<PAGE>

                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549



                                   FORM 10-Q



             [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                    OF THE SECURITIES EXCHANGE ACT OF 1934

                 For the quarterly period ended March 31, 2000

                          Commission File No. 1-12248



                       KAISER GROUP INTERNATIONAL, INC.
                   (formerly ICF Kaiser International, Inc.)
            (Exact name of registrant as specified in its charter)



                     Delaware                           54-1437073
          (State or other jurisdiction of            (I.R.S. Employer
           incorporation or organization)           Identification No.)


          9300 Lee Highway, Fairfax, Virginia           22031-1207
       (Address of principal executive offices)         (Zip Code)

       Registrant's telephone number including area code: (703) 934-3300




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


On May 15, 2000, there were 23,419,828 shares of Kaiser Group International,
Inc. Common Stock, par value $0.01 per share, outstanding.
<PAGE>

                       KAISER GROUP INTERNATIONAL, INC.

                              INDEX TO FORM 10-Q

                                                                            Page
Part I - Financial Information

 Item 1. Financial Statements:

         Consolidated Balance Sheets -
         March 31, 2000 and December 31, 1999...........................       3

         Consolidated Statements of Operations and Comprehensive (Loss)
         Three Months Ended March 31, 2000 and 1999.....................       4

         Consolidated Statements of Cash Flows -
         Three Months Ended March 31, 2000 and 1999.....................       5

         Notes to Consolidated Financial Statements.....................    6-14

 Item 2. Management's Discussion and Analysis of Financial Condition
         and Results of Operations......................................   15-22

 Item 3. Quantitative and Qualitative Disclosures About Market Risk.....      23

Part II - Other Information

 Item 1. Legal Proceedings Item.........................................      23

 Item 2. Changes in Securities and Use of Proceeds......................      23

 Item 3. Defaults Upon Senior Securities................................      23

 Item 4. Submission of Matters to a Vote of Security Holders............      23

 Item 5. Other Information..............................................      23

 Item 6. Exhibits and Reports on Form 8K................................      24


                                       2
<PAGE>

KAISER GROUP INTERNATIONAL, INC.

Consolidated Balance Sheets
(In thousands, except shares)

<TABLE>
<CAPTION>
                                                                     March 31,     December 31,
                                                                       2000            1999
                                                                   ------------    ------------
                                                                    (Uaudited)
<S>                                                                <C>             <C>
Assets
Current Assets
 Cash and cash equivalents                                           $  19,969      $  26,391
 Restricted cash                                                        16,425         16,386
 Contract receivables, net                                             184,232        158,319
 Prepaid expenses and other current assets                               5,856          5,350
                                                                     ---------      ---------

    Total Current Assets                                               226,482        206,446
                                                                     ---------      ---------

Fixed Assets
 Furniture, equipment, and leaseholds                                   14,089         14,224
 Less depreciation and amortization                                    (11,320)       (11,403)
                                                                     ---------      ---------

                                                                         2,769          2,821
                                                                     ---------      ---------

Other Assets
 Goodwill, net                                                          17,323         17,581
 Investments in and advances to affiliates                               8,264         10,040
 Notes receivable                                                        6,550          6,550
 Capitalized software development costs                                  1,507          1,601
 Other                                                                   8,580          8,524
                                                                     ---------      ---------

                                                                        42,224         44,296
                                                                     ---------      ---------

     Total Assets                                                    $ 271,475      $ 253,563
                                                                     =========      =========

Liabilities and Shareholders' Equity (Deficit)
Current Liabilities
 Accounts payable                                                    $ 142,227      $ 119,556
 Accrued salaries and benefits                                          27,984         27,249
 Other accrued expenses                                                 23,857         26,921
 Deferred revenue                                                        6,363          9,015
 Accrued interest                                                        4,095             --
 Income taxes payable                                                    4,041          6,597
                                                                     ---------      ---------

    Total Current Liabilities                                          208,567        189,338

Long-term Liabilities
 Long-term debt                                                        124,329        124,218
 Other                                                                   7,489          7,577
                                                                     ---------      ---------

    Total Liabilities                                                  340,385        321,133

Commitments and Contingencies

Minority Interest                                                        1,950          2,333

Shareholders' Equity (Deficit)
 Preferred stock                                                             -              -
 Common stock, par value $.01 per share:
  Authorized-90,000,000 shares
  Issued and outstanding- 23,474,828 and 23,655,500 shares                 234            237
 Additional paid-in capital                                             73,594         73,643
 Accumulated deficit                                                  (143,007)      (140,681)
 Accumulated other comprehensive income (loss)                          (1,681)        (3,102)
                                                                     ---------      ---------

   Total Shareholders' Equity (Deficit)                                (70,860)       (69,903)
                                                                     ---------      ---------

     Total Liabilities and Shareholders' Equity (Deficit)            $ 271,475      $ 253,563
                                                                     =========      =========
</TABLE>

See notes to consolidated financial statements.

                                       3
<PAGE>

KAISER INTERNATIONAL, INC.

Consolidated Statements of Operations and Comprehensive (Loss)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
                                                                                 Three Months Ended March 31,
                                                                                 ----------------------------
                                                                                   2000               1999
                                                                                 ---------          ---------
                                                                                          (Unaudited)
<S>                                                                              <C>                <C>
Gross Revenue                                                                    $ 218,574           $ 225,497
 Subcontract and direct material costs                                            (146,902)           (162,858)
 Equity in income of joint ventures and affiliated companies                           280               1,520
                                                                                 ---------           ---------

Service Revenue                                                                     71,952              64,159

Operating Expenses
 Direct labor and fringe benefits                                                   52,986              48,459
 Selling, general and administrative                                                11,246              14,741
 Depreciation and amortization                                                         958               1,481
 Restructuring charges                                                                 667                 895
                                                                                 ---------           ---------

Operating Income (Loss)                                                              6,095              (1,417)

Other Income (Expense)
 Interest income                                                                       676                 268
 Interest expense                                                                   (4,222)             (5,852)
                                                                                 ---------           ---------

Income (Loss) From Continuing Operations
 Before Income Taxes and Minority Interest                                           2,549              (7,001)

 Income tax  (provision) benefit                                                       (75)              1,020
                                                                                 ---------           ---------

Income (Loss) From Continuing Operations                                             2,474              (5,981)
 Before Minority Interest

 Minority interest in net income of subsidiaries                                    (4,800)             (2,082)
                                                                                 ---------           ---------

(Loss) From Continuing Operations                                                   (2,326)             (8,063)

 Income from discontinued operations (net of tax
  in 1999 of $1,521)                                                                     -               2,344
                                                                                 ---------           ---------

Net (Loss)                                                                       $  (2,326)          $  (5,719)
                                                                                 =========           =========

Basic and Fully Diluted Earnings (Loss)  Per Share:
  Continuing operations                                                             $(0.10)             $(0.34)
  Discontinued operations                                                             0.00                0.10
                                                                                 ---------           ---------

                                                                                    $(0.10)             $(0.24)
                                                                                 =========           =========

Weighted average shares for basic earnings per share                                23,562              24,068
  Effect of dilutive stock options                                                       -                   -
                                                                                 =========           =========

Weighted average shares for diluted earnings per share                              23,562              24,068
                                                                                 =========           =========

Comprehensive (Loss)
Net  (Loss)                                                                        $(2,326)            $(5,719)
Other Comprehensive Income (Loss):
  Foreign currency translation adjustments                                           1,421                 467
                                                                                 ---------           ---------

     Total Comprehensive (Loss)                                                  $    (905)          $  (5,252)
                                                                                 =========           =========
</TABLE>

See notes to consolidated financial statements.

                                       4
<PAGE>

KAISER GROUP INTERNATIONAL, INC.

Consolidated Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
                                                                                          Three Months Ended March 31,
                                                                                         ----------------------------
                                                                                           2000               1999
                                                                                         ---------          ---------
                                                                                                  (Unaudited)
<S>                                                                                     <C>                 <C>
Operating Activities
Net income (loss)                                                                       $ (2,326)           $ (5,719)
Adjustments to reconcile net (loss) to net cash (used in) operating activities:
 Income from discontinued operations                                                           -              (2,344)
 Depreciation and amortization                                                               958               1,481
 Provision (credit) for losses                                                                 -              (2,555)
 Provision for deferred income taxes                                                           -                 468
 Note receivable write-off                                                                     -                 638
 Earnings in excess of cash distributions from
  joint ventures and affiliated companies                                                      -                (137)
 Minority interest in net income of subsidiaries                                           4,800               2,082
 Changes in operating assets and liabilities, net of acquisitions and dispositions:
  Contract receivables, net                                                              (25,913)             19,880
  Prepaid expenses and other current assets                                                 (506)             (1,653)
  Accounts payable and accrued expenses                                                   20,306              11,550
  Deferred revenue                                                                        (2,652)            (23,810)
  Income tax payable                                                                      (2,556)                275
  Other operating activities                                                               1,663                   -
                                                                                        --------            --------

 Net Cash (Used in) Provided by Operating Activities                                      (6,226)                156
                                                                                        --------            --------

Investing Activities
Proceeds from sale of investment                                                             977                  --
Investments in net assets of discontinued operations                                           -                (596)
Purchases of fixed assets                                                                   (135)               (557)
                                                                                        --------            --------

 Net Cash Provided by (Used in) Investing Activities                                         842              (1,153)
                                                                                        --------            --------

Financing Activities
Borrowings under revolving credit facility                                                     -              57,064
Principal payments on revolving credit facility                                                -             (50,942)
Change in book overdraft                                                                   4,072              (6,117)
Distribution of income to minority interest                                               (5,183)                 51
Proceeds from issuances of common stock                                                        -                  38
                                                                                        --------            --------

 Net Cash (Used in) Provided by Financing Activities                                      (1,111)                 94
                                                                                        --------            --------

Effect of Exchange Rate Changes on Cash                                                       73                 (63)
                                                                                        --------            --------

(Decrease) in Cash and Cash Equivalents                                                   (6,422)               (966)
Cash and Cash Equivalents at Beginning of Period                                          26,391              15,248
                                                                                        --------            --------

Cash and Cash Equivalents at End of Period                                              $ 19,969            $ 14,282
                                                                                        ========            ========

Supplemental cash flow information is as follows:

Cash payments for interest                                                              $      -            $      -
Cash payments for income taxes                                                             2,556                  28

Non-cash transactions:
  Reacquisition of common stock                                                                -                (247)
</TABLE>

See notes to consolidated financial statements.

                                       5
<PAGE>

               KAISER GROUP INTERNATIONAL, INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (Unaudited)

1.   Basis of Presentation

     The accompanying consolidated financial statements of Kaiser Group
International, Inc. and subsidiaries (the Company), except for the December 31,
1999 balance sheet (derived from audited financial statements), are unaudited
and have been prepared in accordance with generally accepted accounting
principles for interim financial information. Accordingly, they do not include
all of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments considered necessary for a fair presentation have been included.
These statements should be read in conjunction with the Company's audited
consolidated financial statements and footnotes thereto for the year ended
December 31, 1999 and the information included in the Company's Annual Report on
Form 10-K for the year ended December 31, 1999. Certain reclassifications have
been made to the prior period financial statements to conform them to the
presentation used in the March 31, 2000 financial statements.

2.   Liquidity and Capital Resource Outlook

     The accompanying financial statements have been prepared assuming that
Kaiser Group International, Inc. and Subsidiaries ("Kaiser" or "the Company")
will continue as a going concern.  Significant losses on four large fixed price
projects to construct plants to produce nitric acid incurred primarily during
1998 within the Engineering Operations caused the Company to respond to the
resulting negative cash flows and to other operating losses experienced within
that Group, by implementing a corporate reorganization plan designed to
significantly restructure operations and restore profitability.  In summary, the
components of the corporate reorganization plan developed by management and the
Board of Directors included:

 .  Divesting non-engineering operating units and reinvesting the proceeds in the
   Company to provide working capital necessary to stabilize the retained
   business activities - completed primarily in 1999;

 .  Reducing the Company's overhead cost structure that would remain after the
   divestitures of the operating units referenced above - completed primarily in
   1999; and;

 .  Revising the Company's capital structure, including substantial modification
   of its outstanding debt, in order to eliminate barriers to securing new
   business and improve accessibility to new sources of working capital.

     Cash proceeds from the divestitures were subsequently used, in part, to
complete the nitric acid projects and to repay cash borrowings from a revolving
line of credit that had been used primarily to fund the project losses, as well
as for working capital needs accumulated by the Company's other growing
operating units prior to their 1999 divestitures.  Also, in 1999, the Company
used some of the proceeds from the divestitures to repurchase $14.0 million of
$15.0 million in outstanding Senior Notes.

     The Company currently has no working capital facility and is financing its
Engineering Operations' working capital needs through the use of cash from
operations, from the residual cash proceeds from the sale of its Consulting
Group completed in June 1999, and from distributions by its Kaiser-Hill
subsidiary.  Based on (i) current expectations for near-term operating results,
(ii) its current available cash position and (iii) recent trends and projections
in liquidity and capital needs, management believes the Company has sufficient
short-term liquidity to bridge current operating needs until the implementation
of a modified debt restructuring, assuming that such a restructuring can be
accomplished within the reasonably near term.  There is no assurance that a
successful restructuring can be accomplished.

     Actions remaining critical to the Company's long-term liquidity include
completing a restructuring of its $125.0 million Senior Subordinated Notes prior
to the next interest payment due date of June 30, 2000, securing a sufficient
working capital facility with acceptable terms, obtaining successful outcomes
regarding significant contingent liabilities (see Note 5), and improving
operating results. Management believes that, if these steps can be achieved, the
Company will have sufficient liquidity generated by improved operating results,
substantially decreased interest expense and borrowings on a possible new credit
facility to meet its longer-term working capital requirements. The inability of
the Company to accomplish a combination of actions described above would have a
material adverse impact on the financial condition, operating results, and the
business.

     The Company has continued negotiations with representatives of its Senior
Subordinated Notes and, while it has no assurance, believes it may be able to
implement a modified restructuring of those notes.  Such a transaction could
involve an exchange of Senior Subordinated Notes for a combination of new common
stock and newly issued preferred stock.  The Company believes that such a
restructuring would substantially improve its financial condition and provide a
basis for ongoing operations and continuation of the Company's turnaround.
However, such a restructuring would result in substantially more dilution of the
equity of existing common stockholders than the restructuring terms proposed
during the fall of 1999.

                                       6
<PAGE>

     While continuing negotiations with representatives of its Senior
Subordinated Noteholders, the Company has been exploring strategic alternatives,
including the possible sale of certain of its assets or businesses.  The Company
is currently engaged in discussions with several potential purchasers concerning
the sale of its Engineering Operations in two separate transactions.  The
Company has reached general understandings as to the scope and price range of
such transactions.  However, the transactions remain subject to, among other
things, completion of diligence and successful negotiation of definitive
agreements.  The Company also continues to explore strategic alternatives for
its interest in Kaiser-Hill Company, LLC.  The Company presently believes that
one or more of the transactions under discussion will take place, but there can
be no assurance that any transaction concerning any of the Company's business
units will be completed.  The Company expects to be able to reach a conclusion
with respect to its strategic direction and begin to implement its
reorganization, either with or without business unit sale transactions, prior to
the end of the second quarter of calendar year 2000.

     The Company expects its financial condition to be materially affected by
the implementation of any debt restructuring or strategic alternatives. The
consummation of any debt restructuring, any transactions for the sale of
business units, or any combination of debt restructuring and business unit sale
transactions will likely be completed through a "prepackaged" plan of
reorganization under Chapter 11 of the U.S. Bankruptcy Code. If such a plan were
selected as the mechanism for completing the Company's restructuring, the
Company expects that it would have the support of the largest holders of its
Senior Subordinated Notes and, therefore, be able to implement the plan
relatively promptly. If the Company commences such a proceeding, the goals of
any such plan would be to (i) minimize adverse effects on Kaiser's ongoing
operations, trade creditors and employees, (ii) facilitate possible business
unit sale transactions, and (iii) result in a financially strengthened and
stable organization for purposes of ongoing operations.

     The accompanying financial statements do not include any adjustments
relating to the recoverability and classification of asset carrying amounts or
the classification of liabilities that might result should the Company not be
successful in attempts to enact the critical actions summarized above.


3.   Earnings Per Share

     Basic earnings per share (EPS) is computed by dividing net income by the
weighted average number of common shares outstanding for the period. The assumed
proceeds from the exercise of dilutive securities are used to purchase common
stock at the average market price during the period. The difference between the
number of shares assumed issued and the number of shares assumed purchased is
added to the basic EPS denominator in order to derive the diluted EPS
denominator. The Company's common stock equivalents that would be antidilutive
have been excluded from the fully diluted EPS calculation.


4.   Segment Information

     The Company uses several segments for internal management reporting
purposes. The segments are compiled based on the similarities in each of their
underlying services, customers, and regulatory environments. The segment
operating results represent all activities that were controllable by the
respective segment business leaders and that had sole direct benefit to the
respective segment. The accounting policies of the operating segments are the
same as those described in the Company's summary of significant accounting
policies.

     Historical segment information has not been presented in the accompanying
financial statements for any of the business units that were divested in 1999
(Note 2). The Company's continuing business segments are:

  .  the Engineers and Constructors Group (E&C), which provides engineering,
     construction management and project and program management services to
     commercial and federal, state, and local entities in the areas of transit
     and transportation, alumina and aluminum, facilities engineering and
     management, iron and steel and microelectronics and clean technology;

   . Kaiser-Hill Company, LLC (Kaiser-Hill), a 50% owned subsidiary, which
     serves as the integrated management contractor at the U.S. Department of
     Energy's Rocky Flats Environmental Technology Site near Denver, Colorado.
     The Company, through a designated majority representation on Kaiser-Hill's
     board of managers, has a controlling interest in Kaiser-Hill and therefore
     consolidates Kaiser-Hill's results of operations with those of its only
     other remaining business segment, E&C. On January 24, 2000, Kaiser-Hill was
     awarded the follow-on Rocky Flats Contract (the Closure Contract). The
     Closure Contract became effective February 1, 2000, essentially terminating
     the predecessor contract that would otherwise have been executed through to
     its original ending date of September 30, 2000. Correspondingly, certain
     performance elements of the predecessor contract were shifted into the new
     Closure Contract. Under the predecessor contract, Kaiser-Hill was awarded
     and paid approximately $7.0 million of performance fee during the first
     quarter of 2000. The Company recognized the entire $7.0 million award in
     January 2000. As of January 31, 2000, the Company had recognized the entire
     value of the predecessor contract.

                                       7
<PAGE>

Financial data for the continuing business segments are as follows
(in thousands):

<TABLE>
<CAPTION>
Statements of Operations For the three months ended March 31,
-------------------------------------------------------------

2000 (unaudited)                                               Kaiser-Hill          E&C            Total
---------------                                                -----------       --------        ---------
<S>                                                             <C>              <C>             <C>
Gross revenue.........................................          $ 171,790        $ 46,784        $ 218,574
  Subcontracts and materials..........................           (125,523)        (21,379)        (146,902)
  Equity in unconsolidated subsidiaries...............                 --             280              280
                                                                ---------        --------        ---------
Service revenue.......................................             46,267          25,685           71,952
Operating expenses:
  Direct labor and fringe.............................             36,772          16,214           52,986
  Selling, general and administrative.................                 --          11,246           11,246
  Depreciation and amortization.......................                 --             958              958
  Restructuring charges...............................                 --             667              667
                                                                ---------        --------        ---------
Segment operating income (loss).......................          $   9,495        $ (3,400)       $   6,095
                                                                =========        ========        =========

1999 (unaudited)
----------------
Gross revenue.........................................          $ 145,103        $ 80,394        $ 225,497
  Subcontracts and materials..........................           (110,341)        (52,517)        (162,858)
  Equity in unconsolidated subsidiaries...............                 --           1,520            1,520
                                                                ---------        --------        ---------
Service revenue.......................................             34,762          29,397           64,159
Operating expenses:
  Direct labor and fringe.............................             30,622          17,837           48,459
  Selling, general and administrative.................                 --          14,741           14,741
  Depreciation and amortization.......................                 --           1,481            1,481
  Restructuring charges...............................                 --             895              895
                                                                ---------        --------        ---------
Segment operating income (loss)                                 $   4,140        $ (5,557)       $  (1,417)
                                                                =========        ========        =========
</TABLE>

<TABLE>
<CAPTION>
                                                                  Kaiser-Hill                        E&C
                                                        ------------------------------   -----------------------------
                                                        March 31,        December 31      March 31,      December 31
Balance Sheets                                             2000             1999            2000            1999
--------------                                          ---------     ----------------   ---------   -----------------
Assets                                                           (Unaudited)                     (Unaudited)
<S>                                                      <C>              <C>           <C>                 <C>
    Cash and cash equivalents.........................   $   6,338        $  5,243      $  13,631           $ 21,148
    Restricted cash...................................          --              --         16,425             16,386
    Contract receivables, net.........................     127,715         104,740         56,517             53,579
    Other current assets..............................          91             126          5,765              5,224
    Other long-term assets............................         496             587         44,497             46,530
                                                         ---------        --------      ---------           --------
             Total Assets                                $ 134,640        $110,696      $ 136,835           $142,867

Liabilities
    Accounts payable..................................     115,845          91,313         26,382             28,743
    Accrued salaries and benefits.....................      14,896          14,717         13,088             12,532
    Other current liabilities.........................          --              --         38,356             42,533
    Other long-term liabilities.......................          --              --        131,818            131,795
                                                         ---------        --------      ---------           --------
              Total Liabilities                            130,741         106,030        209,644            215,603
Commitments and contingencies.........................

Minority Interest.....................................       1,950           2,333             --                 --
                                                         ---------        --------      ---------           --------

Net Assets/(Liabilities)..............................   $   1,949        $  2,333      $ (72,809)          $(72,736)
                                                         =========        ========      =========           ========
</TABLE>

<TABLE>
<CAPTION>
Condensed Statements of Cash Flows                                     Kaiser-Hill                      E&C
----------------------------------                           ------------------------------   -----------------------------
For the three months ended March 31:                              2000             1999            2000           1999
                                                               ---------         --------       ---------       ---------
<S>                                                           <C>                <C>           <C>              <C>
   Net cash provided by (used in) operating activities.....   $   6,278          $  2,102      $ (12,504)       $ (1,946)
   Net cash provided by (used in) investing activities.....          --                --            842          (1,153)
   Net cash (used in) provided by financing activities.....      (5,183)               --          4,072              94
   Effect of exchange rate changes on cash.................          --                --             73             (63)
                                                              ---------          --------      ---------        --------
Increase (decrease) in cash and cash equivalents...........       1,095             2,102         (7,517)         (3,068)
Cash and cash equivalents at beginning of period...........       5,243             3,644         21,148          11,604
                                                              ---------          --------      ---------        --------
Cash and cash equivalents at end of period.................   $   6,338          $  5,746      $  13,631        $  8,536
                                                              =========          ========      =========        ========
</TABLE>

                                       8
<PAGE>

5.   Contingencies

     Bath Contingency:   In March 1998, the Company entered into a $187 million
maximum price contract with Bath Iron Works to construct a ship building
facility. In May 1998, the Company subsequently learned that estimated costs to
perform the contract as reflected in actual proposed subcontracts were
approximately $30 million higher than the cost estimates originally used as the
basis for contract negotiation between the Company and the customer. After
learning this, the Company advised the customer that it was not required to
perform the contract in accordance with its terms as a result of a mutual
mistake among them in negotiating that contract.  In October 1998, the customer
presented an initial draft of a claim against the Company requesting payment for
estimated damages and entitlements pursuant to the terminated contract.  The
customer has also subsequently asserted a claim based on alleged differing site
conditions that allegedly should have been identified by the Company.  In March
2000, Bath filed a combined claim against the Company in U.S. District Court in
the District of Maine requesting payment for $38 million. The Company continues
to object to Bath's allegations and is vigorously defending its position.
Although no resolution has been reached, management has recorded a provision in
the financial statements for the Company's proposed settlement of the non-
insured portion of the loss.

     Acquisition Contingency:   The Kaiser common shares exchanged for the stock
of ICT Spectrum in the March, 1998 acquisition carry the guarantee that the fair
market value of each share of stock will reach $5.36 by March 1, 2001. In the
event that the fair market value does not attain the guaranteed level, the
Company is obligated to make up the shortfall either through the payment of cash
or by issuing additional shares of common stock with a total value equal to the
shortfall, depending upon the Company's preference. Pursuant to the terms of the
Agreement, however, the total number of contingently issuable shares of common
stock cannot exceed an additional 1.5 million.

     In December, 1999, the Company and certain former Company employees and
shareholders of ICT Spectrum agreed to amend the applicable agreements in a
manner that had the result of reducing the amount of the taxable gain created by
former shareholder-employees' involuntary departures from the Company.  As
permitted per the agreement, the shareholders agreed to allow the Company to
retain some of the vested shares as payment of the income tax withholding in
lieu of cash.  In total, the Company retained 255,669 shares and recorded the
transaction as a $1.37 million reduction to goodwill and paid-in-capital.

     Given that the quoted fair market value of the Company's common stock at
May 19, 2000 was $0.19 per share, and that the Company's current debt
instruments restrict the amount of cash that can be used for acquisitions, the
assumed issuance of an additional 1.5 million shares (now adjusted downward by
the 255,669 retained shares to 1,244,331), would not completely extinguish the
remaining purchase price contingency.  In this event, the Company will  need to
fund the contingency in cash and would need to obtain an amendment to current
debt instruments or replace them in order to complete a cash fill-up. Any future
distribution of cash or common stock would be recorded as a charge to the
Company's paid-in-capital.

     Until the earlier of the contingent purchase price resolution or March 1,
2001, any additional shares assumed to be issued because of shortfalls in fair
market value will be included in the Company's diluted earnings per share
calculations, unless they are antidilutive. The exchanged shares also contain
restrictions preventing their sale prior to March 1, 2001.

     On March 29, 1999, one ex-ICT Spectrum shareholder, individually and on
behalf of all others similarly situated, filed a class action lawsuit in the
U.S. District Court for the District of Idaho alleging false and misleading
statements made in a private offering memorandum, and otherwise, in connection
with the Company's acquisition of ICT Spectrum in 1998. The Company subsequently
filed a motion to dismiss the case. On March 14, 2000, the court ordered the
plaintiff to address certain claim deficiencies. The plaintiff filed an amended
complaint on May 15, 2000. The court is expected to consider the amended
complaint in light of the Company's motion to dismiss and complete its ruling
relative to the Company's motion.

     Litigation, Claims and Assessments Contingencies: In the course of the
Company's normal business activities, various claims or charges have been
asserted and litigation commenced against the Company arising from or related to
properties, injuries to persons, and breaches of contract, as well as claims
related to acquisitions and dispositions. Claimed amounts may not bear any
reasonable relationship to the merits of the claim or to a final court award. In
the opinion of management, adequate reserves have been provided for final
judgments, if any, in excess of insurance coverage, that might be rendered
against the Company in such litigation. The continued adequacy of reserves is
reviewed periodically as progress on such matters ensues.

     The Company may from time to time, either individually or in conjunction
with other government contractors operating in similar types of businesses, be
involved in U.S. government investigations for alleged violations of procurement
or other federal laws and regulations. The Company currently is the subject of a
number of U.S. government investigations and is cooperating with the responsible
government agencies involved. No charges presently are known to have been filed
against the Company by these agencies. The Company has provided for its estimate
of the potential effect of these investigations, and the continued adequacy of
reserves is reviewed periodically as progress on such matters ensues.

                                       9
<PAGE>

     Prior to the divestitures of its EFM and Consulting Groups, the Company had
a substantial number of cost-reimbursement contracts with the U.S. government,
the costs of which are subject to audit by the U.S. government. As a result of
pending audits related to fiscal years 1986 forward, the government has
asserted, among other things, that certain costs claimed as reimbursable under
government contracts either were not allowable or not allocated in accordance
with federal procurement regulations. The Company is actively working with the
government to resolve these issues. The Company has provided for its estimate of
the potential effect of issues that have been quantified, including its estimate
of disallowed costs for the periods currently under audit and for periods not
yet audited. Neither the government nor the Company, however, has quantified
many of the issues, and others are qualitative in nature, and their potential
financial impact is not quantifiable by the government or the Company at this
time. The adequacy of provisions for reserves is reviewed periodically as
progress with the government on such matters ensues.

     Contract warranties and performance guaranty contingencies: In the course
of the Company's normal business activities, many of its contracts contain
provisions for warranties and performance guarantees. As progress on contracts
ensues, the Company regularly updates the estimates of the costs to perform such
contingencies and reserves a proportionate amount of the total related contract
value until such time as the contingency is resolved.

6.   Guarantor Subsidiaries

     Pursuant to SEC rules regarding publicly held debt, the Company is required
to provide financial information for wholly owned subsidiaries of Kaiser Group
International, Inc. (Subsidiary Guarantors) which unconditionally guarantee the
payment of the principal, premium, if any, and interest on the Company's Senior
Subordinated Notes and Series B Senior Notes. The Subsidiary Guarantors are
Cygna Consulting Engineers and Project Management, Inc; Kaiser Government
Programs, Inc; Global Trade & Investment, Inc; Kaiser Europe, Inc;
Kaiser/Georgia Wilson, Inc; Kaiser Overseas Engineering, Inc; EDA Incorporated,
Inc.;  Kaiser Engineers Pacific, Inc; and Kaiser Advanced Technology, Inc.

     Kaiser Remediation Company, a former Guarantor, was included in the sale of
the EFM Group to IT on April 9, 1999, Systems Applications International, Inc.,
also a former Guarantor, was included in the sale of the Consulting Group on
June 30, 1999 and the majority of the assets of EDA Incorporated, Inc. were sold
in an unrelated transaction on August 13, 1999.  The guarantor information has
been updated to reflect these transactions.

     Condensed consolidating financial information for Kaiser Group
International, Inc. (Parent Company), the Subsidiary Guarantors, and the Non-
Guarantor Subsidiaries follow on pages 11-14. The information, except for the
December 31, 1999 condensed consolidating balance sheet, is unaudited.

     Investments in subsidiaries have been presented using the equity method of
accounting. The Company does not have a formal tax-sharing arrangement with its
subsidiaries and has allocated taxes to its subsidiaries based on the Company's
overall effective tax rate.

                                       10
<PAGE>
Kaiser Group International, Inc.
Condensed Consolidating Balance Sheet
March 31, 2000
(In thousands)

<TABLE>
<CAPTION>
                                                 Parent    Subsidiary   Non-Guarantor
                                                Company    Guarantors    Subsidiaries   Eliminations   Consolidated
                                               ----------  -----------  --------------  -------------  -------------
<S>                                            <C>         <C>          <C>             <C>            <C>
Assets
Current Assets
Cash and cash equivalents                      $   2,998     $  9,528       $   7,443       $      -      $  19,969
Restricted cash                                   13,822            -           2,603              -         16,425
Contract receivables, net                         (4,271)     129,293          59,210              -        184,232
Intercompany receivables, net                    195,309       21,694        (217,003)             -
Prepaid expenses and other current assets            436          612           4,808              -          5,856
                                               ---------     --------       ---------                     ---------

Total Current Assets                             208,294      161,127        (142,939)             -        226,482
                                               ---------     --------       ---------       --------      ---------

Fixed Assets
Furniture, equipment, and leaseholds               3,608        1,115           9,366              -         14,089
Less depreciation and amortization                (3,078)      (1,029)         (7,213)             -        (11,320)
                                               ---------     --------       ---------       --------      ---------

                                                     530           86           2,153              -          2,769
                                               ---------     --------       ---------       --------      ---------

Other Assets
Goodwill, net                                          -        2,950          14,373              -         17,323
Investment in and advances to affiliates        (139,262)           1           8,113        139,412          8,264
Notes receivable                                   6,550            -               -              -          6,550
Capitalized software development costs             1,507            -               -                         1,507
Other                                              2,889          583           5,108              -          8,580
                                               ---------     --------       ---------       --------      ---------

                                                (128,316)       3,534          27,594        139,412         42,224
                                               ---------     --------       ---------       --------      ---------

Total Assets                                   $  80,508     $164,747       $(113,192)      $139,412      $ 271,475
                                               =========     ========       =========       ========      =========


Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable and other accrued expenses    $  20,190     $118,411       $  27,483              -      $ 166,084
Accrued salaries and employee benefits           (12,582)      17,134          23,432              -         27,984
Interest payable                                   4,095            -               -              -          4,095
Other                                              8,572       (3,160)          4,992              -         10,404
                                               ---------     --------       ---------       --------      ---------

Total Current Liabilities                         20,275      132,385          55,907              -        208,567

Long-term Liabilities
Long-term debt, less current portion             124,328            -               1              -        124,329
Other                                              5,250            -           2,239              -          7,489
                                               ---------     --------       ---------       --------      ---------

Total Liabilities                                149,853      132,385          58,147              -        340,385
                                               ---------     --------       ---------       --------      ---------

Minority Interests in Subsidiaries                     -        1,950               -              -          1,950

Shareholders' Equity
Common Stock                                         224        6,809             114         (6,913)           234
Additional Paid-in Capital                        73,595        2,372          48,266        (50,639)        73,594
Accumulated Earnings (Deficit)                  (143,164)      21,591        (218,398)       196,964       (143,007)
Other Equity                                           -         (360)         (1,321)             -         (1,681)
                                               ---------     --------       ---------       --------      ---------

Total Shareholders' Equity                       (69,345)      30,412        (171,339)       139,412        (70,860)
                                               ---------     --------       ---------       --------      ---------

Total Liabilities and Shareholders' Equity     $  80,508     $164,747       $(113,192)      $139,412      $ 271,475
                                               =========     ========       =========       ========      =========

</TABLE>

                                      11
<PAGE>

Kaiser Group International, Inc.

<TABLE>
<CAPTION>
                                                                                                                        Kaiser Group
                                                                                                                       International
                                                             Parent      Subsidiary    Non-Guarantor                        Inc.
Condensed Consolidating Statement of Operations             Company      Guarantors     Subsidiaries    Eliminations    Consolidated
Three Months Ended March 31, 2000                          ---------     ----------     ------------    -------------   ------------
(In thousands)                                                                          (Unaudited)
<S>                                                        <C>          <C>               <C>           <C>              <C>
Gross Revenue                                                $ 1,762       $ 175,743        $ 41,069        $     -      $ 218,574

   Subcontract and direct material costs                      (1,754)       (128,214)        (16,934)             -       (146,902)
   Equity in net income of unconsolidated subsidiaries         5,799               -             307         (5,826)           280
                                                             -------       ---------        --------   ------------      ---------

Service Revenue                                                5,807          47,529          24,442         (5,826)        71,952

Operating Expenses
   Operating expenses                                          3,367          37,697          23,168              -         64,232
   Depreciation and amortization                                 242              89             627              -            958
   Restructuring charges                                         667               -               -              -            667
                                                             -------       ---------        --------   ------------      ---------
Operating Income (Loss)                                        1,531           9,743             647         (5,826)         6,095

Other Income (Expense)
   Interest income                                               350             116             210              -            676
   Interest expense                                           (4,207)            (12)             (3)             -         (4,222)
                                                             -------       ---------        --------   ------------      ---------


Income (Loss) Before Income Taxes
   and Minority Interest                                      (2,326)          9,847             854         (5,826)         2,549

   Income tax (expense) benefit                                    -               -             (75)             -            (75)
                                                             -------       ---------        --------   ------------      ---------

Income (Loss) Before Minority Interest                        (2,326)          9,847             779         (5,826)         2,474

   Minority interests in net income of subsidiaries                -          (4,800)              -              -         (4,800)
                                                             -------       ---------        --------   ------------      ---------

Income (Loss)                                                $(2,326)      $   5,047        $    779        $(5,826)     $  (2,326)
                                                             =======       =========        ========   ============      =========
</TABLE>

<TABLE>
<CAPTION>
                                                                                                                        Kaiser Group
Condensed Consolidating Statement of Cash Flows                                                                        International
Three Months Ended March 31, 2000                            Parent      Subsidiary    Non-Guarantor                        Inc.
(In thousands)                                              Company      Guarantors     Subsidiaries    Eliminations    Consolidated
                                                           ---------     ----------     ------------    -------------   ------------
                                                                                 (Unaudited)
<S>                                                        <C>            <C>           <C>             <C>             <C>
Net Cash Provided by (Used in) Operating Activities         $(12,456)      $ 6,703         $ (473)       $      -        $(6,226)
                                                            --------       -------         ------        --------        -------

Investing Activities
Sales of subsidiaries and/or investments                           -             -            977               -            977
Purchases of fixed assets                                        (90)            -            (45)              -           (135)
                                                            --------       -------         ------        --------        -------

   Net Cash Provided by (Used in) Investing Activities           (90)            -            932               -            842
                                                            --------       -------         ------        --------        -------

Financing Activities
Change in book overdraft                                       4,072             -              -               -          4,072
Distribution of income to minority interest                        -        (5,183)             -               -         (5,183)
                                                            --------       -------         ------        --------        -------

   Net Cash Provided by (Used in) Financing Activities         4,072        (5,183)             -               -         (1,111)
                                                            --------       -------         ------        --------        -------

Effect of Exchange Rate Changes on Cash                            -             -             73               -             73
                                                            --------       -------         ------        --------        -------

Increase in Cash and Cash Equivalents                         (8,474)        1,520            532               -         (6,422)
Cash and Cash Equivalents at Beginning of Period              11,472         8,008          6,911               -         26,391
                                                            --------       -------         ------        --------        -------

Cash and Cash Equivalents at End of Period                  $  2,998       $ 9,528         $7,443        $      -        $19,969
                                                            ========       =======         ======        ========        =======
</TABLE>

                                       12
<PAGE>

KAISER GROUP INTERNATIONAL, INC.

<TABLE>
<CAPTION>
Condensed Consolidating Balance Sheet
As of December 31, 1999

Values in this worksheet are in thousands, except where noted.


                                                                                                                 Kaiser Group
                                                                                                                International,
                                                         Parent     Subsidiary   Non-Guarantor                       Inc.
                                                         Company    Guarantors    Subsidiaries   Eliminations    Consolidated
                                                        ---------   ----------   -------------   ------------   --------------
<S>                                                     <C>         <C>          <C>             <C>            <C>
ASSETS
Current Assets
Cash and cash equivalents                               $  11,472    $  8,008      $   6,911       $   --          $  26,391
Restricted cash                                            13,816        --            2,570           --             16,386
Contract receivables, net                                  (3,698)    106,841         55,176           --            158,319
Intercompany receivables, net                             194,308      17,466       (211,774)          --               --
Prepaid expenses and other current assets                     554         949          3,847           --              5,350
                                                        ---------    --------      ---------       --------        ---------
Total Current Assets                                      216,452     133,264       (143,270)          --            206,446

Fixed Assets
Furniture, equipment, and leasehold improvements            3,520       1,115          9,589           --             14,224
Less depreciation and amortization                         (3,057)     (1,013)        (7,333)          --            (11,403)
                                                        ---------    --------      ---------       --------        ---------
                                                              463         102          2,256           --              2,821

Other Assets
Goodwill, net                                                --         3,029         14,552           --             17,581
Investment in and advances to affiliates                 (144,683)          1          8,844        145,878           10,040
Notes receivable                                            6,550        --             --             --              6,550
Capitalized software development costs                      1,601        --             --             --              1,601
Other                                                       3,403         587          4,534           --              8,524
                                                        ---------    --------      ---------       --------        ---------
                                                         (133,129)      3,617         27,930        145,878           44,296
                                                        ---------    --------      ---------       --------        ---------
Total Assets                                            $  83,786    $136,983      $(113,084)      $145,878        $ 253,563
                                                        =========    ========      =========       ========        =========

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable and other accrued expenses             $  21,587    $ 94,542      $  30,348       $   --          $ 146,477
Accrued salaries and employee benefits                    (11,788)     17,126         21,911           --             27,249
Other                                                      11,956      (2,382)         6,038           --             15,612
                                                        ---------    --------      ---------       --------        ---------
Total Current Liabilities                                  21,755     109,286         58,297           --            189,338

Long-term Liabilities
Long-term debt, less current portion                      124,217        --                1           --            124,218
Other                                                       4,781        --            2,796           --              7,577
                                                        ---------    --------      ---------       --------        ---------
Total Liabilities                                         150,753     109,286         61,094           --            321,133
                                                        ---------    --------      ---------       --------        ---------

Minority interests in subsidiaries                           --         2,333           --             --              2,333

Shareholders' equity
Common stock                                                  227       6,809            114         (6,913)             237
Additional paid-in capital                                 73,644       2,372         48,266        (50,639)          73,643
Accumulated earnings (deficit)                           (140,838)     16,545       (219,818)       203,430         (140,681)
Accumulated other comprehensive (loss)                       --          (362)        (2,740)          --             (3,102)
                                                        ---------    --------      ---------       --------        ---------
Total Shareholders' Equity (Deficit)                      (66,967)     25,364       (174,178)       145,878          (69,903)
                                                        ---------    --------      ---------       --------        ---------
Total Liabilities and Shareholders' Equity (Deficit)    $  83,786    $136,983      $(113,084)      $145,878        $ 253,563
                                                        =========    ========      =========       ========        =========
</TABLE>

                                       13
<PAGE>

Kaiser Group International, Inc. and Subsidiaries

<TABLE>
<CAPTION>
                                                                                                                      Kaiser Group
Condensed Consolidating Statement of Operations                                                                       International,
Three Months Ended March 31, 1999                 Parent    Subsidiary    Non-Guarantor  Discontinued                      Inc.
(In thousands)                                    Company   Guarantors    Subsidiaries    Operations   Eliminations   Consolidated
                                                  -------   ----------    -------------  ------------  ------------  --------------
                                                                                  (Unaudited)
<S>                                              <C>        <C>           <C>             <C>           <C>            <C>
Gross Revenue                                     $    21    $ 156,509      $125,368       $(56,401)     $       -        $ 225,497
 Subcontract and direct material costs                (71)    (116,301)      (67,942)        21,456              -         (162,858)
 Equity in net income of unconsolidated
  subsidiaries                                      4,109            -         2,608              -         (5,197)           1,520
                                                  -------    ---------      --------       --------      ---------        ---------
Service Revenue                                     4,059       40,208        60,034        (34,945)        (5,197)          64,159

Operating Expenses
 Operating expenses                                 2,362       33,406        57,718        (30,286)             -           63,200
 Depreciation and amortization                        780          245         1,251           (795)             -            1,481
 Other unusual charges                                895            -             -              -              -              895
                                                  -------    ---------      --------       --------      ---------        ---------
Operating Income (Loss)                                22        6,557         1,065         (3,864)        (5,197)          (1,417)
Other Income (Expense)
 Interest income                                       57           77           134              -              -              268
 Interest expense                                  (5,798)         (46)           (8)             -              -           (5,852)
                                                  -------    ---------      --------       --------      ---------        ---------
Income (Loss) From Continuing Operations
 Before Income Taxes and Minority Interest         (5,719)       6,588         1,191         (3,864)        (5,197)          (7,001)
 Income tax expense (benefit)                           0           13           487         (1,520)             -           (1,020)
                                                  -------    ---------      --------       --------      ---------        ---------
Income (Loss) From Continuing Operations
 Before Minority Interest                          (5,719)       6,575           704         (2,344)        (5,197)          (5,981)
 Minority interests in net income of
 subsidiaries                                           -        2,082             -              -              -            2,082
                                                  -------    ---------      --------       --------      ---------        ---------
Income (Loss) Before Discontinued Operations       (5,719)       4,493           704         (2,344)        (5,197)          (8,063)
 Income from discontinued operations
 (net of tax)                                           -            -             -          2,344              -            2,344
                                                  -------    ---------      --------       --------      ---------        ---------
Net Income (Loss)                                 $(5,719)   $   4,493      $    704       $      -      $  (5,197)       $  (5,719)
                                                  =======    =========      ========       ========      =========        =========
</TABLE>


<TABLE>
<CAPTION>

Condensed Consolidating Statement of Cash Flows                                                                       Kaiser Group
Three Months Ended March 31, 1999                                                                                     International
(In thousands)                                    Parent     Subsidiary   Non-Guarantor   Discontinued                     Inc.
                                                  Company    Guarantors   Subsidiaries     Operations  Eliminations   Consolidated
                                                  -------    ----------   ------------    -----------  ------------   ------------
                                                                                  (Unaudited)
<S>                                              <C>          <C>          <C>              <C>         <C>            <C>
Net Cash Provided by (Used in) Operating
 Activities                                      $ (2,017)     $ 1,704      $  4,697        $ (4,228)    $       -      $    156
                                                 --------      -------      --------        --------     ---------      --------
Investing Activities:
Investments in subsidiaries and affiliates,
 net of cash acquired                                   -            -        (4,374)          4,374             -             -
Sales of subsidiaries and/or investments                -            -             -               -             -             -
Investments in net assets of discontinued
 operations                                             -            -             -            (596)            -          (596)
Purchases of fixed assets                               -            -        (1,007)            450             -          (557)
                                                  -------    ---------      --------        --------     ---------      --------
Net Cash Provided by (Used in) Investing
 Activities                                             -            -        (5,381)          4,228             -        (1,153)
                                                  -------    ---------      --------        --------     ---------      --------
Financing Activities:
Borrowings under credit facility                   57,064            -             -               -             -        57,064
Principal payments on credit facility             (50,942)           -             -               -             -       (50,942)
Change in book overdraft                           (6,117)           -             -               -             -        (6,117)
Distribution of income to minority interest             -           51             -               -             -            51
Proceeds from issuances of common stock                38            -             -               -             -            38
                                                  -------    ---------      --------        --------      --------     ---------
  Net Cash Provided by (Used in) Financing
   Activities                                          43           51             -               -             -            94
                                                  -------    ---------      --------        --------      --------     ---------
Effect of Exchange Rate Changes on Cash                 -            -           (63)              -             -           (63)
                                                  -------    ---------      --------        --------      --------     ---------
Increase (Decrease) in Cash and Cash
 Equivalents                                       (1,974)       1,755          (747)              -             -          (966)
                                                  -------    ---------      --------        --------      --------     ---------
Cash and Cash Equivalents at Beginning of
 Period                                             2,414        3,814         9,039             (19)            -        15,248
                                                  -------    ---------      --------        --------      --------     ---------
Cash and Cash Equivalents at End of Period        $   440    $   5,569      $  8,292        $    (19)     $      -     $  14,282
                                                  =======    =========      ========        ========      =========    =========
</TABLE>

                                       14
<PAGE>

Item 2.  Management's Discussion and Analysis of Financial Condition and Results
         of Operations

Overview

Status of Corporate Reorganization

         The Company has continued negotiations with representatives of its
Senior Subordinated Notes and, while it has no assurance, believes it may be
able to implement a modified restructuring of those notes. Such a transaction
could involve an exchange of Senior Subordinated Notes for a combination of new
common stock and newly issued preferred stock. The Company believes that such a
restructuring would substantially improve its financial condition and provide a
basis for ongoing operations and continuation of the Company's turnaround.
However, such a restructuring would result in substantially more dilution of the
equity of existing common stockholders than the restructuring terms proposed
during the fall of 1999.

         While continuing negotiations with representatives of its Senior
Subordinated Noteholders, the Company has been exploring strategic alternatives,
including the possible sale of certain of its assets or businesses.  The Company
is currently engaged in discussions with several potential purchasers concerning
the sale of its Engineering Operations in two separate transactions.  The
Company has reached general understandings as to the scope and price range of
such transactions.  However, the transactions remain subject to, among other
things, completion of diligence and successful negotiation of definitive
agreements.  The Company also continues to explore strategic alternatives for
its interest in Kaiser-Hill Company, LLC.  The Company presently believes that
one or more of the transactions under discussion will take place, but there can
be no assurance that any transaction concerning any of the Company's business
units will be completed.  The Company expects to be able to reach a conclusion
with respect to its strategic direction and begin to implement its
reorganization, either with or without business unit sale transactions, prior to
the end of the second quarter of calendar year 2000.

         The Company expects its financial condition to be materially affected
by the implementation of any debt restructuring or strategic alternatives. The
consummation of any debt restructuring, any transactions for the sale of
business units, or any combination of debt restructuring and business unit sale
transactions will likely be completed through a "prepackaged" plan of
reorganization under Chapter 11 of the U.S. Bankruptcy Code. If such a plan were
selected as the mechanism for completing the Company's restructuring, the
Company expects that it would have the support of the largest holders of its
Senior Subordinated Notes and, therefore, be able to implement the plan
relatively promptly. If the Company commences such a proceeding, the goals of
any such plan would be to (i) minimize adverse effects on Kaiser's ongoing
operations, trade creditors and employees, (ii) facilitate possible business
unit sale transactions, and (iii) result in a financially strengthened and
stable organization for purposes of ongoing operations.

Results of Operations

         The Company's business is currently comprised of its Engineering
Operations and its 50% interest in the Kaiser-Hill subsidiary. The following
discussions separately address the operating results of the two different
operations. In all cases, if necessary, conforming changes to current period
presentation formats have been made to the historical results presented.

         Kaiser-Hill

         Kaiser-Hill is a 50% owned joint venture between Kaiser Group
International, Inc. and CH2M Hill, formed solely to perform the U.S. Department
of Energy's Rocky Flats Closure Project (the Rocky Flats Contract) initially
awarded in late 1995. The Kaiser-Hill operating results for each of the three
months ended March 31 were as follows (in thousands):

<TABLE>
<CAPTION>

         Kaiser-Hill                          2000            1999
                                            ---------       ---------
<S>                                         <C>             <C>
        Gross Revenue..................     $ 171,790       $ 145,103
          Subcontracts and materials...      (125,523)       (110,341)
                                            ---------       ---------
          Service Revenue..............        46,267          34,762
        Operating Expenses:
          Direct labor and fringe......        36,772          30,622
                                            ---------       ---------
        Operating Income...............     $   9,495       $   4,140
                                            =========       =========
</TABLE>

         The Rocky Flats Contract is primarily cost-reimbursable in nature, but
it also contains certain minimum and incentive fee elements based on qualitative
and quantitative factors of actual performance levels compared to annually
negotiated and established benchmarks or milestones. Accordingly, apart from a
shift of some performance milestones from the fourth quarter of 1999 into the
first quarter of 2000, fluctuations in gross and service revenue earned by
Kaiser-Hill during the comparable periods above were largely reflective of
increased levels of reimbursable subcontractor costs, i.e., pass-throughs, being
incurred

                                       15
<PAGE>

as the contract progress continued and as the term of the contract
neared its original completion date of June 30, 2000. Although annual operating
results are not directly comparable because of changes in the underlying
performance milestones that are established annually by the DOE, the service
revenue and operating income increases from 1999 to 2000 are largely the result
of the January 24, 2000 award of the new Rocky Flats Closure Contract, effective
February 1, 2000. The new Closure Contract essentially terminated the
predecessor contract that would otherwise have been executed through to its
original ending date of September 30, 2000. Correspondingly, certain performance
elements of the predecessor contract were shifted into the new Closure Contract.
Under the predecessor contract, Kaiser-Hill was awarded and paid approximately
$7.0 million of performance fee during the first quarter of 2000. The Company
recognized the entire $7.0 million award in January 2000. As of January 31,
2000, the Company had recognized the entire value of the predecessor contract.

     On January 24, 2000, Kaiser-Hill was awarded the follow-on Rocky Flats
Contract pursuant to which Kaiser-Hill will provide services through to closure
of the Rocky Flats site (the Closure Contract).  The Closure Contract became
effective February 1, 2000, essentially terminating the remaining period of the
original contract.  The economic terms of the Closure Contract are significantly
different from the original contract in that Kaiser-Hill will earn revenue based
on the actual cost of physical completion and will earn a performance fee based
on a combination of the actual cost of completion and the actual date of
physical completion, both as compared to contracted targets.   The Closure
Contract fee may range from $150.0 million to $460.0 million based on Kaiser-
Hill's costs falling within the range of targeted completion cost of $3.6
billion to $4.8 billion, respectively, if completed within various dates between
March 31, 2006 - March 31, 2007.  Physical completion above the target cost
would result in a reduction to the fee whereby Kaiser-Hill will share 30% in all
costs incurred after such date, subject to a maximum Kaiser-Hill liability of
$20.0 million.  Until such time as Kaiser-Hill can reasonably predict the likely
outcome of the total fee to be earned by contract completion, the fee will be
accrued at the minimum on a straight-line basis from February 1, 2000 through
December 31, 2007.  Estimated changes in the earned fee will be recognized as
contract to date adjustments at such time as the estimate is revised.  The
Closure Contract currently provides for Kaiser-Hill to invoice DOE quarterly
based on a $340.0 million target fee pool, less a 50% retainage for 2000.
Thereafter, the quarterly invoicing will revert to a formula such that
cumulative contract billings would not exceed the minimum fee of $150.0 million
spread over a 7 year timeframe, with retainages.  All invoice payments made by
DOE to Kaiser-Hill will be distributed to the joint venture owners immediately
upon receipt, less certain Kaiser-Hill reimbursements.

     Engineering Operations

     The Engineering Operations provide design, engineering, procurement, and
construction and project management services to domestic and international
clients in the infrastructure, facilities, metals, mining and industrial
markets.  The operating results for each of the three months ended March 31 was
as follows (in thousands):

<TABLE>
<CAPTION>

                                                     2000          1999
                                                   ---------     --------
<S>                                                <C>           <C>
      Gross Revenue..........................      $  46,784     $ 80,394
        Subcontracts and materials...........        (21,379)     (52,517)
        Equity income of affiliates..........            280        1,520
                                                   ---------     --------
      Service Revenue........................         25,685       29,397
      Operating Expenses:
        Direct labor and fringe..............         16,214       17,837
        Selling, general and administrative..         11,246       14,741
        Depreciation/amortization............            958        1,481
        Restructuring charges................            667          895
                                                   ---------     --------
      Operating (Loss).......................      $  (3,400)    $ (5,557)
                                                   =========     ========
</TABLE>

     Gross Revenue: Gross revenue represents the amount of goods and services
provided to the customer through primary contract relationships. Often included
as a component of gross revenue, and reimbursed by the customers, are costs of
certain services which the Company subcontracts to and procures from third
parties, including direct project costs and materials. These costs are excluded
from gross revenue to derive the Company's service revenue. Engineering
Operations derive the majority of their economic benefit, however, in the form
of engineering, procurement and construction management services performed
directly - this element is referred to as service revenue and is used as the
basis for managing the Engineering Operations.

     The majority of the gross revenue fluctuations noted above are attributable
to the completion or near completion, between the time span of the two periods,
of several large fixed price projects that also contained large amounts of
construction materials and passed-through subcontractor costs. Although included
in the Company's gross revenues, the quantities of such pass-through costs
typically have nominal effect on overall project profitability. The largest
reductions in gross revenue were due to:

                                       16
<PAGE>

 .  the large fixed-price Nitric Acid projects, completed in the first quarter of
   1999, resulting in gross revenue of $13.8 million in the first quarter of
   1999 compared to $0 during the first quarter of 2000;

 .  the large fixed-price project to construct the Nova Hut steel mini-mill in
   the Czech Republic generated gross revenue of $12.3 million in the first
   quarter of 1999 versus $1.0 million during the first quarter of 2000; and

 .  a $5.3 million reduction in gross revenue generated by the Microelectronics
   business unit during the first quarter of 2000 as compared to 1999.

The Engineering Operations had approximately $187 million in signed contract
backlog at March 31, 2000.

  Service Revenue:  Service revenue of the Company's engineering operations
declined during the first three months of 2000 by 12.6% compared to the same
period in 1999 as it continued to experience strains in new business development
activities, primarily in all business lines in the Asia-Pacific region and
within the iron and steel and microelectronics business lines in North America,
stemming in part from the Company's financial condition and, in part, from
overall continued softness in those markets.

  Operating gross margins - defined as service revenue less direct labor and
fringe costs - as a percent of service revenue remained relatively constant
during the first quarters of 2000 and 1999.  Excluding the equity income in
affiliates, the gross margins as a percent of service revenue were 36.2.% and
36.0%, respectively, during the three months ended March 31, 2000 and 1999.

  The decrease in equity in income from affiliates from 1999 to 2000 reflects
the culmination of an alumina refinery project in Australia during 1999 being
performed by one of the Company's joint ventures.

  Operating Expenses:  The restructuring plan implemented in 1999 and late 1998
included actions to realign and reduce the Company's post-divestiture overhead
cost structure such that the remaining levels more appropriately fit the needs
and size of its continuing operations.  Elements of the overhead reduction plan
included an approximate 25% personnel reduction in the Company's wholly-owned
North American operations with lesser percentage reductions in International
operations, eliminating regional overhead layers, downsizing facilities, closing
of marginally profitable office locations, discontinuing certain business
offerings, improving direct labor utilization on projects and enhancing project
controls to minimize risks of future contract losses.  Because of certain
centralized aspects of the Company's organizational structure that existed prior
to completing the divestitures discussed above, the cost reduction elements of
this phase of the plan could not begin until after the divestitures were
completed.  To date, the results from the cost reduction plan have been positive
- administrative expenses have been reduced by more than $14.6 million on an
annualized basis when comparing the first quarter of 2000 to that of 1999 and an
absolute reduction of $3.5 million from the three months ended March 31, 1999 to
2000.  Although the majority of the reduction initiatives have been enacted, the
Company remains focused on controlling overhead spending.

  In connection with its plan of reorganization discussed in the Overview, the
Company recorded charges for restructuring costs of $0.7 million and $0.9
million during the first quarters of 2000 and 1999, respectively.  Components of
this quarter's charge consisted of professional fees incurred in connection with
the Company's debt restructuring activities.  Components of the 1999 charge,
among others recorded later in 1999, included amounts for severance and related
matters, and for business unit divestiture costs.  These restructuring charges
have been presented individually on the Consolidated Statements of Operations.

  Interest:  The Company's average annual outstanding debt and the related
average effective interest rates for the three months ended March 31, 2000 and
1999, respectively, were $126.0 million and 13.0%, and  $175.8 million and
13.3%.  The rate of interest expense was higher in 1999 than in 2000 due to the
incurrence of rollover, loan origination fees and points charged in connection
with noncompliance with the terms of the revolving credit facility in early
1999.  The reduction in the average outstanding debt balance was from 1999 to
2000 was as a result of the pay off of the average revolver balance of $325.8
million in April of 1999 and of the repurchase of $14.0 million of outstanding
Senior Notes in October of 1999.

  Interest income is earned on available cash balances that were generated
primarily from the unused proceeds from the divestitures in 1999 and prior to
those sales, largely only by Kaiser-Hill and foreign operations. All other cash
not required for operations was historically used to pay down outstanding cash
borrowings.

Income Tax Expense:  The income tax provision for all periods presented excludes
the minority's interest in Kaiser-Hill's operating income because it is owned
partially by another company and is a flow-through entity for income tax
purposes.

  The Company recorded income tax expense of $0.1 million on income from
continuing operations of $3.3 million during the three months ended March 31,
2000 - as it continued with the established practice of not recognizing current

                                       17
<PAGE>

financial statement benefits of net operating losses since the likelihood of
being able to utilize such deductions in the future is uncertain at this time.
Rather, the Company only provided for income taxes that will be due as a result
of current period foreign earnings. The Company will not recognize an income
statement benefit for any previously unbenefitted or future operating losses or
future tax deductions until such time as management believes it is more likely
than not that the Company's future operations will generate sufficient taxable
income to be able to realize such benefits.  As of March 31, 2000, the Company
had provided a valuation allowance against the entire remaining deferred tax
asset of $40.9 million.

     Similarly, during the three months ended March 31, 1999, the Company
recorded an income tax benefit of $1.0 million on a loss from continuing
operations of $7.0 million - largely to offset the effect of the income tax
expense of $1.6 million recorded on the $3.9 million of income generated from
discontinued operations, as well as to provide for its estimate of tax due on
foreign earnings.


Results of Discontinued Operations

Divested Operating Units

  .  Sale of the Environment and Facilities Management Group (EFM): On April 9,
     1999, the Company sold the majority of the active contracts and
     investments, and transferred a substantial number of employees, of EFM to
     The IT Group, Inc. (IT) for a cash purchase price of $82.0 million, less
     $8.0 million which was retained by IT for EFM's working capital
     requirements. The Company then completed EFM contracts that were not sold
     to IT. Net of income tax expense of $24.5 million, the Company recognized a
     gain of $12.0 million from the sale.

  .  Sale of the Consulting Group: On June 30, 1999, the Company sold 90% of its
     Consulting Group to CM Equity Partners, L.P. and the Group's management for
     $64.0 million in cash and $6.6 million of interest-bearing notes. The
     Company retained a 10% ownership interest in the new and independent
     consulting company, now known as ICF Consulting Group, Inc. Net of income
     tax expense of $11.2 million, the Company recognized a gain of $30.3
     million from the sale.

  The combined net financial position, operating results and cash flows of the
EFM and Consulting Groups have been presented in the accompanying consolidated
financial statements as discontinued operations. The operating results of the
two discontinued segments has been included in the accompanying financial
statements, in accordance with generally accepted accounting principles, in the
form of their net results only. Summarized results for the discontinued segments
for the three months ended March 31, 1999 is as follows (as these operations
were disposed on in April and June of 1999, respectively, there were no
comparable earnings for the quarter ended March 31, 2000) (in thousands):
<TABLE>
<CAPTION>

                                                EFM     CONSULTING
                                                ---     ----------

  THREE MONTHS ENDED MARCH 31, 1999

<S>                                           <C>     <C>
  Gross revenue.....................         $ 29,939     $26,462
   Subcontracts and materials.......          (16,377)     (5,079)
                                              --------     -------

  Service revenue...................           13,562      21,383
  Operating expenses:
   Direct labor and fringe..........            6,975       9,973
   Group overhead...................            4,722       8,615
   Depreciation and amortization....              455         340
                                                  ---         ---
  Segment income before income tax..         $  1,410     $ 2,455
                                             ========     =======

</TABLE>

     Total segment income from the discontinued operations of $3.9 million for
the three months ended March 31, 1999 is presented in the accompanying income
statement net of an applicable 40% income tax of $1.6 million.

                                       18
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES


Liquidity and Capital Resources

     Operating activities:  Kaiser-Hill generated operating cash flows of $7.5
million and $2.1 million during the three months ended March 31, 2000 and 1999,
respectively.  Kaiser-Hill's cash flows become available to the Company only
upon actual periodic distributions of earnings to the Company and to the other
50% owner.  The Company's continuing E&C operations used $12.4 million and $1.9
million in cash during the first quarters of 2000 and 1999, respectively.  The
cash used for E&C operating activities in the first quarter of 2000 included
approximately $0.7 million for the payment of professional fees associated with
debt restructuring and corporate reorganization activities, $2.6 million for the
payment of income taxes generated primarily from the gains on the sales of the
EFM and Consulting Groups in 1999 and approximately $9.1 million resulting from
the cash flow timing of other working capital components.

     Investing activities:  Fixed asset purchases in the first quarter of 2000
were minimal following the Company's Year 2000 readiness activities completed in
1999.  Fixed asset purchases in the first quarter of 1999 consisted largely of
the capitalized costs of either purchased or internally developed software
necessitated by the Company's software replacement efforts for Year 2000 issues.
During the first quarter of 2000, the Company sold its 35% interest in an
environmental holding company based in France generating approximately $1.0
million in cash from investing activities.

     Financing activities:  During the first quarter of 2000, Kaiser-Hill
distributed $6.5 million to CH2M Hill. As of March 31, 2000, the Company
reported a temporary $4.1 million book overdraft as a financing cash proceed. As
of March 31, 2000 the Company had $12.6 million in letters of credit outstanding
collateralized by restricted cash balances.


Liquidity and Capital Resource Outlook

     The Company currently has no working capital facility and is financing its
Engineering Operations' working capital needs through the use of cash from
operations, from the residual cash proceeds from the sale of its Consulting
Group completed in June 1999, and from distributions by its Kaiser-Hill
subsidiary.  Based on (i) current expectations for near-term operating results,
(ii) its current available cash position and (iii) recent trends and projections
in liquidity and capital needs, management believes the Company has sufficient
short-term liquidity to bridge current operating needs until the implementation
of a modified debt restructuring, assuming that such a restructuring can be
accomplished within the reasonably near term.  There is no assurance that a
successful restructuring can be accomplished.

     Actions remaining critical to the Company's long-term liquidity include
completing a restructuring of its $125.0 million Senior Subordinated Notes prior
to the next interest payment due date of June 30, 2000, securing a sufficient
working capital facility with acceptable terms, obtaining successful outcomes
regarding significant contingent liabilities (see Other Matters below), and
improving operating results.  Management believes that, if these steps can be
achieved, the Company will have sufficient liquidity generated by improved
operating results, substantially decreased interest expense and borrowings on a
possible new credit facility to meet its longer-term working capital
requirements. The inability of the Company to accomplish a combination of
actions described above would have a material adverse impact on the financial
condition, operating results, and the business.

     The Company has continued negotiations with representatives of its Senior
Subordinated Notes and, while it has no assurance, believes it may be able to
implement a modified restructuring of those notes.  Such a transaction could
involve an exchange of Senior Subordinated Notes for a combination of new common
stock and newly issued preferred stock.  The Company believes that such a
restructuring would substantially improve its financial condition and provide a
basis for ongoing operations and continuation of the Company's turnaround.
However, such a restructuring would result in substantially more dilution of the
equity of existing common stockholders than the restructuring terms proposed
during the fall of 1999.

     While continuing negotiations with representatives of its Senior
Subordinated Noteholders, the Company has been exploring strategic alternatives,
including the possible sale of certain of its assets or businesses.  The Company
is currently engaged in discussions with several potential purchasers concerning
the sale of its Engineering Operations in two separate transactions.  The
Company has reached general understandings as to the scope and price range of
such transactions.  However, the transactions remain subject to, among other
things, completion of diligence and successful negotiation of definitive
agreements.  The Company also continues to explore strategic alternatives for
its interest in Kaiser-Hill Company, LLC.  The Company presently believes that
one or more of the transactions under discussion will take place, but there can
be no assurance that any transaction concerning any of the Company's business
units will be completed.  The Company expects to be able to reach a conclusion
with respect to its strategic direction and begin to implement its
reorganization, either with or without business unit sale transactions, prior to
the end of the second quarter of calendar year 2000.

                                       19
<PAGE>

     The Company expects its financial condition to be materially affected by
the implementation of any debt restructuring or strategic alternatives.  The
consummation of any debt restructuring, any transactions for the sale of
business units, or any combination of debt restructuring and business unit sale
transactions will likely be completed through a "prepackaged" plan of
reorganization under Chapter 11 of the U.S. Bankruptcy Code.  If such a plan
were selected as the mechanism for completing the Company's restructuring, the
Company expects that it would have the support of the largest holders of its
Senior Subordinated Notes and, therefore, be able to implement the plan
relatively promptly.  If the Company commences such a proceeding, the goals of
any such plan would be to (i) minimize adverse effects on Kaiser's ongoing
operations, trade creditors and employees, (ii) facilitate possible business
unit sale transactions, and (iii) result in a financially strengthened and
stable organization for purposes of ongoing operations.


Other Matters

     Bath Contingency:   In March 1998, the Company entered into a $187 million
maximum price contract with Bath Iron Works to construct a ship building
facility. In May 1998, the Company subsequently learned that estimated costs to
perform the contract as reflected in actual proposed subcontracts were
approximately $30 million higher than the cost estimates originally used as the
basis for contract negotiation between the Company and the customer. After
learning this, the Company advised the customer that it was not required to
perform the contract in accordance with its terms as a result of a mutual
mistake among them in negotiating that contract.  In October 1998, the customer
presented an initial draft of a claim against the Company requesting payment for
estimated damages and entitlements pursuant to the terminated contract.  The
customer has also subsequently asserted a claim based on alleged differing site
conditions that allegedly should have been identified by the Company.  In March
2000, Bath filed a combined claim against the Company in U.S. District Court in
the District of Maine requesting payment for $38 million. The Company continues
to object to Bath's allegations and is vigorously defending its position.
Although no resolution has been reached, financial statements contain a
provision for the amount of the Company's proposed settlement of the non-insured
portion of the loss.

     Acquisition Contingency: The Kaiser common shares exchanged for the stock
of ICT Spectrum in the March, 1998 acquisition carry the guarantee that the fair
market value of each share of stock will reach $5.36 by March 1, 2001. In the
event that the fair market value does not attain the guaranteed level, the
Company is obligated to make up the shortfall either through the payment of cash
or by issuing additional shares of common stock with a total value equal to the
shortfall, depending upon the Company's preference. Pursuant to the terms of the
Agreement, however, the total number of contingently issuable shares of common
stock cannot exceed an additional 1.5 million.

     In December, 1999, the Company and certain former Company employees and
shareholders of ICT Spectrum agreed to amend the applicable agreements in a
manner that had the result of reducing the amount of the taxable gain created by
former shareholder-employees' involuntary departures from the Company.  As
permitted per the agreement, the shareholders agreed to allow the Company to
retain some of the vested shares as payment of the income tax withholding in
lieu of cash.  In total, the Company retained 255,669 shares and recorded the
transaction as a $1.37 million reduction to goodwill and paid-in-capital.

     Given that the quoted fair market value of the Company's common stock at
May 19, 2000 was $0.19 per share, and that the Company's current debt
instruments restrict the amount of cash that can be used for acquisitions, the
assumed issuance of an additional 1.5 million shares (now adjusted downward by
the 255,669 retained shares to 1,244,331), would not completely extinguish the
remaining purchase price contingency. In this event, the Company will need to
fund the contingency in cash and would need to obtain an amendment to current
debt instruments or replace them in order to complete a cash fill-up. Any future
distribution of cash or common stock would be recorded as a charge to the
Company's paid-in-capital.

     Until the earlier of the contingent purchase price resolution or March 1,
2001, any additional shares assumed to be issued because of shortfalls in fair
market value will be included in the Company's diluted earnings per share
calculations, unless they are antidilutive. The exchanged shares also contain
restrictions preventing their sale prior to March 1, 2001.

     On March 29, 1999, one ex-ICT Spectrum shareholder, individually and on
behalf of all others similarly situated, filed a class action lawsuit in the
U.S. District Court for the District of Idaho alleging false and misleading
statements made in a private offering memorandum, and otherwise, in connection
with the Company's acquisition of ICT Spectrum in 1998. The Company subsequently
filed a motion to dismiss the case. On March 14, 2000, the court ordered the
plaintiff to address certain claim deficiencies. The plaintiff filed an amended
complaint on May 15, 2000. The court is expected to consider the amended
complaint in light of the Company's motion to dismiss and complete its ruling
relative to the Company's motion.

     Litigation, Claims and Assessments Contingencies: In the course of the
Company's normal business activities, various claims or charges have been
asserted and litigation commenced against the Company arising from or related to
properties, injuries to persons, and breaches of contract, as well as claims
related to acquisitions and dispositions. Claimed amounts may

                                       20
<PAGE>

not bear any reasonable relationship to the merits of the claim or to a final
court award. In the opinion of management, adequate reserves have been provided
for final judgments, if any, in excess of insurance coverage, that might be
rendered against the Company in such litigation. The continued adequacy of
reserves is reviewed periodically as progress on such matters ensues.

     The Company may from time to time, either individually or in conjunction
with other government contractors operating in similar types of businesses, be
involved in U.S. government investigations for alleged violations of procurement
or other federal laws and regulations. The Company currently is the subject of a
number of U.S. government investigations and is cooperating with the responsible
government agencies involved. No charges presently are known to have been filed
against the Company by these agencies. The Company has provided for its estimate
of the potential effect of these investigations, and the continued adequacy of
reserves is reviewed periodically as progress on such matters ensues.

     Prior to the divestitures of its EFM and Consulting Groups, the Company had
a substantial number of cost-reimbursement contracts with the U.S. government,
the costs of which are subject to audit by the U.S. government. As a result of
pending audits related to fiscal years 1986 forward, the government has
asserted, among other things, that certain costs claimed as reimbursable under
government contracts either were not allowable or not allocated in accordance
with federal procurement regulations. The Company is actively working with the
government to resolve these issues. The Company has provided for its estimate of
the potential effect of issues that have been quantified, including its estimate
of disallowed costs for the periods currently under audit and for periods not
yet audited. Neither the government nor the Company, however, has quantified
many of the issues, and others are qualitative in nature, and their potential
financial impact is not quantifiable by the government or the Company at this
time. The adequacy of provisions for reserves is reviewed periodically as
progress with the government on such matters ensues.

     Contract warranties and performance guaranty contingencies: In the course
of the Company's normal business activities, many of its contracts contain
provisions for warranties and performance guarantees. As progress on contracts
ensues, the Company regularly updates the estimates of the costs to perform such
contingencies and reserves a proportionate amount of the total related contract
value until such time as the contingency is resolved.

     Year-2000 Readiness: The Company, to date, has not experienced any material
systems failures related to the Year 2000 (Y2K) rollover. Our remediation plan
for the Y2K issue is discussed in detail in the Company's 1999 Annual Report to
Shareholders and in 1999 Forms 10-Q. The Company will continue to monitor and
address any issues that may arise from internal systems or those of third
parties. These costs were largely comprised of the costs to replace financial
accounting and other software applications. Apart from the system replacement
costs, other costs related to Y2K have not had a material adverse effect on the
Company's results of operation or financial condition.


     Forward-Looking Statements

     From time to time, certain disclosures in reports and statements released
by the Company, or statements made by its officers or directors, will be
forward-looking in nature. These forward-looking statements may contain
information related to the Company's intent, belief, or expectation with respect
to contract awards and performance, potential acquisitions and joint ventures,
and cost-cutting measures. In addition, these forward-looking statements contain
a number of factual assumptions made by the Company regarding, among other
things, future economic, competitive, and market conditions. Because the
accurate prediction of any future facts or conditions may be difficult and
involve the assessment of events beyond the Company's control, actual results
may differ materially from those expressed or implied in such forward-looking
statements.

     The Company is availing itself of the safe harbor provisions provided in
the Private Securities Litigation Reform Act of 1995 by cautioning readers that
forward-looking statements, including those that use words such as the Company
"anticipates," "expects," "estimates," and "believes", are subject to certain
risks and uncertainties which could cause actual results of operations to differ
materially from expectations. These forward-looking statements will be contained
in the Company's federal securities laws filings or in written or oral
statements made by the Company's officers and directors to press, potential
investors, securities analysts, and others. Any such written or oral forward-
looking statements should be considered in context with the risk factors
discussed below:

 .  The Company must significantly revise its capital structure, in the form of a
   debt to equity conversion or a combination of other equity investments, joint
   ventures or asset sales. The inability of the Company to accomplish one or a
   combination of transactions described above would have a material adverse
   effect on the business.

 .  The Company requires access to a revolving credit line to fund short-term
   borrowing needs and provide letter of credit capacity required in connection
   with certain projects. Kaiser may not be able to generate collateral to
   support a borrowing
                                       21
<PAGE>

   base of sufficient size to obtain such credit or may not be able to
   improve operating results enough to be able to obtain such credit.

 .  The Company may not be able to obtain satisfactory contract performance
   guarantee mechanisms, such as performance bonds.

 .  The Company's financial performance is significantly tied to Kaiser-Hill
   Company, LLC, which is subject to uncertainties that may adversely affect its
   and the Company's operating results.

 .  The Company may not be able to maintain the existing volume or size of
   contracts and may not be able to realize increased contract performance
   levels.

 .  The Company is involved in a number of fixed-price contracts under which the
   Company can benefit from cost savings or performance efficiencies. The
   Company's revenue and profit recognition policies are based on making a
   series of assumptions including aspects relative to contract pricing and
   performance capabilities. The Company's contract to construct the Nova Hut
   steel mini-mill in the Czech Republic includes such aspects. In the event
   that such assumptions cannot be met or change as contract progress ensues,
   the Company may have to make downward adjustments to revenue and profit
   already recognized in the financial statements. Possible results of changes
   in such assumptions could include the inability to realize all contract
   performance fees or other incentives already recognized as revenue in the
   financial statements, and may result in other unrecoverable cost overruns.

 .  The Company may not be awarded new contracts for which it is competing in its
   established markets or these awards may be delayed. In addition, the Company
   may not be able to win contracts in new markets it chooses to target. General
   economic conditions in the international arena, especially Asia and Latin
   America, could negatively impact the Company's current international business
   and its ability to expand in international markets.

 .  The Company may not be able to make acquisitions and/or enter into joint
   ventures, and if made, acquisitions and joint ventures may take more time to
   contribute favorably to the Company's financial results than was formerly
   assumed. The Company is highly leveraged and is subject to restrictive
   covenants that limit its ability to fund potential acquisitions and joint
   ventures beyond certain levels established in its debt agreements.

 .  A portion of the Company's business is generated either directly or
   indirectly as a result of federal and state laws, regulations, and programs;
   a reduction in the number or scope of these laws, regulations or programs
   could materially affect the Company's business.

 .  The Company's ability to attract and retain business is closely related to
   its ability to attract and retain key management and operating personnel. The
   market for professionals of the types employed by the Company is quite
   competitive. The Company may not be able to attract and retain personnel
   necessary for successful operations.

 .  The Company has several significant contingent liabilities arising out of
   prior operations and contracts, its 1998 acquisition of ICT Spectrum
   Constructors, Inc. and the dispositions of its Environment and Facilities
   Management and Consulting Groups. Adverse resolution of one or more of those
   contingencies could adversely affect the Company's financial performance and
   condition.

 .  Certain of the Company's environmental work poses risks of large civil and
   criminal liabilities for violations of environmental laws and regulations,
   and liabilities to customers and to third parties for damages arising from
   the Company's performing environmental services to its clients. A large fine
   or penalty imposed on the Company could negatively impact contract
   performance fees under certain existing contracts or otherwise negatively
   affect the Company's financial results.

 .  The Company generally grants uncollateralized credit to its customers and is
   therefore subject to risks of financial instability on the part of its
   customers. In certain cases, the Company secures project specific insurance
   policies related to various insurable risks such as certain non-payment due
   to insolvency of the customer. Negative changes in the financial condition of
   its customers could expose the Company to adverse financial consequences.

                                       22
<PAGE>

Item 3.   Quantitative and Qualitative Information about Market Risk

          Market Risk

  The Company does not believe that it has significant exposures to market risk.
The majority of its foreign contracts are denominated and executed in the
applicable local currency. The interest rate risk associated with the majority
of the Company's borrowing activities is fixed.



                          Part II - Other Information


Item 1.  Legal Proceedings

As previously reported in the Annual Report on Form 10-K for the year ended
December 31, 1999.   See also Note 5 to the financial statements contained
herein.

Item 2.  Changes in Securities

(a)  None
(b)  None
(c)  None
(d)  Not applicable

Item 3.  Defaults Upon Senior Securities

(a)  None
(b)  None

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

None

Item 5.  Other Information

None

Item 6.  Exhibits and Reports on Form 8-K

    (a)  The exhibits filed as part of this report are listed below:

         No. 21   Consolidated Subsidiaries of the Registrant as of May 1, 2000.
         No. 27   Financial Data Schedule

    (b)    Reports on Form 8-K

        On May 2, 2000, Kaiser Group International, Inc. filed a Form 8-K
referencing the April 13, 2000 amendments of its Section 401(k) Plan dated
March 1, 1989 and its Retirement Plan dated August 1, 1971.

                                       23
<PAGE>

                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Report on Form 10-Q to be signed on its behalf
by the undersigned thereunto duly authorized.



                                 KAISER GROUP INTERNATIONAL, INC.
                                          (Registrant)
Date: May  22, 2000



                                 /s/ Timothy P. O'Connor
                                 -----------------------
                                 Timothy P. O'Connor
                                 Executive Vice President, Chief Financial
                                 Officer and Chief Administrative Officer
                                 (Duly authorized officer and principal
                                 financial officer)

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