SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549




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FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS PURSUANT

TO SECTIONS 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934




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

For the Fiscal Year Ended December 31, 1999

or



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

For the transition period from
               TO

Commission File Number 0-27607

CYSIVE, INC.

(Exact name of registrant as specified in its
charter).


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|Delaware
	(State or other jurisdiction of
	incorporation or organization)                  |  | 54-1698017
	(I.R.S. Employer
	Identification No.)
|                                                                                          
|11480 Sunset Hills Drive, Suite 200E,
	Reston VA
	(Address of principal executive offices) |  | 20190
	(Zip Code)                                

(Registrants telephone number, including
area code):(703) 742-0865

Securities Registered Pursuant to Section 12(b) of the
Act:  NONE

Securities Registered Pursuant to Section 12(g) of the
Act:

COMMON STOCK, $.01 PAR VALUE 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. Yes  [X]  No 
[   ]

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

As of February 17, 2000, there were 11,634,474 shares of
Common Stock outstanding. The aggregate value of the shares of
Common Stock of the Registrant issued and outstanding on such
date, excluding 7,365,350 shares held by all affiliates of
the Registrant, was approximately $465.6 million.

DOCUMENTS INCORPORATED BY REFERENCE

List hereunder the following documents incorporated by reference
and the Part of the Form 10-K into which the document is
incorporated:

(1)  Portions of the definitive Proxy Statement for the
Annual Meeting of the Shareholders to be held on April 24,
2000 are incorporated by reference into Part III, Items
10 - 13 of this Form 10-K.



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ANNUAL REPORT ON FORM 10-K

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999


TABLE OF CONTENTS

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|PART I     |  |                                                                                        |    |      |    | 
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|Item 1.    |  | Business                                                                               |    |      | 2  | 
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|Item  2.   |  | Properties                                                                             |    |      | 15 | 
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|Item  3.   |  | Legal Proceedings                                                                      |    |      | 16 | 
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|Item  4.   |  | Submission of Matters to a Vote of Security Holders                                    |    |      | 16 | 
|PART II    |  |                                                                                        |    |      |    | 
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|Item  5.   |  | Market for Registrants Common Equity and Related
	Stockholder Matters                 |    |      | 17 | 
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|Item  6.   |  | Selected Financial Data                                                                |    |      | 18 | 
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|Item  7.   |  | Managements Discussion and Analysis of Financial Condition
	and Results of Operations |    |      | 19 | 
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|Item  7A.  |  | Quantitative and Qualitative Disclosures About Market Risk                             |    |      | 25 | 
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|Item  8.   |  | Financial Statements and Supplementary Data                                            |    |      | 26 | 
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|Item  9.   |  | Changes in and Disagreements with Accountants on Accounting and
	Financial Disclosure  |    |      | 41 | 
|PART III   |  |                                                                                        |    |      |    | 
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|Item  10.  |  | Directors and Executive Officers of the Registrant                                     |    |      | 41 | 
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|Item  11.  |  | Executive Compensation                                                                 |    |      | 44 | 
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|Item  12.  |  | Security Ownership of Certain Beneficial Owners and Management                         |    |      | 44 | 
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|Item  13.  |  | Certain Relationships and Related Transactions                                         |    |      | 44 | 
|PART IV    |  |                                                                                        |    |      |    | 
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|Item  14.  |  | Exhibits, Financial Statement Schedules and Reports on Form 
	 8-K                     |    |      | 44 | 
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|Signatures |  |                                                                                        | 46 |     

SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION

Certain statements contained in this Annual Report on
Form 10-K, including information with respect to the
Companys future business plans, constitute
forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of
the Exchange Act. For this purpose, any statements contained
herein that are not statements of historical fact may be deemed
to be forward-looking statements. Without limiting the foregoing,
 the words may, will, should,
 expects, plans, anticipates,
 could, believes, estimates,
predicts, potential or
continue or the negative of these terms or other
comparable terminology are intended to identify forward-looking
statements. These factors may cause our actual results to differ
materially from a forward-looking statement. There are a number
of important factors that could cause the results of the Company
to differ materially from those indicated by such forward-looking
 statements. These factors include those set forth in Part I
 Business  Risk Factors.

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PART I

Item 1.  Business

Overview

Cysive is a leading software engineering firm that designs and
builds complex, highly customized systems supporting large scale
e-businesses. E-businesses are companies that conduct a
significant portion of their business through electronic commerce
 channels which are integrated with their existing internal
systems, such as accounting, billing, manufacturing and inventory
 control. Since commencing operations in 1994, we have used
advanced Internet technologies to build our customers
e-business capabilities. We design software systems which can
handle high volumes of customer transactions, operate reliably on
 a 24/7 basis and expand to meet the growth requirements of large
 scale e-businesses. Due to the advanced technologies necessary
to complete our projects, we employ software engineers with an
average of nine years of experience who use a well-defined
process to deliver reliable and secure custom systems on a timely
 basis.

Given our technology expertise, we target corporate customers who
 require highly complex systems to meet the growth demanded by
their e-business strategies. For example, our software engineers,
 in collaboration with Cisco Systems, Inc., built Ciscos
Internetworking Products Center, or IPC. The IPC is one of the
worlds largest Internet commerce sites and accounted for
approximately 60% of Ciscos fiscal 1999 total revenues of
$12.2 billion. In addition to Cisco, we have built systems
for customers including Classified Ventures, Inc., Equifax
Secure, Inc., First Union Corporation, medibuy.com, Inc., Sylvan
Prometric and UUNet Technologies, Inc. Our industry leadership is
 reflected in the quality of our customer base and our high
revenue per software engineer as compared to our competitors.

Industry Background

In the mid-1990s, a first wave of commercial Internet usage
achieved widespread adoption. The Internet brought technology
standardization to business through a common set of protocols,
languages and applications, such as HTTP, HTML and web browsers.
Although many companies comprehended the magnitude of potential
technological and communications advancements provided by the
Internet, they lacked the resources to implement Internet-based
technologies. The immediate objective for most companies at this
time was to establish an Internet presence. These companies used
the Internet to communicate with customers and launched their web
 sites as colorful online marketing brochures. With little
ability to automate business processes or execute transactions,
these sites were maintained separately from the enterprise
systems at the core of the business which, in turn, had not been
designed to communicate with the standards-based software of the
Internet. Simple, small-scale functions such as customer
inquiries to the web sites were handled through text-based
scripts, such as CGI and Perl, which had neither the structure
nor the capability of a software program, but sufficed for this
early-stage environment. As a result, many of todays
Internet professional services providers focus on providing
strategy, design and technology services to enable companies to
build an initial presence on the Internet rather than the
specialized technology expertise required to create successful
e-businesses which are capable of accommodating rapid growth.

Today, we believe a second wave is beginning, spearheaded by the
companies whose use of the Internet has evolved from a marketing
orientation to a business, or transactional, orientation. For
these companies, the web site has quickly evolved from a simple
marketing tool into an advanced software application at the core
of their businesses. International Data Corporation estimates
worldwide Internet services spending to increase from
$16.5 billion in 1999 to $100.7 billion by 2004. Many
companies are building their information technology systems to
transact directly, seamlessly and instantaneously with customers,
 suppliers, partners and distributors around the world. These
e-business capabilities are rapidly creating new markets,
communications channels and revenue growth opportunities, while
enabling companies to reduce costs, improve operating
efficiencies, shorten cycle times and improve communications.

To truly automate all of the functions associated with an
e-business transaction, companies cannot simply link Internet
customers directly to their existing internal systems. These
existing systems were designed for a defined number of
specifically trained employees. In addition, each system
typically was built to provide a very

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To integrate the existing internal systems, an advanced
technology approach is necessary in which the business logic, or
all of the business procedures and rules, is built into a set of
core software applications that bridges these existing systems
with the Internet. These core software applications handle all of
 the business functions that previously could only be executed by
 specially trained personnel, including preferred customer
discounting, credit approval, product configuration, pricing,
billing, accounting, inventory control and order and delivery
scheduling. A successful e-business system must present business
functions to customers in a simple format, yet provide
comprehensive access to all of the information and transactional
capabilities the business has to offer. In addition, the software
 systems that integrate the Internet with the existing internal
systems must be carefully designed to handle extremely large
volumes of Internet traffic and ensure 24/7 reliability. These
types of systems require software engineering expertise in areas
like: load balancing to spread traffic across servers; caching to
 make data access immediate; thread and connection pooling to
optimally use system resources; and data conversion to convert
data into usable Internet formats. These systems use a
component-based design which is flexible and extensible to meet
the needs of the business as it grows.

Advantages achieved by e-businesses that were the first to
conduct business on the Internet will be lost if their
transactional systems cannot handle increased user demand.
Therefore, we believe a greater portion of future corporate
Internet spending will be in the implementation and integration
of advanced Internet systems. Companies like Cysive that have the
 Internet technology expertise, a defined, repeatable and
rigorous process and a proven track record in building e-business
 systems will drive business on the Internet.

The Cysive Solution

Cysive engineers and deploys advanced systems that enable our
customers to transact business electronically. To build the
e-business systems demanded by our customers, we emphasize the
following key elements:

Advanced E-business Systems

The core of our business is to design and build complex, highly
customized systems based on Internet technologies. Our expertise
lies in building the systems driving large scale e-businesses.
For example, Cysive built the software application for First
Union Corporations online automated account stand-in system
 which is accessible through multiple channels by First
Unions more than 16 million retail and corporate
customers. When First Unions mainframe-based systems become
 overloaded, this system stands-in for all online channels,
including interactive voice response and the Internet. We believe
 our ability to successfully deploy truly large scale systems is
a key point of differentiation in our market. Furthermore, the
knowledge and confidence gained from building customized systems
critical to our customers businesses generates a high level
 of repeat business from our customers. For example, in 1999, 74%
 of our customers were customers in prior years. In addition, our
 focus on the latest, most advanced technology helps us to
recruit highly experienced software engineers who desire a
culture and environment that takes pride in implementing the
newest technologies.

Highly Experienced Software Engineers

The integration of existing and emerging technologies required to
 build our customers e-business systems is highly complex
and requires expertise across a broad array of technologies. Our
software engineers must have extensive knowledge in advanced
technologies like XML, Java, C++, Distributed Objects, like CORBA
 and DCom, and Relational and Object Database Management Systems.
 In addition, they must have experience interfacing with older
system technologies. As a result, we employ software engineers
with proven technology expertise and many years of experience.
Our software engineers have an average of nine years of
experience. Furthermore, 90% of our software engineers have
technical undergraduate degrees and 51% have advanced degrees.
This significant level of experience enhances our teams
productivity and enables us to

3



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SWAT Team Approach

The high productivity of our experienced software engineers
enables us to build extensive e-business systems with Software
and Technologies, or SWAT, teams that are comprised of a small
number of engineers. For example, with a team of only six
software engineers, we built Cisco Systems Internetworking
Product Center, which, according to Cisco, generated
approximately 60% of Ciscos fiscal 1999 total revenues. We
believe smaller teams increase efficiency, enhance the ability of
 a team to share ideas, expertise and project development
information and reduce the margin for error. As a result, we
believe that by using our SWAT teams, we shorten the delivery
time of a project and increase the likelihood of success,
reducing the overall project cost to the customer. Through this
approach, we are able to focus our customers on the total value
of the project, rather than on hourly billing rates. In addition,
 our efficient, SWAT team approach allows us to quickly redeploy
teams once a project is completed and to grow our business
without having to add large numbers of software engineers. As a
result of our high levels of productivity, we consistently
generate revenue per software engineer in excess of $350,000.

Rigorous Development Process

For every project undertaken, our software engineers adhere to
the Cysive development process. This approach begins with a
comprehensive assessment of a customers needs followed by
the development of a series of milestones comprised of three
distinct phases: analysis; design and development; and testing
and deployment. A well-defined process helps us to mitigate risk,
 ensure consistent quality and build e-business systems more
rapidly. The Cysive development process also ensures that our
customers have the flexibility to continuously modify their
projects as their needs evolve. By streamlining our processes and
 producing noticeable efficiencies, the Cysive development
process helps to build customer confidence and consequently
generate greater repeat business.

Sophisticated Knowledge Management

We have spent considerable resources to stay apprised of the
latest technologies and methods for implementing these
technologies. Our technology group leads our efforts in research
and development, training and information exchange. In addition,
we have developed the Cysive Technology Pipeline, a proprietary,
intranet-based part of our knowledge base. Through the Technology
 Pipeline, our highly experienced software engineers review,
learn and employ the latest and most advanced technologies before
 they are used on critical client projects. Our Technology
Pipeline is part of a larger centralized knowledge base which our
 software engineers access through our intranet and use to share
their project experiences. Together, the technology group and our
 knowledge base help to disseminate our accumulated project
experience to all employees, enhance the reusability of processes
 and accelerate the professional development of our software
engineers by keeping them abreast of new technologies.

Thorough Quality Assurance Process

We adhere to a thorough quality assurance process to identify and
 manage risk. To distribute knowledge across our company and to
help maintain objectivity within each project, we use a project
manager from outside of a given project team to serve as the
quality assurance supervisor who monitors and evaluates a
projects development. The supervisor is responsible for a
monthly review meeting and report focused on the scope, schedule
and cost of the project. As a result, all project managers are
subject to as well as oversee the quality assurance process. In
addition to risk management, our quality assurance approach
facilitates the sharing of ideas and technologies among project
managers, enables us to grow our business while maintaining high
levels of quality and allows us to make objective, value-added
recommendations to our customers during the course of a project.

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Cysive Growth Strategy

Our objective is to strengthen our position as a leading
e-business engineering firm. The key elements of our growth
strategy are to:

Attract and Retain Highly Experienced Software Engineers

Attracting and retaining qualified software engineers is critical
 to our growth. We identify and attract seasoned software
engineers through a broad range of sources, including internal
referrals, other technology companies and technical associations,
 the Internet and advertisements in technical periodicals. We
place a strong emphasis on hiring software engineers who have
several years of industry experience and proven technical
expertise. To ensure that we hire qualified software engineers,
we employ a seven-step recruiting process that incorporates
multiple examinations to evaluate a candidates technical
qualifications. Our focus on complex projects, coupled with our
exacting recruiting standards, has created a culture that fosters
 proven competence with advanced technologies and helps us to
attract and retain highly qualified personnel. For example, in
1999, we hired 44% of our new software engineers based on
internal referrals. We believe that our attrition rate of less
than 5% is well below the industry average.

Expand Existing and Establish New Customer Relationships

Our ability to further penetrate our existing customer base and
establish relationships with new customers is essential to our
growth. Because our strategy revolves around delivering highly
customized e-business systems for our customers critical
business applications, we approach the customer relationship from
 a long-term perspective. We target corporate customers who are
investing significant resources on Internet-focused business
strategies that require complex technology systems. While further
 penetration of our existing customer base is important, we
aggressively seek new customer relationships through our direct
sales efforts, new marketing activities, referral-driven sales
and strategic technology partnerships.

Expand Cysives Brand Recognition

Our reputation and track record with customers are key to our
success. To augment the reputation and track record that we have
established from successfully implementing many e-business
systems, we have launched an aggressive marketing campaign aimed
at chief executive officers, chief information officers and
electronic commerce managers to build brand recognition and
generate sales leads. Our success in communicating the Cysive
brand will drive our visibility with potential customers,
industry partners and prospective employees.

Enhance Our Geographic Presence

Continued geographic expansion gives us access to a broader base
of highly qualified software engineers and customers. We plan to
establish a local presence in several of the key technology
markets to increase our visibility with and ability to evaluate a
 larger number of potential software engineers. Decreasing the
travel burden placed on our software engineers should
significantly enhance our ability to hire and retain people with
the skill level we desire and help us to maintain our low
attrition rates. Moreover, a broader geographic presence will
help us to service our existing customers better and to establish
 new relationships. In addition, we intend to capitalize on local
 offices to enhance our regional marketing efforts. We have
offices in the metropolitan areas of Washington, D.C., San Jose,
CA, Atlanta, GA, Chicago, IL, Los Angeles, CA and Dallas, TX, and
 have opened a sales office in New York, NY.

Continue to Build and Deploy Advanced Technologies

Deployment of advanced technologies is essential to our ability
to deliver customized e-business systems. The core systems that
our software engineers build for our customers serve as the
foundation for future application developments and, therefore,
need to be reliable and secure. These systems must also be able
to sustain rapid growth without requiring significant
modification. These systems cannot be developed solely by using
packaged applications but instead require the integration of an
array of existing and new technologies.

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The Cysive Development Process

Cysive uses a multi-phase development process that simplifies the
 management of and reduces the risks associated with project
development. Our development approach starts with a comprehensive
 assessment that identifies the scope, design, schedule and cost
of building a customers e-business system. After this
initial assessment, the project consists of incremental
milestones that produce deliverables over a time period which
typically spans eight to 16 weeks. These milestones allow for a
controlled, customized and repeatable process that reduces costs
and ensures delivery. Within each milestone, our development
process comprises three phases: analysis, design and development,
 and testing and deployment. Throughout each milestone, Cysive
project managers perform routine quality assurance reviews to
ensure we deliver the system on time, on budget and with the
appropriate functionality.

Comprehensive Initial Assessment

The Cysive assessment evaluates the customers e-business
strategy and gives an immediate, clear and concise understanding
of the e-business system needed to meet our customers
business objectives. We provide a system blueprint that details
the high level design, including the systems key components
 and processes, and the requirements, including every function
and interaction the new system will deliver. We also produce a
detailed project plan with our recommendations for the
organization, process, schedule, staffing and cost of the
project. The assessment determines the project milestones
required for successful delivery. Each milestone has an inventory
 of specific related functions, and within each milestone, we
complete the three phases of the Cysive development process. By
building, testing and deploying the system in milestone
increments, we ensure timely and accurate delivery of the system.
 Moreover, the milestones can often be completed in parallel,
significantly reducing the time to market of the system.

The Development Process: Analysis Phase

The analysis phase produces detailed requirements and system
design specifications to ensure smooth, predictable project
execution. As part of this phase, we deliver the following:



| |   |                                                                                                                                                                                                 
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Requirements Specification: We produce a detailed
	description of functional needs as well as non-functional
	requirements, including performance, reliability and security
	requirements.      
|
| |  | High Level Object Model: We develop a model that
	highlights the software components of the system, its business
	functions and interrelationships.                                             
|
| |  | Updated Project Plan: We update the schedule, tasks,
	resource requirements and organization chart in the project plan.                                                                         
|
| |  | Technical and Software Design Specification: We specify
	software partitioning, other products, protocols and deployment
	options.                                                              
|
| |  | Frameworks and Graphical User Interface Prototypes: We
	partially develop the system that provides an early demonstration
	 of its functionality and conduct end-to-end testing to reduce
	risk.

The Development Process: Design and Development Phase

During the design and development phase, we refine the system and
 write and test the source code. As part of this phase, we
deliver the following:



| |   |                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------
| |  | Design Documentation: We provide sequence diagrams and a
	greater level of detail to the object model developed in the
	prior phase.
|
| |  | Source Code Written: We write the code to implement each
	business function in the system.                                          

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| |   |                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------
| |  | Testing: We begin with unit testing, followed by
	incremental integration and regression testing.                                            
|
| |  | Functional System Demonstration: As we complete each
	milestone, a demonstration of the systems functionality
	becomes available for review.

The Development Process: Testing and Deployment Phase

The final phase of the Cysive development process starts during
the analysis phase when the project team evaluates and selects
the best testing tools for a customers system test. A
three-step testing process begins with:



| |   |                                                                                                                                                                                                                                                                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | System Test and User Acceptance Planning: We detail the
	processes for conducting the system test, define how and when
	performance and stress testing will be conducted, detail
	reporting and tracking of software defects and outline test team
	member roles.                                                                                    
|
| |  | System Test: The system test requires completion of all
	milestones, integration and regression testing. The system test
	team works together with the development team to identify any
	defects in the software, make appropriate fixes and execute
	additional test cycles until all defects are eliminated.                                       
|
| |  | User Acceptance Test/ Pilot: The last step in the testing
	phase includes final testing of the software and release to a
	subset of the user community. The pilot process develops a core
	group of users to debug the system in its actual production
	environment and to help accelerate training when made available
	to a broader user community.
|
| |  | System Deployment: After final testing, we deploy the
	system and monitor its performance through feedback from future
	milestones of the project.                                                                                                                                                                                                   

Quality Assurance

Cysives thorough quality assurance process mitigates risk
and addresses critical issues as they arise to ensure that we
deploy our customers e-business systems successfully and on
 schedule. The mandatory process involves monthly two-day
evaluations conducted by a senior level software engineer who
serves as a supervisor to a project team. To distribute knowledge
 across our company and to help maintain objectivity within each
project, we use a project manager from outside of a given project
 team to serve as the quality assurance supervisor who monitors
and evaluates a projects development. This supervisor is
responsible for a monthly review meeting and report focused on
the scope, schedule and cost of the project. This senior level
supervisor evaluates the status reports, assists in the
resolution of technical problems and ensures adherence to the
development process. In addition, the supervisor is responsible
for continually assessing a customers internal processes
and helps to make objective, value-added recommendations to our
customers. This process imposes a discipline to our projects that
 helps to shorten time-to-deployment cycles by as much as one to
three months. In addition to ensuring a high quality deliverable,
 the quality assurance process helps to give our software
engineers valuable project experience. By making every one of our
 senior software engineers responsible for quality assurance, the
 process facilitates the sharing of knowledge and helps us to
maintain high levels of quality as we scale the business. In
addition, throughout the quality assurance process, project
documentation and data are continually fed into our knowledge
base.

Knowledge Management

We spend considerable resources implementing practices by which
we stay apprised of the latest technologies and the methods for
applying these technologies which we refer to as our knowledge
management process.

Technology Group

Our technology group leads our efforts in research and
development, training and information exchange. Members of the
technology group serve as practice leaders for our software
engineers in the latest technologies, languages, tools and
environments. Accordingly, their primary job is to continually
lead the

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Knowledge Base

Over the past two years, Cysive has spent significant resources
building an extensive knowledge base. The knowledge base, which
our software engineers access from remote locations via a secure
corporate intranet, is the central repository for detailed
information on every customer project Cysive conducts. For each
system being built, the knowledge base contains a project file
detailing customer information, a description of the project
including the requirements analysis, project plans, system
designs and quality assurance reviews, and a list of the
technology products utilized on the project. Finally, the
knowledge base also contains relevant white papers, technical
tips and technology articles that may be of interest to our
software engineers.

This knowledge base, which enables us to leverage and reapply our
 accumulated experience, is a critical resource for both our
software engineers and management. Using the knowledge
bases powerful search and display tools, users can quickly
traverse information links to related information and documents.
As a result, our software engineers can readily reference plans
and specifications from prior projects. This real-time access to
information enables our software engineers to condense the
delivery time and to mitigate the potential problems of a project
 by identifying those techniques and products that have already
been successfully employed in similar systems. In addition, by
providing information on project progress and customer needs, the
 knowledge base helps management prepare for customer meetings
and project reviews.

A key component of the knowledge base is the Cysive Technology
Pipeline, which is our repository of evaluations of technologies,
 tools and products. Prior to use on a customer project, all
products are carefully evaluated. The Technology Pipeline
contains reviews of over 174 products in 30 technology
categories. While the Technology Pipeline is an invaluable
resource for our software engineers, it is also an important
method by which we conduct training and development. The
evaluation process that we employ involves all of our software
engineers. While between projects, our software engineers, under
the direction of our technology team, work on one or more of the
seven stages we have outlined in the evaluation of a product.
Having our software engineers conduct these evaluations affords
them the opportunity to continually work with a variety of new
technologies. A product can then be used on a customer project
once it has successfully completed all of the stages of the
Cysive evaluation process. Initial implementation of new
technologies are generally performed by the software engineers
who were part of the technologys evaluation team. In this
manner, we ensure that our customers receive both a proven
technology and a team of software engineers with expertise to
deliver that technology.

Culture

We continue to build our corporate culture around a common set of
 values based on excellence, discipline and results. Our software
 engineers understand that we hire only high caliber technical
people because our customers demand a high level of execution. We
 believe we have instilled in our software engineers the sense of
 challenge as well as pride in having helped to build some of the
 most technically complex systems in todays e-business
environment. By growing our business internally, we have been
able to instill this value set to all of our professionals on an
individual basis. Our culture contributes to our low attrition
rate of less than 5%.

8



---



While we focus on excellence and quality, we also foster and
maintain a culture based on innovation, challenge and teamwork to
 attract and retain the level of software engineer we demand. In
addition, we attempt to create an environment that promotes
cooperative relationships and encourages teamwork. To ensure
rapid deployment of our software engineers, we promote
flexibility, speed and open communication. In addition, to ensure
 continued development of our technical staff, we place a high
priority on training. We conduct training in a number of
important ways by:



| |   |                                                                                                                              
| | - | -----------------------------------------------------------------------------------------------------------------------------
| |  | requiring time for training, so that our software engineers have
	the opportunity to assess and master emerging technologies;
|
| |  | mandating an initial two-week boot camp for new employees;                                                                   
|
| |  | conducting two annual company meetings centered around technical
	themes;                                                    
|
| |  | sending our software engineers to conferences after which they
	are required to write white papers for internal distribution;
|
| |  | providing training in preparation for three levels of technical
	certification;                                              
|
| |  | purchasing reference materials for our software engineers who in
	return write reviews of the materials; and                 
|
| |  | offering ongoing internal technology seminars.                                                                               

Recruiting

Cysives continued success and growth depends on our ability
 to attract and retain high caliber technical talent. We have a
stringent recruiting process that ensures the technical
capability of all of our hires. Given the importance of
recruiting to our company, every professional within Cysive is
dedicated to our recruiting efforts, from our 12 technical
recruiting experts to our software engineers, management and
sales and marketing staff.

We target software engineers with extensive experience and
demonstrated expertise working throughout the technology
development lifecycle, from analysis and design through the
development, testing and deployment of complex technical
solutions. Only software engineers with this depth and range of
technology expertise possess the skills required to design and
build e-business systems that integrate advanced Internet-based
technologies with multiple existing internal systems.

We employ a seven-step hiring process. After initially seeking
and identifying candidates who meet our rigorous standards, our
recruiting experts conduct an initial phone interview with
technical questions to screen for high caliber talent. Candidates
 then take an hour-long technical test and proceed to a project
manager-level technical screen, face-to-face interviews with a
regional director, project manager and software engineers and a
discussion with a senior executive officer. We maintain a
detailed candidate pipeline that tracks all steps of the process.
 The capability to analyze this data by skill level, years of
experience, region, salary, source, recruiter, visa status and
time-to-close allows us to constantly monitor and improve our
recruiting efforts.

To attract potential software engineers, we target multiple
functional areas. We have a number of recruiting efforts aimed at
 the local, regional and national markets to help us identify the
 industrys most seasoned technical talent. We have built a
reference database which is comprised of internal referrals from
our software engineers and which accounted for 44% of our new
hires in 1999. We also research and identify companies and
technical associations with suitable technical talent and employ
advanced Internet search capabilities to identify potential
candidates. Finally, we advertise in technical and trade
periodicals that appeal to software engineers.

Sales and Marketing

Our sales efforts are targeted at corporate customers who are
investing significant resources in their e-business strategies
and consequently require complex technology systems to meet the
growth of these strategies. We have a sales force of 17
professionals that covers three geographic regions: east, central
 and west. In each region, we have a senior regional sales
manager and a supporting team of account managers. By

9



---





Given our successful completion of several high profile
e-business systems, many sales leads result from referrals. In
addition, our sales force actively generates leads through a
combination of direct mail, targeted events with industry thought
 leaders and cooperative marketing with industry partners. To
augment our sales efforts, we also have a separate marketing
effort comprised of four professionals. Cysives marketing
group focuses on two key objectives. First, we focus on building
brand recognition at a national level to drive business growth
and support our recruiting efforts. Second, we focus on
developing and cultivating leads for the sales force amongst our
target audience of chief executive officers, chief information
officers and electronic commerce managers. To achieve these
objectives, we employ a consistent communication strategy based
on standards for our logo, corporate identity, visual elements
and messages across all marketing channels. In addition, to
enhance our brand reputation and credibility, we utilize:



| |   |                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a public relations program focused on building awareness and
	recognition through industry and business press, industry
	analysts and major industry forums;
|
| |  | a comprehensive web site focused on customer case studies and
	testimonials;                                                                                
|
| |  | national and regional advertising;                                                                                                                          
|
| |  | on-site marketing programs at customer projects to enhance
	visibility within the customer environment; and                                                 
|
| |  | seminars to increase the visibility of our executives and provide
	 lead generation opportunities.                                                          

Customers

The following is a representative list of our customers for 1999
and the current year.

CareerPath.com, Inc.









































In 1999, our five largest customers represented 64.5% of our
revenues: Sylvan Prometric, 27.8%; Equifax Secure, Inc., 11.4%;
Classified Ventures, Inc., 9.9%; Cisco Systems, Inc., 8.1%; and
CareerPath.com, Inc. 7.3%. The volume of work that we perform for
 a specific customer is likely to vary from period to period, and
 a significant customer in one period may not use our services in
 a subsequent period. In addition, a failure to collect a large
account receivable from any of these customers could
significantly reduce our assets and adversely affect our
business, financial condition and results of operations.

10



---



Competition

The e-business engineering market is intensely competitive and
faces rapid technological change. We expect the competition to
continue and intensify, which could result in price reductions,
reduced profitability and loss of current or future customers.
Our competitors fall into four major categories:



| |   |                                                                                                                                                                                                                     
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | internal information technology departments of current and
	potential customers;                                                                                                                                    
|
| |  | Internet professional services providers, such as Proxicom, Inc.,
	 Scient Corporation and Viant Corporation;                                                                                                       
|
| |  | large information technology consulting services providers, such
	as Andersen Consulting LLP, Electronic Data Systems Corporation,
	International Business Machines Corporation and
	PricewaterhouseCoopers LLP; and
|
| |  | traditional information technology services providers, such as
	Sapient Corporation.                                                                                                                                

Many of our competitors have longer operating histories and
customer relationships, greater financial, technical, marketing
and public relations resources, larger customer bases and greater
 brand or name recognition than we have. Our competitors may be
able to respond more quickly to technological developments and
changes in customer needs. This may place us at a disadvantage in
 responding to our competitors pricing strategies,
technological advances, advertising campaigns, strategic
partnerships and other initiatives. In addition, there are low
barriers to entry into our business because the costs to provide
information technology services are relatively low. We do not own
 any technologies that preclude or inhibit competitors from
entering our industry. Therefore, we expect to continue to face
additional competition from new entrants into our industry.

We believe that the principal competitive factors in our business
 are:



| |   |                                                                              
| | - | -----------------------------------------------------------------------------
| |  | advanced technical knowledge;                                                
|
| |  | the reputation and experience of professionals delivering
	services;         
|
| |  | customer value and service;                                                  
|
| |  | the success and reliability of the delivered system; and                     
|
| |  | the ability to attract and retain highly skilled, experienced
	professionals.

We believe that we presently compete favorably with respect to
each of these factors. The market for our services is evolving,
however, and we may be unable to compete successfully in the
future.

Employees

As of February 17, 2000, we had 183 employees, of whom 114
were software engineers. Of these 114 software engineers, 31, or
27%, are working in the United States under an H-1B visa.
Moreover, 22 of our software engineers who are working under H-1B
 visas have applied for permanent residency with the U.S.
Immigration and Naturalization Service. We believe our
relationship with our employees is good. None of our employees is
 represented by a union.

Intellectual Property Rights

Our proprietary knowledge base and other intellectual property
rights that we develop for our customers are an integral part of
our business. While ownership of custom work product is generally
 retained by the customer, we retain a royalty-free license to
use some or all of the applications, processes and intellectual
property developed in connection with customer projects. This
information is accessible on our knowledge base only to our
employees via our secure corporate intranet. We enter into
confidentiality agreements with our employees, generally require
that our software engineers and customers enter into similar
agreements and limit access to and distribution of our knowledge
base. The steps we have taken in this regard may not be adequate
to deter misappropriation of our proprietary information, and we
may be unable to detect unauthorized use and take appropriate
steps to enforce our intellectual property rights.

11



---



Risk Factors

An investment in our common stock involves risks. You should
carefully consider the risks described below and the other
information in this Annual Report on Form 10-K including our
 financial statements and the related notes. The trading price of
 our common stock could decline due to any of these risks.

Because we rely on highly trained and experienced personnel to
 design and build complex systems for our customers, our
inability to attract and retain qualified employees would impair
our ability to provide our services to existing and new customers

Our future success depends in large part on our ability to
attract and retain highly trained and experienced software
engineers as well as recruiters, other technical personnel and
sales and marketing professionals of various experience levels.
If we fail to attract and retain these personnel, we may be
unable to complete existing projects or bid for new projects of
similar size, which could reduce our revenues. While attracting
and retaining experienced software engineers is critical to our
business and growth strategy, maintaining our current level of
software engineer experience, averaging nine years, may be
particularly difficult. Skilled software engineers are in short
supply, and this shortage is likely to continue for some time. As
 a result, competition for these people is intense, and the
industry attrition rate for them is high. Additionally, we plan
to open new offices in a number of geographic markets to attract
and retain new employees. Our failure to open new offices or to
open them in areas which experienced software engineers would
find attractive could limit our ability to attract and retain
qualified personnel. Moreover, even if we are able to grow and
expand our employee base, the resources required to attract and
retain these employees may adversely affect our operating
margins.

In 1999, we derived 64.5% of our revenues from our five
largest customers, and we expect to continue to rely on a limited
 number of customers for a significant portion of our revenues;
as a result, the loss of or a significant reduction in the work
performed for any of them could result in reduced revenues and
earnings

We currently derive and expect to continue to derive a
significant portion of our revenues from a limited number of
customers. As a result, the loss of or significant reduction in
the work performed for any significant customer could reduce our
revenues. In 1999, our five largest customers represented 64.5%
of our revenues: Sylvan Prometric, 27.8%; Equifax Secure, Inc.,
11.4%; Classified Ventures, Inc., 9.9%; Cisco Systems, Inc.,
8.1%; and CareerPath.com, Inc. 7.3%. The volume of work that we
perform for a specific customer is likely to vary from period to
period, and a significant customer in one period may not use our
services in a subsequent period. In addition, a failure to
collect a large account receivable from any of these customers
could significantly reduce our assets and profitability.

Because the number of our customers, employees and offices has
 grown rapidly since January 1, 1998 and we expect this
growth rate to continue, we may have difficulty managing our
growth effectively, which could adversely affect the quality of
our services and reduce our earnings

We have grown rapidly and expect to continue to grow rapidly by
both hiring new employees and serving new businesses and
geographic markets. We plan to open new offices in 2000. Our
growth has placed and will continue to place a significant strain
 on our management and operating and financial systems. In
addition, our management has limited experience managing a
business of our current size. Our employee base grew from 42 on
January 1, 1998 to 183 on February 17, 2000. As a
result, our personnel, systems, procedures and controls may be
inadequate to support our future operations. Our current growth
rate may not be sustainable for the long-term.

Because our customers retain us on a project-by-project basis,
 rather than under long-term contracts, we may be unable to
accurately predict our revenues, which may adversely affect our
operating margins

Our operating expenses, including employee salaries, rent and
administrative expenses, are relatively fixed and cannot be
reduced on short notice to compensate for unanticipated
variations in the number or size of projects in progress. Because
 we incur costs based on our expectations of future revenues, our
 failure to predict

12



---





Our quarterly revenues and operating results are likely to
fluctuate significantly, causing our stock price to decline

Our quarterly revenues and operating results have varied in the
past and are likely to vary significantly from quarter to
quarter. This fluctuation may cause our operating results to be
below the expectations of securities analysts and investors, and
the price of our stock may fall. Factors that could cause
quarterly fluctuations include:



| |   |                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------
| |  | the loss of a significant customer or project;                                                                                               
|
| |  | our employee utilization rate, including our ability to
	transition employees quickly from completed or terminated
	projects to new projects;
|
| |  | the introduction of new services or changes in pricing policies
	by us or our competitors;                                                   
|
| |  | our ability to manage costs, including employee costs and support
	 services costs; and                                                      
|
| |  | costs related to the expected opening or expansion of our
	offices.                                                                          

In any given quarter, most of our revenues have been attributable
 to a limited number of customers and we expect this to continue.
 As a result, the cancellation or deferral of even a small number
 of projects in a particular quarter could significantly reduce
our revenues, which would hurt our quarterly financial
performance. In addition, a substantial portion of our costs are
relatively fixed and based upon anticipated revenues. A failure
to book an expected order in a given quarter or the need to
provide training to our employees on new technologies as occurred
 in the fourth quarter of 1997 and the first half of 1998 would
not be offset by a corresponding reduction in costs and could
adversely affect our operating results. As a result of these
factors, we believe that period-to-period comparisons of our
revenues and operating results are not necessarily meaningful.

We depend on our Chief Executive Officer, and his loss may
adversely affect our ability to attract and retain customers,
maintain a cohesive culture and compete effectively

We believe that our success depends on the continued employment
of our Chief Executive Officer, Nelson A.
Carbonell, Jr. If Mr. Carbonell were unable or
unwilling to continue in his present position, he would be very
difficult to replace and our business could be adversely
affected. Mr. Carbonell is particularly important to our
business in providing strategic direction, managing our
operations and creating and maintaining a cohesive culture. He
has also been involved in establishing and expanding customer
relationships.

Approximately 27% of our current software engineers are not
U.S. citizens and may be forced to leave Cysive when their
temporary visas expire, and we may be unable to attract and
retain additional foreign nationals due to limits imposed on the
number of visas issued by the U.S. government

We depend on software engineers who, although residing in the
United States, are not U.S. citizens, and the loss of a
significant number of these personnel would make it difficult to
serve our customers and grow our business. These software
engineers are permitted to work in the United States for up to
six years under temporary H-1B visas. Most of our software
engineers working under H-1B visas were originally sponsored by
former employers and, as a result, hold visas which expire in
less than six years from their date of employment by Cysive. As
of February 17, 2000, 31, or 27%, of our software engineers
were working under H-1B visas. The U.S. Immigration and
Naturalization Service limits the number of new H-1B visas issued
 in each fiscal year, and if this limit is reached, our supply of
 potential software engineers will be limited. Further, we have
extended offers to employees of other companies who are working
under H-1B visas in the United States. We cannot employ these
H-1B workers until the U.S. Immigration and Naturalization
Service approves a separate

13



---





Competition from larger, more established competitors with
greater financial resources and from new entrants could result in
 price reductions, reduced profitability and loss of current or
future customers

The e-business engineering market is intensely competitive and
faces rapid technological change. We expect competition to
continue and intensify, which could result in price reductions,
reduced profitability and the loss of current or future
customers. Our competitors fall into four major categories:



| |   |                                                                                                                                                                                                                     
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | internal information technology departments of current and
	potential customers;                                                                                                                                    
|
| |  | Internet professional services providers, such as Proxicom, Inc.,
	 Scient Corporation and Viant Corporation;                                                                                                       
|
| |  | large information technology consulting services providers, such
	as Andersen Consulting LLP, Electronic Data Systems Corporation,
	International Business Machines Corporation and
	PricewaterhouseCoopers LLP; and
|
| |  | traditional information technology services providers, such as
	Sapient Corporation.                                                                                                                                

Many of our competitors have longer operating histories and
customer relationships, greater financial, technical, marketing
and public relations resources, larger customer bases and greater
 brand or name recognition than we have. Our competitors may be
able to respond more quickly to technological developments and
changes in customer needs. This ability may place us at a
disadvantage in responding to our competitors pricing
strategies, technological advances, advertising campaigns,
strategic partnerships and other initiatives. In addition, there
are low barriers to entry into our business because the costs to
provide information technology services are relatively low. We do
 not own any technologies that preclude or inhibit competitors
from entering our industry. Therefore, we expect to continue to
face additional competition from new entrants into our industry.

We enter into non-compete agreements with some of our
customers, which reduces the number of our potential customers
and sources of revenues

A substantial portion of our business involves the development of
 software applications for specific projects. Ownership of
customer-specific software is generally retained by the customer,
 although we retain rights to some of the applications, processes
 and other intellectual property developed in connection with
projects. We sometimes agree, however, not to reuse this
customer-specific software when building systems for a
customers competitors. In addition, we occasionally agree
not to build any type of system for a customers competitors
 for limited periods of time, which have been as long as two
years. These non-compete agreements reduce the number of our
potential customers and our sources of revenues.

Our business is technology driven, and if we have difficulty
responding to changing technology, industry standards and
customer preferences, we could lose customers, which would reduce
 our revenues

We have derived and expect to continue to derive a substantial
portion of our revenues from creating e-business systems that are
 based upon the latest, most advanced technologies and are
capable of adapting to future technologies. Our success depends
on our ability to offer services that stay at the forefront of
continuing changes in technology, evolving industry standards and
 changing customer preferences. Our failure to create e-business
systems that use these technologies could cause us to lose
current and potential business opportunities, resulting in
reduced revenues. Additionally, to the extent technology becomes
standardized or simplified, there may be less demand for our
services.

14



---



If we fail to meet our customers expectations, we could
damage our reputation and have difficulty attracting new business
 or be sued

Our projects are complex and critical to our customers. As a
result, if we fail or are unable to meet a customers
expectations, we could damage our reputation. This could
adversely affect our ability to attract new business from that
customer or others. If we fail to perform adequately on a
project, a customer could sue us for damages. Our contracts
generally limit our liability for damages that may arise from
negligent acts, errors, mistakes or omissions in rendering
services to our customers. However, we cannot be sure that these
contractual provisions will protect us from liability for damages
 if we are sued. Furthermore, our general liability insurance
coverage may not continue to be available on reasonable terms or
in sufficient amounts to cover one or more large claims, or the
insurer may disclaim coverage as to any future claim.

Currently, our business depends on integrating
Internet-related technology into our customers businesses,
and, as a result, our business will suffer if use of the Internet
 as a means for commerce declines

If commerce on the Internet does not continue to grow or grows
slower than expected, the need for our e-business enabling
services could decline, resulting in fewer projects and reduced
revenues. Consumers and businesses may reject the Internet as a
viable commercial medium for a number of reasons, including:



| |   |                                                                        
| | - | -----------------------------------------------------------------------
| |  | actual or perceived lack of security of information;                   
|
| |  | lack of access and ease of use;                                        
|
| |  | congestion of Internet traffic or other usage delays;                  
|
| |  | inconsistent quality of service;                                       
|
| |  | increases in access costs to the Internet;                             
|
| |  | evolving government regulation;                                        
|
| |  | uncertainty regarding intellectual property ownership;                 
|
| |  | costs associated with the obsolescence of existing
	infrastructure; and
|
| |  | economic viability of the Internet commerce model.                     

Some of our customers are small or have little or no operating
 history, raising the possibility that they may lack sufficient
cash flow to pay our fees

We believe that an increasing portion of our future revenues
could be derived from emerging companies, like our current
customer LeapIT.com, formed specifically to conduct business over
 the Internet. These companies often have little or no earnings
or cash flow, and their businesses are more likely to fail than
those of more mature companies. As a result, they may be unable
to pay our fees in a timely fashion or at all.

Because our business of software engineering involves creating
 and using intellectual property, misappropriation of and
disputes regarding intellectual property could harm our
reputation, adversely affect our competitive position and cost us
 money

If third parties infringe or misappropriate our trade secrets,
trademarks or other proprietary information, or if disputes arise
 with customers concerning intellectual property we create for
them and/or license from them, our reputation, competitive
position and relationships with customers could be damaged. We
could be required to spend significant amounts of time and
financial resources to defend our company, and our managerial
resources could be diverted.

Item 2.  Properties

On November 15, 1999, we executed a lease for a new
principal headquarters in Reston, VA that expires in April 2010.
We anticipate to occupy this new space in March, 2000. We also
have offices in the metropolitan areas of Chicago, IL, San Jose,
CA, Atlanta, GA and plan to open offices in the metropolitan
areas of Los Angeles, CA and Dallas, TX. We do not own any real
estate. Other than our headquarters in

15



---





Item 3.  Legal Proceedings

Except as set forth below, we are not a party to any material
pending legal proceedings. Our former outside counsel,
Mr. John Newman, filed a Bill of Complaint against us on
December 15, 1999 in the Virginia Circuit Court for Fairfax
County (Chancery No. 164139). Mr. Newman is seeking a
judicial declaration that an unvested option to purchase 11,250
shares of our stock granted to him in April 1999 did not
terminate upon the termination of his representation of Cysive on
 October 14, 1999, but rather contends this option became
immediately exercisable under a change in control provision in
our 1994 Stock Option Plan as a result of our initial public
offering on October 15, 1999. Mr. Newman is also
seeking an unspecified award of compensation and/or additional
stock options as alleged additional compensation for legal
services he performed for us at what he now claims were
discounted rates. Management denies the alleged factual and legal
 bases of Mr. Newmans claims and is defending the
matter vigorously, including the assertion of counterclaims for
breach of fiduciary duty and defamation against Mr. Newman.
No scheduling order has been entered in the case nor has a trial
date been set. Although we do not expect this case to have a
material adverse effect on our business, operating income or
financial condition, an adverse judgment could have a material
adverse effect on the operating results reported by us for the
period in which any adverse judgment might occur.

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

None

16



---



PART II

Item 5.  Market for Registrants Common
Equity and Related Stockholder Matters

(a)(1)  Market Price of Common Stock

Cysives Common Stock has been quoted on the Nasdaq National
 Market System under the symbol CYSV since
Cysives initial public offering on October 15, 1999.
The following table sets forth for the period indicated the high
and low sale prices for Cysives Common Stock:

|                                            |  |      |       |     |  |   |       | 
|------------------------------------------- |  | ---- | ----- | --- |  | - | ----- | 
|1999                                        |  | High |       | Low
|                                            |  |      |       |    
|Fourth Quarter (beginning October 15, 1999) |  | $    | 85.13 |     |  | $ | 30.69 | 

On February 17, 2000, the last reported sale price of
Cysives Common Stock was $109.63 per share. As of
February 17, 2000, there were approximately 58 holders of
record of the Common Stock.

(a)(2)  Recent Sales of Unregistered Securities

From January 1, 1999 through December 31, 1999, the
Registrant issued and sold an aggregate of 1,379,798 shares
of its common stock to employees, consultants and directors for
aggregate consideration of approximately $1.1 million
pursuant to the exercise of stock options granted under its
Amended and Restated 1994 Stock Incentive Plan.

No underwriters were involved in any of the foregoing sales of
securities. Such sales were made in reliance upon an exemption
from the registration provisions of the Securities Act set forth
in Rule 701 of the Securities Act relative to options to
purchase common stock. All of the foregoing securities are deemed
 restricted securities for the purposes of the
Securities Act.

(b)  Use of Proceeds.

There has been no change to the information previously provided
by the Company in its Registration Statement on Form S-1
(Registration No. 333-85651), which was declared effective
on October 14, 1999.

17



---



Item 6.  Selected Financial Data

The following selected financial data should be read together
with the financial statements and the related notes and
Managements Discussion and Analysis of Financial Condition
and Results of Operations included elsewhere in this Annual
Report on Form 10-K. The balance sheet data at
December 31, 1995, 1996, 1997, 1998, 1999 and the statement
of operations data for each of the years in the five-year period
ended December 31, 1999 have been derived from Cysives
 financial statements for these years, which have been audited by
 Ernst & Young LLP, independent auditors.

Through September 30, 1999, we operated as an S corporation
under the Internal Revenue Code. Under the provisions of the tax
code, our stockholders included their pro rata share of our
income in their personal income tax returns. Accordingly, we were
 not subject to federal and most state income taxes through
September 30, 1999. In connection with our initial public
offering, our stockholders elected to rescind the
S corporation election effective on October 1, 1999,
and we are now subject to federal and state income taxes.

|                                                     |                            |                                                 |           |      |     |      |           |       |       |      |           |       |       |   |           |       |       |   |           |        |        | 
|---------------------------------------------------- | -------------------------- | ----------------------------------------------- | --------- | ---- | --- | ---- | --------- | ----- | ----- | ---- | --------- | ----- | ----- | - | --------- | ----- | ----- | - | --------- | ------ | ------ | 
|                                                     |                            |                                                
|                                                     |                            | Year Ended December 31,                        
|                                                     |                            |                                                
|                                                     |                            | 1995                                            |           | 1996 |     | 1997 |           | 1998  |       | 1999
|                                                     |                            |                                                 |           |      |     |      |           |       |       |     
|                                                     |                            |                                                
|                                                     |                            | (In thousands, except share and per share data)
|                                                    
|                                                    
|                                                    
|                                                    
|Statement of Operations Data                         |                            |                                                 |           |      |     |      |           |       |       |      |           |       |       |   |           |       |       |   |           |       
|                                                    
|                                                    
|                                                    
|                                                    
|Revenues                                             |                            | $                                               | 2,993     |      |     | $    | 5,557     |       |       | $    | 7,711     |       |       | $ | 9,142     |       |       | $ | 25,265    |       
|                                                    
|                                                    
|                                                    
|                                                    
|Direct costs                                         |                            |                                                 | 1,557     |      |     |      | 2,056     |       |       |      | 2,798     |       |       |   | 3,742     |       |       |   | 8,899     |       
|                                                     |                            |                                                 |           |      |     |      |           |       |       |      |           |       |       |   |           |       |       |   |           |       
|Gross profit                                         |                            |                                                 | 1,436     |      |     |      | 3,501     |       |       |      | 4,913     |       |       |   | 5,400     |       |       |   | 16,366    |       
|                                                    
|                                                    
|                                                    
|                                                    
|Operating expenses:                                  |                            |                                                 |           |      |     |      |           |       |       |      |           |       |       |   |           |       |       |   |           |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | General and administrative |                                                 |           | 497  |     |      |           | 2,009 |       |      |           | 2,754 |       |   |           | 2,725 |       |   |           | 7,228  |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Sales and marketing        |                                                 |           | 241  |     |      |           | 232   |       |      |           | 760   |       |   |           | 1,824 |       |   |           | 5,491  |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Stock compensation         |                                                 |           |     |     |      |           |      |       |      |           |      |       |   |           | 69    |       |   |           | 14,851 |       
|                                                     |                            |                                                 |           |      |     |      |           |       |       |      |           |       |       |   |           |       |       |   |           |       
|                                                     |                            | Total operating expense                         |           |      | 738 |      |           |       | 2,241 |      |           |       | 3,514 |   |           |       | 4,618 |   |           |        | 27,570 | 
|                                                    
|                                                    
|                                                    
|                                                    
|Operating income (loss)                              |                            |                                                 | 698       |      |     |      | 1,260     |       |       |      | 1,399     |       |       |   | 782       |       |       |   | (11,204   | )     
|                                                    
|                                                    
|                                                    
|                                                    
|Other income (expense), net                          |                            |                                                 | (1        | )    |     |      | 17        |       |       |      | 23        |       |       |   | 14        |       |       |   | 432       |       
|                                                     |                            |                                                 |           |      |     |      |           |       |       |      |           |       |       |   |           |       |       |   |           |       
|Income (loss) before taxes                           |                            |                                                 | 697       |      |     |      | 1,277     |       |       |      | 1,422     |       |       |   | 796       |       |       |   | (10,772   | )     
|                                                    
|                                                    
|                                                    
|                                                    
|Income tax benefit                                   |                            |                                                 |          |      |     |      |          |       |       |      |          |       |       |   |          |       |       |   | 4,369     |       
|                                                     |                            |                                                 |           |      |     |      |           |       |       |      |           |       |       |   |           |       |       |   |           |       
|Net income (loss)                                    |                            | $                                               | 697       |      |     | $    | 1,277     |       |       | $    | 1,422     |       |       | $ | 796       |       |       | $ | (6,403    | )     
|                                                     |                            |                                                 |           |      |     |      |           |       |       |      |           |       |       |   |           |       |       |   |           |       
|                                                    
|Weighted average shares outstanding                  |                            |                                                 | 6,775,311 |      |     |      | 6,777,000 |       |       |      | 6,777,000 |       |       |   | 6,777,000 |       |       |   | 8,814,966 |       
|                                                    
|                                                    
|                                                    
|                                                    
|Weighted average shares and common share equivalents |                            |                                                 | 6,775,311 |      |     |      | 7,473,800 |       |       |      | 7,766,211 |       |       |   | 7,993,659 |       |       |   | 8,814,966 |       
|                                                    
|                                                    
|                                                    
|                                                    
|Earnings (loss) per share:                           |                            |                                                 |           |      |     |      |           |       |       |      |           |       |       |   |           |       |       |   |           |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Basic                      |                                                 | $         | 0.10 |     |      | $         | 0.19  |       |      | $         | 0.21  |       |   | $         | 0.12  |       |   | $         | (0.73  | )     
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Diluted                    |                                                 | $         | 0.10 |     |      | $         | 0.17  |       |      | $         | 0.18  |       |   | $         | 0.10  |       |   | $         | (0.73  | )     

|                          |  |                |     |      |  |      |       |      |  |      |       |  |  |   |       |  |  |   |        | 
|------------------------- |  | -------------- | --- | ---- |  | ---- | ----- | ---- |  | ---- | ----- |  |  | - | ----- |  |  | - | ------ | 
|                          |  |               
|                          |  | December 31,  
|                          |  |               
|                          |  | 1995           |     | 1996 |  | 1997 |       | 1998 |  | 1999
|                          |  |                |     |      |  |      |       |      |  |     
|                          |  |               
|                          |  | (In thousands)
|                         
|                         
|                         
|                         
|Balance Sheet Data        |  |                |     |      |  |      |       |      |  |      |       |  |  |   |       |  |  |   |        | 
|                         
|                         
|                         
|                         
|Cash and cash equivalents |  | $              | 294 |      |  | $    | 456   |      |  | $    | 690   |  |  | $ | 612   |  |  | $ | 2,433  | 
|                         
|                         
|                         
|                         
|Working capital           |  |                | 722 |      |  |      | 1,032 |      |  |      | 1,948 |  |  |   | 2,150 |  |  |   | 51,989 | 
|                         
|                         
|                         
|                         
|Total assets              |  |                | 970 |      |  |      | 1,753 |      |  |      | 2,421 |  |  |   | 3,163 |  |  |   | 61,354 | 
|                         
|                         
|                         
|                         
|Stockholders equity      |  |                | 837 |      |  |      | 1,478 |      |  |      | 2,214 |  |  |   | 2,519 |  |  |   | 57,679 | 

18



---



Item 7.  Managements Discussion and
Analysis of Financial Condition and Results of Operations

You should read the following discussion together with
Selected Financial Data and our financial statements
and the related notes included elsewhere in this Annual Report of
 Form 10K.

Overview

We design and build complex, highly customized systems supporting
 large scale e-businesses. Prior to 1997, we built large scale,
distributed systems using approaches and technologies that are
the foundations for current Internet applications. At that time,
our advanced technology focus required a sales effort led by
technology savvy project managers. In late 1996 and early 1997,
our technology group evaluated and developed software prototypes
using key Internet technologies such as Java, XML and CORBA.
After successfully deploying our first e-business system in
mid-1997, we began to target customers who were making
significant investments in their e-business applications. As a
result, there was a fundamental shift in our business strategy
away from general purpose distributed systems to customized
e-business applications. As part of this strategy, in the fourth
quarter of 1997 and the first half of 1998, we spent considerable
 resources to accomplish two specific goals. Our first goal was
to train all of our software engineers with advanced Internet
technologies that had been researched and prototyped by our
technology group. Our second goal was to deploy a direct sales
force capable of selling e-business applications. These
initiatives significantly impacted our results of operations for
these three quarters. Specifically, the generation of a sales
pipeline of e-business applications and the deployment of our
sales force affected our revenues and sales and marketing
expenses. In addition, the completion of two of our largest
distributed systems combined with the extensive training of our
software engineers caused our utilization rates and gross margins
 to decline during these quarters. As reflected in our latest
results, these investments positioned us to emerge in the second
half of 1998 as a leading e-business engineering firm.

We derive our revenues from software engineering services which
are provided primarily on a time and materials basis. Revenues
are recognized and billed monthly by multiplying the number of
hours expended by our software engineers in the performance of
the contract by the established billing rates. Our customers
reimburse us for direct expenses allocated to a project such as
airfare, lodging and meals. Consequently, these direct
reimbursements are excluded from revenues.

Our financial results may fluctuate from quarter-to-quarter based
 on factors such as the number of projects, the amount and timing
 of our customers expenditures, employee utilization rates,
 hourly billing rates and general economic conditions. Revenues
from a few large customers may constitute a significant portion
of our total revenues in a particular quarter or year. For
example, in 1998, our five largest customers represented 65.3% of
 our revenues, and in 1999 our five largest customers represented
 64.5% of our revenues. The following table identifies these
customers and the percentage of our revenues derived from each.

|                                    |  |                              |      |          |  |                           |  |  |      |  
|----------------------------------- |  | ---------------------------- | ---- | -------- |  | ------------------------- |  |  | ---- | -
|                                    |  |                             
|Year Ended December 31, 1998        |  | Year Ended December 31, 1999
|                                    |  |                             
|Customer                            |  | % of Revenues                |      | Customer |  | % of Revenues            
|                                    |  |                              |      |          |  |                          
|Cisco Systems, Inc.                 |  |                              | 19.6 | %        |  | Sylvan Prometric          |  |  | 27.8 | %
|                                   
|                                   
|                                   
|                                   
|Classified Ventures, Inc./ Cars.com |  |                              | 18.0 | %        |  | Equifax Secure, Inc.      |  |  | 11.4 | %
|                                   
|                                   
|                                   
|                                   
|Sylvan Prometric                    |  |                              | 12.5 | %        |  | Classified Ventures, Inc. |  |  | 9.9  | %
|                                   
|                                   
|                                   
|                                   
|DaimlerChrysler Corporation         |  |                              | 8.5  | %        |  | Cisco Systems, Inc.       |  |  | 8.1  | %
|                                   
|                                   
|                                   
|                                   
|First Union Corporation             |  |                              | 6.7  | %        |  | CareerPath.com, Inc.      |  |  | 7.3  | %

Revenues from any given customer will vary from period to period.
 We expect, however, that significant customer concentration will
 continue for the foreseeable future. To the extent that any
significant customer uses less of our services or terminates its
relationship with us, our revenues may decline substantially. We
attempt to mitigate our revenue concentration issues by
contractual wind-down provisions and by rapid redeployment of our
 software engineers.

The number of Cysive employees increased from 19 as of
January 1, 1996 to 167 as of December 31, 1999. We
actively recruit software engineers and support staff and expect
the total number of employees to

19



---





General and administrative expenses consist primarily of
compensation and benefits for our management, finance and
administration, human resources, information technology,
recruiting and the non-billable portion of our quality assurance
and regional management personnel. In addition, general and
administrative expenses include:



| |   |                                                                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | depreciation and amortization;                                                                                                                                                       
|
| |  | general operating expenses such as telephones, office supplies,
	travel, outside professional services and training and facilities
	 costs; and                                      
|
| |  | allocated costs related to the administration of the quality
	review function, including maintaining our knowledge base,
	researching new technologies and writing technical reviews.

We expect general and administrative expenses to increase as we
add additional personnel, expand our information systems, open
new offices, increase our recruiting efforts and incur additional
 costs related to the growth of our business and operations as a
public company.

Sales and marketing expenses consist primarily of salaries,
commissions, benefits, marketing programs and travel costs
associated with our sales and marketing efforts. We sell our
services through a direct sales force organized by geographic
region. We expect sales and marketing expenses to increase as we
continue to build a direct sales force and expand our marketing
programs.

Stock compensation expense for 1999 relates to grants of options
to purchase 3,505,135 shares of common stock at an exercise price
 below the fair market value of the common stock on the date of
grant, resulting in a non-cash compensation charge of
$28.5 million. Stock compensation expense of
$14.9 million was recorded in 1999. The remaining balance of
 $13.6 million will be amortized as follows:

|           |  |                            |     | 
|---------- |  | -------------------------- | --- | 
|Year Ended |  | Stock Compensation Expense
|           |  |                           
|           |  | (In millions)             
|2000       |  | $                          | 3.8 | 
|2001       |  |                            | 3.8 | 
|2002       |  |                            | 3.8 | 
|2003       |  |                            | 2.2 | 

20



---



Results of Operations

The following table presents, for the periods indicated, the
relative composition of revenues and selected statements of
operations data as a percentage of revenues:

|                           |                            |                          |       |      |      |      |       |      |      |  |       |      |       | 
|-------------------------- | -------------------------- | ------------------------ | ----- | ---- | ---- | ---- | ----- | ---- | ---- |  | ----- | ---- | ----- | 
|                           |                            |                         
|                           |                            | Year Ended December 31, 
|                           |                            |                         
|                           |                            | 1997                     |       | 1998 |      | 1999
|                           |                            |                          |       |      |      |     
|Revenues                   |                            |                          | 100.0 | %    |      |      | 100.0 | %    |      |  | 100.0 | %   
|                          
|                          
|                          
|                          
|                           | Direct costs               |                          |       | 36.3 |      |      |       | 40.9 |      |  |       | 35.2 |      
|                           |                            |                          |       |      |      |      |       |      |      |  |       |     
|Gross profit               |                            |                          | 63.7  |      |      |      | 59.1  |      |      |  | 64.8  |     
|                          
|                          
|                          
|                          
|Costs and expenses:        |                            |                          |       |      |      |      |       |      |      |  |       |     
|                          
|                          
|                          
|                          
|                           | General and administrative |                          |       | 35.7 |      |      |       | 29.8 |      |  |       | 28.6 |      
|                          
|                          
|                          
|                          
|                           | Sales and marketing        |                          |       | 9.9  |      |      |       | 20.0 |      |  |       | 21.7 |      
|                          
|                          
|                          
|                          
|                           | Stock compensation         |                          |       |     |      |      |       | 0.8  |      |  |       | 58.8 |      
|                           |                            |                          |       |      |      |      |       |      |      |  |       |     
|                           |                            | Total operating expenses |       |      | 45.6 |      |       |      | 50.6 |  |       |      | 109.1 | 
|                          
|                          
|                          
|                          
|Operating income (loss)    |                            |                          | 18.1  |      |      |      | 8.5   |      |      |  | (44.3 | )   
|                          
|                          
|                          
|                          
|Other income, net          |                            |                          | 0.3   |      |      |      | 0.2   |      |      |  | 1.7   |     
|                           |                            |                          |       |      |      |      |       |      |      |  |       |     
|Income (loss) before taxes |                            |                          | 18.4  |      |      |      | 8.7   |      |      |  | (42.6 | )   
|                          
|                          
|                          
|                          
|Income tax benefit         |                            |                          |      |      |      |      |      |      |      |  | 17.3  |     
|                           |                            |                          |       |      |      |      |       |      |      |  |       |     
|Net income (loss)          |                            |                          | 18.4  | %    |      |      | 8.7   | %    |      |  | (25.3 | )%  
|                           |                            |                          |       |      |      |      |       |      |      |  |       |     

Year Ended December 31, 1999 Compared to Year Ended
December 31, 1998

Revenues. Revenues increased $16.1 million, or
176.4%, to $25.3 million in 1999 from $9.1 million in
1998. This increase in revenues primarily reflected the direct
sales model established in mid-1998, the benefits of which were
not fully realized until early 1999. In addition to a much larger
 customer base in 1999, the average project size increased
substantially for several of our major customers. Our headcount
of billable software engineers increased from 40 at
December 31, 1998 to 102 at December 31, 1999.

Direct Costs. Direct costs increased $5.2 million, or
 137.8%, to $8.9 million in 1999 from $3.7 million in 1998.
As a percentage of revenues, direct costs decreased to 35.2% in
1999 from 40.9% in 1998. This decrease as a percentage of
revenues was primarily attributable to an increase in our average
 utilization rate in 1999 to 88% from 71% in 1998. Our lower
utilization rate in 1998 resulted primarily from the completion
of two of our largest distributed systems and the extensive
training of all of our software engineers during the first half
of 1998. The benefit of our higher utilization in 1999, however,
was partially offset by an increase in our wage rates.

Gross Profit. Gross profit increased $11.0 million,
or 203.1%, to $16.4 million in 1999 from $5.4 million in
1998. Because our revenue growth exceeded the rate that direct
costs increased, the gross margin increased to 64.8% in 1999 from
 59.1% in 1998.

General and Administrative. General and administrative
expenses increased $4.5 million, or 165.2%, to
$7.2 million in 1999 from $2.7 million in 1998. This
increase was due primarily to the addition and expansion of
office space, the increase in our recruiting and corporate
administrative staffs and the build up of infrastructure to
support our increased headcount. As a percentage of revenues,
general and administrative expenses decreased to 28.6% in 1999
from 29.8% in 1998. This decrease was due primarily to our
ability to allocate our costs over a greater revenue base,
particularly with respect to depreciation and amortization.

Sales and Marketing. Sales and marketing expenses
increased $3.7 million, or 201.0%, to $5.5 million in
1999 from $1.8 million in 1998. As a percentage of revenues,
 sales and marketing expenses increased to 21.7% in 1999 from
20.0% in 1998. This increase was primarily due to the significant
 expansion of our direct sales force in 1999. During 1999, we
increased the number of our direct sales professionals to 13 from
 five in 1998. Additionally, we launched our marketing programs
directed at building brand recognition.

21



---



Stock Compensation. We recorded $14.9 million in
stock compensation in 1999. This expense represents the
difference between the deemed fair market value of the underlying
 vested stock options and their exercise price. This amount was
significantly larger than the stock compensation amount in
previous years and was primarily related to a revaluation of our
deemed fair market value in conjunction with our public offering.

Operating Income (Loss).Operating income decreased
$12.0 million to a loss of $11.2 million in 1999 from
income of $782,000 in 1998. Excluding the impact of the stock
compensation expense in 1999, operating income would have
increased $2.8 million, or 360.4%, to $3.6 million in
1999 from $782,000 in 1998. Similarly, excluding the impact of
the stock compensation expense in 1999, the operating margin
would have increased to 14.3% in 1999 from 8.5% in 1998.

Other Income, Net.Net other income increased $418,000 to
$432,000 in 1999 from $14,000 in 1998 primarily due to interest
income from the initial public offering proceeds.

Income (Loss) before Taxes.Income before taxes decreased
$11.6 million to a loss of $10.8 million in 1999 from
income of $796,000 in 1998. This change was primarily due to the
stock compensation expense in 1999. As a result, the loss before
taxes margin was 42.6% in 1999 compared to an income before taxes
 margin of 8.7% in 1998. Excluding the impact of the stock
compensation expense, income before taxes would have increased
$3.3 million, or 412.4%, to $4.1 million in 1999 from
$796,000 in 1998. Similarly, excluding the impact of the stock
compensation expense in 1999, the income before taxes margin
would have increased to 16.1% in 1999 from 8.7% in 1998.

Income Tax Benefit.We recorded a $4.4 million net
tax benefit in 1999. This benefit resulted primarily from the
stock compensation expenses recorded in 1999. We will realize
this benefit upon exercise of any non-qualified stock options in
future periods.

Net Income (Loss).Net income decreased $7.2 million
to a loss of $6.4 million in 1999 from net income of $796,000 in
1998 due to the stock compensation expense recorded in 1999. In
addition, we had no tax expense in 1998 due to our election to be
 treated as an S corporation for tax purposes. Excluding the
 impact of the stock compensation expense and the tax benefit
from the S corporation to C corporation conversion in
1999 and treating the periods presented as if we were a
C corporation with an effective tax rate of approximately
40% net income would have increased $1.9 million, or 394.7%,
 to $2.4 million in 1999 from $489,000 in 1998. Similarly,
excluding the impact of the stock compensation expense, the net
income margin would have increased to 9.6% in 1999 from 5.3% in
1998.

Year Ended December 31, 1998 Compared to Year Ended
December 31, 1997

Revenues. Revenues increased $1.4 million, or 18.6%,
to $9.1 million in 1998 from $7.7 million in 1997. This
 increase in revenues reflected a larger number of customers,
which totaled 23 in 1998 as compared to 15 in 1997. In addition,
our higher revenues were a result of our ability to increase our
billing rates in 1998 as we more fully migrated our business
model to e-business applications. The benefits of this larger
customer base and our higher billing rates, however, were offset
in part by two factors. First, our business model shifted,
affecting the fourth quarter of 1997 and the first two quarters
of 1998. Second, we completed projects in early 1998 for our two
largest customers in 1997. As discussed above, we made
significant investments in our direct sales force, the benefits
of which were not realized until the second half of 1998.
Consequently, while we ended 1998 with a greater number of
customers, most of their associated projects did not start until
the second half of the year.

Direct Costs.Direct costs increased $944,000, or 33.7%,
to $3.7 million in 1998 from $2.8 million in 1997. As a
 percentage of revenues, direct costs increased to 40.9% in 1998
from 36.3% in 1997. This significant increase as a percentage of
revenues was primarily due to our low utilization rates in the
first half of 1998 which correlated with the completion of two
large scale distributed systems and our efforts to train all of
our software engineers. The average utilization rate decreased to
 70.5% in 1998 from 79.9% in 1997.

Gross Profit.Gross profit increased $487,000, or 9.9%, to
 $5.4 million in 1998 from $4.9 million in 1997.
Because direct costs increased at a higher rate than our revenue
growth, the gross margin decreased to 59.1% in 1998 from 63.7% in
 1997.

22



---



General and Administrative. General and administrative
expenses decreased $29,000, or 1.0%, to $2.7 million in 1998
 from $2.8 million in 1997. As a percentage of revenues,
general and administrative expenses decreased to 29.8% in 1998
from 35.7% in 1997. This decrease as a percentage of revenues was
 primarily attributable to our ability to allocate our costs over
 a greater revenue base. The benefits of this operating leverage
were partially offset by the opening of a new office in the
metropolitan area of San Jose, CA in May 1998 and the
expansion of our Reston, VA office in August 1998.

Sales and Marketing. Sales and marketing expenses
increased $1.1 million, or 139.8%, to $1.8 million in
1998 from $761,000 in 1997. As a percentage of revenues, sales
and marketing expenses increased to 20.0% in 1998 from 9.9% in
1997. This increase was primarily due to the significant
expansion of our direct sales force in the first half of 1998. In
 addition, at the end of 1998 we hired a dedicated marketing
staff and implemented a more extensive marketing program.

Stock Compensation. Stock compensation reflects
non-qualified stock options granted at exercise prices below fair
 market value, which vested upon the achievement of select
performance goals at the end of 1998.

Operating Income (Loss).Operating income decreased
$617,000, or 44.1%, to $782,000 in 1998 from $1.4 million in
 1997. As a result of the above factors, the operating margin
decreased to 8.5% in 1998 from 18.1% in 1997.

Other Income, Net.Net other income decreased $9,000, or
40.2%, to $14,000 in 1998 from $23,000 in 1997. This decrease was
 primarily due to the interest expense we incurred from
borrowings under our line of credit during 1998 to support our
internal growth.

Net Income (Loss).Net income decreased $626,000, or
44.0%, to $796,000 in 1998 from $1.4 million in 1997. As a
result of the above factors, the net margin decreased to 8.7% in
1998 from 18.4% in 1997.

23



---



Quarterly Results of Operations

The following table presents unaudited quarterly financial data
for the periods indicated. We derived this data from our
unaudited financial statements, and in our opinion, they include
all adjustments, which consist only of normal recurring
adjustments, necessary to present fairly the financial results
for the periods. Our quarterly operating results have varied
significantly in the past and will continue to do so in the
future due to a number of factors including, but not limited to,
changes in average billing rates, utilization rates and personnel
 additions, as well as the timing of expenses. Accordingly, our
results for any given quarter or series of quarters are not
necessarily indicative of our results for any future period.
However, our quarterly operating results may represent trends
which aid in understanding our business.

|                            |                            |                        |       |          |  |          |       |          |  |          |       |          |  |          |       |          |  |   |       |       |  |   |         |        |  |   |       |       |  |   |       |       | 
|--------------------------- | -------------------------- | ---------------------- | ----- | -------- |  | -------- | ----- | -------- |  | -------- | ----- | -------- |  | -------- | ----- | -------- |  | - | ----- | ----- |  | - | ------- | ------ |  | - | ----- | ----- |  | - | ----- | ----- | 
|                            |                            |                       
|                            |                            | Quarter Ended         
|                            |                            |                       
|                            |                            | Mar. 31,               |       | June 30, |  | Sep. 30, |       | Dec. 31, |  | Mar. 31, |       | June 30, |  | Sep. 30, |       | Dec. 31,
|                            |                            | 1998                   |       | 1998     |  | 1998     |       | 1998     |  | 1999     |       | 1999     |  | 1999     |       | 1999    
|                            |                            |                        |       |          |  |          |       |          |  |          |       |          |  |          |       |         
|                            |                            |                       
|                            |                            | (Dollars in thousands)
|                           
|                           
|                           
|                           
|Statement of Operation Data |                            |                        |       |          |  |          |       |          |  |          |       |          |  |          |       |          |  |   |       |       |  |   |         |        |  |   |       |       |  |   |       |      
|                           
|                           
|                           
|                           
|Revenues                    |                            | $                      | 1,633 |          |  | $        | 1,560 |          |  | $        | 2,585 |          |  | $        | 3,364 |          |  | $ | 4,178 |       |  | $ | 5,246   |        |  | $ | 7,282 |       |  | $ | 8,560 |      
|                           
|                           
|                           
|                           
|Gross profit                |                            |                        | 720   |          |  |          | 664   |          |  |          | 1,617 |          |  |          | 2,399 |          |  |   | 2,648 |       |  |   | 3,303   |        |  |   | 4,738 |       |  |   | 5,678 |      
|                           
|                           
|                           
|                           
|Operating expenses:         |                            |                        |       |          |  |          |       |          |  |          |       |          |  |          |       |          |  |   |       |       |  |   |         |        |  |   |       |       |  |   |       |      
|                           
|                           
|                           
|                           
|                            | General and administrative |                        |       | 440      |  |          |       | 569      |  |          |       | 729      |  |          |       | 987      |  |   |       | 1,294 |  |   |         | 1,125  |  |   |       | 2,201 |  |   |       | 2,610 | 
|                           
|                           
|                           
|                           
|                            | Sales and marketing        |                        |       | 218      |  |          |       | 453      |  |          |       | 486      |  |          |       | 666      |  |   |       | 771   |  |   |         | 948    |  |   |       | 1,647 |  |   |       | 2,124 | 
|                           
|                           
|                           
|                           
|                            | Stock compensation         |                        |       |         |  |          |       |         |  |          |       | 28       |  |          |       | 41       |  |   |       | 19    |  |   |         | 13,266 |  |   |       | 28    |  |   |       | 1,539 | 
|                           
|                           
|                           
|                           
|Operating income (loss)     |                            |                        | 62    |          |  |          | (358  | )        |  |          | 374   |          |  |          | 705   |          |  |   | 564   |       |  |   | (12,036 | )      |  |   | 862   |       |  |   | (595  | )    
|                           
|                           
|                           
|                           
|Income (loss) before taxes  |                            | $                      | 73    |          |  | $        | (354  | )        |  | $        | 381   |          |  | $        | 696   |          |  | $ | 575   |       |  | $ | (12,022 | )      |  | $ | 873   |       |  | $ | (199  | )    
|                           
|                           
|                           
|                           
|As a Percentage of Revenues |                            |                        |       |          |  |          |       |          |  |          |       |          |  |          |       |          |  |   |       |       |  |   |         |        |  |   |       |       |  |   |       |      
|                           
|                           
|                           
|                           
|Revenues                    |                            |                        | 100.0 | %        |  |          | 100.0 | %        |  |          | 100.0 | %        |  |          | 100.0 | %        |  |   | 100.0 | %     |  |   | 100.0   | %      |  |   | 100.0 | %     |  |   | 100.0 | %    
|                           
|                           
|                           
|                           
|Gross profit                |                            |                        | 44.1  |          |  |          | 42.6  |          |  |          | 62.6  |          |  |          | 71.3  |          |  |   | 63.4  |       |  |   | 63.0    |        |  |   | 65.1  |       |  |   | 66.3  |      
|                           
|                           
|                           
|                           
|Operating expenses:         |                            |                        |       |          |  |          |       |          |  |          |       |          |  |          |       |          |  |   |       |       |  |   |         |        |  |   |       |       |  |   |       |      
|                           
|                           
|                           
|                           
|                            | General and administrative |                        |       | 26.9     |  |          |       | 36.5     |  |          |       | 28.2     |  |          |       | 29.4     |  |   |       | 30.9  |  |   |         | 21.4   |  |   |       | 30.2  |  |   |       | 30.5  | 
|                           
|                           
|                           
|                           
|                            | Sales and marketing        |                        |       | 13.4     |  |          |       | 29.1     |  |          |       | 18.8     |  |          |       | 19.8     |  |   |       | 18.5  |  |   |         | 18.1   |  |   |       | 22.6  |  |   |       | 24.8  | 
|                           
|                           
|                           
|                           
|                            | Stock compensation         |                        |       |         |  |          |       |         |  |          |       | 1.1      |  |          |       | 1.2      |  |   |       | 0.4   |  |   |         | 252.9  |  |   |       | 0.4   |  |   |       | 18.0  | 
|                           
|                           
|                           
|                           
|Operating income (loss)     |                            |                        | 3.8   |          |  |          | (23.0 | )        |  |          | 14.5  |          |  |          | 20.9  |          |  |   | 13.5  |       |  |   | (229.4  | )      |  |   | 11.8  |       |  |   | (7.0  | )    
|                           
|                           
|                           
|                           
|Income (loss) before taxes  |                            |                        | 4.5   | %        |  |          | (22.7 | )%       |  |          | 14.7  | %        |  |          | 20.7  | %        |  |   | 13.8  | %     |  |   | (229.2  | )%     |  |   | 12.0  | %     |  |   | (2.3  | )%   

Revenues.Revenues declined from the quarter ended
March 31, 1998 through the quarter ended June 30, 1998
because the utilization rates decreased from 57% to 52% which was
 partially offset by a billing rate increase of
$27.00 average per hour over the same period. From the
quarter ended June 30, 1998 through the quarter ended
December 31, 1999, revenues increased primarily as a result
of increases in billable software engineers from 31 to 102 and
increases in utilization rates from 52% to 88%.

Operating expenses.General and administrative expenses as
 a percentage of revenues generally declined during the periods
shown, reflecting greater operating leverage from spreading these
 expenditures over a larger revenue base. Increases in the second
 and fourth quarters relate to our annual technical offsite
meeting held in the second quarter and our annual company meeting
 held in the fourth quarter. Beginning in the first quarter of
1998 through the second quarter of 1999, the sales and marketing
expenses as a percentage of revenues increased due to the
expansion of our direct sales force and the establishment of a
marketing function. Stock compensation expense beginning in the
quarter ended September 30, 1998 through the quarter ended
December 31, 1999 represented the vesting of options granted
 at a value below fair market value.

Liquidity and Capital Resources

On October 15, 1999, we completed an initial public offering
 of 3,000,000 shares of our common stock. After deducting
expenses, we received approximately $46.3 million in
proceeds from this transaction. On October 22, 1999, we
received an additional $4.0 million in proceeds when the
underwriters exercised their over-allotment option for an
additional 252,500 shares of our common stock.

24



---



In September 1999, we renewed our line of credit with
Merrill Lynch Business Financial Services Inc. under which we are
 entitled to draw up to $2.5 million in borrowings. We intend to
use any borrowings under the line of credit for working capital
purposes. The interest rate on amounts borrowed under the line of
 credit is calculated using the 30-day dealer commercial paper
rate as quoted in The Wall Street Journal, plus 2.65% per annum.
The credit facility expires in September 2000. Any
borrowings under the line of credit will be secured by all of our
 assets. The line of credit requires our financial ratios to be
in compliance with the debt covenants. At December 31, 1999,
 we had no outstanding borrowings under the line of credit.

Cash and cash equivalents were $612,000 at December 31, 1998
 and $2.4 million at December 31, 1999. Investments, which
reflect the application of our net proceeds from our initial
public offering, were $45.0 million at December 31,
1999. Net cash provided by operating activities was $731,000 and
$674,000 for the years ended December 31, 1998 and 1999.
Capital expenditures of $249,000 and $526,000 for the years ended
 December 31, 1998 and 1999 were used primarily for computer
 equipment, office equipment and leasehold improvements related
to our growth.

Through September 30, 1999, we operated as an S corporation.
 Accordingly, our stockholders included their pro rata share of
our income in their personal income tax returns, and we were not
subject to federal and most state income taxes during the periods
 prior to that time. Our stockholders elected to rescind the S
corporation election effective on October 1, 1999. We paid
$2.8 million to our stockholders on December 30, 1999
as an S corporation distribution, and this distribution was
funded through operating income. We owe an additional $231,000 to
 these stockholders of unpaid S corporation distributions that we
 expect to pay out of cash from operating activities in 2000.

We anticipate that the net proceeds from this offering, together
with proceeds from our initial public offering, existing sources
of liquidity and funds generated from operations, should be
adequate to fund our currently anticipated cash needs through at
least the next 18 months. To the extent we are unable to fund our
 operations from cash flows, we may need to obtain financing from
 external sources in the form of either additional equity or
indebtedness. There can be no assurance that additional financing
 will be available at all, or that, if available, the financing
will be obtainable on favorable terms.

Year 2000 Readiness Disclosure

Our business operations were not adversely affected by any year
2000 issues. Prior to the end of 1999, we acted to ensure that
our products and critical internal business systems were year
2000 compliant.

We have funded the costs to become year 2000 compliant from
operating cash flows and have not separately accounted for these
costs in the past. To date, these costs have not been material.
However, we may incur significant costs if unanticipated year
2000 compliance problems arise. These unanticipated costs, or our
 failure to correct any unanticipated year 2000 problems in a
timely manner, could have a material adverse effect on our
business, financial condition, results of operations and
prospects for growth.

Item 7A.  Quantitative and Qualitative
Disclosures About Market Risk.

Cysive is exposed to interest rate risk related to its borrowings
 under the credit facility with Merrill Lynch & Co., Inc.
There were no borrowings outstanding under the credit facility as
 of December 31, 1999.

25



---



Item 8.  Financial Statements and Supplementary
Data.

Index to Financial Statements

|                                                  |  |  |    | 
|------------------------------------------------- |  |  | -- | 
|                                                 
|                                                 
|                                                 
|                                                 
|Report of Ernst & Young LLP, Independent Auditors |  |  | 29 | 
|                                                 
|                                                 
|                                                 
|                                                 
|Balance Sheets                                    |  |  | 30 | 
|                                                 
|                                                 
|                                                 
|                                                 
|Statements of Operations                          |  |  | 31 | 
|                                                 
|                                                 
|                                                 
|                                                 
|Statements of Stockholders Equity                |  |  | 32 | 
|                                                 
|                                                 
|                                                 
|                                                 
|Statements of Cash Flows                          |  |  | 33 | 
|                                                 
|                                                 
|                                                 
|                                                 
|Notes to Financial Statements                     |  |  | 34 | 

26



---



REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

Board of Directors



We have audited the accompanying balance sheets of Cysive, Inc.
as of December 31, 1998 and 1999, and the related statements
 of operations, stockholders equity, and cash flows for
each of the three years in the period ended December 31,
1999. 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 auditing standards
generally accepted in the United States. Those standards require
that we plan and perform the audit to obtain reasonable assurance
 about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Cysive, Inc. at December 31, 1998 and 1999, and the
results of its operations and its cash flows for each of the
three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the
United States.



| |                      
| | ---------------------
| | /s/ ERNST & YOUNG LLP

McLean, Virginia



27



---



CYSIVE, INC.

BALANCE SHEETS

|                                     |                                                                                                                                                            |                                            |   |           |           |  |   |             |            | 
|------------------------------------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | - | --------- | --------- |  | - | ----------- | ---------- | 
|                                     |                                                                                                                                                            |                                           
|                                     |                                                                                                                                                            | December 31,                              
|                                     |                                                                                                                                                            |                                           
|                                     |                                                                                                                                                            | 1998                                       |   | 1999     
|                                     |                                                                                                                                                            |                                            |   |          
|Assets                               |                                                                                                                                                            |                                            |   |           |           |  |   |            
|                                    
|                                    
|                                    
|                                    
|                                     | Current assets:                                                                                                                                            |                                            |   |           |           |  |   |             |           
|                                    
|                                    
|                                    
|                                    
|                                     | Cash and cash equivalents                                                                                                                                  |                                            | $ | 611,654   |           |  | $ | 2,432,966   |           
|                                    
|                                    
|                                    
|                                    
|                                     | Investments                                                                                                                                                |                                            |   |          |           |  |   | 45,039,449  |           
|                                    
|                                    
|                                    
|                                    
|                                     | Accounts receivable, less allowance of $160,000 and $651,000 at
	December 31, 1998 and 1999.                                                               |                                            |   | 2,070,196 |           |  |   | 6,564,964   |           
|                                    
|                                    
|                                    
|                                    
|                                     | Prepaid expenses and other assets                                                                                                                          |                                            |   | 112,095   |           |  |   | 1,243,105   |           
|                                    
|                                    
|                                    
|                                    
|                                     | Deferred income taxes                                                                                                                                      |                                            |   |          |           |  |   | 382,937     |           
|                                     |                                                                                                                                                            |                                            |   |           |           |  |   |            
|                                     |                                                                                                                                                            | Total current assets                       |   |           | 2,793,945 |  |   |             | 55,663,421 | 
|                                    
|                                    
|                                    
|                                    
|                                     | Furniture, fixtures and equipment, net                                                                                                                     |                                            |   | 338,452   |           |  |   | 641,353     |           
|                                    
|                                    
|                                    
|                                    
|                                     | Deferred income taxes                                                                                                                                      |                                            |   |          |           |  |   | 4,766,003   |           
|                                    
|                                    
|                                    
|                                    
|                                     | Other assets                                                                                                                                               |                                            |   | 30,190    |           |  |   | 282,778     |           
|                                     |                                                                                                                                                            |                                            |   |           |           |  |   |            
|                                     |                                                                                                                                                            | Total assets                               |   | $         | 3,162,587 |  |   | $           | 61,353,555 | 
|                                     |                                                                                                                                                            |                                            |   |           |           |  |   |            
|Liabilities and stockholders equity |                                                                                                                                                            |                                            |   |           |           |  |   |            
|                                    
|                                    
|                                    
|                                    
|                                     | Current liabilities:                                                                                                                                       |                                            |   |           |           |  |   |             |           
|                                    
|                                    
|                                    
|                                    
|                                     | Accounts payable                                                                                                                                           |                                            | $ | 27,219    |           |  | $ | 345,729     |           
|                                    
|                                    
|                                    
|                                    
|                                     | Accrued liabilities                                                                                                                                        |                                            |   | 616,715   |           |  |   | 3,329,083   |           
|                                     |                                                                                                                                                            |                                            |   |           |           |  |   |            
|                                     |                                                                                                                                                            | Total current liabilities                  |   |           | 643,934   |  |   |             | 3,674,812  | 
|                                    
|                                    
|                                    
|                                    
|                                     | Commitments and contingencies                                                                                                                              |                                            |   |          |           |  |   |            |           
|                                    
|                                    
|                                    
|                                    
|Stockholders equity:                |                                                                                                                                                            |                                            |   |           |           |  |   |            
|                                    
|                                    
|                                    
|                                    
|                                     | Preferred stock, $1.00 par value, 10,000,000 shares authorized;
	no shares issued or outstanding                                                           |                                            |   |          |           |  |   |            |           
|                                    
|                                    
|                                    
|                                    
|                                     | Common stock, $0.01 par value, 75,000,000 shares authorized;
	6,777,000 and 11,409,298 issued and outstanding at
	December 31, 1998 and 1999, respectively |                                            |   | 67,770    |           |  |   | 114,093     |           
|                                    
|                                    
|                                    
|                                    
|                                     | Additional paid-in capital                                                                                                                                 |                                            |   | 176,485   |           |  |   | 79,880,374  |           
|                                    
|                                    
|                                    
|                                    
|                                     | Deferred stock compensation                                                                                                                                |                                            |   | (105,829  | )         |  |   | (13,571,807 | )         
|                                    
|                                    
|                                    
|                                    
|                                     | Retained earnings (deficit)                                                                                                                                |                                            |   | 2,380,227 |           |  |   | (8,743,917  | )         
|                                     |                                                                                                                                                            |                                            |   |           |           |  |   |            
|                                     |                                                                                                                                                            | Total stockholders equity                 |   |           | 2,518,653 |  |   |             | 57,678,743 | 
|                                     |                                                                                                                                                            |                                            |   |           |           |  |   |            
|                                     |                                                                                                                                                            | Total liabilities and stockholders equity |   | $         | 3,162,587 |  |   | $           | 61,353,555 | 
|                                     |                                                                                                                                                            |                                            |   |           |           |  |   |            

See accompanying notes.

28



---



CYSIVE, INC.

STATEMENTS OF OPERATIONS

|                                                     |                            |                          |           |           |           |      |           |           |           |   |             |            |            | 
|---------------------------------------------------- | -------------------------- | ------------------------ | --------- | --------- | --------- | ---- | --------- | --------- | --------- | - | ----------- | ---------- | ---------- | 
|                                                     |                            |                         
|                                                     |                            | Year Ended December 31, 
|                                                     |                            |                         
|                                                     |                            | 1997                     |           | 1998      |           | 1999
|                                                     |                            |                          |           |           |           |     
|Revenues                                             |                            | $                        | 7,711,138 |           |           | $    | 9,141,966 |           |           | $ | 25,265,417  |           
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Direct costs               |                          |           | 2,798,005 |           |      |           | 3,741,559 |           |   |             | 8,899,276  |           
|                                                     |                            |                          |           |           |           |      |           |           |           |   |             |           
|Gross profit                                         |                            |                          | 4,913,133 |           |           |      | 5,400,407 |           |           |   | 16,366,141  |           
|                                                    
|                                                    
|                                                    
|                                                    
|Operating expenses:                                  |                            |                          |           |           |           |      |           |           |           |   |             |           
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | General and administrative |                          |           | 2,753,812 |           |      |           | 2,725,290 |           |   |             | 7,228,723  |           
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Sales and marketing        |                          |           | 760,572   |           |      |           | 1,823,983 |           |   |             | 5,490,956  |           
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Stock compensation         |                          |           |          |           |      |           | 69,229    |           |   |             | 14,850,784 |           
|                                                     |                            |                          |           |           |           |      |           |           |           |   |             |           
|                                                     |                            | Total operating expenses |           |           | 3,514,384 |      |           |           | 4,618,502 |   |             |            | 27,570,463 | 
|                                                    
|                                                    
|                                                    
|                                                    
|Operating income (loss)                              |                            |                          | 1,398,749 |           |           |      | 781,905   |           |           |   | (11,204,322 | )         
|                                                    
|                                                    
|                                                    
|                                                    
|Other income, net                                    |                            |                          | 23,543    |           |           |      | 14,080    |           |           |   | 432,081     |           
|                                                     |                            |                          |           |           |           |      |           |           |           |   |             |           
|Net Income (loss) before taxes                       |                            |                          | 1,422,292 |           |           |      | 795,985   |           |           |   | (10,772,241 | )         
|                                                    
|                                                    
|                                                    
|                                                    
|Income tax benefit                                   |                            |                          |          |           |           |      |          |           |           |   | 4,369,298   |           
|                                                     |                            |                          |           |           |           |      |           |           |           |   |             |           
|Net income (loss)                                    |                            | $                        | 1,422,292 |           |           | $    | 795,985   |           |           | $ | (6,402,943  | )         
|                                                     |                            |                          |           |           |           |      |           |           |           |   |             |           
|Earnings (loss) per share:                           |                            |                          |           |           |           |      |           |           |           |   |             |           
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Basic                      |                          |           | $0.21     |           |      |           | $0.12     |           |   |             | $(0.73     | )         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Diluted                    |                          |           | $0.18     |           |      |           | $0.10     |           |   |             | $(0.73     | )         
|                                                    
|                                                    
|                                                    
|                                                    
|Weighted average shares outstanding                  |                            |                          | 6,777,000 |           |           |      | 6,777,000 |           |           |   | 8,814,966   |           
|                                                    
|                                                    
|                                                    
|                                                    
|Weighted average shares and common stock equivalents |                            |                          | 7,766,211 |           |           |      | 7,993,659 |           |           |   | 8,814,966   |           

See accompanying notes.

29



---



CYSIVE, INC.

STATEMENTS OF STOCKHOLDERS EQUITY

|                                                    |  |              |            |            |  |          |         |              |  |           |            |       |  |   |             |   |  |   |            |   |  |   |            |  
|--------------------------------------------------- |  | ------------ | ---------- | ---------- |  | -------- | ------- | ------------ |  | --------- | ---------- | ----- |  | - | ----------- | - |  | - | ---------- | - |  | - | ---------- | -
|                                                    |  |              |            |            |  |          |         |              |  |          
|                                                    |  | Common Stock |            | Additional |  | Deferred |         | Retained     |  |          
|                                                    |  |              |            | Paid-In    |  | Stock    |         | Earnings     |  |          
|                                                    |  | Shares       |            | Amount     |  | Capital  |         | Compensation |  | (Deficit) |            | Total
|                                                    |  |              |            |            |  |          |         |              |  |           |            |      
|Balance at December 31, 1996                        |  |              | 6,777,000  |            |  | $        | 67,770  |              |  | $         | 1,427      |       |  | $ |            |   |  | $ | 1,408,618  |   |  | $ | 1,477,815  |  
|                                                   
|                                                   
|                                                   
|                                                   
|Stockholder distribution                            |  |              |           |            |  |          |        |              |  |           |           |       |  |   |            |   |  |   | (686,473   | ) |  |   | (686,473   | )
|                                                   
|                                                   
|                                                   
|                                                   
|Deferred stock compensation                         |  |              |           |            |  |          |        |              |  |           | 177,987    |       |  |   | (177,987    | ) |  |   |           |   |  |   |           |  
|                                                   
|                                                   
|                                                   
|                                                   
|Net income                                          |  |              |           |            |  |          |        |              |  |           |           |       |  |   |            |   |  |   | 1,422,292  |   |  |   | 1,422,292  |  
|                                                    |  |              |            |            |  |          |         |              |  |           |            |       |  |   |             |   |  |   |            |   |  |   |            |  
|Balance at December 31, 1997                        |  |              | 6,777,000  |            |  |          | 67,770  |              |  |           | 179,414    |       |  |   | (177,987    | ) |  |   | 2,144,437  |   |  |   | 2,213,634  |  
|                                                   
|                                                   
|                                                   
|                                                   
|Stockholder distribution                            |  |              |           |            |  |          |        |              |  |           |           |       |  |   |            |   |  |   | (560,195   | ) |  |   | (560,195   | )
|                                                   
|                                                   
|                                                   
|                                                   
|Issuance of compensatory stock options              |  |              |           |            |  |          |        |              |  |           | 41,329     |       |  |   |            |   |  |   |           |   |  |   | 41,329     |  
|                                                   
|                                                   
|                                                   
|                                                   
|Deferred stock compensation                         |  |              |           |            |  |          |        |              |  |           | (44,258    | )     |  |   | 72,158      |   |  |   |           |   |  |   | 27,900     |  
|                                                   
|                                                   
|                                                   
|                                                   
|Net income                                          |  |              |           |            |  |          |        |              |  |           |           |       |  |   |            |   |  |   | 795,985    |   |  |   | 795,985    |  
|                                                    |  |              |            |            |  |          |         |              |  |           |            |       |  |   |             |   |  |   |            |   |  |   |            |  
|Balance at December 31, 1998                        |  |              | 6,777,000  |            |  |          | 67,770  |              |  |           | 176,485    |       |  |   | (105,829    | ) |  |   | 2,380,227  |   |  |   | 2,518,653  |  
|                                                   
|                                                   
|                                                   
|                                                   
|Stockholder distribution                            |  |              |           |            |  |          |        |              |  |           |           |       |  |   |            |   |  |   | (4,721,201 | ) |  |   | (4,721,201 | )
|                                                   
|                                                   
|                                                   
|                                                   
|Common stock issued upon exercise of options        |  |              | 1,379,798  |            |  |          | 13,798  |              |  |           | 1,116,871  |       |  |   |            |   |  |   |           |   |  |   | 1,130,669  |  
|                                                   
|                                                   
|                                                   
|                                                   
|Issuance of common stock in initial public offering |  |              | 3,252,500  |            |  |          | 32,525  |              |  |           | 50,270,256 |       |  |   |            |   |  |   |           |   |  |   | 50,302,781 |  
|                                                   
|                                                   
|                                                   
|                                                   
|Issuance of compensatory stock options              |  |              |           |            |  |          |        |              |  |           | 28,316,762 |       |  |   | (15,032,512 | ) |  |   |           |   |  |   | 13,284,250 |  
|                                                   
|                                                   
|                                                   
|                                                   
|Deferred stock compensation                         |  |              |           |            |  |          |        |              |  |           |           |       |  |   | 1,566,534   |   |  |   |           |   |  |   | 1,566,534  |  
|                                                   
|                                                   
|                                                   
|                                                   
|Net loss                                            |  |              |           |            |  |          |        |              |  |           |           |       |  |   |            |   |  |   | (6,402,943 | ) |  |   | (6,402,943 | )
|                                                    |  |              |            |            |  |          |         |              |  |           |            |       |  |   |             |   |  |   |            |   |  |   |            |  
|Balance at December 31, 1999                        |  |              | 11,409,298 |            |  | $        | 114,093 |              |  | $         | 79,880,374 |       |  | $ | (13,571,807 | ) |  | $ | (8,743,917 | ) |  | $ | 57,678,743 |  
|                                                    |  |              |            |            |  |          |         |              |  |           |            |       |  |   |             |   |  |   |            |   |  |   |            |  

See accompanying notes.

30



---



CYSIVE, INC.

STATEMENTS OF CASH FLOWS

|                                                                                          |                                                        |                                   |           |          |          |      |          |            |          |   |             |              |            |  
|----------------------------------------------------------------------------------------- | ------------------------------------------------------ | --------------------------------- | --------- | -------- | -------- | ---- | -------- | ---------- | -------- | - | ----------- | ------------ | ---------- | -
|                                                                                          |                                                        |                                  
|                                                                                          |                                                        | Year Ended December 31,          
|                                                                                          |                                                        |                                  
|                                                                                          |                                                        | 1997                              |           | 1998     |          | 1999
|                                                                                          |                                                        |                                   |           |          |          |     
|Cash flows from operating activities:                                                     |                                                        |                                   |           |          |          |      |          |            |          |   |             |             
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                         
|Net income (loss)                                                                         |                                                        | $                                 | 1,422,292 |          |          | $    | 795,985  |            |          | $ | (6,402,943  | )           
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                         
|Adjustments to reconcile net income (loss) to net cash
	provided by operating activities: |                                                        |                                   |           |          |          |      |          |            |          |   |             |             
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                          | Depreciation                                           |                                   |           | 144,763  |          |      |          | 163,816    |          |   |             | 196,283      |           
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                          | Amortization                                           |                                   |           | 115,555  |          |      |          | 3,712      |          |   |             | 26,564       |           
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                          | Stock compensation                                     |                                   |           |         |          |      |          | 69,229     |          |   |             | 14,850,784   |           
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                          | Deferred income taxes                                  |                                   |           |         |          |      |          |           |          |   |             | (5,148,940   | )         
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                          | Loss on sale of furniture, fixtures and equipment, net |                                   |           |         |          |      |          | 664        |          |   |             |             |           
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                          | Provision for doubtful accounts                        |                                   |           | 150,000  |          |      |          | 10,000     |          |   |             | 557,537      |           
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                          | Changes in operating assets and liabilities:           |                                   |           |          |          |      |          |            |          |   |             |              |           
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                          |                                                        | Accounts receivable               |           |          | (754,038 | )    |          |            | (642,114 | ) |             |              | (5,052,305 | )
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                          |                                                        | Prepaid expenses and other assets |           |          | (10,156  | )    |          |            | (106,920 | ) |             |              | (1,383,598 | )
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                          |                                                        | Accounts payable                  |           |          | (4,026   | )    |          |            | 12,175   |   |             |              | 318,510    |  
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                          |                                                        | Accrued liabilities               |           |          | (63,477  | )    |          |            | 424,230  |   |             |              | 2,712,368  |  
|                                                                                          |                                                        |                                   |           |          |          |      |          |            |          |   |             |             
|Net cash provided by operating activities                                                 |                                                        |                                   | 1,000,913 |          |          |      | 730,777  |            |          |   | 674,260     |             
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                         
|Cash flows from investing activities:                                                     |                                                        |                                   |           |          |          |      |          |            |          |   |             |             
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                          | Purchase of investments                                |                                   |           |         |          |      |          |           |          |   |             | (146,146,387 | )         
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                          | Sale of investments                                    |                                   |           |         |          |      |          |           |          |   |             | 101,106,938  |           
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                          | Capital expenditures                                   |                                   |           | (80,011  | )        |      |          | (249,211   | )        |   |             | (525,748     | )         
|                                                                                          |                                                        |                                   |           |          |          |      |          |            |          |   |             |             
|Net cash used in investing activities                                                     |                                                        |                                   | (80,011   | )        |          |      | (249,211 | )          |          |   | (45,565,197 | )           
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                         
|Cash flows from financing activities:                                                     |                                                        |                                   |           |          |          |      |          |            |          |   |             |             
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                          | Stockholder distributions                              |                                   |           | (686,473 | )        |      |          | (560,195   | )        |   |             | (3,614,389   | )         
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                          | Proceeds from sale of common stock                     |                                   |           |         |          |      |          |           |          |   |             | 50,302,781   |           
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                          | Exercise of common stock options                       |                                   |           |         |          |      |          |           |          |   |             | 23,857       |           
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                          | Advances under line of credit                          |                                   |           |         |          |      |          | 1,523,777  |          |   |             |             |           
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                          | Repayments of line of credit                           |                                   |           |         |          |      |          | (1,523,777 | )        |   |             |             |           
|                                                                                          |                                                        |                                   |           |          |          |      |          |            |          |   |             |             
|Net cash (used in) provided by financing activities                                       |                                                        |                                   | (686,473  | )        |          |      | (560,195 | )          |          |   | 46,712,249  |             
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                         
|Increase (decrease) in cash and cash equivalents                                          |                                                        |                                   | 234,429   |          |          |      | (78,629  | )          |          |   | 1,821,312   |             
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                         
|Cash and cash equivalents at beginning of year                                            |                                                        |                                   | 455,854   |          |          |      | 690,283  |            |          |   | 611,654     |             
|                                                                                          |                                                        |                                   |           |          |          |      |          |            |          |   |             |             
|Cash and cash equivalents at end of year                                                  |                                                        | $                                 | 690,283   |          |          | $    | 611,654  |            |          | $ | 2,432,966   |             
|                                                                                          |                                                        |                                   |           |          |          |      |          |            |          |   |             |             
|Supplemental Cash Flow Information:                                                       |                                                        |                                   |           |          |          |      |          |            |          |   |             |             
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                         
|Cash paid for income taxes                                                                |                                                        | $                                 |          |          |          | $    |         |            |          | $ | 742,500     |             
|                                                                                          |                                                        |                                   |           |          |          |      |          |            |          |   |             |             

See accompanying notes.

31



---



CYSIVE, INC.

NOTES TO FINANCIAL STATEMENTS

Note 1  Organization

Cysive, Inc. (the Company or Cysive) is a
 leading software engineering firm that designs and builds
complex, highly customized systems supporting large scale
e-businesses. Since commencing operations in 1994, Cysive has
used advanced Internet technologies to build its customers
e-business capabilities. Cysive designs software systems which
can handle high volumes of transactions, operate reliably on a
24/7 basis and expand to meet the growth requirements of large
scale e-business. The Company operates in one business segment.

On October 15, 1999, the Company completed its initial
public offering (IPO) and issued 3,000,000 shares of
common stock at $17.00 per share. Subsequently on
October 22, 1999, an additional 252,500 shares at $17.00 per
 share were sold as the underwriters exercised their
over-allotment option related to the IPO.

Note 2  Summary of Significant Accounting Policies

Revenue Recognition

The Company derives substantially all of its revenues from time
and materials contracts. On these contracts, revenues are
computed by multiplying the number of project personnel hours
expended in the performance of the contract by the contract
billing rates plus other directly billable costs. Reserves for
possible losses on contracts, if any, are recognized in full when
 determined. Any prepayments by clients are recorded as deferred
revenue and are recognized as services are provided. Reimbursable
 project costs are excluded from revenue as the Company incurs
these costs on behalf of its customers.

Use of Estimates

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

Cash and Cash Equivalents

For purposes of the statements of cash flows, the Company
considers all highly liquid investments with a maturity of three
months or less at the time of purchase to be cash equivalents.

Investments

The Company classifies its investments as available-for-sale.
Investments in securities that are classified as
available-for-sale and have readily determinable fair values are
measured at fair market value in the balance sheets. Any
unrealized gains or losses, net of taxes, are reported as a
separate component of stockholders equity, if deemed
material. Realized gains and 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.
 As of December 31, 1998 and 1999, there are no material
unrealized gains or losses on investments. At December 31,
1999 the investments consisted of short-term municipal and
commercial bonds.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash, accounts
 receivable and certain investments. The cash is held by several
financial institutions. For accounts receivable, the Company
performs ongoing credit evaluations of its customers
financial condition and generally does not require collateral.
The Company maintains reserves for credit losses

32



---



CYSIVE, INC.


NOTES TO FINANCIAL STATEMENTS  (Continued)

which, historically, have been within managements
expectations. The carrying amount of the receivables approximates
 their fair value. Investments are evaluated to determine whether
 any unrealized losses have occurred and any losses are booked at
 the time the loss occurs.

Furniture, Fixtures and Equipment

Furniture, fixtures and equipment are stated at historical cost,
net of accumulated depreciation and amortization. Repairs and
maintenance are charged to operations as incurred, while
significant improvements are capitalized. Furniture, fixtures and
 equipment are depreciated or amortized over their estimated
useful life, on the straight-line basis, using the following
useful lives:

|                                |  |  |                                      | 
|------------------------------- |  |  | ------------------------------------ | 
|                               
|                               
|                               
|                               
|Computers and related equipment |  |  | Three years                          | 
|                               
|                               
|                               
|                               
|Software                        |  |  | Three years                          | 
|                               
|                               
|                               
|                               
|Furniture                       |  |  | Five years                           | 
|                               
|                               
|                               
|                               
|Leasehold Improvements          |  |  | Shorter of lease term or useful life | 

Income Taxes

For the period from October 1, 1999 through
December 31, 1999, the Company provided for income taxes in
accordance with the liability method. Under this method, deferred
 tax assets and liabilities are determined based on differences
between financial reporting 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.

Prior to October 1, 1999, the Company and its shareholders
elected to be treated as an S corporation under the Internal
Revenue Code. Under the provisions of the tax code, the
Companys shareholders included their pro rata share of the
Companys income in their personal income tax returns.
Accordingly, the Company was not subject to federal and most
state income taxes during the historical periods prior to
October 1, 1999. The Company has paid out substantially all
of the undistributed balance of cumulative income taxed or
taxable to these stockholders as of December 31, 1999.

In connection with the S corporation to C corporation conversion,
 the Company recorded a deferred tax benefit of $4.8 million for
the cumulative differences between the financial reporting and
income tax basis of certain assets and liabilities at
October 1, 1999.

Stock-Based Compensation

The Company accounts for its stock-based compensation in
accordance with Accounting Principles Board Opinion No. 25
Accounting for Stock Issued to Employees
(APB 25) using the intrinsic value method. The
Company has made pro forma disclosures required by Statement of
Financial Accounting Standards No. 123 (SFAS
123) Accounting for Stock Based Compensationusing the fair value method.

Earnings (Loss) Per Share

Basic earnings (loss) per share is calculated using the
weighted average number of common shares outstanding during the
period. Diluted earnings (loss) per share is calculated using the
 weighted average number of common and dilutive common equivalent
 shares outstanding during the period, using the treasury stock
method for options.

Significant Customers

For the year ended December 31, 1997, three customers
individually represented 50%, 17% and 10% of the Companys
revenues. For the year ended December 31, 1998, three
customers individually represented

33



---



CYSIVE, INC.


NOTES TO FINANCIAL STATEMENTS  (Continued)

20%, 18% and 13% of the Companys revenues. For the year
ended December 31, 1999, three customers individually
represented 28%, 11% and 10% of the Companys revenues.

Advertising Costs

All advertising and promotion costs are expensed as incurred.
During the years ended December 31, 1997, 1998 and 1999, the
 Company expensed $88,000, $194,000 and $1.3 million,
respectively, as advertising costs.

Reclassifications

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

Note 3  Investments

The following is a summary of the estimated fair value of
available-for-sale securities at December 31, 1999:

|                |  |   |            | 
|--------------- |  | - | ---------- | 
|               
|               
|               
|               
|Municipal bonds |  | $ | 43,068,630 | 
|               
|               
|               
|               
|Corporate bonds |  |   | 1,970,819  | 
|                |  |   |            | 
|                |  | $ | 45,039,449 | 

Gross unrealized holding gains and losses for the year ended
December 31, 1999 were not material. Gross realized gains
and losses for the year ended December 31, 1999 were not
material. For purposes of determining gross realized gains and
losses, the cost of securities sold is based upon specific
identification.

Investments are generally comprised of variable rate securities
that provide for optional or early redemption within twelve
months and the contractual maturities are generally greater than
twelve months.

Note 4  Furniture, Fixtures and Equipment

Major classes of furniture, fixtures and equipment consist of the
 following:

|                                               |  |              |          |      |  |   |           |  
|---------------------------------------------- |  | ------------ | -------- | ---- |  | - | --------- | -
|                                               |  |             
|                                               |  | December 31,
|                                               |  |             
|                                               |  | 1998         |          | 1999
|                                               |  |              |          |     
|Computers and related equipment                |  | $            | 547,130  |      |  | $ | 807,724   |  
|                                              
|                                              
|                                              
|                                              
|Furniture                                      |  |              | 99,636   |      |  |   | 246,802   |  
|                                              
|                                              
|                                              
|                                              
|Software                                       |  |              | 64,412   |      |  |   | 76,668    |  
|                                              
|                                              
|                                              
|                                              
|Leasehold improvements                         |  |              | 44,417   |      |  |   | 78,008    |  
|                                               |  |              |          |      |  |   |           |  
|                                               |  |              | 755,595  |      |  |   | 1,209,202 |  
|                                              
|                                              
|                                              
|                                              
|Less accumulated depreciation and amortization |  |              | (417,143 | )    |  |   | (567,849  | )
|                                               |  |              |          |      |  |   |           |  
|                                               |  | $            | 338,452  |      |  | $ | 641,353   |  
|                                               |  |              |          |      |  |   |           |  

34



---



CYSIVE, INC.


NOTES TO FINANCIAL STATEMENTS  (Continued)

Note 5  Accrued Liabilities

Accrued liabilities consist of the following:

|                           |  |              |         |      |  |   |           | 
|-------------------------- |  | ------------ | ------- | ---- |  | - | --------- | 
|                           |  |             
|                           |  | December 31,
|                           |  |             
|                           |  | 1998         |         | 1999
|                           |  |              |         |     
|Payroll and payroll taxes  |  | $            | 295,816 |      |  | $ | 687,273   | 
|                          
|                          
|                          
|                          
|Bonuses                    |  |              | 141,496 |      |  |   | 1,311,643 | 
|                          
|                          
|                          
|                          
|Commissions                |  |              |        |      |  |   | 333,593   | 
|                          
|                          
|                          
|                          
|Vacation                   |  |              | 96,798  |      |  |   | 259,112   | 
|                          
|                          
|                          
|                          
|Accrued expenses           |  |              | 13,128  |      |  |   | 469,267   | 
|                          
|                          
|                          
|                          
|S corporation distribution |  |              |        |      |  |   | 231,053   | 
|                          
|                          
|                          
|                          
|Deferred revenue           |  |              | 69,477  |      |  |   |          | 
|                          
|                          
|                          
|                          
|Income taxes payable       |  |              |        |      |  |   | 37,142    | 
|                           |  |              |         |      |  |   |           | 
|                           |  | $            | 616,715 |      |  | $ | 3,329,083 | 
|                           |  |              |         |      |  |   |           | 

Note 6  Line of Credit

In June 1998, the Company entered into a line of credit with
 a financial institution from which the Company may draw up to
$1.0 million. In March 1999 and September 1999,
the Company increased the amount available for withdrawal to
$1.5 million and $2.5 million, respectively. The line
of credit expires in September 2000. Interest accrues on
outstanding balances at the 30-day commercial paper rate as
quoted in the Wall Street Journal, plus 2.65% per annum. The line
 of credit is secured by all assets of the Company. At December
31, 1998 and 1999, there were no outstanding borrowings.
Commitment fees of 0.5% paid per $500,000 of credit facility
during 1998 and 1999 were not material.

Note 7  Employee Benefit Plan

The Company has a 401(k) Savings Plan (the Plan) in
which employees are eligible to participate beginning on the
first day of the quarter subsequent to their hire date and
attaining age 21. The Plan allows employees to contribute up
 to 15% of their bi-weekly compensation, subject to the statutory
 limitations. The Company matches employee contributions up to
the first six percent of each participants bi-weekly
compensation, subject to statutory limitations. The Company
contributions to the Plan are discretionary as authorized by the
Board of Directors. Expense reflected in the statements of
operations relating to the Plan was $210,000, $257,000 and
$546,000 for the years ended December 31, 1997, 1998 and
1999, respectively.

Note 8  Income Taxes

S Corporation

From inception through September 30, 1999, the Company
operated as an S corporation under the Internal Revenue
Code. Under the provisions of the tax code, the Companys
stockholders included their pro rata share of the Companys
income in their personal income tax returns. Accordingly, the
Company was not subject to federal and most state income taxes
for earnings in 1997, 1998 and the first nine months of 1999.

Stockholders elected to rescind the S corporation election
effective on October 1, 1999. The Company calculated $3.0
million as the previous earned and undistributed S corporation
taxable earnings through September 30, 1999 and paid out
approximately $2.8 million to the existing stockholders of the
Company as of September 30, 1999 during 1999. An additional
$231,000 will be paid in 2000 and has been accrued for in 1999.
These payments were paid out of the cumulative earnings of the
Company.

35



---



CYSIVE, INC.


NOTES TO FINANCIAL STATEMENTS  (Continued)

C Corporation

The Company recorded a deferred tax benefit of $4.8 million for
the cumulative differences between the financial reporting and
income tax basis of certain assets and liabilities at
October 1, 1999.

Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used
 for income tax purposes.

Components of the Companys net deferred tax asset balances
at December 31, 1999 are as follows:

|                               |                    |                                                     |           |           |          |  
|------------------------------ | ------------------ | --------------------------------------------------- | --------- | --------- | -------- | -
|                              
|                              
|                              
|                              
|Deferred tax assets:           |                    |                                                     |           |          
|                              
|                              
|                              
|                              
|                               | Accrued expenses   |                                                     | $         | 295,947   |         
|                              
|                              
|                              
|                              
|                               | Stock compensation |                                                     |           | 4,950,245 |         
|                              
|                              
|                              
|                              
|                               | Asset reserves     |                                                     |           | 252,154   |         
|                               |                    |                                                     |           |          
|Total deferred tax assets      |                    | $                                                   | 5,498,346 |          
|                               |                    |                                                     |           |          
|Deferred tax liabilities:      |                    |                                                     |           |          
|                              
|                              
|                              
|                              
|                               |                    | Change from cash to accrual method for tax purposes |           |           | (336,750 | )
|                              
|                              
|                              
|                              
|                               |                    | Depreciation                                        |           | $         | (12,656  | )
|                               |                    |                                                     |           |          
|Total deferred tax liabilities |                    | $                                                   | (349,406  | )        
|                               |                    |                                                     |           |          
|Net deferred tax asset         |                    | $                                                   | 5,148,940 |          
|                               |                    |                                                     |           |          

The components of the provision for income taxes for the period
ended December 31, 1999 are as follows:

|                             |         |   |            |            |  
|---------------------------- | ------- | - | ---------- | ---------- | -
|                            
|                            
|                            
|                            
|Current tax expense:         |         |   |            |           
|                            
|                            
|                            
|                            
|                             | Federal |   | $          | 634,787    |  
|                            
|                            
|                            
|                            
|                             | State   |   |            | 144,855    |  
|                            
|                            
|                            
|                            
|Deferred tax benefit:        |         |   |            |           
|                            
|                            
|                            
|                            
|                             | Federal |   |            | (4,192,285 | )
|                            
|                            
|                            
|                            
|                             | State   |   |            | (956,655   | )
|                             |         |   |            |           
|Net benefit for income taxes |         | $ | (4,369,298 | )         
|                             |         |   |            |           

The difference between the actual income tax provision (benefit)
and the tax provision (benefit) computed by applying the
statutory federal rate to income (loss) before taxes was
attributable to the following:

|                                                            |  |        |            |            |  |  |       |   
|----------------------------------------------------------- |  | ------ | ---------- | ---------- |  |  | ----- | --
|                                                            |  | Amount |            | Percentage
|                                                            |  |        |            |           
|Federal statutory income tax benefit                        |  | $      | (3,662,562 | )          |  |  | (34.0 | ) 
|                                                           
|                                                           
|                                                           
|                                                           
|Adjustment for S corporation income taxable to stockholders |  |        | 3,595,225  |            |  |  | 33.4  |   
|                                                           
|                                                           
|                                                           
|                                                           
|State taxes (net of federal benefit)                        |  |        | 52,038     |            |  |  | 0.5   |   
|                                                           
|                                                           
|                                                           
|                                                           
|Permanent items                                             |  |        | 439,666    |            |  |  | 4.1   |   
|                                                           
|                                                           
|                                                           
|                                                           
|Effect of change in tax status                              |  |        | (4,793,665 | )          |  |  | (44.6 | ) 
|                                                            |  |        |            |            |  |  |       |   
|                                                            |  | $      | (4,369,298 | )          |  |  | (40.6 | )%
|                                                            |  |        |            |            |  |  |       |   

36



---



CYSIVE, INC.


NOTES TO FINANCIAL STATEMENTS  (Continued)

Note 9  Stockholders Equity

Equity Transactions

In January 1999, two employees and stockholders of the
Company exercised options for the purchase of 1,350,000 shares
for $1.1 million, which was funded through a distribution in
 the same amount to the stockholders.

On September 24, 1999, the Company declared a 2.25-for-one
stock split. All share and per-share amounts, including stock
option information, have been restated in these notes and the
accompanying financial statements to reflect this stock split.

In October 1999 and December 1999, two stockholders and
 22 employees of the Company, respectively, exercised options to
purchase a combined total of 29,798 shares for $32,669 of which
$10,312 was funded through a distribution to the stockholders and
 the remainder was paid in cash.

On October 15, 1999, the Company completed its IPO and
issued 3,000,000 shares of common stock at $17.00 per share. An
additional 350,000 shares were sold by an existing stockholder at
 $17.00 per share. In connection with the IPO, Cysive offered the
 underwriters of the offering an option to purchase an additional
 502,500 shares of common stock (252,500 sold by the Company and
250,000 sold by an existing stockholder) at $17.00. This option
was exercised on October 22, 1999. Total proceeds to the
Company from its IPO, net of underwriting discounts and costs of
the offering, were approximately $50.3 million.

Stock Options

In December 1994, the Company established a stock option
plan (the 1994 Option Plan) under which 2,250,000
shares of common stock were reserved for issuance upon exercise
of options granted to employees, officers and directors of the
Company. The Board of Directors increased the number of shares
available under the plan to 4,500,000 in November 1995, to
6,750,000 in April 1997, to 10,350,000 in April 1999
and subsequently to 11,350,000 in July 1999. The price for
the incentive stock options is to be not less than the fair
market value at the date of grant as determined by the Board of
Directors. The 1994 Option Plan provides for incentive,
non-qualified and restricted stock options. Non-employees are not
 eligible for incentive stock options.

In July 1997, the Company issued non-qualified options to
purchase 322,961 shares to select Company directors and an
employee (the Employee) at an exercise price of $0.83
 per share which was considered to be below fair market value at
the time of the option grants. Accordingly, the Company recorded
deferred stock compensation of $177,987. In March 1998, the
Company issued non-qualified options to purchase 40,154 shares to
 an officer at an exercise price of $0.83 per share which was
considered to be below fair market value at the time of the
option grant. The Company recorded deferred stock compensation of
 $22,129. In June 1998, the Employee left the Company and
$66,387 was reversed from deferred stock compensation since no
options had vested. In July 1998 and in July 1999, the
Company also amortized $27,900 and $27,900, respectively, to
expense to reflect the 25% vested portion of the deferred stock
compensation in each year.

In 1999, the Company issued 20% vested incentive stock options to
 purchase 327,987 shares and fully vested non-qualified options
to purchase 1,280,763 shares at exercise prices of $1.67 and
$0.83 per share (each of which was considered to be below fair
market value for financial reporting purposes), respectively. In
accordance with APB 25, the Company recorded $13.3 million
in compensation expense. In connection with the grant of other
certain options to employees during the nine months ended
September 30, 1999, the Company recorded deferred stock
compensation of approximately $15.1 million, based on the
difference between the exercise prices of those options at their
respective grant dates and the deemed fair value for accounting
purposes of the shares of common stock subject to such options.
Such amounts are included as a reduction of stockholders
equity and are being amortized on a straight-line method over a
period of four years.

37



---



CYSIVE, INC.


NOTES TO FINANCIAL STATEMENTS  (Continued)

The deemed fair value for accounting purposes was determined
relative to the mid-point ($12.00) of the anticipated initial
public offering price range as of the date of the initial filing.
 In addition, 46,238 options issued in 1998 at an exercise price
of $0.83 per share (which was considered to be below fair market
value for financial reporting purposes) vested and the Company
recorded $18,600 in compensation expense.

Options granted under this plan expire no more than five years
from the date of grant for 10% stockholders and ten years from
the date of grant for all other recipients. Except as otherwise
noted above, options granted through April 19, 1999 under
this plan vest in accordance with the following schedule: one
year from the date of the grant, 25%, two years from the date of
the grant, 25%, and three years from the date of the grant, the
remaining 50%. Options granted subsequent to July 19, 1999
vest 25% per year for four years.

The Company has reserved 11,350,000 shares of common stock
issuable upon exercise of options granted under the 1994 Option
Plan, of which options to purchase 3,580,520 shares of common
stock are available for grant under the 1994 Option Plan as of
December 31, 1999.

The Company adopted the disclosure-only provisions of SFAS
No. 123. Accordingly, no compensation cost has been
recognized related to options granted at fair value during 1997,
1998 and 1999.

Common stock option activity was as follows:

|                                 |                      |           |           |            |   |   |      |      | 
|-------------------------------- | -------------------- | --------- | --------- | ---------- | - | - | ---- | ---- | 
|                                 |                      |           |           | Weighted  
|                                 |                      |           |           | Average   
|                                 |                      | Number of |           | Exercise  
|                                 |                      | Shares    |           | Price     
|                                 |                      |           |           |           
|Outstanding at December 31, 1996 |                      |           | 2,623,500 |            |   | $ | 0.87 |     
|                                
|                                
|                                
|                                
|                                 | Granted              |           |           | 865,125    |   |   | $    | 1.17 | 
|                                
|                                
|                                
|                                
|                                 | Exercised            |           |           |           |   |   |      |     | 
|                                
|                                
|                                
|                                
|                                 | Cancelled or expired |           |           | (275,062   | ) |   | $    | 0.87 | 
|                                 |                      |           |           |            |   |   |      |     
|Outstanding at December 31, 1997 |                      |           | 3,213,563 |            |   | $ | 0.96 |     
|                                
|                                
|                                
|                                
|                                 | Granted              |           |           | 1,543,500  |   |   | $    | 1.39 | 
|                                
|                                
|                                
|                                
|                                 | Exercised            |           |           |           |   |   |      |     | 
|                                
|                                
|                                
|                                
|                                 | Cancelled or expired |           |           | (405,563   | ) |   | $    | 1.21 | 
|                                 |                      |           |           |            |   |   |      |     
|Outstanding at December 31, 1998 |                      |           | 4,351,500 |            |   | $ | 1.08 |     
|                                
|                                
|                                
|                                
|                                 | Granted              |           |           | 3,785,387  |   |   | $    | 5.03 | 
|                                
|                                
|                                
|                                
|                                 | Exercised            |           |           | (1,379,798 | ) |   | $    | 0.82 | 
|                                
|                                
|                                
|                                
|                                 | Cancelled or expired |           |           | (127,407   | ) |   | $    | 1.37 | 
|                                 |                      |           |           |            |   |   |      |     
|Outstanding at December 31, 1999 |                      |           | 6,629,682 |            |   | $ | 3.39 |     
|                                 |                      |           |           |            |   |   |      |     
|Exercisable at December 31, 1999 |                      |           | 3,000,969 |            |   | $ | 1.03 |     

The following table summarizes information regarding stock
options outstanding at December 31, 1999:

|                         |  |                     |           |             |  |                     |     |             |  |          |       |  |  |  |           |  |  |   |      | 
|------------------------ |  | ------------------- | --------- | ----------- |  | ------------------- | --- | ----------- |  | -------- | ----- |  |  |  | --------- |  |  | - | ---- | 
|                         |  |                     |           |             |  |                    
|                         |  | Options Outstanding |           |             |  | Options Exercisable
|                         |  |                     |           |             |  |                    
|                         |  |                     |           | Average     |  | Weighted            |     |             |  | Weighted
|                         |  |                     |           | Remaining   |  | Average             |     |             |  | Average 
|                         |  | Number              |           | Contractual |  | Exercise            |     | Number      |  | Exercise
|Range of Exercise Prices |  | Outstanding         |           | Life        |  | Price               |     | Exercisable |  | Price   
|                         |  |                     |           |             |  |                     |     |             |  |         
|$0.00  $20.00           |  |                     | 6,415,182 |             |  |                     | 8.5 |             |  | $        | 1.83  |  |  |  | 3,000,969 |  |  | $ | 1.03 | 
|                        
|                        
|                        
|                        
|$20.01  $40.00          |  |                     | 3,000     |             |  |                     | 9.8 |             |  | $        | 37.75 |  |  |  |          |  |  |   |     | 
|                        
|                        
|                        
|                        
|$40.01  $58.00          |  |                     | 211,500   |             |  |                     | 9.9 |             |  | $        | 49.98 |  |  |  |          |  |  |   |     | 
|                         |  |                     |           |             |  |                     |     |             |  |          |       |  |  |  |           |  |  |   |      | 
|$0.00  $58.00           |  |                     | 6,629,682 |             |  |                     | 8.6 |             |  | $        | 3.39  |  |  |  | 3,000,969 |  |  | $ | 1.03 | 
|                         |  |                     |           |             |  |                     |     |             |  |          |       |  |  |  |           |  |  |   |      | 

38



---



CYSIVE, INC.


NOTES TO FINANCIAL STATEMENTS  (Continued)

Had compensation expense related to the stock option plans been
determined based on the fair value at the grant date for options
granted after 1995 consistent with the provisions of SFAS
No. 123, the Companys pro forma net income (loss) and
earnings (loss) per share would have been as follows:

|                                                                |  |                         |           |      |  |      |         |  |  |   |            |  
|--------------------------------------------------------------- |  | ----------------------- | --------- | ---- |  | ---- | ------- |  |  | - | ---------- | -
|                                                                |  |                        
|                                                                |  | Year Ended December 31,
|                                                                |  |                        
|                                                                |  | 1997                    |           | 1998 |  | 1999
|                                                                |  |                         |           |      |  |     
|Net income (loss)  pro forma                                   |  | $                       | 1,279,562 |      |  | $    | 552,470 |  |  | $ | (6,513,594 | )
|                                                               
|                                                               
|                                                               
|                                                               
|Pro forma earnings (loss) per common share                      |  |                         | $0.19     |      |  |      | $0.08   |  |  |   | $(0.74     | )
|                                                               
|                                                               
|                                                               
|                                                               
|Pro forma earnings (loss) per common share  assuming
	dilution |  |                         | $0.17     |      |  |      | $0.07   |  |  |   | $(0.74     | )

The effect of applying SFAS No. 123 on 1997, 1998 and 1999
pro forma net income (loss) as stated above is not
necessarily representative of the effects on reported net income
(loss) for future years due to, among other things, the
vesting period of the stock options and the fair value of
additional stock options in future years.

The fair value of each option grant is estimated on the date of
grant using the Black-Scholes option-pricing fair value model
with the following weighted-average assumptions used for grants
after 1995: volatility of 0%; dividend yield of 0%; expected life
 of the option term of three, four and five years, respectively;
and risk-free interest rate of 6.5%. The weighted average fair
values of the options granted in 1997 with a stock price equal to
 the exercise price and with a stock price greater than the
exercise price are $0.24 and $0.70 per share, respectively. The
weighted average fair value of the options granted in 1998 with a
 stock price equal to the exercise price and with a stock price
greater than the exercise price are $0.57 and $1.18 per share,
respectively. The weighted average fair values of the options
granted in 1999 with a stock price equal to the exercise price
and with a stock price greater than the exercise price are $14.58
 and $1.24 per share, respectively.

Note 10  Earnings (Loss) Per Share

The following table summarizes the computation of basic and
diluted earnings (loss) per share for the years ended
December 31, 1997, 1998 and 1999:

|                           |                                                                 |                          |           |           |  |      |           |           |  |   |            |           |  
|-------------------------- | --------------------------------------------------------------- | ------------------------ | --------- | --------- |  | ---- | --------- | --------- |  | - | ---------- | --------- | -
|                           |                                                                 |                         
|                           |                                                                 | Years Ended December 31,
|                           |                                                                 |                         
|                           |                                                                 | 1997                     |           | 1998      |  | 1999
|                           |                                                                 |                          |           |           |  |     
|Numerator:                 |                                                                 |                          |           |           |  |      |           |           |  |   |            |          
|                          
|                          
|                          
|                          
|Net income (loss)          |                                                                 | $                        | 1,422,292 |           |  | $    | 795,985   |           |  | $ | (6,402,943 | )        
|                          
|                          
|                          
|                          
|Denominator:               |                                                                 |                          |           |           |  |      |           |           |  |   |            |          
|                          
|                          
|                          
|                          
|                           | Weighted average shares outstanding                             |                          |           | 6,777,000 |  |      |           | 6,777,000 |  |   |            | 8,814,966 |  
|                          
|                          
|                          
|                          
|                           | Weighted average effect of common stock equivalents outstanding |                          |           | 989,211   |  |      |           | 1,216,659 |  |   |            |          |  
|                           |                                                                 |                          |           |           |  |      |           |           |  |   |            |          
|                           |                                                                 |                          | 7,766,211 |           |  |      | 7,993,659 |           |  |   | 8,814,966  | *        
|                           |                                                                 |                          |           |           |  |      |           |           |  |   |            |          
|Earnings (loss) per share: |                                                                 |                          |           |           |  |      |           |           |  |   |            |          
|                          
|                          
|                          
|                          
|                           | Basic                                                           |                          |           | $0.21     |  |      |           | $0.12     |  |   |            | $(0.73    | )
|                          
|                          
|                          
|                          
|                           | Diluted                                                         |                          |           | $0.18     |  |      |           | $0.10     |  |   |            | $(0.73    | )



|  |                                                           
|- | ----------------------------------------------------------
|* | Excludes 5,351,557 shares, as the effect is anti-dilutive.

Note 11  Commitments and Contingencies

Lease Obligations

The Company is obligated under various non-cancelable leases for
office facilities and select computer equipment. These leases
generally provide for renewal options and escalation increases.
On November 15,

39



---



CYSIVE, INC.


NOTES TO FINANCIAL STATEMENTS  (Continued)

1999, the Company executed a lease for a new principal
headquarters in Reston, VA that expires in April 2010. In 1998,
the Company amended a non-cancelable operating lease and also
entered into a new non-cancelable operating lease for office
space in California.

Future minimum payments under non-cancelable operating leases
with initial terms of one year or more as of December 31,
1999 are as follows:

|           |                              |   |           |            | 
|---------- | ---------------------------- | - | --------- | ---------- | 
|          
|          
|          
|          
|2000       |                              | $ | 1,144,972 |           
|          
|          
|          
|          
|2001       |                              |   | 1,578,254 |           
|          
|          
|          
|          
|2002       |                              |   | 1,624,336 |           
|          
|          
|          
|          
|2003       |                              |   | 1,548,833 |           
|          
|          
|          
|          
|2004       |                              |   | 1,429,373 |           
|          
|          
|          
|          
|Thereafter |                              |   | 8,008,662 |           
|           |                              |   |           |           
|           | Total minimum lease payments |   | $         | 15,334,430 | 
|           |                              |   |           |           

Rental expense on operating leases was $108,000, $237,000 and
$326,000 for the years ended December 31, 1997, 1998 and
1999, respectively.

Lawsuit

In December 1999, a lawsuit was filed against the Company by a
former service provider. Management denies the alleged factual
and legal bases of the lawsuit and is defending the matter
vigorously. Although the Company does not expect this lawsuit to
have a material adverse effect on the Companys financial
statements, an adverse judgment could have a material adverse
effect on the operating results of the Company for the period in
which any adverse judgment might occur.

40



---



CYSIVE, INC.


NOTES TO FINANCIAL STATEMENTS  (Continued)

Item 9.  Changes In and Disagreements With
Accountants On Accounting and Financial Disclosure.

None.

PART III

Item 10.  Directors and Executive Officers of the
 Registrant.

The following table presents information about each of our
executive officers, key employee and directors.

|                         |  |     |    |             |  |                                                                       
|------------------------ |  | --- | -- | ----------- |  | ----------------------------------------------------------------------
|Name                     |  | Age |    | Position(s)
|                         |  |     |    |            
|Nelson A. Carbonell, Jr. |  |     | 36 |             |  | Chairman of the Board, President, Chief Executive Officer and
	Founder
|                        
|                        
|                        
|                        
|John R. Lund             |  |     | 37 |             |  | Chief Financial Officer, Treasurer, Secretary and Director            
|                        
|                        
|                        
|                        
|Michael E. Price         |  |     | 52 |             |  | Chief Technical Officer                                               
|                        
|                        
|                        
|                        
|Robert C. Rubinstein     |  |     | 59 |             |  | Chief Operating Officer                                               
|                        
|                        
|                        
|                        
|Joseph M. Rymsza         |  |     | 33 |             |  | Vice President, Sales                                                 
|                        
|                        
|                        
|                        
|John M. Saaty            |  |     | 32 |             |  | Vice President, Marketing                                             
|                        
|                        
|                        
|                        
|Penny J. Jobin           |  |     | 43 |             |  | Director of Recruiting                                                
|                        
|                        
|                        
|                        
|Jon S. Korin             |  |     | 45 |             |  | Director                                                              
|                        
|                        
|                        
|                        
|Eric J. Magleby          |  |     | 39 |             |  | Director and Founder                                                  
|                        
|                        
|                        
|                        
|John M. Sabin            |  |     | 45 |             |  | Director                                                              

Nelson A. Carbonell, Jr.founded Cysive and has served as
President, Chief Executive Officer and Chairman of the board of
directors since we commenced operations in 1994. From
February 1991 until March 1994, Mr. Carbonell
served as Director of Commercial Systems, Inc. at PRC, Inc., now
a subsidiary of Litton Industries. PRC Inc. is a leading provider
 of information technology and systems-based solutions for the
U.S. government and commercial customers. Mr. Carbonell
serves on the Executive Committee of the Washington-Baltimore
Young Presidents Organization. Mr. Carbonell received
a B.S. in Electrical Engineering from George Washington
University in 1985.

John R. Lundhas served as our Treasurer since
December 1995, our Chief Financial Officer since
April 1997 and our Secretary since April 1999. Mr. Lund
 has also served as a Director since April 1999. From
December 1995 until April 1997, Mr. Lund served as
 our Vice President of Finance. From December 1994 until
December 1995, Mr. Lund was Vice President of Finance
for Public Sector, Inc., a subsidiary of PRC, Inc. Mr. Lund
received a B.S. in Accounting from Brigham Young University in
1986.

Michael E. Pricehas served as our Chief Technology
Officer since November 1997. From October 1995 until
November 1997, Mr. Price served as our Vice President
of Technology. From October 1993 until October 1995,
Mr. Price served as a member of the technical staff of MRJ
Technology Solutions, a provider of information systems and
engineering services primarily to the U.S. government.

Robert C. Rubinsteinhas served as our Chief Operating
Officer since July 1999. From March 1999 until
July 1999, Mr. Rubinstein served as our Vice President
of Consulting. From August 1997 until March 1999,
Mr. Rubinstein served as Vice President of the
Communications Operations and Maintenance Support Sector of MRJ
Technology Solutions, managing their Computer &
Communications Support and Communications Operations and
Maintenance Support contracts. From August 1994 until
August 1997, Mr. Rubinstein served as the Director of
the Network Systems Division of MRJ and was responsible for
government and commercial networking and enterprise application
development. Mr. Rubinstein received a B.A. in Mathematics
from California State University at Los Angeles in 1963.

41



---



Joseph M. Rymszahas served as our Vice President of Sales
 since March 1998. From October 1991 until
February 1998, Mr. Rymsza served in numerous domestic
and international sales management capacities for Object Design,
Inc., a developer of object-oriented databases. Mr. Rymsza
received a B.S.E.E. in Electrical and Computer Engineering from
the University of Notre Dame in 1989.

John M. Saatyhas served as our Vice President of
Marketing since July 1999. From December 1998 until
June 1999, Mr. Saaty served as our Director of
Marketing. From August 1995 until November 1998,
Mr. Saaty served as a brand manager for Intel Corp.
responsible for microprocessor brand strategy and marketing, and
as a product marketing manager for consumer desktop PCs. Mr.
Saaty received a B.A. in English from Northwestern University in
1990 and an M.B.A. in Marketing from The Wharton School of the
University of Pennsylvania in 1995.

Penny J. Jobinhas served as our Director of Recruiting
since September 1995. From January 1993 until
August 1995, Ms. Jobin served as Director of Technical
Recruiting at Paul-Tittle Associates, an executive search firm in
 McLean, Virginia. Ms. Jobin received a B.S. in Business
Administration from George Mason University in 1980.

Jon S. Korinhas served as a Director since
April 1997. Mr. Korin has served as vice president of
strategic development for PRC, Inc. since June 1993. He is a
board member and past president of the National Capital chapter
of the Association for Corporate Growth and a board member of the
 IT Services Division of the Information Technology Association
of America. Mr. Korin received a B.S. from The Wharton
School of the University of Pennsylvania in May 1976 and
attended the New York University Graduate School of Business.

Eric J. Maglebyis currently a partner at Amp Capital
Partners, LLC. He has served as a Director since we commenced
operations in 1994. From February 1994 until April 1999,
Mr. Magleby was our Executive Vice President.
Mr. Magleby received a B.S. in 1985 and M.S. in 1990 from
Brigham Young University.

John M. Sabinhas served as a Director since
April 1997. Since January 2000, Mr. Sabin has served as
 Chief Financial Officer and General Counsel of Oceanix
Biosciences Corporation, a bioinformatics and biotechnology
company. From September 1999 to January 2000, Mr. Sabin acted as
a business consultant in the hotel and lodging industry. From
May 1998 until September 1999, Mr. Sabin served as
 Executive Vice President and Chief Financial Officer of Hudson
Hotels Corporation, a publicly traded hotel ownership and
management company. From February 1997 until May 1998,
Mr. Sabin served as Senior Vice President and Treasurer of
Vistana, Inc., a publicly traded company that owns, operates and
develops time share resorts, and served as Chief Financial
Officer of Vistana from February 1997 until
November 1997. From June 1996 until February 1997,
 Mr. Sabin served as Vice President of Finance of Choice
Hotels International, Inc., a publicly traded hotel franchisor,
and served as Vice President of Mergers and Acquisitions from
June 1995 to February 1997. From December 1993
until October 1996, he served as Vice President of Finance
and Assistant Treasurer of Manor Care, Inc., the former parent of
 Choice Hotels International, Inc. Mr. Sabin is a Director
and non-Executive Chairman of the Board of Competitive
Technologies, Inc., a publicly traded technology licensing and
transfer company. Mr. Sabin received his B.S., M.Acc. and
M.B.A. degrees from Brigham Young University and a J.D. degree
from the J. Reuben Clark Law School at Brigham Young University.

Board Composition

We currently have five directors whose terms of office are
divided into three classes: Class I, whose term will expire
at the annual meeting of stockholders to be held in
April 2000; Class II, whose term will expire at the
annual meeting of stockholders to be held in 2001; and
Class III, whose term will expire at the annual meeting of
stockholders to be held in 2002. The Class I directors are
Messrs. Carbonell and Magleby, the Class II directors
are Messrs. Lund and Sabin and the Class III director
is Mr. Korin. At each annual meeting of stockholders after
the initial classification or special meeting held in place of an
 annual meeting, the successors to directors whose terms will
then expire will be elected to serve from the time of election
and qualification until the third annual meeting following
election or similar special meeting. If the board of directors
increases the number of directors, the newly created
directorships will be distributed among the three

42



---





Board Committees

Our board of directors has established an audit committee, a
compensation committee and an executive committee. The audit
committee consists of Messrs. Sabin and Korin and assists the
board of directors in fulfilling its responsibilities of ensuring
 that management maintains an adequate system of internal
controls. The audit committee also:



| |   |                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------
| |  | recommends an independent audit firm to audit financial
	statements and to perform services related to the audit;
|
| |  | reviews the scope and results of the audit with the independent
	auditors;                                       
|
| |  | considers the adequacy of the internal accounting control
	procedures; and                                       
|
| |  | considers auditors independence.                                                                                

The compensation committee determines the salaries and incentive
compensation of Cysives officers and provides
recommendations for the salaries and incentive compensation of
other employees and software engineers. The compensation
committee also administers Cysives various incentive
compensation, stock and benefit plans. The compensation committee
 consists of Messrs. Sabin, Magleby and Korin.

The executive committee determines the objectives and performance
 criteria of each member of Cysives management team. The
executive committee consists of Messrs. Carbonell and Lund.

Director Compensation

Each non-employee director currently receives $1,000 of cash
compensation and reimbursement for reasonable travel expenses for
 each board meeting attended. In addition, upon their first
election to office after our initial public offering each
director will receive an option to purchase 60,000 shares of our
common stock that will vest equally over that directors
three-year term. Until their election, the Class II directors
will receive an option to purchase 20,000 shares of our common
stock in April 2000 that will vest in one year.
Correspondingly, the Class III directors will receive an
option to purchase 40,000 shares of our common stock in
April 2000 that will vest equally over two years.

43



---



Item 11.  Executive Compensation.

The information is incorporated herein by reference to the
Companys definitive 2000 Proxy Statement.

Item 12.  Security Ownership of Certain
Beneficial Owners and Management.

The information is incorporated herein by reference to the
Companys definitive 2000 Proxy Statement.

Item 13.  Certain Relationships and Related
Transactions.

The information is incorporated herein by reference to the
Companys definitive 2000 Proxy Statement.

PART IV

Item 14.  Exhibits, Financial Statement
Schedules, and Reports on Form 8-K.



|       |                                                                                                                                
|------ | -------------------------------------------------------------------------------------------------------------------------------
|(a)(1) | The following financial statements of and report of
	independent public accountants are included in Item 8 of
	this Form  10-K:



| |   |                                                                                          
| | - | -----------------------------------------------------------------------------------------
| |  | Report of Ernst & Young, LLP, Independent Public Auditors.                               
|
| |  | Balance Sheets as of December 31, 1998 and 1999.                                         
|
| |  | Statements of Operations for the years ended December 31,
	1997, 1998 and 1999.          
|
| |  | Statements of Stockholders Equity for the years ended
	December 31, 1997, 1998 and 1999.
|
| |  | Statements of Cash Flows for the years ended December 31,
	1997, 1998 and 1999.          
|
| |  | Notes to Financial Statements.                                                           



|       |                                                                                                                          
|------ | -------------------------------------------------------------------------------------------------------------------------
|(a)(2) | The following financial statement schedule is filed as part of
	 this report and is attached hereto as pages S-1 and S-2:



| |   |                                                                               
| | - | ------------------------------------------------------------------------------
| |  | Report of Independent Public Accountants on the Financial
	Statement Schedule.
|
| |  | Schedule II  Valuation and Qualifying Accounts.                              

All other schedules for which provision is made in the applicable
 accounting regulations of the Commission either have been
included in the financial statements of Cysive or the notes
thereto, are not required under the related instructions or are
inapplicable, and therefore have been omitted.



|       |                                                                                                         
|------ | --------------------------------------------------------------------------------------------------------
|(a)(3) | The following exhibits are either provided with this
	Form 10-K or are incorporated herein by reference:

EXHIBIT INDEX

| |       |  |  |                                                                               
| | ----- |  |  | ------------------------------------------------------------------------------
| | 3.1  |  |  | Amended and Restated Certificate of Incorporation                             
| | 3.2  |  |  | Amended and Restated Bylaws                                                   
| | 4.1  |  |  | Form of Common Stock Certificate                                              
| | 10.1 |  |  | Amended and Restated 1994 Stock Option Plan                                   
| | 10.2 |  |  | 1999 Stock Purchase Plan                                                      
| | 10.3 |  |  | 401(k) Plan                                                                   
| | 10.4  |  |  | Employment Agreement by and between Cysive, Inc. and Nelson A.
	Carbonell, Jr.
| | 10.5  |  |  | Employment Agreement by and between Cysive, Inc. and John R. Lund             
| | 10.6  |  |  | Employment Agreement by and between Cysive, Inc. and Michael E.
	Price        

44



---



| |        |  |  |                                                                                                                         
| | ------ |  |  | ------------------------------------------------------------------------------------------------------------------------
| | 10.7   |  |  | Employment Agreement by and between Cysive, Inc. and Robert C.
	Rubinstein                                              
| | 10.8   |  |  | Employment Agreement by and between Cysive, Inc. and Joseph M.
	Rymsza                                                  
| | 10.9   |  |  | Employment Agreement by and between Cysive, Inc. and John M.
	Saaty                                                     
| | 10.10  |  |  | Employment Agreement by and between Cysive, Inc. and Penny J.
	Jobin                                                    
| | 10.11 |  |  | Basic Ordering Agreement by and between Cysive, Inc. and Sylvan
	Prometric, Inc.                                        
| | 10.12 |  |  | Basic Ordering Agreement by and between Cysive, Inc. and Equifax
	Secure, Inc.                                          
| | 10.13 |  |  | Basic Ordering Agreement by and between Cysive, Inc. and
	Classified Ventures, LLC                                      
| | 10.14 |  |  | Basic Ordering Agreement by and between Cysive, Inc. and Cisco
	Systems Inc.                                            
| | 10.15 |  |  | Basic Ordering Agreement by and between Cysive, Inc. and UOP                                                            
| | 10.16 |  |  | Revolving Credit Agreement by and between Cysive, Inc. and
	Merrill Lynch & Co.                                         
| | 10.17  |  |  | Lease Agreement, dated November 15, 1999, by and between
	Cysive, Inc. and Parkridge Five Associates Limited Partnership
| | 23.1   |  |  | Consent of Ernst & Young LLP                                                                                            
| | 27.1   |  |  | Financial Data Schedule                                                                                                 




|  |                                                                                                        
|- | -------------------------------------------------------------------------------------------------------
| | Incorporated by reference to the Registrants Registration
	Statement on Form  S-1, File No. 333-85651.

(b) Reports on Form 8-K.

None.

(c) Exhibits.

Cysive hereby files as part of this Form 10-K the Exhibits
listed in the Index to Exhibits.

(d) Financial Statement Schedule.

The following financial statement schedule is filed herewith:

Schedule II  Valuation and Qualifying Accounts.

Schedules not listed above have been omitted because they are
inapplicable or the information required to be set forth therein
is provided in the Consolidated Financial Statements of Cysive or
 notes thereto.

45



---



SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized, in the city of Reston, Commonwealth of
 Virginia, on February 18, 2000.



| |             
| | ------------
| | CYSIVE, INC.



| |     |                             
| | --- | ----------------------------
| | By: | /s/ NELSON A. CARBONELL, JR.

| |                                                
| | -----------------------------------------------
| |                                                
| | Nelson A. Carbonell, Jr.                       
| | Chairman, President and Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1934, this
Form 10-K has been signed by the following persons in the
capacities indicated on February 18, 2000

|                                                     |  |                                                                                                         
|---------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------
|Name                                                 |  | Title                                                                                                   
|                                                     |  |                                                                                                         
|/s/ NELSON A. CARBONELL, JR.Nelson A. Carbonell, Jr. |  | Chairman, President and Chief Executive Officer (Principal
	Executive Officer)                          
|/s/ JOHN R. LUNDJohn R. Lund                         |  | Chief Financial Officer, Treasurer, Secretary and Director
	(Principal Financial and Accounting Officer)
|/s/ JON KORINJon Korin                               |  | Director                                                                                                
|/s/ JOHN SABINJohn Sabin                             |  | Director                                                                                                
|/s/ ERIC J. MAGLEBYEric J. Magleby                   |  | Director                                                                                                

46



---



REPORT OF INDEPENDENT AUDITORS ON FINANCIAL STATEMENT SCHEDULE

We have audited the financial statements of Cysive, Inc. as of
December 31, 1998 and 1999, and for each of the three years
in the period ended December 31, 1999, and have issued our
report thereon dated January 31, 2000 (included elsewhere in
 the Annual Report on Form 10-K). Our audits also included
the financial statement schedule listed in Item 14(a)(2) of
the Form 10-K. This schedule is the responsibility of the
Companys management. Our responsibility is to express an
opinion based on our audits.

In our opinion, the financial statement schedule referred to
above, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material
respects the information set forth therein.



| |                      
| | ---------------------
| | /s/ ERNST & YOUNG LLP

McLean, Virginia



S-1



---



VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

YEARS ENDED DECEMBER 31, 1997, 1998, 1999

|                                 |                              |                |   |            |  |            |   |            |  |  |   |     |   |  |   |     | 
|-------------------------------- | ---------------------------- | -------------- | - | ---------- |  | ---------- | - | ---------- |  |  | - | --- | - |  | - | --- | 
|                                 |                              | Balance at     |   | Charged to |  | Charged to |   | Balance at
|                                 |                              | Beginning of   |   | Costs and  |  | Other      |   | End of    
|Description                      |                              | Period         |   | Expenses   |  | Accounts   |   | Period    
|                                 |                              |                |   |            |  |            |   |           
|                                 |                              |               
|                                 |                              | (In Thousands)
|                                
|                                
|                                
|                                
|Allowance for doubtful accounts: |                              |                |   |            |  |            |   |            |  |  |   |     |   |  |   |    
|                                
|                                
|                                
|                                
|                                 | Year ended December 31, 1997 |                | $ |           |  |            | $ | 150        |  |  | $ |    |   |  | $ | 150 | 
|                                
|                                
|                                
|                                
|                                 | Year ended December 31, 1998 |                |   | 150        |  |            |   | 28         |  |  |   | (18 | ) |  |   | 160 | 
|                                
|                                
|                                
|                                
|                                 | Year ended December 31, 1999 |                |   | 160        |  |            |   | 558        |  |  |   | (67 | ) |  |   | 651 | 

S-2