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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-Q

(Mark One)

|/x/ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|--- | ---------------------------------------------------------------------------------------

For the quarterly period ended June 30, 2001,

or

|/ / | 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 0-23651

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First Consulting Group, Inc.(Exact name of registrant as specified in its charter)

Delaware

95-3539020(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer Identification No.)


111 W. Ocean Blvd. 4th Floor, Long Beach, CA 90802(Address of principal executive offices including zip code)

(562) 624-5200(Registrant's telephone number, including area code)

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(Former
name, former address and former fiscal year, if changed since last report)

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
the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

Common Stock, $.001 par value

23,612,452(Class)

(Outstanding at August 1, 2001)


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First Consulting Group, Inc.
Table of Contents

|                  |  |                       |  |                                                                                                                                                                             |  | Page
Number
|----------------- |  | --------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -----------
|COVER PAGE        |  | 1                    
|TABLE OF CONTENTS |  | 2                    
|PART I.           |  | FINANCIAL INFORMATION |  | 3                                                                                                                                                                          
|                  |  | ITEM 1.               |  | FINANCIAL STATEMENTS AND NOTES (UNAUDITED)                                                                                                                                  |  | 3          
|                  |  |                       |  | Consolidated Balance Sheets as of June 30, 2001 and December 31, 2000                                                                                                       |  | 3          
|                  |  |                       |  | Consolidated Statements of Operations for the three month periods ended June 30, 2001 and June 30, 2000 and for the six month periods ended June 30, 2001 and June 30, 2000 |  | 4          
|                  |  |                       |  | Condensed Consolidated Statements of Cash Flows for the six month periods ended June 30, 2001 and June 30, 2000                                                             |  | 5          
|                  |  |                       |  | Notes to Consolidated Financial Statements                                                                                                                                  |  | 6          
|                  |  | ITEM 2.               |  | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                                                                                       |  | 10         
|PART II.          |  | OTHER INFORMATION     |  | 13                                                                                                                                                                         
|                  |  | ITEM 1.               |  | LEGAL PROCEEDINGS                                                                                                                                                           |  | 13         
|                  |  | ITEM 2.               |  | CHANGES IN SECURITIES                                                                                                                                                       |  | 13         
|                  |  | ITEM 3.               |  | DEFAULTS UPON SENIOR SECURITIES                                                                                                                                             |  | 13         
|                  |  | ITEM 4.               |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                                                                                         |  | 14         
|                  |  | ITEM 5.               |  | OTHER INFORMATION                                                                                                                                                           |  | 14         
|                  |  | ITEM 6.               |  | EXHIBITS AND REPORTS ON FORM 8-K                                                                                                                                            |  | 15         
|SIGNATURES        |  | 16                   
|EXHIBIT INDEX     |  | 17                   

2

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements and Notes (Unaudited).

First Consulting Group, Inc. and Subsidiaries

Consolidated Balance Sheets

(in thousands)

|                                     |                                                                                                                                                                                          | June 30,
2001                                  |        | December 31, 2000 |        
|------------------------------------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------- | ------ | ----------------- | -------
|
|ASSETS                               |                                                                                                                                                                                         
|Current assets                       |                                                                                                                                                                                          |                                                |        |                   |        
|                                     | Cash and cash equivalents                                                                                                                                                                |                                                | $      | 17,467            |        
|                                     | Short-term investments                                                                                                                                                                   |                                                |        | 16,788            |        
|                                     | Accounts receivable, less allowance of $3,474 and $3,331 as of June 30, 2001 and December 31, 2000, respectively                                                                         |                                                |        | 38,041            |        
|                                     | Unbilled receivables                                                                                                                                                                     |                                                |        | 21,386            |        
|                                     | Deferred income taxes, net                                                                                                                                                               |                                                |        | 3,948             |        
|                                     | Income tax receivable                                                                                                                                                                    |                                                |        |                  |        
|                                     | Prepaid expenses and other current assets                                                                                                                                                |                                                |        | 2,312             |        
|                                     |                                                                                                                                                                                          |                                                |        |                   |        
|                                     |                                                                                                                                                                                          | Total current assets                           |        |                   | 99,942 
|Notes receivablestockholders        |                                                                                                                                                                                          |                                                | 1,724  |                   |        
|Long-term investments                |                                                                                                                                                                                          |                                                | 3,305  |                   |        
|Property and equipment               |                                                                                                                                                                                          |                                                |        |                   |        
|                                     | Furniture, equipment, and leasehold improvements                                                                                                                                         |                                                |        | 7,838             |        
|                                     | Information systems equipment                                                                                                                                                            |                                                |        | 27,156            |        
|                                     |                                                                                                                                                                                          |                                                |        |                   |        
|                                     |                                                                                                                                                                                          |                                                | 34,994 |                   |        
|                                     |                                                                                                                                                                                          | Less accumulated depreciation and amortization |        |                   | 22,779 
|                                     |                                                                                                                                                                                          |                                                |        |                   |        
|                                     |                                                                                                                                                                                          |                                                | 12,215 |                   |        
|Other assets                         |                                                                                                                                                                                          |                                                |        |                   |        
|                                     | Executive benefit trust                                                                                                                                                                  |                                                |        | 6,307             |        
|                                     | Unbilled long term receivables                                                                                                                                                           |                                                |        | 10,967            |        
|                                     | Deferred income taxes                                                                                                                                                                    |                                                |        | 2,929             |        
|                                     | Goodwill, net                                                                                                                                                                            |                                                |        | 8,360             |        
|                                     | Other                                                                                                                                                                                    |                                                |        | 596               |        
|                                     |                                                                                                                                                                                          |                                                |        |                   |        
|                                     |                                                                                                                                                                                          |                                                | 29,159 |                   |        
|                                     |                                                                                                                                                                                          |                                                |        |                   |        
|                                     |                                                                                                                                                                                          | Total assets                                   |        | $                 | 146,345
|                                     |                                                                                                                                                                                          |                                                |        |                   |        
|LIABILITIES AND STOCKHOLDERS' EQUITY |                                                                                                                                                                                         
|Current liabilities                  |                                                                                                                                                                                          |                                                |        |                   |        
|                                     | Current portion of long-term debt                                                                                                                                                        |                                                | $      |                  |        
|                                     | Accounts payable                                                                                                                                                                         |                                                |        | 2,612             |        
|                                     | Accrued liabilities                                                                                                                                                                      |                                                |        | 13,109            |        
|                                     | Accrued vacation                                                                                                                                                                         |                                                |        | 7,157             |        
|                                     | Accrued incentive compensation                                                                                                                                                           |                                                |        | 3,738             |        
|                                     | Deferred revenue                                                                                                                                                                         |                                                |        | 76                |        
|                                     | Customer advances                                                                                                                                                                        |                                                |        | 6,565             |        
|                                     |                                                                                                                                                                                          |                                                |        |                   |        
|                                     |                                                                                                                                                                                          | Total current liabilities                      |        |                   | 33,257 
|Non-current liabilities              |                                                                                                                                                                                          |                                                |        |                   |        
|                                     | Long-term debt, net of current portion                                                                                                                                                   |                                                |        |                  |        
|                                     | Supplemental executive retirement plan                                                                                                                                                   |                                                |        | 6,628             |        
|                                     | Minority interest                                                                                                                                                                        |                                                |        | 486               |        
|                                     |                                                                                                                                                                                          |                                                |        |                   |        
|                                     |                                                                                                                                                                                          | Total non-current liabilities                  |        |                   | 7,114  
|Commitments and contingencies        |                                                                                                                                                                                          |                                                |       |                   |        
|Stockholders' equity                 |                                                                                                                                                                                          |                                                |        |                   |        
|                                     | Preferred Stock, $.001 par value; 10,000,000 shares authorized, no shares issued and outstanding                                                                                         |                                                |        |                  |        
|                                     | Common Stock, $.001 par value; 50,000,000 shares authorized, 23,610,614 shares issued and outstanding at June 30, 2001 and 23,736,700 shares issued and outstanding at December 31, 2000 |                                                |        | 24                |        
|                                     | Additional paid-in capital                                                                                                                                                               |                                                |        | 89,381            |        
|                                     | Retained earnings                                                                                                                                                                        |                                                |        | 20,693            |        
|                                     | Deferred compensationstock incentive agreements                                                                                                                                         |                                                |        | (1,474            | )      
|                                     | Notes receivablestockholders                                                                                                                                                            |                                                |        | (1,927            | )      
|                                     | Accumulated other comprehensive loss                                                                                                                                                     |                                                |        | (723              | )      
|                                     |                                                                                                                                                                                          |                                                |        |                   |        
|                                     |                                                                                                                                                                                          | Total stockholders' equity                     |        |                   | 105,974
|                                     |                                                                                                                                                                                          |                                                |        |                   |        
|                                     |                                                                                                                                                                                          | Total liabilities and stockholders' equity     |        | $                 | 146,345
|                                     |                                                                                                                                                                                          |                                                |        |                   |        

See accompanying notes.

3

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First Consulting Group, Inc. and Subsidiaries

Consolidated Statements of Operations (Unaudited)

(in thousands, except per share data)

|                                                  |                      | Three Months Ended
June 30 |        | Six Months Ended
June 30 |       
|------------------------------------------------- | -------------------- | -------------------------- | ------ | ------------------------ | ------
|
|Net revenue                                       |                      | $                          | 66,206 |                          | $     
|Cost of services                                  |                      |                            | 42,094 |                          |       
|                                                  |                      |                            |        |                          |       
|                                                  | Gross profit         |                            |        | 24,112                   |       
|Selling expenses                                  |                      |                            | 8,138  |                          |       
|General and administrative expenses               |                      |                            | 16,884 |                          |       
|Merger, restructuring and severance costs         |                      |                            | 4,349  |                          |       
|                                                  |                      |                            |        |                          |       
|                                                  | Loss from operations |                            |        | (5,259                   | )     
|Other income                                      |                      |                            |        |                          |       
|                                                  | Interest income, net |                            |        | 299                      |       
|                                                  | Other expense, net   |                            |        | (179                     | )     
|                                                  |                      |                            |        |                          |       
|                                                  |                      | Loss before income taxes   |        |                          | (5,139
|Provision (benefit) for income taxes              |                      |                            | (2,158 | )                        |       
|                                                  |                      |                            |        |                          |       
|                                                  |                      | Net loss                   |        | $                        | (2,981
|                                                  |                      |                            |        |                          |       
|Basic net loss per share                          |                      | $                          | (0.13  | )                        | $     
|                                                  |                      |                            |        |                          |       
|Diluted net loss per share                        |                      | $                          | (0.13  | )                        | $     
|                                                  |                      |                            |        |                          |       
|Shares used in computing basic net loss per share |                      |                            | 23,397 |                          |       
|Shares used in diluted net loss per share         |                      |                            | 23,397 |                          |       

See
accompanying notes.

4

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First Consulting Group, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)

(in thousands)

|                                                |                                                  | Six Months Ended                                     |       
|----------------------------------------------- | ------------------------------------------------ | ---------------------------------------------------- | ------
|
|Cash flows from operating activities:           |                                                  |                                                      |       
|                                                | Net loss                                         |                                                      | $     
|                                                | Adjustments to reconcile net income              |                                                      |       
|                                                | Change in assets and liabilities                 |                                                      |       
|                                                |                                                  |                                                      |       
|                                                |                                                  | Net cash provided by (used for) operating activities |       
|                                                |                                                  |                                                      |       
|Cash flows from investing activities:           |                                                  |                                                      |       
|                                                | Net purchase of investments                      |                                                      |       
|                                                | Furniture, equipment, and leasehold improvements |                                                      |       
|                                                | Note receivable stockholders                     |                                                      |       
|                                                | Acquisition of business, net of cash acquired    |                                                      |       
|                                                |                                                  |                                                      |       
|                                                |                                                  | Net cash used for investing activities               |       
|                                                |                                                  |                                                      |       
|Cash flows used in financing activities:        |                                                  |                                                      |       
|                                                | Principal payments of long-term debt             |                                                      |       
|                                                | Proceeds from issuance of stock                  |                                                      |       
|                                                |                                                  |                                                      |       
|                                                |                                                  | Net cash provided by financing activities            |       
|                                                |                                                  |                                                      |       
|Net increase (decrease) in cash and equivalents |                                                  |                                                      | 6,038 
|Cash and equivalents at beginning of period     |                                                  |                                                      | 11,429
|                                                |                                                  |                                                      |       
|Cash and equivalents at end of period           |                                                  | $                                                    | 17,467
|                                                |                                                  |                                                      |       
|Cash paid during the period for:                |                                                  |                                                      |       
|                                                |                                                  | Interest                                             |       
|                                                |                                                  | Income taxes                                         |       

See
accompanying notes.

5

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Notes to Consolidated Financial Statements

1. Basis of Presentation

The consolidated balance sheets of First Consulting Group, Inc. (the "Company") at June 30, 2001 and consolidated statements of operations and
condensed consolidated statements of cash flows for the periods ended June 30, 2001 and 2000 are unaudited. These financial statements reflect all adjustments, consisting of only normal
recurring adjustments, which, in the opinion of management, are necessary to fairly present the financial position of the Company at June 30, 2001 and the results of operations for the
three-month and six-month periods ended June 30, 2001 and June 30, 2000. The results of operations for the six months ended June 30, 2001 are not necessarily
indicative of the results to be expected for the year ending December 31, 2001. For more complete financial information, these financial statements should be read in conjunction with the
audited financial statements for the year ended December 31, 2000 included in the Company's Annual Report on Form 10-K.

2. Investments

For purposes of reporting cash flows, cash and cash equivalents include cash and interest-earning deposits or securities with original maturities of three
months or less. The Company has approximately $16.8 million in short term investments and $2.0 million in non-current investments classified as available for sale. Such
investments are currently held in high-grade taxable and tax-exempt securities. Net unrealized gains and losses on investments were not material at June 30, 2001.

3. Net Income (Loss) Per Share

The following represents a reconciliation of basic and diluted net income per share for the three month periods ended June 30, 2001 and 2000,
respectively (amounts rounded to thousands, except per share data):

|                                         |                                                                   | For the Three Months
Ended June 30, 2001 |   | For the Three Months
Ended June 30, 2000 |  
|---------------------------------------- | ----------------------------------------------------------------- | ---------------------------------------- | - | ---------------------------------------- | -
|
|Basic EPS:                               |                                                                   |                                          |   |                                          |  
|                                         | Net loss available to common stockholders                         |                                          | $ | (2,981                                   | )
|Effect of dilutive options and warrants: |                                                                   |                                          |  |                                          | 
|                                         |                                                                   |                                          |   |                                          |  
|Diluted EPS:                             |                                                                   |                                          |   |                                          |  
|                                         | Net loss available to common stockholders and assumed conversions |                                          | $ | (2,981                                   | )
|                                         |                                                                   |                                          |   |                                          |  

|                                        |                                                                     | For the Six Months
Ended June 30, 2001 |   | For the Six Months
Ended June 30, 2000 |  
|--------------------------------------- | ------------------------------------------------------------------- | -------------------------------------- | - | -------------------------------------- | -
|
|Basic EPS:                              |                                                                     |                                        |   |                                        |  
|                                        | Net (loss) available to common stockholders                         |                                        | $ | (2,090                                 | )
|Effect of dilutive options and warrants |                                                                     |                                        |  |                                        | 
|                                        |                                                                     |                                        |   |                                        |  
|Diluted EPS:                            |                                                                     |                                        |   |                                        |  
|                                        | Net (loss) available to common stockholders and assumed conversions |                                        | $ | (2,090                                 | )
|                                        |                                                                     |                                        |   |                                        |  

6

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4. Disclosure of Segment Information

FCG has consolidated its business units as follows:



The
Company provides segment reporting at a gross margin level. Selling and general and administrative expense (including corporate functions, occupancy related costs, depreciation, professional
development, recruiting, and marketing), and fixed assets (primarily computer equipment, furniture, and leasehold improvements) are managed at the corporate level. The Company's segments are managed
on an integrated basis in order to serve clients by assembling multi-disciplinary teams, which provide comprehensive services.

The
following is a summary of certain financial information by segment (in thousands):

For the three months period ended June 30, 2001:

|                                          |  | Healthcare |        | Life Sciences |   | DHTS   |  | Management
Services |        | Totals |  
|----------------------------------------- |  | ---------- | ------ | ------------- | - | ------ |  | ------------------- | ------ | ------ | -
|Net revenues                              |  | $          | 16,867 |               | $ | 17,001 |  | $                   | 16,567 |        | $
|Cost of services                          |  |            | 8,131  |               |   | 11,207 |  |                     | 9,797  |        |  
|                                          |  |            |        |               |   |        |  |                     |        |        |  
|Gross profit                              |  | $          | 8,736  |               | $ | 5,794  |  | $                   | 6,770  |        | $
|Selling expenses                          |  |            |        |               |   |        |  |                     |        |        |  
|General & administrative expenses         |  |            |        |               |   |        |  |                     |        |        |  
|Merger, restructuring, and severance cost |  |            |        |               |   |        |  |                     |        |        |  
|                                          |  |            |        |               |   |        |  |                     |        |        |  
|Loss from operations                      |  |            |        |               |   |        |  |                     |        |        |  
|                                          |  |            |        |               |   |        |  |                     |        |        |  

7

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For the three months period ended June 30, 2000:

|                                          |  | Healthcare |        | Life Sciences |   | DHTS   |  | Management
Services |        | Totals |  
|----------------------------------------- |  | ---------- | ------ | ------------- | - | ------ |  | ------------------- | ------ | ------ | -
|Net revenues                              |  | $          | 19,301 |               | $ | 19,724 |  | $                   | 13,812 |        | $
|Cost of services                          |  |            | 11,689 |               |   | 11,408 |  |                     | 9,490  |        |  
|                                          |  |            |        |               |   |        |  |                     |        |        |  
|Gross profit                              |  | $          | 7,612  |               | $ | 8,316  |  | $                   | 4,322  |        | $
|Selling expenses                          |  |            |        |               |   |        |  |                     |        |        |  
|General & administrative expenses         |  |            |        |               |   |        |  |                     |        |        |  
|Merger, restructuring, and severance cost |  |            |        |               |   |        |  |                     |        |        |  
|                                          |  |            |        |               |   |        |  |                     |        |        |  
|Loss from operations                      |  |            |        |               |   |        |  |                     |        |        |  
|                                          |  |            |        |               |   |        |  |                     |        |        |  

For the six months period ended June 30, 2001:

|                                          |  | Healthcare |        | Life Sciences |   | DHTS   |  | Management
Services |        | Totals |  
|----------------------------------------- |  | ---------- | ------ | ------------- | - | ------ |  | ------------------- | ------ | ------ | -
|Net revenues                              |  | $          | 36,876 |               | $ | 36,816 |  | $                   | 35,197 |        | $
|Cost of services                          |  |            | 18,134 |               |   | 24,509 |  |                     | 21,173 |        |  
|                                          |  |            |        |               |   |        |  |                     |        |        |  
|Gross profit                              |  | $          | 18,742 |               | $ | 12,307 |  | $                   | 14,024 |        | $
|Selling expenses                          |  |            |        |               |   |        |  |                     |        |        |  
|General & administrative expenses         |  |            |        |               |   |        |  |                     |        |        |  
|Merger, restructuring, and severance cost |  |            |        |               |   |        |  |                     |        |        |  
|                                          |  |            |        |               |   |        |  |                     |        |        |  
|Loss from operations                      |  |            |        |               |   |        |  |                     |        |        |  
|                                          |  |            |        |               |   |        |  |                     |        |        |  

For the six months period ended June 30, 2000:

|                                          |  | Healthcare |        | Life Sciences |   | DHTS   |  | Management
Services |        | Totals |  
|----------------------------------------- |  | ---------- | ------ | ------------- | - | ------ |  | ------------------- | ------ | ------ | -
|Net revenues                              |  | $          | 42,186 |               | $ | 35,860 |  | $                   | 28,262 |        | $
|Cost of services                          |  |            | 24,915 |               |   | 21,688 |  |                     | 19,927 |        |  
|                                          |  |            |        |               |   |        |  |                     |        |        |  
|Gross profit                              |  | $          | 17,271 |               | $ | 14,172 |  | $                   | 8,335  |        | $
|Selling expenses                          |  |            |        |               |   |        |  |                     |        |        |  
|General & administrative expenses         |  |            |        |               |   |        |  |                     |        |        |  
|Merger, restructuring, and severance cost |  |            |        |               |   |        |  |                     |        |        |  
|                                          |  |            |        |               |   |        |  |                     |        |        |  
|Loss from operations                      |  |            |        |               |   |        |  |                     |        |        |  
|                                          |  |            |        |               |   |        |  |                     |        |        |  

8

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5. Comprehensive Income

Comprehensive income, net of taxes is as follows:

|                                              |                                                                   | Three Months Ended
June 30 |        | Six Months Ended
June 30 |  
|--------------------------------------------- | ----------------------------------------------------------------- | -------------------------- | ------ | ------------------------ | -
|
|
|Net loss                                      |                                                                   | $                          | (2,981 | )                        | $
|Other comprehensive income (loss), net of tax |                                                                   |                            |        |                          |  
|                                              | Foreign currency translation loss adjustments                     |                            |        |                         |  
|                                              | Unrealized holding gains (losses) on securities                   |                            |        | (12                      | )
|                                              | Less reclassification adjustment for gains included in net income |                            |        |                         |  
|                                              |                                                                   |                            |        |                          |  
|Other comprehensive loss                      |                                                                   |                            | (12    | )                        |  
|                                              |                                                                   |                            |        |                          |  
|Comprehensive loss                            |                                                                   | $                          | (2,993 | )                        | $
|                                              |                                                                   |                            |        |                          |  

6. Concentrations of Credit Risk

At June 30 2001, FCG carried a long-term account receivable of approximately $11 million from a single client. The receivable relates
to a major outsourcing client, and will be paid down over a six-year period. The company also has a receivable of approximately $2 million from another client that is past due, and
which, subsequent to June 30, 2001, FCG and the client converted to an interest-bearing note receivable. Although, no assurance can be given that this client will be able to pay in full, the
client has paid approximately $1 million during 2001, and FCG believes it will ultimately collect the receivable.

7. Transaction with Doghouse Enterprise Subsidiary

On June 29, 2001, FCG purchased 2,500,000 shares of Doghouse Enterprises, Inc., a majority owned subsidiary of FCG ("Doghouse"), from the
minority stockholder of Doghouse for aggregate consideration of 132,753 shares of the FCG's common stock valued at $1,067,000 and $500 in cash. As a result of the purchase, Doghouse is a wholly owned
subsidiary of the FCG.

On
July 1, 2001, Doghouse distributed all of its assets and assigned all of its employees to the FCG. In connection with this transaction, FCG assumed the Doghouse 2000 Equity
Incentive Plan (the "DH Plan") and all options granted or available for grant under that plan at an exchange rate of 0.078, or 78 shares of the FCG's common stock for each 1,000 shares available for
issuance under the DH Plan. The exchange rate was based on a three-day trading average of FCG's common stock following its public announcement of its first fiscal quarter financial results
and a per share value for Doghouse as negotiated between FCG and the former minority stockholder of Doghouse. The total number of shares of FCG's common stock available for issuance under the DH Plan
is 585,000, of which 341,580 are subject to outstanding options as of July 1, 2001. The weighted average exercise price for the options outstanding under the DH Plan is $9.95 per share.

9

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

THE FOLLOWING MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. SUCH FORWARD-LOOKING STATEMENTS INVOLVE RISKS AND UNCERTAINTIES, INCLUDING THOSE SET FORTH HEREIN AND UNDER THE CAPTION "RISKS RELATING TO THE
BUSINESS OF FCG" IN THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2000, AND SUBSEQUENT REPORTS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. FCG'S ACTUAL
RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS.

Overview

FCG provides services to payors, providers, government agencies, pharmaceutical, biogenetic, and life science companies, and other healthcare organizations in
North America and Europe. FCG generates substantially all of its revenue from fees for professional services. FCG typically bills for its services on an hourly, fixed-fee or monthly
fixed-fee basis as specified by the agreement with a particular client. FCG establishes either standard or target hourly rates for each level of consultant based on several factors
including industry and assignment-related experience, technical expertise, skills and knowledge. For services billed on an hourly basis, fees are determined by multiplying the amount of time expended
on each assignment by the hourly rate for the consultant(s) assigned to the engagement. Fixed fees are established on a per-assignment or monthly basis and are based on several factors
such as the size, scope, complexity and duration of an assignment and the number of consultants required to complete the assignment. Actual hourly or fixed fees for an assignment may vary from the
standard, target, or historical rates charged by FCG. For services billed on an hourly basis, FCG recognizes revenue as services are performed. For services billed on a fixed fee basis, FCG recognizes
revenue using the percentage of completion method based either on 1) the amount of time completed on each assignment versus the projected number of hours required to complete such assignment,
or 2) the amount of cost incurred on the assignment versus the total projected cost to complete the assignment. Revenue is recorded as incurred at assignment rates net of unplanned adjustments
for specific engagements. Unplanned adjustments to revenue are booked at the time they are known. Out-of-pocket expenses are billed to and reimbursed by clients and offset
against expenses incurred and are not included in recognized revenues. Provisions are made for estimated uncollectible amounts based on the Company's experience. FCG may obtain payment in advance of
providing services. These advances are recorded as deferred revenue and reflected as a liability on FCG's balance sheet.

Cost
of services primarily consists of the salaries, bonuses and related benefits of client-serving consultants and subcontractor expenses. General and administrative expenses
primarily consist of the costs attributable to the development of the business and the support of the client-serving professionals, such as: non-billable travel; office space occupancy;
investments in FCG's information systems, research and practice support and quality initiatives; salaries and expenses for executive management, financial, accounting and administrative personnel;
expenses for firm and business unit governance meetings; recruiting fees and professional development and training; and marketing, legal and other professional services. As associate related costs are
relatively fixed, variations in FCG's revenues and operating results can occur as a result of variations in billing margins and utilization rates of its billable associates. The Company routinely
reviews its fees for services, professional compensation and overhead costs to ensure that its services and compensation are competitive within the industry. In addition, FCG routinely monitors the
progress of client projects with its clients' senior management.

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Quality of Service Questionnaires are sent to the client after each engagement with the results compiled and reported to FCG executive management.

FCG's
most significant expenses are its human resource and related salary and benefit expenses. As of June 30, 2001, approximately 53% or 1,023 of FCG's 1,921 employees are
consultants. Another 531 employees form the firm's outsourcing business. The salaries and benefits of such billable consultants and outsourcing related employees are recognized in FCG's cost of
services. Non-billable employee salaries and benefits are recognized as a component of general and administrative expenses. Approximately 19%, or 367 employees are classified as
non-billable. FCG's cost of services as a percentage of revenue is directly related to its consultant utilization, which is the ratio of total billable hours to available hours in a given
period, and the amount of cost recognized under percentage of completion accounting. FCG manages consultant utilization by monitoring assignment requirements and timetables, available and required
skills, and available consultant hours per week and per month. Differences in personnel utilization rates can result from variations in the amount of non-billed time, which has
historically consisted of training time, vacation and holiday time, time lost to illness and inclement weather and unassigned time. Non-billed time also includes time devoted to other
necessary and productive activities such as sales support and interviewing prospective employees. Unassigned time results from differences in the timing of the completion of an existing assignment and
the beginning of a new assignment. In order to reduce and limit unassigned time, FCG actively manages personnel utilization by monitoring and projecting estimated engagement start and completion dates
and matching consultant availability with current and projected client requirements. The number of consultants staffed on an assignment will vary according to the size, complexity, duration and
demands of the assignment. Assignment terminations, completions, inclement weather and scheduling delays may result in periods in which consultants are not optimally utilized. An unanticipated
termination of a significant assignment or an overall lengthening of the sales cycle could result in a higher than expected number of unassigned consultants and could cause FCG to experience lower
margins. In addition, the opening of new offices, expansion into new markets, and the hiring of consultants in advance of client assignments have resulted and may continue to result in periods of
lower consultant utilization.

FCG's
effective tax rate has varied from period to period due to differences between book and tax deductions associated with certain non-deductible operating expenses,
including certain compensation expenses, goodwill amortization, and merger related activities.

Results of Operations for the Three Months Ended June, 2001 and 2000

Net Revenue.The Company's net revenue increased to $66.2 million for the quarter ended June 30, 2001, an
increase of 4.0% from $63.7 million for the quarter ended June 30, 2000. This increase was due to growth in outsourcing and health plan revenues, partially offset by a decline in the
health delivery market.

Cost of Services.Cost of services increased to $42.1 million for the quarter ended June 30, 2001, an
increase of 3.3% from $40.7 million for the quarter ended June 30, 2000. The increase was primarily attributable to an increase in the outsourcing staff related to the increase in
outsourcing revenue. Cost of services as a percentage of revenue decreased slightly to 63.6% for the quarter ended June 30, 2001 from 64.0% for the quarter ended June 30, 2000.

Selling Expenses.Selling expenses increased to $8.1 million for the quarter ended June 30, 2001, an
increase of 3.8% from $7.8 million for the quarter ended June 30, 2000. Selling expenses as a percentage of revenue remained unchanged at 12.3% for both periods.

General and Administrative Expenses.General and administrative expenses decreased to $16.9 million for the
quarter ended June 30, 2001, a decrease of 6.6% from $18.1 million for the quarter ended June 30, 2000 due to cost containment efforts. General and administrative expenses as a

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percentage of revenue decreased from 28.4% for the quarter ended June 30, 2000 to 25.5% for the quarter ended June 30, 2001, due to the reduction in costs combined with the leveraging
effect of the higher level of revenue.

Merger, Restructuring and Severance Costs.Merger, restructuring and severance costs were $4.3 million for the three
months ended June 30, 2001 compared to $3.7 million for the three months ended June 30, 2000. Merger, restructuring and severance costs for the three months ended June 30, 2001 included approximately
$3.7 million of severance costs related to a reduction in staff of approximately 145 people with the remainder related to facility downsizing. Merger, restructuring and severance costs for the three
months ended June 30, 2000 consisted primarily of severance costs related to a reduction in the U.S. workforce and a $1.5 million impairment of goodwill associated with FCG's shutdown of its European
healthcare operations.

Interest Income, Net.Interest income, net of interest expense, decreased to $0.3 million for the quarter ended
June 30, 2001 from $0.6 million for the quarter ended June 30, 2000, primarily due to lower interest rates on invested cash. Interest income net of interest expense as a
percentage of revenue decreased to 0.5% for the quarter ended June 30, 2001 from 1.0% for the quarter ended June 30, 2000.

Income Taxes.The benefit for income taxes of 42.0% in the quarter ended June 30, 2001 increased from the 37.0%
reported for the quarter ended June 30, 2000.

Results of Operations for the Six Months Ended June, 2001 and 2000

Net Revenue.The Company's net revenue increased to $136.5 million for the six months ended June 30,
2001, an increase of 7.3% from $127.2 million for the six months ended June 30, 2000. This increase was primarily due to growth in outsourcing and health plan revenues, partially offset
by a decline in the health delivery market.

Cost of Services.Cost of services increased to $85.9 million for the six months ended June 30, 2001, an
increase of 3.9% from $82.8 million for the six months ended June 30, 2000. The increase was primarily attributable to an increase in the outsourcing staff related to the increase in
outsourcing revenue. Cost of services as a percentage of revenue decreased to 63.0% for the six months ended June 30, 2001 from 65.1% for the six months ended June 30, 2000. This
decrease was due to higher consultant utilization.

Selling Expenses.Selling expenses increased to $16.0 million for the six months ended June 30, 2001, an
increase of 4.8% from $15.3 million for the six months ended June 30, 2000. Selling expenses as a percentage of revenue decreased slightly from 12.0% for the six months ended
June 30, 2000 to 11.7% for the six months ended June 30, 2001.

General and Administrative Expenses.General and administrative expenses decreased to $34.3 million for the six
months ended June 30, 2001, a decrease of 3.8% from $35.6 million for the six months ended June 30, 2000. General and administrative expenses as a percentage of revenue decreased
from 28.0% for the six months ended June 30, 2000 to 25.1% for the six months ended June 30, 2001, due to the reduction in costs combined with the leveraging effect of the higher level
of revenue.

Merger, Restructuring and Severance Costs.Merger, restructuring and severance costs were $4.3 million for the six
months ended June 30, 2001 compared to $3.7 million for the six months ended June 30, 2000. Merger, restructuring and severance costs for the six months ended June 30, 2001 included
approximately $3.7 million of severance costs related to a reduction in staff of approximately 145 people with the remainder related to facility downsizing. Merger, restructuring and severance costs
for the six months ended June 30, 2000 consisted primarily of severance costs related to a reduction in the

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U.S. workforce and a $1.5 million impairment of goodwill associated with FCG's shutdown of its European healthcare operations.

Interest Income, Net.Interest income, net of interest expense, decreased to $0.7 million for the six months
ended June 30, 2001 from $1.3 million for the six months ended June 30, 2000, primarily due to lower interest rates on invested cash. Interest income net of interest expense as a
percentage of revenue decreased to 0.5% for the six months ended June 30, 2001 from 1.0% for the six months ended June 30, 2000.

Income Taxes.The benefit for income taxes of 42.0% for the six months ended June 30, 2001, increased from the
38.0% reported for the six months ended June 30, 2000.

Liquidity and Capital Resources

During the six months ended June 30, 2001, the Company generated cash flow from operations of $6.6 million. During the six months ended
June 30, 2001, the Company used cash flow of approximately $1.8 million to purchase property and equipment, including computer and related equipment and office furniture, while
depreciation and amortization expense was approximately $4.2 million. At June 30, 2001, the Company had cash and investments available for sale of $36.3 million compared to
$29.8 million at December 31, 2000.

The
Company has a revolving line of credit, under which it is allowed to borrow up to $10.0 million at an interest rate of the prevailing prime rate with an expiration date of
September 1, 2001. There was no outstanding balance under the line of credit at June 30, 2001.

Management
believes that existing cash and investments together with funds generated from operations will be sufficient to meet operating requirements for the next 12 months.
FCG's cash and investments are available for strategic investments, mergers and acquisitions, and other potential large-scale cash needs that may arise.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

None.

Item 2. Changes in Securities.

(c)
Sale of Unregistered Securities. On June 29, 2001, the Company purchased 2,500,000 shares of Doghouse Enterprises, Inc., a majority owned subsidiary of the Company
("Doghouse"), from the minority stockholder of Doghouse for aggregate consideration of 132,753 shares of the Company's common stock and $500 in cash. The shares were issued pursuant to the exemption
from registration afforded by Section 4(2) of the Securities Act of 1933. Please refer to Part II Item 5 of this Form 10-Q for additional discussion regarding
the Doghouse transaction.

Item 3. Defaults Upon Senior Securities.

None.

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

FCG held its 2001 Annual Meeting of Stockholders on June 19, 2001. The stockholders elected the Board's nominees as directors to serve
three-year terms expiring at the 2004 Annual Meeting of Stockholders by the votes indicated:

Nominee

Votes in Favor

Votes Against

AbstentionsSteven Lazarus

19,786,995

805,206

0David S. Lipson

19,647,587

944,614

0Scott S. Parker

19,644,082

948,119

0Fatima Reep

19,748,544

843,657

0


The
stockholders approved amendment of FCG's 2000 Associate Stock Purchase Plan to: (a) increase the number of shares of FCG stock reserved for issuance under than plan by
500,000 shares, from 500,000 shares to 1,000,000 shares; and (b) clarify the maximum number of shares that can be purchased by a plan participant on any purchase date. The proposal to amend the
plan was approved with 17,495,154 votes cast in favor, 836,330 votes cast against and 84,636 votes abstaining from the proposal. There were also 2,176,081 broker non-votes.

The
stockholders approved amendment of FCG's 1997 Equity Incentive Plan to increase the number of shares of FCG common stock reserved for issuance under that plan by 750,000 shares,
from 4,500,000 shares to 5,250,000 shares. The proposal to amend the plan was approved with 13,437,745 votes cast in favor, 4,906,234 votes cast against and 72,141 votes abstaining from the proposal.
There were also 2,176,081 broker non-votes.

The
stockholders also ratified FCG's selection of Grant Thornton LLP as FCG's independent auditors for the year ending December 31, 2001, with 20,317,597 votes cast in favor,
178,010 votes cast against and 96,593 votes abstaining from the proposal. There was also 1 broker non-vote.

Item 5. Other Information.

Transactions with Doghouse Enterprises Subsidiary.

On June 29, 2001, the Company purchased 2,500,000 shares of Doghouse Enterprises, Inc., a majority owned subsidiary of the Company ("Doghouse"),
from the minority stockholder of Doghouse for aggregate consideration of 132,753 shares of the Company's common stock and $500 in cash. The shares were issued pursuant to the exemption from
registration afforded by Section 4(2) of the Securities Act of 1933 and will be eligible for resale on June 29, 2002 pursuant to Rule 144. As a result of the purchase, Doghouse is
a wholly owned subsidiary of the Company.

On
July 1, 2001, Doghouse distributed all of its assets and assigned all of its employees to the Company. In connection with this transaction, the Company assumed the Doghouse
2000 Equity Incentive Plan (the "DH Plan") and all options granted or available for grant under that plan at an exchange rate of 0.078, or 78 shares of the Company's common stock for each 1,000 shares
available for issuance under the DH Plan. The exchange rate was based on a three-day trading average of the Company's common stock following its public announcement of its first fiscal
quarter financial results and a per share value for Doghouse as negotiated between the Company and the former minority stockholder of Doghouse. The total number of shares of the Company's common stock
available for issuance under the DH Plan is 585,000, of which 341,580 are subject to outstanding options as of July 1, 2001. The weighted average exercise price for the outstanding options as
of July 1, 2110 is, $9.95 per share. On August 2, 2001, the Company filed a registration statement on Form S-8 to register the shares issuable under the DH Plan.

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Consulting Arrangement with Director.

On May 17, 2001, the Company entered into a consulting arrangement with F. Richard Nichol, a member of the Company's board of directors. Under the terms
of a letter agreement, Dr. Nichol is providing ten days of consulting per month for the period commencing June 1, 2001, and ending December 31, 2001. Dr. Nichol's primary
focus under the arrangement is to assist the company's Life Sciences business unit in developing sales and marketing plans. Dr. Nichol's compensation under the agreement is $2,000 per day, plus
administrative overhead of $3,500 per month. Travel and other expenses are reimbursed at cost. A copy of Dr. Nichol's consulting letter is filed as Exhibit 10.15 to this
Form 10-Q.

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



|Item  |     | Description                                                                                            
|----- | --- | -------------------------------------------------------------------------------------------------------
|3.1   | (1) | Certificate of Incorporation of the Company.                                                           
|3.2   | (2) | Certificate of Designation of Series A Junior Participating Preferred Stock                            
|3.3   | (3) | Bylaws of the Company.                                                                                 
|4.1   | (4) | Specimen Common Stock Certificate.                                                                     
|10.15 |     | Letter Agreement dated May 17, 2001, between the Company and F. Richard Nichol for Consulting Services.
|11.1  | (5) | Statement of computation of per share earnings.                                                        

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SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed in its behalf by the
undersigned thereunto duly authorized.

|                      |  | FIRST CONSULTING GROUP, INC.
|--------------------- |  | ----------------------------
|Date: August 13, 2001 |  | By:                         
|Date: August 13, 2001 |  | By:                         

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Exhibit Index

|Item  |     | Description                                                                                            
|----- | --- | -------------------------------------------------------------------------------------------------------
|3.1   | (1) | Certificate of Incorporation of the Company.                                                           
|3.2   | (2) | Certificate of Designation of Series A Junior Participating Preferred Stock                            
|3.3   | (3) | Bylaws of the Company.                                                                                 
|4.1   | (4) | Specimen Common Stock Certificate.                                                                     
|10.15 |     | Letter Agreement dated May 17, 2001, between the Company and F. Richard Nichol for Consulting Services.
|11.1  | (5) | Statement of computation of per share earnings.                                                        

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