approximately  58,402
square feet of leased office space in Arlington,  Virginia.  The Company  leases
office space as listed  below.  The Company  believes  that its  facilities  are
suitable for its current needs and that  additional  facilities can be leased to
meet future needs.

The Company maintains principal offices in the following locations:

                United States                                International
------------------------------------------------------------------------      
Arlington, VA               Madison, WI                 Buenos Aires, Argentina
Cambridge, MA               New York, NY                Daventry, England
Boulder, CO                 Palo Alto, CA               Dublin, Ireland
Chicago, IL                 San Francisco, CA           Islamabad, Pakistan
Houston, TX                 Washington, DC              Jakarta, Indonesia
Los Angeles, CA [2]                                     Melbourne, Australia
                                                        London, England
                                                        Paris, France
                                                        San Paulo, Brazil
                                                        Sydney, Australia
                                                        Toronto, Canada
                                                        Wellington, New Zealand

      Each principal office represents a permanent  location  servicing multiple
clients  that is run by a  member  of  Hagler  Bailly's  senior  management.  In
addition,  from time to time the Company leases a project office to enable it to
service a specific  international  project  involving  a  particular  individual
client, in which case the office is paid for directly by the client.  All of the
Company's  principal and project offices are electronically  linked together and
have access to all of the Company's capabilities and core consulting tools.

ITEM 3 -- LEGAL PROCEEDINGS

      Apogee  Research,  Inc.  ("Apogee"),  a  wholly  owned  subsidiary  of the
Company,  received  a  subpoena  in July 1998 from the  Office of the  Inspector
General of the Environmental  Protection  Agency (the "EPA") requesting  records
from April 1993 through October 1995 pertaining to a contract between Apogee and
the EPA. Apogee has provided records in response to the subpoena. The work under
this contract has been completed.  The subpoena was served in connection with an
EPA  investigation  relating to the submission of potential false statements and
false claims under the  contract.  Hagler  Bailly is unable to determine at this
time what effect, if any, the investigation will have on its business, financial
condition or results of operations.

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


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

      Not applicable.



<PAGE>


PART II

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

      The  Company's  common  stock was first  offered  to the public on July 3,
1997,  and since that time has been traded on the Nasdaq  National  Market under
the symbol "HBIX." The following table sets forth the range of reported high and
low  closing  sales  price  for the  Company's  common  stock,  for the  periods
indicated, as reported by the Nasdaq National Market.

1998                                            High                 Low
----------------------------------------------------------------------------
January - March                                $25.000             $18.625
April - June                                   $30.000             $22.500
July - September                               $30.250             $16.750
October - December                             $24.000             $13.563

1997                                            High                 Low
----------------------------------------------------------------------------
January - March                                  N/A                 N/A
April - June                                     N/A                 N/A
July 3 - September                            $25.250             $17.000
October - January                             $26.375             $18.250

      On November 17, 1998, the Company issued an aggregate of 232,558 shares of
its common stock to James H. Heller and Debbie G. Heller in connection  with the
acquisition of assets and the assumption of liabilities of The Fieldston Company
and the acquisition of all of the outstanding  stock of Fieldston  Publications,
Inc. The sale of these shares was exempt from registration under Section 4(2) of
the Securities Act of 1933 and the SEC's Regulation D.

      The  Company  had 196  holders of record of its  common  stock at March 1,
1999, and approximately 946 beneficial owners. The Company has never paid a cash
dividend on its common  stock and does not expect to pay a cash  dividend on its
common stock in the foreseeable future.


<PAGE>





ITEM 6 -- SELECTED FINANCIAL DATA

      The  following  selected  financial  data  as of and for  the  year  ended
December 31, 1994, have been derived from the financial statements of RCG/Hagler
Bailly, Inc. (the "Predecessor"), a wholly-owned subsidiary of RCG International
Inc. which was acquired on May 25, 1995, by the management of RCG/Hagler Bailly,
Inc. The selected  consolidated  financial  data for the year ended December 31,
1995,  combine the financial data of the Predecessor  derived from its financial
statements from January 1, 1995 to May 25, 1995, and the consolidated  financial
data of the Company  from May 26, 1995 to December  31,  1995,  derived from the
consolidated  financial  statements  of the Company.  The selected  consolidated
financial  data as of  December  31,  1995,  is  derived  from the  consolidated
financial statements of the Company. The selected consolidated financial data as
of and for the years ended December 31, 1996,  1997 and 1998,  have been derived
from the audited consolidated financial statements of the Company. The Company's
prior years have been restated to include the historical  financial  information
of  Apogee,  TB&A,  Izsak,  Grapin et  Associes  ("IGA")  and PHB as a result of
business combinations accounted for as poolings of interests.

      The results of operations for prior periods are not necessarily indicative
of the results that may be expected for future years.  The information set forth
below should be read in conjunction  with the Company's  consolidated  financial
statements  and the notes  thereto,  "Management's  Discussion  and  Analysis of
Financial Condition and Results of Operations" included elsewhere in this Annual
Report on Form 10-K.



<PAGE>
<TABLE>
<CAPTION>

                                                                         Years ended December 31,
                                                   ----------------------------------------------------------------------
                                                   1994 (1) (2)  1995 (1) (2)    1996 (2)       1997 (2)        1998
                                                   ------------- ------------- -------------- ------------- -------------
     <S>                                            <C>           <C>             <C>             <C>            <C>
    STATEMENT OF OPERATIONS DATA:                                  (In thousands, except per share data)
    Revenues:
     Consulting revenues                                $97,154      $120,566       $142,701      $158,863      $173,194
     Other revenues                                           -             -            440         1,752         4,268
                                                   ------------- ------------- -------------- ------------- -------------
         Total revenues                                  97,154       120,566        143,141       160,615       177,462
    Cost of services                                     72,122        94,163        110,500       120,585       126,204
                                                   ------------- ------------- -------------- ------------- -------------
    Gross profit                                         25,032        26,403         32,641        40,030        51,258
    Liquidation of subsidiary (4)                             -             -            662           328             -
    Merger related and other nonrecurring costs(5)            -             -              -         1,235         9,382
    Selling, general and administrative expenses         21,904        21,810         26,047        26,868        25,112
    Stock and stock option compensation (3)                 360             -          6,172         9,965         2,595
                                                   ------------- ------------- -------------- ------------- -------------
    Income/(loss) from operations                         2,768         4,593          (240)         1,634        14,169
    Other income (expense) net (7)                        (406)         (799)          (853)         (400)           269
                                                   ------------- ------------- -------------- ------------- -------------
    Income/(loss) before equity investment in
       joint venture and income tax expense               2,362         3,794        (1,093)         1,234        14,438
    Income tax expense                                    1,162         1,907          1,786         5,460         7,275
                                                   ------------- ------------- -------------- ------------- -------------
    Income/(loss) before equity investment in
       joint venture and extraordinary gain               1,200         1,887        (2,879)       (4,226)         7,163
    (Loss) from equity investment in joint venture            -             -              -             -         (463)
                                                   ------------- ------------- -------------- ------------- -------------
    Income (loss)  before extraordinary gain              1,200         1,887        (2,879)       (4,226)         6,700
                                                   ------------- ------------- -------------- ------------- -------------
    Extraordinary gain (6)                                    -         1,055            145         2,336             -
    ---------------------------------------------- ------------- ------------- -------------- ------------- -------------
    Net income (loss) (8)                                $1,200        $2,942       $(2,734)      $(1,890)        $6,700
                                                   ============      ========     ==========      ========       ========

    Net income (loss) per share
      Basic
       Net (loss) income before extraordinary gain          *             *        $(0.25)       $(0.32)         $0.42
       Extraordinary gain                                   *             *         $ 0.01        $ 0.17             -
       Net (loss) income                                    *             *        $(0.24)       $(0.14)         $0.42
      Dilutive
       Net (loss) income before extraordinary gain          *             *        $(0.25)       $(0.32)         $0.40
       Extraordinary gain                                   *             *         $ 0.01        $ 0.17             -
       Net (loss) income                                    *             *        $(0.24)       $(0.14)         $0.40
    Weighted average shares outstanding
      Basic                                                  *             *         11,321        13,361        15,992
      Dilutive                                               *             *         11,321        13,361        16,772
</TABLE>    
     *     Due to the  acquisition  on May 25,  1995,  and the change in capital
           structure,  earnings  per share  information  for this  period is not
           meaningful and accordingly is not presented.



<PAGE>




<TABLE>
<CAPTION>

                                  DECEMBER 31,
                                                          1994            1995           1996          1997          1998
BALANCE SHEET DATA                                                              (In Thousands)
<S>                                                     <C>             <C>           <C>           <C>           <C>
Cash and cash equivalents                                $ 1,267         $ 1,753       $ 3,218       $ 5,261       $ 16,165
Working capital                                            1,644           5,054         7,382        34,122         54,294
Total assets                                              38,184          52,703        55,872        84,657        101,422
Total debt                                                 6,470          20,606        16,790         2,752          1,026
Total stockholders' equity                                 3,538           3,772         9,958        48,849         73,599
</TABLE>
(1)   The  operating  data for the year ended  December  31,  1994,  reflect the
      combined results of operations of the Predecessor,  Apogee,  TB&A and PHB.
      The  operating  data for the  year-ended  December  31,  1995  reflect the
      combined  results of operations of the Predecessor from January 1, 1995 to
      May 24, 1995,  the Company from May 25, 1995 to December 31, 1995, and the
      annual results of Apogee, TB&A, IGA and PHB.
(2)   The  statements of operations  data for the years ended December 31, 1994,
      1995, 1996 and 1997 include performance incentive compensation paid to PHB
      senior  staff  members  in  excess  of a  standard  bonus  set  for  their
      respective staff levels. The excess performance incentive compensation was
      included  in cost of services  and  selling,  general  and  administrative
      expenses  was  $2,931,  $6,260,  $9,588  and  $7,294  for the years  ended
      December 31, 1994,  1995, 1996 and 1997,  respectively.  In addition,  the
      year ended December 31, 1994,  also includes  $1,802 of selling,  general,
      and administrative expenses, representing a note receivable from a related
      party, and the year ended December 31, 1996,  includes  approximately $500
      of cost of services,  representing  that  portion of officer  compensation
      that  exceeded  the  compensation  that  would  have  been  paid  had  the
      compensation plan adopted in January 1997 been in effect for all of 1996.
(3)   In  connection  with an  amendment  to the Hagler  Bailly,  Inc.  Employee
      Incentive and  Non-Qualified  Stock Option and Restricted  Stock Plan (the
      "Stock Option  Plan") and a  reclassification  of its common  stock,  each
      effective  December  31,  1996,  Hagler  Bailly  incurred   non-recurring,
      non-cash  charges to  operations  amounting  to  approximately  $4,600 for
      options and  approximately  $1,600 for stock in 1996. In connection with a
      stock bonus to an employee,  the Company incurred a non-cash  compensation
      charge to operations in the first quarter of 1997 of $65. PHB common stock
      issued or subject to issuance under subscriptions  receivable entered into
      within 12 months preceding the closing of the merger were presumed to have
      been  issued  in  contemplation  of  the  proposed  transaction  and  were
      accounted for at their fair market value at date of issuance. Accordingly,
      PHB recognized a non-recurring,  non-cash, non-tax deductible compensation
      charges for the years ended  December  31, 1997 and 1998 of  approximately
      $9,900 and $2,600,  respectively,  representing the difference between the
      fair market and book value of shares of common stock then issuable.
(4)   On December 31, 1996, PHB  liquidated  its wholly owned  subsidiary in the
      U.K. Of PHB's loss of $663 in 1996, $549  represented  cumulative  foreign
      currency  translation  losses  that  had  previously  been  recorded  as a
      separate  component of the PHB's  shareholders'  equity. In 1997, $328 was
      recorded  as  management's  estimate  of the  uncollectable  net  proceeds
      resulting   from  the   liquidation.
(5)   For the year ended December 31, 1997 and 1998, the Company recorded merger
      related costs of $1,235 and $9,382, respectively,  as a result of business
      combinations   and  related  costs  and  impairment  of  investments   and
      long-lived  assets (see Note 19 to the 1998 financial  statements).
(6)   For the years ended December 31, 1995, 1996 and 1997, the Company recorded
      extraordinary gains of $1,055, $145 and $2,336, respectively,  as a result
      of  extinguishment  of debt at beneficial  terms at TB&A.
(7)   Other income  (expenses),  net includes interest income,  interest expense
      minority interest, other income, and other expenses.
(8)   Management  considers the  items  stated in  Notes 3, 4, 5 and 6 above  to
      be nonrecurring.  The effect of excluding  these nonrecurring  charges and
      extraordinary  gains on the Company's statement of operations, net of tax,
      would  increase  net  income  by  approximately $6,200, $8,600 and $9,000,
      to pro forma  operating net  income of  approximately  $3,400,  $6,700 and
      $15,700 for the years ended December 31, 1996,1997 and 1998, respectively.
      The effect of  excluding  the nonrecurring charges and extraordinary gains
      would  increase dilutive  EPS   by $0.54,  $0.61 and $0.53,  for the years
      ended  December 31, 1996,  1997,  and 1998, respectively.  For purposes of
      the  increase in EPS  caused  by  the  exclusion  of certain  nonrecurring
     transactions discussed above, tax expense was applied at a combined federal
      and state  income tax rate of 40.0% for the year ended  December 31, 1996,
      47.6% for the year  ended December 31, 1997, and 39.7% for the  year ended
      December 31, 1998.



<PAGE>



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

Overview

   The predecessor of the Company was founded in February 1980 as Hagler, Bailly
& Company, Inc. In July 1984, it was acquired by RCG International, Inc. ("RCG")
an indirect subsidiary of Reliance Group Holdings,  Inc. and in 1987 was renamed
RCG/Hagler Bailly,  Inc. In May 1995, the management of RCG/Hagler Bailly,  Inc.
completed the purchase of  RCG/Hagler  Bailly,  Inc.  from RCG (the  "Management
Buy-Out"),  and the successor to RCG/Hagler  Bailly,  Inc. became a wholly-owned
subsidiary of the Company. In July 1997, the Company completed an initial public
offering (the "IPO").

      Hagler  Bailly,  together with its wholly owned  subsidiaries,  PHB Hagler
Bailly,  Hagler  Bailly  Services and several of its other  domestic and foreign
wholly  owned  subsidiaries,  is a leading  worldwide  provider of  professional
services to corporate and government  clients on energy,  network industries and
the environment.

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

      Total revenues  represent the total of all revenues  related to contracts,
including  revenues  associated  with  professional  staff,  subcontractors  and
independent  consultants.  Consulting  revenues represent the amount of contract
revenue   associated  with  billings  by  the  Company's   professional   staff.
Subcontractor   and  other   revenues   represent   revenues   associated   with
subcontractors  and  independent  consultants,  as well as  travel  and per diem
reimbursements from clients.

      The  Company  derives  substantially  all of its  revenues  from  fees for
professional  services.  Clients are typically  invoiced on a monthly basis. The
majority of revenues are billed at standard daily rates,  standard hourly rates,
or  cost-plus  fixed-fees.  Revenues  from  standard  daily rate  contracts  are
recognized at amounts  represented by the agreed-upon  billing amounts and costs
are recognized as incurred.  Revenues from standard hourly rate  engagements are
recognized as hours are recorded and costs are  recognized as they are incurred.
Revenue from cost-plus  fixed-fee  contracts is recognized as costs are incurred
on the  basis of  direct  costs  plus  allowable  indirect  costs and a pro rata
portion  of  estimated  fee.  The  remainder  of the  revenues  are  billed on a
fixed-bid basis and by lump sum fee  arrangements.  Revenues from fixed-bid type
contracts are  recognized on the  percentage-of-completion  method of accounting
with costs and  estimated  profits  included in contract  revenues  based on the
relationship that contract costs incurred bear to management's estimate of total
contract  costs.  Losses,  if any,  are accrued  when they become  known and the
amount of the loss is reasonably  determinable.  The Company's most  significant
expenses are project personnel costs,  which consist of consultant  salaries and
benefits  (including  bonuses),  and  travel-related  direct  project  expenses.
Project personnel are typically full-time professionals employed by the Company,
although the Company often  supplements its  professional  project staff through
the use of subcontractors and independent consultants. The Company believes that
retaining  subcontractors and independent  consultants on a per-engagement basis
provides it with greater flexibility and reduced risk in adjusting  professional
staff levels in response to changes in demand for its services.

Compensation Charges

      Effective December 31, 1996, the Company adopted an amendment to its Stock
Option Plan which  changed the  exercise  price of future  options to be granted
thereunder to the market value of the underlying  common stock. In addition,  in
connection  with  the   reclassification   of  its  common  stock,  the  Company
substituted  0.9 shares of Class A common stock for each share of Class B common
stock  underlying  971,963 options vesting on January 1, 1997. At the same time,
options to purchase 971,963 shares of Class B common stock vesting on January 1,
1998 were canceled. As a result, the Company recorded a non-recurring,  non-cash
charge to  operations  of  approximately  $6.2 million in December 1996 of which
approximately  $4.6  million  was for  options  to  purchase  common  stock  and
approximately  $1.6  million  was for  394,160  shares of common  stock  sold to
employees during 1996. These charges represent the aggregate  difference between
the exercise price of such  outstanding  options or the issuance price of common
stock sold to  employees  during  1996,  as the case may be,  and the  appraised
market value of the underlying common stock at December 31, 1996.

      The Company also recognized a non-recurring, non-cash charge to operations
of  approximately  $10.0  million  in the year  ended  December  31,  1997,  and
approximately  $2.6 million in the year ended  December 31, 1998.  These charges
are required under generally accepted accounting principles for stock issued, or
obligated  to be issued,  during the twelve  months  preceding  the closing of a
pending   merger  based  on  the   presumption   that  such  issuances  were  in
contemplation  of the merger.  Substantially  all of these costs were related to
the PHB merger and  represent  the  difference  between the fair market and book
value of PHB common stock  issuable under  subscriptions  within one year of the
merger's close.

Recent Mergers and Events

      On December 1, 1997, the Company  completed the merger of Apogee  Research
Inc.  ("Apogee"),  whereby  Apogee  became a  wholly-owned  subsidiary of Hagler
Bailly.  Apogee was a consulting firm specializing in the economic and financial
analysis  of  infrastructure,   including  all  aspects  of  transportation  and
environment.  The Company  issued 409,985 shares of its common stock in exchange
for all of the common stock of Apogee. The business combination is accounted for
as a pooling of interests.  Accordingly, the Company's financial statements have
been restated to reflect the merger for all periods presented.

     On January 28, 1998, the Company purchased the remaining  minority interest
of its consolidated  subsidiary,  PT Hagler Bailly, a consulting firm located in
Jakarta,  Indonesia,  for $200,000  whereby PT Hagler Bailly became an indirect,
wholly-owned  subsidiary of the Company.  Total consideration of the acquisition
was  $200,000 in cash.  The  acquisition  was  accounted  for using the purchase
method.  The  consolidated  financial  statements  have reflected the results of
operations  of PT  Hagler  Bailly  since  its  inception.  As a  result  of  the
transaction, the Company recorded intangible assets of approximately $200,000.

      On February 23, 1998, the Company completed the merger of TB&A Group, Inc.
("TB&A"),  whereby TB&A became a wholly-owned subsidiary of the Company. TB&A is
a management consulting firm to electric,  gas and telecommunication  companies.
The Company issued 454,994 shares of Hagler Bailly common stock, in exchange for
all of the common stock of TB&A. The business  combination is accounted for as a
pooling of interests.  Accordingly, the Company's financial statements have been
restated to reflect the merger for all periods presented.

     On March 10, 1998, the Company purchased the remaining minority interest of
Hagler Bailly  Indonesia,  Inc., which holds all of the outstanding  stock of PT
Hagler  Bailly,  whereby  Hagler  Bailly  Indonesia,  Inc.  became  an  indirect
wholly-owned  subsidiary of the Company.  Total consideration of the acquisition
was $240,000 in cash.  The  acquisition  was  accounted  for as a purchase.  The
consolidated  financial  statements  have reflected the results of operations of
Hagler  Bailly  Indonesia,  Inc.  since  its  inception.  As  a  result  of  the
transaction, the Company recorded intangible assets of approximately $240,000.

      On April 28, 1998,  the Company  completed  the  acquisition  of Estudio Q
Ingenieros  Asociados  S.R.L.,  an Argentinean  company  ("Estudio Q"),  whereby
Estudio Q became a wholly-owned  subsidiary of the Company.  Total consideration
for the acquisition was approximately  $2.4 million in the form of $800,000 cash
and an aggregate of 64,306 shares of Hagler Bailly common stock. The acquisition
was  accounted  for using the purchase  method.  Accordingly,  the  consolidated
financial  statements  reflect  the  results  of  Estudio  Q since  the  date of
acquisition.  As a result of the transaction,  the Company  recorded  intangible
assets of approximately $2.7 million.

      On June 16,  1998,  the Company and Cap Gemini S.A.  and its wholly  owned
subsidiary, Cap Gemini America, Inc., entered into an exclusive joint venture to
deliver  information  technology  consulting services and solutions to electric,
gas and water  utilities,  and service  providers  in the U.S.  and Canada.  The
Company  expects the joint venture,  Cap Gemini Hagler Bailly,  L.L.C.,  to turn
profitable  sometime late in the fiscal year ending December 31, 1999. The joint
venture is owned  equally by the  Company  and Cap Gemini  America  and each has
invested capital in the venture and transferred key senior  professionals to it.
Concurrently  with the  creation  of the joint  venture,  Cap  Gemini  purchased
470,975 newly issued shares of the Company's  stock at the current  market price
for total consideration, after commissions and fees, of $11.8 million.

      On June 30, 1998,  the Company  completed  the merger of IGA,  whereby IGA
became a  wholly-owned  subsidiary of the Company.  The Company  issued  183,550
shares of its common  stock in  exchange  for all the common  stock of IGA.  The
business  combination was accounted for as a pooling of interests.  Accordingly,
the Company's financial  statements have been restated to reflect the merger for
all periods presented.

      On August 28, 1998,  the Company  completed the merger of Putnam,  Hayes &
Bartlett,  Inc.  ("PHB"),  whereby PHB became a  wholly-owned  subsidiary of the
Company.  Until the merger,  PHB was the  largest  privately  owned  independent
economic and management consulting firm in the United States. The Company issued
6,548,953  shares of its common stock in exchange for all of the common stock of
PHB. The  business  combination  was  accounted  for as a pooling of  interests.
Accordingly,  the Company's  financial  statements have been restated to reflect
the merger for all periods presented.

     On September 30, 1998, the Company sold certain assets of its public sector
environmental consulting operations. As a result of the transaction, the Company
sold assets for approximately $2.9 million, resulting in a gain of approximately
$282,000.

     On November 17, 1998,  the Company  completed  the  acquisition  of certain
assets  and the  assumption  of certain  liabilities  of The  Fieldston  Company
("TFC")  and  all of the  outstanding  stock  of  Fieldston  Publications,  Inc.
("FPI").  Total  consideration of the acquisition was approximately $2.3 million
in cash and 232,558 shares of Hagler Bailly common stock.  The  acquisition  was
accounted for using the purchase method. Accordingly, the consolidated financial
statements  reflect the results of  operations  of TFC and FPI since the date of
acquisition.  As a result of the transaction,  the Company  recorded  intangible
assets of approximately $4.8 million.

      In December 1998, the Company made the decision to cease operations in its
financial advisory services business, HB Capital, Inc., resulting in expenses of
approximately $1.8 million.

      In  connection  with these and other  transactions,  the Company  incurred
merger related and other  nonrecurring  costs of approximately  $1.2 million and
$9.4 million in 1997 and 1998, respectively.



<PAGE>


      Results of Operations

The  following  table  presents  for the periods  indicated  the  percentage  of
revenues represented by certain income and expense items:

<TABLE>
<CAPTION>
                                                                 For the years ended December 31,
                                                           1996                1997                 1998
                                                           ----                ----                 ----
          <S>                                              <C>                 <C>                  <C>
            Revenues:
             Consulting                                       99.7%               98.9%                97.6%
             Other                                             0.3                 1.1                  2.4
                                                      ----------------     ---------------     ---------------
               Total revenues                                100.0                100.0               100.0
            Cost of services                                  77.2                 75.1                71.1
            Merger related and other nonrecurring costs          -                  0.8                 5.3
            Liquidation of assets                              0.5                  0.2                   -
            Selling, general, and administrative              18.2                 16.7                14.2
             expenses              
            Stock and stock option compensation                4.3                  6.2                 1.4
                                                     ----------------    ----------------     ---------------
          Income from operations                              (0.2)                 1.0                 8.0
            Interest income                                    0.2                  0.8                 0.2
            Interest expense                                  (1.0)                (0.8)               (0.2)
            Other income (expense), net                        0.2                 (0.2)                0.2
            Minority interest                                   -                     -                (0.1)
                                                     ----------------    ----------------     ---------------
          Income (loss) before income tax
            expense, equity investment in joint
            venture and extraordinary gain                    (0.8)                 0.8                 8.1
          Income tax expense                                   1.2                  3.4                 4.1
          (Loss) from equity investment in joint                 -                   -                 (0.2)
             venture
                                                     ----------------    ----------------     ---------------
          Net income (loss) before                          
             extraordinary gain                               (2.0)                (2.6)                3.8
          Extraordinary gain                                   0.1                  1.4                 -
                                                     ----------------    ----------------     ---------------
          Net income                                          (1.9)                (1.2)                3.8
                                                     ================    ================     ===============
</TABLE>

1998 COMPARED TO 1997

      Revenues for the year ended December 31, 1998, increased by $16.8 million,
or 10.5%,  to $177.5  million from the year ended  December  31,  1997.  Of this
increase,  $14.3  million was  attributable  to  consulting  revenues,  and $2.5
million was attributable to other revenues.  Consulting  revenues increased 9.0%
for the year ended December 31, 1998, as compared to the year ended December 31,
1997. This increase was primarily driven by the Company's focus on the growth of
private-sector  engagements  resulting  in an  increase  of $6.2  million and an
increase  internationally  of $8.1 million resulting from increased capacity and
capabilities  through the  purchase of Estudio Q, an  Argentinean  company,  and
growth in PT Hagler  Bailly  Indonesia,  Hagler Bailly  Pakistan,  Hagler Bailly
France, and IGA. Other revenues increased 143.6% for the year ended December 31,
1998, as compared to the comparable  period of the prior year. This increase was
attributable to increased revenues from information-based  products and services
associated with contracts the Company was awarded in the current fiscal year. In
the year ended December 31, 1998,  approximately 97.6% of the Company's revenues
were derived from consulting revenues,  as compared with 98.9% in the year ended
December 31, 1997.

      Cost of services for the year ended  December 31, 1998,  increased by $5.6
million,  or 4.7%, to $126.2 million from the year ended December 31, 1997. Cost
of services as a percentage of revenue  decreased from 75.1 % for the year ended
December 31, 1997, to 71.1% for the year ended December 31, 1998,  primarily the
result of a reduction in cash compensation resulting from the integration of the
Company's and merged firms' operations, particularly PHB.

      Selling,  general and administrative  expenses ("SG&A") for the year ended
December 31, 1998,  decreased by approximately  $1.8 million,  or 6.5%, to $25.1
million  from the year ended  December 31,  1997.  Expressed as a percentage  of
total revenues,  SG&A expenses  decreased from 16.7% for the year ended December
31,  1997,  to 14.2% for the year ended  December  31,  1998.  This  decrease is
primarily  reflective  of a reduction in cash  compensation  resulting  from the
integration of the Company's and merged firms' operations, particularly PHB.

      In the year ended December 31, 1998, there were no expenses related to the
liquidation  of a  subsidiary,  compared to  approximately  $328,000 in expenses
related to the liquidation of a subsidiary in the year ended December 31, 1997.

     Merger related and other nonrecurring costs for the year ended December 31,
1998,  increased by $8.1  million to $9.4 million as compared to the  comparable
period of the prior year.  The majority of the merger  related costs in the year
ended December 31, 1998, were associated with the merger of PHB and exiting from
the Company's  financial  advisory  services  business,  as well as the business
combinations with TB&A, IGA, Apogee, FPI, TFC and Estudio Q.

      Stock and stock option  compensation for the year ended December 31, 1998,
decreased  by $7.4  million  from the year  ended  December  31,  1997,  to $2.6
million.  Substantially  all of these costs in both  periods  related to PHB and
include  non-cash,  non-tax  deductible  compensation  based  on the  difference
between  the fair  market and book  values of PHB common  stock  issuable  under
subscriptions within one year of the companies' merger.

      Other income (expenses),  net includes interest income,  interest expense,
minority interest, and other income and expenses.  Other income (expenses),  net
increased by approximately  $670,000 to approximately $270,000 in the year ended
December  31,  1998.  The  primary  reasons  for  this  increase  was a gain  of
approximately  $282,000  from  the  sale  of  certain  assets  of the  Company's
environmental  consulting  business,  as well as a decrease in interest  expense
from the year ended  December 31, 1997,  due to the use of IPO proceeds to repay
the Company's outstanding debt.

      Loss from joint venture for the fiscal year ending  December 31, 1998, was
approximately ($460,000), or (0.2%) expressed as a percentage of total revenues.
The joint  venture,  Cap  Gemini  Hagler  Bailly  LLC,  was  created  to deliver
information  technology  consulting services and solutions to electric,  gas and
water  utilities  and service  providers  in the U.S.  and  Canada.  The Company
expects the joint  venture to turn  profitable  sometime late in the fiscal year
ending December 31, 1999.

      The Company's effective tax rate for the year ended December 31, 1998, was
50.4%.  The 1998  provision for tax is higher than the  provisional  tax rate of
39.7% as a result of the  non-deductibility  for tax  reporting  purposes of the
compensation  charge in connection with subscriptions for the issuance of common
stock, and certain non-deductible merger related costs.

     Net income before extraordinary gains for the year ended December 31, 1998,
increased by  approximately  $10.9  million,  to $6.7 million,  as a result of a
combination of reasons discussed above.

      For the year ended December 31, 1998, there were no  extraordinary  gains,
compared to approximately $2.3 million in extraordinary gains, net of income tax
expense, for the year ended December 31, 1997. The gains in 1997 were the result
of extinguishment of debt at beneficial terms to the Company.

     Net income for the year ended December 31, 1998 increased by  approximately
$8.6 million, to $6.7 million, as a result of the reasons discussed above.

1997 Compared to 1996

      Revenues for the year ended December 31, 1997, increased by $17.5 million,
or 12.2%,  to $160.6  million from the year ended  December  31,  1996.  Of this
increase, $16.2 million is attributable to consulting revenues, and $1.3 million
is attributable to other revenues.  Consulting  revenues  increased by 11.3% for
the year ended  December 31, 1997, as compared to the  comparable  period of the
prior year. A significant  cause of this  increase was the increased  demand for
management   consulting   services   associated  with  the   restructuring   and
deregulation  of the electric  and gas sectors  outside the United  States.  The
overall  increase  was  constrained  by  declining  revenues  generated  from  a
litigation  case  which  represented  approximately  7% of the  Company's  total
revenues  in 1996 and  approximately  1% in 1997  and the  ending  of two  major
private sector  engagements  during the year.  Management  strategy of deploying
core-consulting staff to create and initiate sales of information-based products
and services also mitigated this growth. Other revenues increased 298.2% for the
year ended December 31, 1997, as compared to the comparable  period of the prior
year.  The increase in other revenues was the result of an increase in financial
advisory  services,  as well as the  start  of the  Company's  information-based
products and services business.

      Cost of services for the year ended December 31, 1997,  increased by $10.1
million,  or 9.1%, to $120.6 million from the year ended December 31, 1996. Cost
of services as a percentage  of revenue  decreased  from 77.2% in the year ended
December 31, 1996, to 75.1% in the year ended  December 31, 1997.  The increased
cost was primarily due to an increase from institutional  clients, and the lower
percentage to sales was due to continued  focus on higher margin  private sector
revenues.

       SG&A for the year ended  December  31, 1997,  increased by  approximately
$820,000,  or 3.2%,  to $26.9  million  from the year ended  December  31, 1996.
Expressed as a percentage of total revenues,  SG&A expenses decreased from 18.2%
in the year ended  December  31, 1996,  to 16.7% in the year ended  December 31,
1997,  primarily  due to less  marketing  expenses  relating  to private  sector
revenue  generation as compared to the comparable period in the prior year. SG&A
expenses for the year ended  December 31,  1996,  were  increased as the Company
focused on its marketing  efforts to replace multiyear  institutional  contracts
which were ending during the year.

       Expenses  related  to  the  liquidation  of  a  subsidiary  decreased  by
approximately  $334,000 in the year ended December 31, 1997, from the comparable
period in the prior year.

     Merger related and other nonrecurring costs for the year ended December 31,
1997 were $1.2 million. There were no merger and related and other non-recurring
costs in the  comparable  period of the prior year.  The  majority of the merger
related  costs in the year ended  December 31, 1997,  were  associated  with the
mergers with Apogee and TB&A.

         Stock and stock  option  compensation  for the year ended  December 31,
1997, increased by approximately $3.8 million,  from the year ended December 31,
1996, to approximately  $10.0 million.  Substantially  all of these costs in the
year ended December 31, 1997 were related to PHB and include  non-cash,  non-tax
deductible compensation based on the difference between the fair market and book
values of PHB common stock issuable under  subscriptions  within one year of the
companies' merger.  During the year ended December 31, 1996, the Company amended
its stock plan to change the exercise  price of future  options to be granted to
the  market  value of the  common  stock,  as  opposed to its book value plus an
adjustment for accretion.  All of the costs in the year ended December 31, 1996,
represent the aggregate  difference  between the exercise  price of  outstanding
options,  and the issuance price of common stock sold to employees  during 1996,
and the appraised market value of the common stock on December 31, 1997.

      Other  income  (expenses),  net  increased  by  approximately  $450,000 to
approximately  ($400,000) in the year ended December 31, 1997,  primarily due to
interest  income  earned from the  investment  of IPO funds and a  reduction  in
interest expense  resulting from use of IPO proceeds to pay off outstanding debt
in 1997.

      The Company's effective tax rate for the year ended December 31, 1997, was
442.5%.  The 1997 provision for tax is higher than the  provisional  tax rate of
40% as a result  of the  non-deductibility  for tax  reporting  purposes  of the
compensation  charge in connection with subscriptions for the issuance of common
stock.

     Net loss before  extraordinary  gains for the year ended December 31, 1997,
decreased by approximately $1.3 million,  to ($4.2) million,  as a result of the
reasons discussed above.

      Extraordinary  gains for the year ended  December 31,  1997,  increased by
approximately $2.2 million,  to approximately $2.3 million,  from the year ended
December 31, 1996. These gains were the result of the  extinguishment of debt at
beneficial terms to the Company.

     Net loss for the year ended December 31, 1997,  increased by  approximately
$840,000,  to ($1.9)  million,  from the year ended  December 31, 1996,  for the
reasons discussed above.


<PAGE>




Liquidity and Capital Resources

      As of December 31, 1998,  working capital was $54.3 million as compared to
$34.1  million at December  31,  1997.  The  increase  was  primarily  due to an
increase  in cash from the sale of the  Company's  investments,  an  increase in
accounts receivable, and a decrease in accrued compensation and benefits.

     Net cash of approximately  $341,000 was used in operating activities during
the year ended December 31, 1998. Cash provided by net income,  depreciation and
amortization,  deferred  income taxes,  and stock and stock option  compensation
were  offset by a  significant  increase in  accounts  receivable,  as well as a
decrease in accrued  compensation  and benefits for the year ended  December 31,
1998.

      Investment activities provided $1.6 million during the year ended December
31, 1998. The sale of investments for approximately  $6.5 million,  and proceeds
from the  disposition  of certain  public sector assets for  approximately  $2.9
million  were  largely  offset by the  investment  of $4.0 million in office and
computer  related  equipment,   leasehold  improvements,   and  other  resources
necessary  for the  growth  of the  Company,  as well  as $3.3  million  used to
purchase the assets of TFC and the stock of FPI, the stock of Estudio Q, and the
balance  of the  Company's  interest  in a  previously  majority  owned  foreign
subsidiary.

      Financing activities provided $9.7 million for the year ended December 31,
1998.  Cash provided by the issuance of 470,975  shares of the Company's  common
stock  for  consideration,  net of  proceeds,  of $11.8  million  to Cap  Gemini
America,  Inc.,  and  approximately  $900,000  from other stock  issuance,  were
partially  offset by payments on net  borrowings on the Company's line of credit
and  principal  payments on debt of  approximately  $1.5  million and  $300,000,
respectively,  and a payment of  approximately  $1.0 million for the purchase of
common stock from a dissenting shareholder resulting from a business combination
during 1998.  Net proceeds  from equity  financing  are invested in  short-term,
interest-bearing investment grade securities.

     The Company's  primary  source of liquidity for the past 12 months has been
cash flows from sales of common stock,  periodically  supplemented by borrowings
under a bank line of credit.  During  the year  ended  December  31,  1998,  the
Company established $50 million in revolving credit facilities with NationsBank.
The balance  available  under the line of credit at December 31, 1998, was $50.0
million.  The Company  believes that current  projected levels of cash flows and
the availability of financing,  including  borrowings under the Company's credit
facility, will be adequate to fund its anticipated cash needs, which may include
future  acquisitions  of  complementary  businesses,  for the next 12 months and
foreseeable  future. The Company,  depending on market conditions,  may consider
other sources of financing, including equity financing.



<PAGE>




New Accounting Pronouncements

     In June 1997, the FASB issued Statement No. 130,  "Reporting  Comprehensive
Income" which  established  standards for reporting and display of comprehensive
income and its components (revenues,  expenses,  gains and losses) in a full set
of  general-purpose  financial  statements.  This  statement  requires  that  an
enterprise  classify  items of other  comprehensive  income by their nature in a
financial  statement and display the accumulated  balance of other comprehensive
income separately from retained  earnings and additional  paid-in capital in the
equity  section of the balance  sheet.  This  statement is effective  for fiscal
years  beginning after December 15, 1997. The Company has adopted the effects of
this statement effecive January 1, 1998.

      In June  1997,  the FASB  issued  Statement  No.  131,  "Disclosure  about
Segments of an Enterprise and Related  Information" which established  standards
for public business  enterprises to report  information about operating segments
in annual financial statements and requires those enterprises to report selected
information about operating segments.  The financial  information is required to
be  reported  on the basis that it is used  internally  for  evaluating  segment
performance  and  deciding  how to allocate  resources  to  segments.  Operating
segments  are  components  of  an  enterprise  about  which  separate  financial
information  is  available  that is evaluated  regularly by the chief  operating
decision  maker  in  deciding  how  to  allocate   resources  and  in  assessing
performance.  This  statement is effective for financial  statements for periods
beginning  after  December 15, 1997.  The Company  operates in  principally  one
business segment and,  accordingly,  no additional  disclosures are necessary to
comply with this statement.

     In June 1998, the Financial  Accounting Standards Board issued Statement on
Financial  Accounting  Standards No. 133 (SFAS 133),  "Accounting for Derivative
Instruments and Hedging  Activities."  SFAS 133  standardizes the accounting for
derivative  instruments  by requiring  that an entity  recognize  derivatives as
assets or liabilities in the statement of financial position and measure them at
fair value.  This  Statement is  effective  for all quarters of all fiscal years
beginning  after June 15, 1999. This Statement is not expected to ahve an impact
on the Company's consolidated financial statements.

Year 2000

         The Year 2000 issue is the result of  computer  hardware  and  software
being  designed  with the year field  being set for two  digits  instead of four
digits.  Computer  programs  and  systems  with this  problem  will be unable to
properly  distinguish  between the year 2000 and the year 1900. As a result, the
programs could fail or yield incorrect results. The Company's business,  as well
of those of its principal  suppliers and clients, is dependent on the ability of
its software and hardware systems to properly  function.  Failure of one or more
of these systems of the Company or a material  client or supplier  could disrupt
the Company's  operations  and cause a material  adverse impact on the Company's
business, results of operations and financial condition.

The Company's Year 2000 Strategy

     The Company has  established  the Year 2000  Readiness Plan (the "Plan") to
prepare  for the Year  2000  issue.  This  Plan is  comprised  of the  following
elements:

     1. Audit, remediation, and testing of internal systems.

     2.  Obtaining  assurance or information on the state of Year 2000 readiness
of our material  clients and suppliers who exchange  information  electronically
with us or upon whom our work product may depend.

     3. Developing contingency plans, when practical,  to address potential Year
2000 failures.

         The  Company's  goal  is to  complete  implementation  of the  Plan  by
September 30, 1999.

Detailed  below are the status of progress and timetables for each of the phases
of the Plan.
<TABLE>
<CAPTION>
<S>                        <C>                  <C>                    <C>                     <C>       

                            Assessment           Remediation            Testing                 Implementation
                            -------------------- ---------------------- ----------------------- ----------------------
IT - Domestic               75% Complete         Current                Current                 By 3rd Quarter 1999
                            -------------------- ---------------------- ----------------------- ----------------------
IT - International          By 2nd Quarter 1999  During 2nd Quarter     During 2nd Quarter      By 3rd Quarter 1999
                                                 1999                   1999
                            -------------------- ---------------------- ----------------------- ----------------------
Business Operations         Complete             Complete               Complete                Complete
                            -------------------- ---------------------- ----------------------- ----------------------
Embedded                    1st Quarter 1999     1st - 3rd Quarter      1st - 3rd Quarter 1999  By 3rd Quarter 1999
                                                 1999
                            -------------------- ---------------------- ----------------------- ----------------------
3rd Party                   2nd Quarter 1999     During 2nd Quarter     2nd - 3rd Quarter 1999  By 3rd Quarter 1999
                                                 1999
</TABLE>

Year 2000 Readiness Report

         The  Company  made  several   acquisitions  in  1998.  It  undertook  a
comprehensive  due  diligence  examination  that  identified  general  Year 2000
Readiness issues for itself and the companies it acquired.  The Company recently
formalized  its  efforts by  establishing  a Year 2000  Working  Committee  (the
"Committee") led by its Chief Information  Officer to oversee the integration of
its Year 2000 efforts and to implement the Plan. The Committee includes the COO,
CFO, General Counsel,  and other Company  executives and outside  consultants as
required. The Company has engaged a consultant to complete the assessment of its
domestic  offices  and to assist in the  assessment  of its major  international
offices.

         The Company's  front office  systems (used for the delivery of services
to clients), both hardware and software, were replaced or significantly upgraded
in 1997 and 1998  and were  manufactured  to be Year  2000  ready  (with  minor,
vendor-identified  problems).  The Company currently expects that the process of
updating those systems that are not Year 2000 ready will be completed by the end
of the second quarter of 1999.

         The Company does not employ any significant  custom  programming in its
front office, work product,  or back office systems.  The Company's work product
is  generated  almost  exclusively  with  commercially   available  statistical,
econometric,  word processing,  spreadsheet,  database, or mathematical software
for  which the  Company  has  obtained  Year 2000  Readiness  assurances.  These
software products have been audited and updated where appropriate.

         The Company will implement a firm wide software  application to monitor
Year 2000 compliance of new work product and to provide a testing  mechanism for
the  re-use  of  models,  spreadsheets,  or  databases.  This  application  is a
commercially  available  Year 2000 audit and  remediation  product  specifically
designed for Microsoft Windows compliant software applications.

         A  conversion  was  undertaken  in 1998 to  replace a  significant  and
non-compliant analytic system (used to service client analysis needs), including
hardware and software,  with a compliant system.  The implementation is complete
and the  conversion  of  existing  analytic  applications  will be  complete  by
September 30, 1999.

         Back office systems including financial accounting, project accounting,
fixed asset management,  human resources,  payroll, and conflict management have
been  replaced,  updated with vendor  supplied Year 2000 fixes,  or converted to
compliant versions of the software.  During the second quarter 1999, the Company
plans to  undertake a  comprehensive  test of its back office  systems.  Certain
models of personal  computers have been identified as non-compliant  and will be
replaced  in 1999.  The  number of Year 2000  replacements  will not  exceed the
normal annual personal computer turnover.

         The Company is contacting  the vendors of its principal  office systems
in order to obtain proof of Year 2000 readiness.  The Company's  material office
systems include its telephone, communications and networking equipment, security
and facilities systems,  copiers, pagers, voicemail, and faxing systems. Because
the  Company is highly  decentralized  with over 22 domestic  and  international
offices, it does not expect the audit and remediation of these office systems to
be complete  before  September  30, 1999.  Some office  systems in the Company's
international  offices  will not be  corrected  by December  31,  1999,  but the
Company does not expect such systems to materially  affect the Company's ability
to complete its engagements.

Clients

         The Company's  clients include  domestic and  international  companies,
private law firms,  the United States and state,  local and foreign  governments
and  governmental  agencies and  government-owned  enterprises.  The Company has
responded to Year 2000 compliance  surveys from over 50 of its major clients and
shared the  readiness  information  disclosed  here.  The Company is planning to
survey in the second quarter its top 25 clients  (measured by revenue  generated
for the Company in 1998) to  determine  their Year 2000  readiness.  The Company
plans to survey other clients if circumstances warrant and to survey new clients
upon new engagements.





Material Vendors

         The Company performs analytic work on time sensitive  matters.  Certain
vendors have been identified as critical to implementing the Plan. These vendors
include payroll,  credit,  transportation,  information  resources,  and certain
maintenance  providers of mission critical hardware and software. If one or more
of the Company's principal vendors experiences  significant  business disruption
as a result of the Year 2000 issue,  it could have a material  adverse effect on
the Company's  business,  results of operations  and  financial  condition.  For
example, if the Company's principal suppliers of real-time  electricity data are
not functioning properly, the Company may be unable to perform analytic work for
clients.  Similarly,  if hardware used to perform  modeling  cannot be supported
because of a Year 2000 issue at the vendor, the Company's ability to meet client
demands for time sensitive analysis might be jeopardized.  The Committee will be
contacting  the Company's  principal  vendors during the second quarter of 1999.
Based on the responses,  the Committee may need to develop  contingency plans to
replace those vendors whose ability to certify Year 2000  readiness is in doubt.
The Committee  expects that the process of  evaluating  and working with outside
vendors will continue into the third quarter of 1999.

Contingency Planning

         The Committee is  developing a  contingency  plan in the event that any
material system or vendor will not be Year 2000 ready by December 31, 1999. This
contingency  plan is  scheduled to be  substantially  complete by the end of the
third  quarter of 1999,  although it will be reviewed and refined  thereafter as
the Committee continues to evaluate the Company's systems and vendors.

Costs

         The Company will budget  $300,000 in each of the next two fiscal years,
1999 and 2000, to cover the costs of  evaluating  systems,  acquiring  Year 2000
remediation  software,  additional  testing of hardware and software,  hiring an
outside  Year  2000  consultant,   and  administrative   costs  associated  with
implementing  the Plan.  Although  the  Company  believes  this  amount  will be
sufficient to meet the costs of the Company's Year 2000 readiness efforts, there
can be no assurance that the costs to implement the Plan will not  significantly
exceed the Company's  current  estimates.  To date,  expenditures  for Year 2000
readiness  have been nominal and  associated  with the rapid  implementation  of
already planned front office and back office systems upgrades.

Risks

         At present,  the Company  perceives that its greatest Year 2000 risk is
its dependence on an external  network of information  providers,  vendors,  and
experts to complete its engagements. Even if the Company can satisfy itself that
the systems of its material  suppliers  and partners are Year 2000 ready,  those
suppliers  and partners in turn rely on a myriad of  suppliers to operate  their
businesses.  Year  2000-related  failures  far removed  from the  Company  could
trigger a chain of events that could  materially  harm the  Company's  business.
Certain clients, despite their best efforts, may suffer the effects of Year 2000
failures  of others  and thus  delay,  cancel,  or  substantially  alter work in
progress  resulting  in a  negative  effect on the  operations  of the  Company,
including  the  failure  to  meet  financial  expectations  or the  loss  of key
personnel.  Such a chain of events  could also lead to  litigation  against  the
Company.  There can be no  assurance  that Year  2000  problems  will not have a
material  adverse effect on the Company's  business,  results of operations,  or
financial condition.



<PAGE>


Item 7A. Quantitative and Qualitative Disclosures about Market Risk

      The  following  discussion  about the  Company's  market risk  disclosures
involves forward-looking statements. Actual results could differ materially. The
Company is exposed to market  risk from  changes in  interest  rates and foreign
exchange rates.  Adverse  changes in either  interest rates or foreign  exchange
rates can have a material effect on the Company's operations.

      Interest  Rate  Risk:  The  Company  is  subject  to risk from  changes in
interest rates. The Company utilizes U.S. dollar denominated  borrowings to fund
its operational  needs, and as of December 31, 1998, had total  outstanding debt
of approximately $1,000,000. A hypothetical 10% adverse change in interest rates
on the Company's total  outstanding  debt as of December 31, 1998 would not have
been material. Interest rates may move in the Company's favor. While the Company
does not expect to incur material losses as a result of this interest rate risk,
there can be no assurance that losses will not result.

      Foreign  Currency  Exchange  Risk:  The  Company  is  subject to risk from
changes  in  foreign  exchange  rates for its  subsidiaries  which use a foreign
currency as their functional currency and are translated into U.S. dollars. Such
changes could result in cumulative translation gains or losses that are included
in shareholders' equity.

      In the year ended December 31, 1998,  approximately 10.8% of the Company's
total  revenues  were derived from  operations  in foreign  countries  including
Argentina,  Armenia, Australia, Canada, France, Ireland, Indonesia, Pakistan and
New  Zealand.  Exchange  rate  fluctuations  between  the  U.S.  dollar  and the
currencies of these countries result in positive or negative fluctuations in the
amounts relating to foreign  operations  reported in the Company's  consolidated
financial  statements.  None  of  the  components  of  the  Company's  financial
statements were materially  affected by exchange rate  fluctuations in the years
ended December 31, 1996, 1997, or 1998.

      The potential loss resulting from a hypothetical uniform 10% strengthening
in the value of the U.S. dollar relative to the foreign currencies in which some
of the  Company's  sales are  denominated  would have  resulted in a decrease in
earnings  of   approximately   $390,000.   The  potential  impact  of  the  same
hypothetical uniform change on the Company's cash flows would have resulted in a
decrease in cash flows of approximately  $180,000. This calculation assumes that
each  exchange  rate would  change in the same  direction  relative  to the U.S.
dollar. Foreign exchange rates may move in the Company's favor.

      The  sensitivity  of earnings and cash flows to  fluctuations  in exchange
rates is periodically assessed by management by applying an appropriate range of
potential rate fluctuations to the Company's assets, liabilities,  and projected
results of operations denominated in foreign currency. Historically, the Company
has not used foreign currency options and forward contracts to hedge against the
earnings  effects of such  fluctuations.  While the  Company  does not expect to
incur  material  losses  as a result  of this  currency  risk,  there  can be no
assurance that losses will not result.



ITEM 8 -- CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA

      The Consolidated  Financial Statements of Hagler Bailly are annexed to the
report as pages FS-1 through FS-28. An index to the Financial  Statements is set
forth on page 40.


          ITEM 9 -- CHANGES IN AND  DISAGREEMENT  WITH ACCOUNTANTS ON ACCOUNTING
     AND FINANCIAL DISCUSSIONS


      Not applicable.



<PAGE>


PART III


      The  information  required by Items 10 through 13 of this Part III will be
provided in the definitive proxy statement for the Company's 1999 Annual Meeting
of  Stockholders  to be  filed  pursuant  to  Regulation  14A of the  Securities
Exchange Act of 1934 no later than April 30, 1999, and is incorporated herein by
reference to the extent provided below.


ITEM 10 -- DIRECTORS AND EXECUTIVE OFFICERS OF HAGLER BAILLY

      Certain  Information  regarding  Executive  Officers  of  the  Company  is
included  in Item 1 of Part I of this 1998  Annual  Report on Form  10-K.  Other
information in response to this item is  incorporated  by reference  herein from
the  sections of the Proxy  Statement  captioned  "ELECTION  OF  DIRECTORS"  and
"SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE."

ITEM 11 -- EXECUTIVE COMPENSATION

      Information in response to this item is incorporated  by reference  herein
from the  section  of the Proxy  Statement  captioned  "DIRECTOR  COMPENSATION",
"COMPENSATION  COMMITTEE  REPORT ON  COMPENSATION  OF EXECUTIVE  OFFICERS OF THE
COMPANY",  "COMPENSATION  INTERLOCKS  AND  INSIDER  PARTICIPATION",   "EXECUTIVE
COMPENSATION  SUMMARY TABLE",  "STOCK OPTION GRANTS DURING 1998",  "STOCK OPTION
EXERCISES  AND  VALUES  IN  1998",  "EMPLOYMENT  ARRANGEMENTS",  "COMPARISON  OF
FIVE-YEAR TOTAL RETURNS" AND "PERFORMANCE GRAPH".

ITEM 12 -- SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

      Information in response to this item is incorporated  by reference  herein
from the section of the Proxy Statement captioned "SECURITY OWNERSHIP".


ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      Information in response to this item is incorporated  by reference  herein
from the section of the Proxy Statement  captioned  "CERTAIN  RELATIONSHIPS  AND
RELATED TRANSACTIONS".



<PAGE>


PART IV

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

      The  consolidated  financial  statements  filed as part of this report are
listed in the  accompanying  Index to  Consolidated  Financial  Statements.  The
exhibits  filed as part of this  report are listed in the  accompanying  Exhibit
Index, which follows the signature pages to this report.

      On November 13, 1998,  the Company filed with the  Securities and Exchange
Commission,  an interim report on Form 8-K/A showing certain optional  unaudited
pro-forma combined financial information with respect to the Company and Putnam,
Hayes & Bartlett, Inc.


<PAGE>


42

                               HAGLER BAILLY, INC.
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


   Report of Independent Auditors..........................................FS-1

   Consolidated Balance Sheets at December 31, 1997
   and 1998................................................................FS-2

   Consolidated Statements of Operations for the years
   ended December 31, 1996, 1997 and 1998..................................FS-3

   Consolidated Statements of Stockholders' Equity
   for the years ended December 31, 1996, 1997 and 1998....................FS-4

   Consolidated Statements of Cash Flows for the years
   ended December 31, 1996, 1997 and 1998..................................FS-5

   Notes to Consolidated Financial Statements..............................FS-6



<PAGE>


FS-3

                         Report of Independent Auditors

Board of Directors and Stockholders
Hagler Bailly, Inc.

We have audited the accompanying  consolidated  balance sheets of Hagler Bailly,
Inc. as of December 31, 1997 and 1998, and the related  consolidated  statements
of operations,  stockholders' equity, and cash flows for each of the three years
in the period ended  December  31,  1998.  These  financial  statements  are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  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 Hagler
Bailly,  Inc. at December 31, 1997 and 1998,  and the results of its  operations
and its cash flows for each of the three years in the period ended  December 31,
1998 in conformity with generally accepted accounting principles.


March 12, 1999
Vienna, Virginia

                                                 /s/ Ernst & Young  LLP
                

<PAGE>
<TABLE>
<CAPTION>
                                                          HAGLER BAILLY, INC.
                                                      CONSOLIDATED BALANCE SHEETS
                                                            (in thousands)
                                                                                       December 31,
                                                                                  1997               1998
                                                                           ------------------- ------------------
<S>                                                                             <C>                 <C>
Assets
Current assets:
   Cash and cash equivalents                                                       $  5,261           $  16,165
   Investments                                                                        6,551                   -
   Accounts receivable, net of allowance for doubtful accounts of $3,873                        
     and $3,888 as of December 31, 1997 and 1998, respectively                       51,857              59,092
   Note receivable                                                                    1,000                 382
   Prepaid expenses                                                                   1,502               2,620
   Other current assets                                                               1,867                 304
                                                                              ------------------- ----------------
Total current assets                                                                 68,038              78,563
Property and equipment, net                                                           5,513               6,463
Software development costs, net                                                       2,463                 898
Intangible assets, net                                                                6,926              14,208
Other assets                                                                          1,598               1,290
Deferred income taxes                                                                   119                   -
                                                                           ------------------- ----------------- 
Total assets                                                                        $84,657            $101,422
                                                                           =================== =================

Liabilities and stockholders' equity
 Current liabilities:
   Bank line of credit                                                            $   1,500          $        -    
   Accounts payable and accrued expenses                                              7,969               8,476
   Accrued compensation and benefits                                                 13,467               8,713
   Billings in excess of cost                                                         3,126               2,288
   Current portion of long-term debt                                                    947                 345
   Deferred compensation                                                              3,566                   -
   Income taxes payable                                                               1,952               2,547
   Deferred income taxes                                                              1,389               1,900
                                                                           ------------------- ------------------
Total current liabilities                                                            33,916              24,269
Long-term debt, net of current portion                                                  305                 681
Minority interest                                                                         -                 177
Deferred income taxes                                                                     -                 927
Other deferred                                                                        1,587               1,769
                                                                           ------------------- ------------------
Total liabilities                                                                    35,808              27,823

Stockholders' equity :
Common stock:
     Class A par value $.01, 50,000 shares authorized, 15,474 and 16,483                        
       issued and outstanding at December 31, 1997 and 1998, respectively               155                 165
     Additional capital                                                              53,837              72,322
     Retained (deficit) earnings                                                     (5,161)              1,206
     Foreign currency translation                                                        18                 (94)
                                                                           ------------------- ------------------
Total stockholders' equity                                                           48,849              73,599
                                                                           ------------------- ------------------
Total liabilities and stockholders' equity                                         $ 84,657           $ 101,422
                                                                           =================== ==================

                                                        See accompanying consolidated notes
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                                          HAGLER BAILLY, INC.
                                                 CONSOLIDATED STATEMENTS OF OPERATIONS
                                                            (in thousands)



                                                                       For the years ended December 31,
                                                                1996                 1997                1998
                                                          ------------------- -------------------  ------------------
<S>                                                             <C>              <C>                     <C>
Revenues:
   Consulting revenues                                             $142,701         $ 158,863               $173,194
   Other revenues                                                       440             1,752                  4,268
                                                          ------------------- -------------------  ------------------
Total revenues                                                      143,141           160,615                177,462
Cost of revenues                                                    110,500           120,585                126,204
                                                          ------------------- -------------------  ------------------
Gross profit                                                         32,641            40,030                 51,258
Merger related and other nonrecurring costs                               -             1,235                  9,382
Liquidation of assets                                                   662               328                      -
Selling, general and administrative expenses                         26,047            26,868                 25,112
Stock and stock option compensation                                   6,172             9,965                  2,595
                                                          ------------------- -------------------  ------------------
(Loss) income from operations                                          (240)            1,634                 14,169
Other income (expense)
  Interest income                                                       334             1,192                    349
  Interest expense                                                   (1,450)           (1,301)                  (410)
  Other income (expense), net                                           263              (291)                   411
  Minority interest                                                       -                 -                    (81)
                                                          ------------------- -------------------  ------------------
(Loss) income before income tax expense, equity                      
   investment in joint venture and extraordinary gain                (1,093)            1,234                 14,438
Income tax expense                                                    1,786             5,460                  7,275
                                                          ------------------- -------------------  ------------------
(Loss) income before equity investment in joint venture
   and extraordinary gain                                            (2,879)           (4,226)                 7,163
(Loss) from equity investment in joint venture                            -                 -                   (463)
                                                          ------------------- -------------------  ------------------
(Loss) income before extraordinary gain                              (2,879)           (4,226)                 6,700
Extraordinary gain                                                      145             2,336                      -
                                                          ------------------- -------------------  -----------------
Net (loss) income                                                  $ (2,734)         $ (1,890)              $  6,700
                                                          =================== ===================  ==================
Net income (loss) per share:
   Basic
     Net (loss) income per share before extraordinary gain        $  (0.25)           $  (0.32)             $  0.42
     Net income per share extraordinary gain                      $   0.01            $   0.17                 -
     Net (loss) income  per share                                 $  (0.24)           $  (0.14)             $  0.42
   Diluted
     Net (loss) income per share before extraordinary gain        $  (0.25)           $  (0.32)             $  0.40
     Net income per share extraordinary gain                      $   0.01            $   0.17                 -
     Net (loss) income per share                                  $  (0.24)           $  (0.14)             $  0.40
Weighted average shares outstanding:
   Basic                                                            11,321            13,361               15,992
                                                          =================== ===================  ==================
   Diluted                                                          11,321            13,361               16,772
                                                          =================== ===================  ==================


                                                        See accompanying consolidated notes
</TABLE>


<PAGE>
<TABLE>
<CAPTION>
                                                          HAGLER BAILLY, INC
                                    CONSOLIDATED STATEMENTS OF STOCK HOLDERS' EQUITY (in thousands)
FS-4
See accompanying notes
                                                                                               Retained       Other         Total
                                                          Shares                  Additional   Earnings  Comprehensive Stockholders'
                                                    Class A     Class B   Amount  Capital      (Deficit)      Income         Equity
                                                    -------     -------   ------  -------      ---------      ------         ------
<S>                                               <C>            <C>     <C>        <C>            <C>        <C>           <C>
Balance, December 31, 1995                           10,893         104     $110       $5,829        $(147)     $(552)        $5,240
  Repayments of notes receivable for common stock         -           -        -           97             -          -            97
  Issuance of common stock                            1,483           -       15        1,323             -          -         1,338
  Repurchase of common stock                          (849)           -      (8)        (539)          (24)          -         (571)
  Dividends paid - IGA                                    -           -        -            -         (133)          -         (133)
  Compensatory stock & options                           93        (104)     (1)        6,172             -          -         6,171
  Foreign currency translation                            -           -        -            -             -        549           549
  Net loss                                                -           -        -            -       (2,734)          -       (2,734)
                                               -------------   --------- -------  -----------       -------  ----------      -------
 Comprehensive income                                                                                                        (2,185)
                                                                                                                             -------
Balance, December 31, 1996                           11,620           -      116       12,882       (3,038)        (3)         9,957
  Issuance of common stock - IPO                      2,500           -       25       30,240             -          -        30,265
  Issuance of common stock - other                      995           -       10          698             -          -           708
  Repurchase of common stock                          (126)           -      (1)         (81)             -          -          (82)
  Dividends paid - IGA                                    -           -        -            -         (233)          -         (233)
  Compensatory stock & options                            -           -        -        9,965             -          -         9,965
  Exercise of stock options                             485           -        5          133             -          -           138
  Foreign currency translation                            -           -        -            -             -         21            21
  Net loss                                                -           -        -            -       (1,890)                  (1,890)
                                               ------------    --------- -------  ------------      -------  ----------      -------
 Comprehensive income                                                                                                        (1,869)
                                                                                                                             -------
Balance, December 31, 1997                           15,474           -      155       53,837       (5,161)         18        48,849
  Sale of common stock - Cap Gemini                     471           -        5       11,828             -          -        11,833
  Issue of common stock for purchase of TFC             233           -        2        2,521             -          -         2,523
  Issue of common stock for purchase of Estudio Q        64           -        1        1,599             -          -         1,600
  Compensatory stock & options                            -           -        -        2,595             -          -         2,595
  Issuance of common stock - other                      193           -        2          544             -          -           546
  Purchase of common stock -dissenting shareholder      (51)          -      (1)        (967)             -          -         (968)
  Dividends paid - IGA                                    -           -        -            -         (333)          -         (333)
  Exercise of stock options                              99           -        1          365             -          -           366
  Foreign currency translation                            -           -        -            -             -      (112)         (112)
  Net income                                              -           -        -            -         6,700          -         6,700
                                               ------------    ---------  ------  ------------        ----- -----------        -----
 Comprehensive income                                                                                                          6,588
                                                                                                                               -----
Balance, December 31, 1998                           16,483           -     $165      $72,322        $1,206      $(94)       $73,599
                                                     ======     ========    ====      ========    =========  ==========      =======
See accompanying consolidated notes
</TABLE>

<PAGE>
<TABLE>
<CAPTION>
                                                          HAGLER BAILLY, INC.
                                                 CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                            (in thousands)
FS-24

                                                                                For the years ended December 31,
                                                                           1996                1997                   1998         
                                                                  ------------------------------------------------------------
<S>                                                                   <C>                   <C>                  <C>

Operating activities
Net (loss) income                                                        $  (2,734)            $(1,890)             $6,700
Adjustments to reconcile net (loss) income  to net cash
   provided by (used in) operating activities
     Depreciation and amortization                                           2,360               2,908               4,320
     Provision for accounts receivable allowance                             2,721               2,395               1,135
     Extraordinary gain                                                       (145)             (2,336)                  -
     Gain on sale of public sector assets                                        -                   -                (282)
     Provision for deferred income taxes                                     1,475                (383)              1,530
     Stock and stock option compensation                                     6,171               9,965               2,595
     Impairment of loan receivable                                               -                   -               1,000
     Minority interest                                                           -                   -                 177
     Asset impairment                                                            -                   -               1,107
     Loss on equity investment in joint venture                                  -                   -                 463
     Liquidation of subsidiary                                                 662                 328                   -
     Changes in operating assets and liabilities:
       Accounts receivable                                                  (3,016)            (18,538)            (10,521)
       Prepaid expenses                                                        (18)               (328)             (1,118)
       Deferred compensation                                                   800               1,050              (3,566)
       Other deferred                                                         (365)                 82                 182
       Other current assets                                                    332              (1,411)              1,553
       Other assets                                                           (328)               (519)                470
       Accounts payable and accrued expenses                                  (302)              1,741                (106)
       Accrued compensation and benefits                                       739                 670              (5,362)
       Income taxes payable                                                     21               1,908                 595
       Billings in excess of cost                                              755                (409)             (1,213)
                                                                  ------------------------------------------------------------
Net cash provided by (used in) operating activities                          9,128              (4,767)               (341)
                                                                  ------------------------------------------------------------
Investing activities
Sale of public sector assets                                                     -                   -               2,855
Amount (due)  paid in connection with liquidation of subsidiary             (2,172)              1,684                   -
Purchase of minority interest in consulting business                             -                (531)                  -
Investment in note receivable                                                    -              (1,000)                  -
(Purchase) sale of investments                                                   -              (6,551)              6,551
Purchase of acquired companies, net of cash received                             -                   -              (3,336)
Expenditures for software development                                            -              (2,512)                  -
Purchase of equity investment in joint venture                                   -                   -                (500)
Acquisition of property and equipment                                       (2,034)             (3,209)             (3,988)
                                                                  ------------------------------------------------------------
Net cash (used in)  provided by   investing activities                      (4,206)            (12,119)              1,582
                                                                  ------------------------------------------------------------
Financing activities
Sale of common stock                                                         1,338              31,111                 912
Sale of common stock - Cap Gemini                                                -                   -              11,833
Repurchase of common stock                                                    (474)                (82)               (968)
Net payments on bank line of credit                                         (1,166)             (2,500)             (1,500)
Dividends paid                                                                (133)               (233)               (333)
Proceeds from long-term financing                                              267                   -                   -
Principal payments on long-term debt                                        (2,846)             (9,368)               (281)
                                                                  ------------------------------------------------------------
Net cash (used in)  provided by financing activities                        (3,014)             18,928               9,663
                                                                  ------------------------------------------------------------
Net increase in cash and cash equivalents                                    1,908               2,042              10,904
Cash and cash equivalents, beginning of year                                 1,311               3,219               5,261
                                                                  ------------------------------------------------------------
Cash and cash equivalents, end of year                                      $3,219              $5,261             $16,165
                                                                  ============================================================
 
                                                       See accompanying consolidated notes
</TABLE>
<PAGE>


                               HAGLER BAILLY, INC.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                      (in thousands except per share data)


1.    Organization

     Hagler  Bailly,  Inc.  ("Hagler  Bailly" or the  "Company")  is a worldwide
provider of management consulting and other advisory services to the private and
public sectors.  The Company operates in principally one business  segment.  The
Company is  headquartered  in Arlington,  Virginia and has offices in the United
States, Asia, Europe, and Latin America.

     Hagler  Bailly was  organized  under the laws of the state of Delaware  and
formed for the primary  purpose of  facilitating  the  acquisition of RCG/Hagler
Bailly,  Inc.   ("Predecessor")  by  its  management.   The  Predecessor  was  a
wholly-owned  subsidiary  of  RCG  International,  Inc.  ("RCG").  The  date  of
inception of the Company was May 5, 1995. The Company had no operations from May
5, 1995 to May 25, 1995. Effective on the close of business on May 25, 1995, the
Company, through a wholly-owned subsidiary,  acquired all of the voting stock of
the Predecessor and the Company began operations on May 26, 1995.

     On July 3, 1997,  the Company  consummated  an initial  public  offering of
2,500,000  shares at an offering price of $14 per share. The offering netted the
Company $30.3 million used to pay off debt then outstanding,  fund acquisitions,
and provide working capital needs.

2.    Summary of Significant Accounting Policies

Principles of Consolidation

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

      In 1997,  the Company  acquired a 7.8%  minority  ownership  interest in a
consulting  business  in  the  United  Kingdom  for  cash  of  $531.  Due to the
uncertainty of recovery,  the Company has established a valuation  allowance for
this  investment.  During 1997 and 1998, the Company  provided  services to, and
purchased  consulting services from, this consulting business of $38, $288, $405
and $2,  respectively.  At December 31, 1997 and 1998,  the accounts  receivable
from this consulting business amounted to $135 and $543, respectively.

Foreign Currency Translation

         The assets and liabilities of the Company's  foreign  subsidiaries  are
translated  into U.S.  dollars using  exchange rates at the balance sheet dates.
Income  and  expense  items are  translated  at average  exchange  rates for the
respective periods. The effect of translating these amounts at

<PAGE>


     different  rates is  included  as a component  of  comprehensive  income in
stockholders' equity.  Transaction gains and losses are charged to operations in
the period in which they occur.  Transaction  gain  (losses)  in 1996,  1997 and
1998, amounted to $240, ($373) and $420, respectively.

Use of Estimates

      The  preparation of consolidated  financial  statements in conformity with
generally accepted  accounting  principles requires management to make estimates
and assumptions that affect the amounts  reported in the consolidated  financial
statements and  accompanying  notes,  in  particular,  estimates of revenues and
contract costs used in the earnings  recognition  process.  Actual results could
differ from those estimates.

Cash and Cash Equivalents

      Cash equivalents are short-term, highly liquid investments,  which have an
original  maturity  when acquired of three months or less. At December 31, 1998,
cash equivalents include $6,810 in money market funds.

Marketable Securities

      Marketable  securities  are  classified  as  available-for-sale   and  are
recorded at fair market value with  unrealized  gains and losses,  net of taxes,
reported as a component of  comprehensive  income in  stockholders'  equity,  if
material.

      Realized  gains,  losses and  declines in market  value judged to be other
than  temporary  are included in investment  income.  Interest and dividends are
included in investment income (see Note 5).

Property and Equipment

      Property and equipment are recorded at original cost and depreciated using
a combination of  straight-line  and  accelerated  methods over their  estimated
useful lives of three to ten years.  Leasehold improvements are recorded at cost
and amortized  over the shorter of their useful lives or the term of the related
leases by use of the straight-line method.

Revenue Recognition

      Consulting  revenue  represents revenue generated by professional staff of
the Company, and also includes subcontractor revenue that is principally related
to services  provided by  subcontractors  and independent  consultants which are
billed by the Company to its clients.  Other revenue includes those derived from
information-based  products  and  services,  financial  advisory  services,  and
publication services.

      Revenue from  cost-plus  fixed-fee  contracts is  recognized  as costs are
incurred on the basis of direct costs plus  allowable  indirect  costs and a pro
rata portion of estimated fee.

      Revenue   from   fixed-bid   type   contracts   is   recognized   on   the
percentage-of-completion  method of accounting with costs and estimated  profits
included in revenue based on the relationship  that contract costs incurred bear
to management's  estimate of total contract costs.  Losses,  if any, are accrued
when they become known and the amount of the loss is reasonably determinable.

      Revenue from time and materials  contracts is recognized in the period the
work is performed.  Estimated  losses, if any, are provided for at the time such
losses become known.

      Revenue  from  standard  daily rate  contracts  is  recognized  at amounts
represented  by the  agreed-upon  billing  amounts and costs are  recognized  as
incurred.  Estimated  losses,  if any,  are provided for at the time such losses
become known.

      Amounts  billed or received in excess of revenue  recognized in accordance
with the  Company's  revenue  recognition  policy are  classified as billings in
excess of cost in the accompanying balance sheets.


Income Taxes

      The Company  provides for income taxes in  accordance  with the  liability
method.  Under this method,  deferred tax assets and  liabilities are determined
based on temporary  differences  between  financial  and tax bases of assets and
liabilities  and are measured  using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse.


Fair Value of Financial Instruments

         The Company  considers the recorded  value of its financial  assets and
liabilities,  which  consist  primarily of cash and cash  equivalents,  accounts
receivable,  accounts payable,  and accrued compensation to approximate the fair
value of the respective assets and liabilities at December 31, 1997 and 1998.


Intangibles

      The purchase price of acquisitions is allocated to the assets acquired and
the liabilities assumed based upon their fair values as of the acquisition date.
The excess of the purchase  price over the fair value of assets  acquired in the
purchase is recorded as intangible assets,  including goodwill, and is amortized
over 5 to 25 years on a straight-line  basis.  Intangible assets at December 31,
1997  and  1998  are net of  accumulated  amortization  of  $1,753  and  $2,441,
respectively.  Amortization  expense for the years ended December 31, 1996, 1997
and 1998, was $683, $736 and $688, respectively.


Statement of Financial Accounting Standards No. 121

      The  Company  assesses  the  impairment  of  long-lived  assets  including
intangible assets in accordance with Statement of Financial Accounting Standards
No. 121,  Accounting for the Impairment of Long-Lived  Assets and for Long-Lived
Assets to be Disposed of ("SFAS 121"). SFAS 121 requires impairment losses to be
recognized for long-lived  assets when  indicators of impairment are present and
the  undiscounted  cash flows are not sufficient to recover the assets' carrying
amount.  Intangibles  are also  evaluated for  recoverability  by estimating the
projected  undiscounted cash flows,  excluding interest, of the related business
activities. The impairment loss of these assets, including goodwill, is measured
by comparing the carrying  amount of the asset to its fair value with any excess
of carrying  value over fair value  written  off.  Fair value is based on market
prices where  available,  an estimate of market value,  or determined by various
valuation techniques including discounted cash flow.

Merger Related and other Nonrecurring Costs

     For the years ended December 31, 1996,  1997, and 1998,  merger related and
other nonrecurring costs were approximately $0, $1,235 and $9,382, respectively.
Cost of effecting  mergers and  subsequently  integrating  the operations of the
various merged  companies are recorded as merger related and other  nonrecurring
costs when incurred.  These costs consist  primarily of direct merger costs such
as investment  banking,  legal,  accounting  and filing fees, as well as related
costs incurred to realign corporate,  administrative,  and personnel  functions,
implement  efficiencies with regard to information  systems and offices,  change
the corporate identity for the acquired  companies,  and other expenses incurred
to integrate  operations.  Also included  were  nonrecurring  charges  including
certain  asset  impairments  relating  to software  development  costs and notes
receivable,  and the disposition of other investment assets as discussed in Note
18.

Reclassification

     Certain  amounts  in the  prior  period's  financial  statements  have been
reclassified to conform to the 1998 presentation.

New Accounting Pronouncements

     In June 1997, the FASB issued Statement No. 130,  "Reporting  Comprehensive
Income" which  established  standards for reporting and display of comprehensive
income and its components (revenues,  expenses,  gains and losses) in a full set
of  general-purpose  financial  statements.  This  statement  requires  that  an
enterprise  classify  items of other  comprehensive  income by their nature in a
financial  statement and display the accumulated  balance of other comprehensive
income separately from retained  earnings and additional  paid-in capital in the
equity  section of the balance  sheet.  This  statement is effective  for fiscal
years  beginning after December 15, 1997. The Company has adopted the effects of
this statement effective January 1, 1998.

     In June 1997, the FASB issued Statement No. 131, "Disclosure about Segments
of an Enterprise and Related Information" which established standards for public
business  enterprises to report  information about operating  segments in annual
financial   statements  and  requires  those   enterprises  to  report  selected
information about operating segments.  The financial  information is required to
be  reported  on the basis that it is used  internally  for  evaluating  segment
performance  and  deciding  how to allocate  resources  to  segments.  Operating
segments  are  components  of  an  enterprise  about  which  separate  financial
information  is  available  that is evaluated  regularly by the chief  operating
decision  maker  in  deciding  how  to  allocate   resources  and  in  assessing
performance.  This  statement is effective for financial  statements for periods
beginning  after  December 15, 1997.  The Company  operates in  principally  one
business segment and,  accordingly,  no additional  disclosures are necessary to
comply with this statement.

     In June 1998, the Financial  Accounting Standards Board issued Statement on
Financial  Accounting  Standards No. 133 (SFAS 133),  "Accounting for Derivative
Instruments and Hedging  Activities."  SFAS 133  standardizes the accounting for
derivative  instruments  by requiring  that an entity  recognize  derivatives as
assets or liabilities in the statement of financial position and measure them at
fair value.  This  Statement is  effective  for all quarters of all fiscal years
beginning  after June 15, 1999. This Statement is not expected to have an impact
on the Company's consolidated financial statements.

3.    Business Combinations and Joint Ventures

     On December 1, 1997,  the Company  exchanged  409,985  shares of its common
stock in exchange for all of the  outstanding  common  stock of Apogee  Research
Inc.  ("Apogee").  The business  combination  was  accounted for as a pooling of
interests.  Accordingly,  the  consolidated  financial  statements  include  the
accounts of the Company, its subsidiaries and Apogee for all periods presented.

     On January 28, 1998, the Company purchased the remaining  minority interest
of PT Hagler Bailly, a consulting firm located in Jakarta,  Indonesia,  bringing
the Company's  ownership to 100 percent.  Total consideration of the acquisition
was $200 in cash. Accordingly, the consolidated financial statements reflect the
results of operations of PT Hagler  Bailly since the date of  acquisition.  As a
result  of  the  transaction,   the  Company  recorded   intangible   assets  of
approximately $200.

     On February 23, 1998, the Company issued 454,994 shares of its common stock
in  exchange  for all the stock of TB&A  Group  ("TB&A").  The  transaction  was
accounted for as a pooling of interests. Accordingly, the consolidated financial
statements  include the accounts of the Company,  its  subsidiaries and TB&A for
all  periods  presented.  TB&A had  revenue  and net  income of $2,491 and $534,
respectively, for the period from January 1, 1998, to the date of combination.

     On March 10, 1998, the Company purchased the remaining minority interest of
Hagler Bailly  Indonesia,  Inc., and  consolidated the subsidiary with PT Hagler
Bailly. Total consideration of the acquisition was $240 in cash. The acquisition
was accounted for as a purchase.  The  consolidated  financial  statements  have
reflected the results of operations of Hagler Bailly Indonesia,  Inc., since its
inception.  As a result of the  transaction,  the  Company  recorded  intangible
assets of approximately $240.

     On April 30,  1998,  the Company  completed  the  acquisition  of Estudio Q
Ingenieros  Asociados  S.R.L.,  an Argentinean  company  ("Estudio Q"),  whereby
Estudio Q became a wholly-owned  subsidiary of the Company.  Total consideration
for the  acquisition  was  approximately  $2,400 in the form of $800 cash and an
aggregate of 64,306 shares of Hagler Bailly common stock.  The  acquisition  was
accounted for using the purchase method. Accordingly, the consolidated financial
statements  reflect  the  results of  operations  of Estudio Q since the date of
acquisition.  As a result of the transaction,  the Company  recorded  intangible
assets of approximately $2,700.

     On June 16,  1998,  the Company and Cap Gemini  S.A.  and its wholly  owned
subsidiary, Cap Gemini America, Inc., entered into an exclusive joint venture to
deliver  information  technology  consulting services and solutions to electric,
gas and water  utilities,  and service  providers  in the U.S.  and Canada.  The
Company has committed to provide $1,000 cash under the joint venture  agreements
of which approximately $500 cash and approximately $200 in software  development
costs were  provided  during the year  ended  December  31,  1998.  The  Company
accounts for its investment under the equity method and, accordingly, recognized
a loss on equity investment of $463 for the year ended December 31, 1998.

     On June 30, 1998,  the Company issued 183,550 shares of its common stock in
exchange  for all of the  stock  of  Izsak,  Grapin  et  Associes  ("IGA").  The
transaction  was  accounted  for as a pooling  of  interests.  Accordingly,  the
consolidated  financial  statements  include the  accounts of the  Company,  its
subsidiaries and IGA for all periods  presented.  IGA had revenue and net income
of $2,342 and $333,  respectively,  for the period from January 1, 1998,  to the
date of combination.

     On August 28, 1998, the Company issued 6,548,953 shares of its common stock
in exchange for all of the stock of Putnam, Hayes & Bartlett,  Inc. ("PHB"). The
transaction  was  accounted  for as a pooling  of  interests.  Accordingly,  the
consolidated  financial  statements  include the  accounts of the  Company,  its
subsidiaries and PHB for all periods  presented.  PHB had revenue and net income
of $44,903 and $1,869, respectively, for the period from January 1, 1998, to the
date of combination.

     On November 17, 1998, the Company  completed the  acquisition of certain of
the assets and the liabilities of The Fieldston Company ("TFC") and the stock of
Fieldston  Publications,  Inc. ("FPI"),  which became a wholly-owned  subsidiary
("Fieldson")  of  the  Company.  Total  consideration  of  the  acquisition  was
approximately  $1,300 in cash, 232,558 shares of Hagler Bailly common stock, and
a note  payable of $1,000.  The  acquisition  was  accounted  for as a purchase.
Accordingly,  the  consolidated  financial  statements  reflect  the  results of
operations of TFC since the date of acquisition. As a result of the transaction,
the Company recorded intangible assets of approximately $4,800.

      Combined and separate  results of business  combinations  accounted for as
poolings of interests during the periods preceding the merger were as follows:
<TABLE>
<CAPTION>
                                          Hagler       
                                          Bailly       Apogee        TB&A         PHB         IGA       Consolidated
                                       ------------- ------------ ----------- ------------ ---------- -----------------
<S>                                     <C>            <C>          <C>       <C>          <C>           <C>        
Year ended December 31, 1996
  Revenues                                $ 61,620        $ 6,324     $ 6,531   $ 67,745      $ 921         $ 143,141
  Net (loss) income                        (3,622)            191         102        303        292           (2,734)
Year ended December 31, 1997
  Revenues                                $ 77,035        $ 8,021    $ 11,043   $ 62,808    $ 1,708         $ 160,615
  Net income (loss)                          4,906            522       2,330    (9,966)        318           (1,890)
</TABLE>

      The combined  financial  results  presented  above include  adjustments to
conform accounting policies of the companies.

      Pro  forma  operating  information  reflecting  the  results  of  business
combinations  accounted for as purchases as if these  companies were acquired on
the first date of the respective periods were as follows: <TABLE> <CAPTION>
 
                                                                                                  
                                      Hagler Bailly (1)  Fieldston    Estudio Q    Adjustments (2)     Consolidated
                                       ---------------- ------------ ------------ ----------------- ------------------
<S>                                     <C>              <C>             <C>           <C>             <C>
Year ended December 31, 1997
  Revenues                               $ 160,615         $ 4,352        $1,685         $    -          $ 166,652
  Net (loss) income                        (1,890)             451           310          (301)            (1,430)
                                                                                                           
  Dilutive weighted average shares          13,361                                                          13,658
  Dilutive earnings per share               (0.14)                                                          (0.10)

Year ended December 31, 1998
  Revenues                               $ 174,588         $ 5,562        $2,707         $    -           $182,857
  Net (loss) income                          6,560           1,153           240           (301)             7,652
  Dilutive weighted average shares          16,772                                                          16,987
  Dilutive earnings per share                 0.39                                                            0.45

(1) Hagler  Bailly  balance  excludes 1998 results of purchased  companies.
(2) Amortization of estimated goodwill.
</TABLE>
4.    Earnings Per Share

     In 1997, the Financial Accounting Standards Board issued Statement No. 128,
"Earnings  per Share"  ("Statement  No.  128").  Statement  No. 128 replaced the
calculation  of  primary  and fully  diluted  earnings  per share with basic and
diluted earnings per share.  Unlike primary  earnings per share,  basic earnings
per share  excludes any dilutive  effects of options,  warrants and  convertible
securities.  Diluted  earnings  per  share  is very  similar  to the  previously
reported  fully diluted  earnings per share.  All earnings per share amounts for
all periods have been presented,  and where appropriate,  restated to conform to
the Statement No. 128 requirements.

     The  following  table  sets  forth the  computation  of basic  and  diluted
earnings per share:
<TABLE>
<CAPTION>
                                                                For the years ended December 31,
                                                              1996              1997              1998
                                                        ---------------- -----------------  ----------------
      <S>                                                   <C>                <C>               <C>
      Net (loss) income before extraordinary gain           $   (2,879)        $  (4,226)         $   6,700
      Extraordinary gain                                            145             2,336                 -
                                                        ---------------- -----------------  ----------------
      Net (loss) income                                     $   (2,734)        $  (1,890)          $  6,700
                                                        ================ =================  ================
       Weighted average shares of common stock
        outstanding during the period                            11,321            13,361            15,992

      Effect of dilutive securities:
        Stock options                                                 -                 -               780
                                                        ---------------- -----------------  ----------------
      Weighted average shares of common
        stock and dilutive securities                            11,321            13,361            16,772
                                                        ================ =================  ================

      Basic earnings per share
        Net (loss) income before extraordinary gain           $  (0.25)         $  (0.32)          $   0.42
        Extraordinary gain                                    $   0.01          $   0.17           $     -
        Net(loss)income                                       $  (0.24)         $  (0.14)          $   0.42

      Dilutive earnings per share
        Net (loss) income before extraordinary gain           $  (0.25)         $  (0.32)          $   0.40
        Extraordinary gain                                    $   0.01          $   0.17           $     -
        Net (loss) income                                     $  (0.24)         $  (0.14)          $   0.40

</TABLE>


<PAGE>




5.    Investments

     The composition of available-for-sale investments at December 31, 1997, are
as follows:


         Municipal debt security                        $ 1,001
         Mortgage backed debt security                    5,406
         Equity securities                                   51
         Other                                               93
                                                  -------------------
                                                  
         Total                                          $ 6,551
                                                  ===================

     Interest  income on all  investments for the years ended December 31, 1996,
1997 and 1998, was approximately $334, $1,192 and $349, respectively.



6.    Accounts Receivable

     As of December 31 the components of accounts receivable are:



                                                     1997               1998
                                                 -------------------------------
         Billed amounts                             $42,911             $38,914
         Unbilled amounts currently billable         12,531              23,305
         Retention not currently billable               288                 761
         Allowance for possible losses              (3,873)             (3,888)
                                                  ------------------------------
         Total                                      $51,857             $59,092
                                                 ===============================


      The activity in the allowance for possible losses for years ended December
31 is as follows:

                                                       1997                 1998
                                                   -----------------------------
         Balance at beginning of year                $2,901               $3,873
         Provision for losses charged to expense      2,395                1,135
         Charge-offs, net of recoveries             (1,423)              (1,120)
                                                   -----------------------------
         Balance at end of year                      $3,873               $3,888
                                                   =============================


     All billed and  unbilled  receivable  amounts are  expected to be collected
during the next fiscal year.  Management  has provided an allowance  for amounts
that it  believes  are  doubtful  based on an  analysis  of  estimated  ultimate
realization.  Substantially  all the retention  relates to contracts for which a
final invoice is submitted upon  completion of indirect cost audits and contract
close-outs; therefore, it is anticipated that the retention amounts will not all
be collected within the next fiscal year.



7.    Property and Equipment

         Components of property and equipment at December 31 are as follows:



                                                      1997             1998
                                                  ------------------------------
        Office equipment and furniture               $14,212          $17,100
        Leasehold improvements                         2,364            3,189
                                                  ------------------------------
                                                      16,576           20,289
        Accumulated depreciation and amortization    (11,063)         (13,826)
                                                   -----------------------------
                                                      $5,513           $6,463
                                                   =============================


     Depreciation  and  amortization  expense on property and  equipment for the
years ended December 31, 1996, 1997 and 1998, was approximately  $1,677,  $2,123
and $3,121,  respectively.  Costs of repairs  and  maintenance  of property  and
equipment are charged to expense as incurred.

8.    Software Development Costs

     At  December  31,  1997  and  1998,  the  Company  had  $2,463  and $898 of
capitalized  software  development  costs  net of $49 and  $560  of  accumulated
amortization,  respectively.  Amortization  expense for the years ended December
31, 1996, 1997 and 1998 was  approximately $0, $49 and $511,  respectively.  The
Company  accounts for these software  development  costs in accordance with FASB
86,  "Accounting  for the Costs of  Computer  Software  to Be Sold,  Leased,  or
Otherwise Marketed".

     Capitalized  software  development  costs are  amortized  on a  product  by
product  basis  starting  when the product is available  for general  release to
customers.  Amortization is calculated using the  straight-line  method over the
remaining  estimated  economic  life of the  product.  The Company  periodically
evaluates the net realizable value of all unamortized  capitalized costs. During
1998,  management  determined that certain software development costs were fully
impaired due to the  duplication  of  technologies  resulting from the Company's
1998 mergers and the Cap Gemini Hagler Bailly L.L.C. joint venture.  As a result
of such impairment,  the Company expensed approximately $1,107 as merger related
and other nonrecurring costs (see Note 18).



<PAGE>




9.    Note Receivable

      During 1997,  the Company  entered into a bridge loan agreement for $1,000
with another company. The loan was due in six equal installments  beginning June
1, 1998.  The loan accrued  interest at 15% and was secured by all of the assets
of the borrower. The loan agreement allowed the Company to purchase an ownership
interest of this company as defined in the loan agreement.

     During  1998,  the  borrower  defaulted  on its  obligation  under the note
receivable.  Management has determined  that the loan is  uncollectable  and has
written off the entire amount of the original loan as other  nonrecurring  costs
(see Note 18).

10.   Bank Line of Credit

      At December 31, 1997, the Company had a line of credit  arrangement with a
bank which provided funds up to $15,000  subject to sufficient  collateral.  The
line was secured  primarily by the Company's  accounts  receivable  and contract
rights.  Under the terms of the line of credit,  interest was payable monthly at
the  bank's  prime  rate  with an annual  fee  equal to 1/4 of 1% of the  unused
portion of the available line of credit. The line of credit agreement  contained
certain  covenants which,  among other things,  restricted future borrowings and
required the Company to maintain certain financial ratios. At December 31, 1997,
the  Company  had  available  borrowing  capacity  of $15,000  under the line of
credit.

     At December  31,  1997,  PHB had a line of credit  arrangement  with a bank
which enabled PHB to borrow up to $4,000 subject to certain  restrictions  which
limited  the  borrowing  base as defined in the  respective  lending  agreement.
Interest was payable at the bank's base rate or the Federal Funds effective rate
plus 0.5%,  and required a commitment fee of 0.5% on the average daily amount of
the  unborrowed  portion of the  commitment,  payable  quarterly in arrears.  At
December 31, 1997, PHB had available borrowing capacity of $2,500 under the line
of credit.

     On  November  20,  1998,  the  Company  entered  into a new line of  credit
arrangement  with a bank enabling the Company to borrow up to $50,000 subject to
certain restrictions.  The Company paid all outstanding balances on its previous
lines of credit,  which were terminated upon  commencement of the new agreement.
Under the terms of the new agreement,  interest is payable at the greater of the
bank's  base  rate  or the  Federal  Funds  effective  rate  plus  0.5%,  or the
applicable  London   Inter-Bank   Offered  Rate  ("LIBOR")  plus  an  additional
percentage ranging from 0.8% to 1.75% depending on certain financial ratios. The
agreement also requires a commitment fee of 0.19% plus an additional  percentage
ranging from 0.01% to 0.06% depending on certain financial ratios,  based on the
average  daily  amount of the  unborrowed  portion  of the  commitment,  payable
quarterly in arrears.  The line of credit matures on November 20, 2001. The line
of credit  agreement  contains  certain  covenants,  which  among  other  things
restrict future borrowings and require the Company to maintain certain financial
ratios.  On December 31, 1998, the Company had available  borrowing  capacity of
$50,000 under the line of credit.



11.    Notes Payable

      During  1997,  the Company  renegotiated  the terms of a note payable to a
financial  institution  resulting in an  extraordinary  gain. As a result of the
1997 renegotiation,  the Company paid the financial institution $360 in cash and
entered into a new note payable of $180,  which was  outstanding at December 31,
1997. The $180 note was paid in full in December 1998.

     At December 31, 1997, TB&A had notes payable to related parties,  primarily
employees and directors, of $620. These notes were paid in full in October 1998.

     At December 31, 1997,  PHB had notes  payable to former  employees of $431.
These notes were paid in full in October 1998.

     The Company has a note payable, related to an acquisition of certain of the
assets and liabilities of The Fieldston  Company,  in the amount of $1,000.  The
payments are due in three annual  installments  beginning in November  1999, and
the note accrues interest equal to the three month LIBOR rate plus 1.5%.

     For the years ended December 31, 1996 and 1997, the Company settled several
notes payable with favorable  terms to the Company,  resulting in  extraordinary
gains of approximately $145 and $2,336, respectively.

     The Company incurred interest under all indebtedness of $1,450,  $1,301 and
$410 for the years ended December 31, 1996, 1997, and 1998, respectively.




12.      Income Taxes

     Prior to the IPO of the  Company's  common  stock in 1997 the  Company  had
historically filed its consolidated federal income tax return on the cash basis,
whereby for tax purposes, revenue was recognized when received and expenses were
recognized when paid. In addition, prior to its merger with the Company, PHB had
also filed its consolidated  federal income tax return on the cash basis.  Under
this basis,  the timing of certain  transactions,  primarily the  collections of
accounts  receivable and the payments of accounts  payable and accrued  expenses
were  applied  to  different  periods  for  financial  statement  and income tax
reporting  purposes.  Deferred  federal and state income taxes were provided for
these  temporary  differences.  Upon  consummation  of the IPO of the  Company's
Common  Stock  during  1997,  the Company was  required to change to the accrual
method for income tax reporting.

     Components of income tax expense consisted of the following:

                              For the years ended December 31,

                          1996              1997             1998
                      --------------    -------------    -------------
    Current:
       Federal           $120             $4,483           $4,113
       State               30              1,098              726
       Foreign            161                215              879
                      --------------    -------------    -------------
                          311              5,796            5,718
  
    Deferred            1,475              (336)            1,557
                      --------------    -------------    -------------
   Income tax expense  $1,786             $5,460           $7,275
                      ==============    =============    =============


      The Company paid income taxes of $248, $3,117 and $4,995 during 1996, 1997
and 1998, respectively.



      Income tax expense varies from the amount  computed using  statutory rates
as follows:
<TABLE>
<CAPTION>
                                                                      For the years ended December 31,
                                                                                   
                                                                   1996                1997                1998
                                                              ----------------    ----------------    ----------------
<S>                                                             <C>                  <C>                 <C>

    Tax computed at the Federal statutory rate                         $(355)               $428              $4,909
    State income taxes, net of Federal income tax benefit                210                  35                 722
    Non-deductible charge for stock option compensation                1,661               4,000               1,012
    Other allowances                                                       -                 754                   -
    Non-deductible charge for merger related costs                         -                   -                 876
    Other                                                                270                 243                (244)
                                                              ----------------    ----------------    ----------------
    Income tax expense                                                $1,786              $5,460              $7,275
                                                              ================    ================    ================
</TABLE>



<PAGE>
<TABLE>
<CAPTION>

      The components of temporary differences are as follows:

                                                                                  December 31,
                                                                            1997               1998
                                                                      -----------------    ------------------
<S>                                                                       <C>                  <C>

   Current deferred tax assets (liabilities):
         Billings in excess of cost                                        $  342               $    -
         Accounts receivable                                               (1,421)              (2,116)
         Valuation allowances                                                (218)                   -
         Other                                                                (92)                 216
                                                                    -----------------    ------------------
      Total current deferred tax assets (liabilities)                      (1,389)              (1,900)
      Non-current deferred tax assets (liabilities):
         Merger related costs                                                   -                  448
         Provisions for losses                                                359                  954
         Accrued compensation and benefits                                  1,226                1,427
         Deferred compensation                                                  -                1,237
         Other deferred                                                       468                  454
         Property, equipment and leasehold improvements                       367                  555
         Net operating loss carry forwards                                    131                   20
         Cash to accrual adjustment                                        (2,420)              (5,941)
         Other                                                                (12)                 (81)
                                                                     -----------------    ------------------
      Total non-current deferred tax assets (liabilities)                     119                 (927)
                                                                    -----------------    ------------------
      Net deferred tax assets (liabilities)                              $ (1,270)             $(2,827)
                                                                    =================    ==================
</TABLE>

13.   Stockholders' Equity

      The Company in May 1995 issued  6,915,067 shares of $.01 par value Class A
common  stock  and  2,074,521  shares of $.01 par  value  Class B common  stock.
Pursuant to a  stockholders'  agreement,  all of the Company's  common stock and
options had certain  restrictions  on ownership and were subject to a repurchase
provision.  Class B shares were not  eligible  for  dividends  and had no voting
privileges.

      Under the Company's Employee Incentive and Non-Qualified  Stock Option and
Restricted Stock Plan (the "Stock Option Plan"), the Company may grant qualified
and  non-qualified  stock options to  employees,  consultants  and  non-employee
members of the board of directors to purchase  common  stock.  Prior to December
31,  1996,  the  Company's  Stock  Option Plan was a formula  based plan and was
authorized to grant options to purchase Class A and B shares. The exercise price
of options  granted  were  based upon the book value per share at May 26,  1995,
adjusted  for  accretion of formula  value  during any interim  period up to the
grant date.  Under the Stock  Option  Plan,  options to purchase  Class B shares
granted  did not accrue  value to the  option  holder  until  date of  exercise.
Options to purchase  Class A shares  accrued value to the option holder from the
date of grant.

     The issuance of common stock and  repurchase  of common stock for the years
ended  December  31,  1996,  1997 and 1998 is  primarily  the  result  of equity
transactions at PHB and TB&A.  These  transactions  were made under  established
Company  plans  and in a  manner  consistent  with  historic  patterns  of stock
issuance or repurchase.

      Effective at December  31,  1996,  the Company (a) adopted an amendment to
its Stock Option Plan which changed the exercise  price of future  options to be
granted  thereunder to the fair value of the underlying common stock; and (b) in
connection with a  reclassification  of its common stock amended all outstanding
options  to  purchase  971,963  Class B shares  vesting  on  January  1, 1997 to
substitute  0.9 of a Class A  share  for  each  Class  B share  underlying  such
options.  In addition,  a remaining total of 971,963 options to purchase Class B
shares  vesting on  January  1, 1998 were  canceled.  As a result,  the  Company
recorded  a  non-recurring,  non-cash  charge to  operations  of $6,172 of which
$4,618  was for  options to  purchase  common  stock and $1,554 was for  394,160
shares of common stock sold to employees  during 1996.  These charges  represent
the aggregate  difference between the exercise price of such outstanding options
or the issuance price of common stock sold to employees during 1996, as the case
may be,  and the  appraised  market  value  of the  underlying  common  stock at
December 31, 1996.

      In connection with the merger with the Company,  PHB recognized  non-cash,
non-tax  deductible  compensation  charges as of December 31, 1997 and 1998,  of
$9,885 and $2,595,  respectively.  These amounts reflect the difference  between
the fair value and the book value of shares of common stock issuable  within one
year of the mergers' close.

      Options granted after 1996 vest over periods  ranging from  immediately to
three years and are  exercisable  for five years.  Options  issued prior to 1996
generally vest 50% after eighteen months and fully after an additional year.
Once vested, the options are exercisable for ten years.

      In August of 1998, the Company's shareholders approved an amendment to the
Stock  Option Plan that  increased  the total  number of shares of common  stock
reserved  for  issuance  from  3,200,000  to  5,000,000.  At December  31, 1998,
2,350,542 shares of common stock were available for grant under the Stock Option
Plan.

      Pro forma  information  regarding  net income (loss) and per share data is
required  by SFAS  No.  123,  and has  been  determined  as if the  Company  had
accounted for its stock options  under the fair value method  therein.  The fair
value for options granted from May 25, 1997 to July 9, 1997 was estimated at the
date  of  grant   using  a  minimal   valuation   method   with  the   following
weighted-average  assumptions,  risk free  interest  rate of 5.25%,  no expected
dividends and an average expected life of the options of 4 years.

      For all options issued subsequent to July 9, 1997, in accordance with SFAS
123,  the fair value was  estimated  at the date of grant using a  Black-Scholes
option pricing model with the following  weighted-average  assumptions  for 1997
and 1998: risk-free interest rate of 5.25%; no dividends; a volatility factor of
the  expected  market  price  of  the  Company's  common  stock  of  .40  and  a
weighted-average  expected life of the options of  approximately 5 years in 1997
and 4 years in 1998.

         The  Black-Scholes  option  valuation  model was  developed  for use in
estimating  the fair value of traded  options that 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 the pro forma disclosure,  the estimated fair value of the
options is amortized to expense over the options' vesting period.
<TABLE>
<CAPTION>
      The Company's pro forma information follows:

                                                               For the years ended December 31,
                                                    1996                     1997                     1998
                                            ---------------------    ---------------------    ---------------------
     <S>                                       <C>                        <C>                       <C>
      Net (loss) income                          $     (2,734)              $ (1,890)                  $ 6,700
      FAS 123 expense                                      37                     217                    1,045
                                            ---------------------    ---------------------    ---------------------
      Pro forma net (loss) income                $     (2,771)              $ (2,107)                  $ 5,655
                                            =====================    =====================    =====================
      Pro forma (loss) earnings per share:
             Basic                                  $  (0.24)               $  (0.16)                  $  0.35
             Diluted                                $  (0.24)               $  (0.16)                  $  0.34

</TABLE>

<PAGE>
<TABLE>
<CAPTION>

      The following summarizes option activity:

                                                                Class              Class           Weighted Average
                                                              A Options          B Options          Exercise Price
                                                             ---------------    ---------------    --------------------
     <S>                                                      <C>              <C>                  <C>
    Outstanding at December 31, 1995                                   -          1,970,798                   $0.16

    1996
    Granted                                                       62,236                  -                    1.06
    Canceled                                                           -           (971,963)                   0.16
    Forfeited                                                          -            (26,872)                   0.16
    Substituted                                                  874,707           (971,963)                   0.16
                                                             ---------------    ---------------
    Outstanding at December 31, 1996                             936,943                  -                    0.22

    1997
    Granted                                                      677,135                                       8.34
    Exercised                                                   (484,701)                                      0.20
    Canceled                                                     (15,000)                                     10.00
                                                            ---------------
    Outstanding at December 31, 1997                           1,114,377                                       5.21

    1998
    Granted                                                    1,149,760                                      20.32
    Exercised                                                    (99,380)                                      3.49
    Canceled                                                    (126,046)                                     12.60
                                                            ---------------
    Outstanding at December 31, 1998                           2,038,711                                      13.44
                                                            ===============

    Exercisable at December 31, 1998                             529,956                                      $3.04
                                                            ===============

</TABLE>

     The grant date  weighted  average  fair  value of options  granted in 1996,
1997, and 1998 was $0.74, $1.98 and $20.32, respectively.

     At  December  31,  1998,  the price  range of  options  outstanding  are as
follows:
<TABLE>
<CAPTION>
                                                                                 Weighted                  
                                                                                  Average         
                                                            Options            Exercise Price     Average Remaining
                                                          Outstanding            Per Share         Contractual Life
                                                       ------------------- -- --------------- -- --------------------
<S>                                                          <C>                 <C>                <C>
     Less than $0.99                                            370,473             $ 0.17             6.38
     $1.00 - $9.99                                              427,285               6.21             7.16
     $10.00 - $19.99                                            468,774              16.19             9.62
     $20.00 - $29.99                                            763,179              22.04             9.39
     $30.00 & Over                                                9,000              30.00             9.37
                                                       -------------------
         Total                                                 2,038,711             13.44             8.43
                                                       ===================

</TABLE>
14.      Operating Leases

      The Company  leases  office space and  equipment  located  throughout  the
United States and worldwide.  Substantially  all office space leases provide for
the  Company to pay a pro rata  share of annual  increases  above a stated  base
amount of the  landlords'  related  real estate  taxes and  operating  expenses.
Management expects that in the normal course of business,  operating leases will
be renewed or replaced by other operating leases.

     The following is a schedule of the annual minimum rental payments  required
under the operating leases that have initial or remaining  non-cancellable lease
terms in excess of one year as of December 31, 1998:

            Years ended December 31,
                       1999                             $     8,131
                       2000                                   8,088
                       2001                                   8,130
                       2002                                   6,017
                       2003                                   4,469
                Thereafter                                   20,661
                                                      -----------------
                Total minimum rental payments           $   55,496
                                                      =================


     Total rental expense for the years ended December 31, 1996,  1997 and 1998,
was approximately $7,672, $7,468 and $8,451, respectively.

15.      Retirement Plan

         The Company maintains  tax-deferred  savings plans under Section 401(k)
of the  Internal  Revenue Code to provide  retirement  benefits for all eligible
employees  (the "Plan").  Employees may  voluntarily  contribute a percentage of
their  annual  compensation  to the Plan,  subject to Internal  Revenue  Service
limitations.   The  Company  may,  but  has  no  obligation  to,  make  matching
contributions.  In addition,  the Company may, but has no obligation  to, make a
discretionary   contribution  to  the  Plan.  Discretionary   contributions  are
allocated to participants' accounts in proportion to their compensation.  Rights
to  benefits  provided  by the  Company's  discretionary  contributions  vest as
follows: 40% after two years, 70% after three years and 100% after four years of
service. Participants are fully vested in their voluntary contributions.

     PHB  sponsors two defined  contribution  plans for its  employees:  the PHB
Profit  Sharing Plan and the PHB 401(k) plan.  The plans cover all  employees of
PHB who meet the eligibility requirements.  The Profit Sharing Plan permits only
employer  discretionary profit sharing  contributions.  Eligible participants of
the 401(k) savings plan may contribute up to 15% of their qualified compensation
annually, subject to federal limitations.

     The Company is currently  evaluating the current retirement plans mentioned
above as well as those  plans under its other  subsidiaries  in order to combine
those of the merged  subsidiaries with their own. The Company's expenses related
to its discretionary  matching and other contributions under all plans for 1996,
1997 and 1998 were approximately $2,612, $2,628 and $925, respectively.

16.   Divestitures / Sale of Assets

     On December 23, 1996, the Company caused Putnam,  Hayes & Bartlett  Limited
("PHB Ltd"), the Company's U.K. subsidiary,  to cease operations and appointed a
liquidator to wind up PHB Ltd's affairs.  The operating  results of PHB Ltd have
been included in the Company's  consolidated  statements of operations until the
liquidation  date. The Company  recognized the net amount due as of December 31,
1996,  in  connection  with the  liquidation  of PHB Ltd as a  current  asset of
$2,172.  This  amount  represented  management's  estimate  of the net  proceeds
ultimately  expected to be recovered upon collection of accounts receivable from
clients and payments of obligations  to creditors.  As of December 31, 1997, the
Company estimated that $328 of the $2,172 was not collectable.  Of the Company's
loss of $663  recognized in 1996 in connection  with the liquidation of PHB Ltd,
$549  represented  cumulative  foreign  currency  transaction  losses  which had
previously been recorded as a separate component of the Company's  stockholders'
equity.  

     On September 30, 1998,  the Company sold certain assets of a portion of its
public sector  consulting  practice due to conflicts of interest  resulting from
the  Company's  business   combinations  (see  Note  3).  As  a  result  of  the
transaction,  the Company sold assets for  approximately  $2,855  resulting in a
gain of approximately $282 which was included in other income.

     In December 1998, the Company made the decision to cease  operations in its
financial advisory services business, HB Capital, Inc., resulting in expenses of
approximately $1.8 million (see Note 18).

17.      Commitments and Contingencies

Cost Subject to Audit

      Under its United States  government  contracts,  the Company is subject to
audit by the  Defense  Contract  Audit  Agency,  whose  audits  could  result in
adjustments of amounts previously billed.  Management  believes that the results
of such  audits  will  not  have a  material  adverse  effect  on the  Company's
financial position or results of operations.


Financial Instruments and Risk Management

      The  Company  operates  around  the world  principally  in  United  States
currency.  The Company may reduce any  periodic  exposures  to  fluctuations  in
foreign exchange rates by creating  offsetting  ("hedge")  positions through the
use of derivative  financial  instruments.  The Company  currently  does not use
derivative financial instruments for trading or speculative purposes, nor is the
Company a party to leverage  derivatives.  The Company  regularly  monitors  any
foreign currency exposures and ensures that hedge contract amounts do not exceed
the amounts of the underlying exposures. The Company had no open hedge positions
at December 31, 1997 or 1998.

Financial  instruments  that  potentially  subject  the  Company to  significant
concentrations  of credit risk consist  principally of cash and cash equivalents
and trade accounts receivable.

      The Company  maintains cash and cash  equivalents  with various  financial
institutions.  These  financial  institutions  are  located  in  many  different
countries  throughout the world,  and the Company's  policy is designed to limit
exposure with any one institution.  As part of its cash management process,  the
company performs  periodic  evaluations of the relative credit standing of these
financial institutions.

     At December  31, 1997 and 1998,  cash of  approximately  $2,502 and $4,087,
respectively, was located in foreign bank accounts.


Major Customers

      At December 31, 1997 and 1998,  included in accounts receivable was $9,143
and $12,017,  respectively,  due from agencies of the United States  government.
Credit risk with respect to the remaining trade accounts receivable is generally
diversified  due to the  large  number  of  entities  comprising  the  Company's
customer base and their dispersion  across  different  industries and countries.
The Company  performs  ongoing credit  evaluations  of its customers'  financial
condition.

      The Company generates revenues from contracts with government agencies and
private companies within the United States and worldwide.  During 1996, 1997 and
1998,  the  Company  recognized  approximately  $25,997,  $31,792  and  $38,501,
respectively,  of its revenue from the United  States  Agency for  International
Development  ("USAID"),  a U.S. government agency.  Revenues earned from foreign
customers, both commercial and governmental,  were approximately $10,479, 14,031
and $19,232 for the years ended December 31 1996, 1997 and 1998, respectively.





<PAGE>


18.    Merger Related and Other Nonrecurring Costs

      Merger  related and other  nonrecurring  costs were recorded in connection
with the business  combinations  described in Note 2, and impairments  resulting
from the Company's  evaluation  of certain  assets.  The following  represents a
detail of merger related and other nonrecurring costs: <TABLE> <CAPTION>


                                                                           For the years ended December 31,
                                                                                1997              1998
                                                                          --------------    ----------------
<S>                                                                           <C>                  <C>
       Merger related costs                                                     $ 1,235              $ 6,495

       Impairment of software development costs                                       -                1,107

       Impairment of investments and related infrastructure
       related to termination of financial advisory services
       operations
                                                                                      -                1,780
                                                                         ---------------    -----------------
       Total                                                                    $ 1,235              $ 9,382
                                                                         ===============    =================
      </TABLE>


     Merger  related costs consist  primarily of direct costs such as investment
banking, legal, accounting,  and filing fees as well as consolidation costs from
the closing of duplicate locations, realigning regional and corporate functions,
and reducing  personnel.  At December 31, 1998,  the  accompanying  consolidated
balance sheet  includes  accrued  merger  related  costs of $546,  classified as
accrued expenses,  consisting of involuntary  employee termination costs of $171
and facility related expenses of $375.

      Certain software development costs were impaired due to the duplication of
technologies  resulting from the Company's  business  combinations and its joint
venture  with  Cap  Gemini.  Management  determined  that as a  result  of these
transactions  certain  capitalized  software  balances would not generate future
cash flows.  Consequently,  management  determined that the value of the related
assets had been impaired and has recorded a write off of approximately $1,107.

     During  the fourth  quarter of 1998,  management  determined  that  certain
investments  held by the Company and the related  infrastructure  which  managed
such  investments,  were  impaired.  Accordingly,  management  decided  to cease
operations of its financial  advisory  services  operations and determined  that
certain  investments were fully impaired and recognized a loss of $1,780,  which
included the write off of a $1,000 note receivable (see Note 9). At December 31,
1998, the balance sheet included costs of $616  classified as accrued  expenses,
consisting of legal expenses of $140,  involuntary employee termination costs of
$170,  lease  termination  and other  facility  costs of $200, and other general
accrued expenses of $106.




19.   Subsequent Events

On February 8, 1999, the Company acquired all of the outstanding stock of Lacuna
Consulting Limited, a United Kingdom corporation,  in exchange for 65,000 shares
of the  Company's  common  stock.  The  acquisition  was accounted for using the
purchase method.





<PAGE>






                                                              SIGNATURES

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

Dated: March 30, 1999                    By:/s/ Henri-Claude A. Bailly
                                ------------------------------------------------
                                          Henri-Claude A. Bailly
                                          President and Chief Executive Officer

Dated: March 30, 1999                    By:/s/ Glenn J. Dozier
                                ------------------------------------------------
                                          Glenn J. Dozier
                                          Senior Vice President, Chief Financial
                                          Officer, Treasurer and Secretary

Dated: March 30, 1999                    By:/s/  Howard W. Pifer, III
                             ---------------------------------------------------
                                          Howard W. Pifer, III
                                          Chairman of the Board

Dated: March 30, 1999                    By:/s/ Jasjeet S. Cheema
                             ---------------------------------------------------
                                          Jasjeet S. Cheema
                                          Director
Dated: March 30, 1999                    By:/s/  William E. Dickenson
                             ---------------------------------------------------
                                          William E. Dickenson
                                          Director

Dated: March 30, 1999                    By:/s/  R. Gene Brown
                             ---------------------------------------------------
                                          R. Gene Brown
                                          Director

Dated: March 30, 1999                    By:/s/ Robert W. Fri
                             ---------------------------------------------------
                                          Robert W. Fri
                                          Director

Dated: March 30, 1999                    By:/s/ Richard H. O'Toole
                             ---------------------------------------------------
                                          Richard H. O'Toole
                                          Director

Dated: March 30, 1999                    By:/s/ Fred M. Schriever
                             ---------------------------------------------------
                                          Fred M. Schriever
                                          Director

Dated: March 30, 1999                    By:/s/ Alain M. Streicher
                             ---------------------------------------------------
                                          Alain M. Streicher
                                          Director



<PAGE>


                                  EXHIBIT INDEX

     Exhibit

                                 No. Description

          2    Sale Agreement between RCG International, Inc., and Hagler Bailly
               Consulting, Inc. (1)
          2.1  Agreement  and Plan of Merger by and among Hagler  Bailly,  Inc.,
               PHB Acquisition Corp. and Putnam, Hayes and Bartlett, Inc., dated
               as of June 11, 1998. (5)

          3.1  By-Laws of the Company, as amended. (6)

          3.2  Amended Restated Certificate of Incorporation of the Company. (7)
          4    Specimen Stock Certificates. (1)

          4.1  Registration  Rights  Agreement  dated  November  18, 1997 by and
               between  Hagler  Bailly,  Inc.  and Richard R.  Mudge,  acting as
               Stockholders' Representation. (3)

          4.2  Form  of  Escrow   Agreement  by  and  among  the  Company,   PHB
               Acquisition   Corp.,   William  E.  Dickenson  as   Stockholders'
               Representative and State Street Bank and Trust Company, as Escrow
               Agent. (5)

          4.3  Registration  Rights  Agreement  dated  February  23, 1998 by and
               between  Hagler  Bailly,  Inc.  and  Michael J.  Beck,  acting as
               Stockholders' Representative.

          4.4  Registration  Rights  Agreement  dated  November  17, 1998 by and
               between Hagler  Bailly,  Inc. and the  stockholders  of Fieldston
               Publications, Inc. and The Fieldston Company.

          10.2 Form of  Non-Compete,  Confidentiality  and  Registration  Rights
               Agreement between the Company and each stockholder. (1)

          10.3 Lease by and between  Wilson  Boulevard  Venture  and  RCG/Hagler
               Bailly, Inc. dated October 25, 1991. (1)

          10.4 First Amendment to Lease by and between Wilson Boulevard  Venture
               and RCG/Hagler Bailly, Inc., dated February 26, 1993. (1)

          10.5 Second Amendment to Lease by and between Wilson Boulevard Venture
               and RCG/Hagler Bailly, Inc., dated December 12, 1994. (1)

          10.6 Lease by and  between  Bresta  Futura  V.B.V.  and Hagler  Bailly
               Consulting, Inc. dated May 8, 1996. (1)

          10.7 Lease  by and  between  L.C.  Fulenwider,  Inc.,  and  RCG/Hagler
               Bailly, Inc. dated December 14, 1994. (1)

          10.8 Lease by and between University of Research Park Facilities Corp.
               and RCG/Hagler Bailly, Inc., dated April 1, 1995. (1)

          10.9 Credit  Agreement by and between Hagler Bailly  Consulting,  Inc.
               and State Street Bank and Trust Company, dated May 17, 1995. (1)

          10.10Amendment  to  Credit  Agreement  by and  between  Hagler  Bailly
               Consulting,  Inc. and State Street Bank and Trust Company,  dated
               as of June 20, 1996. (1)

          10.11Extension  Agreement  by and between  Hagler  Bailly  Consulting,
               Inc. and State Street Bank and Trust Company,  dated as of August
               1, 1996. (1)
          10.12Amendment  to  Credit  Agreement  by and  between  Hagler  Bailly
               Consulting,  Inc. and State Street Bank and Trust Company,  dated
               as of November 12, 1996. (1)

          10.13Term Note by and between  Hagler  Bailly  Consulting,  Inc.,  and
               State Street Bank and Trust Company, dated May 26, 1995. (1)

          10.14Revolving  Credit Note by and between  Hagler Bailly  Consulting,
               Inc. and State Street Bank and Trust  Company dated May 26, 1995.
               (1)

          10.15Amendment  to  Credit  Agreement  by and  between  Hagler  Bailly
               Consulting,  Inc., and State Street Bank and Trust Company, dated
               as of June 12, 1997. (1)

          10.16Credit  Agreement by and among Hagler  Bailly  Consulting,  Inc.,
               Hagler  Bailly  Services,  Inc.  and State  Street Bank and Trust
               Company, dated as of September 30, 1997. (2)

          10.17Promissory  Note by Hagler  Bailly  Consulting,  Inc.  and Hagler
               Bailly  Services,  Inc. to State  Street Bank and Trust  Company,
               dated September 30, 1997. (2)

          10.18Security Agreement by and between Hagler Bailly Consulting,  Inc.
               and State  Street Bank and Trust  Company,  dated as of September
               30, 1997. (2)

          10.19Security  Agreement by and between Hagler Bailly  Services,  Inc.
               and State  Street Bank and Trust  Company,  dated as of September
               30, 1997. (2)

          10.20Guaranties by Hagler Bailly,  Inc. to State Street Bank and Trust
               Company, dated September 30, 1997. (2)

          10.21Guaranties  by HB Capital,  Inc.  to State  Street Bank and Trust
               Company, dated September 30, 1997. (2)

          10.22Subordination  Agreement  and Negative  Pledge/Sale  Agreement by
               and between Hagler  Bailly,  Inc. and State Street Bank and Trust
               Company for Hagler Bailly  Consulting,  Inc., dated September 30,
               1997. (2)

          10.23Subordination  Agreement  and Negative  Pledge/Sale  Agreement by
               and between Hagler  Bailly,  Inc. and State Street Bank and Trust
               Company for Hagler Bailly  Services,  Inc.,  dated  September 30,
               1997. (2)

          10.24Guaranty of  Monetary  Obligations  to Bresta  Futura  V.B.V.  by
               Hagler Bailly, Inc., dated July 23, 1997. (2)
          10.25Amendment  to  Credit  Agreement  by and  between  Hagler  Bailly
               Consulting, Inc. and State Street Bank and Trust
                     Company dated May 18, 1998. (6)

          10.26Sublease  Agreement by and between Coopers and Lybrand L.L.P. and
               Hagler Bailly, Inc. dated December 5, 1997. (6)

          10.27Employment  Agreement  between the Company  and  Henri-Claude  A.
               Bailly, dated June 10, 1998. (7)

          10.28Employment   Agreement   between   the  Company  and  William  E.
               Dickenson, dated June 10, 1998. (7)

          10.29Employment  Agreement  between  the  Company  and Howard W. Pifer
               III, dated June 10, 1998. (7)

          10.30Hagler Bailly,  Inc. Amended and Restated Employee  Incentive and
               Non-Qualified Stock Option and Restricted Stock
                      Plan. (7)

          10.31Credit  Agreement  by and between  Hagler  Bailly,  Inc.  and The
               Lenders  From  Time to  Time a  Party  thereto,  as  Lenders  and
               NationsBank, N.A., dated November 20, 1998.

          10.32Revolving   Note  by  and  between   Hagler   Bailly,   Inc.  and
               NationsBank, N.A., dated November 20, 1998.

          10.33Swing  Line  Note  by  and  between  Hagler   Bailly,   Inc.  and
               NationsBank, N.A., dated November 20, 1998.

          10.34Subsidiary  Guarantee by and among Hagler Bailly Services,  Inc.,
               Hagler Bailly Consulting, Inc., HB Capital, Inc., Putnam, Hayes &
               Bartlett,  Inc., TB&A Group,  Inc.,  Theodore Barry & Associates,
               Private Label Energy Services, Inc., Fieldston Publications, Inc.
               and NationsBank, N.A., dated November 20, 1998.

          10.35Form of Security Agreement by and between Hagler Bailly, Inc. and
               NationsBank, N.A., dated November 20, 1998.

          10.36Security Agreement by and between Hagler Bailly Consulting,  Inc.
               and NationsBank, N.A., dated November 20, 1998.

          10.37Security  Agreement by and between Hagler Bailly  Services,  Inc.
               and NationsBank, N.A., dated November 20, 1998.

          10.38Security   Agreement   by  and  between  HB  Capital,   Inc.  and
               NationsBank, N.A., dated November 20, 1998.

          10.39Security Agreement by and between Putnam, Hayes & Bartlett,  Inc.
               and NationsBank, N.A., dated November 20, 1998.

          10.40Security   Agreement  by  and  between   TB&A  Group,   Inc.  and
               NationsBank, N.A., dated November 20, 1998.

          10.41Security Agreement by and between Theodore Barry & Associates and
               NationsBank, N.A., dated November 20, 1998.

          10.42Security  Agreement  by and between PHB Hagler  Bailly,  Inc. and
               NationsBank, N.A., dated February 22, 1999.

          10.43Security  Agreement by and between Private Label Energy Services,
               Inc. and NationsBank, N.A., dated November 20,
                      1998.

          10.44Security  Agreement by and between Fieldston  Publications,  Inc.
               and NationsBank, N.A., dated November 20, 1998.

          10.45Lease by and between One Memorial Drive Limited  Partnership  and
               Putnam, Hayes & Bartlett, Inc. dated January 1,
                      1998.

          10.46Lease by and between George H. Beuchert,  Jr., Trustee, Thomas J.
               Egan,  Trustee,  Oliver T. Carr, Jr., Trustee,  William Joseph H.
               Smith,  Trustee,  and the  Kiplinger  Washington  Editors,  Inc.,
               Trustee,   acting  collectively  as  trustee  on  behalf  of  the
               beneficial  owner,  The  Greystone  Square  127  Associates,  and
               Putnam, Hayes & Bartlett, Inc. dated March 31, 1997.

          10.47First  Amendment  to Lease by and  between  Greystone  Square 127
               Limited Liability Company, as successor in interest  collectively
               to The Greystone  Square 127 Associates,  and George H. Beuchert,
               Jr.,  Trustee,  and  The  Kiplinger  Washington  Editors,   Inc.,
               Trustee,  the  owners  of  record  who  held  legal  title to the
               Building  as  trustees  on behalf  of the  Greystone  Square  127
               Associates,  the former  beneficial  owners of the Building,  and
               Putnam, Hayes & Bartlett, Inc. dated February 10, 1998.

          21   Subsidiaries
          
          23.1 Consent of Option Plan Amendments by Ernst & Young LLP, 
               independent auditors

          24   Powers of Attorney (included on Signature Pages) (1)

          27.1 Financial Data Schedule - December 31, 1998

          27.2 Restated Financial Data Schedule - December 31, 1997

          
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          (1)  Included in the Company's Registration Statement on Form S-1 (No.
               333-22207) and incorporated herein by reference thereto.
          (2)  Included in the Company's  Quarterly  Report on Form 10-Q for the
               quarter  ended  September  30,  1997 and  incorporated  herein by
               reference thereto.
          (3)  Included  in the  Company's  Current  Report on Form 8-K filed on
               December 16, 1997 and incorporated herein by reference thereto.
          (4)  Included in the Company's Annual Report on Form 10-K for the year
               ended  December  31, 1997 and  incorporated  herein by  reference
               thereto.
          (5)  Included in the Company's  Proxy Statement for Special Meeting of
               Stockholders dated July 24, 1998 on Form DEF 14A and incorporated
               herein by reference thereto.
          (6)  Included in the Company's  Quarterly  Report on Form 10-Q for the
               quarter ended June 30, 1998 and incorporated  herein by reference
               thereto.
          (7)  Included in the Company's  Quarterly  Report on Form 10-Q for the
               quarter  ended  September  30,  1998 and  incorporated  herein by
               reference thereto.