SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

( )      ANNUAL  REPORT  PURSUANT  TO  SECTION  13 OR 15(D) OF THE  SECURITIES
         EXCHANGE ACT OF 1934 For the fiscal year ended

(X)      TRANSITION  REPORT  PURSUANT  TO SECTION 13 OR 15(D) OF THE  SECURITIES
         EXCHANGE  ACT OF 1934 For the  transition  period  from May 1,  1996 to
         October 31, 1996

                         COMMISSION FILE NUMBER 0-15067

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

                             FLUOR DANIEL GTI, INC.
             (Exact name of registrant as specified in its charter)

            DELAWARE                                   02-0324047
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
incorporation or organization)

  100 RIVER RIDGE DRIVE, NORWOOD, MASSACHUSETTS                        02062
     (Address of principal executive offices)                       (Zip Code)

       Registrant's telephone number, including area code: (617) 769-7600

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

      Title of Each Class              Name of Each Exchange on Which Registered
      -------------------              -----------------------------------------

Common Stock, $.001 par value                            None

INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE  PRECEDING 12 MONTHS (OR FOR SUCH  SHORTER  PERIOD THAT THE  REGISTRANT  WAS
REQUIRED  TO FILE  SUCH  REPORTS),  AND  (2) HAS  BEEN  SUBJECT  TO SUCH  FILING
REQUIREMENTS FOR THE PAST 90 DAYS. YES   X    NO
                                       -----     -----  

INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT  FILERS  PURSUANT TO ITEM 405
OF REGULATION  S-K IS NOT CONTAINED  HEREIN,  AND WILL NOT BE CONTAINED,  TO THE
BEST OF REGISTRANT'S  KNOWLEDGE,  IN DEFINITIVE PROXY OR INFORMATION  STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K.   X
           -----

    The aggregate market value of the voting stock held by non-affiliates of the
registrant  on January 6, 1997,  was  $29,762,515  computed  on the basis of the
closing price per share of such stock on the Nasdaq National Market System.  The
number of shares of Common Stock  outstanding  on January 6, 1997, was 8,212,791
shares.

                       DOCUMENTS INCORPORATED BY REFERENCE


    The  registrant  intends to file a definitive  proxy  statement for the 1997
Annual  Meeting  of  Stockholders  to be held on  March  19,  1997  pursuant  to
Regulation 14A within 120 days of the end of the transition period ended October
31, 1996.  Portions of the proxy statement are incorporated by reference in Part
III hereof.







                             FLUOR DANIEL GTI, INC.

                       INDEX TO ANNUAL REPORT ON FORM 10-K

<TABLE>
<CAPTION>
                                                               PART I
<S>         <C>                                                                                                  <C>
Item 1.     Business..............................................................................................1
               General............................................................................................1
               Services...........................................................................................2
               Remediation and Containment Technologies...........................................................3
               Business Strategies................................................................................4
               Governmental Regulation and Market.................................................................5
               Customers and Marketing............................................................................6
               Personnel..........................................................................................7
               Competition and Seasonal Factors...................................................................7
               Potential Liability and Insurance..................................................................7
               Patents and Technology.............................................................................8
               Factors Affecting Future Performance...............................................................8
Item 2.     Properties............................................................................................9
Item 3.     Legal Proceedings.....................................................................................9
Item 4.     Submission of Matters to a Vote of Security Holders...................................................9

Executive Officers of the Company................................................................................11

                                                               PART II

Item 5.     Market for the Registrant's Common Equity and Related Stockholder Matters............................13
Item 6.     Selected Financial Data..............................................................................13
Item 7.     Management's Discussion and Analysis of Financial Condition
            and Results of Operations............................................................................14
Item 8.     Consolidated Financial Statements and Supplementary Data.............................................17
Item 9.     Changes in and Disagreements with Accountants on Accounting
            and Financial Disclosure.............................................................................18

                                                              PART III

Item 10.    Directors and Executive Officers of the Registrant...................................................18
Item 11.    Executive Compensation...............................................................................18
Item 12.    Security Ownership of Certain Beneficial Owners and Management.......................................18
Item 13.    Certain Relationships and Related Transactions.......................................................19

                                                               PART IV

Item 14.    Exhibits, Financial Statement Schedules and Reports on Form 8-K......................................19

Signatures       ................................................................................................22
</TABLE>


     This Report contains "forward-looking statements" within the meaning of the
Private  Securities  Litigation  Reform  Act  of  1995.  Reference  is  made  in
particular to the  description of the Company's  plans included in the Letter to
Stockholders  that  accompanies  the  Annual  Report  to  Stockholders,  and the
"Business" and "Management's  Discussion and Analysis of Financial Condition and
Results of Operations" sections in this Report.  Certain factors that may affect
these forward- looking statements are discussed on page 8.







                                     PART I

ITEM 1.  BUSINESS

GENERAL

     Fluor Daniel GTI,  Inc.  (formerly  Groundwater  Technology,  Inc.) and its
subsidiaries (collectively, "Fluor Daniel GTI" or the "Company") provide a broad
range of environmental,  consulting,  engineering and remediation  services to a
variety of commercial  and  industrial  customers  and federal,  state and local
government  agencies.  The Company was  incorporated in Delaware in October 1975
and currently  operates from 62 consulting  offices throughout the United States
and in five foreign countries including Australia,  the United Kingdom,  Canada,
Italy and The  Netherlands.  Also,  the  Company's  joint  venture with a German
company has offices in six additional locations in Germany, Austria and Hungary.

     The principal  services  provided by the Company are  detailed,  scientific
environmental  assessment and remediation  programs,  which combine  elements of
hydrogeology, geochemistry, chemistry, biochemistry and engineering. The Company
also provides compliance, permitting and other environmental support services. A
typical program  generally  includes  interaction with appropriate  governmental
regulatory agencies,  detailed site assessments,  design and implementation of a
cost-effective remediation system,  construction management services and ongoing
monitoring and maintenance of the system for the duration of the program.  These
assessments  and  remediation  programs are  generally in response to regulatory
programs  adopted by state  agencies  as well as U.S.  Environmental  Protection
Agency ("EPA") programs,  such as the Resource  Conservation and Recovery Act of
1976 ("RCRA") and the  Comprehensive  Environmental  Response,  Compensation and
Liability Act ("CERCLA" or "Superfund Act"). The Company does not own or operate
a hazardous waste landfill or any other hazardous  waste  treatment,  storage or
disposal facility.

     On May 10, 1996, the Company closed a series of  transactions  (the "Change
of  Control  Transactions")   pursuant  to  which  it  became  a  majority-owned
subsidiary  of Fluor  Daniel,  Inc.  ("Fluor  Daniel"),  a global  construction,
engineering,   maintenance   and  services   company.   The  Change  of  Control
Transactions  included a recapitalization of the Company's common stock, and the
merger  of one of the  Company's  subsidiaries  and Fluor  Daniel  Environmental
Services,  Inc.  ("FDESI"),  a  wholly-owned  subsidiary  of Fluor  Daniel  that
provides environmental services primarily to agencies of the federal government.
In exchange for FDESI and $35 million in cash,  Fluor Daniel received  4,400,000
shares of the Company's  "new" common stock and an option to purchase  1,768,970
additional  shares at $13.1274 per share that  expires on December 11, 1998.  In
the  recapitalization,  each holder of "old" common stock received $8.62 in cash
and .5274 of a share of "new"  common stock of the  Company.  In  addition,  the
Company  entered into a Marketing  Agreement with Fluor Daniel,  and the Company
changed its name from "Groundwater Technology, Inc." to "Fluor Daniel GTI, Inc."
to emphasize the new relationship.

     The  Company  has  changed  its  year  end from  April  30 to  October  31.
Accordingly,  the Company began a new 12-month  fiscal year on November 1, 1996.
The six month period resulting from this change, May 1, 1996 through October 31,
1996, is referred to as the "Transition Period."

     Financial  results for the Transition Period ended October 31, 1996 include
the  operations  of GTI as if the merger had occurred on May 1, 1996.  Financial
activity for the period May 1, 1996 through May 9, 1996 was not significant.



                                        1





SERVICES

     Fluor  Daniel  GTI  provides  a broad  range of  environmental  consulting,
engineering and construction  management services,  which currently focus on the
assessment,  remediation  and monitoring of soil and  groundwater  using a broad
range of techniques and technologies.  These services are provided separately or
in combination.

     Remedial   Investigation   and   Assessment.   Fluor  Daniel  GTI  prepares
environmental  profiles  of  sites,   including   hydrogeological  and  chemical
evaluations.  A team of the Company's  hydrogeologists,  geologists,  engineers,
chemists  and  technicians  may use a variety  of  techniques,  such as soil gas
mapping or the  installation  of a  diagnostic  monitoring  well  system.  These
techniques   provide  the  data   necessary  to  determine  the  extent  of  the
contamination,  as well as soil characteristics and groundwater chemistry,  flow
and direction, and form the basis for the selection of a remediation program.

     Fluor  Daniel GTI also  offers  health and  environmental  risk  assessment
services.  Working in multi- disciplinary teams of toxicologists,  environmental
scientists and industrial  hygienists,  the staff  ascertains the health hazards
and risks produced by chemicals in the environment  and the workplace.  The risk
assessment  services include  site-specific  exposure  modeling and quantitative
risk assessment, hazard and risk communication programs, human health monitoring
and regulatory compliance, education, training and industrial hygiene services.

     Design and Remediation. The Company has particular experience in the design
and installation of remedial  systems for the removal of contaminants  from soil
and  groundwater.  Using  information  obtained  in  a  site  investigation  and
assessment,  and an evaluation of risks to human health,  the Company  designs a
remedial solution appropriate to the particular  conditions present at the site.
These analyses help to define the appropriate level of remedial response and are
used as the basis for negotiating remediation goals with regulatory authorities.

     The Company evaluates  alternatives,  often conducting feasibility studies,
and the most  appropriate  response  is  selected.  If  action  is  required,  a
cost-effective  remediation  system is engineered for the specific site. In some
instances,  systems designed to contain existing  contamination are appropriate.
Where  remediation  is  required,  the  Company  uses a wide range of  physical,
chemical,  biological  and thermal  treatment  technologies  in  performing  its
services,  which are usually  applied  either on site or in situ.  With  on-site
restoration, the contaminated media, soil or groundwater is removed and treated.
With in situ  restoration,  the contaminants  themselves are directly removed or
treated in place, without removing the soil or groundwater.

     Monitoring.   The  Company   performs  ongoing  sampling  and  analysis  of
groundwater,  soils and air to regulate and adjust the remediation  system.  The
analysis  also  provides the data  necessary  to respond in a timely  fashion to
changes in the levels of contaminants and other  variables,  and forms the basis
for ongoing reports to the appropriate governmental regulatory agencies.

     The Company  generally charges its customers for its services on a time and
materials basis,  typically with strict adherence to "not to exceed" limitations
contained in contracts for projects billed on this basis. Moreover, services are
subject to competitive  bidding and are increasingly  being performed on a fixed
contract or unit price basis.  The Company is also  increasing  the marketing of
its services on a "pay for  performance"  incentive  basis, and anticipates that
this will become a larger  portion of its  business in the future.  Revenues are
also  realized  when the Company  subcontracts  for  drilling,  well  materials,
electrical installation, laboratory analysis and other outside services. The fee
for a typical restoration program (including  equipment) ranges from $100,000 to
$750,000, but for complex and lengthy programs the Company has billed as much as
several million dollars.  Typical restoration  programs generally require one to
five years to  complete,  and certain  programs  may take as long as ten or more
years.

                                        2





REMEDIATION AND CONTAINMENT TECHNOLOGIES

     Fluor Daniel GTI has substantial  experience in the  commercialization  and
practical field  application of new and existing  technologies for the treatment
or  containment  of  hazardous  wastes  and uses many  technologies  to  restore
contaminated  groundwater,  soils and air to acceptable  standards.  The primary
approaches used by the Company -- physical, chemical,  biological and thermal --
are usually used for on-site and in situ treatment.  These  techniques are often
used in combination to achieve desired results.

     Physical  treatments  include those technologies that physically impact the
contaminants and the media, and include air stripping,  vapor extraction and air
sparging. Air stripping involves pumping contaminated groundwater through either
a stripping  tower or an air stripper  system,  which  increases the evaporation
rate of hydrocarbon  contaminants.  Air flows through the unit countercurrent to
the water flow, "stripping" off the dissolved hydrocarbons at an increased rate.

     Soil vapor  extraction  is the removal of  volatile  organic  compounds  by
induced  air flow.  The air flow is  induced by the  application  of a vacuum to
subsurface  soils and may be enhanced by the  simultaneous  injection of air. An
important part of vapor extraction is treating the extracted contaminants.

     Air  sparging is a process for  treating  soils and  groundwater  below the
water  table by  injecting  air  into  the  formation  under  pressure.  The air
displaces the water in the soil and volatilizes the organic  compounds  present.
These  compounds  are then carried by the air stream out of the water table into
the soil above the water table,  where they are  captured by a vapor  extraction
system.  The Company has  pioneered  the use of ozone to enhance air sparging by
direct oxidation of contaminants.

     In situ bioremediation  involves treating contaminated soil and groundwater
by adding an oxygen  source and  nutrients  into the  aquifer,  where  naturally
occurring  bacteria  biochemically  break down the  contaminants  into non-toxic
materials.  The added oxygen and  nutrients  enhance the  population  of natural
bacteria  which  normally feed on  contaminants.  By  stimulating  the growth of
selected  bacteria,  soil and  groundwater  quality is  restored  to  acceptable
levels.

     Thermal  treatment  technologies take a number of forms. The principal form
of this technology used by the Company has been thermal  desorption,  which uses
heat  to  remove  volatile  compounds  from a  waste  without  oxidation  of the
compounds. The Company has used steam injection and hot air injection to enhance
soil vapor  extraction  techniques on selected  sites.  Fluor Daniel GTI is also
exploring the use of co-burning of coal tar impacted soils.

     For  certain  wastes  that  are not  amenable  to  biological  or  chemical
degradation,  such as metals, the Company uses several in situ technologies that
can be used to reduce or prevent further leaching of contamination  from soil to
groundwater or surface water, or to reduce or prevent  further  migration of the
contamination  horizontally.  These technologies can be used in combination with
control  measures such as capping,  which  involves  placing a physical  barrier
above the contaminated area, and slurry walls, which involves placing a physical
barrier adjacent to the contaminated area.

     In situ fixation is a process that involves mixing chemical reagents with a
smaller volume of pumped  groundwater,  and then  reinjecting  the treated water
around the perimeter of a contaminated  area. As the treated water moves through
the contaminated area, it promotes subsurface reactions that cause metals to fix
onto soil  particles,  thus  rendering  them  immobile.  The Company has used as
reagents lime and ferrous sulfate,  and has also developed  proprietary reagents
for in situ metals fixation.



                                        3





BUSINESS STRATEGIES

     Between  1992 and 1995,  the  Company  diversified  its core  environmental
consulting and engineering  services away from a dependence on retail  petroleum
customers and into government and industrial  markets with the intention to have
its customer base roughly  equate with the  proportions  of the total market for
soil and groundwater  remediation  services being purchased by those  customers.
During this period,  the Company  perceived an evolving shift from  governmental
enforcement of environmental  laws and regulations to commercial  considerations
as the  primary  source of demand for the  Company's  services,  and the Company
increasingly  faced  strong  price  competition  as a result of this shift.  The
Company  also  divested  non-core  businesses  -- its  drilling  operations  and
equipment  manufacturing  business  in  1993  and  1994,  respectively,  and its
analytical laboratories in December 1995. During this period the Company changed
its business mix through a combination of internal  focus and two  acquisitions,
and pursued teaming  arrangements with larger engineering and construction firms
for specific projects in the government market.

     In connection with the Change of Control Transactions,  the Company entered
into a Marketing Agreement with Fluor Daniel,  pursuant to which the Company has
access to Fluor Daniel's worldwide marketing,  engineering and construction, and
program management resources,  which is intended to better enable the Company to
penetrate  potential markets and, more generally,  to respond to the competitive
challenges  posed by current and anticipated  developments in the  environmental
services  market.  Fluor  Daniel  GTI  serves  as  the  preferred  supplier  for
environmental  assessment,  permitting and remediation  services to Fluor Daniel
and its affiliates.  However,  there are no assurances provided in the Marketing
Agreement.  Fluor Daniel will continue to provide its customers with engineering
and construction  services, as well as certain environmental  services,  such as
Department  of Energy  Management  and  Operations,  Operating  and  Management,
Management and Integration  services and so-called  "Total  Business  Solutions"
services.   Total  Business  Solutions  services  are  differentiated  from  the
environmental  services that will continue to be provided by the Company in that
they involve an integration of such services with substantial  non-environmental
services  or involve a  substantial  increase in the scale and scope of services
beyond those currently provided by the Company.

     The term of the  Marketing  Agreement  expires in May 2006  unless  further
extended by the parties. In the event Fluor Daniel ceases to own at least 20% of
the issued and outstanding equity of the Company, (a) Fluor Daniel,  provided it
is not in breach of its obligations pursuant to Section 6.3(d) of the Investment
Agreement  (described  below),  or  the  Company  may  terminate  the  Marketing
Agreement  prior to expiration of the term;  and (b) Fluor Daniel may revoke the
license of the Company and its  subsidiaries  to use the name "Fluor  Daniel" in
the  Company's  corporate  name.  Section  6.3(d)  of the  Investment  Agreement
provides  that,  until April 30, 1999,  and with very limited  exception,  Fluor
Daniel is not permitted to dispose of any of its shares of the Company's  common
stock  without the prior  approval of a majority  of the  independent  directors
serving on the Company's Board of Directors.

     In addition to  developing  its new  relationship  with Fluor  Daniel,  the
Company  will  continue to hire and train  geologists,  engineers,  chemists and
hydrogeologists in the specialized fields of environmental  services and cleanup
of soil and  groundwater  in order to staff local  offices.  It is the Company's
belief that a local  presence  increases  understanding  of local  environmental
statutes, regulations and regulatory agencies and fosters a constructive working
relationship  with local agency personnel.  The Company spends  significant time
and  resources  on in-house  educational  programs at all levels to maintain and
improve  the  quality of its  operations;  and it has  invested  in  information
systems to connect  all of its U.S.  offices by a computer  network  that allows
employees to share resources.



                                        4





GOVERNMENTAL REGULATION AND MARKET

     Public concern over health,  safety and preservation of the environment has
resulted in the enactment of Federal, state and local environmental laws and the
implementing  regulations that affect nearly every industry.  The enforcement of
these laws and  regulations is  responsible  for creating much of the demand for
the  services  offered  by  the  Company,  and  the  renewal,   modification  or
elimination  of these  laws  and  regulations  could  significantly  affect  the
Company's  business.  Recently,  the  level  of  enforcement  has  waned  due to
governmental budgeting constraints, and a number of laws set for reauthorization
for some time have not been reauthorized.  The Company believes that, even apart
from cleanup activity attributable directly to funding authorized by these laws,
industry and governmental entities will continue to attempt to resolve hazardous
waste problems in order to comply with other statutory requirements and to avoid
liabilities to private parties.

     The  principal  legislation  that  affect  the  Company's  business  are as
follows:

     RCRA The  Resource  Conservation  and Recovery  Act of 1976  established  a
framework for federal and state regulation of hazardous wastes. In 1988, the EPA
issued regulations under RCRA that govern  underground  storage tanks containing
certain hazardous substances or petroleum.  These regulations require the owners
of underground storage tanks to upgrade or close existing deficient tanks and to
install  release  detection  equipment on existing  tanks.  In  addition,  these
regulations  prescribe the procedures by which tank owners and operators  should
investigate  and report  confirmed  or  suspected  releases  from tanks,  and if
applicable, proceed with corrective actions.

     Superfund   Act  (CERCLA)   The   Comprehensive   Environmental   Response,
Compensation and Liability Act of 1980 generally  addresses  cleanup of inactive
sites at which hazardous  treatment,  storage or disposal  occurred in the past.
The Superfund Act authorizes the federal  government to cleanup or order cleanup
of these sites. As of January 1996, there were approximately  1,200 sites on the
National Priority List ("NPL") subject to extensive monitoring and cleanup work.

     In 1986,  the  Superfund  Amendment  and  Reauthorization  Act ("SARA") was
enacted and increased environmental remediation activities significantly.  SARA,
among other things,  authorized additional federal expenditures and expanded the
EPA's  enforcement  powers,  which  encouraged and facilitated  settlements with
potentially responsible parties.  Superfund was reauthorized as part of the 1991
federal budget,  which  appropriated $5.1 billion through 1994, and is currently
set for  reauthorization.  There  has been  considerable  debate  about  several
provisions  of SARA,  and the Company is unable to  ascertain  the effect of the
proposed reauthorization at this time.

     Other Federal Legislation The Company believes that in addition to RCRA and
CERCLA,  other  federal  laws will affect  demand for its  services.  These laws
include the Toxic Substances Control Act, the Clean Water Act, the Clean Air Act
and the Safe Drinking Water Act.

     State   Legislation  The  federal  statutes   summarized  above  presuppose
significant  state  involvement in their  administration  and enforcement.  Many
states  have  enacted  their  own  statutes  designed  to  protect  and  restore
environmental  quality  and to deal  directly  with  the  problem  of  soil  and
groundwater  contamination;  and in some cases these  statutes are  different or
more  stringent  than the federal  statutes.  In  addition,  states have adopted
reimbursement programs to assist customers who are required to use the Company's
services.  Some  examples  of these  state  reimbursement  programs  include the
Florida Inland Protection Trust Fund, the Massachusetts Underground Storage Tank
Petroleum  Product  Cleanup Fund, the Texas Petroleum  Storage Tank  Remediation
Fund and the California Underground Storage Tank Cleanup Fund.



                                        5





     Permits,  Licenses and Regulatory  Approvals The installation and operation
of remediation  systems are subject to various licensing,  permitting,  approval
and  reporting  requirements  imposed  by  federal,  state and local  laws.  For
example,  National Pollutant Discharge  Elimination System ("NPDES") permits and
other regulatory  program permits are typically  required in connection with the
installation  of the  recovery  system,  and the  terms of these  permits  often
require ongoing reporting to governmental  agencies  concerning the operation of
the recovery  system.  Approvals of corrective  action plans by the  appropriate
regulatory agency is increasingly being required before a recovery system can be
installed to address  contaminated  soil or groundwater due to a release from an
underground storage tank.

     Various state and local laws require the monitoring wells and wells used in
the recovery process to be installed by licensed well drillers, and installation
of the recovery system may also require compliance with applicable provisions of
construction  and  zoning  laws.  Some  states  have also  adopted  testing  and
licensing  programs to regulate  professionals who typically conduct  subsurface
investigations and propose remedial action work plans.

     Fluor  Daniel GTI employs  individuals  who  specialize  in  obtaining  the
required  federal,   state  and  local  environmental  and  operational  permits
necessary for the Company and its  customers to install and operate  remediation
systems.  The Company also provides the  documentation  of the recovery  process
necessary  to  assist  its   customers  in   satisfying   applicable   reporting
requirements.

CUSTOMERS AND MARKETING

     The Company  provides  services to a broad  range of  customers,  including
petroleum companies, industrial companies, government agencies and international
customers.  The  Company  has also  worked  with a  number  of  engineering  and
consulting  firms in both the private and public  sectors  that manage  projects
requiring the Company's services;  however, given the new affiliation with Fluor
Daniel, the Company anticipates that it will have fewer opportunities to work as
a subcontractor with other engineering and construction firms.

     Industrial customers  principally include large companies in the chemicals,
manufacturing,  utility, electronics, real estate and transportation industries.
In the public sector, the Company's  principal  customers are federal government
agencies,  including  the  Department  of  Defense  and the U.S.  Army  Corps of
Engineers, and other federal and state agencies. FDESI's primary clients include
the Department of Defense and the EPA.

     The Company  anticipates that the affiliation with Fluor Daniel will create
new opportunities for the Company to market its services.  The government market
has recently  begun to indicate a preference  for awarding  substantial  work to
single source providers.  In addition,  customers in the industrial  markets are
moving  from  the  assessment  phase of their  environmental  projects  into the
remediation phase. In this next phase of the environmental projects, substantial
resources in engineering and construction  capabilities will be required.  Under
the Marketing  Agreement,  the Company has access to the program  management and
engineering and  construction  capabilities of Fluor Daniel necessary to compete
for this work.

     Within the North American operations, the Company focuses its marketing and
operational staff on three major markets - petroleum,  industrial/commercial and
government.  Fluor Daniel GTI believes this market-  centered focus,  along with
its geographic diversification,  allows it to provide responsive services to its
customers.  Currently,  most of the  Company's  jobs are  performed  for  repeat
customers,  and in the case of large petroleum and certain industrial customers,
pursuant to year-to-year,  non-exclusive national buying contracts. There are no
minimum purchase requirements associated with these contracts.

     In the Transition Period, no single customer accounted for more than 10% of
the  Company's  revenues;  and  approximately  32% of revenues were derived from
petroleum customers, 39% from industrial/commercial

                                        6





customers  and 22%  from  federal,  state  and  local  government  agencies.  In
addition,  approximately  7% of revenues in the  Transition  Period were derived
from international  customers. In the three years ended April 30, 1996, 1995 and
1994 the percent of FDESI  revenues  derived from the Department of Defense were
29.2%, 28.9% and 4.1% and from the EPA were 20.4%, 10.5% and 8.6%, respectively.

     Although  Fluor Daniel GTI relies on repeat  customers  and work  generated
through referrals and seminar  appearances for a significant  portion of its new
business,  the  Company  maintains a dedicated  sales  force.  At the end of the
transition period,  the Company had 36 professionals  dedicated to sales, and it
has a National Accounts Program to develop and maintain long-term  relationships
with customers.

     In the last several years, an increasing  amount of work has been done on a
competitive  basis in response  to customer  requests  for  proposals.  This has
required the dedication of significantly  greater  resources to proposal writing
and general  business  development.  In addition,  the Company has instituted an
extensive  training  and  marketing  program  featuring  internal  and  external
seminars and a  comprehensive  sales incentive plan. The Company is focusing its
direct sales and marketing  efforts towards retaining its position in the retail
petroleum  market and  achieving  continued  growth in the  upstream  petroleum,
industrial and government markets.

PERSONNEL

     As of October 31, 1996, the Company had 1,394 employees. Of these 1,079 are
skilled  professionals  (geologists,  hydrogeologists,  engineers,  chemists and
environmental scientists) who perform services in the field, 36 in sales and 279
in administrative support, financial, legal and accounting functions.

     The soil and groundwater  remediation  services market is very  competitive
and requires highly skilled, experienced technical and management personnel. The
Company's ability to remain competitive is partially dependent on its ability to
attract and retain  qualified  personnel.  None of the  Company's  employees are
represented by a labor  organization.  The Company  considers its relations with
its employees to be satisfactory.

COMPETITION AND SEASONAL FACTORS

     The markets in which the Company  competes  are very  competitive.  In each
specific service area of its business the Company competes with many engineering
and consulting firms that are both larger and smaller than the Company, although
no firm  currently  dominates any  significant  portion of those  services.  The
Company  competes  primarily  on the basis of  differentiated  service  quality,
reputation, expertise, geographic location and, to a lessor extent, price.

     The Company's  quarterly  results may fluctuate.  Factors  influencing such
variations include: spending decisions by major customers; delays in the release
of committed  projects;  weather;  holidays and vacation  time,  which limit the
amount of time Company  professional and technical  personnel have in the field;
and the level of subcontracted services.

POTENTIAL LIABILITY AND INSURANCE

     A majority  of the  Company's  revenues  are  derived  from work  involving
hazardous materials,  toxic wastes and other pollutants that present significant
risks of liability for environmental  damage,  personal injury,  fines and costs
imposed by regulatory agencies.  Although liabilities arising from environmental
regulations  are more  directly  applicable to the  Company's  customers,  these
regulations, under certain circumstances, could impose liability on the Company,
and these liabilities can be joint and several where other parties are involved.
Although the Company does not believe its services  generally fall within any of
these categories, when the Company's remedial activities at any site involve the
treatment, storage or disposal of hazardous waste, it must

                                        7





adhere to the  permitting and  substantive  requirements  of these  regulations.
Fluor  Daniel GTI,  through its in situ and  on-site  capabilities,  attempts to
minimize for its  customers  the need to transport  hazardous  substances.  When
transportation is required,  the customers  themselves generally arrange for the
disposal of hazardous substances. In certain circumstances, however, the Company
may subcontract for the transportation  and disposal of hazardous  substances to
treatment, storage or disposal facilities for certain customers.

     The  non-environmental  liabilities  associated with the Company's services
also involve a significant degree of risk. In addition,  a substantial number of
the Company's  contracts with its customers require the Company to indemnify the
customer for claims,  damages or losses for personal  injury or property  damage
relating to the Company's  performance of the  contracts,  unless such injury or
damage is the result of the customer's negligent or willful acts or omissions.

     Fluor Daniel GTI maintains health and safety and quality  assurance/quality
control programs to reduce the risk of potential damage to persons and property,
as well as other losses.  During the Transition  Period,  the Company maintained
its environmental  impairment liability coverage with its professional liability
coverage  under one policy.  While the Company  believes it operates  safely and
prudently,  there are various  exclusions under its insurance policies and there
can be no assurance  that all possible  liabilities  that may be incurred by the
Company  are  covered  by its  insurance  or  that  the  dollar  amount  of such
liabilities will not exceed the Company's policy limits.  Further,  the cost and
limited  availability  of  insurance  has  resulted  in  the  Company's  use  of
self-insurance under certain policies.  Management believes an adequate level of
insurance   coverage  has  been  provided.   Prior  to  the  Change  in  Control
Transactions,  FDESI's  insurance  was provided by Fluor  Daniel.  This coverage
ceased to be provided by Fluor Daniel at completion of the merger.

PATENTS AND TECHNOLOGY

     Fluor Daniel GTI believes that its  intellectual  property and know-how are
important to its business and have been  established by the Company  through its
technical  expertise,  understanding  of  regulations,  skill in the  design and
implementation of treatment processes, and investment in technology development.
The Company has filed several patent applications covering remediation processes
and claims copyright and trade secret  protection on certain computer  software,
publications and technical standard operating  procedures.  The Company does not
believe that such patent  applications  and copyrights are a material  factor in
its business.

FACTORS AFFECTING FUTURE PERFORMANCE

     This Report  contains a  discussion  of a number of factors that may affect
future performance of the Company.  In addition to those factors,  the following
discussion highlights other risks.

     Uncertainty of Government Market for Environmental  Services. The Company's
affiliation with Fluor Daniel is intended to increase the ability of the Company
to  further  penetrate  the  market  for  environmental  services,  particularly
services for the federal  government.  The size of the government market and the
extent of that market's demand for environmental  services,  however, is subject
to change based on, among other factors, legislative and regulatory developments
and  budget and  spending  decisions  of  governmental  bodies.  There can be no
assurance that the demand for  environmental  services in the government  market
will  achieve  or remain  at levels  that will  permit  the  Company  to grow by
penetration  of such market,  and any  reduction  in the size of the  government
market could have an adverse  effect on the  Company's  financial  condition and
operating results.

     Difficulty  of  Implementing  Marketing  Strategy.  Growth  of the  Company
through further penetration of the environmental  services market,  particularly
services for the federal government,  is dependent upon the Company's ability to
realize the benefits of the relationship  with Fluor Daniel  contemplated by the
Marketing

                                        8





Agreement and the integration of FDESI with the Company.  Substantial  attention
and a high level of  coordination  from management of both the Company and Fluor
Daniel will be required to realize the anticipated benefits of the relationship.
Further,   the  attention   and  resources   devoted  by  Fluor  Daniel  to  the
implementation and realization of the potential benefits of the relationship are
not within the control of the Company,  and there can be no assurance that Fluor
Daniel will either devote the necessary  attention and resources to successfully
implement the Marketing  Agreement or that it will perform its obligations under
the  Marketing  Agreement.  The  diversion  of the  attention  of the  Company's
management from other aspects of the Company's  business,  and any  difficulties
encountered in the implementation  process,  could have an adverse impact on the
revenues and operating  results of the Company.  There can be no assurance  that
the anticipated benefits of the relationship will be realized.

     Deterrence of Potential  Customers.  The Company anticipates that its close
affiliation   with  Fluor  Daniel  could  deter  other  large   engineering  and
construction  firms that compete with Fluor Daniel from retaining the Company as
a  subcontractor  or  teaming  partner  for  projects  requiring   environmental
services.

ITEM 2.  PROPERTIES

     The Company's  executive offices are located in a 40,340 square foot office
leased in Norwood,  Massachusetts, a suburb of Boston. The term of the Company's
lease for this office space expires July 31, 2002.

     The Company owns two buildings - a 15,540 square foot,  one-story brick and
concrete  building in Wichita,  Kansas,  which is leased to a third party, and a
6,050 square foot,  two-story  building in Kingsgrove,  Australia,  which houses
consulting and  administrative  staff.  The Company leases space for offices and
warehouses  in 62 cities in the United  States,  as well as  Canada,  the United
Kingdom,  Australia, The Netherlands and Italy. Sizes of leased space range from
150 square feet to 42,000 square feet.  Lease terms for offices  typically range
from one to seven years.

     The Company  believes  that its  existing  facilities  are adequate to meet
current  requirements  and that suitable  additional or substitute space will be
available  as  needed  to  accommodate  any  expansion  of  operations  and  for
additional offices.

ITEM 3.  LEGAL PROCEEDINGS

     The Company is a party to a number of claims and lawsuits incidental to the
ordinary  conduct of its business.  Based upon analyses of the facts  underlying
these matters and upon  discussions  with counsel,  management  does not believe
that the  outcome of any or all of these  matters  will have a material  adverse
effect upon its business or financial condition.


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

              a.    An Annual  Meeting of the Company was held on September  18,
                    1996.

              b.    The number of Directors of the Company was set at seven, and
                    the following  individuals  were elected  directors to serve
                    until the next  annual  meeting  of  stockholders  and until
                    their  successors are duly elected and  qualified:  Allan S.
                    Bufferd,  Robert P. Schechter,  Ernie Green, David L. Myers,
                    J. Michal Conaway, James C. Stein and Walter C. Barber.


                                        9





<TABLE>
<CAPTION>
              c.    Proposal I                                   For               Withheld             No-Vote
                    ----------                                   ---               --------             -------
                    <S>                                      <C>                      <C>                  <C>
                    Election of Directors
                         Allan S. Bufferd                    7,647,778                  98,776              --
                         Robert P. Schechter                 7,647,238                  99,316              --
                         Ernie Green                         7,647,254                  99,300              --
                         David L. Myers                      7,647,358                  99,196              --
                         J. Michal Conaway                   7,647,492                  99,062              --
                         James C.  Stein                     7,646,463                 100,091              --
                         Walter C.  Barber                   7,645,005                 101,549              --

                    Proposal II                                  For            Against          Abstain           No-Vote
                    -----------                                  ---            -------          -------           -------
                    Selection of Auditors
                         Coopers & Lybrand                   7,738,292            2,519            5,743              ---
</TABLE>

              d.    Effective  December 31, 1996,  Mr.  Schechter  resigned as a
                    director of the Company.


                                       10





                        EXECUTIVE OFFICERS OF THE COMPANY

     The executive officers of the Company are listed below:

<TABLE>
     <S>                                <C>          <C>
     Walter C. Barber...................55           President and Chief Executive Officer

     Wendell W. Lattz...................44           Senior Vice President  and General Manager, South
                                                     Region

     J. Steven Paquette.................42           Vice President and General Manager, North Region

     David L. Backus....................55           Vice President and General Manager, West Region

     Rhonnie L. Smith...................54           Vice President and General Manager, Government
                                                     Services Division

     Robert E. Sliney, Jr...............46           Vice President, Treasurer and Chief Financial
                                                     Officer

     Glenn V. Batchelder ...............35           Vice President of Sales and Marketing

     Anne Nolan.........................48           Vice President of Human Resources

     Catherine L. Farrell...............52           Vice President, General Counsel and Secretary
</TABLE>


     Walter C. Barber has served as President and Chief Executive  Officer since
joining the Company in 1989. From 1983 to 1989, Mr. Barber was Vice President of
Environmental Management and Administration of Chemical Waste Management Inc., a
hazardous waste management services company. Previously, Mr. Barber was Director
of Research and Technology  Development for the Uranium Mill Tailings Project of
Jacobs Engineering Group, Inc., an engineering and construction firm. Mr. Barber
was also an executive with the U.S.  Environmental  Protection  Agency,  holding
positions  as its Director of the Office of Air Quality  Planning and  Standards
and as Director of the Standards and Regulations Division.

     Wendell W. Lattz joined the Company in 1991 and currently  serves as Senior
Vice President and General Manager,  South Region. Prior to joining the Company,
from 1985 to 1991, Mr. Lattz was General Manager of Chemical Waste Management of
Indiana, Inc., a hazardous waste treatment and disposal company.

     J. Steven Paquette is Vice President and General  Manager,  East Region for
the Company.  Between 1993 and May 1996,  he served as President of  Groundwater
Technology  Government  Services,  Inc., a subsidiary  of the Company.  Prior to
joining the Company,  from 1990 to 1992, he served as Senior Vice  President and
Northeast  Division Manager,  and from 1987 to 1990, he served as Vice President
of Eastern  Operations,  for CDM Federal  Programs  Corporation,  a wholly-owned
subsidiary  of  Camp  Dresser  &  McKee,   Inc.,  a  provider  of  environmental
engineering  and consulting  services to agencies and departments of the Federal
government.


                                       11





     David L.  Backus  joined  the  Company in June 1996 as Vice  President  and
General  Manager,  West Region.  Since June 1994,  Mr. Backus has served as Vice
President  of  Environmental   Strategies  for  Fluor  Daniel,  Inc.,  a  global
construction,  engineering, maintenance and services company. From 1991 to 1994,
he served as Vice President of Operations in charge of environmental  operations
in the western  United  States for Dow  Chemical  Corporation;  and from 1972 to
1991, he served as Senior Vice President and then President of Morrison  Knudsen
Environmental  Services, a unit of Morrison Knudsen Corporation,  an engineering
and construction firm. Mr. Backus continues to be employed by Fluor Daniel while
serving the Company on a part time basis.

     Rhonnie L. Smith  joined the  Company on May 10, 1996 as part of the merger
of the Company with Fluor Daniel Environmental  Services,  Inc., a subsidiary of
Fluor  Daniel,  Inc.;  and he was formally  elected Vice  President  and General
Manager,  Government  Services  Division  in June  1996.  Prior to  joining  the
Company,  from September  1994 to May 1996, Mr. Smith served as Vice  President,
and General  Manager,  Federal  Programs of  Environmental  Strategies for Fluor
Daniel. From 1989 to 1994, he served as Vice President of Eastern Operations for
Enserch Environmental  Corporation,  a provider of environmental engineering and
consulting services to agencies and departments of the federal government.

     Robert E. Sliney,  Jr. has served as Vice  President,  Treasurer  and Chief
Financial  Officer  since  joining the Company in 1992.  From 1985 to 1992,  Mr.
Sliney served as Controller and then Vice President and Chief Financial  Officer
of Signal Technology Company, a component  manufacturer in defense  electronics.
From 1975 to 1985,  Mr.  Sliney was  employed by the public  accounting  firm of
Coopers & Lybrand.

     Glenn V.  Batchelder  has served as Vice  President of Sales and  Marketing
since 1995. Between 1986 and 1995, he served the Company in several  capacities,
including Manager of the Company's former ORS Environmental  Equipment  Division
from 1992 until its sale in 1994,  Vice  President of  Engineering  from 1989 to
1992, and District Manager from 1986 to 1989.

     Anne  Nolan  joined  the  Company  in  October  1994 as  Director  of Human
Resources and was elected Vice  President of Human  Resources in 1995.  Prior to
joining the Company,  from August 1989 to April 1994, Ms. Nolan served as Senior
Vice President and Director of Training and Organizational Development for Fleet
Financial  Group,  Inc.,  and from June 1987 to August 1989, she served as Human
Resources Manager for Digital Equipment Corporation.

     Catherine  L.  Farrell has served as Vice  President,  General  Counsel and
Secretary  since  joining the Company in 1992.  From 1988 to 1992,  Ms.  Farrell
served as General  Counsel to the  Massachusetts  Water Resources  Authority,  a
state agency  providing sewer and water services.  From 1984 to 1988, she served
as  corporate  counsel for the New  England  Division  of  Federated  Department
Stores, Inc., a holding company for several retail clothing chains.  Previously,
Ms. Farrell served as an attorney with the U.S. Environmental  Protection Agency
and the Massachusetts Attorney General's office.





                                       12





                                     PART II

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

     The Company's  common stock is traded under the symbol "FDGT" on the Nasdaq
National Market System. The following table sets forth, by quarter, the high and
low bid prices of the Company's  common stock as reported by the Nasdaq National
Market System.

                                                        Transition Period ended
                                                            October 31, 1996
                                                       -------------------------
                                                       High                  Low
--------------------------------------------------------------------------------


Quarter ended July 31, 1996                             $14                   $9
Quarter ended October 31, 1996                           10 3/4                7

     Share  price  information  for the  periods  prior to the  merger  has been
omitted since Fluor Daniel Environmental Services, Inc. (FDESI), the predecessor
entity for accounting purposes, had no publicly traded equity securities.

     As of January 6, 1997,  the Company's  common stock was held by 986 holders
of record.  The Company has never paid cash  dividends  on its common  stock and
currently has no intention to pay cash dividends in the foreseeable  future. The
Company currently intends to retain any future earnings to finance the growth of
the Company.

ITEM 6.  SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
(In thousands, except per share amounts)

                                                Transition
                                              Period ended
                                               October 31,                          Fiscal years ended April 30,(1)
                                                                     ---------------------------------------------------------------
                                                      1996           1996          1995          1994        1993(3)      1992(3)
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                <C>            <C>           <C>           <C>            <C>         <C>    
Revenues                                           $89,063        $34,497       $35,425       $52,755        $41,253     $33,951
Income (loss) before provision for
   income taxes                                        215          1,728         1,076         1,118            513      (1,581)
Net income (loss)                                       91          1,054           656           682            316        (980)
Earnings per share of common stock(2)                  .01            N/A           N/A           N/A            N/A         N/A
Working capital                                     56,955          4,536         2,661         1,155          1,515       2,267
Total assets                                      $100,393         $5,365        $3,022        $1,475         $1,658      $2,267
Weighted average shares outstanding(2)               8,141            N/A           N/A           N/A            N/A         N/A
</TABLE>

     The Company has never paid cash  dividends  on its common  stock and has no
present intention to pay cash dividends in the foreseeable future.

(1) Represents the historical  results of Fluor Daniel  Environmental  Services,
Inc. (FDESI), the predecessor entity for accounting purposes.

(2) Share price information for the periods prior to the merger has been omitted
since Fluor Daniel Environmental  Services, Inc. (FDESI), the predecessor entity
for accounting purposes, had no publicly traded equity securities.

(3) Unaudited.

                                       13





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

RESULTS OF OPERATIONS

A.   GENERAL - FLUOR DANIEL GTI, INC.

     On May 10, 1996, the Company closed a series of  transactions  (the "Change
of  Control  Transactions")   pursuant  to  which  it  became  a  majority-owned
subsidiary  of Fluor  Daniel,  Inc.  ("Fluor  Daniel"),  a global  construction,
engineering,   maintenance   and  services   company.   The  Change  of  Control
Transactions  included a recapitalization of the Company's common stock, and the
merger  of one of the  Company's  subsidiaries  and Fluor  Daniel  Environmental
Services,  Inc.  ("FDESI"),  a  wholly-owned  subsidiary  of Fluor  Daniel  that
provides environmental services primarily to agencies of the federal government.
In exchange for FDESI and $35 million in cash,  Fluor Daniel received  4,400,000
shares of the Company's  "new" common stock and an option to purchase  1,768,970
additional  shares at $13.1274 per share that  expires on December 11, 1998.  In
the  recapitalization,  each holder of "old" common stock received $8.62 in cash
and .5274 of a share of "new"  common stock of the  Company.  In  addition,  the
Company  entered into a Marketing  Agreement with Fluor Daniel,  and the Company
changed its name from "Groundwater Technology, Inc." to "Fluor Daniel GTI, Inc."
to emphasize the new relationship.

     The  merger of GTI and  FDESI was  treated  as a  reverse  acquisition  for
accounting purposes, and therefore,  the balance sheets as of April 30, 1996 and
1995 and the related  statements of  operations,  cash flows and parent  company
investment  for each of the three  years in the  period  ended  April  30,  1996
represent the historical results of FDESI, which is the predecessor entity.

     The  Company  has  changed  its  year  end from  April  30 to  October  31.
Accordingly,  the Company began a new 12-month  fiscal year on November 1, 1996.
The six month period resulting from this change, May 1, 1996 through October 31,
1996, is referred to as the "Transition Period."

     Financial  results for the Transition Period ended October 31, 1996 include
the  operations  of GTI as if the merger had occurred on May 1, 1996.  Financial
activity for the period May 1, 1996 through May 9, 1996 was not significant.

     The  Company's  services  are  primarily  related  to  the  assessment  and
remediation of  contaminated  soil and groundwater for customers in a variety of
industries and for federal and state  governments.  The demand for the Company's
services  is a result of  governmental  regulation  and  enforcement  related to
hazardous contaminants in the environment.

     Revenue includes fees billed for services  provided directly by the Company
and fees  charged  by the  Company  for  arranging  and  managing  subcontractor
services.  Cost of sales includes  professional  salaries  incurred in rendering
services to customers,  other direct labor, purchases of equipment and materials
and  certain  direct  and  indirect   overhead  costs.   Selling,   general  and
administrative  expenses  includes  management  salaries,  facility  costs,  and
clerical and administrative overhead.  License and other income includes license
and royalty income earned on the Company's intellectual property and income from
direct equity investments in the environmental industry.

     As of October 31, 1996, the Company had 62 consulting  offices in 31 states
and 5 foreign countries,  including Australia, the United Kingdom, Canada, Italy
and the  Netherlands.  Additionally,  the Company's  joint venture with a German
company had  offices in Germany,  Austria and  Hungary.  Total  employees  as of
October 31, 1996 was 1,394.


                                       14






TRANSITION  PERIOD ENDED OCTOBER 31, 1996 COMPARED WITH SIX MONTHS ENDED OCTOBER
31, 1995

     Revenue for the Transition Period were $89.1 million. The Company continued
to  experience  a decrease  in work from  petroleum  customers  and the  federal
government as well as continued  competition  within almost all  assessment  and
remediation markets.

     Gross profit for the Transition  Period was $19.1 million.  As a percentage
of revenues,  gross profit for the Transition Period was 21.5%. The gross profit
for the Transition  Period has been impacted by continued  pricing pressures for
services  performed and it is not expected that the Company's  performance  will
significantly improve in the near term.

     Selling,  general and  administrative  for the Transition  Period was $20.4
million.  There were no unusual expenses in selling,  general and administrative
during this period.

     License  and other  income  for the  Transition  Period  was $1.1  million.
License and other income was  impacted by the receipt of $889,000  from the sale
of an investment.

     The tax rate at 57.7% for the Transition  Period was unusually high, mainly
due to the impact of state  taxes.  State taxes were not  reduced  significantly
relative to the low income for the period because their  computation is based on
a  number  of  components  such as  equity  and  revenue.  The tax rate was also
adversely affected by expense items which are not tax deductible,  such as meals
and entertainment and certain portions of goodwill.

     Pro forma results for the six months ended  October 31, 1995,  presented as
though the merger of FDESI and GTI had occurred on May 1, 1995,  were net income
of approximately $1.0 million on revenues of approximately $105.0 million.

Inflation/Foreign Currency Transactions
---------------------------------------

     The Company's  operations have not been, and in the foreseeable  future are
not  expected  to be,  materially  affected  by  inflation,  changing  prices or
fluctuations in the exchange rates for foreign currency transactions.

B.   GENERAL - FLUOR DANIEL ENVIRONMENTAL SERVICES, INC. (PREDECESSOR ENTITY)

     The financial data  presented  herein  reflects the financial  position and
results of operations as if the contracts  and personnel  which  constitute  the
environmental  remediation  business of Fluor Daniel had been operating entirely
through  FDESI  for all  periods  presented.  Operations  reflect  environmental
remediation  contract  work  performed by Fluor Daniel  personnel  for federally
funded  non-Department  of  Energy  contracts,  remediation  projects  for other
government   agencies  and   environmental   risk  assessment,   permitting  and
remediation for commercial  clients,  for the periods  presented.  Additionally,
FDESI provides  certain  environmental  consulting  services to Fluor Daniel and
other affiliated entities.

     Indirect  expenses  include  non-project  costs of  environmental  services
personnel  assigned  to the  environmental  operations  of Fluor  Daniel who are
available to provide services to FDESI's clients and other Fluor Daniel clients.
Additionally,  other  indirect  expenses  primarily  include  charges from Fluor
Daniel for the fair value of rent for occupied  space,  computer usage and other
costs.  There has been no  allocation  of corporate  general and  administrative
expenses by Fluor Daniel as management  believes that no significant general and
administrative  expenses were incurred with respect to FDESI's operations beyond
those reflected in the financial statements.


                                       15






     FDESI's  operations  include projects in both the commercial and government
sectors.  Although the mix of projects fluctuates from year to year,  government
projects represent a significant portion of total revenues. The uncertain timing
of project awards can create  variability in FDESI's  operations,  consequently,
trends are difficult to predict with certainty.

     The effective tax rate on earnings is essentially unchanged for all periods
presented.  Under a tax  allocation  practice,  FDESI is charged or  credited by
Fluor Daniel for federal income taxes, if any,  generally at the U.S.  statutory
rate. FDESI is also charged or credited for state income taxes.

FISCAL 1996 COMPARED WITH FISCAL 1995
-------------------------------------

     Revenues and net income for the year ended April 30, 1996 were  $34,497,000
and  $1,054,000,  respectively,  compared with  $35,425,000 and $656,000 for the
year ended April 30, 1995. The decrease in revenues is primarily attributable to
lower revenues on Department of Defense ("DOD")  contracts in 1996 compared with
1995.  This  decrease  was  partially  offset by higher  revenues on  commercial
projects in 1996  compared with 1995.  Government  projects  contributed  50% of
total  revenues for the year ended April 30, 1996 compared with 39% for the same
period of 1995.

     Total  indirect  expenses  increased to $6,935,000 for the year ended April
30, 1996 from $5,939,000 for the same period of 1995, due primarily to increased
proposal costs for environmental remediation on DOD prospects.

FISCAL 1995 COMPARED WITH FISCAL 1994
-------------------------------------

     Revenues and net income for the year ended April 30, 1995 were  $35,425,000
and $656,000, respectively,  compared with $52,755,000 and $682,000 for the year
ended April 30, 1994. The decrease in revenues is primarily  attributable to the
completion  of two large  commercial  projects  in early  1995.  These  projects
contributed  $10,174,000 to total revenues in 1995 compared with  $39,408,000 in
1994. This decrease was partially  offset by higher revenues on DOD contracts in
1995 compared with 1994.  Government projects  contributed 39% of total revenues
for the year ended April 30, 1995 compared with 13% for the year ended April 30,
1994.

     Total  indirect  expenses  increased to $5,939,000 for the year ended April
30, 1995 from  $4,229,000 for the same period of 1994 due primarily to increased
proposal costs for environmental  remediation on DOD prospects.  These increased
costs  contributed to a net loss of  approximately  $200,000  experienced in the
last half of fiscal 1995.

C.   FINANCIAL POSITION AND LIQUIDITY

     At October 31, 1996,  the  Company's  primary  source of liquidity was $6.7
million in cash, cash equivalents and marketable securities.  The Company has no
long-term borrowings. At October 31, 1996, the Company had a line of credit with
a bank  providing for  borrowings  up to $10.0  million  through April 30, 1999.
There have been no borrowings under the line of credit.

     The  Company  used $3.1  million in net cash to fund  operating  activities
during the  Transition  Period ended October 31, 1996. At October 31, 1996,  the
Company's working capital was $57.0 million. Total assets were $100.4 million at
the end of the same period.



                                       16





     Cash flows from investing  activities were impacted by  approximately  $2.1
million of  expenditures  in  property,  plant and  equipment  that were made to
upgrade the Company's computer and rental equipment. The Company had no material
commitments  for  capital  expenditures  as of October  31,  1996 and  estimates
spending  for  the  next  twelve  months  to  be  approximately   $3.6  million,
principally  for  the  general   expansion  of  operations  and  replacement  of
depreciated assets.

     Prior  to the  Change  of  Control  Transactions,  FDESI,  the  predecessor
company,  was  dependent  upon Fluor Daniel for continued  financing,  including
funding required, if any, for settlement of claims, working capital requirements
and third party bid and  performance  guarantees  made in the ordinary course of
business;  and FDESI  advanced to and received  non-interest  bearing funds from
Fluor Daniel.  The funding mechanism ceased to exist at completion of the Change
of Control Transactions.

     Funding  requirements  for  operations are expected to be met from existing
cash,  cash   equivalents,   marketable   securities  and  cash  generated  from
operations.  The Company  believes that cash provided from these sources will be
sufficient to meet its operating requirements for the near term.

ITEM 8.  CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     Information  called  for by  this  item  is  set  forth  in  the  Company's
Consolidated  Financial  Statements  and  supplementary  data  contained in this
report  and  is  incorporated  herein  by  this  reference.  Specific  financial
statements  and  supplementary  data  can be found at the  pages  listed  in the
following index.

<TABLE>
<CAPTION>
   Index                                                                                                           Page
   -----                                                                                                           ----
   <S>                                                                                                              <C>
   Reports of Independent Accountants...............................................................................F-2

   Consolidated Statements of Operations for the Transition Period ended October 31, 1996
   and for each of the three years ended April 30, 1996, 1995, and 1994.............................................F-4

   Consolidated Balance Sheets at October 31, 1996, April 30, 1996 and 1995.........................................F-5

   Consolidated Statements of Cash Flows for the Transition Period ended October 31, 1996
   and for each of the three years ended April 30, 1996, 1995, and 1994.............................................F-6

   Consolidated Statements of Stockholders' Equity and Parent Company Investment
   for the  Transition  Period ended  October 31, 1996 and for each of the three
   years ended
   April 30, 1996, 1995 and 1994....................................................................................F-7

   Notes to Consolidated Financial Statements.......................................................................F-8

   Selected Quarterly Financial Data (unaudited)...................................................................F-17

   Schedule II - Valuation and Qualifying Accounts. . . ...........................................................F-18
</TABLE>

   All other schedules for which provision is made in the applicable  accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are not applicable, and, therefore, have been omitted.


                                       17





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

     On December 12, 1996, the Company  dismissed the accounting firm of Coopers
& Lybrand  L.L.P ("C&L") and engaged  the  accounting  firm of Ernst & Young LLP
("E&Y") to be the Company's  independent  accountants for the fiscal year ending
October 31, 1997.  The  Company's  Board of  Directors  approved the decision to
change accountants upon the recommendation of the Company's Audit Committee.

     E&Y serves as independent  accountants  for the Company's  parent  company,
Fluor Daniel,  Inc. and Fluor Daniel,  Inc.'s  former  subsidiary,  Fluor Daniel
Environmental  Services,  Inc.  ("FDESI"),  which was  merged  with and became a
subsidiary of the Company on May 10, 1996.

     On July 26, 1995,  the Company had  dismissed E&Y and engaged C&L to be the
Company's independent  accountants for the fiscal year ended April 27, 1996. C&L
also was engaged to be the independent accountants for the Transition Period May
1, 1996 through October 31, 1996,  which resulted from the Company  changing its
fiscal year end to October 31, the fiscal year-end of Fluor Daniel, Inc.

     During the period of engagement  of C&L there have been no  "disagreements"
between the Company and C&L on any matter of accounting principles or practices,
financial  statement  disclosure,   or  auditing  scope  or  procedure,  or  any
"reportable events", as those terms are defined in Item 304 of Regulation S-K.

     C&L's reports on the consolidated  financial statements for the fiscal year
ended April 27, 1996 and the Transition  Period ended October 31, 1996 contained
no adverse  opinion or  disclaimer of opinion and were not qualified or modified
as to uncertainty, audit scope or accounting principles.


                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     Information with respect to this item, other than the information appearing
in Part I hereof in "Executive Officers", may be found in the section captioned,
"Election  of  Directors"  in  the  Company's   definitive  Proxy  Statement  in
connection  with the 1997 Annual Meeting of Stockholders to be held on March 19,
1997. Such information is incorporated herein by reference.

ITEM 11.  EXECUTIVE COMPENSATION

     Information  with  respect  to  this  item  may be  found  in  the  section
captioned,  "Executive Compensation" in the Company's definitive Proxy Statement
in connection  with the 1997 Annual Meeting of  Stockholders to be held on March
19, 1997. Such information is incorporated herein by reference.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     Information  with  respect  to  this  item  may be  found  in the  sections
captioned,  "Share Ownership of Principal  Holders and Management" and "Election
of  Directors" in the  definitive  Proxy  Statement in connection  with the 1997
Annual Meeting of Stockholders to be held on March 19, 1997. Such information is
incorporated herein by reference.



                                       18





ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Information  with  respect  to  this  item  may be  found  in  the  section
captioned,  "Executive  Compensation"  in  the  definitive  Proxy  Statement  in
connection  with the 1997 Annual Meeting of Stockholders to be held on March 19,
1997. Such information is incorporated herein by reference.


                                     PART IV

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

     (A) THE FOLLOWING DOCUMENTS ARE FILED AS A PART OF THIS REPORT:

         (1)  FINANCIAL STATEMENTS:

     The list of financial statements required by this item is set forth in Item
8 "Consolidated Financial Statements and Supplementary Data" and is incorporated
herein by reference.

         (2)  FINANCIAL STATEMENT SCHEDULE:
<TABLE>
<CAPTION>
                                                                                                                     Location in
                                                                                                                     this Report
                                                                                                                     -----------
         <S>                                                                                                                <C>
         Schedule II - Valuation and Qualifying Accounts....................................................................F-18
</TABLE>

     All  other  schedules  are  omitted  because  they  are  inapplicable,  not
required, or the information is included elsewhere in the Consolidated Financial
Statements or the notes thereto.

         (3)  EXHIBITS:

     The following  exhibits are filed herewith or  incorporated by reference as
indicated below.

         Number          Description of Exhibit
         ------          ----------------------

         3.01            Amended  and  Restated   Certificate  of  Incorporation
                         (filed as Exhibit 3.1 to Current Report on Form 8-K for
                         May  10,  1996  with  the   Securities   and   Exchange
                         Commission and incorporated herein by reference.)

         3.02            By-Laws,  as amended  (filed as Exhibit  3.2 to Current
                         Report on Form 8-K for May 10, 1996 with the Securities
                         and  Exchange  Commission  and  incorporated  herein by
                         reference.)

         10.01*          Amended and Restated 1986 Employee Stock Purchase Plan,
                         as amended  (filed as Exhibit 10.01 to Annual Report on
                         Form 10-K for the year  ended  April 27,  1996 with the
                         Securities  and Exchange  Commission  and  incorporated
                         herein by reference.)

         10.02*          Amended and Restated 1986 Employee  Stock Purchase Plan
                         Enrollment  Form  (filed  as  Exhibit  10.02 to  Annual
                         Report on Form 10-K for the year ended  April 27,  1996
                         with  the  Securities   and  Exchange   Commission  and
                         incorporated herein by reference.)

         10.03*          Amended and Restated 1987 Stock Plan, as amended (filed
                         as Exhibit  10.03 to Annual Report on Form 10-K for the
                         year  ended  April  27,  1996 with the  Securities  and
                         Exchange   Commission   and   incorporated   herein  by
                         reference.)


                                       19





         10.04*          Form of Non-qualified  Stock Option Agreement under the
                         Company's  Amended and Restated  1987 Stock Plan (filed
                         as Exhibit  10.04 to Annual Report on Form 10-K for the
                         year  ended  April  27,  1996 with the  Securities  and
                         Exchange   Commission   and   incorporated   herein  by
                         reference.)

         10.05*          Amended and Restated 1995  Director  Stock Option Plan,
                         as amended  (filed as Exhibit 10.05 to Annual Report on
                         Form 10-K for the year  ended  April 27,  1996 with the
                         Securities  and Exchange  Commission  and  incorporated
                         herein by reference.)

         10.06*          Form of Option  Agreement  under the Company's  Amended
                         and Restated 1995 Director  Stock Option Plan (filed as
                         Exhibit  10.06 to  Annual  Report  on Form 10-K for the
                         year  ended  April  27,  1996 with the  Securities  and
                         Exchange   Commission   and   incorporated   herein  by
                         reference.)

         10.07*          Retirement  Savings  Plan of the  Company,  as  amended
                         (filed as Exhibit  10.10 to Annual  Report on Form 10-K
                         for the year ended May 2, 1993 with the  Securities and
                         Exchange   Commission   and   incorporated   herein  by
                         reference.)

         10.08*          Amendment  to  Retirement  Savings  Plan of the Company
                         (filed as Exhibit  10.11 to Annual  Report on Form 10-K
                         for the year ended April 29,  1995 with the  Securities
                         and  Exchange  Commission  and  incorporated  herein by
                         reference.)

         10.09*          Employment  Agreement between the Company and Walter C.
                         Barber (filed as Exhibit 10.09 to Annual Report on Form
                         10-K  for the  year  ended  April  27,  1996  with  the
                         Securities  and Exchange  Commission  and  incorporated
                         herein by reference.)

         10.10*          Form of  Employment  Agreement  between the Company and
                         each of its Executive  Officers (filed as Exhibit 10.10
                         to Annual  Report on Form 10-K for the year ended April
                         27, 1996 with the  Securities  and Exchange  Commission
                         and incorporated herein by reference.)

         10.11*          Restricted  Stock Award  Agreement  under the Company's
                         Amended  and  Restated  1987  Stock  Plan  between  the
                         Company and Walter C. Barber (filed as Exhibit 10.11 to
                         Annual Report on Form 10-K for the year ended April 27,
                         1996 with the  Securities  and Exchange  Commission and
                         incorporated herein by reference.)

         10.12*          Non-Qualified  Option  Agreement  under  the  Company's
                         Amended  and  Restated  1987  Stock  Plan  between  the
                         Company and Walter C. Barber (filed as Exhibit 10.12 to
                         Annual Report on Form 10-K for the year ended April 27,
                         1996 with the  Securities  and Exchange  Commission and
                         incorporated herein by reference.)

         10.13*          Profit  Sharing Plan (filed as Exhibit  10.14 to Annual
                         Report on Form 10-K for the year ended  April 29,  1995
                         with  the  Securities   and  Exchange   Commission  and
                         incorporated herein by reference.)

         10.14           Lease for 100 River Ridge Drive, Norwood, Massachusetts
                         (filed as Exhibit  10.15 to Annual  Report on Form 10-K
                         for the year ended May 2, 1992 with the  Securities and
                         Exchange   Commission   and   incorporated   herein  by
                         reference.)

         10.15           Third  Amendment  to Lease for 100 River  Ridge  Drive,
                         Norwood,  Massachusetts  (filed  as  Exhibit  10.13  to
                         Annual Report on Form 10-K for the year ended April 29,
                         1995 with the  Securities  and Exchange  Commission and
                         incorporated herein by reference.)

         10.16           Fourth  Amendment  to Lease for 100 River Ridge  Drive,
                         Norwood,  Massachusetts  (filed  as  Exhibit  10.16  to
                         Annual Report on Form 10-K for the year ended April 27,
                         1996 with the  Securities  and Exchange  Commission and
                         incorporated herein by reference.)

                                       20





         10.17           Revolving  Credit  Agreement and  Revolving  Time Note,
                         each dated April 4, 1996  between the Company and Fleet
                         National  Bank (filed as Exhibit 10.17 to Annual Report
                         on Form 10-K for the year ended April 27, 1996 with the
                         Securities  and Exchange  Commission  and  incorporated
                         herein by reference.)

         10.18           Investment  Agreement  dated as of  December  11,  1995
                         between  the  Company  and  Fluor  Daniel,  Inc.  (with
                         respect to Section 6.3  thereof)  (filed as Exhibit 2.1
                         to  Quarterly  Report on Form 10-Q for the period ended
                         January  27,  1996  with the  Securities  and  Exchange
                         Commission and incorporated herein by reference.)

         10.19           Option  Agreement dated as of December 11, 1995 between
                         the Company and Fluor  Daniel,  Inc.  (filed as Exhibit
                         10.1 to  Quarterly  Report on Form 10-Q for the  period
                         ended January 27, 1996 with the Securities and Exchange
                         Commission and incorporated herein by reference.)

         10.20           First Amendment to Option Agreement dated as of May 30,
                         1996 between the Company and Fluor Daniel,  Inc. (filed
                         as Exhibit  10.20 to Annual Report on Form 10-K for the
                         year  ended  April  27,  1996 with the  Securities  and
                         Exchange   Commission   and   incorporated   herein  by
                         reference.)

         10.21           Marketing  Agreement  dated as of May 10, 1996  between
                         the Company and Fluor  Daniel,  Inc.  (filed as Exhibit
                         10.2 to  Current  Report  on Form 8-K for May 10,  1996
                         with  the  Securities   and  Exchange   Commission  and
                         incorporated herein by reference.)

         10.22*          1997 Stock Plan.

         10.23*          Form of Non-Qualified Stock Options Agreement under the
                         Company's 1997 Stock Plan.

         21.1            Subsidiaries of the Company.

         23.1            Consent of Coopers & Lybrand L.L.P

         23.2            Consent of Ernst & Young LLP.

         27              Financial Data Schedule.
--------

* Indicates a management  contract or compensatory plan or arrangement  required
to be filed as an exhibit to this form pursuant to Item 14(c) of Form 10-K.

     (B)  REPORTS ON FORM 8-K.  None for the quarter ended October 31, 1996.

     (C) EXHIBITS. The Company hereby files as exhibits to this Annual Report on
Form 10-K those exhibits listed in Item 14(a)(3) above.

     (D) FINANCIAL STATEMENT SCHEDULES.  The response to this portion of Item 14
is submitted as a separate section of this report.





                                       21




                                   SIGNATURES

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

                                                   FLUOR DANIEL GTI, INC.



                                                   by  /s/  Walter C. Barber
                                                     -------------------------
                                                     WALTER C. BARBER
                                                     President and Chief
                                                         Executive Officer
January 28, 1997


        Pursuant to the  requirements  of Section 13 or 15(d) of the  Securities
Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE                                         TITLE                                              DATE
<S>                                               <C>                                                <C>
                                                  President,
                                                  Chief Executive Officer
  /s/  Walter C. Barber                           and Director
----------------------------------------          (Principal Executive Officer)                      January 28, 1997
WALTER C. BARBER                        

                                                  Vice President,
                                                  Chief Financial Officer, and
  /s/  Robert E. Sliney, Jr.                      Treasurer (Principal Financial Officer
----------------------------------------          and Principal Accounting Officer)                  January 28, 1997
ROBERT E. SLINEY, JR.                   



  /s/  D.L. Myers                                 Chairman of the Board                              January 28, 1997
----------------------------------------
DAVID L. MYERS



  /s/  Ernie Green                                Director                                           January 28, 1997
----------------------------------------
ERNIE GREEN



                                       22






  /s/  Allan S. Bufferd                           Director                                           January 28, 1997
--------------------------------------
ALLAN S. BUFFERD



  /s/  James C. Stein                             Director                                           January 28, 1997
---------------------------------------
JAMES C. STEIN



  /s/  J. Michal Conaway                          Director                                           January 28, 1997
-----------------------------------
J. MICHAL CONAWAY
</TABLE>


                                       23





                          INDEX TO FINANCIAL STATEMENTS
                        AND FINANCIAL STATEMENT SCHEDULES
                             (ITEM 14(A)(1) AND (2))

<TABLE>
<CAPTION>

                                                                                                        PAGE
                                                                                                        ----
<S>                                                                                                      <C>
Reports of Independent Accountants.......................................................................F-2

Consolidated Statements of Operations for the Transition Period ended October 31,
1996 and for each of the three years ended April 30, 1996, 1995, and 1994................................F-4

Consolidated Balance Sheets at October 31, 1996, April 30, 1996 and 1995.................................F-5

Consolidated Statements of Cash Flows for the Transition Period ended October 31,
1996 and for each of the three years ended April 30, 1996, 1995 and 1994.................................F-6

Consolidated  Statements of Stockholders'  Equity and Parent Company  Investment
for the Transition Period ended October 31, 1996 and for each of the three years
ended April 30, 1996, 1995, and 1994.....................................................................F-7

Notes to Consolidated Financial Statements...............................................................F-8

Selected Quarterly Financial Data (unaudited)............................................................F-17

Schedule II - Valuation and Qualifying Accounts..........................................................F-18
</TABLE>

All other  schedules for which  provision is made in the  applicable  accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are not applicable, and, therefore, have been omitted.


                                       F-1





                        REPORT OF INDEPENDENT ACCOUNTANTS




To the Board of Directors and Stockholders of
Fluor Daniel GTI, Inc.

We have audited the accompanying consolidated balance sheet of Fluor Daniel GTI,
Inc.  as  of  October  31,  1996  and  the  related  consolidated  statement  of
operations,  stockholders'  equity,  and  cash flow and the financial  statement
schedule  listed in Item  14(a) of the  Report on  Form 10-K for the  Transition
Period then ended.  These financial  statements and financial statement schedule
are the  responsibility of the Company's  management.  Our  responsibility is to
express  an  opinion  on these  financial  statements  and  financial  statement
schedule based on our audit.

We conducted our audit 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 audit provides a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the consolidated financial position of Fluor Daniel GTI,
Inc. at October 31, 1996, and the consolidated results of its operations and its
cash flows for the  Transition  Period then ended in conformity  with  generally
accepted  accounting  principles.  In addition,  in our opinion,  the  financial
statement  schedule  referred to above, when considered in relation to the basic
financial statements taken as a whole, present fairly, in all material respects,
the information required to be included therein.


                                                    /s/ Coopers & Lybrand L.L.P.
                                                    ----------------------------
                                                    Coopers & Lybrand L.L.P.
                                                    ------------------------
Boston, Massachusetts
December 11, 1996                                    



                                       F-2




                        REPORT OF INDEPENDENT ACCOUNTANTS




The Board of Directors
Fluor Daniel Environmental Services, Inc.

We have audited the  accompanying  balance sheets of Fluor Daniel  Environmental
Services,  Inc. as of April 30, 1996 and 1995,  and the  related  statements  of
operations, cash flows and parent company investment for each of the three years
in the  period  ended  April  30,  1996.  These  financial  statements  are  the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

As more  fully  described  in Notes 1 and 7,  the  Company  was a  wholly  owned
subsidiary  of Fluor  Daniel,  Inc.  and has  material  transactions  with Fluor
Daniel, Inc. and its affiliates.

In our opinion,  the financial  statements referred to above, present fairly, in
all material  respects,  the  financial  position of Fluor Daniel  Environmental
Services,  Inc. at April 30, 1996 and 1995 and results of its operations and its
cash flows for each of the three years in the period  ended April 30,  1996,  in
conformity with generally accepted accounting principles.

                                                          /s/ Ernst & Young LLP

Orange County, California
December 10, 1996

                                       F-3





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

<TABLE>
<CAPTION>
                                                Transition Period ended        Fiscal years ended April 30,(1)
                                                       October 31, 1996           1996           1995          1994
                                                       ----------------           ----           ----          ----
<S>                                                            <C>             <C>            <C>           <C>    
Revenues                                                       $89,063         $34,497        $35,425       $52,755
Cost of revenues                                                69,951          25,834         28,410        47,408
                                                              ---------       --------       --------      --------

Gross profit                                                    19,112           8,663          7,015         5,347

Selling, general and administrative expenses                    20,382              --             --            --
Indirect expenses                                                    --          6,935          5,939         4,229
License and other income                                         1,132              --             --            --
                                                             ----------   ------------   ------------  ------------

Income (loss) before investment and interest income               (138)          1,728          1,076         1,118
Investment and interest income, net                                353              --             --            --
                                                            -----------   ------------   ------------  ------------

Income before provision for income taxes                           215           1,728          1,076         1,118
Provision for income taxes                                         124             674            420           436
                                                            -----------     ----------     ----------    ----------

Net income                                                  $       91        $  1,054      $     656     $     682
                                                            ===========       ========      =========     =========

Earnings per common share                                    $    0.01             N/A            N/A           N/A

Shares used to compute earnings per common share                 8,141             N/A            N/A           N/A

</TABLE>

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





(1) Represents the historical  results of Fluor Daniel  Environmental  Services,
Inc. (FDESI), the predecessor entity for accounting purposes.

                                       F-4





CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
<TABLE>
<CAPTION>
                                                                                  October 31,        April 30,         April 30,
Assets                                                                                   1996          1996(1)           1995(1)
------                                                                                   ----          -------           -------
<S>                                                                                <C>               <C>               <C>      
Current assets:
Cash and cash equivalents                                                          $    2,552        $      --         $      --
Marketable securities                                                                   4,101               --                --
Accounts receivable, less allowance of
   $1,740 at October 31, 1996 and $0 at April 30, 1996 and 1995                        46,438            2,644             2,617
Unbilled revenues                                                                      18,917            2,721               405
Deferred income taxes                                                                     937               --                --
Other current assets                                                                    2,525               --                --
                                                                                  -----------       ----------        ----------

Total current assets                                                                   75,470            5,365             3,022

Deferred income taxes                                                                   2,967               --                --
Property, plant and equipment, net                                                      7,776               --                --

Goodwill, net of accumulated amortization of $860                                      10,218               --                --

Other assets                                                                            3,962               --                --
                                                                                  -----------      -----------       -----------
Total assets                                                                         $100,393           $5,365            $3,022
                                                                                  ===========      ===========       ===========
Liabilities and Stockholders' Equity and Parent Company Investment

Current liabilities:
Accounts payable                                                                   $    8,034        $      --         $      --
Accrued salaries and benefits                                                           4,023               --                --
Advance billings on contracts                                                             452              737               361
Other accrued liabilities                                                               5,905               92                --
Income taxes payable                                                                      101               --                --
                                                                                 ------------       ----------        ----------

Total current liabilities                                                              18,515              829               361

Commitments and contingencies (note 8)

Stockholders' equity and parent company investment:

Preferred stock, $.01 par value, 1,000,000 shares authorized, none
   issued; and no preferred stock authorized at April 30, 1996 or 1995                     --               --                --
Common stock, $.001 par value, 25,000,000 shares
   authorized, 8,155,832 issued and outstanding at October 31, 1996;
   and $1.00 par value, 1,000 shares authorized, issued, and
   outstanding at April 30, 1996 and 1995                                                   8                1                 1
Capital in excess of par value                                                         81,003              335               335
Advances from parent                                                                       --            3,466             2,645
Retained earnings (deficit)                                                               825              734             (320)
Cumulative currency translation adjustment                                                 42               --                --
                                                                                -------------     ------------       -----------

Total stockholders' equity and parent company investment                               81,878            4,536             2,661
                                                                                -------------     ------------       -----------
Total liabilities, stockholder's equity and parent company investment                $100,393           $5,365            $3,022
                                                                                =============     ============       ===========
</TABLE>

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

(1) Represents the financial  position of Fluor Daniel  Environmental  Services,
Inc. (FDESI), the predecessor entity for accounting purposes.

                                       F-5





CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
                                                               Transition Period ended
                                                                           October 31,           Fiscal years ended April 30,(1)
                                                                                  1996           1996          1995         1994
                                                                                  ----           ----          ----         ----
<S>                                                                        <C>                <C>           <C>          <C>
Cash flows from operating activities:
Net income                                                                 $       91         $1,054        $  656       $  682
Adjustments to reconcile net income to net cash provided
  by (used in) operating activities:
     Depreciation and amortization                                              2,354             --            --           --
     Deferred income taxes                                                       (111)            --            --           --
     Loss on fixed assets                                                          45             --            --           --
     Changes  in   operating   assets  and   liabilities,   net  of  effects  of
        acquisitions:
           Accounts receivable and unbilled revenues                           (6,532)        (2,343)       (1,547)         183
           Other current assets                                                 3,070             --            --           --
           Other assets                                                           102             --            --           --
           Accounts payable                                                    (1,720)            --            --           --
           Accrued salaries and benefits                                        1,233             --            --           --
           Advance billings on contract                                          (285)            376            41          177
           Other accrued liabilities                                           (1,101)            92            --           --
           Income taxes payable                                                  (273)            --            --           --
      Advances from (to) parent                                                    --            821           850       (1,042)
                                                                         -------------      ---------      --------      -------

Net cash used in operating activities                                          (3,127)            --            --           --

Cash flows from investing activities:
  Expenditures for property, plant and equipment                               (2,065)            --            --           --
  Sale of fixed assets                                                            815             --            --           --
  Purchase of marketable securities                                            (5,451)            --            --           --
  Sale of marketable securities                                                 1,350             --            --           --
  Investment in joint ventures                                                    102             --            --           --
  Other                                                                           263             --            --           --
  Cash acquired in merger with Groundwater Technology, Inc.                    36,729             --            --           --
  Cash paid to shareholders                                                   (60,102)            --            --           --
                                                                              --------    -----------   -----------  ----------

Net cash used in investing activities                                         (28,359)            --            --           --

Cash flows from financing activities:
  Proceeds from sale of stock under employee
      stock plans and payments on employee notes                                  646             --            --           --
  Cash received from Fluor Daniel, Inc.                                        33,350             --            --           --
                                                                             ---------    -----------   -----------  ----------

Net cash provided by financing activities                                      33,996             --            --           --

Effect of exchange rate changes on cash and cash equivalents                       42             --            --           --
                                                                          ------------   -----------    ----------  -----------

Net increase in cash and cash equivalents                                       2,552             --            --           --

Cash and cash equivalents at beginning of year                                     --             --            --           --
                                                                           -----------    -----------   -----------  ----------

Cash and cash equivalents at end of year                                   $    2,552     $       --     $      --   $       --
                                                                           ===========    ===========    ==========  ==========

Supplemental disclosures of cash flow information:
Received net assets from merger with Groundwater Technology, Inc.             $70,858             --            --           --
Income taxes paid                                                           $     513             --            --           --
</TABLE>

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

(1) Represents the historical  results of Fluor Daniel  Environmental  Services,
Inc. (FDESI), the predecessor entity for accounting purposes.

                                       F-6





CONSOLIDATED  STATEMENTS OF STOCKHOLDERS'  EQUITY AND PARENT COMPANY  INVESTMENT
TRANSITION  PERIOD ENDED OCTOBER 31, 1996 AND  YEARS ENDED APRIL 30, 1996,  1995
AND 1994 (In thousands, except share amounts)
<TABLE>
<CAPTION>
                                                                              Retained                     Currency    
                                             Common Stock      Additional     Earnings    Advances (To)  Translation   
                                          Shares      Amount Paid in Capital  (Deficit)    From Parent    Adjustment      Total
                                          ------      ------ --------------  ---------    -----------    ----------      -------
<S>                                        <C>           <C>     <C>          <C>             <C>              <C>     <C>
BALANCE, APRIL 30, 1993 (1)                1,000         $1      $     335    $(1,658)        $2,837           $ --    $  1,515
Advances to parent                                                                            (1,042)                    (1,042)
Net income                                                                        682                                       682

BALANCE, APRIL 30, 1994 (1)                1,000          1            335       (976)         1,795             --       1,155
Advances from parent                                                                             850                        850
Net income                                                                        656                                       656

BALANCE, APRIL 30, 1995 (1)               1,000           1            335       (320)         2,645             --       2,661
Advances from parent                                                                             821                        821
Net income                                                                      1,054                                     1,054

BALANCE, APRIL 30, 1996 (1)               1,000           1            335        734          3,466             --       4,536
Contribution of advances to capital                                  2,359                    (2,359)                       --
Advances to parent                                                                            (1,107)                    (1,107)
Return of capital                        (1,000)         (1)        (2,694)                                              (2,695)
Transaction related costs                                           (1,569)                                              (1,569)
Issuance of new common stock (2)      8,076,466           8         81,565                                               81,573
Issuance of common stock to employees    79,366                        988                                                  988
Restricted stock repayment                                              19                                                   19
Cumulative translation adjustment                                                                                42          42
Net income                                                                         91                                        91

BALANCE, OCTOBER 31, 1996             8,155,832          $8        $81,003  $     825      $    --              $42     $81,878
                                      ==========         ===       ======== ==========     ==========           ===     =======
</TABLE>


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



(1) Represents the historical  results of Fluor Daniel  Environmental  Services,
    Inc. (FDESI), the predecessor entity for accounting purposes.
(2) In the  recapitalization,  the former  Groundwater  Technology  stockholders
    received an aggregate of $60,102,000 in cash in addition to 3,676,000 shares
    of "new" common stock of the Company.

                                       F-7





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION  OF  BUSINESS  Fluor  Daniel  GTI,  Inc.  provides a broad  range of
environmental  consulting,  engineering,  and construction  management services.
These services currently focus on the assessment and remediation of contaminated
soil and groundwater  using a broad range of techniques an  technologies.  These
services are provided separately or in combination for customers in a variety of
industries and for federal and state governments.

PRINCIPLES OF CONSOLIDATION The consolidated  financial  statements  include the
accounts of Fluor  Daniel  GTI,  Inc.  and its wholly  owned  subsidiaries  (the
"Company").  All  material  intercompany  transactions  and  accounts  have been
eliminated.  Certain prior period amounts have been reclassified to conform with
current  period  presentation.  The  Company  accounts  for its  investments  in
unconsolidated affiliated companies under the equity method.

BASIS  OF  PRESENTATION  On May  10,  1996,  the  Company  closed  a  series  of
transactions (the "Change of Control Transactions")  pursuant to which it became
a majority-owned  subsidiary of Fluor Daniel,  Inc. ("Fluor  Daniel"),  a global
construction,  engineering,  maintenance  and  services  company.  The Change of
Control Transactions  included a recapitalization of the Company's common stock,
and  the  merger  of  one  of  the  Company's   subsidiaries  and  Fluor  Daniel
Environmental  Services,  Inc.  ("FDESI"),  a  wholly-owned  subsidiary of Fluor
Daniel that provides environmental services primarily to agencies of the federal
government. In exchange for FDESI and $35 million in cash, Fluor Daniel received
4,400,000  shares of the Company's  "new" common stock and an option to purchase
1,768,970  additional  shares at $13.1274 per share that expires on December 11,
1998. In the recapitalization,  each holder of "old" common stock received $8.62
in cash and .5274 of a share of "new" common stock of the Company.  In addition,
the  Company  entered  into a Marketing  Agreement  with Fluor  Daniel,  and the
Company changed its name from  "Groundwater  Technology,  Inc." to "Fluor Daniel
GTI, Inc." to emphasize the new relationship.

The merger was treated as a reverse  acquisition  for accounting  purposes,  and
therefore,  the  balance  sheets as of April 30,  1996 and 1995 and the  related
statements of operations,  cash flows and parent company  investment for each of
the three years in the period ended April 30,  1996,  represent  the  historical
results of FDESI, which is the predecessor entity.

The historical  financial  statements of FDESI have been adjusted to reflect the
"carved out" financial  position,  results of operations and cash flows of FDESI
as if the contracts and personnel that constitute the environmental  remediation
business of Fluor  Daniel had been  operating as a separate  entity.  Operations
reflect the  environmental  remediation  contract work performed by Fluor Daniel
personnel for federally funded non- Department of Energy contracts,  remediation
projects  for other  government  agencies  and  environmental  risk  assessment,
permitting and remediation  for commercial  clients.  Additionally,  the Company
provides  certain  environmental  consulting  services to Fluor Daniel and other
affiliated  entities.  The  historical  financial  statements  do not include an
allocation of corporate general and  administrative  expenses by Fluor Daniel as
management believes that no significant general and administrative expenses were
incurred  with  respect to FDESI's  operations  beyond  those  reflected  in the
accompanying financial statements.

The Company  has changed its year end from April 30 to October 31.  Accordingly,
the Company began a new 12-month  fiscal year on November 1, 1996. The six month
period  resulting  from this change,  May 1, 1996 through  October 31, 1996,  is
referred to as the "Transition Period."


                                       F-8






Financial  results for the Transition  Period ended October 31, 1996 include the
operations  of GTI as if the  merger  had  occurred  on May 1,  1996.  Financial
activity for the period May 1, 1996 through May 9, 1996 was not significant.

CASH AND CASH  EQUIVALENTS  Cash and cash  equivalents  consist of cash on hand,
demand deposit  accounts and  investments  in tax-exempt  money market funds and
tax-exempt municipal bonds having original maturities of three months or less or
which  contain a put option which can be exercised at par within three months of
the date of acquisition.  These investments are highly liquid and are considered
cash equivalents. Cash equivalents are stated at cost which approximates market.

PROPERTY, PLANT AND EQUIPMENT AND DEPRECIATION Property, plant and equipment are
stated at cost.  Repairs and  maintenance  costs are charged to operations  when
incurred,  while betterments are capitalized.  Depreciation and amortization are
computed on the  straight-line  method over the  estimated  useful  lives of the
assets. The estimated useful life of each class of asset is as follows:

     Buildings and equipment                                      25 years
     Leasehold improvements                                      1-7 years
     Machinery and equipment                                       3 years
     Laboratory equipment                                          7 years
     Furniture, fixtures and computer equipment                  3-5 years
     Rental equipment                                              2 years

Upon  retirement or disposal,  the cost of the asset disposed of and the related
accumulated  depreciation  are removed from the accounts and any gain or loss is
reflected in income.

INTANGIBLES  Intangibles  consist  principally of goodwill and other  intangible
assets resulting from acquisitions.  Amortization is computed on a straight-line
basis not to exceed forty  years.  The carrying  value of  intangible  assets is
periodically  reviewed by the Company and  impairments  are recognized  when the
expected future operating cash flows derived from such intangible assets is less
than their carrying value.

INDIRECT  EXPENSES  Indirect  expenses  include  indirect  non-project  costs of
environmental  services  personnel  assigned to the environmental  operations of
FDESI,  who were available to provide services to FDESI's clients while it was a
subsidiary of Fluor Daniel. Additionally,  FDESI was charged by Fluor Daniel for
the fair  value of rent for  occupied  space,  computer  usage  and  rental  and
reproduction costs.

TRANSLATION OF FOREIGN CURRENCIES AND FOREIGN EXCHANGE TRANSACTIONS For non-U.S.
operations,  the  functional  currency is the  applicable  local  currency.  The
translation  of the  functional  currencies  into U.S.  dollars is performed for
balance sheet  accounts  using current  exchange  rates in effect at the balance
sheet date and for revenue and expense  accounts using average rates of exchange
prevailing  during  the  reporting  period.   Adjustments   resulting  from  the
translation  of foreign  currency  financial  statements  are  accumulated  in a
separate  component  of  stockholders'  equity  until  the  entity  is  sold  or
substantially  liquidated.  Gains or  losses  resulting  from  foreign  currency
transactions are included in the results of operations.

EARNINGS PER COMMON SHARE The  calculation of earnings per common share is based
on the weighted average number of shares outstanding, including all common stock
and stock  options  outstanding  considered to be common stock  equivalents.  In
periods in which a loss is incurred,  common stock  equivalents  are excluded as
the effect  would be  anti-dilutive.  Primary  and fully  diluted net income per
share data are the same for each period presented.

                                       F-9





Earnings per share information for periods prior to the merger between FDESI and
GTI has  been  omitted  since  FDESI,  the  predecessor  entity  for  accounting
purposes, had no publicly traded equity securities.

REVENUE RECOGNITION  Revenue is recognized when services are performed.  Certain
government  projects are accounted for on the  percentage-of-completion  method,
primarily based on contract costs incurred to date compared with total estimated
contract costs.  Changes to total estimated  contract costs and losses,  if any,
are recognized in the period in which they are determined.  Revenues  recognized
in excess of amounts  billed are  classified  as current  assets under  unbilled
revenues. Amounts billed to clients in excess of revenues recognized to date are
classified as advance billings on contracts.

LICENSE AND OTHER INCOME License and other income  includes  license and royalty
income  earned on the  Company's  intellectual  property  and income from equity
investments in the environmental industry.

RISK  AND  UNCERTAINTIES  Credit  is  extended  based  on an  evaluation  of the
customer's  financial  condition,  with terms  consistent  in the  industry  and
normally  collateral is not required.  Losses from credit sales are provided for
in the  financial  statements  and have been  consistently  within the allowance
provided.  The preparation of financial  statements in conformity with generally
accepted  accounting  principles  requires  management to provide  estimates and
assumptions  that  affect the  reported  amounts of assets and  liabilities  and
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 and would
impact future results of operations and cash flows.

NOTE 2
MARKETABLE  SECURITIES  The  Company  accounts  for its  investments  under  the
provision  of  Statement  of  Financial  Accounting  Standard  (SFAS)  No.  115,
"Accounting  for  Certain  Investments  in  Debt  and  Equity  Securities."  The
Company's  investments  are  classified  as  available-for-sale  securities  and
recorded  at current  market  value with an  offsetting  adjustment  included in
stockholders' equity. All securities mature in less than six months.

Marketable  securities  consisted  principally  of municipal  obligations  which
contain a put option that can be exercised at par with various  maturity  dates.
The Company  considers  these  investments,  which represent funds available for
current operations, an integral component of its cash management activities. The
investments in municipal  obligations  represent principally "A" rated or better
investment grade securities with no significant concentrations in any one issue.

At the end of October 31, 1996, proceeds from sales of securities  available for
sale were approximately $1,350,000. No gains or losses were realized.

At October 31, 1996,  investments in debt and equity  securities  were stated at
their  fair  value  of  $4,100,876.  In  addition,  included  in cash  and  cash
equivalents  are  short  term  debt  securities  with  a  carrying  value  which
approximates their fair value of $589,660.

NOTE 3
UNBILLED REVENUES Unbilled revenues represent amounts earned under the Company's
contracts but not billed or not yet billable to customers  according to contract
terms,  which usually consider  passage of time,  achievement of certain project
milestones or completion  of the project.  The unbilled  revenues at October 31,
1996 are expected to be billed and collected within one year.


                                      F-10





NOTE 4
PROPERTY,  PLANT AND EQUIPMENT  Property,  plant and equipment  consisted of the
following:

(In thousands)                                                          
-------------------------------------------------------------------------------
Land, buildings and improvements                                     $  1,932
Leasehold improvements                                                  1,773
Machinery and equipment                                                 2,872
Laboratory equipment                                                      610
Furniture, fixtures and computer equipment                             23,417
Rental equipment                                                        8,802
                                                                     --------
                                                                       39,406

Less accumulated depreciation                                         (31,630)
                                                                     -------- 
                                                                     $  7,776
                                                                     ========

Depreciation expense was $2,182,000, for the Transition Period.

NOTE 5
LINE OF CREDIT At October 31, 1996, the Company had a line of credit with a bank
providing for  borrowings up to $10,000,000  through April 30, 1999.  Borrowings
under the line bear  interest  at the prime rate  (8.25% at October  31,  1996).
There have been no borrowings  under the line of credit.  The full amount of the
line of credit was  available  to the Company at October 31,  1996.  The line of
credit is  unsecured;  however,  the Company is  required  to  maintain  certain
financial  ratios and minimum level of net worth,  and the Company's  ability to
pay dividends to shareholders is restricted.

NOTE 6
INCOME TAXES
The provision for income taxes consisted of the following:
(In thousands)
<TABLE>
<CAPTION>
                                             Transition Period
                                             ended October 31,                           Fiscal years ended April 30,
                                                                                 ---------------------------------------
                                                          1996                   1996             1995              1994
                                                          ----                   ---------------------------------------
<S>                                                     <C>                       <C>             <C>            <C>
Current:
     Federal                                            $  58                       $605            $366           $380
     State                                                177                         69              54             56
                                                       -------                   -------         -------        -------
                                                          235                        674             420            436
Deferred (prepaid):
     Federal                                              105                         --              --             --
     State                                                 52                         --              --             --
     Foreign                                             (268)                        --              --             --
                                                       -------                   -------         -------        -------
                                                         (111)                        --              --             --
                                                       -------                   -------         -------        -------
                                                         $124                       $674            $420           $436
                                                       =======                   =======         =======        =======
</TABLE>






                                      F-11





The  provisions  for  income  taxes were at rates  other  than the U.S.  federal
statutory income tax rate for the following reasons:

<TABLE>
<CAPTION>
                                                 Transition Period
                                                 ended October 31,                          Fiscal years ended April 30,
                                                                                   -------------------------------------------
                                                              1996                    1996             1995               1994
                                                              ----                 -------------------------------------------
<S>                                                         <C>                      <C>             <C>          <C>
U.S. federal statutory income tax rate %                     34.0%                   34.0%           34.0%        34.0%
State income taxes
     net of federal income tax benefit                       70.4                     5.0             5.0          5.0
Foreign income taxes                                        (87.0)                     --              --           --
Meals & entertainment                                        25.5                      --              --           --
Goodwill                                                     25.8                      --              --           --
Interest income exempt from federal tax                      (6.1)                     --              --           --
Other, net                                                   (4.9)                     --              --           --
                                                           -------               ---------      ----------   ----------

                                                             57.7%                   39.0%           39.0%        39.0%
                                                             =====                   =====           =====        =====
</TABLE>

Deferred assets reflect the net tax effect of temporary  differences between the
carrying amounts of assets and liabilities for financial  reporting purposes and
the  amounts  used  for  income  tax  purposes.  Significant  components  of the
Company's deferred tax assets as of October 31, 1996 are as follows:

(In thousands)

Deferred tax assets
     Depreciation                                                        $1,440
     Allowance for doubtful accounts                                        612
     Other accrued liabilities                                            1,334
     Net operating loss carryforwards
       of international subsidiaries                                        894
                                                                            ---

     Total deferred tax assets                                            4,280
     Valuation allowance attributable to
       net operating loss carryforwards
       of international subsidiaries                                      (376)
                                                                          ---- 

Net deferred tax assets                                                  $3,904
                                                                         ======

The foreign  loss before  income  taxes was  $238,000  net,  for the  Transition
Period. The valuation  allowance is attributable to foreign net operating losses
which are likely to expire before being utilized.

The  operations of FDESI were included in the  consolidated  federal  income tax
return of Fluor Corp., the ultimate parent company of Fluor Daniel, Inc. Under a
tax allocation practice, FDESI was charged by Fluor Daniel for federal and state
income taxes, if any, generally at statutory rates.

As a  result  of the tax  allocation  practice,  tax  benefits  associated  with
pre-1993  losses were  recognized  in the year the loss  occurred.  If FDESI had
filed a separate return,  these tax benefits would have been recognized in later
years,  resulting  in the  elimination  of  substantially  all of the income tax
expense for the years 1993 through 1995.



                                      F-12






NOTE 7
RELATED PARTIES The Company provides certain  environmental  consulting services
to Fluor Daniel and other  affiliated  entities.  Revenues from these consulting
services have been reflected in the accompanying statements in accordance with a
Marketing  Agreement ("the Agreement") signed in conjunction with the Investment
Agreement  between  the  Company  and  Fluor  Daniel.  Under  the  terms  of the
Agreement, affiliates are charged for labor cost plus established multipliers on
base  compensation.  Due to the variable and often  unpredictable  nature of the
Company's  work  load,  consulting  services  are  provided  to Fluor  Daniel as
conditions allow.  Revenues from Fluor Daniel and other affiliated entities were
$1,058,000  for the  Transition  Period ended  October 31, 1996 and  $4,507,000,
$4,941,000 and  $4,613,000 for the periods ended April 30, 1996,  1995 and 1994,
respectively.

Prior to the change of control transactions, FDESI, the predecessor company, was
dependent upon Fluor Daniel for continued financing, including funding required,
if any, for settlement of claims,  working capital  requirements and third party
bid and  performance  guarantees  made in the ordinary  course of business;  and
FDESI advanced and received  non-interest  bearing funds from Fluor Daniel.  The
funding mechanism ceased to exist upon completion of the merger.

NOTE 8
COMMITMENTS AND CONTINGENCIES

LEASE  COMMITMENTS  The Company  leases  virtually all of its  facilities  under
operating leases. Most of these leases have renewal options, and certain of them
require  increasing  rent  payments  over the term of the lease and payments for
additional  expenses  such as taxes  and  maintenance.  One of the  leases  also
contains a purchase  option.  Additionally,  the Company  leases  equipment  and
vehicles under operating leases.

Future minimum payments under all noncancelable leases are as follows:

(In thousands)
------------------------------------------------------
1997                                          $  4,038
1998                                             3,091
1999                                             2,141
2000                                             1,398
2001 and thereafter                              1,302
                                             ---------
                                               $11,970
                                             =========

Rent expense charged to operations was $2,530,000 for the Transition Period.

OTHER  COMMITMENTS A  substantial  number of the  Company's  contracts  with its
customers require the Company to indemnify the customer for claims,  damages, or
losses  for  personal  injury  or  property  damage  relating  to the  Company's
performance  of the contracts  unless such injury or damage is solely the result
of the  customer's  negligent  or  willful  acts or  omissions.  A number of the
insurance  policies  maintained  by the  Company for this  purpose are  provided
through  arrangements  which  require the  Company to  indemnify  the  insurance
carrier  for all losses  and  expenses  under the  policies  and to support  its
indemnity  commitments with letters of credit. At October 31, 1996, such letters
of credit  aggregated  $7,300,655.  In addition,  provisions for losses expected
under these policies of $1,741,000 are included in other accrued  liabilities at
October 31, 1996.  Management  believes an adequate level of insurance  coverage
has been provided.


                                      F-13





CONTINGENCIES  In the ordinary  course of conducting  its business,  the Company
becomes  involved  in a  number  of  lawsuits  and  administrative  proceedings,
including  environmentally related matters. Some of these proceedings may result
in fines,  penalties or judgments being assessed against the Company which, from
time to time,  may have an impact on  earnings  for a  particular  quarter.  The
Company does not believe that these matters,  individually  or in the aggregate,
will have a material  adverse effect on its operations,  cash flows or financial
condition.

NOTE 9
CAPITAL STOCK AND STOCK PLANS

The Company has elected to follow  Accounting  Principles  Board Opinion No. 25,
"Accounting for Stock Issued to Employees"  (APB25) and related  Interpretations
in accounting for its employee stock options. Under APB 25, because the exercise
price of the Company's  employee  stock  options  equals the market price of the
underlying stock on the date of grant, no compensation expense is recognized.

The Company has  determined  that had  compensation  costs  related to awards of
employee  stock  options been  calculated  based on fair value at the grant date
consistent with FASB Statement 123,  "Accounting for Stock Based  Compensation",
there would be no material impact on the net income or earnings per share of the
Company for the Transition Period.

AMENDED AND RESTATED 1987 STOCK PLAN Pursuant to the plan, as amended, 1,917,089
shares of common  stock have been  reserved  for  issuance  upon the exercise of
options or in connection with awards or  authorizations to make direct purchases
of stock. The plan provides for the granting of both nonstatutory  stock options
and incentive stock options. The recipients,  terms, and option prices are to be
determined by the  Compensation  Committee of the Board of Directors and, in the
case of incentive  stock options,  may not be less than the fair market value of
the common stock at the date of grant.  The exercise of incentive  stock options
is limited by the provisions of the plan, but in no case may the exercise period
extend beyond ten years from the date of grant.  All options  outstanding  under
the plan on May 10,  1996 have been  adjusted  pursuant to the Change of Control
Transactions.

Information related to the Amended and Restated 1987 Stock Plan is summarized as
follows:

                                                        Options Outstanding
                                                     Shares            Price
                                                     ------            -----
       Adjusted Options as of May 1, 1996         1,410,550       $8.59-12.625
       Exercises                                      4,341        8.59-10.23
       Grants                                             0                --
       Cancellations                                 34,291        8.59-10.23
                                                -----------      -------------
       Balance at October 31, 1996                1,371,918       $8.59-12.625

At October 31, 1996,  389,452 shares were available for grant and 621,237 shares
were exercisable under the Amended and Restated 1987 Stock Plan.

AMENDED AND RESTATED  1986  EMPLOYEE  STOCK  PURCHASE  PLAN Under the  Company's
Amended and Restated 1986 Employee  Stock Purchase Plan, up to 600,000 shares of
common stock may be sold to eligible  employees.  Those  individuals  employed a
minimum of 20 hours per week are eligible to participate in the plan. Shares are
issuable  at the  lesser of 85% of the  average  market  price of the  Company's
common stock on the first day or last day of  semi-annual  payment  periods.  At
October 31, 1996, 254,899 shares were available for issuance under the plan.



                                      F-14





AMENDED AND RESTATED  1995  DIRECTOR  STOCK OPTION PLAN Pursuant to the plan, as
amended,  108,114  shares of common stock are  reserved  for  issuance  upon the
exercise of options.  Each  non-employee  director who  satisfies  certain other
requirements  is granted  an  initial  option to  purchase  5,000  shares of the
Company's common stock. Once per year each non-employee director will receive an
option to purchase an additional 2,500 shares of common stock. To be eligible, a
director  cannot be an employee of the Company or any  affiliate of the Company.
The purchase  price of the option granted is the fair market value of the shares
on the day the option is granted.  Each option becomes  exercisable with respect
to one third of the shares  subject to such  option on each  anniversary  of the
date of the grant.  Options  expire  seven years after the date of grant and are
nonassignable and nontransferable. All options outstanding under the plan on May
10,  1996 have been  adjusted  pursuant  to the Change of Control  Transactions.
Options to  purchase  19,425  common  shares at the price of  $10.33,  and 7,500
common shares at the price of $11.50 were outstanding as of October 31, 1996. At
October 31, 1996, 81,189 shares were available for grant.

PREFERRED  STOCK Terms of the  preferred  stock will be  established  at time of
issuance.

NOTE 10
EMPLOYEE BENEFIT PLANS

PROFIT SHARING PLAN AND BONUS PERFORMANCE PLAN During the Transition Period, the
Company  had a profit  sharing  plan for the  benefit of all  employees  meeting
certain  minimum  service  requirements.  The plan provided for a 10% of pre-tax
operating  income to be  distributed  to  employees at the end of the second and
fourth  quarters  of each  fiscal  year.  The plan  was  designed  to  encourage
employees to reduce  overall  operating  costs as a  percentage  of net revenue.
There was no profit sharing expense for the Transition Period.

The Company has a bonus performance  program covering  eligible  employees under
which awards are made at the  discretion  of the  Compensation  Committee of the
Board of Directors. Bonus expense was approximately $415,000, for the Transition
Period.

RETIREMENT  SAVINGS PLAN The Company has a Retirement Savings Plan under Section
401(k) of the  Internal  Revenue  Code for the  benefit  of all U. S.  employees
meeting certain minimum service  requirements.  Eligible  employees may elect to
contribute  to the  plan  up to 12%  of  their  cash  compensation,  subject  to
limitations  established by the Internal  Revenue Code. The trustees of the plan
select  investment   opportunities   from  which   participants  may  choose  to
contribute.

The plan  requires a matching  contribution  by the Company of 100% on the first
1%, and 25% on the next 4% of each participant's  contribution,  but not greater
than the maximum allowable under the Internal Revenue Code. The Company may also
contribute  a  discretionary  amount  to the  plan  which  may be  allocated  to
employees  based  upon  employees'  contributions  to the  plan.  The  Company's
matching contributions currently vest at a rate of 25% per year based upon years
of service.  The Company's  contributions  to this plan were  $464,000,  for the
Transition Period.

The Company has various defined  contribution  plans covering  substantially all
non-U. S. employees.  The Company's  contributions  to these plans were $115,000
for the Transition Period.

Prior to the merger, employees of FDESI who met certain eligibility requirements
participated in a non-contributory defined contribution retirement plan of Fluor
Daniel.   Contributions  to  this  plan  were  based  on  a  percentage  of  the
participants'  gross salaries.  In addition,  eligible employees were allowed to
contribute up to




                                      F-15





10 percent of their  salaries  to a savings  investment  plan with Fluor  Daniel
providing a matching contribution up to 4 percent of their salaries. The cost of
these plans was  included in the payroll  burden rate  charged to FDESI by Fluor
Daniel.

NOTE 11
INDUSTRY SEGMENT INFORMATION

The Company provides a wide range of environmental  services to both the private
and government  sectors including  scientific and engineering  applications from
environmental   assessment,   permitting  and  remediation  through  design  and
construction to operations and maintenance services. These services are provided
to a variety of  different  industries  including  petroleum,  chemical,  power,
pharmaceutical and others.

Revenues from U.S. Federal agencies were as follows ($ in thousands):

                                                Year Ended April 30
                                      ---------------------------------------
                                          1996          1995            1994
                                          ----          ----            ----

Department of Defense                  $10,075       $10,255          $2,184
Percent of total revenues                29.2%         28.9%            4.1%

Environmental Protection Agency       $  7,045      $  3,712          $4,518
Percent of total revenues                20.4%         10.5%            8.6%

In the Transition  Period, no single customer accounted for more than 10% of the
Company's revenues.


                                      F-16





SELECTED QUARTERLY FINANCIAL DATA
(Unaudited)
In thousands, except per share amounts
<TABLE>
<CAPTION>

                                                             Income (Loss)                      Net                  Weighted(2)
                                                     Gross            From      Income       Income     Earnings(2)      Average
                                  Revenues          Profit      Operations       Taxes       (Loss)       Per Share       Shares
--------------------------------------------------------------------------------------------------------------------------------

<S>                               <C>              <C>              <C>        <C>         <C>               <C>          <C>
Transition Period ended
October 31, 1996
First quarter                      $42,056          $9,388           $ 23        $  0         $ 23             $.00        8,229
Second quarter                      47,007           9,724            192         124           68              .01        8,156

Six months ended
October 31, 1995(1)
First quarter                        8,397           2,112            430         168          262              N/A          N/A
Second quarter                       9,614           2,363            601         234          367              N/A          N/A

Twelve months ended
April 30, 1996(1)
First quarter                        8,397           2,112            430         168          262              N/A          N/A
Second quarter                       9,614           2,363            601         234          367              N/A          N/A
Third quarter                        8,308           1,290           (229)        (89)        (140)             N/A          N/A
Fourth quarter                       8,178           2,898            926         361          565              N/A          N/A

Twelve months ended
April 30, 1995(1)
First quarter                        9,597           1,755            901         351          550              N/A          N/A
Second quarter                      11,208           1,637            517         202          315              N/A          N/A
Third quarter                        4,084           1,547           (188)        (73)        (115)             N/A          N/A
Fourth quarter                      10,536           2,076           (154)        (60)         (94)             N/A          N/A

</TABLE>

The  Company's  quarterly  results  may  fluctuate.   Factors  influencing  such
variations include: spending decisions by major customers; delays in the release
of committed  projects;  weather;  holidays and vacation  time,  which limit the
amount of time Company  professional and technical  personnel have in the field;
and the level of subcontracted services.










(1) Represents the historical  results of Fluor Daniel  Environmental  Services,
Inc. (FDESI).

(2) Share price information for the periods prior to the merger has been omitted
since Fluor Daniel Environmental  Services, Inc. (FDESI), the predecessor entity
for accounting purposes, had no publicly traded equity securities.



                                      F-17





                             FLUOR DANIEL GTI, INC.

                                   SCHEDULE II

                        VALUATION AND QUALIFYING ACCOUNTS

                    Transition Period ended October 31, 1996

                                 (In thousands)



Allowance for
Doubtful Accounts
and Credit Memos
----------------


Balance at 5/1/96                                                     $     0

Additions (A)                                                           2,063

Deductions (B)                                                           (323)
                                                                         ---- 

Balance at 10/31/96                                                    $1,740
                                                                       ======

(A)  Amount historically recorded by Groundwater Technology, Inc.
(B)  Amounts written off










                                      F-18





                                INDEX TO EXHIBITS
                                 (Item 14(a)(3))

<TABLE>
<CAPTION>

Number          Description of Exhibit
------          ----------------------

<C>            <C>                          
3.01            Amended and Restated Certificate of Incorporation (filed as Exhibit 3.1 to Current Report on Form
                8-K for May 10, 1996 with the Securities and Exchange Commission and incorporated herein by
                reference.)

3.02            By-Laws, as amended (filed as Exhibit 3.2 to Current Report on Form 8-K for May 10, 1996 with
                the Securities and Exchange Commission and incorporated herein by reference.)

10.01*          Amended and Restated 1986 Employee Stock Purchase Plan, as amended (filed as Exhibit 10.01 to
                Annual Report on Form 10-K for the year ended April 27, 1996 with the Securities and Exchange
                Commission and incorporated herein by reference.)

10.02*          Amended and Restated 1986 Employee Stock Purchase Plan Enrollment Form (filed as Exhibit
                10.02 to Annual Report on Form 10-K for the year ended April 27, 1996 with the Securities and
                Exchange Commission and incorporated herein by reference.)

10.03*          Amended and Restated 1987 Stock Plan, as amended (filed as Exhibit 10.03 to Annual Report on
                Form 10-K for the year ended April 27, 1996 with the Securities and Exchange Commission and
                incorporated herein by reference.)

10.04*          Form of Non-qualified Stock Option Agreement under the Company's Amended and Restated 1987
                Stock Plan (filed as Exhibit 10.04 to Annual Report on Form 10-K for the year ended April 27,
                1996 with the Securities and Exchange Commission and incorporated herein by reference.)

10.05*          Amended and Restated 1995 Director Stock Option Plan, as amended (filed as Exhibit 10.05 to
                Annual Report on Form 10-K for the year ended April 27, 1996 with the Securities and Exchange
                Commission and incorporated herein by reference.)

10.06*          Form of Option Agreement under the Company's Amended and Restated 1995 Director Stock
                Option Plan (filed as Exhibit 10.06 to Annual Report on Form 10-K for the year ended April 27,
                1996 with the Securities and Exchange Commission and incorporated herein by reference.)

10.07*          Retirement Savings Plan of the Company, as amended  (filed as Exhibit 10.10 to Annual Report on
                Form 10-K for the year ended May 2, 1993 with the Securities and Exchange Commission and
                incorporated herein by reference.)

10.08*          Amendment to Retirement Savings Plan of the Company (filed as Exhibit 10.11 to Annual Report
                on Form 10-K for the year ended April 29, 1995 with the Securities and Exchange Commission
                and incorporated herein by reference.)

10.09*          Employment Agreement between the Company and Walter C. Barber (filed as Exhibit 10.09 to
                Annual Report on Form 10-K for the year ended April 27, 1996 with the Securities and Exchange
                Commission and incorporated herein by reference.)



                                        1








10.10*          Form of Employment Agreement between the Company and each of its Executive Officers (filed as
                Exhibit 10.10 to Annual Report on Form 10-K for the year ended April 27, 1996 with the
                Securities and Exchange Commission and incorporated herein by reference.)

10.11*          Restricted Stock Award Agreement under the Company's Amended and Restated 1987 Stock Plan
                between the Company and Walter C. Barber (filed as Exhibit 10.11 to Annual Report on Form 10-
                K for the year ended April 27, 1996 with the Securities and Exchange Commission and
                incorporated herein by reference.)

10.12*          Non-Qualified Option Agreement under the Company's Amended and Restated 1987 Stock Plan
                between the Company and Walter C. Barber (filed as Exhibit 10.12 to Annual Report on Form 10-
                K for the year ended April 27, 1996 with the Securities and Exchange Commission and
                incorporated herein by reference.)

10.13*          Profit Sharing Plan (filed as Exhibit 10.14 to Annual Report on Form 10-K for the year ended
                April 29, 1995 with the Securities and Exchange Commission and incorporated herein by
                reference.)

10.14           Lease for 100 River Ridge Drive, Norwood, Massachusetts (filed as Exhibit 10.15 to Annual
                Report on Form 10-K for the year ended May 2, 1992 with the Securities and Exchange
                Commission and incorporated herein by reference.)

10.15           Third Amendment to Lease for 100 River Ridge Drive, Norwood, Massachusetts (filed as Exhibit
                10.13 to Annual Report on Form 10-K for the year ended April 29, 1995 with the Securities and
                Exchange Commission and incorporated herein by reference.)

10.16           Fourth  Amendment to Lease for 100 River Ridge  Drive,  Norwood, Massachusetts  (filed as Exhibit
                10.16 to Annual Report on Form 10-K for the year ended April 27, 1996 with the  Securities  and
                Exchange Commission and incorporated herein by reference.)

10.17           Revolving  Credit  Agreement and Revolving Time Note, each dated April 4, 1996 between the 
                Company and Fleet National Bank (filed as  Exhibit  10.17 to  Annual  Report  on Form 10-K for the year
                ended April 27, 1996 with the Securities and Exchange Commission and incorporated herein 
                by reference.)

10.18           Investment Agreement dated as of December 11, 1995 between the Company and Fluor Daniel,
                Inc. (with respect to Section 6.3 thereof) (filed as Exhibit 2.1 to Quarterly Report on Form 10-Q for
                the period ended January 27, 1996 with the Securities and Exchange Commission and incorporated
                herein by reference.)

10.19           Option Agreement dated as of December 11, 1995 between the Company and Fluor Daniel, Inc.
                (filed as Exhibit 10.1 to Quarterly Report on Form 10-Q for the period ended January 27, 1996
                with the Securities and Exchange Commission and incorporated herein by reference.)

10.20           First Amendment to Option Agreement dated as of May 30, 1996 between the Company and Fluor
                Daniel, Inc. (filed as Exhibit 10.20 to Annual Report on Form 10-K for the year ended April 27,
                1996 with the Securities and Exchange Commission and incorporated herein by reference.)

</TABLE>



                                        2






<TABLE>
<CAPTION>


<C>            <C>                                             
10.21           Marketing Agreement dated as of May 10, 1996 between the Company and Fluor Daniel, Inc.
                (filed as Exhibit 10.2 to Current Report on Form 8-K for May 10, 1996 with the Securities and
                Exchange Commission and incorporated herein by reference.)

10.22*          1997 Stock Plan.

10.23*          Form of Non-Qualified Stock Options Agreement under the Company's 1997 Stock Plan.

21.1            Subsidiaries of the Company.

23.1            Consent of Coopers & Lybrand LLP.

23.2            Consent of Ernst & Young LLP.

27              Financial Data Schedule.
--------
</TABLE>

* Indicates a management  contract or compensatory plan or arrangement  required
to be filed as an exhibit to this form pursuant to Item 14 (C) of Form 10-K.






                                        3