SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                    FORM 10-K

 X   Annual Report  Pursuant to Section 13 or 15(d) of the  Securities  Exchange
---  Act of 1934 - (Fee required) For the fiscal year ended December 31, 1997.

---  Transition  Report  Pursuant  to  Section  13 or  15(d)  of the  Securities
     Exchange  Act of 1934 (No fee  required)  For the  transition  period  from
     ______________ to ______________.

Commission file number 0-19239

                            LAW COMPANIES GROUP, INC.
             (Exact name of registrant as specified in its charter)

                Georgia                                   58-0537111
     ------------------------------           --------------------------------
    (State or other jurisdiction of           (IRS Employer Identification No.)
     incorporated or organization

    114 Townpark Drive, Kennesaw, GA                         30144
    ------------------------------------               ----------------
 (Address of principal executive offices)                 (Zip code)

Registrant's telephone number, including area code 770-396-8000

Securities registered pursuant to Section 12(b) of the
Act: None

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

Common Stock, par value $1.00 per share
---------------------------------------
               (Title of class)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.
Yes  X   No ___
    ---

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation S-K (Paragraph  229.405 of this chapter) is not contained  herein,
and will not be contained,  to the best of registrant's  knowledge in definitive
proxy or information  statements  incorporated  by reference in Part III of this
Form 10-K or any amendment to this Form 10-K [X].

The  aggregate  market value of the voting stock held by  non-affiliates  of the
Registrant as of March 23, 1998.
Common Stock, $1 par value - $30,020,429.

The number of shares outstanding of the Registrant's class of common stock as of
March 23, 1998.
Common Stock, $1 par value - 1,889,176.


                             DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Company's  definite proxy  statement for the 1998 Annual Meeting
of  Shareholders  of the Company are  incorporated by reference into Parts I and
III.
<PAGE>

PART I

ITEM 1 - BUSINESS

OVERVIEW AND HISTORY

Law Companies Group, Inc. (the "Company") is a worldwide  professional  services
firm operating mainly in the engineering services industry. The Company provides
consulting,   design  and  management  services  in  the  water,  environmental,
transportation, commercial construction, and government sectors.

The Company's services range from feasibility studies and financial and economic
appraisals  through all stages of  planning,  design,  contract  administration,
environmental  and risk  assessment,  laboratory  analysis,  work site clean up,
project and  construction  management to  commissioning  and  completion.  These
services  are  provided  through  the  following  market-focused  groups  of the
Company:

         United  States  (U.S.)  Group - The  services  provided  by this  group
        include the Company's traditional business of geotechnical  engineering,
        construction  services, and materials engineering and testing as well as
        environmental  services such as regulatory  compliance  planning,  field
        data   collection,    laboratory    analysis,    data   evaluation   and
        interpretation, engineering design, waste site cleanup, and consultation
        services on environmental matters.

         International  Group  - The  Company  is a  major  provider  of  multi-
        disciplinary   consulting,   design,   and   management   services   for
        infrastructure,  engineering,  environmental,  industrial,  and building
        projects at each stage from project  conception to completion,  with on-
        going follow-up in the operations and maintenance phases. These services
        are provided in Europe,  Africa,  Asia, the Middle East, and Central and
        South America.

The Company's U.S. and  international  operations are based in Atlanta,  Georgia
and Reading,  Berkshire,  United Kingdom,  respectively,  with approximately one
hundred offices throughout the United States, and in Europe,  Africa,  Asia, and
the Middle East (see Notes to the Consolidated  Financial Statements included in
Item 8 herein, including Note 12 as to geographical area data).

Originally  founded  in  1946,  the  Company  has  grown  through  a  number  of
acquisitions and through internal growth.  The Company  historically has entered
new geographic  regions in order to capitalize on economic  development in those
regions.

Recent Transactions

On May 6, 1997,  the  shareholders  of the  Company  authorized  and  approved a
transaction  between the Company and Virgil R.  Williams and James M.  Williams,
Jr., each director of the Company  (collectively,  the "Investors")  pursuant to
which the Company sold to the Investors:

          (a)  An aggregate of 963,398  shares of Preferred  Stock together with
               correlating  warrants  to  purchase  the same number of shares of
               Common Stock (the "Correlating Warrants");

        (b)    Options to  purchase  an  aggregate  of up to  900,000  shares of
               Common Stock,  which number  declines to 200,000 shares over time
               (the "Options"); and

        (c)    Additional options to purchase shares of Common Stock exercisable
               when and if certain  incentive  stock options are exercised  (the
               "Plan Options").

In consideration, the Investors paid to the Company an aggregate of $10,000,000.
<PAGE>

Each share of Preferred Stock is convertible,  at the option of the holder, into
one share of Common Stock until May 6, 2004,  when each share of Preferred Stock
becomes  convertible  into an  "Adjusted  Number"  of  shares  of  Common  Stock
(determined  pursuant to the terms of the Company's  Articles of Incorporation).
Notwithstanding  the  foregoing,  upon  exercise of  Correlating  Warrants,  the
Investor that exercised such Correlating  Warrants forfeits the right to convert
a number of shares of  Preferred  Stock  equal to the number of shares of Common
Stock issued upon exercise of the Correlating Warrants. Further, upon conversion
of shares of Preferred  Stock, an equal number of Correlating  Warrants shall be
canceled.

The Correlating  Warrants are  exercisable at an exercise price  determined upon
the  achievement  of certain  benchmarks  contained in the Company's  Bylaws (as
restated on May 6, 1997).

The Options are  exercisable at various  exercise  prices  through  December 31,
2006.  In each twelve  month  period in which all Options are not  exercised  in
full, the number of Options  available for exercise during the following  twelve
month period shall be reduced. The Plan Options provide that upon an exercise of
an incentive stock option (by an option holder other than the Investors) granted
prior to May 6, 1997,  the  Investors  have the right to  purchase,  on the same
conditions,  a number of shares of Common  Stock equal to one-half of the shares
acquired by such option holder pursuant to such option exercise.

The  Company  and  the  Investors  also  entered  into a  Preferred  Shareholder
Agreement,  pursuant to which, for a period of two years, unless the majority of
the  directors  elected by the holders of the Common Stock  consent or either of
the  Investors  should die,  neither  Investor may transfer any of the Preferred
Stock or rights  therein  except to certain  specified  individuals or entities.
That  agreement  also  provided  that  in the  event  of a  proposed  sale to an
unrelated party following the death of either of the Investors,  the Company has
a right of first refusal to acquire the Preferred  Stock.  In addition,  for two
years after the Closing  Date,  neither  Investor  is  permitted  to acquire any
Common Stock, options,  subscriptions,  warrants,  calls,  commitments or rights
from any other  shareholder  of the  Company  unless a  majority  of the  Common
Directors consent in writing. For a period beginning two years after May 6, 1997
and ending four years after such date,  neither  Investor  individuall,  nor the
Investors together, may acquire or hold Common Stock or any outstanding security
or other instrument from the other shareholders, which, together with the shares
underlying  the  Correlating   Warrants  and  the  Options  exceed  50%  of  the
outstanding shares of the Company on a fully diluted basis,  without the consent
of the majority of the Common Directors.

The Company and the Investors also entered into a Registration  Rights Agreement
pursuant to which the Company  granted the  Investors  registration  rights with
respect to shares of Common Stock  issuable  upon  conversion or exercise of the
Preferred Stock, the Correlating Warrants, the Options and the Plan Options. The
rights include on demand registration and piggyback registration rights.

The holders of Preferred  Stock have the right to elect the Preferred  Directors
and must  consent to the Common  Director's  nomination  of the Swing  Director,
which consent my not be unreasonably withheld.

On September 25, 1997, with the consent of the Common  Directors of the Company,
James M. Williams,  Jr.  transferred his Preferred Shares to the Williams Family
Partnership LP, of which Mr. Williams, Jr. is a general partner. In addition, he
transferred his portion of the Options,  the  Correlating  Warrants and the Plan
Options to that partnership.

In August  1997,  the  Company  acquired  the assets and  businesses  of African
Consulting  Engineers,  Inc. ("ACE"), an engineering  consulting firm located in
South Africa,  for a purchase price of approximately  $600,000 in cash and notes
payable.  The  Company  believes  that the  transportation  planning  and design
services  provided  by ACE form a natural  extension  of the  services  that the
Company currently provides in that region.

Unless the context  otherwise  requires,  the "Company"  refers to Law Companies
Group,  Inc., a Georgia  corporation,  and its  consolidated  subsidiaries.  The
Company's  principal  executive  offices  are  located  at 114  TownPark  Drive,
Kennesaw, Georgia 30144 and its telephone number is (770) 396-8000.

<PAGE>

Forward-Looking Statements

This Annual Report on Form 10-K contains "forward-looking statements" within the
meaning  of  Section  27A of  the  Securities  Act  of  1993,  as  amended  (the
"Securities Act"), which represent the Company's  expectations or beliefs.  When
used in this report,  the words "may," "could,"  "should,"  "would,"  "believe,"
"anticipate," "estimate," "expect," "intend," "plan" and similar expressions are
intended to  identify  forward-looking  statements.  These  statements  by their
nature involve substantial risks and uncertainties,  certain of which are beyond
the Company's control. The Company cautions that various factors,  including the
factors  described in the  Company's  filings with the  Securities  and Exchange
Commission (the "Commission"), as well as general economic conditions in each of
the  geographic  regions  served by the Company and industry  trends could cause
actual  results or outcomes to differ  materially  from those  expressed  in any
forward-looking  statements of the Company. Any forward-looking statement speaks
only as of the date of this report and the Company  undertakes  no obligation to
update  any  forward-looking  statement  or  statements  to  reflect  events  or
circumstances  after the date on which such  statement is made or to reflect the
occurrence of an unanticipated  event. New factors emerge from time to time, and
it is not possible for the Company to predict all of such factors.  Further, the
Company  cannot  assess the impact of each such  factor on its  business  or the
extent to which any factor, or combination of factors,  may cause actual results
to differ materially from those contained in any forward-looking statements.


U.S. GROUP SERVICES

General

During the last three fiscal years,  the U.S. Group's net fees have decreased as
a percentage of the Company's  total net fees  representing  approximately  65%,
67%, and 68% in 1997,  1996,  and 1995,  respectively.  The decrease from 67% in
1996 to 65% in 1997 was  primarily  the  result of the  Company's  focus on cost
structure and competiveness  which was purposefully at variance with fee growth.
In  addition,  the lack of  environmental  regulatory  pressure has softened the
demand  in  environmental  markets;  this  in turn  has  resulted  in  increased
competition.  The Company has seen its environmental  business decline from 1996
to 1997.  The  International  Group had an increase in fees due  primarily  to a
weaker US dollar when compared to the pound sterling.  See "International  Group
Services."

The  Company's  services  in the U.S.  are  divided  into  four  major  business
divisions: engineered construction,  facilities engineering services, industrial
engineering services, and environmental services.

(a)  Engineered   Construction  -  The  Company's  skilled  specialists  include
engineers,  metallurgists,  geologists,  chemists,  architects, and technicians.
They are involved  with  virtually  every phase of  construction  projects.  The
Company's  experts play an integral part in the planning,  designing,  materials
selection,  and  construction  of a project.  They are on site early,  assessing
ground  conditions  so that they can  recommend  cost-effective  foundation  and
retaining structures.  The Company's construction  specialists are involved with
construction inspection and quality control, construction specification reviews,
test evaluation and performance,  record keeping,  and problem solving.  On some
projects they are supported by laboratories  that provide  full-service  testing
capabilities for all types of building materials and products.

The Company  employs  geotechnical  engineers  and earth  scientists,  including
established specialists in soils engineering,  hydrology,  geology,  geophysics,
seismology,  and rock mechanics.  Through exploratory and laboratory techniques,
the Company  endeavors to determine  the  behavior of soil,  rock,  and water as
these media are affected by natural phenomena and construction activities at the
particular  construction  site.  The Company also  provides  comprehensive  site
analysis and expertise in  underground  design and earthquake  engineering.  The
Company recommends or designs building foundations, site improvements,  tunnels,
dams,  impoundments and related  structures and evaluates the safety of existing
structures.  Geotechnical  services  commence with project  planning and design,
extend into construction,  and often continue through the in-service life of the
structure.
<PAGE>

(b) Facilities  Engineering  Services - The Company's  facilities experts assess
the  condition  of all types of facility  elements and provide  evaluations  and
recommendations for: roofing, pavements; structures; asbestos abatement; curtain
walls; glazing;  mechanical,  electrical,  plumbing systems, surveys of existing
facilities, and the analysis of failure of materials,  products , or facilities.
The  Company's  engineers  and  technicians  use  advanced  computer  databases,
computer-aided drafting technology, and geographic information systems to store,
retrieve,  process,  and report facility assessment  information.  The Company's
engineers  prepare  rehabilitation  designs and related  contract  documents and
provide contract administration and quality control functions in accordance with
the intent and scope of the project.

The Company's  ability to model the probable  performance  and economic  service
life  of  facility   components   provides  facility  owners  and  managers  the
information  necessary to plan,  schedule,  and budget for  maintenance of their
facilities  thereby enabling them to reduce  disruption to business  operations.
This also allows prospective buyers or sellers of existing facilities to predict
maintenance requirements and associated costs as part of potential transactions.

The Company aids clients in the  selection  and  evaluation of materials for new
construction, as well as the repair, maintenance, rehabilitation, and renovation
of existing  facilities.  The Company provides  extensive on-site and laboratory
testing  and  evaluation  of  products,  including  construction  materials  and
equipment products. The Company's investigative and problem-solving capabilities
cover a wide range of materials including  concrete,  masonry,  asphalt,  steel,
other metals, plastics, epoxies, sealants, and asbestos.

(c) Industrial  Services - The Company's  industrial  manufacturing  and process
consultants  assess the condition of  manufacturing  process  equipment  through
destructive and non-destructive  testing. The Company evaluates elements such as
pressure vessels,  storage tanks,  boilers,  control systems,  conveyer systems,
piping,  and valves to develop preventive  maintenance  programs and to identify
and  implement  required  actions  to reduce the need for  repairs  or  minimize
disruption to production processes.

The ability of the Company's personnel to track the condition and performance of
equipment  and to predict  the useful  service  life of  production  and utility
equipment  allows  owners and  operators  to maximize  the  benefits of properly
scheduled maintenance and repair activities.

(d) Environmental Services - The Company's environmental scientists,  engineers,
and other skilled  specialists  serve industrial,  commercial,  and governmental
clients  dealing with all aspects of  environmental  siting,  water and resource
development,  permitting,  regulatory compliance, and remediation. The Company's
environmental  services  encompass  practice  areas  that  include:  remediation
management and site cleanup,  evaluations in connection  with  acquisitions  and
divestitures  of  industrial or commercial  property,  environmental  siting and
permitting,  water resources and water quality  management,  occupational health
and safety, tank management, and hazardous and solid waste management.

The Company's  experienced design engineers provide ready-to-bid design packages
and independent cost estimates for facility closures, new construction,  and all
manner of remedial  designs.  The Company assists clients through its contractor
procurement and provides continual  consultation,  field and laboratory testing,
quality control, and project management support.

The Company's remediation management personnel are experienced professionals who
make on-site decisions to control schedules and costs,  maintain compliance with
safety and waste  handling  protocols,  and deal  cost-effectively  with changes
encountered in site conditions.

Hazardous  waste  laws,   regulations,   and  liability  concerns  have  created
significant financial exposure for those parties associated with the transfer of
industrial or commercial properties.  This liability can impact buyers, sellers,
developers,  and lenders. The Company specializes in the independent  evaluation
of  environmental  conditions  for facilities and property being bought or sold.
On-site  inspections  and site history  reviews are  conducted by the  Company's
professionals   who  advise   clients   regarding   the  nature  and  extent  of
environmental problems and liabilities.
<PAGE>

Optimum siting for initial  construction  or expansion of industrial  facilities
requires  careful  attention  to  environmental  conditions,   natural  resource
limitations,  and  regulatory  compliance.  The Company  provides the  technical
services and  permitting  support to address siting and permit issues related to
water supply, waste water management,  meteorology and air quality,  geology and
soils,  seismic  hazards,   aquatic  and  terrestrial   ecology,   wetlands  and
archaeology.

The  Company's  geologists,  hydrologists,  and water  resources  engineers  are
experienced in all phases of water resources  management,  including development
of  ground-water  and surface water supplies for industrial,  agricultural,  and
municipal  clients.  Additionally,  the Company's  engineers  have  successfully
designed and permitted waste water treatment and disposal systems for industrial
concerns and municipalities.

The Company  assists clients in complying with  regulations of the  Occupational
Safety and Health Administration,  the Environmental  Protection Agency ("EPA"),
and other  agencies  which regulate  employee  health and safety.  The Company's
certified  industrial  hygienists,  scientists,  and professional  engineers are
experienced  in monitoring,  assessing,  and  controlling  exposure to asbestos,
particulates,  fibers,  welding fumes, metals,  organic vapors, heat stress, and
noise. The Company also provides  consulting and laboratory services in testing,
sampling, analysis, and risk assessment for various clients.

The  Company's  storage tank  management  services  include  integrity  testing,
monitoring  systems,  leakage  assessment,  remedial  action,  tank  removal and
closure,  responding  to  new  regulatory  requirements  and  designing  of  new
installations.

The  Company's   hazardous   waste  site   services   include   assessment   and
characterization,  and the selection,  design,  and  implementation  of remedial
actions. The Company's technical consultants work closely with clients and their
legal counsel to develop cost  effective  compliance  programs.  The Company has
extensive  experience with soil and  sub-surface  designs  including  landfills,
impoundments,  ground-water  recovery and treatment,  waste removal and closure,
cut-off walls, cover systems,  in-place  treatment and stabilization,  grouting,
and land treatment.

INTERNATIONAL GROUP SERVICES

The  International  operations  comprised 35%, 33%, and 32% of consolidated  net
fees in 1997, 1996, and 1995,  respectively.  The  International  Group provides
consulting, design, and managerial services including:

<TABLE>
<CAPTION>

    <S>                                                     <C>
    Feasibility and preinvestment studies                   Commissioning
    Strategic and master planning                           Economic and financial appraisals
    Advice  on  private  finance  initiatives               Community co-ordination and development
    Agricultural services                                   Environmental modeling   
    Environmental  audits,  assessments                     Network analysis
      and management                                        Business consulting
    Site investigations,  surveys  and  models              Project and construction management
    Logistics  studies                                      Value engineering and risk management
    Design                                                  Project planning
    Contract  administration                                Pollution control and remediation
    Cost engineering                                        Procurement
    Tender  documentation evaluation                        Technical assistance and training
    Supervision of construction
</TABLE>

<PAGE>
Services are primarily  performed in relation to infrastructure,  business,  and
commercial development, including but not limited to the following sectors:

<TABLE>
<CAPTION>

    <S>                                                     <C>
    Business consulting                                     Restructuring
    Logistics                                               Engineering   and   construction
    Water supply and wastewater                             Dams and hydroelectricity                                              
    Tunnels and caverns                                     Irrigation and drainage  
    Roads                                                   Environmental
    Bridges                                                 Railways
    Docks and harbors                                       Airports
    Commercial buildings                                    Public buildings and institutions
    Residential buildings                                   Industrial facilities              
    Air bases                                               Leisure facilities
    Army facilities                                         Naval bases
</TABLE>

   
A  significant  portion  of the  International  Group's  work is  performed  for
governmental clients in the United Kingdom and worldwide.

(a) Feasibility and  Pre-Investment  Studies - The Company provides clients with
advice on the technical and economic  feasibility of potential projects based on
detailed financial, economic, environmental and regional development studies and
the assessment of technical and other  potential  construction  and  engineering
risk  factors  associated  with the  project.  The Company  also  assists in the
project  formulation and provides support in preparing  funding  applications to
obtain project  financing.  The Company's  personnel include civil,  structural,
mechanical, electrical, and geotechnical engineers; transport planners/analysts;
economists;  financial analysts;  project and construction managers;  surveyors;
architects and town planners; and environmental scientists and engineers.

(b) Bid and Contract Administration - The Company assists clients during the bid
process through the preparation of detailed project specifications and drawings,
bills of materials,  prequalification of prospective contractors,  evaluation of
actual bids submitted, and providing  recommendations on the award of contracts.
The Company  provides  contract  administration,  including  negotiation  of the
contract with the  successful  contractor,  preparation  of contract  documents,
verification  and  certification  of contractor  applications  for payment,  and
investigation and analysis of contract claims.

(c)  Project  Planning,  Design,  and  Management  -  The  Company's  engineers,
architects,  environmental specialists,  planners and other professionals assist
in the  development of a master plan based on the project  objectives.  The plan
takes into  consideration  the project's  sequencing,  staffing needs,  time and
monetary  budgets,  and  other  factors  which  relate to a  specific  project's
successful completion.  The Company's  multidisciplinary  design teams work with
the client  through  all of the design  stages of a  project,  from the  concept
stage, through construction to commissioning.  Project management is the control
applied to the project process and includes planning and scheduling,  estimating
and cost control,  procurement,  monitoring  and reporting,  value  engineering,
quality assurance, and safety management.

(d)  Construction  Supervision  and  Management  - The Company  offers  complete
construction  supervision and management  services for both new construction and
remedial  projects of all sizes and  complexities.  The Company's  engineers and
project and construction  managers act in a liaison capacity with the client and
contractors,  providing job- site  instructions  and project  coordination  on a
day-to-day basis.

(e) Private  Finance  Initiatives  - The  Company  offers  separate  services to
governments,  financial institutions,  concession and construction tenderers and
their  supporting  banks to assist  governments  in  meeting  the  challenge  of
procurement  of major  infrastructure  projects  at a time of  scarce  financial
resources in the public sector.
<PAGE>

Service  elements  vary from  project to project but may include  among  others:
project viability studies for potential private finance involvement in projects,
carried out  principally  for  governments  (and their  agencies)  and financial
institutions; tender preparation assistance to potential concessionaires; design
services  to  the  winning  concessionaire  or  construction  contractor;  audit
services to banks  supporting  concession  tenders and further audits during the
construction  or  implementation   phase;   transaction   assistance  services,
predominantly   environmental   due  diligence  audits  for  the  financial  and
commercial institutions and multinational investors in their proposed investment
plans.

MARKETING AND BUSINESS STRATEGY

The Company's  marketing strategy  emphasizes its ability to offer a broad range
of  specialized  services  designed  to meet the  business  requirements  of its
clients  in a timely,  cost-efficient,  and  business  value-added  manner.  The
Company has the  organization  and  capability to undertake not only small tasks
requiring a few  professionals  but also the  management,  staffing,  design and
implementation of major construction  projects lasting several years,  involving
numerous  Company  personnel  and  occurring  in  diverse  geographic  locations
worldwide.

The Company is able to take advantage of its professional competence,  excellent
client  service,  and ability to  understand  and develop  solutions  to complex
business  requirements.  In order to maintain its reputation and level of client
service,  the  Company  places  great  emphasis  on the  continual  need for its
professionals  to stay abreast of current  developments  and changes  within the
engineering and environmental  services market. The Company's  marketing efforts
rely on repeat  customers,  referrals and the  development of new clients by the
Company's local offices with the assistance of the Company's  National  Business
Development  ("NBD")  Programs.  The NBD programs  support the  Company's  local
business operations through the development of marketing brochures and marketing
training programs,  and developing and maintaining accounts with potential major
national clients.  In addition to the national and local marketing personnel and
office  managers,  marketing  efforts  are  conducted  by many of the  Company's
corporate executives, officers, and various other senior employees.

The Company's  clients  include  multi-national  companies,  private  investors,
financial institutions,  newly privatized institutions,  real estate developers,
property  owners,  construction  contractors,  architectural  firms,  structural
engineers,  educational  institutions,   manufacturers,  industrial  facilities,
agricultural   entities,   municipalities  and  a  wide  array  of  governmental
organizations.  The Company has performed  work for thousands of clients in over
160 countries on six continents.

The Company has strategically positioned itself to minimize the affects of major
changes in economic or general  business  conditions  in three  general ways: 1)
certain  types of the Company's  services  have a degree of inherent  protection
from economic downswings due to the nature of the service itself, 2) through the
diversity of  geographical  areas serviced,  and 3) the Company's  position in a
broad cross  section of market  sectors.  The firm's  international  business is
principally  engineering  design  concentrated  in  civil,  environmental,   and
construction  management  services.  The design phase of construction work has a
long lead time and a  comparatively  long  delivery  period,  and owners tend to
continue the design of future projects even if current  projects are slowed.  To
some extent, the engineering evaluation of in-place facilities and structures is
actually  counter-cyclical  to the construction  industry as owners seek to make
existing  buildings more  serviceable  in the face of reduced new  construction.
Since the Company provides services in a number of different foreign  countries,
spanning  numerous diverse economic  environments,  it is unlikely that all such
economic  environments will be at the same phase in an economic cycle at any one
time.  Geographic  diversity  provides  the  Company  with a relative  degree of
insulation from, and balancing of, economic cycles.

The majority of the Company's  services are not subject to seasonal factors with
the exception of engineering  services  related to construction  activities.  To
mitigate  the impact of such  seasonal  factors on  revenues,  the  Company  has
concentrated  its office  locations for this type of business in the Sunbelt and
Coastal regions of the United States. Because of milder weather, these locations
tend to have relatively longer construction seasons.
<PAGE>

The Company derived approximately 8% of its 1997 U.S. operations gross fees from
agencies of the United States  Federal  Government  (the "US  Government").  The
majority of this business came from time and material, and fixed price contracts
which are not renegotiable.  Some contracts are on a cost plus fixed fee or cost
plus  award fee  basis and are  renegotiable  based on  actual  incurred  costs.
Virtually all US Government contracts contain a standard clause which allows the
US  Government  to  terminate  any contract  for its  convenience.  While the US
Government has the right to terminate contracts for its convenience, the Company
does not expect that the US Government will exercise the option to terminate any
existing contracts.  However,  there can be no assurances that the US Government
will not exercise  the right to  terminate  such  contracts.  During  1996,  the
Defense Contract Audit Agency ("DCAA")  division of the United States Department
of Defense  issued an  unfavorable  financial  capabilities  audit  based on the
Company's  financial  performance  for the three years ended  December 31, 1995.
During 1997, the DCAA performed a financial  capabilities  audit on the Company,
and the results were  favorable  as a result of  improvements  in the  financial
performance of the Company  during 1996 and 1997.  The Company  received the new
DCAA audit  report from the ACO in October  1997 which  effectively  removed any
financial capabilities impediment to winning new US Government projects.

BACKLOG

At December 31, 1997, the Company's  contracted  backlog was approximately  $205
million as compared to $190 million at December 31, 1996. The Company  estimates
that  approximately  $179  million of the  December  31,  1997  backlog  will be
completed by the end of 1998. The majority of the Company's  backlog consists of
long-term  contracts ranging from less than $20,000 to approximately $45 million
and  having  remaining  duration  from  less  than one  year up to 8 years.  The
Company's  backlog is subject to revision due to  cancellations,  modifications,
and  changes  in the  scope  of work,  design  or  scheduling  with  respect  to
particular  projects.  While management  believes that the backlog estimates are
accurate,  there can be no assurances as to the amount of such backlog that will
be realized.

RAW MATERIALS AND INVENTORY

Raw materials  are not  essential to the  operation of the  Company's  business.
Inventory   similarly  does  not  play  a  significant  role  in  the  Company's
operations.

TRADEMARKS

The  Company  and  its  subsidiaries   operate  under  several   registered  and
unregistered  trademarks and trade names,  but these are not  significant to the
Company's  operations.  Registered  trade names include:  "Law  Engineering  and
Environmental  Services,  Inc." (federally  registered in the United States) and
"Law/Crandall,   Inc."  (California   only).   Registered   trademarks   include
"Safesoil",  registered  to  Ensite,  Inc.,  a  wholly-owned  subsidiary  of the
above-mentioned Company.

CONTRACTS

In general,  the Company  executes  contracts for all services  performed and is
compensated  under such  contracts in one of three ways - hourly fee plus direct
expenses, lump sum or cost plus fixed fee.

Under an hourly fee plus direct  expenses  contract,  the most prevalent type of
contract  entered into by the Company,  hourly billing rates are established for
various  classifications  of  employees.  The hourly rates are a multiple of the
direct salary costs of the employees who provide services under the contract and
are designed to reimburse  the Company for direct  salary costs and overhead and
to provide the  Company  with a profit.  In  addition,  the client is  generally
billed for direct  expenses  incurred by the Company in  providing  its services
under the contract.

Under a lump sum  contract,  the  Company  is paid a fixed  dollar  amount for a
defined scope of services.  Under a cost plus fixed fee contract, the Company is
paid the cost of providing  its  services  (primarily  direct  salary costs plus
direct   expenses  and  overhead)  plus  a  fixed  fee,  which  is  generally  a
predetermined dollar amount.
<PAGE>

Cost plus fixed fee contracts and hourly fee plus direct expenses  contracts are
often  subject  to a  dollar  ceiling  for  work  performed  with  respect  to a
designated  scope of services.  All contracts  normally provide that ceilings or
lump sums will be  adjusted  upward if the scope of  services is expanded by the
client.  In accordance with industry  practice,  most of the Company's cost plus
fixed fee contracts are subject to  termination at the discretion of the client.
In such event, the Company is ordinarily  reimbursed for costs incurred and paid
for fees earned through the date of termination. The Company has not experienced
any significant amount of discretionary client  terminations.  Regardless of the
form of  contract,  the Company  attempts to  negotiate a basis of  compensation
which reflects the projects complexity and the degree of technical risk required
to satisfactorily perform the services.

COMPETITION

The Company competes on a U.S. and international basis. The markets in which the
Company provides services are all highly  competitive and the Company is subject
to  competition  with respect to each of the  services it provides.  The Company
competes primarily on the basis of quality of service, expertise, experience and
reputation,  availability of personnel,  and, to a lesser extent,  price. In all
phases of the Company's  business,  competitors  range from small local firms to
major national and international companies. No single entity, however, including
the  Company,  currently  dominates  any of the  Company's  principal  areas  of
business although some competitors have greater financial resources and may have
more public  recognition than the Company.  To the knowledge of the Company,  no
reliable  data is  available  with  respect  to the total size of the market for
engineering  and  consulting  services for the full range of services  which the
Company and its subsidiaries provide.

REGULATION

Professional

The  practice of  engineering  and  architecture  is regulated by statute in all
states of the United States and in most other countries.  Substantially all such
jurisdictions   require  an  engineer  or   architect  to  be  licensed  by  the
jurisdiction's  registration  board as a  condition  to  rendering  professional
services in that  jurisdiction.  Some  jurisdictions  require persons  providing
geological  services to be licensed.  There are also numerous  requirements  for
licenses or  certifications  involving  asbestos  consulting.  In  general,  the
Company has not  experienced  any material  difficulty  in  complying  with such
licensing requirements.

Environmental

Public  concern over health,  safety,  and the  environment  has resulted in the
enactment  of  a  wide  range  of  environmental  laws.  These  laws  and  their
implementing regulations affect nearly every industrial and commercial activity.
As these laws were implemented,  the environmental services industry experienced
rapid growth.  The Company believes that the market for  environmental  services
will not  continue  to grow at prior  levels.  There can be no  assurances  that
future  changes  in the law will not have an  adverse  effect  on the  Company's
business in the environmental area.

The  principal  federal  statutes  (and  regulations   promulgated   thereunder)
affecting the business of the Company and its clients are:

The Comprehensive Environmental Response, Compensation and Liability Act of 1980
("Superfund Act" or "CERCLA").  The Superfund Act addresses  practices involving
hazardous substances and imposes liability for cleaning up contamination in soil
and groundwater. CERCLA imposes liability on persons responsible for disposal of
hazardous  substances  that have been or are  threatened to be released into the
environment and allows the federal and state  governments to require the cleanup
of waste sites. The Company assists parties and potential responsible parties in
assessment of  contamination,  development of remedial plans,  and monitoring of
remediation implementation.
<PAGE>

The Emergency Planning and Community Right-to-Know Act of 1986 ("EPCRA" or "SARA
TITLE III"). EPCRA contains provisions relating to emergency planning, emergency
release  notification,  and reporting on chemical use, storage, and release. The
emergency  planning  and  community  right-to-know  provisions  require  subject
industries  to provide  information  on numerous  hazardous  materials  that can
affect a community  and its  residents  through  either  accidental  releases or
routine  emissions.  The Company helps  industries  comply with these  extensive
reporting requirements.

The Resource  Conservation  and Recovery Act of 1976 ("RCRA").  While  Superfund
seeks to remedy the damage caused by historically contaminated waste sites, RCRA
imposes a comprehensive  regulatory scheme on the management of  newly-generated
hazardous  wastes at active  facilities.  RCRA, and the regulations  thereunder,
establish a comprehensive  regulatory program applicable to hazardous waste from
the time it is created by industry until it is properly  disposed of and imposes
requirements for management of hazardous waste and record-keeping for any entity
that generates,  transports,  treats,  stores,  or disposes of hazardous wastes.
Another  requirement  for existing and new  hazardous  waste  facilities  is the
procurement of detailed permits specifying  construction,  operating and closure
standards,  soil and groundwater corrective action, and post-closure  monitoring
and care for disposal facilities. RCRA provides for criminal and civil liability
for violation of its provisions. RCRA is complex and difficult to implement. The
Company assists its clients in complying with RCRA and its regulations.

RCRA also regulates petroleum and hazardous substance underground storage tanks.
The Company assists its clients in  investigating  and cleaning up releases from
such tanks and provides assistance to clients who must come into compliance with
these regulations.

RCRA Subtitle D regulates  the disposal of solid waste.  It requires that states
or regions develop solid waste management  plans and also  establishes  criteria
for  sanitary  landfills,  requires  closing or  upgrading  of open  dumps,  and
provides for federal grants to improve solid waste  facilities and for discarded
tire  disposal.  The  Company's  work under the Subtitle D involves  assessment,
upgrading, and cleanup of landfills and open dumps.

National Environmental Policy Act of 1970 ("NEPA"). NEPA requires an analysis of
the environmental impact of any major federal action,  including the issuance of
federal  environmental  permits for industrial facilities that may significantly
affect the quality of the environment.  In each instance,  a detailed  statement
must be prepared to address the environmental  impact of the proposed action. In
those cases where an environmental impact statement is required,  the effects of
the proposed activity on the environment must be thoroughly investigated and any
adverse  impacts  must be avoided or  minimized  before a permit will be issued.
Major  energy  and  mineral  developments,  including  pipelines,  and large new
industrial  plants are  examples  of  projects  that  require  construction  and
operating permits and which can,  therefore,  trigger the  environmental  impact
statement  process.  The  Company's  principal  activities  under  NEPA  involve
preparing,  or  assisting  in  the  preparation  of  such  environmental  impact
statements.

The Toxic  Substances  Control Act of 1976 ("TSCA").  TSCA authorized the EPA to
gather  information  on the risks posed by chemicals and to regulate the use and
disposal of polychlorinated  biphenyls ("PCBs").  This statute addresses,  among
other things,  the use and handling of PCB  transformers  and the remediation of
any  release  of PCBs  into the  environment.  Portions  of TSCA  also deal with
asbestos-related  issues. The Company's principal work under TSCA involves field
sampling, site reconnaissance,  development of remedial programs, and monitoring
of  construction  activities at sites involving PCB  contamination  and asbestos
materials.

Clean Air Act of 1970, as amended in 1977 and 1990 ("Clean Air Act").  The Clean
Air Act  regulates the emission of air  pollutants.  Provisions of the Clean Air
Act  authorized  the EPA to set  maximum  acceptable  contaminant  levels in the
ambient air, to control  emissions  of certain  toxic  materials,  and to ensure
compliance with air quality standards. The 1990 Amendments strengthen and expand
the Clean Air Act to:  facilitate  attainment of health-based  primary  National
Ambient Air Quality  Standards;  provide an  accelerated,  technology-based  air
toxics program;  impose stricter motor vehicle  controls;  provide new acid rain
provisions;  provide ozone protection and strengthen permitting and enforcement.
The  Company's  activities  under the Clean Air Act include  sampling  analysis,
pre-construction permitting,  impact assessments of air emissions on ambient air
quality, and assistance with the acquisition of Title V permits.
<PAGE>

The Clean Water Act of 1972, as amended in 1987 ("Clean  Water Act").  The Clean
Water Act generally  requires every state to establish  water quality  standards
for  each  significant  body  of  water  within  its  boundaries  and to  ensure
attainment and/or  maintenance of those standards.  This Act generally  requires
industry and government facilities to apply for and obtain environmental permits
to  monitor  pollutant  discharges  and,  under  certain  conditions,  to reduce
pollution.  The Company  believes that the Clean Water Act is  accelerating  the
market for  municipal  waste  water  treatment  plant  design  and  construction
consulting services that the Company provides.

The Safe Drinking Water Act, as amended in 1996 ("SDWA"). Under SDWA, the EPA is
required  to  establish   primary   drinking   water   standards   for  numerous
contaminants.  The Company believes the standards will be further expanded under
the  EPA's  evolving  groundwater  protection  strategy,  which is  intended  to
establish levels of protection or cleanup of the nation's groundwater resources.
The  resulting  groundwater  quality  requirements  will then be applied to RCRA
facilities  and  CERCLA  sites   requiring   remedial  action  for  releases  of
contaminants to groundwater.  The Company's activities include sampling analysis
and remedial activities.  The Company provides services to assist clients in the
location and development of groundwater supply sources.

Occupational Safety and Health Administration Act ("OSHA").  Among other things,
OSHA regulates  exposure to toxic substances and other forms of pollution in the
workplace and is administered  by the Department of Labor. It specifies  maximum
levels of certain toxic substances,  such as asbestos, to which employees may be
exposed and requires that workers be informed of the physical and health hazards
posed by these materials. The Company's activities under OSHA include evaluation
of client compliance with OSHA  requirements and worker training,  including the
mandatory 40-hour training required for handling hazardous materials.

Wetlands  Regulations.  The Company considers whether properties it investigates
may be subject to  regulation as wetlands  under federal and state  statutes and
regulations  and assists  landowners in complying with the permit and mitigation
requirements  that may arise in wetlands  regulations.  Section 404 of the Clean
Water Act, administered by the Army Corps of Engineers, requires permits for the
discharge  of  dredged  or fill  material  into  waters  of the  United  States,
including wetlands.  Technical analysis is required to determine whether an area
falls within the jurisdictional  definition of wetlands and to determine whether
the activities  proposed for the area are regulated  under Section 404.  Permits
and other regulatory  requirements (such as mitigation) must be addressed before
the regulated  activity may proceed on wetlands.  EPA interaction with the Corps
of Engineers in this area increases the complexities of the permitting  process.
The Company assists with all stages of this technical work.

Stormwater  Regulations.  On November 16, 1990, the EPA issued final regulations
that require the operators of certain industrial  activities and municipal storm
sewers to obtain  permits for discharges of  stormwater.  Stormwater  discharges
were largely unregulated before the EPA issued these rules.  Selected operations
that  the  rules  affect  include   manufacturing   facilities,   transportation
facilities,  mining and exploration activities,  some construction projects, and
storm  sewers.  The  Company  assists  affected  operators  and  contractors  in
achieving compliance with the stormwater regulations.

State and Local Requirements.  In addition to the federal environmental laws and
regulations,  there are numerous state and local statutes that roughly  parallel
the federal  legislation  and  regulate  the  environment,  some of which impose
stricter environmental standards than federal laws and regulations.  The Company
works with clients to address compliance with such requirements.
<PAGE>

POTENTIAL LIABILITY AND INSURANCE

The  services  the Company  provides  can involve  significant  risk of personal
injury,  property  damage,  and other financial losses related to such services,
and the  Company at times  indemnifies  its  clients  for  losses  and  expenses
incurred  by them as a result  of the  Company's  negligence  and/or  breach  of
contract.  The Company  maintains both a health and safety program and a quality
assurance and quality control program to assist in minimizing the risk of damage
to persons and property and the potential for resulting losses. In addition, the
Company  maintains  professional  liability,  contractors  pollution  liability,
commercial  general  liability  and property and casualty  coverage,  automobile
coverage,  workers  compensation  coverage and other insurance when available at
commercially  reasonable  rates  in the  insurance  marketplace.  Moreover,  the
Company  often  negotiates  contractual  terms and  conditions  with its various
clients and provides risk  management  and liability  training to various of its
employees.  In the opinion of  management,  all claims which have been  asserted
against the  Company are either  adequately  covered by  insurance  or have been
provided  for in the  financial  statements.  (See  Note 10 to the  Consolidated
Financial  Statements).  Management  believes  that any  remaining  uninsured or
unreserved  claims will not in the aggregate  have a material  adverse effect on
the  financial  condition  of the Company.  There can be no  assurance  that all
possible types of liabilities that may be incurred by the Company are covered by
its insurance or that the dollar amount of such  liabilities will not exceed the
Company's policy limits.

EMPLOYEES

As of December 31, 1997, the Company employed approximately 3,800 persons, which
included  approximately  1,650 engineers and scientists,  1,000  technicians and
production support staff, 200 construction management and support staff, and 950
management  and  administrative  personnel.  The  Company's  ability  to  remain
competitive  will  depend  on  its  ability  to  retain  and  attract  qualified
personnel.  None of the Company's  employees are  represented  by a labor union;
however,  certain  foreign  countries  in which the Company has  employees  have
specific statutes  governing certain employee issues which place restrictions on
the Company.  In 1997,  the Company  continued to manage the size and make-up of
its  workforce  to improve  operating  efficiency.  Work force  reductions  were
limited to specific geographic areas or specific markets.  Management  considers
relations with its employees to be  satisfactory.  See "Market for  Registrants'
Common Stock and Related Shareholder Matters."

ITEM 2 - PROPERTIES

The  Company  and  its  U.S.  subsidiaries  lease  offices  in  numerous  cities
throughout  the United States for  executive,  administrative,  engineering  and
environmental  services,   laboratory  and  warehouse  activities.   The  leases
generally  have terms of three to ten years.  The  Company  also owns  buildings
located in Houston, Texas; Jacksonville,  Florida; Pensacola,  Florida; Raleigh,
North Carolina;  and Tampa,  Florida.  

The  Company's  foreign  subsidiaries  lease  offices  in  the  United  Kingdom,
Indonesia,  Kenya, Mauritius,  Oman, Portugal,  United Arab Emirates,  Zimbabwe,
Uganda, South Africa, Poland, and Belgium.

The Company  believes  that  existing  U. S. and  international  facilities  are
adequate to meet current requirements and that suitable additional or substitute
space will be available as needed to accommodate any expansion of operations and
offices.  (See Note 5 of Notes to Consolidated  Financial Statements included in
Item 8 herein, as to the Company's lease obligations.)
<PAGE>

ITEM 3 - LEGAL PROCEEDINGS 

The Company is a party to a number of lawsuits and claims (some of which are for
substantial amounts) arising in the ordinary course of its business.  In June of
1994, a judgment in the amount of $ 3.5 million was entered  against the Company
in  connection  with  certain  materials   engineering  services  performed  for
Georgetown  Steel  Corporation.  The judgment was upheld on appeal.  The Company
paid $3.207 million plus  insurance  proceeds of $0.757 million to the plaintiff
in January  1997.  While the ultimate  results of lawsuits or other  proceedings
against the Company  cannot be predicted  with  certainty,  management  does not
believe  the  ultimate  costs of such  actions,  if any,  in excess  of  amounts
reserved in the consolidated financial statements will have a material effect on
the Company's consolidated financial position or results of operations.

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

NONE

ITEM 4A - EXECUTIVE OFFICERS OF THE REGISTRANT

In accordance  with General  Instruction  G(3) of Form 10-K and Instruction 3 to
Item 401(b) of Regulation  S-K, the following sets forth certain  information as
of March 23, 1998, with respect to those individuals who are Executive  Officers
of the Company.

BRUCE C.  COLES,  53,  joined the Company in  September  1995 as Chairman of the
Board of Directors  and Chief  Executive  Officer of the Company.  In 1996,  Mr.
Coles was elected President of the Company. He serves in a similar capacity with
various subsidiaries of the Company, including Law Engineering and Environmental
Services,  Inc., and Gibb International Holdings, Inc. Mr. Cole currently serves
as a director of Williams Group International,  Inc. which is owned by Virgil R.
Williams and James M. Williams, Jr.

From May 1994 through  August 1995,  Mr. Coles was  President,  Chief  Executive
Officer,  and/or  Chairman  of Stone & Webster  Incorporated,  an  international
engineering, consulting and construction services company. Prior to August 1995,
Mr. Coles held various  technical and management  positions with Stone & Webster
Incorporated  and its related  affiliates since June 1968. Mr. Coles also serves
on the  National  Board  of  Directors  of  Junior  Achievement,  the  Board  of
Councilors of The Carter  Center,  the Board of the Civil  Engineering  Research
Foundation, the advisory council for the Accreditation Board for Engineering and
Technology and the Civil Engineering Association of the University of Maine.

ROBERT B.  FOOSHEE,  55,  joined the Company in January 1996 as  Executive  Vice
President and Chief Financial  Officer.  Mr. Fooshee also serves as Treasurer of
the Company. Mr. Fooshee has been a director of the Company since 1996. Prior to
joining  the  Company,  Mr.  Fooshee  provided  consulting  services  for  RBF &
Associates, a financial consulting company, from February 1995 until joining the
Company.  From August 1994 through  January 1995, Mr. Fooshee was Executive Vice
President  and Chief  Financial  Officer for Eddie  Haggar  Limited,  an apparel
manufacturing  and  marketing  company.  From June 1992 until August  1994,  Mr.
Fooshee was Chief  Financial  Officer  for The Fresh  Market,  a retail  gourmet
grocery market. From April 1986 until June 1992, Mr. Fooshee was Chief Financial
Officer for Kayser-Roth Corporation, a consumer products company.

W. ALLEN  WALKER,  age 47,  joined  Sir  Alexander  Gibb and  Partners  Ltd.,  a
wholly-owned  subsidiary  of the  Company,  in the  United  Kingdom  as  Finance
Director in August  1989.  He later  served as Director  of  Administration  and
Finance  beginning in August 1992. Mr. Walker  returned to the United States and
became Vice President of Finance for the Company in January 1994. Currently, Mr.
Walker serves as an Executive Vice President of Operations for the Company.  Mr.
Walker also serves as a director for Law Engineering and Environmental Services,
Inc., the Company's U.S.  operating company.  Prior to joining the Company,  Mr.
Walker  was a senior  manager in the Audit  Department  for Ernst & Young LLP in
Atlanta, Georgia.

ROBERT S. GNUSE,  age 51,  joined the Company in 1974.  He has served in various
technical  and  management   positions  with  the  Company  and/or  its  related
affiliates.  Most  recently,  Mr.  Gnuse  serves as  Senior  Vice  President  of
Marketing  for  the  Company.  Mr.  Gnuse  also  serves  as a  director  of  Law
Engineering  and  Environmental  Services,  Inc., the Company's  U.S.  operating
company.

LAWRENCE  J.  WHITE,  age 51,  joined the  Company in 1994 as Chief  Information
Officer.  He also serves as a Senior Vice  President  of the  Company.  Prior to
coming to the  Company,  Mr. White was the Chief  Information  Officer of Roy F.
Weston, Inc., an environmental engineering company, from 1989 until June 1994.

JON A.  McCARTHY,  age 43,  joined the Company in 1987 as  Business  Development
Manager. He has since served in various technical and management  positions with
the Company and/or its related affiliates.  Since January 27, 1997, Mr. McCarthy
has served as Senior Vice President of Human Resources for the Company.

<PAGE>

PART II

ITEM 5 - MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS

(a) Market Price of and Dividends on the Registrant's Common Equity.

General

There  currently is no  established  trading  market for shares of the Company's
Common Stock, and although substantially all of the outstanding shares have been
registered  under  applicable  securities laws, no assurance can be given that a
liquid market will develop in the future or that quotations for the Common Stock
will be  available.  Additionally,  the Company  does not  maintain  stock price
information  from  transactions  involving  purchases  and sales of  outstanding
shares of Common Stock.  As of March 23, 1998,  there were  approximately  1,554
holders of record of the  Company's  Common  Stock.  The Company did not pay any
dividends on its Common Stock during the fiscal years ended December 31, 1996 or
1997.  Further,  the  Company's  existing  credit  facility with Bank of America
prohibits the payment of cash dividends on the Company's Common Stock.

Stock Bulletin Board Program

In November  1997,  the Company  established a Stock Bulletin Board Program (the
"Program")  pursuant to which the Company  maintains a list of (i)  shareholders
and  employees  of the  Company  who have  notified  the  Company  that they are
interested in buying shares of the Company's Common Stock and (ii)  shareholders
and  employees  of the  Company  who are  interested  in  selling  shares of the
Company's   Common  Stock.  The  lists  include  the  names  of  the  interested
shareholders  and  employees  together  with the number of shares such person is
interested in buying or selling and information regarding how the shareholder or
employee  can be  contacted.  The lists  merely  set forth the names of  persons
(including  telephone numbers or other contact mechanisms) who are interested in
buying or selling the specified numbers of shares of the Company's Common Stock,
and there is no assurance that any  transaction  will occur as to any particular
number of shares or at any  particular  price.  The Company  does not compile or
disseminate  any  price  information  in  connection  with  the  Program.   Each
transaction  through  the  Program  must be  executed  by the buyer  and  seller
independent of the Company.  Only  shareholders and employees of the Company are
eligible to participate in the Program.

The Company will update the lists  quarterly and distribute the current lists of
interested  buyers and  sellers  (i)  annually  coinciding  with the  release of
audited annual financial information, (ii) quarterly coinciding with the release
of unaudited  quarterly  financial  information and (iii) upon the request of an
interested shareholder or employee.

The Company is not a registered national securities  exchange,  broker,  dealer,
securities  information  processor,  clearing agency or investment advisor. Each
offer as well as  transaction  must be  conducted  by the  buyer  and  seller in
accordance with applicable federal and state securities laws, including, without
limitation,  antifraud and  anti-manipulation  provisions  and  registration  or
exemption requirements. Any person that is a broker-dealer, an associated person
of a  broker-dealer  or who has a state  securities  license is responsible  for
identifying that fact when  participating in the Program.  "Two-sided quotes" in
which a person  indicates  a bid to buy at one  price  and an offer to sell at a
higher  price are  prohibited.  The  registration  requirements  of the  federal
securities  laws apply to all offers and sales  through the  Program,  absent an
available  exemption  and any  offers  and  sales of  controlled  or  restricted
securities  may be made in reliance  upon the Section 4(1)  exemption  under the
Securities  Act of 1933,  as  amended,  if all of the  requirements  of Rule 144
promulgated by the Securities and Exchange Commission thereunder are satisfied.
<PAGE>

Shareholders and employees who have an interest in buying,  and shareholders who
have an interest in selling,  shares of the  Company's  Common Stock through the
Program  should  contact  the  Program  Administrator,  Debra R.  Isbitts at Law
Companies  Group,  Inc., 3 Ravinia Drive,  Suite 1830,  Atlanta,  Georgia 30346,
telephone  number (770)  390-3266.  Ms. Isbitts also serves as transfer agent on
behalf of the Company with respect to any transfers of shares of Common Stock.

401(k) Plan Valuation

Pursuant to the terms of the Law Companies Group,  Inc. 401(k) Savings Plan (the
"401(k)  Plan"),  the  Company is  required  to obtain on a  quarterly  basis an
independent  appraisal  of the Company for  purposes  of  determining  the "fair
market value" of the Common Stock for purposes of the 401(k) Plan.  Accordingly,
the Company engages two independent  appraisers to conduct quarterly  appraisals
of the Company. The Company utilizes independent  appraisals for purposes of the
valuation  of the Common  Stock of the Company  held in the 401(k)  Plan.  As of
December 31, 1997, the appraised  value was $14.82 per share of Common Stock. No
assurances  can be given that the  appraisals  reflect the actual price at which
the Common Stock has traded or would have traded had there been a market for the
Common Stock.

(b) Recent Sales of Unregistered Securities.

Not Applicable


ITEM 6 - SELECTED CONSOLIDATED FINANCIAL DATA

The selected  consolidated  financial  data  presented  below under the captions
"Income  Statement  Data" for each of the years in the five  year  period  ended
December 31, 1997 and  "Balance  Sheet Data" as of the end of each of such years
is derived from the Audited  Consolidated  Financial  Statements of the Company.
This information  should be read in conjunction with the Consolidated  Financial
Statements as of December 31, 1997,  and for each of the years in the three year
period ended December 31, 1997, included elsewhere in this Annual Report.


<TABLE>
<CAPTION>
                                                       Year Ended December 31

                                  1997          1996         1995          1994          1993
                              ------------- ------------- ------------ ------------- -------------
<S>                             <C>           <C>          <C>           <C>           <C>             
Income Statement Data:
   Net Fees                     $277,701      $286,282     $314,873      $314,102      $312,971
   Net Income (Loss)              $4,081        $1,910      ($2,266)     ($11,464)       $4,069
   Earnings (Loss) Per Share:
      Basic                        $1.77         $1.00       ($1.19)       ($5.32)        $1.66
      Diluted                      $1.60         $1.00       ($1.19)       ($5.32)        $1.63
   Cash Dividends Per Share        $ .00         $ .00        $ .00         $ .26         $ .40

Balance Sheet Data:
   Working Capital               $32,415       $28,459      $30,384       $28,895       $39,803
   Total Assets                 $145,768      $138,697     $148,304      $155,612      $159,671
   Long Term Liabilities         $45,071       $50,303      $59,915       $58,807       $52,732
   Shareholders' Equity          $19,341       $17,590      $15,826       $19,375       $38,763

</TABLE>


<PAGE>



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

The following table sets forth, for the years  indicated,  (i) the percentage of
net fees  represented by certain items  reflected in the Company's  consolidated
statements of income and (ii) the percentage increase (decrease) in each of such
items from the prior year. The Company measures its operating performance on the
basis of net fees, since a substantial portion of gross fees are a pass- through
to  clients  as costs  of  subcontractors  and  other  project-specific  outside
services.  Net fees  are  determined  by  deducting  the  cost of these  outside
services from gross fees.  This table and the  subsequent  discussion  should be
read in  conjunction  with  the  selected  consolidated  financial  data and the
Consolidated Financial Statements and notes to Consolidated Financial Statements
contained elsewhere in this Annual Report.
<TABLE>                                    
<CAPTION>

                                                                            
                                                                              Year to Year Dollar
                                         Year Ended December 31               Increase (Decrease)

                                  1997           1996          1995      1997 vs. 1996  1996 vs 1995
                              -------------- ------------- ------------- -------------- -------------
<S>                              <C>            <C>           <C>          <C>           <C>                

Net Fees                         100.0%         100.0%        100.0%        (3.0%)         (9.1%)

Gross Profit                      58.2%         59.3%         60.7%         (4.8%)        (11.1%)

Indirect Costs and Expenses       53.2%         55.2%         58.3%         (6.5%)        (13.9%)

Operating Income (Loss)           5.0%           4.1%          2.3%          18.2%         58.9%

Net Income (Loss)                 1.5%           0.7%         (0.7%)        113.7%         184.3%
</TABLE>

Results of Operations

Comparison of 1997 and 1996

Consolidated  net fees for 1997  decreased  3.0% to $277.7  million  from $286.3
million in 1996. Net fees for the U.S. operations decreased to $181.3 million in
1997, or 4.8%,  from $190.4  million in 1996.  These  decreases were largely the
result of two factors.  First,  having emerged from losses in 1994 and 1995, the
Company   placed  its  primary   focus  during  1996  on  cost   structure   and
competitiveness which was purposefully at variance with fee growth.  Second, the
lack of  environmental  regulatory  pressure  has  softened  the  demand  in the
environmental markets and has resulted in increased competition. The Company has
seen its environmental business decline from 1996 to 1997. The decrease has been
partly  mitigated by the Company's  efforts to improve its business  development
initiatives  during the year, to return net fees to 1996 levels and grow fees in
subsequent periods.

The  International  Group's net fees  increased  to $96.4  million for 1997 from
$95.9 million in 1996.  This small increase is largely the result of a weaker US
dollar when  compared  to the pound  sterling.  The average  value of the dollar
decreased by 4.8% in 1997 when compared to 1996. The  International  Group's net
fees in pound sterling for 1997 were negatively affected by a hold on government
expenditures surrounding the United Kingdom general election.

The  consolidated  gross profit margin decreased to 58.2% in 1997 from 59.3% for
1996. The U.S. Group's gross profit margin decreased slightly from 64.9% for the
year ended 1996 to 64.6% for the year ended 1997.  The small  decrease in margin
reflects competitive  pressures,  beginning in 1996, faced in the markets served
by the U.S.  Group.  In response,  the Company has focused on improving  project
execution and service delivery which has stabilized the gross profit margin. The
International  Group's gross profit margin decreased from 48.2% in 1996 to 46.2%
in 1997.  This  decrease  was due to project  performance  issues and  increased
competitive pressures in several of the International Group's markets as well as
an increase in direct  job-related  expenses,  which  produces a smaller  profit
margin.
<PAGE>

Consolidated indirect costs and expenses were $147.8 million in 1997 compared to
$158.1 million in 1996. This decrease of $10.3 million, or 6.5%, is attributable
to the  continued  positive  impact of the  Company's  cost  reduction and labor
utilization initiatives.  These initiatives were designed to maximize efficiency
and  profitability,  to effect substantive change in the culture of the Company,
and to improve  labor  utilization.  A  significant  level of  savings  has been
produced from  re-aligning  staffing  levels and matching  human  resources to a
lower  level  of  revenue,  resulting  in  severance  and  termination  benefits
totalling $0.6 million.  Evaluations of specific offices and staff  re-alignment
have continued throughout 1997. The Company has continued to improve procurement
activities in order to reduce material and services costs by taking advantage of
negotiated national contracts which leverage the Company's  purchasing power for
its U.S.  operations.  National  contracts which  consolidated the purchasing of
office  supplies,  travel services,  office  equipment,  telecommunications  and
cellular  services,  off-site data  management,  forms  management,  and vehicle
leasing have provided a full year of benefit in 1997 versus  partial  benefit in
1996.  In 1997,  the Company has also  advanced its efforts to lower real estate
and office occupancy costs.  Transactions related to these efforts provided some
benefit to 1997 results and will provide ongoing benefit in subsequent  periods.
The Company  recorded charges totaling $1.4 million related to these real estate
transactions. Reductions in corporate overhead functions, primarily departmental
re-alignment,  position elimination,  and attrition,  have also been a factor in
the overall decrease in indirect expenses. Additionally, in the first quarter of
1997, the U.S. Group  curtailed its defined  benefit  pension plan. As a result,
the Company  recognized a gain on curtailment  of $1.8 million.  This gain was a
direct reduction of other indirect costs and expenses.

Interest  expense  decreased  from $4.7 million in 1996 to $4.0 million in 1997.
With the Company's  continued  focus on cash management  efforts,  lower average
outstanding  bank debt  contributed  to the decreased  interest  expense.  Lower
interest rates in the Company's re-negotiated credit facilities also contributed
to lower interest  expense in 1997.  During 1997 and 1996, the Company  expensed
$1.5 million and $2.6  million,  respectively,  related to the  amortization  of
costs associated with  re-negotiating and securing its credit  facilities.  This
$1.1  million  decrease  is  directly  attributable  to the lower  level of fees
associated  with the  1997  facility  renegotiation  versus  the  1996  facility
renegotiation.

In 1997,  the Company  recorded net income of $4.1 million,  or $1.77 per share.
This compares to net income in 1996 of $1.9 million, or $1.00 per share.


Comparison of 1996 and 1995

Consolidated  net fees for 1996  decreased  9.1% to $286.3  million  from $314.9
million in 1995. Net fees for the U.S. operations decreased to $190.4 million in
1996, or 11.6%,  from $215.4  million in 1995.  These  decreases were due to the
following  reasons:  several weeks of inclement winter weather conditions in the
North and East regions of the U.S.,  the effects of the  Company's  focus on its
cost  structure  and  competitiveness  as  opposed to  revenue  growth,  lack of
regulatory  pressure to drive  environmental  markets,  and overall  competitive
pressures in markets served by the Company.

The  International  Group's net fees decreased by 3.6% to $95.9 million for 1996
from $99.5 million in 1995. This decrease is largely the result of the runoff of
existing  projects  combined  with a  delay  in  startup  of new  projects,  and
decreases in the average value of the dollar by 1.3% compared to 1995.
<PAGE>

The  consolidated  gross profit margin decreased to 59.3% in 1996 from 60.7% for
1995. The U.S. Group's gross profit margin decreased slightly from 65.3% for the
year  ended 1995 to 64.9% for the year ended  1996.  The small  change in margin
reflects the  Company's  focus on improved  operating  procedures in response to
difficult  market  conditions.  The  International  Group's  gross profit margin
decreased  from 50.5% in 1995 to 48.2% in 1996.  This decrease was primarily due
to  project  performance  issues  and  increased  expenses  on  several  of  the
International Group's large projects.

Indirect  costs and  expenses  were  $158.1  million in 1996  compared to $183.6
million in 1995.  This  decrease of $25.5  million,  or 13.9%,  is primarily the
result of several  programs  initiated  in late 1995 or early  1996,  focused on
improving  the U.S.  business.  These  initiatives  were  designed  to  maximize
efficiency and profitability and to effect  substantive change in the culture of
the Company and to improve  labor  utilization.  The activity  that produced the
greatest  level of savings was  re-aligning  staffing  levels and matching human
resources  to a lower level of revenue.  The Company  also  focused on improving
procurement  activities in order to reduce material and services costs by taking
advantage  of  negotiated   national  contracts  which  leverage  the  Company's
purchasing power for its U.S.  operations.  During the year,  national contracts
were implemented  which  consolidated the purchasing of office supplies,  travel
services, office equipment,  telecommunications and cellular services,  off-site
data management, forms management, and vehicle leasing. The Company continued to
review its overhead  cost  structure to analyze the  functions  provided by each
department  and the related  value of these  functions.  The  reductions  in the
corporate  overhead  functions  during 1996 consisted  primarily of departmental
realignment  and the resulting  elimination  of  positions,  as well as reducing
staff through attrition.

Interest  expense  decreased  from $6.0 million in 1995 to $4.7 million in 1996.
This  decrease was a direct  result of improved  cash  management  efforts which
lowered  average  bank  borrowings  in 1996 by $13.4  million  compared to 1995.
During  1996 and 1995,  the Company  expensed  $2.6  million  and $1.6  million,
respectively,   related  to  the  amortization  of  costs  associated  with  re-
negotiating and securing its credit facilities.

In 1996,  the Company  recorded net income of $1.9 million,  or $1.00 per share.
This compares to a net loss in 1995 of $2.3 million, or $1.19 per share.

Currency Translation

The translation of the Company's foreign subsidiaries' financial statements into
U.S.  dollars is done in  multiple  steps.  First,  all foreign  operations  are
measured into the functional  currencies of the foreign  subsidiaries'  economic
environments  by  utilizing a  combination  of current,  average,  and  historic
exchange rates, with translation  impacts being included in income.  The foreign
subsidiaries'  functional currency financial statements are translated into U.S.
dollars,  the  Company's  reporting  currency,  utilizing  current  and  average
exchange rates, resulting in an adjustment to shareholders' equity. In addition,
transactions  denominated  in different  currencies  result in exchange gains or
losses which are included in income. The impact of foreign currency  translation
and exchange  transactions included in income was not significant in 1997, 1996,
or 1995. The translation of the Company's foreign subsidiaries' in 1997 resulted
in a  $1.3  million  change  in  the  Foreign  Currency  Translation  Adjustment
component of shareholders'  equity.  This change highlighted the decrease in the
strength of the dollar compared primarily to the pound sterling in 1997.


Income Taxes

For  information  regarding  the  effects  of  income  taxes on the  results  of
operations  of the  Company,  see  Notes 1 and 8 of the  Notes  to  Consolidated
Financial  Statements  included  elsewhere  in this  Report and  "Liquidity  and
Capital Resources."
<PAGE>

Debt and Short-Term Borrowings

The Company reported debt and short-term borrowings of $45.6 million at December
31,  1997,  compared to $45.3  million at the end of 1996.  Debt and  short-term
borrowings as a percentage of total  capitalization  amounted to 61% at December
31, 1997 compared to 72% at December 31, 1996.

On January 15, 1998,  the Company  refinanced its credit  facilities  (the "1998
Facility") with a bank with which the Company had no previous relationship.  See
Note 4 to the  Consolidated  Financial  Statements.  The 1998  Facility  bears a
three-year term and two one-year extension  options.  The 1998 Facility includes
certain  restrictions  relating to, among other things,  limitations  on capital
expenditures  and achievement of certain  leverage and fixed charge ratios.  The
1998  Facility is secured by  substantially  all of the assets of the  Company's
United States and United Kingdom operating subsidiaries. See also "Liquidity and
Capital Resources."

Liquidity and Capital Resources

On May 6, 1997,  shareholders  approved a transaction to issue equity securities
to Virgil R. Williams and James M.  Williams,  Jr. for $10 million in cash.  The
Company  believes  the  equity  investment  should  provide  improved  financial
strength and stability  because it is long-term  equity capital.  As a result of
this equity investment, the Company should have the ability, among other things,
to address  longer-term  opportunities  such as devoting  capital  resources and
management   time  to  the  growth  of  its  market   share  in  the  U.S.   and
internationally,  and to  strategically  integrate  its U.S.  and  international
operations with expanded business development efforts. Additionally, the Company
believes  that a stronger  equity  base will allow it to  maintain  and  broaden
relationships  with its customers,  employees and suppliers as a result of these
constituencies'  increased  confidence  in the  Company's  stability  and in the
Company's enhanced flexibility to service particular needs.

While the Company anticipates continuing capital requirements to support growth,
expansion of services,  and capital expenditures,  the Company believes that its
cash  provided by  operations  and  borrowings  available  under the bank credit
facility will be sufficient to meet its requirements for the foreseeable future.

Prior to 1995, certain of the Company's  subsidiaries filed their federal income
tax returns on the cash basis of accounting.  Effective  January 1, 1995,  these
subsidiaries  changed  their method of  accounting  from the cash to the accrual
method for federal income tax purposes. Accordingly,  previously deferred income
of  approximately  $47  million at January 1, 1995 will be  included  in taxable
income over a four year period, which began in 1995, resulting in an accelerated
tax  liability  of  $16  million.  The  Company  made  income  tax  payments  of
approximately  $4.1  million in 1996 and $4.5  million  in 1997  related to this
change in income tax accounting, leaving a remaining liability of $4.5 million.

The Company's 401(k) Savings Plan (the "Plan")  permitted  employees to elect to
invest their Plan  contributions  in Company Common Stock, and provided that the
Company's matching contributions,  if any, under the Plan be made in the form of
Company Common Stock.  As of May 10, 1996, the Board of Directors of the Company
decided to terminate  the Company  Common Stock fund under the Plan,  whether as
employee  contributions  or as Company matching  contributions.  Consistent with
that  decision,  employees  are allowed to trade out of (but not into) shares of
the  Company's  Common  Stock  held in  their  individual  401(k)  accounts,  in
accordance with Plan provisions.  In 1997,  33,422 shares were traded out of the
Plan totaling $456,000.
<PAGE>

Cash Provided by Operations

While the  level of net  income  increased  from  $1.9  million  in 1996 to $4.1
million in 1997,  several  factors  attributed  to the overall  decrease in cash
provided by operations  from $15.0 million in 1996 to $3.8 million in 1997.  The
level of non-cash  expenses included in net income,  primarily  depreciation and
financing  costs  amortization,  decreased  from  $8.5  million  in 1996 to $4.7
million in 1997.  Depreciation  has been reduced as the Company has taken a more
deliberate approach to capital expenditures over the prior two years.  Financing
costs  amortization  reductions  reflect control of the fees associated with the
1997 bank facility versus the 1996 bank facility.

The components of working  capital,  which  provided $4.6 million in 1996,  used
cash of $4.9 million in 1997. This change is reflective of the significant  cash
management  progress  made in 1996 which  generated  cash from  working  capital
compared with a growth in working capital in 1997.

Capital Expenditures

Capital expenditures for 1997 were $8.0 million, which represents an increase of
$4.0 million from 1996.  This increase  includes a $3.7 million  expenditure for
the buyout of a building  previously  leased under a leveraged  lease  facility.
Total  capital  expenditures  were in  line  with  the  Company's  1997  capital
expenditures plan. In order to continue to enhance  productivity and potentially
increase  earnings,  the Company has continued,  and will continue,  its capital
spending  programs,  particularly  for  computer  and  other  technology-related
equipment.  The Company  believes that the limit of capital  spending imposed by
its credit  facility  ($7.0 million per year) is sufficient to meet  foreseeable
requirements.  The Company has no other  material  commitments  for purchases of
additional equipment.

Acquisitions

In August 1997, the Company acquired African Consulting  Engineers,  Inc. (ACE),
an engineering  consulting firm located in South Africa, for a purchase price of
approximately $0.6 million in cash and notes payable.  The Company believes that
the  transportation  planning and design services provided by ACE form a natural
extension of the services currently provided in that region. The acquisition has
been recorded using the purchase  method of accounting and is not significant to
the Company's results for the year ended December 31, 1997.

Dividends

Cash  dividends on Common Stock have been and  continue to be  prohibited  under
bank credit  facilities.  As required by the terms of the Preferred  Stock,  the
Company paid dividends to the holders of the Preferred  Stock.  These  dividends
totaled $0.5 million, or $.54 per preferred share.

Year 2000 Consequences

As the  Company's  core  business  services are  engineering  and  environmental
science professional  consulting services, the delivery of these services is not
critically dependent on any mainframe,  mini-computer or personal computer based
applications.  Where computer  applications  are used to support the delivery of
services to clients, the applications are personal computer based and fully Year
2000 compliant.

Of the  Company's  administrative  support  systems  which  are  not  Year  2000
compliant,  the Company does not  anticipate  adverse  difficulties  or material
costs associated with migrating to Year 2000 compliant  systems.  Implementation
plans for compliant systems have been developed and are currently being executed
so that all administrative  support systems will be fully Year 2000 compliant by
the end of 1998.
<PAGE>

Effect of Inflation

General  economic  inflation  had the effect of increasing  the Company's  basic
costs of operations.  These  increased  costs were generally  recovered  through
increases in contract prices.

ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The  financial  statements  of the Company  commence at page F- 1 of this Annual
Report.

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

None.

PART III

Certain information  required by Part III is omitted from this Annual Report but
is incorporated herein by reference to the Company's  definitive Proxy Statement
for the 1998 Annual Meeting of Shareholders (the "Proxy Statement").  Such Proxy
Statement will be filed with the  Securities  and Exchange  Commission not later
than 120 days after December 31, 1997.

ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

In  accordance  with  General  Instruction  G(3) of Form 10-K,  the  information
contained with respect to Directors and executive officers of the Company in the
Company's  definitive  proxy  statement is  incorporated  herein by reference in
response to this item.  Pursuant to  Instruction  3 of Item 401(b) of Regulation
S-K and  General  Instruction  G(3) of Form 10-K,  information  relating  to the
executive  officers of the  Company is set forth  under the  caption  "Executive
Officers of the Registrant" in Part I, Item 4(A) of this Annual Report.

Compliance  with Section 16(a) of the Securities  Exchange Act of 1934:  Section
16(a) of the Securities Exchange Act of 1934, as amended, and regulations of the
Commission thereunder require the Company's directors and executive officers and
any  persons who own more than 10% of the  Company's  Common  Stock,  as well as
certain  affiliates of such  persons,  to file reports with the  Securities  and
Exchange  Commission  with respect to their  ownership of the  Company's  Common
Stock.  Directors,  executive  officers and persons  owning more than 10% of the
Company's  Common  Stock are  required by  Securities  and  Exchange  Commission
regulations to furnish the Company with copies of all Section 16(a) reports they
file.  Based solely on its review of the copies of such  reports  received by it
and  representations  that no other reports were required of those persons,  the
Company believes that during fiscal 1997, all filing requirements  applicable to
its directors and executive officers were complied with in a timely manner.

ITEM 11 - EXECUTIVE COMPENSATION

In  accordance  with  General  Instruction  G(3) of Form 10-K,  the  information
contained with respect to executive  compensation is set forth under the caption
"Executive  Compensation"  in the Company's  definitive  proxy  statement and is
incorporated herein by reference in response to this item.

ITEM 12  - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

In  accordance  with  General  Instruction  G(3) of Form 10-K,  the  information
contained with respect to security  ownership of certain  beneficial  owners and
management  is set forth  under  the  caption  "Security  Ownership  of  Certain
Beneficial  Owners and Management" in the Company's  definitive  proxy statement
and is incorporated herein by reference in response to this item.

ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

In accordance with General  Instruction  G(3) of Form 10-K, the information with
respect to certain relationships and related transactions is set forth under the
caption "Certain  Relationships and Related Party Transactions" in the Company's
definitive  proxy statement and is incorporated  herein by reference in response
to this item.
<PAGE>

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

       (a)  List of Financial  Statements and Financial  Statement  Schedule The
            following  consolidated financial statements of Law Companies Group,
            Inc. and subsidiaries are included herein commencing on page F- 1:

            Financial Statements:

            Report of Independent Auditors
            Consolidated Statements of Operations for each of the three
               years in the period ended December 31, 1997
            Consolidated  Balance  Sheets  as of  December  31,  1997  and  1996
            Consolidated Statements of Shareholders' Equity for each of
               the three years in the period ended December 31, 1997
            Consolidated Statements of Cash Flows for each of the three
               years in the period ended December 31, 1997
            Notes to Consolidated Financial Statements

      Supplemental Financial Schedule:

            Schedule II - Valuation and Qualifying  Accounts All other schedules
            for which provision is made in the applicable  accounting regulation
            of the Securities and Exchange Commission are not required under the
            related  instructions or are  inapplicable,  and therefore have been
            omitted.

       (b) Reports on Form 8-K:

         None

       (c)  Exhibits

     2.01 Agreement for sale and purchase of all the issued shares of Chulsavale
          Limited,  Gablelane  Limited,  Grashurst  Limited,  Gibb Petermuller &
          Partners  (Cyprus) Limited and Gibb Overseas  Limited,  dated July 26,
          1989  (Incorporated  by reference to Form 10 filed April 26, 1991,  as
          amended August 13, 1991, File No. 0-19239).

     2.02 Agreement for sale and purchase of the business of Sir Alexander  Gibb
          & Partners  and related  assets and  companies,  dated August 18, 1989
          (Incorporated by reference to Form 10 filed April 26, 1991, as amended
          August 13, 1991, File No. 0-19239).

     2.03 Agreement for purchase of Gibb Africa International  Limited and grant
          of options relating to certain Cypriot and African firms, dated August
          18, 1989  (Incorporated  by reference to Form 10 filed April 26, 1991,
          as amended August 13, 1991, File No. 0-19239).

     2.04 Agreement for sale and purchase of the partnership of Gibb Petermuller
          & Partners O.E., dated August 18, 1989.  (Incorporated by reference to
          Form 10 filed April 26, 1991,  as amended  August 13,  1991,  File No.
          0-19239).

     2.05 Redemption  Agreement  dated  August 31, 1995 by and between  Material
          Analytical Services,  Inc. and Law Engineering,  Inc. (Incorporated by
          reference to Form 10-K filed June 11, 1996, File No. 0-19239).

     2.06 Asset Purchase  Agreement between  IAM/Environmental,  Inc. and Philip
          Environmental  Services  Corporation dated July 11, 1996 (Incorporated
          by reference to Form 10-K filed March 25, 1997, File No. 0-19239).

     2.07 Stock Purchase  Agreement between Law Companies Group, Inc. and Roy G.
          Dispasquale,  Jeffrey A. Stocks,  John M. Jazesf and E. Bradford Clark
          dated July 10,  1996  (Incorporated  by  reference  to Form 10-K filed
          March 25, 1997, File No. 0-19239).

     3.01 Third Restated  Articles of Incorporation  of the Company,  as amended
          through  February  21, 1996.  (Incorporated  by reference to Form 10-K
          filed June 11, 1996, File No. 0-19239).

     3.02 Bylaws of the Company, as amended through October,  1996 (Incorporated
          by reference to Form 10-K filed March 25, 1997, File No. 0-19239).

     3.03 Restated  Articles of  Incorporation of the Company as amended through
          May 6, 1997.

     3.04 Bylaws of the Company as amended through May 6, 1997.

     4.01 Form  Of  Stockholders'   Agreement   between  the  Company  and  each
          shareholder  (Incorporated  by  reference  to Form 10 filed  April 26,
          1991, as amended August 13, 1991, File No. 0-19239).
<PAGE>

    10.02 Law  Companies  Group,   Inc.  1990  Stock  Option  Plan,  as  amended
          (Incorporated by reference to Form 10 filed April 26, 1991, as amended
          August 13, 1991, File No. 0-19239).

    10.03 Law Companies Group, Inc. Employee Stock Ownership Plan  (Incorporated
          by reference to Form 10 filed April 26,  1991,  as amended  August 13,
          1991, File No. 0-19239).

    10.04 The Law  Companies  Group,  Inc.  401(k)  Savings  Plan,  as  amended.
          (Incorporated  by reference to Form 10-K filed June 11, 1996, File No.
          0-19239).

    10.05 Pension Plan, as amended,  for Employees of Law Companies Group,  Inc.
          and Adopting  Subsidiaries,  as amended and restated effective January
          1, 1976 (Incorporated by reference to Form 10 filed April 26, 1991, as
          amended August 13, 1991, File No. 0-19239).

    10.06 Employee Stock Purchase  Plan, as amended  (Incorporated  by reference
          to Form 10-K filed April, 1994, File No. 0-19239).

    10.12 Agreement  between  the Company and Walter T. Kiser dated May 21, 1993
          (Incorporated  by reference to Form 10-K filed July 10, 1995, File No.
          0-19239).

    10.21 Employment  Agreement  dated December 12, 1995 between the Company and
          James I. Dangar.  (Incorporated by reference to Form 10-K, as amended,
          filed June 11, 1996, File No. 0-19239).

    10.23 Second Amended and Restated  Revolving  Credit  Agreement  dated as of
          February 7, 1997 by and among the Company,  SunTrust Bank, Atlanta and
          National Bank of Canada  (Incorporated by reference to Form 10-K filed
          March 25, 1997, File No. 0-19239).

    10.25 Facility  Agreement  dated  February  7, 1997 by and among the Company
          and Barclays  Bank PLC  (Incorporated  by reference to Form 10-K filed
          March 25, 1997, File No. 0-19239).

    10.31 Second  Amendment to the Law  Companies  Group,  Inc.  Pension Plan as
          Amended  and  Restated  dated  February  14,  1997   (Incorporated  by
          reference to Form 10-K filed March 25, 1997, File No. 0-19239).

    10.32 First Amendment to the Law Companies  Group,  Inc. 401(k) Savings Plan
          dated May 10, 1996 (Incorporated by reference to Form 10-K filed March
          25, 1997, File No. 0-19239).

    10.33 Second Amendment to the Law Companies Group,  Inc. 401(k) Savings Plan
          dated  August 14, 1996  (Incorporated  by reference to Form 10-K filed
          March 25, 1997, File No. 0-19239).

    10.34 Third  Amendment to the Law Companies  Group,  Inc. 401(k) Saving Plan
          dated December 21, 1996  (Incorporated by reference to Form 10-K filed
          March 25, 1997, File No. 0-19239).

    10.35 Fourth Amendment to the Law Companies Group,  Inc. 401(k) Savings Plan
          dated February 14, 1997  (Incorporated by reference to Form 10-K filed
          March 25, 1997, File No. 0-19239).

    10.36 Employment Agreement between the Company and Peter D. Brettell.

    10.37 Employment Agreement between the Company and Bruce C. Coles.

    10.38 Employment Agreement between the Company and Darryl B. Segraves.

    10.39 Employment Agreement between the Company and W. Allen Walker.

    10.40 Employment Agreement between the Company and Robert F. Fooshee.
<PAGE>

    10.41 Credit  Agreement  dated  January 15,  1998 by and among the  Company,
          Bank of America  National Trust and Savings  Association,  and Bank of
          America, FSB.

    10.42 Securities  Purchase Agreement between the Company and Messrs.  Virgil
          R. Williams and James Williams, Jr. dated May 6, 1997.

    10.43 Third Amendment  (Fifth  Amendment) to the Law Companies  Group,  Inc.
          401(k) Savings Plan dated November 14, 1997.

    10.44 First Amendment  (Third  Amendment) to the Law Companies  Group,  Inc.
          Pension Plan dated August 27, 1997.

    10.45 Second Amendment to the Law Companies Group, Inc. 1990 Stock Option
          Plan dated May 6, 1997.

    21.01 Subsidiaries of the Company.

    23.01 Consent of Ernst & Young LLP.

    27.00 Financial Data Schedule.

<PAGE>

SIGNATURES

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

                                          LAW COMPANIES GROUP, INC.


Date:  ____________________          By:           /s/
                                          --------------------------------------
                                          Bruce C. Coles
                                          Chairman of the Board of Directors,
                                          Chief Executive Officer, and President


<PAGE>


Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following  persons on behalf of the  registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>

        Signature             Title                                            Date
<S>                           <C>                                          <C> 
       /s/                   Director                                     March 30, 1998
-----------------
Peter D. Brettell

       /s/                   Chairman of the Board of Directors           March 30, 1998
-----------------            Chief Executive Officer, and President
Bruce C. Coles               

       /s/                   Chief Financial Officer,                     March 30, 1998
-----------------            Treasurer, and Director
Robert B. Fooshee          

       /s/                   Director                                     March 30, 1998
-----------------
Walter T. Kiser

       /s/                   Director                                     March 30, 1998
-----------------
Frank B. Lockridge

       /s/                   Director                                     March 30, 1998  
-----------------
Joe A. Mason

       /s/                   Director                                     March 30, 1998
-----------------
Thomas D. Moreland

       /s/                   Director                                     March 30, 1998
-----------------
Steven Muller

       /s/                   Director                                     March 30, 1998
-----------------
Clay E. Sams

       /s/                   Corporate Controller                         March 30, 1998
-----------------
Kendall H. Sherrill

       /s/                   Director                                     ________, 1998
-----------------
James M. Williams, Jr.

       /s/                   Director                                     March 30, 1998
-----------------
John Y. Williams

       /s/                   Director                                     March 30, 1998
-----------------
Michael D. Williams

       /s/                   Director                                     March 30, 1998
-----------------
Virgil R. Williams

</TABLE>



<PAGE>
ITEM 14(a) FINANCIAL STATEMENTS

                            Law Companies Group, Inc.

                    Consolidated Audited Financial Statements


                 For the years ended December 31, 1997 and 1996




                                    Contents
<TABLE>
<CAPTION>
<S>                                                                                                      <C>    
Report of Independent Auditors...........................................................................1

Consolidated Audited Financial Statements

Consolidated Balance Sheets..............................................................................2
Consolidated Statements of Operations....................................................................4
Consolidated Statements of Shareholders' Equity .........................................................5
Consolidated Statements of Cash Flows....................................................................6
Notes to Consolidated Financial Statements...............................................................7

</TABLE>



<PAGE>






                         Report of Independent Auditors

The Board of Directors and Shareholders
Law Companies Group, Inc.

We have audited the  accompanying  consolidated  balance sheets of Law Companies
Group,  Inc. as of  December  31,  1997 and 1996,  and the related  consolidated
statements of  operations,  shareholders'  equity and cash flows for each of the
three years in the period ended  December 31, 1997.  Our audits also include the
financial  statement schedule listed in the Index at Item 14(a). These financial
statements and schedule are the responsibility of the Company's management.  Our
responsibility  is to  express  an opinion  on these  financial  statements  and
schedule based on our audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the  consolidated  financial  position of Law Companies
Group,  Inc. at December 31, 1997 and 1996, and the consolidated  results of its
operations  and its cash flows for each of the three  years in the period  ended
December 31, 1997, in conformity with generally accepted accounting principles.

Atlanta, Georgia
March 26, 1998


/s/ Ernst & Young LLP
---------------------
Ernst & Young LLP


<PAGE>





                                     Law Companies Group, Inc.

                                     Consolidated Balance Sheets
<TABLE>
<CAPTION>

                                                                                     December 31
                                                            ----------------------------------------------------------------
                                                                         1997                            1996
                                                            ----------------------------------------------------------------
                                                                                (In thousands of dollars)
<S>                                                                <C>                             <C>
Assets
Current assets:
   Cash and cash equivalents                                       $    9,527                      $    8,097
   Billed fees receivable, less allowance for doubtful
     accounts of $3,747 in 1997 and $4,465 in 1996                     56,808                          57,015
   Unbilled work in progress                                           32,105                          29,961
   Other receivables                                                    1,779                             805
   Employee advances                                                      420                             586
   Prepaid expenses                                                     3,268                           2,599
   Deferred income taxes                                                    0                             200
                                                            ----------------------------------------------------------------
Total current assets                                                  103,907                          99,263


Property and equipment:
   Land and buildings                                                  12,094                           8,448
   Equipment                                                           36,507                          34,656
   Furniture and fixtures                                              12,386                          12,329
   Automobiles                                                          3,088                           3,674
   Leasehold improvements                                               3,526                           3,792
                                                            ----------------------------------------------------------------
                                                                       67,601                          62,899
   Less:  Accumulated depreciation and amortization                    44,095                          40,263
                                                            ----------------------------------------------------------------
                                                                       23,506                          22,636


Other assets:
   Equity investments                                                   1,361                           1,313
   Goodwill, net of accumulated amortization of
     $3,604 in 1997 and $3,499 in 1996                                 13,775                          14,136
   Other assets                                                         3,219                           1,349
                                                            ----------------------------------------------------------------
                                                                       18,355                          16,798
                                                            ----------------------------------------------------------------
Total assets                                                      $   145,768                     $   138,697
                                                            ================================================================

</TABLE>


<PAGE>


<TABLE>
<CAPTION>



                                                                                          December 31
                                                                  ----------------------------------------------------------
                                                                               1997                       1996
                                                                  ----------------------------------------------------------
                                                                       (In thousands of dollars, except share amounts
<S>                                                                        <C>                          <C>    
Liabilities and shareholders' equity
 Current liabilities:
   Short-term borrowings                                                   $       904                  $       240
   Accounts payable                                                             17,887                       18,383
   Billings in excess of costs and fees earned on contracts in
     progress                                                                   15,168                       14,771
   Accrued payroll and other employee benefits                                   5,990                       11,584
   Accrued professional liability reserve                                        3,504                        4,367
   Other accrued expenses                                                       21,339                       14,194
   Income taxes payable                                                          3,768                        5,059
   Current portion of long-term debt                                             2,231                        2,206
   Deferred income taxes                                                           701                            0
                                                                  ----------------------------------------------------------
Total current liabilities                                                       71,492                       70,804

Long-term debt                                                                  42,483                       42,847

Deferred income taxes                                                            1,528                        6,363

Minority interest in equity of subsidiaries                                      1,060                        1,093

Cumulative redeemable preferred stock; issued and
   outstanding:  956,613 shares in 1997 and 0 shares
   in 1996                                                                       9,864                            0

Shareholders' equity:
   Common stock - $1 par value; authorized:  10,000,000 shares;
     issued and outstanding:  1,872,000 shares in 1997, and
     1,905,422 shares in 1996                                                    1,872                        1,905
   Additional paid in capital                                                   14,957                       15,063
   Retained earnings                                                             8,855                        5,683
   Foreign currency translation adjustment                                      (6,343)                      (5,061)
                                                                  ----------------------------------------------------------
Total shareholders' equity                                                      19,341                       17,590
                                                                  ----------------------------------------------------------
Total liabilities and shareholders' equity                                 $   145,768                  $   138,697
                                                                  ==========================================================
</TABLE>

See accompanying notes.


<PAGE>



                                                 Law Companies Group, Inc.

                                           Consolidated Statements of Operations
<TABLE>
<CAPTION>


                                                                Year ended December 31
                                                         1997                1996                1995
                                            ---------------------------------------------------------------
                                                   (In thousands of dollars, except per share amounts)
<S>                                               <C>                 <C>                 <C>    
Gross fees                                        $   310,791         $   323,179         $   368,417
Less:  Cost of outside services                        33,090              36,897              53,544
                                            ---------------------------------------------------------------
Net fees                                              277,701             286,282             314,873

Direct costs and expenses:
   Payroll                                             81,613              83,109              90,315
   Job related expenses                                34,450              33,402              33,579
                                            ---------------------------------------------------------------
Gross profit                                          161,638             169,771             190,979

Indirect costs and expenses:
   Payroll                                             60,604              61,527              70,364
   Other expenses                                      87,240              96,570             113,270
                                            ---------------------------------------------------------------
Operating income                                       13,794              11,674               7,345
Other income (expense):
   Interest expense                                    (3,995)             (4,715)             (6,038)
   Deferred financing costs                            (1,539)             (2,553)             (1,568)
   Other income (expense)                                (198)                 12                (723)
                                            ---------------------------------------------------------------
Income before income taxes,
   minority interests, and equity
   investments                                          8,062               4,418                (984)
Income tax provision                                   (4,012)             (2,615)             (1,027)
Minority interests                                          0                   0                 (86)
Equity investments                                         31                 107                (169)
                                            ---------------------------------------------------------------
Net income (loss)                                       4,081               1,910              (2,266)
                                            
Less:  preferred stock dividend
    and accretion                                        (742)                  0                   0
                                            ---------------------------------------------------------------
Net income available to common
    shareholders                                  $     3,339         $     1,910         $    (2,266)
                                            ===============================================================

Net income (loss) per common share                $      1.77         $      1.00         $     (1.19)
                                            ===============================================================
Net income (loss) per common
    share - assuming dilution                     $      1.60         $      1.00         $     (1.19)
                                            ===============================================================
</TABLE>

See accompanying notes.


<PAGE>


                            Law Companies Group, Inc.
                                and Subsidiaries

                 Consolidated Statements of Shareholders' Equity

<TABLE>
<CAPTION>
                                                                                                           Foreign
                                                        Class A                Additional                 Currency          Total
                                                        Common      Common      Paid in      Retained    Translation   Shareholders'
                                                         Stock       Stock      Capital      Earnings    Adjustment        Equity
                                                      ------------------------------------------------------------------------------
                                                                        (In thousands of dollars, except share amounts)

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

Balance at December 31, 1994                            $ 1,623     $   307   $ 13,668     $   8,532    $ (4,755)        $  19,375
   Net loss for 1995                                          -           -           -       (2,266)           -           (2,266)
   Conversion of 78,210 shares of Class A stock to
     common stock                                           (78)         78           -            -            -                -
   Repurchase and retirement of shares (12,215
     shares of Class A stock and 136,960 of common
     stock)                                                 (12)       (137)     (1,056)      (2,472)           -           (3,677)
   Issuance of 113,326 shares of common stock                 -         113       2,211            -            -            2,324
   Foreign currency translation adjustment                    -           -           -            -           70               70
                                                      ------------------------------------------------------------------------------
Balance at December 31, 1995                              1,533         361      14,823        3,794       (4,685)          15,826
   Net income for 1996                                        -           -           -        1,910            -            1,910
   Conversion of 1,533,106 shares of Class A stock
     to common stock                                     (1,533)      1,533           -            -            -                 -
   Repurchase and retirement of 7,804 shares
       of common stock                                        -          (8)        (60)         (21)           -              (89)
   Issuance of 18,854 shares of common stock                  -          19         300            -            -              319
   Foreign currency translation adjustment                    -           -           -            -         (376)            (376)
                                                      ------------------------------------------------------------------------------
Balance at December 31, 1996                                  0       1,905      15,063        5,683       (5,061)          17,590
   Net income for 1997                                        -           -           -        4,081            -            4,081
   Preferred stock cash dividends ($.54 per share)            -           -           -         (521)           -             (521)
   Accretion on preferred stock                               -           -           -         (221)           -             (221)
   Repurchase and retirement of 33,422
       shares of common stock                                 -         (33)       (256)        (167)           -             (456)
   Issuance of common stock warrants                          -           -         150            -            -              150
   Foreign currency translation adjustment                    -           -           -            -       (1,282)          (1,282)
                                                      ------------------------------------------------------------------------------
Balance at December 31, 1997                            $     0      $1,872    $ 14,957     $  8,855    $  (6,343)       $  19,341
                                                      ==============================================================================
</TABLE>
See accompanying notes.

<PAGE>



                                                 Law Companies Group, Inc.

                                           Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>

                                                                                     Year ended December 31
                                                                         ------------------------------------------------
                                                                                 1997           1996              1995
                                                                         ------------------------------------------------
                                                                                      (In thousands of dollars)
<S>                                                                      <C>             <C>             <C>                        
Operating activities
Net income (loss)                                                        $     4,081     $     1,910     $    (2,266)
Adjustments to reconcile net income (loss) to net cash provided by
   operating activities:
     Depreciation and amortization                                             6,782           7,744           8,837
     Financing costs amortization                                              1,539           2,553           1,568
     Provision for losses on receivables                                         172             683           1,672
     Benefit from deferred income taxes                                       (4,034)         (3,169)         (3,493)
     Provision for losses on investments                                           0               0           1,458                
     Provision for losses on claims                                                0             919           1,885
     Provision for other non-cash expenses                                         0               0           2,750
     Undistributed (earnings) loss from equity investments                       (31)           (107)            169
     Minority interest in income of subsidiaries                                   0               0              86
     Loss (gain) loss on disposal of property and equipment                      228            (161)           (306)

Changes  in  operating  assets  and  liabilities,  net of  effects  of  business
   acquisitions:
     Billed fees receivable                                                   (1,190)          1,473           8,590
     Unbilled work in progress                                                (2,408)          2,734          (8,335)
     Other current assets                                                       (714)          2,322           1,397
     Accounts payable and accrued expenses                                    (1,568)         (6,686)           (399)
     Billings in excess of costs and fees earned on contracts in progress        948           4,744           1,243
                                                                         ------------------------------------------------
     Net cash provided by operating activities                                 3,805          14,959          14,856

Investing activities
Business acquisitions, net of cash acquired                                     (415)              0          (1,191)
Purchases of property and equipment                                           (7,793)         (3,992)         (6,829)
Proceeds from disposal of property and equipment                                 227             494           2,376
Other, net                                                                       236            (195)            (11)
                                                                         ------------------------------------------------
Net cash (used) in investing activities                                       (7,745)         (3,693)         (5,655)

Financing activities
Net (payments) proceeds on short-term borrowings                                 606            (855)            653
Net (payments) on revolving line of credit and long-term borrowings              (46)         (6,573)        (10,422)
Deferred financing and preferred stock issuance costs                         (3,602)           (921)         (3,216)
Issuance of redeemable preferred stock                                         9,850               0               0
Issuance of common stock and warrants                                            150             319           2,124
Repurchase and retirement of shares                                             (456)            (89)           (254)
Preferred dividends paid                                                        (521)              0               0
                                                                         ------------------------------------------------
Net cash provided by (used in) financing activities                            5,981          (8,119)        (11,115)

Effect of exchange rate changes on cash                                         (611)             37              11
                                                                         ------------------------------------------------
Increase (decrease) in cash and cash equivalents                               1,430           3,184          (1,903)
Cash and cash equivalents at beginning of year                                 8,097           4,913           6,816
                                                                         ------------------------------------------------
Cash and cash equivalents at end of year                                     $ 9,527         $ 8,097         $ 4,913
                                                                         ================================================
</TABLE>

See accompanying notes.

<PAGE>



                            Law Companies Group, Inc.

                   Notes to Consolidated Financial Statements
                            (In thousands of dollars)

1. Accounting Policies

Description of Business

Law  Companies  Group,  Inc. and its  subsidiaries  (collectively,  the Company)
provide  comprehensive  environmental  and  specialized  engineering  consulting
services to governmental,  commercial and industrial entities. During 1997, 1996
and 1995, the Company derived  approximately 8%, 10% and 11%,  respectively,  of
gross fees from various agencies of the United States Government.

Basis of Presentation

The consolidated  financial  statements  include the accounts of the Company and
its  subsidiaries.  All significant  intercompany  accounts and transactions are
eliminated.

Use of Estimates

The  preparation  of the  financial  statements  in  conformity  with  generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that affect the amounts  reported in the financial  statements  and
accompanying notes. Actual results could differ from those estimates.

Revenue Recognition

In general,  the Company recognizes revenues at the time services are performed.
On cost-reimbursable contracts, revenue is recognized as costs are incurred, and
includes  applicable  fees earned  through the date  services are  provided.  On
fixed-price contracts,  revenues are recorded using the percentage-of-completion
method of  accounting  by  relating  contract  costs  incurred  to date to total
estimated  contract costs at completion.  Contract costs include both direct and
indirect costs. Contract losses are provided for in their entirety in the period
they become known, without regard to the percentage-of-completion.

Some of the Company's  contracts with the U.S.  federal  government,  as well as
certain  contracts  with  commercial   clients,   provide  that  contract  costs
(including  indirect  costs) are subject to audit and  adjustment.  For all such
contracts,  revenues have been recorded based upon those amounts  expected to be
realized upon final settlement.

Receivables and Unbilled Work in Progress

Unbilled work in progress represents amounts earned under contracts in progress,
but not yet billable  under the terms of those  contracts.  These amounts become
billable  according to the contract terms which usually  consider the passage of
time,  achievement of certain milestones or completion of the project.  Included
in accounts  receivable at December 31, 1997 and 1996 were  contract  retentions
totaling $537 and $881, respectively. Substantially all unbilled receivables are
billed and collected in the subsequent fiscal year.

Consolidated Statements of Cash Flows

The Company  considers all highly liquid  investments  with  maturities of three
months or less when purchased to be cash equivalents.

Property and Equipment

Property and equipment are stated at cost.  Depreciation  and  amortization  are
provided over estimated  useful lives using both  straight-line  and accelerated
methods. Useful lives range as follows: buildings 40 years; equipment 3-6 years;
furniture  and  fixtures  5-10  years;  automobiles  3-6  years;  and  leasehold
improvements  utilizing  the shorter of the lease term or the  remaining  useful
life of the asset. Depreciation and amortization expense was $6,243, $7,165, and
$8,050 in 1997, 1996, and 1995, respectively.




<PAGE>




Income Taxes

The liability method is used in accounting for income taxes.  Under this method,
deferred tax assets and liabilities are determined based on differences  between
financial  reporting  and tax basis of assets and  liabilities  and are measured
using the tax rates and laws  that will be in effect  when the  differences  are
expected to reverse.

Other Assets

Goodwill,  representing  amounts  paid in excess  of the fair  values of the net
assets   acquired  in   acquisition   transactions,   is  amortized   using  the
straight-line method over periods of 10-40 years.

Included in Other assets are other intangible  assets,  primarily debt financing
costs and  trademarks,  which are  amortized on a  straight-line  basis over the
terms of the related agreement. Accumulated amortization approximated $1,603 and
$4,755 at December 31, 1997 and 1996 respectively.

The Company  adopted  Financial  Accounting  Standards  Board Statement No. 121,
Accounting for the Impairment of Long-Lived  Assets and for Long-Lived Assets to
be Disposed Of (SFAS 121), on January 1, 1996.  The adoption of SFAS 121 did not
have any effect on the financial statements.

If facts and circumstances indicate that the goodwill, property and equipment or
other  assets may be  impaired,  an  evaluation  of  continuing  value  would be
performed.  If an evaluation is required, the estimated future undiscounted cash
flows associated with these assets would be compared to their carrying amount to
determine if a write down to fair market value or discounted  cash flow value is
required.

Foreign Currency Translation

The functional  currency for most foreign operations is the local currency.  The
cumulative effects of translating the balance sheet accounts from the functional
currency into the U.S. dollar at current  exchange rates are included in Foreign
Currency  Translation  Adjustment in Shareholders'  Equity.  For all operations,
gains  or  losses  from  remeasuring  foreign  currency  transactions  into  the
functional currency are included in income.

Stock Based Compensation

The Company  grants stock options for a fixed number of shares to employees with
an  exercise  price  equal to the fair value of the shares at the date of grant.
The Company has elected to account for stock option  grants in  accordance  with
APB Opinion No. 25, Accounting for Stock Issued to Employees,  and, accordingly,
recognizes no compensation expense for the stock option grants. (See Note 7.)

Net Income (Loss) Per Share

Net income  (loss) per share is computed by  dividing  net income  (loss) by the
weighted average number of common shares outstanding during each year.

In 1997,  the Financial  Accounting  Standards  Board issued  Statement No. 128,
Earnings per Share (SFAS 128).  SFAS 128 replaced the calculation of primary and
fully  diluted  earnings  per share with basic and diluted  earnings  per share.
Unlike  primary  earnings  per share,  basic  earnings  per share  excludes  any
dilutive  effects of  options,  warrants  and  convertible  securities.  Diluted
earnings  per share is very similar to the  previously  reported  fully  diluted
earnings per share.  All  earnings  per share  amounts for all periods have been
presented,  and  where  appropriate,   restated  to  conform  to  the  SFAS  128
requirements.

2.  Acquisitions

In August 1997, the Company acquired African Consulting  Engineers,  Inc. (ACE),
an engineering  consulting firm located in South Africa, for a purchase price of
approximately  $0.6 million in cash and notes payable.  The acquisition has been
recorded using the purchase  method of accounting and is not  significant to the
Company's results for the year ended December 31, 1997.


<PAGE>




3. Redeemable Preferred Stock

On March 14, 1997,  the Board of Directors  approved an agreement to issue to an
investor $10 million of 8% Cumulative  Redeemable Preferred Stock (redeemable on
or after the seventh  anniversary of issuance),  together with separate warrants
exercisable for a period of 12 years and representing  approximately  33% of the
Common  Stock  outstanding  as of the date of  issuance.  The  warrants  have an
exercise price of $10.45 per share until June 30, 1998 after which the price can
range  from  $0.01 to  $10.45  based  upon  the  Company's  performance  against
stipulated net income benchmarks. In addition, the agreement includes options to
acquire up to 900,000 shares of Common Stock at a price of $16.50 per share from
July 1, 1997 through June 30, 1998, increasing on July 1 of each year to $20.00,
$24.50,  $29.00,  and $33.00  through  December 31, 2006.  On May 6, 1997,  this
transaction was approved by  shareholders  and consummated on the same date. The
liquidation  preference of each  preferred  share is its original issue price of
approximately $10.45 per share,  totaling $10 million. The value assigned to the
options  and  warrants  of $150 and the costs of  issuance  of $2,149  are being
accreted/amortized  over the period to redemption.  Accretion reduces net income
available to common shareholders.

The  Preferred  Stock is entitled to voting rights equal to the number of common
shares represented by the warrants.  The Preferred Stock may vote on all matters
except  those  expressly  provided in the  Company's  bylaws and articles and in
applicable  law. The Preferred  Stock is entitled to elect  Preferred  Directors
representing one less than a majority of the Company's Board of Directors.

4. Debt
<TABLE>
<CAPTION>

                                                                                        December 31
                                                                        -----------------------------------------
                                                                              1997                    1996

                                                                        -----------------------------------------                   
<S>                                                                            <C>               <C>                                
Revolving lines of credit:
   United States, interest at prime rate plus 0% to 1.5%
      (9.5% at December 31, 1997)                                              $26,586           $22,539
   International, interest at LIBOR plus 2.0% to 3.5%
     (generally 8.7% at December 31, 1997)                                       1,796             4,947
Notes payable to former shareholders, bearing interest at
     prime, 8%, and 8.5%                                                        12,868            13,065
Note payable, interest at 7.5%                                                   1,526             3,076
Various notes payable, bearing interest at rates ranging from  5.4% to
     17.5% due in installments through the year 2002                             1,938             1,426
                                                                        -----------------------------------------
                                                                                44,714            45,053
Less:  Current portion                                                           2,231             2,206
                                                                        -----------------------------------------
                                                                               $42,483           $42,847
                                                                        =========================================

</TABLE>

At December 31, 1997, the Company had provided guarantees of $1,700 under United
States letters of credit and $6,368 under international bonds,  guarantees,  and
indemnities.



<PAGE>




On January 15,  1998,  the Company  refinanced  its credit  facilities  into one
credit facility with a global bank. The terms and conditions are as follows:

Credit Facility (1)
<TABLE>
<CAPTION>
                                           Maximum
Nature                                     Amount (5)              Interest Rate (7)                 Expiration Date (8)
------                                     ----------              -----------------                 -------------------
<S>                                   <C>                          <C>  
Revolving Line of Credit (2)                $    40,000            Base less 0.25% to Base
                                                                   and LIBOR + 1.5% to 2.0%          January 15, 2001
Letters of Credit sub-facility              $     3,000            1.25% to 1.5% Per Annum           January 15, 2001
Revolving Line of Credit and          (pound)    11,000  (6)       Base + 1.5% to 2.0%
   Overdraft Facility (2)                                          and LIBOR + 1.5% to 2.0%          January 15, 2001
Letters of Credit sub-facility (3)    (pound)    11,000  (6)       1.75% Per Annum                   January 15, 2001
Capital Expenditure Facility  (4)           $     7,992            Base - 0.25% + 0% and
                                                                   LIBOR + 1.5% to 2.0%              January 15, 2001
Capital Expenditure Facility  (4)     (pound)      2,400 (6)       LIBOR + 1.5% to 2.0%              January 15, 2001
</TABLE>

1)   Fees of $250 were payable upon closing.  Additionally,  a commitment fee of
     0.2% to 0.3% is payable on the average  daily unused  amounts of the credit
     facility.

2)   The total revolving  facility will be reduced by $10,000 on January 1, 1999
     and by an additional $5,000 on January 1, 2000.

3)   Letters of credit  can be issued  under  sub-facilities  and  reduce,  on a
     dollar-for-dollar basis, amounts available for revolving line of credit and
     overdraft facility borrowing.

4)   The capital  expenditure  dollar  facility has an initial  availability  of
     $2,664,  increasing to $5,328 on January 15, 1999 and $7,992 on January 15,
     2000.  The capital  expenditure  pounds  sterling  facility  has an initial
     availability of (pound)800,  increasing to (pound)1,600 on January 15, 1999
     and (pound)2,400 on January 15, 2000.

5)   Amounts  available under the revolving credit facility will be subject to a
     borrowing  base  limitation  based  upon  the  Company's   earnings  before
     interest, taxes, depreciation and amortization measured on a monthly basis.
     Borrowings under the capital expenditure facilities are repayable quarterly
     over a five-year period.

6)   Denominated  in pounds  sterling.

7)   Base rate is the bank's prime rate,  which may differ in the United  States
     and England;  LIBOR is the London Inter-Bank Offering Rate.  Borrowings may
     be requested as base rate or LIBOR borrowings.  The facility bears interest
     based  upon a  specified  leverage  ratio.

8)   The credit  facility  may be extended by the bank for up to two  additional
     years, in one year increments.

The credit facility is collateralized and secured by substantially all assets of
the Company's United States and United Kingdom operating subsidiaries.

The credit  facility  contains  certain  restrictions  relating  to, among other
things:  limitations on capital expenditures;  minimum earnings before interest,
taxes, depreciation and amortization; and achieving certain ratios (leverage and
fixed charge).  In addition,  cash dividends are  prohibited.  The repurchase of
shares for cash or notes is restricted  and no payments are permitted in 1998 on
existing or future notes payable to shareholders. 

<PAGE>




Accordingly,  notes  payable  to  former  shareholdershave  been  classified  as
long-term  debt in the  financial  statements.  The credit  facility  contains a
formula  based  upon  operating  results  by which  payments  may be  allowed in
subsequent  years.  The  Company  believes  that  the fair  value  of  financial
instruments approximates carrying value.

Future  maturities of long-term debt,  after giving effect to the revised credit
facilities, are as follows:

1998                                                  $   2,231
1999                                                      5,167
2000                                                      4,201
2001                                                     31,670
2002                                                      1,203
Thereafter                                                  242
                                               ------------------
                                                      $  44,714
                                               ==================

Interest  payments  totaled  $4,236,  $5,212 and $5,943 in 1997,  1996 and 1995,
respectively.

The weighted average interest rate on short-term borrowings approiximated 19.25%
in 1997.

5. Leases

The Company leases certain office space, equipment,  automobiles,  and furniture
under  noncancellable  operating  leases.  The following is a schedule of future
minimum  lease  payments  required  under  those  leases  which have  initial or
remaining noncancellable terms of one year or more:

1998                                            $   14,189
1999                                                10,947
2000                                                 8,027
2001                                                 5,503
2002                                                 3,988
Thereafter                                          26,041
                                          -------------------
                                                $   68,695
                                          ===================

Rent expense  aggregated  $17,307,  $17,079 and $24,278 in 1997,  1996 and 1995,
respectively.

6. Benefit Plans

Pension Plans

The  Company  has a  noncontributory,  defined  benefit  pension  plan  covering
substantially  all of its  United  States  employees  over  the  age of 21.  The
benefits are based on each eligible employee's years of service and compensation
during the last ten years of employment.  A curtailment  in the plan,  which was
effective March 28, 1997, ceased benefit accruals to vested participants on that
date. As a result, the Company recognized a gain on curtailment of $1,816 in the
first quarter of 1997.



<PAGE>




The  Company's  funding  policy is to  contribute  amounts  annually to the plan
sufficient  to meet minimum  funding  requirements  as set forth in the Employee
Retirement Income Security Act of 1974, plus additional  amounts, if any, as may
be determined to be appropriate by the Company's Board of Directors.

Net periodic pension costs consist of the following components:
<TABLE>
<CAPTION>

                                                             Year ended December 31
                                     ------------------------------------------------------------------
                                          1997                        1996              1995
                                     ------------------------------------------------------------------
<S>                                          <C>                   <C>                  <C>    
 Service cost                                $     560             $   2,898            $   2,760
 Interest cost                                   2,635                 2,859                1,787
 Actual return on plan assets                   (2,845)               (4,511)              (4,073)
 Net amortization and deferral                       2                 2,656                2,574
                                     ------------------------------------------------------------------
                                             $     352             $   3,902            $   3,048
                                     ==================================================================
</TABLE>


The following  table sets forth the funded  status and net liability  recognized
for the plan:
<TABLE>
<CAPTION>

                                                                           December 31
                                                          --------------------------------------------
                                                               1997                 1996
                                                          --------------------------------------------
<S>                                                             <C>                   <C>        
Actuarial present value of benefit obligations:
   Accumulated benefit obligation, including vested
     benefits of $33,512 in 1997 and $29,465 in 1996             $  (35,669)           $  (30,481)
                                                          ============================================
 Projected benefit obligation for service rendered to date
                                                                 $  (35,669)           $  (41,099)
 Plan assets at fair value, primarily insurance
       contracts, fixed income and equity securities                 34,925                27,319
                                                          --------------------------------------------
 Projected benefit obligation in excess of
       plan assets                                                     (744)              (13,780)
 Unrecognized prior service cost                                          0                (1,855)
 Unrecognized net loss                                                1,059                11,073
 Unrecognized net transition obligation                                (639)                 (799)
                                                          --------------------------------------------
 Net pension liability                                           $     (324)           $   (5,361)
                                                          ============================================

</TABLE>


<PAGE>




Actuarial  assumptions  used to  determine  net  periodic  pension  costs are as
follows:
<TABLE>
<CAPTION>

                                                                                           December 31
                                                                     -----------------------------------------------------
                                                                              1997              1996              1995
                                                                     -----------------------------------------------------
<S>                                                                           <C>               <C>             <C>    

            Weighted average discount rate                                    7.25%             7.8%            8.0%
            Rate of increase in future compensation levels
                Pre-curtailment                                               4.0%              4.0%            4.5%
                Post-curtailment                                              0.0%              NA              NA
            Expected long-term rate of return on plan assets                  10.0%             10.0%           9.5%
</TABLE>

The Company periodically revises the actuarial  assumptions used for calculation
of net periodic  pension cost and the  projected  benefit  obligation  to better
reflect current economic and market  conditions.  Effective January 1, 1997, the
Company revised the weighted average discount rate  assumption,  and,  effective
January 1, 1996, the Company revised each of its actuarial assumptions.  The net
effect of the changes in these assumptions,  as indicated above, was to increase
net periodic pension cost by $454 in 1997 and to decrease net periodic pension
cost by approximately $210 in 1996.

The Company also has a defined  contribution  savings plan which qualifies under
section 401(k) of the Internal Revenue Code,  covering  substantially all United
States employees,  in which Company stock is one of several elective  investment
options.  As of May 10, 1996,  the Board of Directors of the Company  decided to
terminate the option of Company Common Stock under the Plan, whether as employee
contributions  or  as  Company  matching  contributions.  Consistent  with  that
decision,  employees  are  allowed to trade out of (but not into)  shares of the
Company's Common Stock held in their individual  401(k) accounts,  in accordance
with Plan provisions.  Employees may transfer funds out of this option quarterly
(transfers out are limited to 25% per quarter of the  employee's  balance if the
employee's  balance in this option is greater than $5), resulting in the sale or
repurchase of stock by the Company.  At December 31, 1997, the Plan holds 81,528
shares of the Company's stock with a value of $1,208.

The Company's international subsidiaries have defined contribution pension plans
covering  substantially  all full-time  employees  over the age of 21.  Eligible
employees can elect contributory or noncontributory  status,  with contributions
related to compensation.  Expenses  related to these plans aggregated  $1,699 in
1997, $1,782 in 1996 and $1,905 in 1995.

Employee Stock Ownership Plan (ESOP)

Effective January 1, 1991, the Company's shareholders approved the establishment
of an ESOP,  to provide  substantially  all of the  Company's  full-time  United
States  employees an  additional  opportunity  to share in the  ownership of the
Company's  common stock.  The ESOP is intended to be a  "qualified"  stock bonus
plan, as defined in the Internal Revenue Code. Contributions to the ESOP's trust
fund are discretionary  based upon the operating  performance of the Company and
will be used to  purchase  shares of Common  Stock  (see  Note 7).  The  Company
reserves the right to amend,  modify or terminate the Plan, but in no event will
any portion of the  contributions  made revert to the Company.  No contributions
were made for 1997, l996, or 1995.


<PAGE>




7. Shareholders' Equity

Plan of Recapitalization

Under the terms of the Company's Recapitalization Plan, all shareholders holding
Class A Stock were  eligible to convert  their  shares,  on a one for one basis,
into shares of newly  authorized  Common  Stock in  increments  of 20% per year,
commencing  in  1992.  During  1995,  78,210  shares  of  Class A Stock  were so
converted.  All of the remaining  outstanding shares of Class A Stock (1,533,106
shares) automatically converted into Common Stock on January 1, 1996.

Transactions  involving  Common  Stock  are  valued  at fair  market  value,  as
determined by independent  appraisal.  Transactions  involving the Class A Stock
are  valued  at net book  value as of the  previous  December  31,  based on the
Company's   consolidated   financial  statements.   On  February  2,  1996,  the
shareholders  approved an amendment to the Company's  bylaws  allowing for stock
valuations other than annually.

Stock Option Plan

The 1990 Stock Option Plan (the "Plan"), as amended, has authorized the issuance
of up to 500,000  shares of Common Stock to key employees.  All options  granted
have 10 year terms and vest and become  fully  exercisable  at a rate of 20% per
year for five years of continued employment.  The option price per share and the
date of exercise are  determined by the  Compensation  Committee of the Board of
Directors at the time of grant.  However,  the option price per share may not be
less than the fair market value of the Company's Common Stock on the grant date,
with the options expiring ten years or less from the grant date. At December 31,
1997, options to acquire 60,000, 500, 27,000, 7,500, 75,000,  221,000, and 7,000
shares of the Company's Common Stock at $17.80,  $29.63, $26.31, $16.91, $11.64,
$12.61, and $14.33 per share, respectively, were outstanding under this Plan. At
that date, 98,600 were exercisable.

In 1995 the Company  issued 9,751 shares of Restricted  Stock to an executive of
the Company.  The  restrictions  require that the executive remain employed with
the Company during the restriction period.

The Company has elected to follow  Accounting  Principles  Board Opinion No. 25,
Accounting for Stock Issued to Employees  (APB 25) and related  Interpretations,
in accounting for its employee stock options  because,  as discussed  below, the
alternative  fair value  accounting  provided for under FASB  Statement No. 123,
Accounting  for  Stock-Based  Compensation  (SFAS 123),  requires  use of option
valuation  models  that were not  developed  for use in valuing  employee  stock
options.  Under APB 25,  because the exercise  price of the  Company's  employee
stock  options  equals the market price of the  underlying  stock on the date of
grant, no compensation expense is recognized.

Pro forma information regarding net income and earnings per share is required by
SFAS 123,  and has been  determined  as if the  Company  had  accounted  for its
employee stock options under the fair value method of that  Statement.  The fair
value for these options was estimated at the date of grant using a Minimum Value
option pricing model with the following  weighted-average  assumptions for 1997,
1996, and 1995,  respectively:  risk-free interest rates of 5.7%, 6.4% and 6.5%;
dividend yields of 0%; and a weighted-average expected life of the option of 7.5
years.


<PAGE>




Option  valuation  models  require  the input of highly  subjective  assumptions
including the expected stock price  volatility.  Because the Company's  employee
stock options have characteristics  significantly different from those of traded
options,  and because changes in the subjective input assumptions can materially
affect the fair value estimate,  in management's opinion, the existing models do
not  necessarily  provide a  reliable  single  measure  of the fair value of its
employee stock options.

For purposes of pro forma  disclosures,  the estimated fair value of the options
is amortized to expense over the options'  vesting  period.  The  Company's  pro
forma   information   follows  (in  thousands  except  for  earnings  per  share
information):
<TABLE>
<CAPTION>
                                                 1997             1996          1995
                                             ------------- -- ------------- -------------
<S>                                             <C>              <C>          <C>  
Pro forma net income (loss
availble to common shareholders                 $3,043           $1,768       $(2,275)

Pro forma earnings per share:
      Basic                                     $1.61            $0.93        $(1.20)
      Diluted                                   $1.48            $0.93        $(1.20) 
</TABLE>

Because SFAS 123 is applicable  only to options  granted  subsequent to December
31, 1994,  its pro forma effect will not be fully  reflected  until December 31,
1999.

A summary of the Company's stock option  activity,  and related  information for
the years ended December 31 follows:


<TABLE>
<CAPTION>
                                             1997                             1996                             1995
                                -------------------------------- -------------------------------- -------------------------------
                                               Weighted-average                 Weighted-average               Weighted-average
                                                exercise price                   exercise price                 exercise price
                                   Options                          Options                         Options
                                -------------- ----------------- -------------- ----------------- ------------ ------------------
<S>                                <C>               <C>             <C>              <C>            <C>            <C>
Outstanding-                       330,750           $17.61          274,500          $20.20         280,850        $21.04
  beginning of year
Granted                            228,000            12.66          136,500           14.01          50,000         20.51  
Exercised                            -                   -             -                  -              -             -
Forfeited and cancelled           (160,750)           18.86          (80,250)          20.33         (56,350)        24.69
                               --------------                     --------------                  ------------

Outstanding-end of year            398,000           $14.27          330,750          $17.61         274,500        $20.20

Exercisable at end of year          98,600           $18.77          177,250          $19.50         191,500        $19.04

Weighted-average fair
   value of options granted         $4.16                            $5.08                           $8.27
   during the year
</TABLE>

Exercise  prices for options  outstanding  as of  December  31, 1997 ranged from
$11.64 to  $29.63.  The  weighted-average  remaining  contractual  life of those
options is 8.1 years.


<PAGE>




Share Repurchases

As described in Note 6, Company Common Stock was previously an investment option
in the Company's  401(k) plan. In accordance  with plan  provisions,  33,422 and
7,804  shares  were  repurchased   during  1997  and  1996  for  $456  and  $89,
respectively, related to transfers out of this investment option.

During  1995,  the  Company  exercised  its  right to  repurchase  shares of all
employees  who offered  their stock for sale or  employees  who left the Company
during 1995. As a result, the Company  repurchased 2,725 shares of Class A Stock
and 18,965 shares of Common Stock for total consideration of approximately $570,
comprised  of $254 in cash and $316 in notes  payable with  interest  rates from
prime to 8.5% over periods from two to three years. Due to violations of certain
covenants in the  Company's  bank credit  facilities,  the Company was unable to
repurchase additional shares during 1995. 

On March 8, 1996, the Company  received a waiver from its banks which  permitted
the Company to repurchase for cash and notes up to approximately $3.9 million of
shares  of  Class  A  Stock,  Common  Stock,  Preferred  Stock  in  wholly-owned
subsidiaries,  and to pay other  amounts to  employees or former  employees  who
offered their stock for sale or left the Company in 1995. As a result, for those
employees, or former employees who tendered their shares to the Company in 1995,
the Company  recorded in 1995 the  repurchase  of 117,995  additional  shares of
Common  Stock,  of  which  69,960  were  converted  from  Class A  Stock,  9,490
additional  shares of Class A Stock,  and 17,745  shares of  preferred  stock in
wholly-owned  subsidiaries  for total  consideration  of  approximately  $3,107,
comprised of notes payable at prime over periods from one to five years.

Shares  repurchased  with  notes  payable  are  considered   non-cash  financing
activities for statement of cash flow purposes.

8.  Income Taxes

The provision for income taxes is comprised of the following:

<TABLE>
<CAPTION>
                                           1997                  1996                  1995
                                --------------------------------------------------------------------
<S>                                   <C>                    <C>                   <C>      
Current:                              $    8,046             $    5,784            $    4,520
Deferred:
   Current                                   901                  1,417                (3,367)
   Non-current                            (4,935)                (4,586)                 (126)
                                --------------------------------------------------------------------
                                      $    4,012            $     2,615           $     1,027
                                ====================================================================
</TABLE>


<PAGE>




The federal,  state and foreign components of the provision for income taxes are
as follows:

<TABLE>
<CAPTION>

                                        1997               1996               1995
                            -----------------------------------------------------------
<S>                               <C>                <C>                 <C> 
   Federal                        $     2,264        $       730         $    (1,696)
   State                                  513                  7                (270)
   Foreign                              1,235              1,878               2,993
                            -----------------------------------------------------------
                                  $     4,012        $     2,615         $     1,027
                            ===========================================================

</TABLE>

The foreign provision for income taxes is based on pre-tax earnings from foreign
operations of $3,112 in 1997, $5,005 in 1996, and $5,630 in 1995.

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

<TABLE>
<CAPTION>

                                                                                December 31
                                                             -------------------------------------------
                                                                         1997                  1996

                                                             -------------------------------------------
<S>                                                                    <C>                  <C>        
Deferred tax liabilities:
   Cash basis of accounting for income tax purposes                    $ 4,501              $ 9,002
   Software capitalization                                               2,238                2,161
   Mark to market accounting for accounts receivable                     1,224                    0
   Other - net                                                           1,893                1,467
                                                             -------------------------------------------
         Total deferred tax liabilities                                  9,856               12,630

Deferred tax assets:
   Depreciation                                                          1,499                  789
   Employee benefits                                                       953                1,363
   Non-deductible reserves                                               3,545                2,524
   Loss carryforwards                                                    5,808                4,418
   Other - net                                                             218                  380
                                                             -------------------------------------------
                                                                        12,023                9,474
Valuation allowance for deferred tax assets                             (4,396)              (3,007)
                                                             -------------------------------------------

         Total deferred tax assets                                       7,627                6,467
                                                             -------------------------------------------
         Net deferred tax liabilities                                  $ 2,229              $ 6,163
                                                             ===========================================

</TABLE>


<PAGE>




Prior to 1995, certain of the Company's  subsidiaries filed their federal income
tax returns on the cash basis of accounting.  Effective  January 1, 1995,  these
subsidiaries  changed  their method of  accounting  from the cash to the accrual
method for federal income tax purposes. Accordingly,  previously deferred income
of  approximately  $47 million at January 1, 1995 was included in taxable income
over a four year period beginning in 1995. As of December 31, 1997, $4.5 million
of deferred income taxes previously attributable to the cash basis of accounting
are classified as current liabilities as such amounts are attributable to income
which will be reported as taxable income in 1998.

Because the Company plans to continue to finance foreign expansion and operating
requirements  by  reinvestment   of   undistributed   earnings  of  its  foreign
subsidiaries,  United  States  income  taxes  have  not  been  provided  on such
earnings.  The  amount of  undistributed  earnings  which are  considered  to be
indefinitely reinvested is approximately $19,401 at December 31, 1997.

A  reconciliation  of the  statutory  U.S.  income  tax  rate  to the  Company's
effective income tax rate is as follows:

<TABLE>
<CAPTION>

                                                                 1997                1996                1995
                                                          -----------------------------------------------------------
<S>                                                              <C>                <C>               <C>  
Statutory U.S. income tax rate                                   34.0%               34.0%              34.0%
   State taxes, net of federal benefit                            4.2%                0.1%              36.8%
   Income tax in jurisdictions other than 34%                     2.4%               (4.5)%              5.7%
   Permanent differences between book and taxable
     income                                                      13.0%               21.7%            (137.8)%
   Losses for which no benefit recognized                        (0.3)%               8.5%             (54.4)%
   Other                                                         (3.5)%              (0.6)%             11.3%
                                                          -----------------------------------------------------------
Effective income tax rate                                        49.8%               59.2%            (104.4)%
                                                          ===========================================================
</TABLE>


At December  31, 1997 the Company  had $1,412 of  operating  loss  carryforwards
related to foreign subsidiaries;  $1,255 can be carried forward indefinitely. Of
the remaining  $157,  $138 will expire in 1999 and $19 will expire in 2002.  The
Company has $3,152 of capital loss  carryforwards in foreign  jurisdictions that
can be carried forward indefinitely. A valuation allowance has been provided for
deferred tax assets related to loss carryforwards, and other reserves, which, if
realized,  would likely  result in capital  loss  carryforwards.  The  valuation
allowance as of January 1, 1996 and 1995 was $2,332 and $2,378, respectively.

Income tax payments  amounted to $9,236,  $4,906,  and $2,005 in 1997, 1996, and
1995, respectively.

<PAGE>

9.  Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per
share:

<TABLE>
<CAPTION>

                                                         1997                1996                1995
                                            ---------------------------------------------------------------
<S>                                               <C>                 <C>                 <C>           
Numerator:
   Net income (loss)                              $     4,081         $     1,910         $    (2,266)
   Preferred stock dividends                             (742)                  -                   -
                                            ---------------------------------------------------------------
   Numerator for basic earnings per share -
   income available to common shareholders              3,339               1,910              (2,266)

   Effect of dilutive securities:
      Preferred stock dividends                           742                   -                   -
                                            ---------------------------------------------------------------
      Numerator for diluted earnings per
      share - income available to common
      shareholders                                $     4,081         $     1,910         $    (2,266)


Denominator:
   Denominator for basic earnings per share
     - weighted-average shares                          1,892               1,907               1,903

   Effect of dilutive securities:
       Employee stock options                              22                   -                   -
       Convertible preferred stock                        638                   -                   -
                                            ---------------------------------------------------------------

   Dilutive potential common shares                       660                   -                   -
                                            --------------------------------------------------------------- 
      Denominator for diluted earnings
      per share - adjusted weighted-average
      shares                                            2,552               1,907               1,903
                                            ===============================================================

Basic earnings per share                          $      1.77         $      1.00         $     (1.19)
                                            ===============================================================

Diluted earnings per share                        $      1.60         $      1.00         $     (1.19)
                                            ===============================================================
</TABLE>

<PAGE>

10.  Commitments and Contingencies

The Company is a party to a number of lawsuits and claims (some of which are for
substantial amounts) arising in the ordinary course of its business.  In June of
1994,  a judgment  in the amount of $3,500 was  entered  against  the Company in
connection with certain materials engineering services.  The judgment was upheld
on appeal in November  1996,  and in January 1997,  the Company paid $3,207 plus
insurance proceeds of $757 to the plaintiff.


While the ultimate results of lawsuits or other proceedings  against the Company
cannot be predicted  with  certainty,  management  does not believe the ultimate
costs of such actions, if any, in excess of amounts provided in the consolidated
financial  statements will have a material effect on the Company's  consolidated
financial position or results of operations.

The Company is  contingently  liable as guarantor or  accommodation  co-maker of
stock  purchase  money  notes  to a bank  with  respect  to  loans  made  to 111
shareholder-employees  by the bank to finance  purchases of the Company's Common
Stock. The remaining unpaid balances,  totaling  approximately  $443 at December
31, 1997,  are payable  monthly over varying  remaining  terms not  exceeding 24
months.

Under its Articles of Incorporation, the Company has a right of first refusal to
repurchase its outstanding  shares, from employees who wish to sell such shares,
of Common Stock at a price equal to the appraisal value per share, and preferred
stock  in  wholly-owned  subsidiaries  of  the  Company  (recorded  as  minority
interest) at a price equal to the appraisal value per share,  all as of the most
recent  appraised  price. In addition,  beginning August 1, 1995, the holders of
preferred  stock of a  wholly-owned  subsidiary  issued in  connection  with the
acquisition  of HKS in 1996 have the  option to  require  the  Company to redeem
their shares at any time at a price equal to the appraised value per share as of
the preceding December 31.

11.  Nonrecurring Charges to Operations

During 1997,  1996 and 1995,  the Company  recorded a $2,126,  $410,  and $3,205
charge respectively,  against operations to cover severance and related benefits
costs, early termination of leases and expected sublease shortfalls, disposition
of leasehold improvements and selected real estate, office relocation costs, and
other corporate charges.

The Company  reduced its investment in IAM,  accounted for on the cost basis, by
$1,000 during 1995.

The Company recorded $2,350 as a charge against 1995 earnings related to various
litigation.


<PAGE>




12.  Geographic Area Data

The  Company's  operations  are conducted  principally  in the United States and
Europe.  Financial  information  for these areas is  summarized in the following
table.

<TABLE>
<CAPTION>

                                                             For the year ended December 31
                                      ----------------------------------------------------------------
                                                 1997                 1996                 1995
                                      ----------------------------------------------------------------
<S>                                      <C>                  <C>                  <C>   
Net fees:
   United States                         $      181,331       $      190,401       $      215,418
   United Kingdom                                51,181               53,430               63,222
   Europe-Other                                  19,769               20,171               12,963
   Africa                                        20,087               17,018               18,057
   Other                                          5,333                5,262                5,213
                                      ----------------------------------------------------------------
                                         $      277,701       $      286,282       $      314,873
                                      ================================================================

Operating income (loss):
   United States                         $        9,361       $        4,797       $        1,392
   United Kingdom                                 1,499                4,019                4,277
   Europe-Other                                     579                1,517                  877
   Africa                                         1,914                1,166                  933
   Other                                            441                  175                 (134)
                                      ----------------------------------------------------------------
                                         $       13,794       $       11,674       $        7,345
                                      ================================================================

Identifiable assets:
   United States                         $       79,393       $       72,530       $       90,373
   United Kingdom                                38,791               43,374               37,828
   Europe-Other                                   2,987                2,756                2,744
   Africa                                        19,388               15,420               12,348
   Other                                          5,209                4,617                5,011
                                      ----------------------------------------------------------------
                                         $      145,768       $      138,697       $      148,304
                                      ================================================================
</TABLE>

13.  Financial Instruments

The  Company's  financial  instruments  at December  31, 1997 and 1996,  consist
primarily  of cash and cash  equivalents  and  loans  payable.  Due to the short
maturities of the cash,  cash  equivalents and loans payable,  carrying  amounts
approximate the respective fair values.

Financial  instruments  that  potentially  subject  the  Company to  significant
concentrations of credit risk consist  principally of cash investments and trade
accounts  receivable.  Concentrations  of  credit  risk  with  respect  to trade
accounts receivable are limited,  due to the large number of entities comprising
the Company's  customer base. The Company performs ongoing credit evaluations of
its customers' financial condition.