Exhibit 13

















                             ThermoRetec Corporation

                        Consolidated Financial Statements

                                   Fiscal 1999

<PAGE>
<TABLE>
<CAPTION>

<S>                                                                       <C>        <C>        <C>

ThermoRetec Corporation                                                         1999 Financial Statements

                                   Consolidated Statement of Operations

                                                                                   Year Ended
                                                                           April 3,   April 4,  March 29,
(In thousands except per share amounts)                                        1999       1998       1997
------------------------------------------------------------------------- ---------- ---------- ---------

Revenues (Notes 11 and 14)                                                 $141,946   $128,409   $114,849
                                                                           --------   --------   --------

Costs and Operating Expenses:
 Cost of revenues                                                           119,483    114,011     96,901
 Selling, general, and administrative expenses (Note 8)                      16,820     14,778     13,098
 Restructuring costs (Notes 12 and 18)                                        9,176          -      7,800
                                                                           --------   --------   --------

                                                                            145,479    128,789    117,799
                                                                           --------   --------   --------

Operating Loss                                                               (3,533)      (380)    (2,950)

Interest Income                                                                 795        970      1,896
Interest Expense (includes $264, $259, and $259 to related party; Note 6)    (2,168)    (2,209)    (2,251)
Gain on Sale of Unconsolidated Subsidiary (Note 13)                               -      3,012          -
Other Income, Net (Note 2)                                                        -        209        136
Equity in Earnings of Unconsolidated Subsidiary (Note 13)                         -        174        865
                                                                           --------   --------   --------

Income (Loss) Before Income Taxes                                            (4,906)     1,776     (2,304)
Income Tax (Provision) Benefit (Note 5)                                       1,045     (1,536)      (377)
                                                                           --------   --------   --------

Net Income (Loss)                                                          $ (3,861)   $   240   $ (2,681)
                                                                           ========    =======   ========

Basic and Diluted Earnings (Loss) per Share (Note 15)                      $   (.29)   $   .02   $   (.21)
                                                                           ========    =======   ========

Weighted Average Shares (Note 15)
 Basic                                                                       13,089     12,609     12,821
                                                                           ========    =======   ========

 Diluted                                                                     13,089     12,758     12,821
                                                                           ========    =======   ========

















The accompanying notes are an integral part of these consolidated financial
statements.

                                       2
<PAGE>


ThermoRetec Corporation                                                         1999 Financial Statements

                                        Consolidated Balance Sheet
                                                                                      April 3,   April 4,
(In thousands)                                                                            1999       1998
----------------------------------------------------------------------------------- ----------- ---------

Assets
Current Assets:
 Cash and cash equivalents (includes $20,607 and $8,000 under repurchase              $ 20,669    $ 8,912
   agreement with affiliated company; Note 18)
 Available-for-sale investments, at quoted market value (amortized cost                      -      2,003
   of $2,008 in 1998; Note 2)
 Accounts receivable, less allowances of $1,706 and $1,690                              32,035     30,529
 Unbilled contract costs and fees                                                        8,675      8,154
 Prepaid and refundable income taxes (Note 5)                                            3,923      2,256
 Prepaid expenses                                                                        1,454      2,257
 Due from parent company and affiliated companies                                            -        667
                                                                                      --------   --------

                                                                                        66,756     54,778
                                                                                      --------   --------

Property, Plant, and Equipment, at Cost, Net                                            31,742     37,011
                                                                                      --------   --------

Other Assets                                                                             7,589     10,954
                                                                                      --------   --------

Cost in Excess of Net Assets of Acquired Companies (Notes 3 and 12)                     35,087     37,568
                                                                                      --------   --------

                                                                                      $141,174   $140,311
                                                                                      ========   ========


                                       3
<PAGE>


ThermoRetec Corporation                                                         1999 Financial Statements

                                  Consolidated Balance Sheet (continued)
                                                                                      April 3,   April 4,
(In thousands except share amounts)                                                       1999       1998
----------------------------------------------------------------------------------- ----------- ---------

Liabilities and Shareholders' Investment
Current Liabilities:
 Accounts payable                                                                     $ 10,048    $10,936
 Accrued payroll and employee benefits                                                   6,326      4,875
 Deferred revenue                                                                        3,908      3,374
 Billings in excess of revenues earned                                                   3,323      1,277
 Other accrued expenses                                                                  4,068      4,375
 Due to parent company and affiliated companies                                          2,109          -
                                                                                      --------   --------

                                                                                        29,782     24,837
                                                                                      --------   --------

Deferred Income Taxes (Note 5)                                                             511        407
                                                                                      --------   --------

Subordinated Convertible Obligations (includes $6,830 and                               40,600     40,600
 $5,650 of related-party debt; Note 6)
                                                                                      --------   --------

Commitments and Contingencies (Note 7)

Shareholders' Investment (Notes 4 and 9):
 Common stock, $.01 par value, 50,000,000 shares authorized;                               142        140
   14,247,572 and 14,019,918 shares issued
 Capital in excess of par value                                                         88,045     89,103
 Accumulated deficit                                                                   (12,063)    (5,592)
 Treasury stock at cost, 693,074 and 1,089,085 shares                                   (5,843)    (9,181)
 Accumulated other comprehensive items (Note 2)                                              -         (3)
                                                                                      --------   --------

                                                                                        70,281     74,467
                                                                                      --------   --------

                                                                                      $141,174   $140,311
                                                                                      ========   ========

















The accompanying notes are an integral part of these consolidated financial
statements.

                                       4
<PAGE>


ThermoRetec Corporation                                                         1999 Financial Statements

                                   Consolidated Statement of Cash Flows
                                                                                    Year Ended
                                                                           April 3,   April 4,  March 29,
(In thousands)                                                                 1999       1998       1997
------------------------------------------------------------------------- ---------- ----------- ---------

Operating Activities
 Net income (loss)                                                          $(3,861)   $   240    $(2,681)
 Adjustments to reconcile net income (loss) to net cash provided
   by (used in) operating activities:
     Noncash restructuring costs (Note 12)                                    8,122          -      7,800
     Depreciation and amortization                                            7,889      7,066      6,603
     Gain on sale of unconsolidated subsidiary (Note 13)                          -     (3,012)         -
     Equity in earnings of unconsolidated subsidiary (Note 13)                    -       (174)      (865)
     Deferred income tax expense (benefit)                                   (1,857)    (1,243)       602
     Provision for losses on accounts receivable                              1,026        193        162
     Other noncash items                                                        469        (51)        76
     Changes in current accounts, excluding the effects of acquisitions:
       Accounts receivable                                                   (1,541)    (7,487)    (6,008)
       Unbilled contract costs and fees                                        (521)    (1,797)    (3,420)
       Other current assets                                                     814        529        365
       Accounts payable                                                        (488)       998      3,558
       Billings in excess of revenues earned                                  2,046        398        249
       Other current liabilities                                              2,338     (1,428)    (1,934)
       Due to (from) parent company and affiliated companies                  1,830       (346)       243
                                                                            -------    -------    -------

        Net cash provided by (used in) operating activities                  16,266     (6,114)     4,750
                                                                            -------    -------    -------

Investing Activities
 Acquisitions, net of cash acquired (Note 3)                                   (576)    (5,163)    (1,681)
 Proceeds from sale and maturities of available-for-sale                      2,006      2,088     20,908
investments
 Purchases of available-for-sale investments                                      -          -    (15,753)
 Purchases of property, plant, and equipment                                 (5,437)    (6,318)    (6,036)
 Proceeds from sale of property, plant, and equipment                           409        455        113
 Proceeds from sale of unconsolidated subsidiary (Note 13)                        -      8,825          -
 Increase in other assets                                                      (149)    (1,119)      (788)
 Other                                                                          122          -          -
                                                                            -------    -------    -------

        Net cash used in investing activities                                (3,625)    (1,232)    (3,237)
                                                                            -------    -------    -------

Financing Activities
 Purchases of Company common stock                                                -     (3,055)    (8,317)
 Net proceeds from issuance of Company common stock                              29        179        313
   Dividends paid (Note 9)                                                     (806)      (751)      (847)
 Other                                                                         (107)       182        794
                                                                            -------    -------    -------

        Net cash used in financing activities                               $  (884)   $(3,445)   $(8,057)
                                                                            -------    -------    -------


                                       5
<PAGE>

ThermoRetec Corporation                                                         1999 Financial Statements

                             Consolidated Statement of Cash Flows (continued)
                                                                                     Year Ended
                                                                           April 3,   April 4,  March 29,
(In thousands)                                                                 1999       1998       1997
------------------------------------------------------------------------- ---------- ----------- ---------

Increase (Decrease) in Cash and Cash Equivalents                            $11,757    $(10,791)  $(6,544)
Cash and Cash Equivalents at Beginning of Year                                8,912     19,703     26,247
                                                                            -------    -------    -------

Cash and Cash Equivalents at End of Year                                    $20,669    $ 8,912    $19,703
                                                                            =======    =======    =======

Cash Paid For
 Interest                                                                   $ 1,955    $ 1,996     $2,031
 Income taxes                                                               $   432    $ 2,113     $1,490

Noncash Activities
 Fair value of assets of acquired companies                                 $   576    $13,772     $6,961
 Cash paid for acquired companies                                              (576)    (5,665)    (1,705)
 Issuance of Company common stock for acquired companies                          -     (2,850)    (2,006)
                                                                            -------    -------    -------

     Liabilities assumed of acquired companies                              $     -    $ 5,257    $ 3,250
                                                                            =======    =======    =======

 Dividends reinvested in Company common stock (Note 9)                      $ 1,804    $ 1,753    $ 1,710
                                                                            =======    =======    =======



















The accompanying notes are an integral part of these consolidated financial
statements.

                                       6
<PAGE>

ThermoRetec Corporation                                                         1999 Financial Statements

               Consolidated Statement of Comprehensive Income and Shareholders' Investment
                                                                                     Year Ended
                                                                            April 3,   April 4,  March 29,
(In thousands)                                                                  1999       1998       1997
------------------------------------------------------------------------- ----------- ---------- ---------

Comprehensive Income
Net Income (Loss)                                                          $ (3,861)   $    240   $ (2,681)
                                                                           --------    --------   --------
Other Comprehensive Items:
 Unrealized gain (loss) on available-for-sale investments                         3          (7)        12
                                                                           --------   ---------   --------

                                                                           $ (3,858)   $    233   $ (2,669)
                                                                           ========    ========   ========

Shareholders' Investment
Common Stock, $.01 Par Value:
 Balance at beginning of year                                              $    140    $    134   $    128
 Activity under dividend reinvestment plan (Note 9)                               2           2          2
 Issuance of stock under employees' and directors' stock plans                    -           -          1
 Issuance of Company common stock for acquired companies (Note                    -           4          3
                                                                           --------    --------   --------
3)

 Balance at end of year                                                         142         140        134
                                                                           --------    --------   --------

Capital in Excess of Par Value:
 Balance at beginning of year                                                89,103      85,402     81,353
 Activity under dividend reinvestment plan (Note 9)                          (1,457)      1,751      1,708
 Activity under employees' and directors' stock plans                           (50)       (359)      (654)
 Tax benefit related to employees' and directors' stock plans                   449         181        198
(Note 5)
 Issuance of Company common stock for acquired companies (Note 3)                 -       2,128      2,003
 Capital contribution from parent company                                         -           -        794
                                                                           --------    --------   --------

 Balance at end of year                                                      88,045      89,103     85,402
                                                                           --------    --------   --------

Accumulated Deficit:
 Balance at beginning of year                                                (5,592)     (3,328)     1,910
 Net income (loss)                                                           (3,861)        240     (2,681)
 Activity under dividend reinvestment plan (Note 9)                          (2,610)     (2,504)    (2,557)
                                                                           --------    --------   --------

 Balance at end of year                                                     (12,063)     (5,592)    (3,328)
                                                                           --------    --------   --------

Treasury Stock:
 Balance at beginning of year                                                (9,181)     (7,382)       (31)
 Activity under dividend reinvestment plan (Note 9)                           3,259           -          -
 Activity under employees' and directors' stock plans                            79         538        966
 Purchases of Company common stock                                                -      (3,055)    (8,317)
 Issuance of Company common stock for acquired companies (Note 3)                 -         718          -
                                                                           --------    --------   --------

 Balance at end of year                                                      (5,843)     (9,181)    (7,382)
                                                                           --------    --------   --------

Accumulated Other Comprehensive Items:
 Balance at beginning of year                                                    (3)          4         (8)
 Other comprehensive items                                                        3          (7)        12
                                                                           --------    --------   --------

 Balance at end of year                                                           -          (3)         4
                                                                           --------    --------   --------

                                                                           $ 70,281    $ 74,467   $ 74,830
                                                                           ========    ========   ========

The accompanying notes are an integral part of these consolidated financial
statements.

                                       7
<PAGE>


ThermoRetec Corporation                                                         1999 Financial Statements

                   Notes to Consolidated Financial Statements
1.    Nature of Operations and Summary of Significant Accounting Policies

Nature of Operations
      ThermoRetec Corporation (the Company) is a national provider of
environmental-liability and resource-management services and related consulting
services. The Company operates in four segments: Consulting and Engineering,
Nuclear Remediation, Soil Remediation, and Fluids Recycling. In September 1998,
the Company's name was changed from Thermo Remediation Inc. to ThermoRetec
Corporation.

Relationship with Thermo TerraTech Inc. and Thermo Electron Corporation
      The Company was incorporated in November 1991 and commenced operation in
June 1992. As of April 3, 1999, Thermo TerraTech Inc. owned 9,486,508 shares of
the Company's common stock, representing 70% of such stock outstanding. Thermo
TerraTech is an 87%-owned subsidiary of Thermo Electron Corporation. As of April
3, 1999, Thermo Electron owned 264,700 shares of the Company's common stock,
representing 2% of such stock outstanding.
      Thermo Electron has announced a proposed reorganization involving certain
of Thermo Electron's subsidiaries, including the Company. As part of this
reorganization the Company would be merged into Thermo Electron (Note 16).

Principles of Consolidation
      The accompanying financial statements include the accounts of the Company
and its subsidiaries. All material intercompany accounts and transactions have
been eliminated. The Company accounted for its investment in a business in which
it owned 50% through October 1997 using the equity method (Note 13).

Fiscal Year
      The Company has adopted a fiscal year ending the Saturday nearest March
31. References to fiscal 1999, 1998, and 1997 are for the fiscal years ended
April 3, 1999, April 4, 1998, and March 29, 1997, respectively. Fiscal years
1999 and 1997 each included 52 weeks; fiscal 1998 included 53 weeks.

Revenue Recognition
      Revenues from certain environmental-liability management and consulting
services are recognized upon completion of services rendered. The Company's
Consulting and Engineering and Nuclear Remediation segments also perform
services pursuant to long-term contracts. Revenues and profits on substantially
all long-term contracts are recognized using the percentage-of-completion
method. Revenues recorded under the percentage-of-completion method were
$73,557,000, $77,052,000, and $65,217,000 in fiscal 1999, 1998, and 1997,
respectively. The percentage of completion is determined by relating either the
actual costs or actual labor incurred to date to management's estimate of total
costs or total labor, respectively, to be incurred on each contract. If a loss
is projected on any contract in process, a provision is made currently for the
entire loss. The Company's contracts generally provide for billing of customers
upon the attainment of certain milestones specified in each contract. Revenues
earned on contracts-in-process in excess of billings are classified as unbilled
contract costs and fees in the accompanying balance sheet. There are no
significant amounts included in the accompanying balance sheet that are not
expected to be recovered from existing contracts at current contract values, or
that are not expected to be collected within one year. Amounts billed in excess
of revenues recognized are classified as billings in excess of revenues earned
in the accompanying balance sheet. Revenues from soil-remediation services are
recognized as soil is processed, and the Company bills customers upon receipt of
the contaminated soil at its remediation centers.

Stock-based Compensation Plans
      The Company applies Accounting Principles Board Opinion (APB) No. 25,
"Accounting for Stock Issued to Employees," and related interpretations in
accounting for its stock-based compensation plans (Note 4). Accordingly, no
accounting recognition is given to stock options granted at fair market value
until they are exercised. Upon exercise, net proceeds, including tax benefits
realized, are credited to shareholders' investment.

                                       8
<PAGE>


1.    Nature of Operations and Summary of Significant Accounting Policies (continued)

Income Taxes
      In accordance with Statement of Financial Accounting Standards (SFAS) No.
109, "Accounting for Income Taxes," the Company recognizes deferred income taxes
based on the expected future tax consequences of differences between the
financial statement basis and the tax basis of assets and liabilities,
calculated using enacted tax rates in effect for the year in which the
differences are expected to be reflected in the tax return.

Earnings (Loss) per Share
      Basic earnings (loss) per share have been computed by dividing net income
(loss) by the weighted average number of shares outstanding during the year.
Except when antidilutive, diluted earnings (loss) per share have been computed
assuming the exercise of stock options, as well as their related income tax
effects. The computation of diluted earnings (loss) per share excludes the
effect of assuming the conversion of convertible bonds because the effect would
be antidilutive.

Cash and Cash Equivalents
      At fiscal year-end 1999 and 1998, $20,607,000 and $8,000,000,
respectively, of the Company's cash equivalents were invested in a repurchase
agreement with Thermo Electron. Under this agreement, the Company in effect
lends excess cash to Thermo Electron, which Thermo Electron collateralizes with
investments principally consisting of corporate notes, U.S. government-agency
securities, commercial paper, money market funds, and other marketable
securities, in the amount of at least 103% of such obligation. The Company's
funds subject to the repurchase agreement are readily convertible into cash by
the Company. The repurchase agreement earns a rate based on the 90-day
Commercial Paper Composite Rate plus 25 basis points, set at the beginning of
each quarter (Note 18). Cash equivalents are carried at cost, which approximates
market value.

Property, Plant, and Equipment
      The costs of additions and improvements are capitalized, while maintenance
and repairs are charged to expense as incurred. The Company provides for
depreciation and amortization primarily using the straight-line method over the
estimated useful lives of the property, as follows: buildings, 5 to 40 years;
machinery and equipment, 2 to 15 years; and leasehold improvements, the shorter
of the term of the lease or the life of the asset. Soil-remediation units, which
accounted for 26% and 36% of the Company's machinery and equipment, net, at
fiscal year-end 1999 and 1998, respectively, are depreciated based on an hourly
rate that is computed by estimating total hours of operation for each unit.
Property, plant, and equipment consists of:

(In thousands)                                                                            1999      1998
----------------------------------------------------------------------------------- ----------- ---------

Land                                                                                   $ 4,552    $ 4,554
Buildings                                                                               15,147     18,106
Machinery, Equipment, and Leasehold Improvements                                        35,581     34,380
                                                                                       -------    -------

                                                                                        55,280     57,040
Less:  Accumulated Depreciation and Amortization                                        23,538     20,029
                                                                                       -------    -------

                                                                                       $31,742    $37,011
                                                                                       =======    =======

Other Assets
      Other assets in the accompanying balance sheet includes the costs of
acquired technology and other specifically identifiable intangible assets that
are being amortized using the straight-line method over their estimated useful
lives, which range from 5 to 10 years. These assets were $3,280,000 and
$5,200,000, net of accumulated amortization of $6,760,000 and $5,706,000, at
fiscal year-end 1999 and 1998, respectively. In fiscal 1999, the Company wrote
off $1,169,000 of other assets in connection with restructuring actions (Note
12).

                                       9
<PAGE>

1.    Nature of Operations and Summary of Significant Accounting Policies (continued)

Cost in Excess of Net Assets of Acquired Companies
      The excess of cost over the fair value of net assets of acquired companies
is amortized using the straight-line method over periods ranging from 20 to 40
years. Accumulated amortization was $3,900,000 and $2,836,000 at fiscal year-end
1999 and 1998, respectively. The Company assesses the future useful life of this
asset whenever events or changes in circumstances indicate that the current
useful life has diminished (Note 12). The Company considers the future
undiscounted cash flows of the acquired companies in assessing the
recoverability of this asset. If impairment has occurred, any excess of carrying
value over fair value is recorded as a loss.

Comprehensive Income
      During the first quarter of fiscal 1999, the Company adopted SFAS No. 130,
"Reporting Comprehensive Income." This pronouncement sets forth requirements for
disclosure of the Company's comprehensive income and accumulated other
comprehensive items. In general, comprehensive income combines net income and
"other comprehensive items," which represents unrealized net of tax gains and
losses on available-for-sale investments, reported as a component of
shareholders' investment in the accompanying balance sheet.

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,
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.

Presentation
      Certain amounts in fiscal 1998 and 1997 have been restated to conform to
the presentation in the fiscal 1999 financial statements.

2.    Available-for-sale Investments

      The Company's debt securities are considered available-for-sale
investments in the accompanying balance sheet and are carried at market value,
with the difference between cost and market value, net of related tax effects,
recorded as a component of shareholders' investment titled "Accumulated other
comprehensive items."
      Available-for-sale investments in the accompanying fiscal 1998 balance
sheet represents corporate bonds with contractual maturities of one year or
less. The difference between the market value and the cost basis of
available-for-sale investments was $5,000 of gross unrealized losses at fiscal
year-end 1998.
      The cost of available-for-sale investments that were sold was based on
specific identification in determining realized gains and losses recorded in the
accompanying statement of operations. In fiscal 1997, the Company recorded gross
realized gains of $145,000 and gross unrealized losses of $9,000 related to the
sale of available-for-sale investments.

                                       10
<PAGE>

3.    Acquisitions

      During fiscal 1999, the Company acquired a business for $576,000 in cash.
      In November 1997, the Company acquired Benchmark Environmental Corporation
for 85,106 shares of the Company's common stock, valued at $450,000, and
$2,900,000 in cash. The shares of the Company's common stock issued in
connection with the acquisition are subject to certain restrictions on transfer.
The restrictions lapse with respect to one-third of the shares on each of the
second, third, and fourth anniversaries of the closing. Benchmark provides
nuclear-remediation and waste-management services to government agencies and
private industry.
      In August 1997, the Company, through its Remediation Technologies, Inc.
(RETEC) subsidiary, acquired substantially all of the assets, subject to certain
liabilities, of RPM Systems, Inc. for 374,507 shares of the Company's common
stock, valued at $2,400,000, and $600,000 in cash. Certain shares of the
Company's common stock issued in connection with the acquisition are subject to
restrictions on transfer. Thirty percent of such shares have no transfer
restrictions; while the restrictions lapse with respect to one half of the
remaining shares on each of the second and third anniversaries of the closing.
RPM provides consulting services in the areas of environmental management,
planning, and information technology.
      In May 1997, the Company, also through RETEC, acquired substantially all
of the assets, subject to certain liabilities, of TriTechnics Corporation for
$1,600,000 in cash. TriTechnics provides comprehensive consulting and remedial
services at refinery and chemical-plant sites.
      During fiscal 1998,  the Company also acquired an additional  business
for $565,000 in cash. In September 1996, the Company acquired IEM Sealand
Corporation for 311,040 shares of the Company's common stock, valued at
$2,006,000, and $1,705,000 in cash. The shares of the Company's common
stock issued in connection with the acquisition are subject to certain
restrictions on transfer. The restrictions lapse with respect to one-third
of the shares on each of the third, fourth, and fifth anniversaries of the
closing. IEM Sealand performs cleanups of hazardous waste sites for
government and industry as a prime construction contractor and completes
predesigned remedial action contracts at sites containing hazardous, toxic,
and radioactive wastes.
      These acquisitions have been accounted for using the purchase method of
accounting and their results of operations have been included in the
accompanying financial statements from their respective dates of acquisition.
The aggregate cost of the acquisitions exceeded the estimated fair value of the
acquired net assets by $15,026,000, which is being amortized over periods
ranging from 20 to 40 years. Allocation of the purchase price for these
acquisitions was based on estimates of the fair value of the net assets
acquired. Pro forma data is not included as the effect of these acquisitions was
not material to the Company's results of operations.

4.    Employee Benefit Plans

Stock-based Compensation Plans

Stock Option Plans
      The Company has a stock-based compensation plan for its key employees,
directors, and others. The Company also adopted an employee stock-based
compensation plan, similar to its stock-based compensation plan, except that
neither executive officers nor directors are eligible to participate in the
plan. Both plans permit the grant of a variety of stock and stock-based awards
as determined by the human resources committee of the Company's Board of
Directors (the Board Committee), including restricted stock, stock options,
stock bonus shares, or performance-based shares. As of fiscal year-end 1999,
only nonqualified stock options have been awarded under these plans. The option
recipients and the terms of options granted under these plans are determined by
the Board Committee. Generally, options granted to date are exercisable
immediately, but are subject to certain transfer restrictions and the right of
the Company to repurchase shares issued upon exercise of the options at the
exercise price, upon certain events. The restrictions and repurchase rights
generally lapse ratably over a five to ten year period, depending on the term of
the option, which may range from seven to twelve years. Nonqualified stock
options may be granted at any price determined by the Board Committee, although
incentive stock options must be granted at not less than the fair market value
of the stock on the date of grant. To date, all options have been granted at
fair market value.
</TABLE>


                                       11
<PAGE>

4.    Employee Benefit Plans (continued)

      The Company also has a directors' stock option plan, which provides for
the grant of stock options to outside directors pursuant to a formula approved
by the Company's shareholders. Options awarded under this plan are exercisable
six months after the date of grant and expire three to seven years after the
date of grant. In addition to the Company's stock-based compensation plans,
certain officers and key employees may also be granted options under the
stock-based compensation plans of Thermo Electron or Thermo TerraTech.
      In November 1998, the Company's employees, excluding its officers and
directors, were offered the opportunity to exchange previously granted options
to purchase shares of Company common stock for an amount of options equal to
half of the number of options previously held, exercisable at a price equal to
the fair market value at the time of the exchange offer. Holders of options to
acquire 1,119,000 shares at a weighted average exercise price of $7.46 per share
elected to participate in this exchange and, as a result, received options to
purchase 560,000 shares of the Company common stock at $2.66 per share, which
are included in the fiscal 1999 grants in the table below. The other terms of
the new options are the same as the exchanged options except that the holders
may not sell shares purchased pursuant to such new options for six months from
the exchange date. The options exchanged were canceled by the Company.
<TABLE>
<CAPTION>

      A summary of the Company's stock option activity is:

                                                       1999                 1998                1997
                                               -------------------  ------------------  ------------------

                                                          Weighted            Weighted            Weighted
                                                 Number    Average   Number    Average    Number   Average
                                                     of   Exercise       of   Exercise        of  Exercise
(Shares in thousands)                            Shares      Price   Shares      Price    Shares     Price
---------------------------------------------- --------- ---------- -------- ---------- --------- ---------

<S>                                            <C>       <C>       <C>       <C>        <C>       <C>
Options Outstanding, Beginning of Year            2,051     $ 7.32    1,897     $ 7.92     1,559     $6.95
 Granted                                            779       2.63      438       6.52       556      8.65
 Exercised                                           (9)      3.06      (61)      2.58      (168)     1.47
 Forfeited                                         (162)      8.61     (223)     12.18       (50)     7.43
 Canceled due to exchange                        (1,119)      7.46        -          -         -         -
                                                 ------               -----               ------

Options Outstanding, End of Year                  1,540     $ 4.74    2,051     $ 7.32     1,897     $7.92
                                                 ======     ======    =====     ======    ======     =====

Options Exercisable                               1,510     $ 4.61    2,045     $ 7.31     1,826     $7.79
                                                 ======     ======    =====     ======    ======     =====

Options Available for Grant                         609                 196                  415
                                                 ======               =====               ======
</TABLE>
<TABLE>
<CAPTION>

      A summary of the status of the Company's stock options at April 3, 1999, is:

                                                                      Options Outstanding
                                                      -----------------------------------------------------
Range of Exercise Prices                                   Number             Weighted            Weighted
                                                               of              Average             Average
                                                           Shares            Remaining            Exercise
                                                   (In thousands)     Contractual Life               Price
------------------------------------------------ ------------------ ------------------- -------------------

<S>                                            <C>                  <C>                 <C>
$  1.98 - $  5.22                                             936            5.5 years             $  2.75
   5.23 -    8.46                                             469            2.2 years                6.81
   8.47 -   11.69                                             114            5.6 years               10.51
  11.70 -   14.93                                              21            4.6 years               14.82
                                                            -----

$  1.98 - $ 14.93                                           1,540            5.3 years             $  4.74
                                                            =====

      The information disclosed above for options outstanding at April 3, 1999,
does not differ materially for options exercisable.
</TABLE>


                                       12
<PAGE>

4.    Employee Benefit Plans (continued)

Employee Stock Purchase Program
      Substantially all of the Company's full-time employees are eligible to
participate in an employee stock purchase program sponsored by the Company and
Thermo Electron. Prior to November 1, 1998, the applicable shares of common
stock could be purchased at the end of a 12-month period at 95% of the fair
market value at the beginning of the period and the shares purchased were
subject to a six-month resale restriction. Effective November 1, 1998, the
applicable shares of common stock may be purchased at 85% of the lower of the
fair market value at the beginning or end of the plan year, and shares purchased
are subject to a one-year resale restriction. Shares are purchased through
payroll deductions of up to 10% of each participating employee's gross wages. No
shares were issued under this program in fiscal 1999. During fiscal 1998 and
1997, the Company issued 3,367 shares and 5,792 shares, respectively, of its
common stock under this program. Employees of the Company's Thermo NUtech
subsidiary participated in an employee stock purchase program sponsored by
Thermo TerraTech through November 1996.

Pro Forma Stock-based Compensation Expense
      In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-based Compensation," which sets forth a fair-value
based method of recognizing stock-based compensation expense. As permitted by
SFAS No. 123, the Company has elected to continue to apply APB No. 25 to account
for its stock-based compensation plans. Had compensation cost for awards granted
after fiscal 1995 under the Company's stock-based compensation plans been
determined based on the fair value at the grant dates consistent with the method
set forth under SFAS No. 123, the effect on the Company's net income (loss) and
earnings (loss) per share would have been:
<TABLE>
<CAPTION>
<S>                                                                   <C>          <C>         <C>

(In thousands except per share amounts)                                      1999        1998        1997
--------------------------------------------------------------------- ------------ ----------- -----------

Net Income (Loss):
 As reported                                                              $(3,861)     $  240      $(2,681)
 Pro forma                                                                 (4,721)       (286)      (2,946)

Basic and Diluted Earnings (Loss) per Share:
 As reported                                                                 (.29)        .02        (.21)
 Pro forma                                                                   (.36)       (.02)       (.23)

      Because the method prescribed by SFAS No. 123 has not been applied to
options granted prior to April 2, 1995, the resulting pro forma compensation
expense may not be representative of the amount to be expected in future years.
Pro forma compensation expense for options granted is reflected over the vesting
period; therefore, future pro forma compensation expense may be greater as
additional options are granted.
      The weighted average fair value per share of options granted was $2.63,
$1.82, and $3.58 in fiscal 1999, 1998, and 1997, respectively. The fair value of
each option grant was estimated on the grant date using the Black-Scholes
option-pricing model with the following weighted-average assumptions:

                                                                             1999         1998       1997
------------------------------------------------------------------- --------------- ----------- ----------

Volatility                                                                    36%          27%         29%
Risk-free Interest Rate                                                      4.7%         5.5%        6.3%
Expected Life of Options                                                3.6 years    3.4 years   5.9 years




                                       13
<PAGE>

4.    Employee Benefit Plans (continued)

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

401(k) Savings Plans
      The majority of the Company's full-time employees are eligible to
participate in 401(k) savings plans sponsored by certain subsidiaries and Thermo
Electron. Contributions to the 401(k) savings plans are made by both the
employee and the Company. Company contributions are based upon the level of
employee contributions and for certain plans are based on subsidiary profits.
The Company contributed and charged to expense for these plans $2,764,000,
$2,016,000, and $1,572,000 in fiscal 1999, 1998, and 1997, respectively.

5.    Income Taxes

      The components of the income tax (provision) benefit are:

(In thousands)                                                               1999        1998        1997
--------------------------------------------------------------------- ------------ ----------- -----------

Currently Refundable (Payable):
 Federal                                                                  $  (139)    $(1,947)     $   510
 State                                                                       (673)       (832)        (285)
                                                                          -------      ------      -------

                                                                             (812)     (2,779)         225
                                                                          -------      ------      -------

Net (Deferred) Prepaid:
 Federal                                                                    1,619       1,074         (491)
 State                                                                        238         169         (111)
                                                                          -------      ------      -------

                                                                            1,857       1,243         (602)
                                                                          -------      ------      -------

                                                                          $ 1,045     $(1,536)     $ (377)
                                                                          =======     =======      =======

      The Company receives a tax deduction upon exercise of nonqualified stock
options by employees for the difference between the exercise price and the
market price of the Company's stock on the date of exercise. The income tax
provision that is currently payable does not reflect $449,000, $181,000, and
$198,000 of such benefits of the Company that have been allocated to capital in
excess of par value in fiscal 1999, 1998, and 1997, respectively.


                                       14
<PAGE>

5.    Income Taxes (continued)

      The income tax (provision) benefit in the accompanying statement of
operations differs from the amounts calculated by applying the statutory federal
income tax rate of 34% to income (loss) before income taxes due to:

(In thousands)                                                               1999         1998       1997
--------------------------------------------------------------------- ------------ ------------ ----------

Income Tax (Provision) Benefit at Statutory Rate                          $ 1,668      $  (604)     $  783
Differences Resulting From:
 State income taxes, net of federal tax                                      (287)        (438)       (261)
 Amortization and write-off of cost in excess of net assets of               (341)        (267)       (979)
   acquired companies
 Nondeductible expenses                                                       (55)         (27)        (27)
 Other                                                                         60         (200)        107
                                                                          -------      -------      ------

                                                                          $ 1,045      $(1,536)     $ (377)
                                                                          =======      =======      ======

      Prepaid income taxes and deferred income taxes in the accompanying balance
sheet consist of:

(In thousands)                                                                            1999       1998
----------------------------------------------------------------------- ----------- ----------- ----------

Prepaid Income Taxes:
 Reserves and accruals                                                                  $2,137      $1,057
 Accrued compensation                                                                    1,098         897
 Net operating loss carryforwards                                                        1,583         714
 Allowance for doubtful accounts                                                            77           9
 Other                                                                                     192          25
                                                                                        ------      ------

                                                                                         5,087       2,702
 Less:  Valuation allowance                                                              1,164         739
                                                                                        ------      ------

                                                                                        $3,923      $1,963
                                                                                        ======      ======

Deferred Income Taxes:
 Depreciation                                                                            1,094         407
 Intangible assets                                                                        (760)          -
 Other                                                                                     177           -
                                                                                        ------      ------

                                                                                        $  511      $  407
                                                                                        ======      ======

      The valuation allowance relates to uncertainty surrounding the realization
of tax benefits attributable to federal and state operating losses and credit
carryforwards. The valuation allowance increased in fiscal 1999 as a result of
certain losses that arose during the year. Of the total fiscal 1999 valuation
allowance, $117,000 will be used to reduce cost in excess of net assets of
acquired companies when any portion of the related deferred tax asset is
recognized.


                                       15
<PAGE>

6.    Subordinated Convertible Obligations

      In May 1995, the Company issued and sold $37,950,000 principal amount of 4
7/8% subordinated convertible debentures due May 2000, including $3,000,000
principal amount of such debentures sold to Thermo Electron. During fiscal 1999,
Thermo Electron purchased an additional $1,180,000 principal amount of such
debentures. The debentures are convertible into shares of the Company's common
stock at a conversion price of $17.92 per share and are guaranteed on a
subordinated basis by Thermo Electron. Thermo TerraTech has agreed to reimburse
Thermo Electron in the event Thermo Electron is required to make a payment under
the guarantee.
      In fiscal 1994, the Company issued to Thermo TerraTech $2,650,000
principal amount of a 3 7/8% subordinated convertible note due November 2000.
The note is convertible into shares of the Company's common stock at a
conversion price of $9.83 per share.
      See Note 10 for fair value information pertaining to the Company's
subordinated convertible obligations.

7.    Commitments and Contingencies

Operating Leases
      The Company leases land, office facilities, and equipment under operating
leases expiring at various dates through fiscal 2006. The accompanying statement
of operations includes expenses from operating leases of $3,151,000, $2,707,000,
and $1,943,000 in fiscal 1999, 1998, and 1997, respectively. Future minimum
payments due under noncancelable operating leases at April 3, 1999, are
$2,579,000 in fiscal 2000, $2,218,000 in fiscal 2001; $1,511,000 in fiscal 2002;
$913,000 in fiscal 2003; $221,000 in fiscal 2004; and $155,000 in 2005 and
thereafter. Total future minimum lease payments are $7,597,000.

Contingencies
      The Company is contingently liable with respect to lawsuits and other
matters that arose in the ordinary course of business. In the opinion of
management, these contingencies will not have a material adverse effect upon the
financial position of the Company or its results of operations.

8.    Related-party Transactions

Corporate Services Agreement
      The Company and Thermo Electron have a corporate services agreement under
which Thermo Electron's corporate staff provides certain administrative
services, including certain legal advice and services, risk management, certain
employee benefit administration, tax advice and preparation of tax returns,
centralized cash management, and certain financial and other services, for which
the Company currently pays Thermo Electron annually an amount equal to 0.8% of
the Company's revenues. In calendar 1997 and 1996 the Company paid an amount
equal to 1.0% of the Company's revenues. For these services, the Company was
charged $1,136,000, $1,220,000, and $1,148,000 in fiscal 1999, 1998, and 1997,
respectively. The fee is reviewed and adjusted annually by mutual agreement of
the parties. The corporate services agreement is renewed annually but can be
terminated upon 30 days' prior notice by the Company or upon the Company's
withdrawal from the Thermo Electron Corporate Charter (the Thermo Electron
Corporate Charter defines the relationship among Thermo Electron and its
majority-owned subsidiaries). Management believes that the service fee charged
by Thermo Electron is reasonable and that such fees are representative of the
expenses the Company would have incurred on a stand-alone basis. For additional
items such as employee benefit plans, insurance coverage, and other identifiable
costs, Thermo Electron charges the Company based upon costs attributable to the
Company. In fiscal 1999, Thermo Electron billed the Company an additional
$57,000 for certain administrative services required by the Company that were
not covered by the corporate services agreement.


                                       16
<PAGE>


8.    Related-party Transactions (continued)

Subordinated Convertible Obligations
      See Note 6 for obligations of the Company held by Thermo Electron and
Thermo TerraTech.

Repurchase Agreement
      The Company invests excess cash in a repurchase agreement with Thermo
Electron as discussed in Notes 1 and 18.

Other Related-party Transactions
      The Company purchases and sells services in the ordinary course of
business to other companies affiliated with Thermo TerraTech. Purchases of
services from such affiliated companies totaled $432,000, $1,129,000, and
$979,000 in fiscal 1999, 1998, and 1997, respectively. Sales of services to such
affiliated companies totaled $730,000, $1,710,000, and $1,825,000 in fiscal
1999, 1998, and 1997, respectively.
      In March 1999, as settlement of a note receivable, the Company received
118,707 shares of Thermo TerraTech common stock. The Company immediately sold
the shares to Thermo TerraTech at fair market value, and received proceeds of
$668,000.

9.    Common Stock

       Dividends to common shareholders of the Company of $2,610,000 were
declared in fiscal 1999, of which $1,804,000, including $1,798,000 paid to
Thermo TerraTech, was reinvested in 614,244 shares of the Company's common stock
pursuant to the Company's Dividend Reinvestment Plan. Dividends to common
shareholders of the Company of $2,504,000 were declared in fiscal 1998, of which
$1,753,000, including $1,736,000 paid to Thermo TerraTech, was reinvested in
257,338 shares of the Company's common stock. Dividends to common shareholders
of the Company of $2,557,000 were declared in fiscal 1997, of which $1,710,000,
including $1,694,000 paid to Thermo TerraTech, was reinvested in 196,806 shares
of the Company's common stock.
      At April 3, 1999, the Company had reserved 4,709,734 unissued shares of
its common stock for possible issuance under stock-based compensation plans and
possible issuance upon conversion of the Company's subordinated convertible
obligations.

10.   Fair Value of Financial Instruments

      The Company's financial instruments consist mainly of cash and cash
equivalents, available-for-sale investments, accounts receivable, due from
parent company and affiliated companies, accounts payable, due to parent company
and affiliated companies, and subordinated convertible obligations. The carrying
amounts of these financial instruments, with the exception of available-for-sale
investments and subordinated convertible obligations, approximates fair value
due to their short-term nature.
      Available-for-sale investments are carried at fair value in the
accompanying fiscal 1998 balance sheet. The fair value was determined based upon
quoted market prices. See Note 2 for fair value information pertaining to these
financial statements.
      Based on quoted market prices and on borrowing rates available to the
Company, the fair value of the Company's subordinated convertible obligations
was $38,728,000 and $39,395,000 at fiscal year-end 1999 and 1998, respectively.


                                       17
<PAGE>

11.   Significant Customer and Concentration of Credit Risk

      A substantial portion of the Company's Nuclear Remediation segment's
services has been provided to the U.S. government. Total revenues to U.S.
government agencies accounted for 13%, 10%, and 30% of the Company's total
revenues in fiscal 1999, 1998, and 1997, respectively. In fiscal 1999, the
Company's Consulting and Engineering segment provided services to one customer
which accounted for 12% of the Company's total revenues. Management does not
believe that these concentrations of credit risk have or will have a significant
negative impact on the Company.

12.   Restructuring Costs

      During fiscal 1999, the Company recorded $9,176,000 of restructuring
costs, which were accounted for in accordance with Emerging Issues Task Force
Pronouncement 94-3, in connection with the closure of two soil-recycling
facilities in response to a continued downturn in the Company's Soil Remediation
segment. The costs include a $6,238,000 write-down of fixed assets to their
estimated disposal value of $895,000 and a $1,884,000 write-off of intangible
assets, including $715,000 of cost in excess of net assets of acquired
companies, as well as $1,054,000 primarily for ongoing lease costs and severance
for 13 employees, 6 of whom were terminated in fiscal 1999. The Company closed
one of the soil-recycling facilities in March 1999 and is actively seeking a
buyer for the second soil-recycling facility. If no buyer is found, the
Company will close the facility.
      A summary of the changes in accrued restructuring costs, which are
included in other accrued expenses in the accompanying balance sheet, is as
follows:

                                                                                   Facility
(In thousands)                                                      Severance         Costs         Total
--------------------------------------------------------------- -------------- ------------- -------------

Balance at April 4, 1998                                              $     -        $    -        $     -
 Provision charged to expense                                             213           841          1,054
 Usage                                                                   (101)         (151)          (252)
                                                                      -------        ------        -------

Balance at April 3, 1999                                              $   112        $  690        $   802
                                                                      =======        ======        =======

      During fiscal 1997, the Company recorded $7,800,000 of restructuring costs
to write down certain capital equipment and intangible assets, including
$2,206,000 of cost in excess of net assets of acquired companies, in response to
a severe downturn in the Company's Soil Remediation segment, which resulted in
the closure of two soil-recycling facilities. In addition, the Company's
analysis indicated that the future undiscounted cash flows from certain other
soil-recycling facilities that remained open would be insufficient to recover
the Company's investment in those business units, thus requiring a write-down of
certain assets, included in the $7,800,000 charge. Of the total charge,
$2,206,000 was nondeductible for tax purposes.
      In May 1999, the Company announced certain other restructuring actions
(Note 18).

13.   Equity in Earnings of Unconsolidated Subsidiary

      The Company's equity in earnings of unconsolidated subsidiary in the
accompanying statement of operations represented the Company's proportionate
share of income from a 50% investment in RETEC/TETRA L.C., acquired in December
1995 through an acquisition. In October 1997, the Company sold its 50%
limited-liability interest in RETEC/TETRA to TETRA Thermal, Inc., for $8,825,000
in cash. The Company realized a pretax gain of $3,012,000 on the sale.
      For the year ended December 31, 1996, RETEC/TETRA reported revenues of
$12,066,000, cost of revenues of $9,040,000, gross profit of $3,026,000, and net
income of $981,000.
</TABLE>



                                       18
<PAGE>

14.   Business Segment Information

      The Company organizes and manages its business by individual functional
operating entity. The Company operates in four segments: Consulting and
Engineering, Nuclear Remediation, Soil Remediation, and Fluids Recycling. In
classifying operational entities into a particular segment the Company
aggregates businesses with similar economic characteristics, services, and
customers.
      The Consulting and Engineering segment provides consultation, engineering,
and on-site services to help clients manage problems associated with
environmental compliance, resource management, and the remediation of industrial
sites contaminated with organic and inorganic wastes and residues.
      The Nuclear Remediation segment provides services to remove radioactive
contaminants from sand, gravel, and soil, as well as health physics services,
radiochemistry laboratory services, radiation dosimetry services,
radiation-instrument calibration and repair services, and radiation-source
production.
      The Soil Remediation segment designs and operates facilities for the
on-site remediation of nonhazardous soil and mobile equipment.
      The Company's Fluids Recycling segment collects, tests, processes, and
recycles used motor oil and other industrial fluids.
<TABLE>
<CAPTION>
<S>                                                                         <C>        <C>        <C>

(In thousands)                                                                   1999      1998       1997
--------------------------------------------------------------------------- ---------- ---------  ---------

Revenues:
 Consulting and Engineering                                                 $  73,439  $ 76,892   $  64,913
 Nuclear Remediation                                                           34,863    26,934      23,472
 Soil Remediation                                                              24,183    17,773      21,233
 Fluids Recycling                                                               9,461     6,810       5,231
                                                                            ---------  --------   ---------

                                                                            $ 141,946  $128,409   $ 114,849
                                                                            =========  ========   =========

Income (Loss) Before Income Taxes:
 Consulting and Engineering                                                 $   3,042  $ (1,854)  $   5,588
 Nuclear Remediation                                                            1,479     1,659       1,735
 Soil Remediation (a)                                                          (7,259)      236      (9,404)
 Fluids Recycling                                                               1,103       939         912
 Corporate (b)                                                                 (1,898)   (1,360)     (1,781)
                                                                            ---------  --------   ---------

 Total operating loss                                                          (3,533)     (380)     (2,950)
 Interest and other income (expense), net                                      (1,373)    2,156         646
                                                                            ---------  --------   ---------

                                                                            $  (4,906) $  1,776   $  (2,304)
                                                                            =========  ========   =========

Total Assets:
 Consulting and Engineering                                                 $  55,068  $ 59,773   $  49,229
 Nuclear Remediation                                                           18,774    16,585      10,886
 Soil Remediation                                                              27,710    36,409      36,977
 Fluids Recycling                                                              12,851    13,225      10,573
 Corporate (c)                                                                 26,771    14,319      28,449
                                                                            ---------  --------   ---------

                                                                            $ 141,174  $140,311   $ 136,114
                                                                            =========  ========   =========



                                       19
<PAGE>


14.   Business Segment Information (continued)

(In thousands)                                                                   1999      1998       1997
--------------------------------------------------------------------------- ---------- ---------- --------

Depreciation and Amortization:
 Consulting and Engineering                                                 $   1,618  $  1,453   $ 1,118
 Nuclear Remediation                                                            1,841     1,274       856
 Soil Remediation                                                               3,305     3,239     3,668
 Fluids Recycling                                                               1,120       768       501
 Corporate                                                                          5       332       460
                                                                            ---------  --------   -------

                                                                            $   7,889  $  7,066   $ 6,603
                                                                            =========  ========   =======

Capital Expenditures:
 Consulting and Engineering                                                 $   1,131  $  1,048   $   588
 Nuclear Remediation                                                            2,222     2,336       288
 Soil Remediation                                                               1,581     1,183     1,663
 Fluids Recycling                                                                 503     1,727     3,497
 Corporate                                                                          -        24         -
                                                                            ---------  --------   -------

                                                                            $   5,437  $  6,318   $ 6,036
                                                                            =========  ========   =======

(a) Includes restructuring costs of $9,176,000 and $7,800,000 in fiscal 1999 and
    1997, respectively.
(b) Primarily general and administrative expenses.
(c) Primarily cash and cash equivalents.

15.   Earnings (Loss) per Share

      Basic and diluted earnings (loss) per share were calculated as follows:

(In thousands except per share amounts)                                         1999       1998      1997
------------------------------------------------------------------------- ----------- ---------- ---------

Basic
Net Income (Loss)                                                           $(3,861)   $    240    $(2,681)
                                                                            -------    --------    -------

Weighted Average Shares                                                      13,089      12,609     12,821
                                                                            -------     -------    -------

Basic Earnings (Loss) per Share                                             $  (.29)    $   .02    $  (.21)
                                                                            ========    =======    =======

Diluted
Net Income (Loss)                                                           $(3,861)    $   240    $(2,681)
                                                                            -------     -------    -------

Weighted Average Shares                                                      13,089      12,609     12,821
Effect of Stock Options                                                           -         149          -
                                                                            -------     -------    -------

Weighted Average Shares, as Adjusted                                         13,089      12,758     12,821
                                                                            -------     -------    -------

Diluted Earnings (Loss) per Share                                           $ (.29)     $   .02    $  (.21)
                                                                            =======     =======    =======

      The computation of diluted earnings (loss) per share excludes the effect
of assuming the exercise of certain outstanding stock options because the effect
would be antidilutive. As of April 3, 1999, there were 1,547,000 of such options
outstanding, with exercise prices ranging from $1.98 to $14.93 per share.
</TABLE>


                                       20
<PAGE>

15.   Earnings (Loss) per Share (continued)

      In addition, the computation of diluted earnings (loss) per share excludes
the effect of assuming the conversion of convertible obligations because the
effect would be antidilutive. As of April 3, 1999, the Company had $37,950,000
principal amount of 4 7/8% subordinated convertible debentures, convertible at
$17.92 per share, and $2,650,000 principal amount of a 3 7/8% subordinated
convertible note, convertible at $9.83 per share, that were excluded from the
calculation of diluted earnings (loss) per share.

16.    Proposed Reorganization

      Thermo Electron has announced a proposed reorganization involving certain
of Thermo Electron's subsidiaries, including the Company. Under this plan, the
Company and its sister subsidiary, The Randers Killam Group Inc., as well as
their parent company, Thermo TerraTech, would be merged into Thermo Electron. As
a result, all three companies would become wholly owned subsidiaries of Thermo
Electron. The public shareholders of the Company, The Randers Killam Group, and
Thermo TerraTech would receive common stock in Thermo Electron in exchange for
their shares. The completion of this transaction is subject to numerous
conditions, including the establishment of prices and exchange ratios;
confirmation of anticipated tax consequences; the approval of the Board of
Directors of Thermo TerraTech and The Randers Killam Group; the negotiation and
execution of a definitive merger agreement; the receipt of a fairness opinion
from an investment banking firm that the transaction is fair to the Company's
shareholders (other than Thermo TerraTech and Thermo Electron) from a financial
point of view; the approval of the Company's Board of Directors, including its
independent directors; and completion of review by the Securities and Exchange
Commission of any necessary documents regarding the proposed transaction.
<TABLE>
<CAPTION>

17.   Unaudited Quarterly Information
<S>                                                <C>        <C>         <C>         <C>        <C>

(In thousands except per share amounts)

1999                                                               First   Second (a)  Third      Fourth
---------------------------------------------------------------- --------- ---------- ---------- ---------

Revenues                                                           $34,416   $35,140    $36,907    $35,483
Gross Profit                                                        5,544      5,633      5,543      5,743
Net Income (Loss)                                                     488     (5,323)       506        468
Basic and Diluted Earnings (Loss) per Share                           .04      (.41)        .04        .04

1998                                                               First   Second (b)  Third (c)  Fourth
---------------------------------------------------------------- --------- ---------- ---------- ---------

Revenues                                                           $28,204   $33,639    $34,620    $31,946
Gross Profit                                                        4,371      5,274      3,947        806
Net Income (Loss)                                                     576        696      1,701     (2,733)
Basic and Diluted Earnings (Loss) per Share                           .05        .06        .13       (.21)

(a) Reflects a pretax charge of $9,176,000 for restructuring costs.
(b) Reflects the August 1997 acquisition of RPM.
(c) Reflects the November 1997 acquisition of Benchmark and includes a pre-tax
    gain of $3,012,000 from the sale of an investment in a joint venture.



                                       21
<PAGE>

18.   Subsequent Events

Restructuring Actions
      On May 24, 1999, the Company announced that it plans to sell three
soil-recycling facilities in addition to those discussed in Note 12. As a
result, the Company expects to incur pretax charges totaling approximately $10
million, primarily in the first quarter of fiscal 2000. These charges primarily
represent the excess of the book value of the three facilities that will be sold
over the estimated proceeds from the sale. For the fiscal year ended April 3,
1999, revenues and operating income from these businesses totaled $8,001,000 and
$371,000, respectively.

Cash Management Arrangement
     Effective June 1, 1999, the Company and Thermo Electron  commenced use of a
new domestic cash management arrangement (Note 1). Under the new arrangement,
amounts advanced to Thermo Electron by the Company for domestic cash management
purposes bear interest at the 30-day Dealer Commercial Paper Rate plus 50 basis
points, set at the beginning of each month. Thermo Electron is contractually
required to maintain cash, cash equivalents, and/or immediately available bank
lines of credit equal to at least 50% of all funds invested under this cash
management arrangement by all Thermo Electron subsidiaries other than wholly
owned subsidiaries. The Company has the contractual right to withdraw its funds
invested in the cash management arrangement upon 30 days' prior notice. The
Company will report amounts invested in this arrangement as "advance to
affiliate" in its balance sheet, beginning in the first quarter of fiscal 2000.

                                       22
<PAGE>


                    Report of Independent Public Accountants

To the Shareholders and Board of Directors of ThermoRetec Corporation:

      We have audited the accompanying consolidated balance sheet of ThermoRetec
Corporation (formerly Thermo Remediation, Inc.; a Delaware corporation and
70%-owned subsidiary of Thermo TerraTech Inc.) and subsidiaries as of April 3,
1999, and April 4, 1998, and the related consolidated statements of operations,
cash flows, and comprehensive income and shareholders' investment for each of
the three years in the period ended April 3, 1999. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
      We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
      In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of ThermoRetec
Corporation and subsidiaries as of April 3, 1999, and April 4, 1998, and the
results of their operations and their cash flows for each of the three years in
the period ended April 3, 1999, in conformity with generally accepted accounting
principles.



                                                            Arthur Andersen LLP



Boston, Massachusetts May 11, 1999 (except with respect to the matters discussed
in Note 18, as to which the date is June 1, 1999)


                                       23
<PAGE>

                     Management's Discussion and Analysis of
                  Financial Condition and Results of Operations

      Forward-looking statements, within the meaning of Section 21E of the
Securities Exchange Act of 1934, are made throughout this Management's
Discussion and Analysis of Financial Condition and Results of Operations. 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 "believes," "anticipates," "plans," "expects," "seeks,"
"estimates," and similar expressions are intended to identify forward-looking
statements. 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, including those detailed immediately after this Management's
Discussion and Analysis of Financial Condition and Results of Operation under
the heading "Forward-looking Statements."

Overview

      The Company is a national provider of environmental-liability and
resource-management services. Through a nationwide network of offices, the
Company offers these and related consulting services in four segments:
Consulting and Engineering, Nuclear Remediation, Soil Remediation, and Fluids
Recycling.
      The Company's Consulting and Engineering segment provides consultation,
engineering, and on-site services to help clients manage problems associated
with environmental compliance, resource management, and the remediation of
industrial sites contaminated with organic and inorganic wastes and residues. In
May 1997, the Company's RETEC subsidiary acquired TriTechnics Corporation, an
environmental engineering and consulting firm. The Company's eastern
construction operations, acquired in September 1996, perform the cleanup of
hazardous waste sites for government and industry as a prime construction
contractor and completes predesigned remedial action contracts at sites
containing hazardous, toxic, and radioactive wastes.
      The Company's Nuclear Remediation segment provides services to remove
radioactive contaminants from sand, gravel, and soil, as well as health physics
services, radiochemistry laboratory services, radiation dosimetry services,
radiation-instrument calibration and repair services, and radiation-source
production. In November 1997, the Company acquired Benchmark Environmental
Corporation, a provider of nuclear-remediation and waste-management services to
government and private sector clients.
      Through its Soil Remediation segment, the Company designs and operates
facilities for the on-site remediation of nonhazardous soil and mobile
equipment. The Company's soil-remediation centers are environmentally secure
facilities for receiving, storing, and processing petroleum-contaminated soils.
Although the Company expects this market to remain viable for some time after
April 3, 1999, there can be no assurance that this business will not decline in
future years. In May 1999, the Company announced plans to sell three additional
soil-recycling facilities (Note 18). In connection with this action, the Company
expects to incur pretax charges totaling approximately $10 million, primarily in
the first quarter of fiscal 2000. These charges primarily represent the excess
of the book value of the three facilities that will be sold over the estimated
proceeds from the sale. For the fiscal year ended April 3, 1999, revenues and
operating income from these businesses totaled $8,001,000 and $371,000,
respectively.
      The Company's Fluids Recycling segment collects, tests, processes, and
recycles used motor oil and other industrial fluids in certain western states
(Oregon, Idaho, Nevada, Utah, Colorado, New Mexico, and Arizona).
      The Company's businesses are affected by several factors, particularly
regulation and enforcement of remediation activities, extreme weather
variations, economic cycles, the availability of federal and state funding for
environmental cleanup, and local competition.
      The Company has acquired a number of businesses in the last three years.
The Company does not presently intend to actively seek to make additional
acquisitions in the near future, and expects instead to concentrate its
resources on strengthening its core businesses.


                                       24
<PAGE>


Results of Operations

Fiscal 1999 Compared With Fiscal 1998
      Revenues increased 11% to $141.9 million in fiscal 1999 from $128.4
million in fiscal 1998. Nuclear Remediation segment revenues increased $7.9
million to $34.9 million due to the inclusion of $5.2 million in revenues from
an acquired business, as well as internal growth. Soil Remediation segment
revenues increased $6.4 million to $24.2 million, resulting from higher volumes
of soil processed. The Company believes that the recent strength in the
soil-remediation market is due in part to compliance with a December 1998 U.S.
Environmental Protection Agency deadline for modifying underground storage
tanks. Although the Company expects this market to remain viable for some time
after April 3, 1999, there can be no assurance that this business will not
decline in future years. In May 1999, the Company announced plans to sell three
additional soil-recycling facilities (Note 18). For fiscal 1999, revenues and
operating income from these businesses totaled $8.0 million and $0.4 million,
respectively. Fluids Recycling segment revenues increased $2.7 million to $9.5
million, primarily due to increased capacity as a result of geographical
expansion. These increases in revenues were offset in part by a decrease in
revenues of $3.5 million to $73.4 million at the Consulting and Engineering
segment due to a decrease in revenues at the Company's eastern construction
operations resulting from a decline in the number of contracts in process,
offset in part by higher revenues from consulting and engineering services at
RETEC and the inclusion of $1.0 million in revenues from businesses acquired in
fiscal 1998.
      The gross profit margin increased to 16% in fiscal 1999 from 11% in fiscal
1998. The gross profit margin increased in fiscal 1999 primarily due to a
reduction of losses at the Company's eastern construction operations on certain
remedial-construction contracts and higher utilization of billable personnel at
RETEC at the Consulting and Engineering segment, as well as higher volumes of
soil processed at the Soil Remediation segment. These increases were offset in
part by a reduction in gross profit margin at the Nuclear Remediation segment
due to development costs associated with a contract for the U.S. Department of
Energy.
      Selling, general, and administrative expenses as a percentage of revenues
remained unchanged at 12% in fiscal 1999 and 1998. Selling, general, and
administrative expenses increased primarily due to higher provisions for
uncollectible accounts, increased administrative costs associated with the
Company's name change, the inclusion of expenses for the full year from acquired
businesses, and higher insurance costs.
      During fiscal 1999, the Company recorded $9.2 million of restructuring
costs in connection with the closure of two soil-recycling facilities. The costs
include a write-down of fixed assets to their estimated disposal value and a
write-off of intangible assets, including cost in excess of net assets of
acquired companies, as well as other closure costs (Note 12). The closure was in
response to changes in market conditions, which have resulted in lower-priced
disposal alternatives. These facilities reported aggregate revenues and
operating losses of $2.2 million and $0.8 million, respectively, in fiscal 1998
and aggregate revenues and operating losses prior to the decision to close the
facilities of $1.8 million and $0.1 million, respectively, in fiscal 1999. In
May 1999, the Company announced that it would record additional pretax
restructuring charges of approximately $10 million, primarily in the first
quarter of fiscal 2000, as a result of the Company's decision to sell three
additional soil-recycling facilities (Note 18).
      Interest income decreased to $0.8 million in fiscal 1999 from $1.0 million
in fiscal 1998 as a result of lower average invested cash balances.
      Equity in earnings of unconsolidated subsidiary in fiscal 1998 represents
the Company's proportionate share of income from a joint venture that was sold
in fiscal 1998. "Gain on sale of unconsolidated subsidiary" resulted from the
Company's sale of its interest in this joint venture (Note 13).
      The Company recorded a tax benefit in fiscal 1999 at an effective rate
below the statutory federal income tax rate, primarily due to the impact of the
write-off of nondeductible cost in excess of net assets of acquired companies.
The effective tax rate in fiscal 1998 exceeded the statutory federal income tax
rate primarily due to the impact of state income taxes and nondeductible
amortization of cost in excess of net assets of acquired companies.
      In July 1998, the Company filed suit against a customer, seeking payment
of $2.6 million that has been billed under a contract to provide remediation
services. The customer has disputed its obligation to pay the Company. While the
Company generally maintains reserves for these types of matters, failure to
collect this receivable would have a material adverse impact on the Company's
future results of operations.


                                       25
<PAGE>


Fiscal 1998 Compared With Fiscal 1997
      Revenues in fiscal 1998 increased 12% to $128.4 million from $114.8
million in fiscal 1997. Consulting and Engineering segment revenues increased
$12.0 million to $76.9 million due to the inclusion of $16.7 million in revenues
from acquired businesses and, to a lesser extent, higher revenues from
consulting and engineering services at RETEC. This increase was offset in part
by an $11.1 million decrease in revenues resulting from a decline in the number
of contracts in process at the Company's eastern construction operations.
Revenues from the Nuclear Remediation segment increased $3.5 million to $26.9
million, primarily due to the inclusion of revenues from an acquired business.
Revenues at the Fluids Recycling segment increased $1.6 million in fiscal 1998,
primarily due to increased capacity as a result of geographic expansion.
Revenues from the Soil Remediation segment decreased $3.5 million, resulting
from the closure of two sites, as well as heavy rains, which unfavorably
affected operations at certain West Coast sites, and, to a lesser extent,
competitive pricing pressures.
      The gross profit margin decreased to 11% in fiscal 1998 from 16% in fiscal
1997, primarily due to losses on certain remedial-construction contracts at the
Company's eastern construction operations, resulting from poorly bid and
executed projects, and an increase in lower-margin revenues at RETEC at the
Consulting and Engineering segment. These decreases were offset in part by a
greater percentage of soil-remediation revenues earned at certain higher-margin
soil-remediation facilities at the Soil Remediation segment.
      Selling, general, and administrative expenses as a percentage of revenues
remained relatively unchanged at 11.5% and 11.4% in fiscal 1998 and 1997,
respectively. Selling, general, and administrative expenses increased due to the
inclusion of expenses from acquired businesses.
      During fiscal 1997, the Company recorded $7.8 million of restructuring
costs in connection with the write-down of certain capital equipment and
intangible assets, including cost in excess of net assets of acquired companies
(Note 12). The write-down was in response to a severe downturn in the Company's
soil-recycling business, which resulted in the closure of two soil-remediation
sites. In addition, the Company's analysis indicated that the future
undiscounted cash flows from certain other soil-remediation sites that remained
open would be insufficient to recover the Company's investment in these business
units, thus requiring a write-down of certain assets, included in the $7.8
million charge.
      Interest income decreased to $1.0 million in fiscal 1998 from $1.9 million
in fiscal 1997 as a result of lower average invested balances due to the use of
$11.4 million to repurchase Company common stock in fiscal 1998 and 1997 and the
Company's funding of an increase in accounts receivable.
      Equity in earnings of unconsolidated subsidiary represents the Company's
proportionate share of income from a joint venture. "Gain on sale of
unconsolidated subsidiary" resulted from the Company's sale of its interest in
this joint venture in October 1997 (Note 13).
      The effective tax rate for fiscal 1998 exceeded the statutory federal
income tax rate primarily due to the impact of state income taxes and
nondeductible amortization of cost in excess of net assets of acquired
companies. The Company recorded an income tax provision on a pretax loss in
fiscal 1997, primarily due to the amortization and write-off of nondeductible
costs in excess of net assets of acquired companies and, to a lesser extent, the
impact of state income taxes.


                                       26
<PAGE>


Liquidity and Capital Resources

      Consolidated working capital, including cash, cash equivalents, and
short-term available-for-sale investments, was $37.0 million at April 3, 1999,
compared with $29.9 million at April 4, 1998. Cash, cash equivalents, and
available-for-sale investments were $20.7 million at April 3, 1999, compared
with $10.9 million at April 4, 1998. During fiscal 1999, $16.3 million of cash
was provided by operating activities. Cash of $3.7 million was provided by an
increase in accounts payable and other current liabilities, including due to
parent company and affiliated companies, primarily due to the timing of
payments. An increase in billings in excess of revenues earned provided cash of
$2.0 million, primarily as a result of the receipt of an advance payment related
to an environmental-liability management contract at the Consulting and
Engineering segment.
      Excluding available-for-sale investment activity, the Company's primary
investing activity in fiscal 1999 consisted of capital expenditures. The Company
expended $5.4 million for purchases of property, plant, and equipment during
fiscal 1999. The Company plans to make capital expenditures of approximately
$4.5 million during fiscal 2000.
      In fiscal 1999, the Company's financing activities used $0.9 million of
cash. The Company paid $0.8 million in cash dividends in fiscal 1999. The amount
of cash dividends ultimately paid by the Company is dependent on the number of
shareholders participating in the Company's Dividend Reinvestment Plan.
      The Company generally expects to have positive cash flow from its existing
operations. Although the Company does not presently intend to actively seek to
acquire additional businesses in the near future, it may acquire one or more
complementary businesses if they are presented to the Company on terms the
Company believes to be attractive. Such acquisitions may require significant
amounts of cash. In addition, the Company's $38.0 million principal amount 4
7/8% convertible debentures mature on May 1, 2000. The maturity of this debt
could adversely affect the Company's liquidity in the first quarter of fiscal
2001. The Company expects that it will finance any such acquisitions and the
redemption of such debentures through a combination of internal funds and/or
short-term borrowings from Thermo TerraTech Inc. or Thermo Electron Corporation,
although it has no agreement with these companies to ensure that funds will be
available on acceptable terms, or at all.

Market Risk

      The Company is exposed to market risk from changes in interest rates and
equity prices which could affect its future results of operations and financial
condition. The Company manages its exposure to these risks through its regular
operating and financing activities.

Interest Rates
      The Company's subordinated convertible obligations are sensitive to
changes in interest rates. Interest rate changes would result in a change in the
fair value of these subordinated convertible obligations due to the difference
between the market interest rate and the rate at the date of issuance of the
subordinated convertible obligations. A 10% decrease in fiscal year-end 1999
market interest rates would result in a negative impact to the Company of $0.1
million on the fair value of its long-term obligations.

Equity Prices
      The Company's subordinated convertible obligations are sensitive to
fluctuations in the price of Company common stock into which the obligations are
convertible. Changes in the price of the underlying common stock would result in
changes in the fair value of the Company's subordinated convertible obligations
due to the difference between the current market price and the market price at
the date of issuance of the obligations. A 10% increase in the fiscal year-end
1999 market equity prices would result in a negative impact to the Company of
$0.3 million on the fair value of its price-sensitive equity financial
instruments.


                                       27
<PAGE>

Year 2000

      The following constitutes a "Year 2000 Readiness Disclosure" under the
Year 2000 Informational and Readiness Disclosure Act. The Company continues to
assess the potential impact of the year 2000 date recognition issue on the
Company's internal business systems, services, and operations. The Company's
year 2000 initiatives include (i) testing and upgrading significant information
technology systems and facilities; (ii) assessing the year 2000 readiness of its
key suppliers and vendors; and (iii) developing a contingency plan.

The Company's State of Readiness
      The Company has implemented a compliance program to ensure that its
critical information technology systems and facilities will be ready for the
year 2000. The first phase of the program, testing and evaluating the Company's
critical information technology systems and facilities for year 2000 compliance,
has largely been completed. During phase one, the Company tested and evaluated
its significant computer systems, software applications and related equipment
for year 2000 compliance. The Company also evaluated the potential year 2000
impact on its critical facilities. The Company's efforts included testing the
year 2000 readiness of its utility and telecommunications systems at its
critical facilities. The Company is currently in phase two of its program,
during which any noncompliant systems or facilities that were identified during
phase one are prioritized and remediated. Based on its evaluations of its
critical facilities, the Company does not believe that any material upgrades or
modifications are required. The Company is currently upgrading or replacing its
material noncompliant information technology systems, and this process was
approximately 80% complete as of April 3, 1999. In many cases, such upgrades or
replacements are being made in the ordinary course of business, without
accelerating previously scheduled upgrades or replacements. The Company expects
that all of its material information technology systems and critical facilities
will be year 2000 compliant by October 1999.
        The Company is in the process of identifying and assessing the year 2000
readiness of key suppliers and vendors that are believed to be significant to
the Company's business operations. As part of this effort, the Company has
developed and is distributing questionnaires relating to year 2000 compliance to
its significant suppliers and vendors. To date, no significant supplier or
vendor has indicated that its business operations will be materially disrupted
by the year 2000 issue. The Company has started to follow-up with significant
suppliers and vendors that have not responded to the Company's questionnaires.
The Company has not completed the majority of its assessment of third-party
risk, but expects to be substantially completed by October 1999.

Contingency Plan
      The Company is developing a contingency plan that will allow its primary
business operations to continue despite disruptions due to year 2000 problems.
This plan may include identifying manual backup systems in the event of a
failure of the Company's material information technology systems. As the Company
continues to evaluate the year 2000 readiness of its business systems and
facilities, and significant suppliers and vendors, it will modify and adjust its
contingency plan as may be required.

Estimated Costs to Address the Company's Year 2000 Issues
      The Company had incurred third-party expenses (external costs) related to
year 2000 issues of approximately $0.2 million as of April 3, 1999, and the
total external costs of year 2000 remediation are expected to be approximately
$0.5 million. All of the external costs incurred as of April 3, 1999, were spent
on testing and upgrading information technology systems. In fiscal year 1999,
approximately 5% of the Company's total information technology budget was spent
on year 2000 issues. All internal costs and related external costs, other than
capital additions, related to year 2000 remediation have been and will continue
to be expensed as incurred.
      The Company does not track the internal costs incurred for its year 2000
compliance project. Such costs are principally the related payroll costs for its
information systems group.


                                       28
<PAGE>


Year 2000 (continued)

Reasonably Likely Worst Case Scenario
      At this point in time, the Company is not able to determine the most
reasonably likely worst case scenario to result from the year 2000 issue. One
possible worst case scenario would be that the Company experiences year 2000
issues in its material information technology systems that cause the Company to
be unable to access data, to process transactions, and to maintain accurate
books and records. In such an event, the Company's operations could be delayed
or temporarily shut down, and it could be unable to meet its obligations to
customers in a timely fashion. The Company's business, operations and financial
condition could be adversely affected in amounts that cannot be reasonably
estimated at this time.

Risks of the Company's Year 2000 Issues
      While the Company is attempting to minimize any negative consequences
arising from the year 2000 issue, there can be no assurance that year 2000
problems will not have a material adverse impact on the Company's business,
operations, or financial condition. While the Company expects that upgrades to
its internal business systems will be completed in a timely fashion, there can
be no assurance that the Company will not encounter unexpected costs or delays.
Some services provided by the Company involve the delivery to clients of
third-party software and hardware. In addition, certain older third-party
products, which the Company no longer uses in providing its services to clients,
may not be year 2000 compliant, which may expose the Company to claims. As
discussed above, if any of the Company's key suppliers or vendors experience
business disruptions due to year 2000 issues, the Company might also be
materially adversely affected. There is expected to be a significant amount of
litigation relating to the year 2000 issue and there can be no assurance that
the Company will not incur material costs in defending or bringing lawsuits. In
addition, if any year 2000 issues are identified, there can be no assurance that
the Company will be able to retain qualified personnel to remedy such issues.
Any unexpected costs or delays arising from the year 2000 issue could have a
material adverse impact on the Company's business, operations, and financial
condition in amounts that cannot be reasonably estimated at this time.




                                       29
<PAGE>

                           Forward-looking Statements
      In connection with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, the Company wishes to caution readers that the
following important factors, among others, in some cases have affected, and in
the future could affect, the Company's actual results and could cause its actual
results in fiscal 2000 and beyond to differ materially from those expressed in
any forward-looking statements made by, or on behalf of, the Company.

      Dependence on Environmental Regulation. Federal, state, and local
environmental laws govern each of the markets in which the Company conducts
business, as well as many of the Company's operations. The markets for each of
the Company's services, including industrial remediation services, nuclear
remediation services, hazardous waste remedial construction services,
soil-remediation services, and waste-fluids recycling services, and the
standards governing most aspects of the construction and operation of the
Company's facilities were directly or indirectly created by, and are dependent
on, the existence and enforcement of those laws. There can be no assurance that
these laws and regulations will not change in the future, requiring new
technologies or stricter standards with which the Company must comply. In
addition, there can be no assurance that these laws and regulations will not be
made more lenient in the future, thereby reducing the size of the markets
addressed by the Company. Any such change in such federal, state, and local
environmental laws and regulations may have a material adverse effect on the
Company's business.
      Responsibility for establishing and enforcing certain federal policies,
such as the federal underground storage tank policy, has been delegated to the
states, which are not only required to establish regulatory programs, but also
are permitted to mandate more stringent requirements than are otherwise required
by federal law. Recently, certain states have adopted a "risk-based" approach to
prioritizing site cleanups and setting cleanup standards, which attempt to
balance the costs of remediation against the potential harm to human health and
the environment from leaving sites unremediated. There can be no assurance that
additional states will not adopt similar policies, or that these policies will
not reduce the size of the potential market addressed by the Company.

      Potential Environmental and Regulatory Liability. The Company's operations
are subject to comprehensive laws and regulations related to the protection of
the environment. Among other things, these laws and regulations impose
requirements to control air, soil, and water pollution, and regulate health,
safety, zoning, land use, and the handling and transportation of hazardous and
nonhazardous materials. Such laws and regulations also impose liability for
remediation and cleanup of environmental contamination, both on-site and
off-site, resulting from past and present operations. These requirements may
also be imposed as conditions of operating permits or licenses that are subject
to renewal, modification, or revocation. Existing laws and regulations, and new
laws and regulations, may require the Company to modify, supplement, replace, or
curtail its operating methods, facilities, or equipment at costs which may be
substantial, without any corresponding increase in revenue. The Company is also
potentially subject to monetary fines, penalties, remediation, cleanup, or stop
orders, injunctions, or orders to cease or suspend certain of its practices. The
outcome of any proceedings and associated costs and expenses could have a
material adverse impact on the Company's business. In addition, the Company's
divisions are subject to numerous laws and regulations related to the protection
of human health and safety. Such laws and regulations may impose liability on
the Company for exposure of its employees to radiation or other hazardous
contamination or failure to isolate and remove radioactive or other hazardous
contaminants from soil.
      The Company endeavors to operate its business to minimize its exposure to
environmental and other regulatory liabilities. Although no claims giving rise
to such liabilities have been asserted by the Company's customers or employees
to date, there can be no assurance that such claims cannot or will not be
asserted against the Company.



                                       30
<PAGE>

      Uncertainty of Funding. Remediation compliance requirements and attendant
costs are often beyond the financial capabilities of many individuals and small
companies. To address this problem, some states have established tax-supported
trust funds to assist in the financing of compliance and site remediation. As a
consequence, in many of the states in which the Company markets its
soil-remediation services, the majority, and in some cases virtually all, of the
soil remediated by the Company is paid for by large companies and/or state trust
funds. Any substantial decrease in this funding could have a material adverse
effect on the Company's business and financial performance. Many states have
realized that the number of sites requiring remediation and the costs of
compliance are substantially higher than were originally estimated. As a result,
several states have relaxed enforcement activities and others have reduced
compliance requirements in order to reduce the costs of cleanup. These factors
have already resulted in lower levels of cleanup activity in some states and
have had a material adverse effect on the Company's business. Continued
de-emphasis on enforcement activities and/or further reductions in compliance
requirements will have an even more severe adverse effect on the Company's
business.
      The Company depends on funding from the federal and state governments, and
their agencies and instrumentalities, for compensation for its services. For
example, Thermo NUtech provides a large portion of its services directly or
indirectly to the U.S. Department of Energy (DOE). Declines in spending by the
DOE and other governmental agencies could have a material adverse effect on the
Company's business.

      Competition. The markets for many of the Company's services are regional
and are characterized by intense competition from numerous local competitors.
Some of the Company's competitors have greater technical and financial resources
than those of the Company. As a result, they may be able to adapt more quickly
to new or emerging technologies and changes in customer requirements, or to
devote greater resources to the promotion and sale of their services than the
Company. Competition could increase if new companies enter the market or if
existing competitors expand their service lines. There can be no assurance that
the Company's current technology, technology under development, or ability to
develop new technologies will be sufficient to enable it to compete effectively
with its competitors.

      Seasonal Influences. A majority of the Company's businesses experience
seasonal fluctuations. A majority of the Company's soil-remediation sites, as
well as the company's fluids-recycling sites, experience declines in severe
weather conditions. Site remediation work and certain environmental testing
services, such as the services provided by RETEC, IEM Sealand, and Thermo
NUtech, may decline in winter months as a result of severe weather conditions.

      Possible Obsolescence Due to Technological Change. Technological
developments are expected to continue at a rapid pace in the environmental
services industry. The Company's technologies could be rendered obsolete or
uneconomical by technological advances by one or more companies that address the
Company's markets or by future entrants into the industry. There can be no
assurance that the Company would have the resources to, or otherwise would be
successful in, developing responses to technological advances by others.

      Risks Associated with Acquisition Strategy. The Company's strategy has
included the acquisition of businesses that complement or augment the Company's
existing services. The Company does not presently intend to actively seek to
make additional acquisitions in the near future, and expects instead to
concentrate its resources on strengthening its core businesses. The Company may,
however, acquire one or more additional businesses if they are presented to the
Company on terms the Company believes to be attractive.
      Promising acquisitions are difficult to identify and complete for a number
of reasons, including competition among prospective buyers and the need for
regulatory approvals. Any acquisitions completed by the Company may be made at
substantial premiums over the fair value of the net assets of the acquired
companies. There can be no assurance that the Company will be able to complete
future acquisitions or that the Company will be able to successfully integrate
any acquired businesses. In order to finance such acquisitions, it may be
necessary for the Company to raise additional funds through public or private
financings. Any equity or debt financing, if available at all, may be on terms
which are not favorable to the Company and, in the case of equity financing, may
result in dilution to the Company's stockholders.

                                       31
<PAGE>


      No Assurance of Development and Commercialization of Technology Under
Development. The Company is currently engaged in the development of several
technologies which may ultimately be commercialized to provide services to
customers. There are a number of technological challenges that the Company must
successfully address to complete any of its development efforts. Technology
development involves a high degree of risk, and returns to investors are
dependent upon successful development and commercialization of such technology.
There can be no assurance that any of the technologies currently being developed
by the Company, or those to be developed in the future, will be technologically
feasible or accepted by the marketplace, or that any such development will be
completed in any particular timeframe.

      Risks Associated with Cash Management Arrangement with the Parent Company.
The Company participates in a cash management arrangement with its parent
company, Thermo Electron. Under this cash management arrangement, the Company
lends its excess cash to Thermo Electron on an unsecured basis. The Company has
the contractual right to withdraw its funds invested in the cash management
arrangement upon 30 days' prior notice. Thermo Electron is contractually
required to maintain cash, cash equivalents, and/or immediately available bank
lines of credit equal to at least 50% of all funds invested under the cash
management arrangement by all Thermo Electron subsidiaries other than wholly
owned subsidiaries. The funds are held on an unsecured basis and therefore are
subject to the credit risk of Thermo Electron. The Company's ability to receive
its cash upon notice of withdrawal could be adversely affected if participants
in the cash management arrangement demand withdrawal of their funds in an
aggregate amount in excess of the 50% reserve required to be maintained by
Thermo Electron. In the event of a bankruptcy of Thermo Electron, the Company
would be treated as an unsecured creditor and its right to receive funds from
the bankruptcy estate would be subordinated to secure creditors and would be
treated on a pari passu basis with all other unsecured creditors. Further, all
cash withdrawn by the Company from the cash management arrangement within one
year before the bankruptcy would be subject to rescission. The inability of
Thermo Electron to return the Company's cash on a timely basis or at all could
have a material adverse effect on the Company's results of operations and
financial position.

      Potential Impact of Year 2000 on Processing of Date-sensitive Information.
While the Company is attempting to minimize any negative consequences arising
from the year 2000 issue, there can be no assurance that year 2000 problems will
not have a material adverse impact on the Company's business, operations, or
financial condition. While the Company expects that upgrades to its internal
business systems will be completed in a timely fashion, there can be no
assurance that the Company will not encounter unexpected costs or delays. Some
services provided by the Company involve the delivery to clients of third-party
software and hardware. In addition, certain older third-party products, which
the Company no longer uses in providing its services to clients, may not be year
2000 compliant, which may expose the Company to claims. As discussed above, if
any of the Company's key suppliers or vendors experience business disruptions
due to year 2000 issues, the Company might also be materially adversely
affected. There is expected to be a significant amount of litigation relating to
the year 2000 issue and there can be no assurance that the Company will not
incur material costs in defending or bringing lawsuits. In addition, if any year
2000 issues are identified, there can be no assurance that the Company will be
able to retain qualified personnel to remedy such issues. Any unexpected costs
or delays arising from the year 2000 issue could have a material adverse impact
on the Company's business, operations, and financial condition in amounts that
cannot be reasonably estimated at this time.

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<PAGE>

                                      Selected Financial Information

(In thousands except per share amounts)              1999 (a)   1998 (b)   1997 (c)   1996 (d)      1995
-------------------------------------------------- ---------- ----------- ---------- ---------- ---------

Statement of Operations Data
Revenues                                            $141,946   $ 128,409   $114,849   $ 66,957   $ 51,504
Net Income (Loss)                                     (3,861)        240     (2,681)     5,444      3,643
Earnings (Loss) per Share:
 Basic                                                 (.29)         .02       (.21)       .44        .36
 Diluted                                               (.29)         .02       (.21)       .42        .35

Balance Sheet Data
Working Capital                                     $ 36,974   $  29,941   $ 38,960   $ 46,343   $  3,384
Total Assets                                         141,174     140,311    136,114    135,802     79,156
Subordinated Convertible Obligations                  40,600      40,600     40,600     40,600      2,650
Shareholders' Investment                              70,281      74,467     74,830     83,352     60,320

Other Data
Cash Dividends Declared                             $  2,610   $   2,504   $  2,557   $  2,491   $  2,012

(a) Reflects a $9.2 million pretax charge for restructuring costs.
(b) Reflects the November 1997 acquisition of Benchmark, the August 1997
    acquisition of RPM, and the May 1997 acquisition of TriTechnics and includes
    a pretax gain of $3.0 million from the sale of an investment in a joint
    venture.
(c) Reflects the September 1996 acquisition of IEM Sealand and $7.8 million of
    pretax restructuring costs.
(d) Reflects the May 1995 issuance of $38 million principal amount of 4 7/8%
    subordinated convertible debentures and a private placement of 500,000
    shares of the Company's common stock for net proceeds of $6.6 million. Also
    reflects the December 1995 acquisition of RETEC.


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<PAGE>

Common Stock Market Information
      The Company's common stock is traded on the American Stock Exchange under
the symbol THN. The following table sets forth the high and low sale prices of
the Company's common stock for fiscal 1999 and 1998, as reported in the
consolidated transaction reporting system.

                                                                     Fiscal 1999         Fiscal 1998
Quarter                                                              High        Low       High       Low
--------------------------------------------------------------- ---------- ---------- ---------- ---------

First                                                              $6 3/4     $4 3/8    $7 9/16    $6 1/2
Second                                                              5 1/8      2 3/8     8 1/8      6 7/8
Third                                                               3 1/8      1 3/4     7 11/16    5 1/2
Fourth                                                              3 5/8      1 7/8     7 3/8      5 5/8

      As of April 30, 1999, the Company had 166 holders of record of its common
stock. This does not include holdings in street or nominee names. The closing
market price on the American Stock Exchange for the Company's common stock on
April 30, 1999, was $2 5/16 per share.

Dividend Policy
      The Company intends to pay cash dividends from time to time to the holders
of the Company's common stock out of funds legally available therefor. The
Company currently expects that such dividends will be paid semiannually. No
assurance can be given, however, as to whether the Company will continue to pay
dividends in the future. On August 4, 1998, and February 23, 1999, the Board of
Directors declared semiannual dividends of $.10 per share, which were paid on
September 1, 1998, and March 25, 1999, to shareholders of record as of August
18, 1998, and March 11, 1999, respectively.

Dividend Reinvestment Plan
      The ThermoRetec Corporation Dividend Reinvestment Plan permits
shareholders to have their dividends reinvested automatically in additional
shares of the Company's common stock without paying service charges or brokerage
fees. For more details about this service, please write to:

      BankBoston N.A.
      c/o Boston EquiServe Limited Partnership
      Investor Relations Department
      P.O. Box 8040
      Boston, Massachusetts 02266-8040



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