UNITED STATES
                                   SECURITIES
                             AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

(Mark One)          Annual Report Pursuant to Section 13 or 15(d)
  [X]                   of the Securities Exchange Act of 1934
                       For Fiscal Year Ended June 30, 1999

                                       OR

  [ ]        Transition Report Pursuant to Section 13 or 15(d) of the
                         Securities Exchange Act of 1934
                  For the Transition Period From ..... to .....

                       Registrant, State of Incorporation,
                          Address and Telephone Number
                          ----------------------------

                             GRC INTERNATIONAL, INC.
                            (a Delaware Corporation)
Commission                      1900 Gallows Road               I.R.S. Employer
 File No.                    Vienna, Virginia  22182          Identification No.
----------                                                    ------------------
 1-7517                          (703) 506-5000                   95-2131929

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

                                                      Name of each exchange on
            Title of each class                          which registered
            -------------------                       -----------------------
       Common Stock, $.10 par value                    New York Stock Exchange
                                                        Pacific Stock Exchange

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

                                      None
                                (Title of Class)

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

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

         As of August 27, 1999, the aggregate  market value of the  Registrant's
voting common stock held by  non-affiliates  was  $75,463,623.  As of August 27,
1999,  there were 10,308,626  shares of the  Registrant's  $.10 par value common
stock outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

         Portions  of the Proxy  Statement  for the  Corporation's  1999  Annual
Meeting of  Shareholders  are  incorporated  by reference  into Part III of this
report.  The Proxy  Statement shall be filed in accordance with the rules of the
Commission  within  120 days  after the close of the  fiscal  year to which this
report pertains.

<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>

                                                                                                          Page
                                                                                                          ----

PART I.
<S>           <C>                                                                                             <C>

Item 1.       Business                                                                                      3
Item 2.       Properties                                                                                    8
Item 3.       Legal Proceedings                                                                             8
Item 4.       Submission of Matters to a Vote of Security Holders                                           8

PART II.

Item 5.       Market for Registrant's Common Equity and Related Stockholder Matters                         8
Item 6.       Selected Financial Data                                                                      10
Item 7.       Management's Discussion and Analysis of Financial Condition and Results of Operations        11
Item 8.       Financial Statements and Supplementary Data                                                  17
Item 9.       Changes in and Disagreements with Accountants on Accounting and Financial Disclosure         38

PART III.

Item 10.      Directors and Executive Officers of the Registrant                                           38
Item 11.      Executive Compensation                                                                       38
Item 12.      Security Ownership of Certain Beneficial Owners and Management                               38
Item 13.      Certain Relationships and Related Transactions                                               39

PART IV.

Item 14.      Exhibits, Financial Statement Schedules and Reports on Form 8-K                              39
              Signatures                                                                                   40
</TABLE>

                                       2
<PAGE>

In addition to historical information,  this Annual Report on Form 10-K contains
forward-looking  statements as defined in Section 21E of the Securities Exchange
Act of 1934.  The  forward-looking  statements  contained  herein are subject to
certain  risks and  uncertainties  that  could  cause  actual  results to differ
materially from those reflected in the forward-looking statements.  Factors that
might cause such a difference  include,  but are not limited to, those discussed
in the "Forward  Looking  Statements"  section of  "Management's  Discussion and
Analysis".  The  Company  undertakes  no  obligation  to publicly  revise  these
forward-looking  statements to reflect events or circumstances  that arise after
the date hereof.  Readers should carefully review the risk factors  described in
other  documents  the Company  files from time to time with the  Securities  and
Exchange Commission, including the Quarterly Reports on Form 10-Q to be filed by
the  Company  subsequent  to this  Annual  Report on Form  10-K and any  Current
Reports on Form 8-K filed by the Company.


                                     PART I

ITEM 1.         BUSINESS
                --------

         General

         GRC International,  Inc. (the "Company") was organized in California in
1961.  Since 1974, the Company has been a Delaware  corporation.  The Company is
headquartered in Vienna, Virginia.

         Acquisition of Management Consulting and Research, Inc.
         -------------------------------------------------------

         The  Company  has a strategy  to grow its  business  through  selective
acquisitions  of businesses to complement its internal  growth.  Generally,  the
Company expects to acquire businesses which are closely aligned with its current
base of  business  in  professional  services.  In pursuit of the  strategy  the
Company,  on  September  2,  1999,  acquired  all of the  outstanding  stock  of
Management Consulting and Research,  Inc. (MCR). MCR is a company that generates
approximately  $30 million in annual  revenues in  professional  services to the
U.S.  Government.  MCR provides  budget  analysis,  cost  estimating and program
management services primarily to the U.S. Government,  with its largest customer
being the U.S. Air Force.  MCR has been in business  for 22 years and  currently
employs 270 people.  MCR will be operated as a wholly  owned  subsidiary  of the
Company from the date of acquisition.

         Discontinued Operations
         -----------------------

         On February 28, 1997, the Company  committed itself to a formal plan of
disposition  for  two of  its  business  segments,  its  Telecommunications  and
Advanced  Products  Divisions.  By  January  1998,  the  Company  had  sold  the
businesses comprising those Divisions.

                                       3
<PAGE>

            Description of the Business
            ---------------------------

            The Company  provides a broad range of professional  services to the
U.S.  Government  (96% of  revenues)  and  information  technology  services  to
commercial clients (4% of revenues).  The Company's U.S.  Government business is
primarily  with the  Department  of Defense  ("DoD") and its  instrumentalities.
Approximately 17% of the business is performed under classified  contracts which
require special security clearances of employees.

            Almost all of the Company's  revenues have been  generated  from the
Company's  professional services business.  The Company's  capabilities focus on
information  technology  consulting  services  provided  primarily  to the  U.S.
Government,  but has recently  expanded  those  service  offerings to commercial
clients.  Commercial sales now represent about 4% of total Company revenues. For
further financial  information  regarding these business segments see Note 12 to
the consolidated Financial Statements.

         The areas of expertise encompassed by these services include:  software
and system engineering;  business decision support systems;  analytical modeling
and  simulation;   database   design  and   implementation;   legacy   migration
engineering;   network  design  and  integration;   systems  integration;   post
deployment  software  support;  operational  support  and  management;   virtual
manufacturing consulting;  communications engineering;  and test and evaluation;
among others.

         These  services are applied to such areas as:  financial  and personnel
management; automated acquisition systems; transportation planning and analysis;
manufacturing  analysis;  logistics  planning;  security  clearance  processing;
WAN/LAN  analysis;  training  systems;  as well as information  warfare  systems
relying on radar, optics,  communication networks,  electronics,  navigation and
guidance, control, space, and surveillance systems.

         As  a  professional  service  provider,   the  Company's  revenues  are
critically  dependent  upon the number  and skill  level of its  employees.  The
Company's  ability to meet  planned and expected  revenue  levels is a function,
among other things,  of its ability to staff open  positions  with the personnel
required to satisfy its contractual backlog.

         In 1997,  the Company won a systems  integration  contract to modernize
the U.S.  Army's  retail  logistics  system.  The  contract is  currently in the
development phase,  which is expected to last approximately  three more years at
which  time  additional  operations  and  maintenance  support  efforts  may  be
available to the Company.  This project is the largest  source of revenue to the
Company generating  revenues of $27.4 million in 1999, or 16% of total revenues.
No other individual project represents more that 10% of the Company's revenues.

         For  its  commercial   customers  the  Company   performs   information
technology consulting services of a similar nature to those services supplied to
its U.S.  Government  clients  in  software  and  website  development,  systems
integration and independent system testing.  Most of the commercial  business is
conducted   under   contracts  with  fixed  hourly

                                       4
<PAGE>

billing rates. The skill requirements for the business are similar to those used
in the Government  business,  except that in the commercial business the Company
relies  more  heavily on  temporary  contract  labor.  Clients of this  business
include the National  Association of Securities  Dealers,  the George Washington
University and Lucent Technologies.

         Contracts
         ---------

         Government  contract revenues from professional and technical services,
either as prime contractor or subcontractor, represented approximately 96%, 98%,
and 95% of the  Company's  total  revenues for fiscal years ended June 30, 1999,
1998, and 1997, respectively.  The Company's government contracts generally fall
into one of three  categories:  (1) cost  reimbursable,  (2) fixed price, or (3)
time  and  materials.   Under  a  cost  reimbursable  contract,  the  government
reimburses  the Company for its  allowable  costs and  expenses,  and pays a fee
which is either fixed in amount or awarded based on  performance.  Under a fixed
price  contract,  the  government  pays an agreed  upon price for the  Company's
services  or  products,  and the  Company  bears  the  risk  that  increased  or
unexpected costs may reduce its profits or cause it to incur a loss. Conversely,
to the extent the Company incurs actual costs below  anticipated  costs on these
contracts, the Company could realize greater profits. Under a time and materials
contract,  the government pays the Company a fixed hourly rate intended to cover
salary costs and related  indirect  expenses plus a certain profit  margin.  The
Company has also received  significant  orders that are of the fixed price level
of effort type. This contract type most closely resembles the time and materials
contract in that it often calls for delivery of specified hours of various labor
categories,  rather  than  project  completion  which is typical of fixed  price
contracts.  For fiscal years 1999, 1998, and 1997,  approximately  34%, 49%, and
60%, respectively, of the Company's professional and technical services revenues
were from cost reimbursable  contracts,  while  approximately 66%, 51%, and 40%,
respectively,  were fixed price or time and materials type contracts, with fixed
price  delivery  contracts  constituting  approximately  5% of the total in each
year.

         The Company's  contracts are performed for a number of program  offices
within various defense agencies, including each of the armed services. Customers
outside the field of defense and national security include other agencies of the
federal  government  and  private  industry.  Any or all of the  contracts  with
agencies of the United States  government may be subject to termination  for the
convenience of the government. If a contract were to be terminated,  the Company
would be reimbursed for its allowable  costs up to the date of the  termination,
and would be paid a  proportionate  amount of the fees  attributable to the work
actually  performed.  In  addition to the normal  risks  found in any  business,
companies  conducting  research  and  analysis  services  for the United  States
government  are  subject to  changes  in the  defense  budget,  terminations  of
contracts  for cause or  government  convenience,  and  significant  changes  in
contract scheduling and funding.

         Contracts  are often  awarded for  periods of more than one year,  with
five years being a common period of performance for a contract.  Usually work on
the contracts is funded for periods of one year or less.

                                       5
<PAGE>

         At June 30, 1999, the Company had a total contract backlog amounting to
$569 million, compared to $450 million at June 30, 1998. For this purpose, total
contract backlog reflects an estimate of the amount of revenues that the Company
expects to generate on each contract.  This estimate  generally assumes that all
government  contract  options for services in succeeding years will be exercised
and  funded.  The  estimate  of future  revenues  included  in total  backlog is
inherently  subject  to  significant  risk of error due to a number  of  factors
including  the  continuation  and  funding of current  programs,  changes in the
clients needs and the  Company's  ability to fill those needs.  Funded  contract
backlog at June 30, 1999,  amounted to $68  million,  compared to $58 million at
June 30, 1998. Funded contract backlog  represents the portion of total contract
backlog for which contract awards have been made and funded.  Most of the funded
contract backlog is deliverable within the next year as well as a portion of the
unfunded backlog included in total contract backlog.

         Marketing and Competition
         -------------------------

         Competition for professional services business with the U.S. Government
is fierce. Companies compete on the basis of technical skills, management,  past
performance and price.  Prior experience with a client and functional  knowledge
of his work  requirements  are  critical  factors  in many  awards.  Many of the
Company's  services develop into long-term  relationships  with clients that can
span a period of ten years or more. In the Company's  classified business areas,
these client  relationships,  and the security  clearances which are required to
perform the work, are  particularly  important in the  competition for follow-on
business.

         The Company markets it professional  services along several fronts. The
Company  is able  to  secure  a  substantial  portion  of its  revenues  through
follow-on task orders from existing  clients,  based primarily on the quality of
current work performed,  with little or no direct  competition after the initial
contract is awarded.  This requires a continual focus on high quality service to
clients and  attention by the  Company's  line  management  to secure  follow-on
tasks.  In  addition,  the  Company  maintains  a central  business  development
activity  to  identify,  track  and bid on  larger  competitive  contracts  that
represent  the primary  source of growth to the  Company.  There is  significant
competition  for these  contracts,  with emphasis on the quality of the proposed
technical  solution,  past  performance and price. The effort to prepare for and
bid  these  programs  often  spans a year or  more,  and may  cost  hundreds  of
thousands of dollars to pursue an individual opportunity.

         In recent  years  the U.S.  Government  has used a number of  different
types of  contract  vehicles  to procure  professional  services.  Specifically,
government-wide  contract  vehicles have been awarded which allow contractors to
sell services to a wide range of customers.  The use of these contract  vehicles
has introduced a requirement  to market at two levels;  first to compete for and
win the contract and second to bid and win task orders under the  contract.  The
effect  of the use of  these  contract  vehicles  has  been to open up more  new
customers to the Company,  but at the expense of increased  marketing costs. The
contract  vehicle  used  most by the  Company  is the  Federal  Supply  Services
contract

                                       6
<PAGE>

(the GSA Schedule)  which is used to perform work with a number of clients.  The
previously  discussed  GCSS Army project is performed  under a Basic  Purchasing
Agreement (BPA) on the GSA Schedule.  Total revenues  generated from task orders
under this contract vehicle in 1999 were $62.8 million.

         It is a challenge to the Company to  continually  modify its  marketing
approach to meet the changing  procurement  environment  in its U.S.  Government
marketplace.

         The Company encounters substantial  competition in the professional and
technical  service  area  from a large  number  of  entities,  some of which are
significantly  larger  than the  Company in size and  financial  resources.  The
management of the Company  believes that it has a relatively small percentage of
the total market. Competition comes principally from other companies and certain
non-profit  organizations  engaged in similar  aspects of research and analysis.
The field of  competitors is a complex one in which any company may be viewed as
a competitor,  customer or teammate on any one  opportunity.  Some of the larger
competitors are Lockheed Martin,  Litton  Industries,  TRW,  Computer  Sciences,
SAIC, Nichols Research and CACI. There are also many smaller  competitors in the
market place, most of them privately-owned.

         Seasonality of the Business
         ---------------------------

         The Company's  business does not have strong  seasonal  trends,  though
revenues  are  generally  lower  during the first six months of the fiscal  year
(July  1-December  31) due to the  concentration  of holidays and vacation  time
which reduce the available  direct  contract  labor of the Company's  workforce.
Revenues  can also  change  significantly  period-to-period  as a result  of the
start-up or wind-down of significant contracts.

         Research and Development
         ------------------------

         The Company's  business is not heavily  dependent on  expenditures  for
research and development.  Company-sponsored research and development costs were
$220,000, $308,000 and $476,000 in 1999, 1998 and 1997, respectively.

         Patents, Trademarks, Licenses, Copyrights
         -----------------------------------------

         The  Company  has  a  number  of  patents,   trademarks  and  trademark
applications, none of which is material to the operations of the Company.

         Employees
         ---------

         As of June 30, 1999, the Company employed 1,109 people.  Effective with
the acquisition of MCR on September 2, 1999 the Company added  approximately 270
more employees.  None of the Company's employees are under collective bargaining
agreements.

                                       7
<PAGE>

 ITEM 2. PROPERTIES
         ----------

         All of the Company's operations are conducted in leased facilities. The
Company  has  approximately  32 offices in leased  facilities  within the United
States  comprising  approximately  319 thousand  square feet. The minimum annual
rentals under  non-cancelable  operating leases are approximately  $6.8 million.
The terms of Company leases range from monthly  tenancies to multi-year  leases,
and many of these leases may be renewed for additional  periods at the option of
the  Company.   Major  leased  facilities  are  at  locations  in  Virginia  and
California.  The Company  believes  that its  facilities  are  adequate  for its
purposes. The company currently owns no real property, but has the option to buy
a 3-acre parcel in California at a nominal price.

ITEM 3.         LEGAL PROCEEDINGS
                -----------------

         The Company is involved in a number of legal proceedings arising in the
normal course of its business, none of which, individually or in aggregate, are,
in the opinion of  management,  material to the operations of the Company or are
likely to have a material adverse impact on the Company's liquidity or financial
condition.

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

                No matter was  submitted  to a vote of holders of the  Company's
stock in the fourth quarter of fiscal year 1999.

                                     PART II

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

         Stock Prices and Dividends
         --------------------------

         The Company's  common stock is traded on the New York and Pacific Stock
Exchanges.  As of September 3, 1999,  there were 1,250  holders of record of the
Company's common stock.  Stock price  information by quarter is presented in the
following table:

                                             Fiscal Year
           Market             ---------------------------------------------
           Price                     1999                       1998
         --------            -------------------         -----------------
                             High            Low         High          Low
                             ----            ---         ----          ---

         1st Quarter         11.38          4.63         8.13         4.94
         2nd Quarter          7.50          3.88         8.38         5.13
         3rd Quarter          8.19          5.94         7.00         5.56
         4th Quarter          8.50          6.50        11.25         4.94

         On September 3, 1999,  the closing price of the Company's  common stock
was $9.31.

                                       8
<PAGE>

         The  Company did not declare or pay any  dividend  with  respect to its
common stock during any of the years  included in the  financial  data,  and the
Board of  Directors  does not  presently  intend to commence the payment of such
dividends.  See Note 8 to the Consolidated Financial Statements for a discussion
of the  Company's  Shareholder  Rights Plan under which a dividend of one common
stock  purchase  right is  automatically  issued for each share of the Company's
common stock.


Recent Sales of Unregistered Securities
---------------------------------------

         During May and June 1997, the Company issued a total of 5,008 shares of
common stock to The Parsons  Consulting Group, Inc. ("TPCG") in fulfillment of a
contractual  obligation to compensate TPCG for services rendered to the Company.
The offering was exempt from  registration  under Section 4(2) of the Securities
Act as a transaction by an issuer not involving any public offering.

         On  September  2,  1999,  the  Company  completed  its  acquisition  of
Management  Consulting & Research,  Inc. ("MCR").  As part of the purchase price
the Company issued  2,000,000 shares of common stock to Dr. Gerald R. McNichols,
principal  shareholder of MCR. The offering was exempt from  registration  under
Section 4(2) of the  Securities  Act as a transaction by an issuer not involving
any public offering.

         From July 1, 1999 through  September 24, 1999, the Company  contributed
9,339 shares of Common Stock to  participants in its 401(k) profit sharing plan.
The offering was not subject to registration under the Securities Act because it
did not involve an offer or sale of a security.

                                       9
<PAGE>
<TABLE>
<CAPTION>

ITEM 6.  SELECTED FINANCIAL DATA
         -----------------------
<S>                                                                 <C>           <C>          <C>            <C>        <C>

FOR THE YEAR ENDED JUNE 30, ..................................       1999         1998         1997         1996         1995
                                                                   ---------    ---------    ---------    ---------    ---------
                                                                     (in thousands, except for per share data)

Revenue ......................................................   $ 164,602    $ 130,927    $ 117,599    $ 117,016    $ 132,812
Operating income (loss) ......................................       9,258        5,402        4,622         (182)       6,800
Interest income (expense), net ...............................      (1,215)      (1,866)      (1,343)        (518)         270
                                                                 ---------    ---------    ---------    ---------    ---------
Income (loss) from continuing operations before taxes ........       8,043        3,536        3,279         (700)       7,070
Income tax benefit ...........................................   ---------    ---------    ---------    ---------    ---------
Income (loss) from continuing operations .....................       8,906       10,702       13,861         (700)       7,070
Gain (loss) from discontinued operations .....................         225          758      (31,611)     (16,937)      (2,040)
                                                                $    9,131   $   11,460   $  (17,750)  $  (17,637)  $    5,030
                                                                 =========    =========    =========    =========    =========

Basic income (loss) per share from continuing operations .....  $     0.87    $    1.09    $    1.48    $   (0.08)   $    0.79
Basic income (loss) per common share .........................  $     0.89    $    1.17    $   (1.91)   $   (1.92)   $    0.56
Weighted average number of common shares .....................      10,230        9,838        9,338        9,172        9,001

Diluted income (loss) per share from continuing operations ...  $     0.85    $    1.07    $    1.45    $   (0.08)   $    0.75
Diluted income (loss) per common share .......................  $     0.87    $    1.14    $   (1.76)   $   (1.92)   $    0.53
Weighted average number of common shares and equivalents .....      10,498       10,254        9,843        9,172        9,393


Working capital (excluding discontinued operations) ..........  $   25,267    $  19,073    $  20,459    $  14,857    $  19,688
Net assets (liabilities) of discontinued operations ..........  $     (185)   $    (297)   $  (4,591)   $  14,742    $   9,975
Total assets .................................................  $   76,081    $  71,263    $  65,964    $  67,070    $  71,107
Long-term debt (less current maturities) .....................  $   12,623    $  23,264    $  28,153    $  16,527    $      --
Stockholders' equity .........................................  $   40,059    $  27,360    $  13,076    $  28,675    $  48,268
</TABLE>

                                       10
<PAGE>

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

         Summary
         -------

         The  following   analysis  and   discussion  are  intended  to  provide
additional  information  and  provide the reader a better  understanding  of the
information  presented in the  Company's  Financial  Statements  and Notes,  and
should be read in conjunction with them. All years refer to the Company's fiscal
year, which ends on June 30.

         Revenues
         --------

         Revenues in 1999 of $164.6  million were $33.7  million,  or 26%, above
1998 revenues of $130.9 million. 1998 revenues were $12.9 million, or 11%, above
revenues in 1997 of $117.6  million.  The largest  contributor to revenue growth
over the  three-year  period was the GCSS Army contract,  a systems  integration
project to modernize the Army's retail logistics systems. This project generated
revenues of $27.4 million, $10.7 million and $1.3 million in 1999, 1998 and 1997
respectively.  The Company's commercial information technology service business,
started in 1998,  grew to $7.3 million in 1999 compared to $2.2 million in 1998.
Revenues  in 1999 also grew as a result of  increased  demand for the  Company's
information technology and engineering services from the U.S.
Government.

         The following table sets forth for the periods indicated the percentage
that certain items of income and expense bear to revenues.

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

Revenues                                          100.0%     100.0%    100.0%

Cost of revenues                                   84.3%      84.4%     81.8%
Indirect and other costs                           10.1%      11.5%     14.3%
                                                   -----      -----     -----
Operating income                                    5.6%       4.1%      3.9%

Interest expense, net                               0.7%       1.4%      1.1%
                                                    ----       ----      ----

Income from continuing operations
     before income tax benefits                     4.9%       2.7%      2.8%

Income tax benefit                                  0.5%       5.5%      9.0%
                                                    ----       ----      ----

Income from continuing operations                   5.4%       8.2%     11.8%
                                                    ====       ====     =====

                                       11
<PAGE>

         Cost of Revenues
         ----------------

         The cost of revenues,  which  includes  direct labor and related fringe
benefits,  the management  cost of operations,  and other direct  contract costs
such as subcontract costs,  travel and equipment  purchases,  generally followed
the growth in demand for the Company's  services over the past three years. Cost
of  revenues  as a  percent  of  revenues  rose  significantly  in 1999 and 1998
compared to 1997 due to the increase in the use of  subcontractors to perform on
contracts.

         Indirect and Other Costs
         ------------------------

         Indirect   and  other   costs   consist   of   selling,   general   and
administrative, research and development and other costs. These expenses fell by
11%  from  $16.9  million  in 1997 to  $15.0  million  in  1998 as a  result  of
management  efforts to reduce  administrative  expenses after the Company exited
some  commercial   products  businesses  and  focused  on  its  core  government
professional services business.  From 1998 to 1999 these expenses grew by 10% to
$16.6  million,  but the rate of growth  in costs  was kept  well  below the 26%
growth  rate  in  revenues  as  the  Company   continued  to  improve  operating
efficiencies by controlling  administrative  costs. The increase in cost in 1999
was  primarily  from  staff  salary  increases  and a  non-recurring  expense of
$300,000  to  terminate  the  Company's  Structured  Equity  Financing  Line and
$130,000  related to the termination of the board of directors  retirement plan.
These efforts to reduce  administrative  expenses have resulted in a significant
decline in indirect  and other  costs as a percent of revenues  over this period
from 14.3% in 1997 to 10.1% in 1999.

         Operating Income
         ----------------

         Operating  income has grown over the past three  years at a faster pace
than revenues. The operating margins have increased from 3.9% in 1997 to 4.1% in
1998 to 5.6% in 1999.  The most  important  source of  improvement  in operating
margins has been the reduction in indirect and other costs discussed  above. The
cost  reductions  increasingly  have had the effect of improving  the  Company's
margins as the  proportion of the  Company's  business  under cost  reimbursable
contracts has fallen,  from 60% in 1997 to 49% in 1998 to 34% in 1999.  The cost
controls and improved  project  management have had the effect of  significantly
improving  margins in a contracting  environment which now is dominated by fixed
labor rate pricing  (fixed price and time and  materials  type  contracts).  The
declining  proportion of cost reimbursable  contracts has allowed the Company to
retain  more  of  the  benefits  of its  performance  improvement  efforts.  The
commercial  IT  services  business,  while still only 4% of  revenues,  has also
helped to boost operating  margins with operating  income  contributions of $1.6
million in 1999 compared to $.2 million in 1998. Included in operating income of
the commercial IT services business in 1999 is $380,000 of royalty income.

         Net Interest Expense
         --------------------

         Interest   expense  is  incurred   primarily  on  the  Company's   bank
borrowings,  which have  recently  been at the prime  bank  interest  rate.  Net
interest  expense  fell to $1.2  million in 1999 from $1.9  million in 1998 as a
result of a reduction in borrowings  stemming from positive operating cash flows
in 1999.  The  increase in 1998  interest  from the $1.3  million

                                       12
<PAGE>

level in 1997  reflects the  increase in debt  incurred in late 1997 in order to
fund  what are now  discontinued  operations.  In each of the  three  years  the
interest expense was offset by approximately $.2 million of interest income on a
note receivable which was collected at the end of 1999.

         Income Tax Benefit
         ------------------

         As a result of losses incurred in discontinued operations,  the Company
has  substantial  tax net operating loss  carryforrwards.  Starting in 1997, the
Company  began  recognizing  the value of these tax loss  carryforwards  when it
became more likely  than not that they would be realized by  offsetting  taxable
income in future years. By the end of 1999 the Company had fully  recognized the
value of these loss  carryforwards  resulting in a net income tax benefit in the
income  statement of $.9 million,  $7.2 million and $10.6 million in 1999,  1998
and 1997, respectively. With the full recognition of the tax loss carryforwards,
the Company has begun  reporting a more normal tax provision  against  income of
approximately  38.5%,  starting in the third quarter of 1999. The benefit of the
tax loss  carryforwards  has been  reflected in the $22.3  million  deferred tax
asset on the balance sheet at the end of 1999.

         Income (Loss) From Discontinued Operations
         ------------------------------------------

         The loss from discontinued operations of $31.6 million in 1997 reflects
the  results of the  Company's  plan in  February  1997 to dispose of two of its
business units, its Telecommunications and Advanced Products Divisions. The 1997
loss included a substantial write down of capitalized software. The 1998 gain on
discontinued operations of $.8 million reflects the sale of NetworkVUE, the last
remaining business,  and adjustments of estimated remaining  liabilities related
to such business.  The $.2 million gain in 1999 resulted from residual royalties
received on products of the discontinued businesses.

         Effects of Inflation
         --------------------

         Approximately  34% of the  Company's  business is conducted  under cost
reimbursable  contracts with the U.S. Government which  automatically  adjust to
cover  increased  costs as a result of  inflation.  Most of the remainder of the
Company's  business is on fixed labor hour and fixed  price  contracts  that are
priced with labor rates that reflect an estimate of the effects of inflation.
Inflation has not been a  significant  factor in the result of operations of the
Company.

         Liquidity and Capital Resources
         -------------------------------

         In  1999  the  Company   generated  $8.2  million  of  cash  flow  from
operations,  up from $5.6 million in 1998 and $5.7 million in 1997. The increase
came from improved operating income and the continuing deferral of tax liability
due  to  the  existence  of  tax  operating  loss  carryforwards.   Discontinued
operations  used  only a  small  amount  of cash  in  1999  as the  disposal  of
discontinued businesses is substantially complete.  Acquisitions of property and
equipment  were $2.2 million in 1999,  close to the  three-year  average of $2.5
million.  Acquisitions  were  primarily  for computer  and network  equipment to
modernize and support

                                       13
<PAGE>

the Company's  growth.  1999 cash flow was also augmented by the collection of a
$2  million  note  receivable.  The  cash  flows  resulted  in  a  reduction  in
outstanding debt of $11.6 million. Outstanding debt at the end of 1999 was $12.6
million.

         On August 27,  1999,  subsequent  to the fiscal  year end,  the Company
replaced its revolving credit and term loan with a new, 2-year revolving line of
credit with a total borrowing capacity of $35 million. The line of credit can be
used for  working  capital,  acquisitions  and for any surge in working  capital
requirements from a slow down in customer payments which might arise as a result
of Year 2000 computer problems.

         The Company believes that its cash flow from  operations,  particularly
with the  availability of tax operating loss  carryforwards to offset future tax
liabilities, and its line of credit are sufficient to meet its financing needs.


         Acquisition of Management Consulting and Research, Inc.
         -------------------------------------------------------

         Effective   September  2,  1999,  the  Company   acquired  all  of  the
outstanding  stock of Management  Consulting and Research,  Inc. (MCR).  The net
purchase  price of  approximately  $23 million was paid with 2 million shares of
GRCI's  common stock valued at  approximately  $16 million and the  remainder of
approximately $7 million in net cash, financed through the new credit agreement.
MCR provides professional services to the U.S. Government primarily in the areas
of budget analysis,  cost estimating and program management.  MCR's revenues are
approximately  $30 million per year. The acquisition will be accounted for using
the purchase  method of accounting  and will be  consolidated  with GRC from the
date of acquisition.

         Forward Looking Statements
         --------------------------

         This filing may contain "forward-looking"  statements which are subject
to certain  risks and  uncertainties  that could cause actual  results to differ
materially from those reflected in the forward-looking statements. Factors which
could cause a material  difference in results  include,  but are not limited to,
the  following:  significant  changes  in  economic  conditions  or in  national
priorities  which  result in changes in demands by the U.S.  Government  for the
Company's services;  changes in government laws and regulations;  changes in the
procurement  practices of the U.S.  Government which could negatively effect the
Company's ability to compete,  or its profitability;  the risk of termination of
any individual  contract or the inability of the Company to capture the value in
its backlog  because of failure of a customer to continue  funding of a project;
the ability of the Company to fully staff to meet its contract  requirements  at
salary levels sufficient to maintain profitability;  the uncertainties discussed
more fully in the section  entitled  "Year 2000  Issue";  and the ability of the
Company to generate sufficient taxable income in the future to fully capture the
benefit of its tax net operating  loss  carryforwards  that are reflected in the
Company's deferred tax assets.

                                       14
<PAGE>

         Year 2000 Issue
         ---------------

         The Year 2000 (Y2K)  problem is the result of computer  programs  being
written using two digits rather than four to define the applicable  year.  Thus,
the  year  1998 is  represented  by the  number  "98" in  many  legacy  software
applications. Consequently, on January 1, 2000, the year will jump back to "00",
and to systems that are non-Y2K  compliant,  the time will seem to have reverted
back 100 years. So, when computing basic lengths of time, the Company's computer
programs, certain building infrastructure components (including elevators, alarm
systems,  telephone  networks,  sprinkler  systems,  security access systems and
certain  HVAC  systems)  and any  additional  time-sensitive  software  that are
non-Y2K  compliant may recognize a date using "00" as the year 1900.  This could
result in system failures or miscalculations  which could cause personal injury,
property  damage,  disruption of operations,  and/or delays in payments from the
Company's  customers,  any or all of which could materially adversely effect the
Company's business, financial condition, cash flows or results of operations.

         During the fourth  quarter of fiscal 1998,  the Company  implemented an
internal Y2K  compliance  task force.  The goal of the task force is to minimize
the  disruptions  to the  Company's  business  which  could  result from the Y2K
problem,  and to minimize  other  liabilities  which the Company  might incur in
connection with the Y2K problem.  The task force consists of existing  employees
of the Company, and no new employees have been hired specifically to address the
Company's internal Y2K issues.

         Since  1998,  the  Company  has been in the  process  of  conducting  a
company-wide  assessment of its computer systems and operations  infrastructure,
including systems being developed to improve business functionality, to identify
computer  hardware,  software,  and  process  control  systems  that are not Y2K
compliant.  The Company  presently  believes that most of its  business-critical
computer systems which were not  Y2K-compliant  have been replaced,  upgraded or
modified.

         The Company's  financial  accounting  software  system was built in the
1980's on a commercial  database platform by Company employees.  The Company has
modified  this system to be Y2K  compliant.  The system has also been tested for
Y2K  compliance by the vendor of the platform on which the system  resides,  and
the vendor has  concluded  that the Y2K  compliance  risks  associated  with the
system are insignificant.

         The  Company's  management  systems,  such as human  resources/payroll,
purchasing,   and  classified  document  control,  are  separate   off-the-shelf
commercial  systems,  which are certified as Y2K compliant by the vendors of the
systems.  The Company has also  completed  certain  internal  testing of the Y2K
compliance of these systems.

         The Company has also initiated  communications with third parties whose
computer systems'  functionality  could impact GRCI. These  communications  will
facilitate  coordination  of Y2K solutions and will permit GRCI to determine the
extent to which the Company may be  vulnerable  to failures of third  parties to
address  their own Y2K issues.  However,  as to the systems of the third parties
that are linked to GRCI, in particular those of the U.S.  Government,  there can
be no guarantee  that such systems that are not now Y2K compliant will be timely
converted to Y2K compliance.

                                       15
<PAGE>

         The Company is also assessing any potential Y2K-related exposure it may
have with respect to software or hardware it has delivered to its customers. The
assessment  is almost  complete  with no  indication  of material  liability  or
exposure.

         The costs of the Company's Y2K compliance efforts are being funded with
cash flows from operations.  As normal business costs, these costs are generally
reimbursable by the government under the Company's government  contracts,  under
present regulations.  In total, these costs are not expected to be substantially
different  from the  normal,  recurring  costs  that are  incurred  for  systems
development,  implementation and maintenance.  As a result,  these costs are not
expected  to have a  material  adverse  effect  on  GRCI's  overall  results  of
operations or cash flows.

         Additionally,  there can be no guarantee that third parties of business
importance to GRCI, in particular the U.S.  Government,  will  successfully  and
timely  reprogram  or replace,  and test,  all of their own  computer  hardware,
software and process  control  systems.  Because the  majority of the  Company's
business  is  contracted  with  the U.S.  Government,  the  failure  of the U.S.
Government  to achieve Y2K  compliance by the year 2000 could have a significant
adverse effect on GRCI's business, financial position, results of operations and
cash flows.

         The Company has completed its Y2K contingency plan. The Company expects
to  modify  this  plan  periodically  prior to  January  1,  2000 as  additional
information is received. The Company believes there are two significant areas of
potential risk to its financial position as a result of the Y2K issue. The first
significant  area of risk  is the  result  of the  Company's  dependence  on the
ability of the U.S.  Government to meet its  obligation to pay all invoices in a
timely manner.  The Company has in place a revolving credit line which currently
has approximately $15 million of additional borrowing capacity that is available
to cover the effect on working capital  requirements of delays that may occur in
the  processing  of  payments by U.S.  Government  paying  offices.  The Company
believes the borrowing capacity to be sufficient,  but the interest cost related
to such payment delays would adversely effect the Company's earnings. The second
significant  area of risk is the delivery of public utilities to its facilities.
The Company has developed  plans to  accommodate  minor  interruptions  in these
services,  but will be unable to avoid  negative  financial  impact  should such
interruptions be extensive.

         The  foregoing  assessment  of the impact of the Y2K problem on GRCI is
based on  management's  best  estimates  at the present  time,  and could change
substantially.  The  assessment is based upon numerous  assumptions as to future
events. There can be no guarantee that these estimates will prove accurate,  and
actual  results  could differ from those  estimated if these  assumptions  prove
inaccurate.

                                       16
<PAGE>

ITEM 7a.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
             ----------------------------------------------------------

         The table below  provides  information  about the  Company's  financial
instruments that are sensitive to changes in interest rates as of June 30, 1999,
in particular, debt obligations. GRCI does not trade in these instruments or use
derivatives.  The table  represents  principal  cash flows and related  weighted
average interest rates by expected maturity dates.
<TABLE>
<CAPTION>

                                            Financial Instruments by Expected Maturity Date
                                                            (in thousands)
<S>                   <C>       <C>           <C>      <C>       <C>       <C>            <C>       <C>

                                                                             There-                Fair
                      2000       2001       2002       2003       2004       after      Total      Value
                      ------------------------------------------------------------------------------------

Liabilities
Long-term debt:

Variable rate        ---      $12,623      ---         ---         ---       ---       $12,623     $12,623
Average interest
   Rate              7.0%        7.0%      ---         ---         ---       ---

</TABLE>

ITEM 8.         FINANCIAL STATEMENTS
                --------------------
<TABLE>
<CAPTION>

                                                     INDEX TO FINANCIAL STATEMENTS
                                                     -----------------------------

                                                                                                          Page
                                                                                                          ----
          <S>                                                                                              <C>

         Independent Auditors' Report                                                                     18

         Consolidated Statements of Operations for the years ended
           June 30, 1999, 1998 and 1997                                                                   19

         Consolidated Balance Sheets as of June 30, 1999 and 1998                                      20-21

         Consolidated Statements of Cash Flows for the years ended
           June 30, 1999, 1998 and 1997                                                                22-23

         Consolidated Statements of Stockholders' Equity
           for the years ended June 30, 1999, 1998 and 1997                                               24

         Notes to Consolidated Financial Statements                                                       25

</TABLE>

                                       17
<PAGE>

                          INDEPENDENT AUDITORS' REPORT


To the Stockholders of GRC International, Inc.:
Vienna, Virginia

We  have  audited  the   accompanying   consolidated   balance   sheets  of  GRC
International,  Inc.  and  subsidiaries  as of June 30,  1999 and 1998,  and the
related consolidated  statements of operations,  stockholders'  equity, and cash
flows for each of the three years in the period ended June 30, 1999.  Our audits
also included the financial  statement  schedule listed in the Index at Item 14.
These   financial   statements   and  financial   statement   schedule  are  the
responsibility of the Company's management.  Our responsibility is to express an
opinion on the financial  statements and financial  statement  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,  such consolidated  financial  statements present fairly, in all
material  respects,  the  financial  position  of GRC  International,  Inc.  and
subsidiaries  as of June 30, 1999 and 1998, and the results of their  operations
and their  cash flows for each of the three  years in the period  ended June 30,
1999 in conformity with generally accepted accounting  principles.  Also, in our
opinion,  such financial statement schedule,  when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.




DELOITTE & TOUCHE LLP
McLean, Virginia
August 11, 1999, except for Note 9 as to which the date is September 2, 1999.

                                       18
<PAGE>

<TABLE>
<CAPTION>

                                               GRC INTERNATIONAL, INC. AND SUBSIDIARIES
                                                 CONSOLIDATED STATEMENTS OF OPERATIONS
                                                     FOR THE YEARS ENDED JUNE 30,


                                                                                   1999         1998         1997
                                                                                ---------    ---------    ---------
                                                                             (in thousands, except for per share data)
<S> ............................................................................    <C>          <C>          <C>

Revenues .......................................................................$ 164,602    $ 130,927    $ 117,599
Cost of services ...............................................................  138,770      110,477       96,123
Indirect and other costs .......................................................   16,574       15,048       16,854
                                                                                ---------    ---------    ---------

Operating income ...............................................................    9,258        5,402        4,622

Interest expense, net ..........................................................   (1,215)      (1,866)      (1,343)
                                                                                ---------    ---------    ---------

Income from continuing operations
  before income tax benefit ....................................................    8,043        3,536        3,279
Income tax benefit .............................................................      863        7,166       10,582
                                                                                ---------    ---------    ---------

Income from continuing operations ..............................................    8,906       10,702       13,861
                                                                                ---------    ---------    ---------

Discontinued Operations:

Income (loss) from discontinued operations, ....................................      225          758      (25,220)
  net of tax of $141 in 1999 and $471 in 1998
Loss on disposal of discontinued operations,
  including provision of $2,775 for
  operating losses during phase out ............................................       --           --       (6,391)
                                                                                ---------    ---------    ---------

Income (loss) from discontinued operations .....................................      225          758      (31,611)
                                                                                ---------    ---------    ---------

Net income (loss) ..............................................................$   9,131    $  11,460    $ (17,750)
                                                                                =========    =========    =========

Earnings Per Share Amounts:

Basic income per share from
  continuing operations ........................................................$    0.87    $    1.09    $    1.48
Basic income (loss) per common share ...........................................$    0.89    $    1.17    $   (1.91)
Weighted average common shares .................................................   10,230        9,838        9,338

Diluted income per share from
  continuing operations ........................................................$    0.85    $    1.07    $    1.45
Diluted income (loss) per common share .........................................$    0.87    $    1.14    $   (1.76)
Weighted average common shares and
  equivalents ..................................................................   10,498       10,254        9,943
</TABLE>

        The accompanying notes are an integral part of these statements.

                                       19
<PAGE>
<TABLE>
<CAPTION>

                                               GRC INTERNATIONAL, INC. AND SUBSIDIARIES
                                                      CONSOLIDATED BALANCE SHEETS
                                                            AS OF JUNE 30,
                                                                ASSETS


                                                                                                           1999        1998
                                                                                                         --------    --------
                                                                                                            (in thousands)
<S> ................................................................................................        <C>         <C>

CURRENT ASSETS:

Cash and cash equivalents ..........................................................................   $     88    $  3,648
Accounts receivable, net ...........................................................................     36,438      28,702
Unbilled reimbursable costs and fees ...............................................................      2,924       4,189
Other receivables ..................................................................................      1,339         893
Prepaid expenses and other current assets ..........................................................        522         486
Deferred income taxes ..............................................................................      6,871       1,239
                                                                                                       --------    --------
         Total current assets ......................................................................     48,182      39,157
                                                                                                       --------    --------

PROPERTY AND EQUIPMENT:

Land, buildings and leasehold improvements .........................................................      5,298       5,121
Equipment, furniture and fixtures ..................................................................     17,294      15,517
  Less accumulated depreciation and amortization ...................................................    (13,497)    (11,069)
                                                                                                       --------    --------
         Property and equipment, net ...............................................................      9,095       9,569
                                                                                                       --------    --------

OTHER ASSETS:

Goodwill and other intangible assets, net ..........................................................      1,989       2,176
Deferred income taxes ..............................................................................     15,428      16,678
Deposits and other .................................................................................      1,387       3,683
                                                                                                       --------    --------
         Total other assets ........................................................................     18,804      22,537
                                                                                                       --------    --------

TOTAL ASSETS .......................................................................................   $ 76,081    $ 71,263
                                                                                                       ========    ========
</TABLE>

        The accompanying notes are an integral part of these statements.

                                       20
<PAGE>
<TABLE>
<CAPTION>

                                               GRC INTERNATIONAL, INC. AND SUBSIDIARIES
                                                      CONSOLIDATED BALANCE SHEETS
                                                            AS OF JUNE 30,
                                                 LIABILITIES AND STOCKHOLDERS' EQUITY


                                                                                                                 1999        1998
                                                                                                               --------    --------
                                                                                                         (in thousands, except share
                                                                                                              and per share data)
<S> ........................................................................................................        <C>         <C>

CURRENT LIABILITIES:

Current maturities of long-term debt .......................................................................   $      9    $    975
Accounts payable ...........................................................................................      5,567       3,897
Accrued compensation and benefits ..........................................................................     14,461      13,268
Accrued expenses and other current liabilities .............................................................      3,063       2,241
                                                                                                               --------    --------
         Total current liabilities .........................................................................     23,100      20,381
                                                                                                               --------    --------


LONG-TERM LIABILITIES:

Long-term debt .............................................................................................     12,623      23,264
Other long-term liabilities ................................................................................        299         258
                                                                                                               --------    --------
         Total long-term liabilities .......................................................................     12,922      23,522
                                                                                                               --------    --------

COMMITMENTS AND CONTINGENCIES ..............................................................................       --          --

STOCKHOLDERS' EQUITY:

Preferred stock, $1.00 par value -
  300,000 shares authorized, none outstanding ..............................................................       --          --
Common stock, $.10 par value -
  Authorized - 30,000,000 shares,
  issued - 10,549,003 shares in 1999
  and 10,508,791 shares in 1998 ............................................................................      1,055       1,051
  Paid-in capital ..........................................................................................     83,277      79,712
  Accumulated deficit ......................................................................................    (40,428)    (49,558)
                                                                                                               --------    --------
                                                                                                                 43,904      31,205

   Less:  Treasury stock, at cost; 300,000 shares ..........................................................     (3,845)     (3,845)
                                                                                                               --------    --------

         Total stockholders' equity ........................................................................     40,059      27,360
                                                                                                               --------    --------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .................................................................   $ 76,081    $ 71,263
                                                                                                               ========    ========

</TABLE>

        The accompanying notes are an integral part of these statements.



                                       21
<PAGE>

<TABLE>
<CAPTION>

                                               GRC INTERNATIONAL, INC. AND SUBSIDIARIES
                                                 CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                     FOR THE YEARS ENDED JUNE 30,

                                                                                  1999      1998      1997
                                                                                -------   -------   -------
   <S> .........................................................................   <C>       <C>       <C>
                                                                                       (in thousands)
   CASH FLOWS FROM CONTINUING OPERATIONS:
   Income from continuing operations ...........................................$  9,130  $ 10,702  $ 13,861
   Reconciliation of income from continuing operations
        Depreciation and amortization ..........................................   2,888     3,177     3,330
        Deferred income tax benefit ............................................    (957)   (6,806)  (10,582)
        Changes in assets and liabilities
            Accounts receivable and unbilled
              costs and fees ...................................................  (6,471)   (3,728)      947
            Prepaid expenses and other current assets ..........................    (598)      287       (37)
            Accounts payable ...................................................   1,670     1,287    (2,197)
            Accrued expenses and other current liabilities .....................   2,127       689       227
            Other ..............................................................     437       (44)      103
                                                                                --------  --------  --------
   Net cash provided by operating activities ...................................   8,226     5,564     5,652
                                                                                --------  --------  --------

   CASH FLOWS FROM DISCONTINUED OPERATIONS:
   Income (loss) from discontinued operations ..................................     225       758   (31,611)
   Reconciliation of income from discontinued operations
        Non-cash charges and changes in net assets/liabilities .................    (337)   (4,223)    9,429
        Proceeds from sale of discontinued operations ..........................      --       400     3,366
        Provision for loss on disposal of discontinued operations ..............      --        --     6,391
                                                                                --------  --------  --------
   Net cash used in discontinued operations ....................................    (112)   (3,065)  (12,425)
                                                                                --------  --------  --------

   CASH FLOWS FROM INVESTING ACTIVITIES:
        Acquisitions of property and equipment .................................  (2,227)   (1,733)   (3,468)
        Collection of note receivable ..........................................   2,016        --        --
        Other ..................................................................      --       (32)     (344)
                                                                                --------  --------  --------
   Net cash used in investing activities .......................................    (211)   (1,765)   (3,812)
                                                                                --------  --------  --------

   CASH FLOWS FROM FINANCING ACTIVITIES:
        Principal payments on debt and capital lease obligations ............... (11,607)   (5,552)   (4,443)
        Bank borrowings ........................................................      --     2,710    13,881
        Proceeds from convertible debenture, warrants and other ................      --        --     4,000
        Deferred financing costs ...............................................      --        --      (207)
        Issuance of common stock ...............................................     144        --       320
                                                                                --------  --------  --------
   Net cash (used in) provided by financing activities ......................... (11,463)   (2,842)   13,551
                                                                                --------  --------  --------

   Net (decrease) increase in cash and equivalents .............................  (3,560)   (2,108)    2,966
   Cash and equivalents at beginning of year ...................................   3,648     5,756     2,790
                                                                                --------  --------  --------
   Cash and equivalents at end of year .........................................$     88  $  3,648  $  5,756
                                                                                ========  ========  ========

</TABLE>

        The accompanying notes are an integral part of these statements.

                                       22
<PAGE>

<TABLE>
<CAPTION>

                                               GRC INTERNATIONAL, INC. AND SUBSIDIARIES
                                                 CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                     FOR THE YEARS ENDED JUNE 30,

                                                                   1999             1998              1997
                                                                   ----             ----              ----
                                                                               (in thousands)
<S>                                                                <C>                <C>           <C>

Supplemental disclosures:

Cash paid for:

         Interest                                                $1,475           $2,239            $2,055

         Taxes                                                      201               28                80

Other non-cash financing activities:

         Conversion of debentures to common stock                   ---            2,814               750
</TABLE>






























        The accompanying notes are an integral part of these statements.



                                       23
<PAGE>
<TABLE>
<CAPTION>

                                                    GRC INTERNATIONAL, INC. AND SUBSIDIARIES
                                                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

                                                                         Common      Stock    Paid-in     Accumulated    Treasury
                                                                         Shares      Amount   Capital       Deficit        Stock
                                                                         ------      ------   -------      -----------    --------
                                                                                            (in thousands)
<S>                                                                      <C>         <C>        <C>             <C>      <C>

  Balances as of July 1, 1996 ...........................................9,586  $  958     $ 74,830        $(43,268)    $ (3,845)

       Stock issued under employee and director plans ..................    77       8          310              --           --
       Conversion of debenture to common stock .........................   184      18          732              --           --
       Proceeds from sale of warrants and other .........................   --      --          882              --           --
       Stock issued for consulting services ..............................   5       1          200              --           --
       Net loss* .........................................................  --      --           --         (17,750)          --
                                                                        ------ -------      -------         -------      -------


  Balances as of June 30, 1997 ...........................................
       Stock issued under employee and director plans ....................  35       3            7              --           --
       Conversion of debenture to common stock ........................... 621      63        2,751              --           --
       Net income* .......................................................  --      --           --          11,460           --
                                                                       ------- -------      -------         -------      -------


  Balances as of June 30, 1998 .........................................10,511   1,051       79,712         (49,558)      (3,845)

       Stock issued under employee and director plans ..................    41       4          140              --           --
       Tax effect of prior year option exercises (see note 4) ...........   --      --        3,425              --           --
       Net income* .....................................................    --      --           --           9,130           --
                                                                       ------- -------      -------        -------       -------


  Balances as of June 30, 1999 .........................................10,549  $1,055     $ 83,277        $(40,428)    $ (3,845)
                                                                       ======= =======      =======        ========     ========
</TABLE>


* The Company had no items of other comprehensive income (loss).


        The accompanying notes are an integral part of these statements.

                                       24
<PAGE>

                    GRC INTERNATIONAL, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          June 30, 1998, 1997 and 1996


(1)      ACCOUNTING POLICIES

         Principles of  consolidation - The  consolidated  financial  statements
include the  accounts  of GRC  International,  Inc.  and all  subsidiaries  (the
Company).  All  significant  intercompany  balances and  transactions  have been
eliminated.

         Cash and cash equivalents - Cash and cash  equivalents  include cash on
hand,  cash in  banks  and  temporary  investments  purchased  with an  original
maturity of three months or less.

         Property  and  equipment  -  Expenditures  for  betterments  and  major
renewals are  capitalized,  and ordinary  maintenance and repairs are charged to
operations as incurred.

         Depreciation  is computed using the  straight-line  method based on the
estimated useful lives of assets,  which range from 3 to 10 years.  Amortization
of leasehold  improvements is computed using the  straight-line  method based on
the remaining term of the related lease.

         Intangible  assets - Goodwill,  representing  the cost in excess of the
fair value of the net  assets of  businesses  acquired,  is being  amortized  to
operations  on a  straight-line  basis  over  periods  of up to 40 years.  Other
intangible  assets are being  amortized to operations on a  straight-line  basis
over periods of up to 7 years. The Company  periodically  evaluates the goodwill
and other intangible assets in relation to the operating  performance and future
contribution to the underlying  businesses and makes adjustments,  if necessary,
for any  impairment of these assets.  As of June 30, 1999 and 1998,  accumulated
amortization  of goodwill was $1,388,000 and  $1,312,000,  respectively,  and of
other intangible assets was $1,475,000 and $1,392,000, respectively.

         Revenue  recognition  - Service  revenues  result from  contracts  with
various government agencies and private industry.  Revenues on cost plus fee and
fixed price contracts are recognized  using the percentage of completion  method
generally  determined  on the basis of cost  incurred to date as a percentage of
estimated total cost. Revenues on time and materials contracts are recognized at
contractual  rates as  labor  hours  and  materials  are  expended.  Losses  are
recognized in the period in which they become determinable.

         Costs incurred in excess of current  contract funding are deferred when
management  believes they are realizable through subsequent  additional funding.
No revenues are recognized  related to such costs which are included in unbilled
reimbursable costs and fees in the accompanying consolidated balance sheets.

                                       25
<PAGE>

         Retirement  plans - The  Company  has a defined  contribution  deferred
income plan covering substantially all of its employees.  The plan provides that
the Company may make pension and employee  deferred  matching  contributions for
the  benefit  of  employees.  A  portion  of any  such  contributions  is at the
discretion  of the Board of  Directors.  The total  expense  under the  deferred
income plan was  approximately  $3,688,000,  $3,367,000  and $3,785,000 in 1999,
1998 and 1997, respectively.

         During 1999, the Company  terminated its defined  benefit  pension plan
for directors who are not  employees of the Company.  The total expense  charged
for the plan during 1999, including the cost of termination,  was $218,000.  The
cost of the plan in 1998 and 1997 was $61,000 and $53,000, respectively.

         Income  taxes - The Company  accounts  for income taxes under the asset
and liability approach which requires the recognition of deferred tax assets and
liabilities for the differences between the financial reporting and tax bases of
assets and liabilities.  A valuation  allowance reduces deferred tax assets when
it is more likely than not that some  portion or all of the  deferred tax assets
will not be realized.

         Earnings per share - Basic  earnings per share are computed  based upon
the weighted  average  number of shares of common stock  outstanding  during the
period.  Diluted earnings per share consider  potential common stock outstanding
during the period.  Potential common stock, for purposes of determining  diluted
earnings per share,  includes,  where applicable,  the effects of dilutive stock
options,  warrants, and convertible securities computed using the treasury stock
method or the if-converted method.

         Use  of  estimates  -  The  preparation  of  financial   statements  in
conformity with generally accepted accounting  principles requires management to
make estimates and  assumptions  that affect the reported  amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the dates of
the financial statements and the reported amount of revenues and expenses during
the reporting periods. Actual results could differ from those estimates.

         Reclassifications  - Certain prior year amounts have been  reclassified
to conform with the current year presentation.

         New Accounting  Pronouncement  - For the year ending June 30, 2001, the
Company  will  be  required  to  adopt  SFAS  133,   Accounting  for  Derivative
Instruments and Hedging Activities. Management does not believe adoption of this
Standard will have a material impact on its financial statements.

                                       26
<PAGE>

(2)      EARNINGS PER SHARE
<TABLE>
<CAPTION>

         The following table represents a  reconciliation  of the net income and
shares outstanding figures used in the basic and diluted earnings per share from
continuing  operations  computations.  (Amounts in thousands,  except  per-share
amounts).
<S>                                                          <C>    <C>    <C>    <C>     <C>    <C>          <C>    <C>    <C>

                                                                  1999                     1998                          1997
                                                           ---------------------  -----------------------   -----------------------
                                                                          $ Per                    $ Per                     $ Per
                                                           Income Shares  Share   Income   Shares  Share    Income   Shares  Share
                                                           ---------------------  -----------------------   -----------------------

   Basic earnings per share
   Income available to common
      stockholders .......................................$ 8,906 10,230  $0.87 $10,702    9,838  $1.09  $13,861    9,338  $1.48
   Effect of dilutive securities
   Stock options ..........................................    --    268             --      146              --      176
   Convertible debenture ..................................    --     --            184      270             425      329
                                                          --------------        ----------------
   Diluted earnings per share ............................$ 8,906 10,498  $0.85 $10,886   10,254  $1.07  $14,286    9,843  $1.45
                                                          ==============        ================         ================
</TABLE>

                                       27
<PAGE>

(3)      ACCOUNTS RECEIVABLE AND UNBILLED REIMBURSABLE COSTS AND FEES
<TABLE>
<CAPTION>

         A  summary  of  U.S.   government  and  non-U.S.   government  accounts
receivable and unbilled reimbursable costs and fees is as follows:
<S>                                                                            <C>                  <C>

                                                                                 1999                  1998
                                                                                -------              -------
                                                                                      (in thousands)
         Accounts receivable, net of reserves of
         $136 in 1999 and $41 in 1998 -
            U.S. government                                                     $ 34,520            $ 27,616
            Non-U.S. government                                                    1,918               1,086
                                                                                --------            --------
                                                                                $ 36,438            $ 28,702
                                                                                ========            ========
         Unbilled reimbursable costs and fees
            U.S. government                                                     $  2,388            $  3,424
            Non-U.S. government                                                      536                 765
                                                                                --------            --------
                                                                                $  2,924            $  4,189
                                                                                ========            ========
</TABLE>

         Invoices released in July that relate to June activity were $15,463,000
and $12,668,000 for 1999 and 1998,  respectively,  and are reflected in accounts
receivable in the accompanying financial statements.

<TABLE>
<CAPTION>

         The components of unbilled reimbursable costs and fees are as follows:

<S>                                                                                  <C>                 <C>

                                                                                      1999              1998
                                                                                    --------          --------
                                                                                         (in thousands)

         Retainages billable upon completion of contract                           $ 2,336           $ 2,561
         Unbilled direct costs, fee and indirect costs incurred
            in excess of provisional billing rates                                     212               836
         Costs incurred in excess of contractual authorization,
            billable upon execution of a contract or contractual
            amendment to increase funding                                              375               792
                                                                                  --------          --------

                                                                                  $  2,923          $  4,189
                                                                                  ========          ========
</TABLE>

         At June 30, 1999,  unbilled  reimbursable costs and fees expected to be
collected after one year were approximately $838,000.

         Costs  incurred by the Company in the  performance  of U.S.  government
contracts are subject to audit by the Defense  Contract Audit Agency (DCAA).  In
the opinion of management,  the final  settlement of these costs will not result
in significant adjustments to recorded amounts.

                                       28
<PAGE>

(4)      INCOME TAXES
<TABLE>
<CAPTION>

         The  differences  between  the  tax  provision  related  to  continuing
operations  calculated at the statutory  federal  income tax rate and the actual
tax benefit recorded for each year are as follows:
   <S> .................................................................               <C>                <C>                <C>

                                                                                      1999               1998               1997
                                                                                  --------           --------           --------
                                    (in thousands)

   Income tax provision at statutory federal rate ......................          $  2,735           $  1,202           $  1,115
   State income taxes, net of federal benefit ..........................               372                163                151
   Change in valuation reserve .........................................            (4,105)            (8,349)           (11,848)
   Other ...............................................................               135               (181)                --
                                                                                  --------           --------           --------

   Income tax benefit ..................................................         $    (863)          $ (7,166)          $(10,582)
                                                                                 =========           ========           ========
   </TABLE>

 <TABLE>
   <CAPTION>

     The primary  components  of the  Company's  net  deferred  tax asset are as
follows:
   <S> ..................................................................................................        <C>         <C>

                                                                                                                As of June 30,
                                                                                                            --------------------
                                                                                                              1999        1998
                                                                                                            --------    --------
                                                                                                               (in thousands)

   Deferred tax assets:
        Reserves and other nondeductible accruals .......................................................   $  2,064    $  2,167
        Compensation not currently deductible ...........................................................      3,047       2,094
        Net operating losses ............................................................................     19,000      26,257
        AMT and general business credits ................................................................        992         816
        Other ...........................................................................................         --           9
        Valuation reserve ...............................................................................         --      (9,150)
                                                                                                            --------    --------
              Total deferred tax assets .................................................................     25,103      22,193
                                                                                                            --------    --------

   Deferred tax liabilities:
        Unbilled reimbursable costs and fees ............................................................     (2,152)     (2,945)
        Prepaid expenses and rent .......................................................................       (383)       (342)
        Depreciation (tax over book) ....................................................................       (269)       (349)
        Internally developed software ...................................................................         --        (143)
         Other ..........................................................................................         --        (497)
                                                                                                            --------    --------
              Total deferred tax liabilities ............................................................     (2,804)     (4,276)
                                                                                                            --------    --------

              Net deferred tax asset ....................................................................   $ 22,299    $ 17,917
                                                                                                            ========    ========
   </TABLE>

                                       29
<PAGE>

         At June 30, 1999, the Company had net operating loss  carryforwards  of
approximately $50 million available to reduce future federal tax liabilities, of
which  approximately  $1.8 million  expire in 2000,  $9.2 million expire between
2001 and 2010,  $26 million  expire in 2011, and $13 million expire in 2012. The
benefit of the loss carryforwards has been fully recognized in the statements of
operations or as direct credits to stockholder's  equity in fiscal 1999 for that
portion  ($3,425,000)  of the net operating  losses related to tax benefits from
the exercise of employee stock options.

         Realization of the net deferred tax asset of $22.3 million is dependent
primarily on  generating  sufficient  taxable  income prior to expiration of the
loss carryforwards.  Although realization is not assured, management believes it
is more likely than not that all of the  recorded net deferred tax asset will be
realized.


(5)      DEBT

         Long-term debt at June 30, consists of the following:

                                                  1999                  1998
                                               ---------             ---------
                                                        (in thousands)

         Revolving credit agreement             $  7,873              $ 18,506
         Term loans                                4,750                 4,750
         Equipment financing                         ---                   961
         Other                                         9                    22
                                               ---------              --------

         Total long-term debt                   $ 12,632              $ 24,239
         Less current portion                         (9)                 (975)
                                                --------              --------

                                                $ 12,623              $ 23,264
                                                ========              ========

         The fair market values of the Company's  debt  instruments  approximate
the carrying values.

         Equipment  Financing  - In June  1996,  the  Company  completed  a $7.5
million financing of substantially all of its furniture and equipment.  The loan
was  originally  to be amortized  over a five year period at an interest rate of
9%, but the loan was fully retired during 1999.

         Revolving  Credit  Agreement  and Term  Loans - At June 30,  1998,  the
Company was party to a revolving  credit  agreement  with its bank that provided
for  secured  borrowings  up to $22  million,  and an  additional  $8 million of
financing  under term loans.  Both loans  accrued  interest at the bank's  prime
rate,  which was 8.0% as of June 30, 1999.  See also Note 9 - Subsequent  Events
for a discussion of a new line of credit.

                                       30
<PAGE>

         Convertible Debenture - On January 21, 1997, the Company entered into a
Convertible  Securities   Subscription  Agreement   ("Subscription   Agreement")
pursuant to which an investor  purchased a $4 million 5%  Convertible  Debenture
due January 2000  ("Debenture").  By April 1998,  the  Debenture  had been fully
converted into 804,322 shares.

         The investor also received a 7-year warrant to purchase  320,000 shares
of the  Company's  Common  Stock  at a price  of  $8.47  per  share  ("Debenture
Warrant").  The Debenture  Warrant  became  exercisable on July 31, 1998. If the
Company  sells  substantially  all of its  assets  or  enters  into a merger  or
acquisition  or  other  similar  transaction,  the  Debenture  Warrant  is to be
repriced  at the lesser of (i) $8.47 per share,  or (ii) 80% of the  Transaction
Value (as defined in the Debenture Warrant).

(6)      COMMITMENTS AND CONTINGENCIES

         Commitments  - The  Company  leases  all of its  facilities  and  rents
certain  equipment  under  operating  lease  agreements,   some  with  inflation
escalator clauses. The minimum annual rentals due under non-cancelable operating
leases during each of the next five years and in total thereafter, are presented
in the table below.

                                                Operating            Sublease
                                                 Leases           Rental Income
                                                ---------         -------------
                                                       (in thousands)

         2000                                   $  6,838              $  1,185
         2001                                      6,428                 1,094
         2002                                      6,157                   648
         2003                                      5,636                   324
         2004                                      5,108                   132
         Thereafter                               25,851                   ---
                                                --------              --------
                                                $ 56,018              $  3,383
                                                ========              ========

         Rent expense, net of sublease rental income, under operating leases was
$5,748,000, $6,115,000 and $6,787,000 in 1999, 1998 and 1997, respectively.

                                       31
<PAGE>

(7)      STOCK-BASED COMPENSATION PLANS

                  At June 30, 1999,  the Company  sponsors  several  stock-based
compensation  plans for employees and  directors.  Under these plans,  2,715,304
options are authorized, and 1,637,009 options are outstanding at June 30, 1999.

         Options granted under employee plans vest over periods ranging from six
months to four years,  and  generally  have a 10-year  term.  Under these plans,
options are issued at the fair market value on the date of grant, and therefore,
under the intrinsic value accounting  method, no compensation is recorded in the
statement of operations.

         The  Company  permits   outside   directors  to  receive  stock  and/or
non-qualified options in lieu of cash for director's fees. Options granted under
this plan are immediately  exercisable,  and remain  exercisable for three years
after a participant ceases to be a director.

         Under the Company's Cash Compensation  Replacement  Plan,  officers may
elect to forego cash  compensation (up to 25% of salary and up to 100% of bonus)
to purchase stock and/or  non-qualified  options at a 20% discount.  The options
are immediately exercisable as to 80% of the shares, with the remainder becoming
exercisable in increments over a four-year  period.  Options remain  exercisable
for three years after an officer's termination as an employee. Compensation cost
recognized under the Cash Compensation Replacement Plan for the years ended June
30,1999,  June 30, 1998 and June 30, 1997 equaled  $43,000,  $8,000 and $25,000,
respectively.

         The Company's current policy allows for the acceptance of mature shares
of the Company's stock at market value in lieu of cash for the proceeds due upon
exercise of the stock  options and for tax  withholdings  due from the employee.
The shares  received are retired and are reflected as reductions in common stock
and paid-in capital.

                                       32
<PAGE>

<TABLE>
<CAPTION>


         The Company uses the intrinsic  value method and applies APB Opinion 25
and related interpretations in accounting for its plans. In accordance with FASB
Statement  123,  the  following  pro forma net  income  and  earnings  per share
information   is  presented  as  if  the  Company   accounted  for   stock-based
compensation cost using the fair value method.  (These pro forma amounts may not
be indicative of such effects in future years.):

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

                                                                      1999                1998                     1997
                                                              ------------------   ----------------       --------------------
                                                                 As         Pro      As         Pro           As          Pro
                                                              Reported     Forma   Reported    Forma       Reported      Forma
                                                              ------------------  ------------------     ----------------------

   Net income (loss) ....................................... $ 9,131    $ 8,089   $11,460    $  9,702    $(17,750)     $(19,444)
     (in thousands)

   Diluted earnings ........................................ $  0.87    $  0.77   $  1.14    $   0.96    $  (1.76)     $  (1.93)
      (loss) per share
   </TABLE>

         The fair value of each option  granted during each year is estimated on
the  date of  grant  using  the  Black-Scholes  option-pricing  model  with  the
following assumptions:

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

(a)      Dividends                            ---            ---          ---
(b)      Expected volatility                  40%            50%          50%
(c)      Risk-free interest rate             6.0%           5.5%         6.5%
(d)      Expected life in years                5              5            5

                                       33
<PAGE>
<TABLE>
<CAPTION>

         A summary of the status of the  Company's  stock options as of June 30,
1999, 1998 and 1997 and changes during those years is presented below (shares in
thousands):

Option Plan Summary
<S>                       <C>           <C>            <C>             <C>            <C>           <C>

                                    1999                       1998                          1997
                         ---------------------------  --------------------------   --------------------------
                                        Weighted                    Weighted                     Weighted
                                         Average                     Average                      Average
                          Shares     Exercise Price    Shares    Exercise Price    Shares     Exercise Price
                         --------------------------   --------------------------   --------------------------
Outstanding @
   beginning of year    1,487,241        $10.71      1,223,350       $16.38        915,585        $17.60
     Granted              576,074        $ 5.53        837,230       $ 6.63        548,677        $12.98
     Exercised            (38,552)       $ 2.63        (88,964)      $ 5.59        (83,675)       $ 6.02
     Canceled            (387,754)       $18.35       (484,375)      $18.85       (157,237)       $17.15
                        ---------                    ---------                   ---------

Outstanding @
   end of year          1,637,009        $ 7.22      1,487,241       $10.71      1,223,350        $16.38
                        =========                    =========                   =========

Options exercisable
   at year end            695,186        $ 7.99        706,294       $10.82        374,793        $13.30
                        =========                    =========                   =========

Options available
   for future grant     1,087,294                      526,972                     591,556
                        =========                    =========                   =========

Weighted average
   fair value of options
   granted during the
   year                $    2.84                     $    3.46                   $    6.73
                       =========                     =========                   =========



                                 Options Outstanding                             Options Exercisable
                      --------------------------------------------           ---------------------------
                                        Weighted          Weighted                              Weighted
    Range of                             Average           Average                               Average
    Exercise            Number          Remaining         Exercise             Number           Exercise
     Prices           Outstanding         Life              Price            Exercisable          Price
    ----------------------------------------------------------------------------------------------------

   $ .10 - $  9.38     1,467,759           8.6            $  5.85              541,874          $  4.87
  $14.00 - $ 37.69       169,250           6.3             $19.05              153,313           $19.00
                       ---------           ---            -------              -------           ------
   $ .10 - $ 37.69     1,637,009           8.3            $  7.22              695,186           $ 7.99

</TABLE>

         Employee  Stock  Purchase  Plan -  Employees  may  purchase  stock at a
discount through payroll  deduction under the Company's  Employee Stock Purchase
Plan.  The  purchase  price of the shares is the lower of 85% of the fair market
value of the  stock on the  first  or the  last  day of the  quarterly  offering
period. The Company sold 62,302, 58,230 and 65,871 shares of common stock to its
employees during the years ended June 30, 1999, 1998 and 1997, respectively

                                       34
<PAGE>

 (8)     COMMON STOCK

         Purchase Rights - The Company has a Shareholder Rights Plan under which
a dividend of one common stock  purchase right (right) is  automatically  issued
for each share of the Company's  common stock. The rights are not exercisable or
transferable  apart from the common stock until ten business days after a person
has  acquired  beneficial  ownership  of 25% or more  of the  common  stock,  or
commences, or announces an intention to commence, a tender offer for 25% or more
of the common  stock.  Separate  certificates  for the rights  will be mailed to
holders of the common  stock as of such date,  and each right will  entitle  the
holder  thereof to buy one share of common  stock at an exercise  price of $100.
However,  if any person or group becomes the beneficial  owner of 25% or more of
the stock other than  pursuant to an offer for all shares which the  independent
Directors of the Company determine is fair to and otherwise in the best interest
of the  Company  and its  shareholders,  each right not owned by such  person or
group will entitle the holder to purchase,  at the exercise price of the rights,
that number of shares of common  stock of the  Company (or other  consideration)
which would have a market  value of two times the  exercise  price of the right.
Similarly,  in the  event  that the  Company  is a party  to a  merger  or other
business  combination  transaction,  each  right  will  entitle  the  holder  to
purchase,  at the exercise price of the rights,  that number of shares of common
stock of the acquiring  company which would have a market value of two times the
exercise  price of the right.  The rights are redeemable at $.05 per right prior
to the tenth  business day following the public  announcement  that a person has
acquired beneficial  ownership of 25% of the common stock. Upon redemption,  the
rights will terminate. In 1999, the directors accelerated the termination of the
plan from its original date of December 31, 2005 to August 31, 2000.

         Common Stock  Purchase  Warrants - In  connection  with issuance of the
Convertible  Debenture  in 1997  (see  Note 5) and the  Structured  Equity  Line
Financing  (see Note 9) the  Company  issued  and has  outstanding  warrants  to
purchase  445,000  shares of the Company's  common stock at a price of $8.47 per
share. The warrants are fully exercisable and expire on January 30, 2004. If the
Company  sells  substantially  all of its  assets  or  enters  into a merger  or
acquisition or other similar transaction, the warrants are to be repriced at the
lesser of (i) $8.47 per share, or (ii) 80% of the  transaction  value as defined
in the warrant agreements.

(9)      SUBSEQUENT EVENTS

         Structured Equity Line - On August 26, 1999, the Company terminated the
Structured Equity Line Financing.  This agreement  permitted the Company,  under
certain  conditions,  to require an  investor  to  purchase up to $18 million of
common stock. The Company accrued the specified  liquidated  damages of $300,000
for termination of the agreement in 1999.

         Revolving  Credit  Agreement - Both the revolving  credit agreement and
term loans  discussed in Note 5 were  terminated and replaced with a $35 million
Amended  and  Restated  Revolving  Credit  Agreement  (the  "Credit  Agreement")
effective  August  27,  1999.  The  Company  has both  Prime and  LIBOR  (London
Interbank Offered Rate) based

                                       35
<PAGE>

borrowing  options  under the Credit  Agreement.  The interest  accrued on LIBOR
loans is based on a ratio of debt to cash  flow.  The  current  premium is 1.10%
above the  applicable  LIBOR rate.  The Company  also pays a  performance  based
commitment fee, which is currently 0.30% of the line of credit.

         The Credit Agreement is secured by  substantially  all of the Company's
assets, and contains customary covenants,  including a requirement to maintain a
ratio  of  total  debt to  cash  flow of less  than 3 to 1.  The  Company  is in
compliance  with its covenants  under this  Agreement.  The  $35,000,000  Credit
Agreement, unless extended, matures August, 2001.

         Acquisition  of  Management  Consulting  and  Research,  Inc.  (MCR)  -
Effective  September 2, 1999, the Company acquired all of the outstanding  stock
of Management Consulting and Research,  Inc. (MCR). The gross purchase price for
MCR was  approximately $27 million.  After applying  approximately $4 million of
MCR's cash  available  at closing,  the net price of $23 million was paid with 2
million  shares of GRCI's common stock valued at  approximately  $16 million and
approximately $7 million in cash financed through the new credit agreement.  MCR
provides  professional services to the U.S. Government primarily in the areas of
budget  analysis,  cost  estimating and program  management.  MCR's revenues are
approximately  $30 million per year. The acquisition will be accounted for using
the purchase  method of accounting  and will be  consolidated  with GRC from the
date of  acquisition.  The  goodwill  to be  recognized  in the  transaction  is
estimated at $21 million. The Company expects to amortize it over a period of 30
years.

(10)     RELATED PARTY TRANSACTIONS

         The  chairman  and chief  executive  officer of  Mercantile  Bankshares
Corporation  (Mercantile)  is a member  of the  Company's  Board  of  Directors.
Mercantile has entered into a revolving  credit and term loan agreement with the
Company (see Notes 5 and 9 for discussion).

(11)     DISCONTINUED OPERATIONS

         During the quarter ended March 31, 1997, the Company  adopted a plan to
dispose of its Telecommunications and Advanced Products Divisions. As of January
8, 1998, all business units within those divisions had been sold.  Consequently,
the Company has reported its results of  operations  for the  Telecommunications
and Advanced Products Divisions as discontinued operations.

(12)     SEGMENT INFORMATION

        The Company  adopted  SFAS No. 131,  "Disclosures  about  Segments of an
Enterprise and Related Information" during fiscal 1999. SFAS No. 131 establishes
standards  for  reporting  information  about  operating  segments  and  related
disclosures about products and services, geographic areas and major customers.

        All  of  the  Company's  business  relates  to  information   technology
consulting services. The chief operating  decision-maker is provided information
about the revenues  generated


                                       36
<PAGE>

by operating  segment and utilizes income before interest and taxes as a measure
of  segment  performance.  The  Company's  services  are  delivered  to  clients
primarily in the United States, and the Company's  long-lived assets are located
within the United  States.  Based on SFAS No. 131 criteria,  the Company has two
reportable operating segments; U.S. Federal Government,  and Commercial.  Within
the U.S. Federal Government segment are sales to the Company's largest customer,
the Department of Defense  ("DoD").  Revenues from the DoD represented  96%, 98%
and 94% of total U.S. Government revenues in 1999, 1998, and 1997 respectively.

         The  Commercial  services  segment was formed in fiscal 1998 from small
pieces  of  business  that  were  being  executed  in what  is now  discontinued
operations  and  in  the  U.S.  Federal  Government   services  segment.  It  is
impractical  to break out separate  financial  results for the segment in fiscal
1997.
<TABLE>
<CAPTION>

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

                                                                                     U.S. Federal
                                                                                      Government    Commercial   Corporate   Total
                                                                                     ------------   ----------   ---------   -----
                                                                                                       (In Thousands)
     1999
        Revenues ................................................................     $157,314      $  7,288     $   --   $ 164,602
        Income from continuing operations .......................................        9,175         1,595     (1,512)      9,258
        Depreciation and amortization ...........................................        1,508            84      1,083       2,675
        Assets ..................................................................       67,165         3,406      5,510      76,081
        Capital expenditures ....................................................        1,180            39      1,008       2,227

     1998
        Revenues ................................................................     $128,768      $  2,159     $   --   $ 130,927
        Income before interest and taxes ........................................        6,644           159     (1,401)      5,402
        Depreciation and amortization ...........................................        1,726           116        914       2,756
        Assets ..................................................................       58,407         2,367     10,489      71,263
        Capital expenditures ....................................................        1,447            --        286       1,733

   </TABLE>

                                       37
<PAGE>

(13)     QUARTERLY FINANCIAL DATA (UNAUDITED)

        (in thousands except per-share amounts)
<TABLE>
<CAPTION>

                                                                               Q1             Q2             Q3             Q4
                                                                            -------        -------        -------        --------
   <S> ..............................................................            <C>            <C>            <C>            <C>

   Year ended June 30,1999
        Revenues ....................................................       $ 36,756       $ 39,052       $ 42,117       $ 46,677
        Income from continuing operations
           before income taxes ......................................          1,765          1,890          1,971          2,417
        Income from continuing operations ...........................          3,030          3,100          1,290          1,486
        Income from discontinued operations .........................             54            140             26              5
        Net income ..................................................          3,084          3,240          1,316          1,491
        Diluted earnings per share ..................................           0.30           0.31           0.12           0.14

   Year ended June 30,1998
        Revenues ....................................................       $ 27,165       $ 29,705       $ 35,307       $ 38,750
        Income from continuing operations
            before income taxes .....................................            882            696          1,055            903
        Income from continuing operations ...........................          1,136          2,027          3,548          3,991
        Income from discontinued operations .........................            290            468             --             --
        Net income ..................................................          1,426          2,495          3,548          3,991
        Diluted earnings per share ..................................           0.15           0.25           0.35           0.39
   </TABLE>


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

                None.

                                    PART III
                                    --------

ITEM 10.        DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
                --------------------------------------------------

                The information  required by this item is hereby incorporated by
reference to the Proxy Statement (to be filed).

ITEM 11.        EXECUTIVE COMPENSATION
                ----------------------

                The information  required by this item is hereby incorporated by
reference to the Proxy Statement (to be filed).

ITEM 12.        SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
                --------------------------------------------------------------

                The information  required by this item is hereby incorporated by
reference to the Proxy Statement (to be filed).

                                       38
<PAGE>

ITEM 13.        CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
                ----------------------------------------------

                The information  required by this item is hereby incorporated by
reference to the Proxy Statement (to be filed).

                                     PART IV
                                     -------

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

                (a)      EXHIBITS

                         See  "Index  to  Exhibits"  hereinafter  contained  and
incorporated herein by reference.

                (b)      SUPPLEMENTAL FINANCIAL STATEMENT SCHEDULE

                         The following  financial  information is filed herewith
                         on the pages indicated:

                         Schedule II - Valuation and  Qualifying  Accounts (Page
                         45)

                (c)      REPORTS ON FORM 8-K

                         None.

                                       39
<PAGE>

                                   SIGNATURES
                                   ----------


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

                                               GRC INTERNATIONAL INC.



Date: September 23, 1999                       By: /s/ Gary Denman
                                                   -------------------------
                                                   Gary Denman
                                                   President and Chief Executive
                                                   Officer


                                POWER OF ATTORNEY

         KNOW  ALL MEN BY THESE  PRESENTS,  that  each  person  whose  signature
appears below  constitutes and appoints Timothy C. Halsey his  attorney-in-fact,
with the power of substitution,  for him in any and all capacities,  to sign any
amendments to this Report, and to file the same, with exhibits thereto and other
documents in connection therewith,  with the Securities and Exchange Commission,
hereby  ratifying  and  confirming  all  that  said  attorney-in-fact,   or  his
substitute or substitutes, may do or cause to be done by virtue hereof.

         Pursuant to the  Securities  and 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:


Date: September 23, 1999                     By: /s/ Gary Denman
                                                 -------------------------------
                                                 Gary Denman
                                                 President and Chief Executive
                                                 Officer


Date: September 23, 1999                     By: /s/ James P. Allen
                                                 ------------------------------
                                                 James P. Allen
                                                 Senior Vice President, Chief
                                                 Financial Officer and Treasurer
                                                 (Chief Accounting Officer)

                                       40
<PAGE>

Date: September 23, 1999                    By: /s/ Joseph R. Wright, Jr.
                                                --------------------------------
                                                Joseph R. Wright, Jr., Chairman
                                                of the Board of Directors


Date: September 23, 1999                    By: /s/ Peter A. Cohen
                                                --------------------------------
                                                Peter A. Cohen, Vice Chairman
                                                of the Board of Directors


Date: September 23, 1999                    By: /s/ H. Furlong Baldwin
                                                --------------------------------
                                                H. Furlong Baldwin, Director


Date: September 23, 1999                    By: /s/ Frank J.A. Cilluffo
                                                --------------------------------
                                                Frank J.A. Cilluffo, Director


Date: September 23, 1999                    By: /s/ Gary L. Denman
                                                --------------------------------
                                                Gary L. Denman, Director


Date: September 23, 1999                    By: /s/ Leslie B. Disharoon
      ------------------                        --------------------------------
                                                Leslie B. Disharoon, Director


Date: September 23, 1999                    By: /s/ Charles H.P. Duell
                                                --------------------------------
                                                Charles H.P. Duell, Director


Date: September 23, 1999                    By: /s/ Leon E. Salomon
                                                --------------------------------
                                                Leon E. Salomon, Director

                                       41
<PAGE>

                          INDEPENDENT AUDITORS' CONSENT


         We consent to the incorporation by reference in Registration Statements
Nos.  33-1046,  33-39512,  33-39513,  33-52536,  33-52538,  33-87981,  33-87982,
333-38445 and 333-66917 of GRC International,  Inc. on Form S-8 and Registration
Statements Nos. 333-22087 and 333-22147 of GRC  International,  Inc. on Form S-3
of our report dated  August 11, 1999,  except for Note 9 as to which the date is
September  2,  1999,  appearing  in  this  Annual  Report  on  Form  10-K of GRC
International, Inc. for the year ended June 30, 1999.





/s/ Deloitte & Touche LLP
-------------------------
DELOITTE & TOUCHE LLP
McLean, Virginia
September 24, 1999

                                       42
<PAGE>
<TABLE>
<CAPTION>

                                               GRC INTERNATIONAL, INC. AND SUBSIDIARIES
                                            SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
                                                            (in thousands)
   <S> .......................................................... <C>          <C>          <C>               <C>             <C>

                                                                                      Additions
                                                                               ---------------------
                                                                Balance at     Charged to    Charged       Deductions      Balance
                                                                Beginning      Costs and     to Other         from         at End of
   Description .................................................of Period      Expenses      Accounts (A)   Reserves (B)    Period
   -----------                                                  ---------      --------      --------       --------        ------

   Year ended June 30, 1999

   Reserves for uncollectible receivables -
     Deducted from accounts receivable ........................ $     41        $   156        $   --      $   (61)         $136


   Year ended June 30, 1998

   Reserves for uncollectible receivables -
     Deducted from accounts receivable ........................ $     41        $   --         $   --      $   --           $ 41


   Year ended June 30, 1997

   Reserves for uncollectible receivables -
     Deducted from accounts receivable ........................ $      5        $   36         $   --      $   --           $ 41



         (A) Reductions of revenue for potentially nonrecoverable costs.
 (B) Write off of uncollectible accounts and cost against reserves, net of recoveries.
</TABLE>
                                       43
<PAGE>
<TABLE>
<CAPTION>

                                                  INDEX TO EXHIBITS
                                    (Exhibit Numbers correspond to Exhibit Table,

                                              Regulation S-K, Item 601)
Exhibit
Number                                                                                           Page
------                                                                                           ----
<S>               <C>                                                                              <C>

2.1            Agreement  and Plan of Merger  dated  August 5, 1999 by and among
               GRC  International,  Inc.,  MAC  Merger  Corporation,  Management
               Consulting & Research, Inc. and Gerald R. McNichols (incorporated
               by reference to Exhibit 2.1 to Form 8-K dated September 17, 1999)

2.2            Indemnity  Agreement  dated  September  1,  1999 by and among GRC
               International,   Inc.,   MAC   Merger   Corporation,   Management
               Consulting & Research, Inc. and Gerald R. McNichols.                             -----

2.3            Noncompetition  Agreement  dated as of  September  1, 1999 by and
               among GRC International,  Inc., Management Consulting & Research,
               Inc. and Gerald R. McNichols.                                                    -----

3.1            Restated Certificate of Incorporation  (incorporated by reference
               to Exhibit 3.1 to the 1994 Form 10-K)

3.2            Bylaws                                                                           -----

10.1*          1985  Employee  Stock Option Plan  (incorporated  by reference to
               Exhibit 10.1 to the 1996 Form 10-K)

10.2*          1994 Employee Option Plan  (incorporated  by reference to Exhibit
               10.2 to the 1997 Form 10-K)

10.3*          1998 Option Plan

10.4*          Cash Compensation Replacement Plan                                               -----

10.5*          Incentive Compensation Plan (incorporated by reference to Exhibit
               10.7 to the 1995 Form 10-K)

10.6*          Directors Fee Replacement Plan                                                   -----

10.7*          Directors  Phantom  Stock  Plan  (incorporated  by  reference  to
               Exhibit 10.7 to the 1996 Form 10-K)

10.8*          Directors Retirement Plan                                                        -----

10.9*          Form of Directors' Deferred Stock Unit Agreement                                 -----

10.10          Amended and  Restated  Revolving  Credit and Term Loan  Agreement
               ("Loan Agreement") with  Mercantile-Safe  Deposit & Trust Company
               ("Mercantile"), dated as of August 27, 1999                                      -----
<PAGE>

10.11          Lease Agreement dated as of June 30, 1989, with Exhibits, between
               the Company and Centennial III Limited Partnership  (incorporated
               by reference to Exhibit 10.17 to the 1989 Form 10-K)

10.12          Lease  Amendment  No.  1, with  Exhibits,  to Lease  between  the
               Company and Centennial III Limited  Partnership  (incorporated by
               reference to Exhibit 10.6 to the 1990 Form 10-K)

10.13          Lease  Amendments Nos. 2, 3, 4 and 5 to Lease between the Company
               and Richmond Land  Corporation  (as  successor to Centennial  III
               Limited Partnership) (incorporated by referenced to Exhibit 10.12
               to the 1994 Form 10-K)

10.14          Lease  Amendment  No. 6 to Lease between the Company and Richmond
               Land   Corporation   (as  successor  to  Centennial  III  Limited
               Partnership)  (incorporated by referenced to Exhibit 10.13 to the
               1995 Form 10-K)

10.15          Amended and Restated Rights  Agreement dated May 14, 1999 between
               the Company and The American Stock Transfer & Trust Company                      -----

10.16*         Employment Agreement between the Company and Jim Roth dated as of
               July 1, 1995  (incorporated  by reference to Exhibit 10.16 to the
               1996 Form 10-K)

10.17*         Amendment Number One to Employment  Agreement between the Company
               and Jim Roth dated as of June 30, 1998 (incorporated by reference
               to Exhibit 21 to the 1998 Form 10-K)

10.18*         Note dated July 9, 1992, and Deed of Trust dated as of August 11,
               1993,  by and between the Company and Jim Roth  (incorporated  by
               reference to Exhibit 10.15 to the 1994 Form 10-K)

10.19*         Amendment  to Deed of  Trust  Note  dated as of  March  26,  1998
               (incorporated  by  reference  to  Exhibit  10.23 to the 1998 Form
               10-K)

10.20*         Independent Contractor Agreement dated as of July 1, 1998 between
               the Company and Jim Roth  (incorporated  by  reference to Exhibit
               10.24 to the 1998 Form 10-K)

10.21*         Independent  Contractor Agreement by and among GRC International,
               Inc. and Jim Roth for the term of November 6, 1998 to November 5,
               2001.                                                                            -----

10.22*         Fiscal 1999 Chairman's Agreement dated as of July 1, 1998 between
               Joseph R. Wright, Jr. and the Company                                            -----

<PAGE>

10.23*         Fiscal 2000 Chairman's Agreement dated as of July 1, 1999 between
               Joseph R. Wright, Jr. and the Company                                            -----

10.24*         Vice Chairman's  Agreement dated as of September 25, 1997 between
               Peter A. Cohen and the Company                                                   -----

10.25*         Employment  Agreement  between  the  Company  and Gary L.  Denman
               (incorporated  by  reference  to  Exhibit  10.25 to the 1998 Form
               10-K)

10.26*         Form of Employment  Agreement for Michael G. Stolarik,  Thomas E.
               McCabe and James P. Allen                                                        -----

10.27*            Form of Employment Agreement for James L. Selsor                              -----

10.28*         Separation  and  Release  Agreement  dated as of April  20,  1999
               between James L. Selsor and the Company                                          -----

10.29          Building  Lease  between  the  Company  and  Bermant  Development
               Company  (incorporated  by reference to Exhibit 10.21 to the 1995
               Form 10-K)

10.30          First and Second Amendments to Building Lease between the Company
               and Bermant  Development  Company  (incorporated  by reference to
               Exhibit 10.23 to the 1997 Form 10-K)

10.31          320,000 Share Common Stock Purchase Warrant issued by the Company
               on   January   30,   1997  to  Halifax   Fund  L.P.   ("Halifax")
               (incorporated  by reference to Exhibit 10.4 to the Company's Form
               10-Q for the quarter ended December 31, 1996)

10.32          Registration  Rights  Agreement  dated  as of  January  30,  1997
               between the Company and Halifax  (incorporated  by  reference  to
               Exhibit  10.5 to the  Company's  Form 10-Q for the quarter  ended
               December 31, 1996)

10.33          125,000 Share Common Stock Purchase Warrant issued by the Company
               to Cripple  Creek in  connection  with the Equity Line  Agreement
               (incorporated  by  reference to Exhibit 10.7 to Form 10-Q for the
               quarter ended December 31, 1996)

10.34          Registration  Rights  Agreement  dated  as of  January  30,  1997
               between the Company and Cripple Creek relating to the Equity Line
               Agreement (incorporated by reference to Exhibit 10.8 to Form 10-Q
               for the quarter ended December 31, 1996)

11             Statement of Computation of Earnings Per Share                                   -----

21             Subsidiaries of the Registrant                                                   -----
<PAGE>

23             Consent of  Deloitte & Touche  LLP  (included  on Page 43 of Form
               10-K)

24             Powers of Attorney  (included as a part of signature pages to the
               Form 10-K)

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


* Indicates management contract or compensatory plan.