1998 ANNUAL REPORT TO STOCKHOLDERS

FRONT COVER

The cover of EA Engineering,  Science, and Technology, Inc.'s 1998 annual report
is headed by a small group of four building blocks--a  continuation of the theme
of the 1997 annual  report--followed by the firm's name. Below the header and to
the  right of the  center of the page is a picture  which  highlights  the earth
depicted  by a globe in the center of the  picture.  As a backdrop to the globe,
the picture  features a mirage  containing the sun, water,  forests,  industrial
images,  and  wildlife.  To the left of the picture is a sidebar with the words,
"Business solutions for energy, the environment, and health and safety"

(Page)

INSIDE FRONT COVER

(Left column)

ABOUT EA COMPANIES

EA's 25-year  history  began with an early  recognition  of the  interconnection
among energy, the environment,  and health and safety. That original perspective
has evolved into a cohesive  array of  technical,  analytical,  scientific,  and
management  capabilities  designed to help clients achieve their business goals.
We assist  industrial,  municipal and  government  clients in  addressing  these
challenges,   within  the  larger  framework  of  strategic  business  goals,  a
competitive global economy, and rapidly changing regulatory demands.

(Right column)

(A smaller version of the front cover tops the right column)

(A line is drawn from the left column to the right column. As the line ends, the
words "and the cover" are centered above the right column.)

The goal of  prosperity is inevitably  linked to the  challenges of energy,  the
environment, and health and safety. That connection is illustrated on the cover,
which highlights the interrelationship between human endeavors and environmental
impacts,  between  economic  objectives  and  emerging  technology,  and between
business  growth and natural  resources.  EA's  mission is to assist  clients in
recognizing  and leveraging  those  interrelationships  to improve  performance,
enhance productivity, and achieve strategic business goals.

<PAGE>

Consolidated Financial Data
------------------------------------------------------------------------------
(in thousands, except share data)                   1998       1997       1996
------------------------------------------------------------------------------
Operating Data:
 Total Revenue                                     $49,987   $73,891    $88,308
 Net Revenue                                        41,697    41,020     54,064
 Income (Loss) from Operations                       1,110    (8,022)      (444)
 Net Income (Loss)                                 $   605   $(5,408)   $  (580)
-------------------------------------------------------------------------------
Share Data:
 Basic Earnings Per Share                            $0.10    $(0.87)    $(0.09)
 Diluted Earnings Per Share                          $0.10    $(0.87)    $(0.09)
 Weighted Average Shares Outstanding             6,255,500 6,205,700  6,138,100
 Diluted Weighted Average Shares Outstanding     6,346,600 6,205,700  6,138,100
-------------------------------------------------------------------------------
Balance Sheet Data:
 Working Capital                                   $ 9,932   $10,182   $15,955
 Total Assets                                       23,475    26,642    33,329
 Short-Term Borrowings                                 --        --        --
 Long-Term Borrowings, net of current portion        1,280     2,332     2,665
 Stockholders' Equity                              $14,009   $13,257   $18,558
------------------------------------------------------------------------------

<PAGE>

PHOTO

Loren D.  Jensen,  Chairman of the Board,  and Donald A. Deieso,  President  and
Chief Executive Officer

To Our Shareholders:

Initiated more than a year ago, EA's strategic transformation continued in 1998,
changing the Company  from a pure  environmental  services  firm to a management
consulting firm  specializing in the issues of energy,  environment,  and health
and safety.  EA's  transformation  parallels the changing  needs of our clients,
positioning  us to deliver  value-added  solutions  that  enhance  our  client's
productivity, competitiveness and operating efficiency.

FINANCIAL HIGHLIGHTS

EA achieved a significant  milestone,  returning to profitability and increasing
earnings  to $0.10  per share in fiscal  1998,  compared  to a loss of $0.87 per
share in fiscal 1997. While EA's gross revenues  decreased to almost $60 million
in fiscal  1998 from $73.9  million in the prior  year,  reflecting  our planned
shift away from low-margin services, our net revenues held firm with fiscal 1998
showing $41.7 million compared to fiscal 1997's $41.0 million. Net income showed
substantial  improvements in fiscal 1998 with earnings of $604 thousand compared
to a loss of $5.4  million in the previous  year.  These  results were  produced
through a comprehensive  program focused on cash management,  cost control,  and
increased manpower utilization.  Significantly,  EA's financial earnings in 1998
were  accomplished  while  we  made  considerable   investment  in  our  Company
transformation and added new products and services.

OUR CLIENTS' NEEDS ARE CHANGING

The needs and  expectations  of EA's  target  client base are  evolving.  First,
traditional  environmental  needs are  changing.  Once  centered  on  regulatory
compliance and pollution cleanup, they are being replaced by business demands to
improve  efficiency of energy,  environment,  and health and safety  management.
Second, clients have expanded the range of capabilities and services they expect
from their consultants.  It is no longer sufficient to offer  single-discipline,
technical   services.   Third,   consultant/client   relationships  have  become
increasingly important. Clients are limiting the number of consultants they use,
employing only those firms in which they have strong trust and confidence.

(Page)

EA has recognized the practical effect of these key changes, setting into motion
a multi-faceted  strategy to accommodate the evolving demands of the market.  We
have  diversified  our client base,  reducing  EA's  reliance on any  individual
client  sector.  In fiscal 1998,  EA expanded the  percentage of new orders from
industrial  and utility  clients to 42%,  representing  a 10% increase  over the
prior year. We have also  expanded  service to our clients by developing a range
of business-oriented  capabilities including information  management,  strategic
and tactical  planning,  wetlands banking and  environmental  outsourcing.  As a
result, we have leveraged the traditional,  discipline-specific assignments into
new,  broad-based  contracts and in doing so, added 150 new clients to our firm.
As an example, EA's original stormwater and ecotoxicological assignments for The
Timken  Company  led  to a  management  contract  to  audit  process  and  water
management at five facilities  with the objective of improving  cost-efficiency.
Similarly,  EA's long-time  association with the US Navy based on our scientific
and  technical  services,  set the stage for a new  assignment to develop a data
management   system  to  improve  project   performance  and  reduce  regulatory
compliance requirements.

MARKET LEADERSHIP

In addition to expanding and enhancing EA's competitive position on the domestic
front,  we recognize the important  opportunities  presented by the $460 billion
global market. As part of a long-term  strategy to improve our  competitiveness,
expand our market share,  and increase  earnings,  EA in 1998 entered into seven
new alliances with . . .

(Sidebar)

"Global management consulting revenues are expected to average nearly 16% annual
growth by the year 2000" Kennedy Research Group

EA set into  motion a  strategy  designed  to expand our  management  consulting
practice. To assist clients improve their performance and reduce risk and costs,
EA deepened its capabilities in the areas of information  management,  strategic
and tactical planning,  environmental  outsourcing,  and public outreach.  These
capabilities,  combined  with  EA's  historic  emphasis  on client  service  and
responsiveness  to changing  needs,  contributed  to new  management  consulting
contracts and nineteen basic ordering agreements.


<PAGE>

(Sidebar)

"Large global increases in population and expanding economies in industrializing
countries  will  continue to increase  global  resource and energy  consumption,
generate   burgeoning   wastes,  and  spawn   environmental   contamination  and
degradation" United Nations Global Environment Outlook

The global marketplace  represents profound,  continuously changing needs in the
fields of energy,  environment,  and health and safety. In 1998, we entered into
seven new strategic  alliances with  international  partners and crafted several
"teaming" relationships with global environmental  management and infrastructure
development  leaders.  EA's  concerted  focus on the  global  market  produced a
significant increase in international orders.

(Continuing with To Our Shareholders:)

 . . .  international  partners and focused  considerable  efforts on gaining new
international  assignments.  Those efforts led to a significant  increase in new
international orders over fiscal 1997.  Substantial contracts were received from
multinational  corporations,  government  agencies,  and  international  funding
agencies.  Notable  among these awards is one from the US Trade and  Development
Agency, in which EA was awarded a five-year program  management  contract with a
potential  value of $5 million.  In addition,  EA is part of the team that won a
five-year  USAID  contract  with a potential  value of $50 million for worldwide
energy and environmental training.

An important  element of our market leadership  philosophy,  is our identity and
reputation as a technical  leader.  In 1998, this leadership was recognized with
two  prestigious  awards.  The  first,  "Outstanding  Project  of the Year," was
awarded by the Engineering  Society of Baltimore for our innovative  solid waste
management system, operating in Worcester County, Maryland. The second award was
the American  Planning  Association's  top award for  environmental  excellence,
granted in honor of EA's  integrated  natural  resources  management  plan for a
group of US Air Force bases in Hawaii.

CREATING A NEW EA

A new generation of energy and environmental  issues is emerging.  Global issues
of climate  change and ozone  depletion  are  pivotal  to the  rapidly  changing
international  economy. On a more local level, issues such as watershed planning
and emissions  trading have  introduced  new areas of concern for both municipal
and industrial  clients.  At the 

<PAGE>

same time,  our clients are  confronted  by market  pressures  to reduce  costs,
increase productivity, and improve profitability. Already, leading multinational
companies are tackling these  interrelated  issues through  creative  approaches
such as sustainable development,  product stewardship, and emissions banking and
trading.

As the challenges confronting our clients continue to change, they are demanding
new skills and approaches from their consultants.  Successful organizations will
be those equally  conversant in energy and  environmental  matters,  equipped to
communicate and operate in the technology- and information-driven virtual world,
while maintaining the ability to move fluidly in the global marketplace.

We are transforming EA into such a company.

Sincerely,

(Signature of Loren D. Jensen)

Loren D. Jensen
Chairman of the Board

(Signature of Donald A. Deieso)

Donald A. Deieso
President and Chief Executive Officer

(Sidebar)

"Corporations  that integrate  environmental  and business  decisions have shown
that  environmental  protection is not necessarily an expense  without  positive
return,  and  competitive  advantages  can accrue from  creative  approaches  to
environmental management" US Department of Commerce--Office of Technology Policy

EA's emphasis on comprehensive solutions,  rather than on single-issue technical
answers,  parallels a growing business trend of integrating  business objectives
with energy,  environmental,  and health and safety  factors.  Our  expertise in
applying  market-based  incentives  such as  voluntary  cleanup  and  industrial
redevelopment,  emissions  trading  and  wetlands  banking,  enables us to offer
clients value-added service that meets both business and technical needs.

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS

General

The Company's results of operations are significantly  affected by the timing of
the award of contracts,  the timing of performance on contracts,  and the extent
to which the Company's  employees are  performing  billable  tasks as opposed to
engaging in preparing contract proposals,  bids and other required  non-billable
activities.  Results of  operations  may also be affected to the extent that the
Company chooses not to reduce its professional  staff during a period of reduced
demand for its services.  Due to these factors,  quarterly results of operations
are not necessarily indicative of the results of operations for longer periods.

The Company,  in the course of providing  its services,  routinely  subcontracts
such services as drilling,  certain laboratory  analyses,  and other specialized
services.  In addition, as described in the "General" section of Item 1, the use
of teaming  partners  for the  performance  of services  similar to those of the
Company,  is included in subcontracts.  In accordance with industry practice and
contract terms that generally provide for the recovery of overhead costs,  these
costs are passed directly  through to clients and are included in total revenue.
Because  subcontractor  costs and direct charges can change  significantly  from
project to  project,  the  change in total  revenue  is not  necessarily  a true
indication of business trends.  Accordingly,  the Company considers net revenue,
which is total  revenue  less  subcontractor  costs,  as its primary  measure of
revenue.

Results of Operations

The following table sets forth the percentage relationships of selected items in
the consolidated statement of operations to net revenue for the years indicated.
For historical comparisons,  operating costs in past years have been adjusted to
include sales and marketing related costs in sales,  general, and administrative
costs. In previous years, these costs were included in direct salaries and other
operating expenses.


 Year Ended August 31,
 ------------------------------------------------------------------------------
                                                     1998      1997     1996
 ------------------------------------------------------------------------------
 Net revenue                                        100.0%    100.0%    100.0%
 ------------------------------------------------------------------------------
 Operating expenses:
  Direct salaries and other operating expenses       75.4      91.6      86.1
  Sales, general and administrative                  22.5      20.7      14.7
  Gain on "key employee" life insurance              (0.6)       --       --
  Restructuring charges                               --        7.3       --
 ------------------------------------------------------------------------------
    Total operating expenses                         97.3     119.6     100.8
 ------------------------------------------------------------------------------
 Income (loss) from operations                        2.7     (19.6)     (0.8)
 Interest expense, net                               (0.3)     (0.9)     (0.7)
 ------------------------------------------------------------------------------
 Income(loss) before income taxes                     2.4     (20.4)     (1.5)
 (Benefit from) provision for income taxes            0.9      (7.2)     (0.4)
 ------------------------------------------------------------------------------
    Net income (loss)                                 1.5%    (13.2)%    (1.1)%
 ------------------------------------------------------------------------------

Fiscal 1998 Compared to Fiscal 1997

Net revenue during fiscal 1998 increased 1.6% to $41,696,900  from  $41,020,200.
This  $676,700  increase is due in part to the  recognition  of contract  losses
related to certain  landfill  contracts in fiscal 1997.  The loss  provision for
these  contracts,  a business  line the  Company no longer  pursues,  recognized
anticipated  future  project  expenses  which lowered fiscal 1997 net revenue by
$1,400,000.  Adjusting  for this loss  recognition,  net  revenue in fiscal 1998
decreased  by 1.71%.  The  overall  decrease in net revenue is due to lower than
anticipated sales in the industrial sector. Although sales and marketing efforts

<PAGE>

have targeted this market and won approximately  150 new clients,  larger-volume
projects have not been  achieved as of the end of the fiscal 1998 period.  Lower
industrial sector sales were offset by improved net sales in the federal,  state
and local government, and utility sectors.

Direct salaries and other operating costs decreased 16.2% to $31,473,800 in 1998
from $37,560,300 in 1997, or 75.4% and 91.6% of net revenue,  respectively.  The
decreases were  attributable  to increased  staff  utilization and lower overall
non-labor  operating  costs.  The Company  maintained a  utilization  rate (time
charged  to  clients)  of more than 95% for its  technical  staff and an overall
Company  rate of  74%.  Significant  savings  were  also  achieved  by  lowering
equipment  and property  lease costs by  $1,900,000  in fiscal 1998  compared to
fiscal  1997.  These  savings were  achieved by  subletting  unused  facilities,
renegotiating  existing  leases,  and  changing  to  a  different  supplier  for
computer-related items.

Sales,  general and  administrative  costs increased 10.5% to $9,374,400 in 1998
from  $8,481,900 in 1997, or 22.5% and 20.7% of net revenue,  respectively.  The
increase in cost was  primarily  related to  additional  investment in sales and
marketing expenses in fiscal 1998 compared to the prior year.

In the third  quarter of fiscal 1998,  the Company  recorded a gain of $261,100,
reducing  its  operating  expenses.  The gain was related to the increase in the
cash surrender value of "key employee" life insurance  policies  included on the
Company's balance sheet.

In  the  third  quarter  of  fiscal  1997,  the  Company   implemented  a  major
organizational   realignment  to  reposition  itself  in  the  marketplace.   In
connection with the  restructuring,  the Company  incurred charges of $3,000,100
related to severance,  planned  reduction in office space, the suspension of the
implementation of a new project/financial  system, and other related costs. This
restructuring  included a staff reduction of 125 employees.  During fiscal 1998,
the Company  incurred  $803,500 in operating  related costs that were associated
with the FY97 restructuring and charged against the reserve instead of income.

As a result of the above factors,  the income from operations in fiscal 1998 was
$1,109,800,  compared to a loss from operations of $8,022,100 in the prior year.
Interest  expense,  net,  decreased  to $145,800  from the prior year's total of
$354,800. This 58.9% decrease is attributed to lower interest paid in connection
with the Company's line of credit, reduction of certain long-term debt principal
balances,  and the absence of an interest  payment in connection with a Maryland
tax settlement in fiscal 1997.

The net income for the twelve  months ended August 31, 1998,  was  $604,800,  or
1.5% of net  revenue,  compared  to a net  loss of  $5,407,600,  or 13.2% of net
revenue for the prior year.

Fiscal 1997 Compared to Fiscal 1996

Net revenue during fiscal 1997 decreased 24.1% to $41,020,200 from  $54,064,500.
The decrease was  attributable  to lower  contract  volume  associated  with the
Department of Defense,  industrial, and federal non-DOD agency activities. Also,
realized losses related to certain landfill projects  amounting to approximately
$1,400,000 of costs in excess of contract values were recognized in fiscal 1997,
further reducing net revenue.  Additionally,  price competition remained intense
within the  environmental  services  industry,  further  suppressing net revenue
levels compared to the prior year.

Due to the  aforementioned  restructuring,  direct  salaries and other operating
costs decreased 19.3% to $37,560,300  from  $46,535,500.  As a percentage of net
revenue,  however,  direct salaries and other operating costs increased to 91.6%
from 86.1% a year earlier.  This increase was  primarily  attributable  to lower
staff utilization,  especially in the second quarter,  related to a reduction in
available  work,  which produced an increase in operating  costs relative to net
revenue.  In  March  1997,  the  Company  implemented  a  major   organizational
realignment  to reposition  itself in the  marketplace.  In connection  with the

<PAGE>

restructuring,  the  Company  incurred  charges of  $3,000,100  during the third
quarter related to severance,  planned reduction in office space, the suspension
of the  implementation  of a new  project/financial  system,  and other  related
costs.  This  restructuring  included a staff  reduction  of  approximately  125
employees.

Sales,  general and  administrative  costs  increased 6.4% to $8,481,900 in 1997
from  $7,972,600 in 1996, or 20.7% and 14.7% of net revenue,  respectively.  The
increase was due  primarily to bonus  amounts paid to  management as a result of
the  Company's  exceeding  its profit  targets  for the final five months of the
year.  No bonuses were paid in fiscal 1996.

As a result of the above  factors,  the loss from  operations in fiscal 1997 was
$8,022,100  compared  to a loss from  operations  of $443,600 in the prior year.
Interest  expense,  net,  decreased  slightly to $354,800 from  $357,500.  A net
decrease in interest  expense from  lower-than-average  borrowings was offset by
higher rates and an interest  payment made in connection with a state income tax
settlement.

The benefit from income taxes was $2,969,300 for the year ended August 31, 1997,
compared  to a benefit  from income  taxes of $221,000  for the year ended 1996,
representing  effective  rates of 35% and 28%,  respectively.  The difference in
effective  tax rates  between  years is largely  attributable  to  increases  in
certain permanent differences between financial and income tax reporting, and to
the  non-recognition  of the future benefits  attributable to a foreign loss for
the fiscal year ended 1996. It is the opinion of management  that these recorded
benefits are more likely than not to be realized.

The net loss for the twelve  months ended August 31, 1997,  was  $5,407,600,  or
13.2% of net revenue,  compared to net loss of $580,100,  or 1.1% of net revenue
for the prior year.

Analysis by Segment

The following table provides selected financial information by segment:

<TABLE>
                                                               Year Ended August 31,
                                                    -------------------------------------------
                                                        1998           1997           1996
-----------------------------------------------------------------------------------------------
Gross sales
<S>                                                 <C>             <C>            <C>        
    Management Consulting Services (external)       $56,483,800     $72,559,500    $86,390,100
    Management Consulting Services (internal)        (2,869,900)     (4,370,500)    (5,456,900)
                                                     -----------    -----------    -----------
       Total Management Consulting Services (gross)  53,613,900      68,189,000     80,933,200

    Analytical Services (external)                    3,503,400       1,331,400      1,917,700
    Analytical Services (internal)                    2,869,900       4,370,500      5,456,900
                                                     -----------    -----------    -----------
       Total Analytical Services (gross)              6,373,300       5,701,900      7,374,600
===============================================================================================
Net sales to unaffiliated customer
    Management Consulting Services                   36,696,400      37,442,900     48,495,100
    Analytical Services                               5,000,500       3,577,300      5,569,400
===============================================================================================
Income (loss) from operations
    Management Consulting Services                    1,189,500      (6,862,500)        38,300
    Analytical Services                                 (79,700)     (1,159,600)      (481,900)
===============================================================================================
Identifiable assets (net property and equipment)
    Management Consulting Services                    1,132,700       1,534,000      1,999,900
    Analytical Services                                 648,400         862,800      1,125,000
================================================================================================
</TABLE>
Note:  Sales are  considered  external  when a segment  directly  enters  into a
contract with a client. Internal sales are generated by the use of the Company's
Analytical  Services  required by the external clients of Management  Consulting
Services.  Internal sales are duplicated  within each segment and are eliminated
through intercompany adjustments.

<PAGE>

1998 Results

Net sales for Management  Consulting  Services decreased 2% in the fiscal period
ended August 31, 1998 to  $36,696,400  from  $37,442,900  in fiscal  1997.  This
decrease is due to the  lower-than-anticipated  sales in the industrial  sector.
Net sales in Analytical  Services  increased  39.8% in fiscal 1998 to $5,000,500
from  $3,577,300 in fiscal 1997.  This increase is mainly  attributable to a new
contract with an industrial client.

The Management  Consulting Services segment contributed  $1,189,500,  or 3.2% of
net revenue,  to income from operations in fiscal year 1998,  compared to a loss
from operations of $6,862,500,  or 18.3% of net revenue, in the prior year. This
improvement  is  due  to a 20%  year-to-year  reduction  in  segment  costs  and
operating expenses.  Cost and operating cost savings were due to increased staff
utilization,  fiscal year 1997 restructuring  efforts,  and savings in equipment
and property leases.

The Analytical Services segment had a loss from operations of $79,700 or 1.6% of
net revenue for the fiscal  period ended August 31, 1998 compared to a loss from
operations of  $1,159,600,  or 32.4% of net revenue,  the prior fiscal year. The
improvement in earnings is mainly attributable to the $1,423,200 increase in net
revenue in fiscal year 1998,  offset by a slight increase to the segment's costs
and  operating  expenses.  Because the  Analytical  Services  segment has a high
percentage of overall fixed  indirect  expenses  (approximately  40% of indirect
operating costs),  changes in net revenue  significantly impact its contribution
to operating income.

1997 Results

Net sales for Management  Consulting Services fell to $37,442,900 for the fiscal
period  ended  August 31,  1997,  compared to  $48,495,100  for the period ended
August 31, 1996.  This decrease was  attributable  to lower contract volume with
the federal  government and realized losses related to certain landfill projects
amounting to  approximately  $1,400,000  in costs in excess of contract  volume.
Additionally,  price competition  remained intense within this segment,  further
suppressing sales. Net sales for Analytical  Services also fell to $3,577,300 in
fiscal 1997,  compared to $5,569,400  in fiscal 1996.  The decrease in sales was
mainly attributable to the $1,086,400 decrease in intercompany sales provided by
the clients of Management Consulting Services.

Management Consulting Services had a loss from operations of $6,862,500,  or 19%
of net revenue,  in fiscal 1997, compared to a $38,300 income from operations in
fiscal 1996.  The decrease in income from  operations  was due to lower sales in
fiscal 1997 and $3,000,100 in restructuring charges taken in fiscal 1997.

Analytical  Services had a loss from  operations of $1,159,600,  or 32.4% of net
sales, in fiscal 1997, compared to a loss from operations of $481,900,  or 8.7%,
in fiscal 1996. The increased loss from operations was due to lower sales.

Inflation

Because of its ability to generally pass through increased costs to its clients,
as well as the  generally  low levels of  inflation,  the Company  believes that
inflation has not had a material impact on its operations.

Liquidity and Capital Resources

Cash and cash equivalents  (cash) decreased by $550,700 in 1998,  compared to an
increase  of  $1,024,700  in 1997 and a  decrease  of  $2,505,300  in 1996.  The
decrease in 1998  principally  resulted  from the payout of cash  related to the
fiscal 1997  restructuring  expenses and reduced  borrowings  from the Company's
revolving line of credit, aided by the collection of income tax refunds.

<PAGE>

The  Company's  capital  expenditures  (consisting  primarily  of  purchases  of
equipment and leasehold improvements) of approximately  $546,500,  $699,000, and
$1,008,500 in 1998,  1997, and 1996,  respectively,  have been funded  primarily
from cash flows.

Near  the end of  fiscal  1997,  the  Company  entered  into a new  bank  credit
arrangement with a regional bank consisting of: (I) an $8,500,000 revolving line
of credit  secured  by  receivables;  (ii) a $500,000  term  loan;  and (iii) an
equipment  line of credit of  $1,500,000.  Of the  $8,500,000  revolving line of
credit,  $2,500,000 is available for acquisitions,  joint ventures and licensing
agreements.  Borrowings from the revolving line of credit are limited to certain
percentages of accounts receivable and costs and estimated earnings in excess of
billings (up to a maximum of  $4,000,000).  The interest on all  borrowings  was
LIBOR +250, through March 1998. However,  the interest was reduced to LIBOR +200
in May 1998 due to the Company achieving  certain  financial  ratios,  which the
Company expects to be reduced to LIBOR +150 in the first quarter of fiscal 1999.

At August 31, 1998, the Company had outstanding  long-term  debt,  including the
current portion, of $1,718,600,  which represented a decrease of $1,261,400 from
the August 31,  1997  balance  of  $2,980,000.  The  Company  had no  short-term
borrowings under its line of credit at August 31, 1998 and 1997.

The Company's existing funds, cash from operations, and the available portion of
its $8,500,000 bank line of credit and $1,500,000 equipment line are expected to
be  sufficient  to meet the  Company's  present  cash needs.  The  Company  also
currently believes it has the ability to raise capital through placement of debt
and may  pursue  such  options  if the need  arises to expand  facilities,  make
acquisitions  or  acquire  equipment  in  conjunction  with a review of the most
cost-effective means for the Company and its stockholders.

While the Company believes that there is sufficient demand for current operating
levels,  there can be no  assurance  that this  demand  will exist or  continue.
Although the Company has the ability to reduce its professional staff in periods
of reduced  demand,  it may choose not to make full  reductions in such periods,
with resulting adverse effects on operations.

Year 2000 Readiness Disclosures

EA Engineering, Science, and Technology, Inc. ("EA" or the "Company") recognizes
the  seriousness of the challenge  businesses  worldwide face as a result of the
Year 2000  problem.  EA  formally  began to address  its own Year 2000 status in
early 1998.  The Company  believes the measures it has already  taken,  together
with those planned for 1999,  will minimize any impact the Year 2000 problem may
have on EA's ability to deliver services to its clients,  financial  performance
or results of operations.

Definitions

During fiscal 1998, EA developed a three-phase program for Year 2000 compliance.
Phase I identified those systems,  hardware and software that posed a compliance
risk for EA.  Phase II  assessed  the  business  and  financial  impact of these
at-risk  systems;  established  priorities  to  address  these risk  areas;  and
prescribed  remediation schedules and details. Phase III is the final testing of
the major systems to ensure compliance.

Assessment

EA's information  technology  infrastructure can be broadly categorized into the
following  major  systems:   networking  and  communication   systems,   desktop
computing, major application systems, EA Laboratory,  non-information technology
(non-IT) and other miscellaneous systems.

<PAGE>

The Company's Phase I assessment  identified  several critical  elements of EA's
networking and communications  infrastructure that are potentially vulnerable to
Year 2000 issues.  These elements  include various types of computer servers and
network routers. Additionally,  various software components require new revision
to ensure  compliance.  Numerous  databases  and  database  access  programs are
currently believed to be non-compliant.

EA's desktop computing environment is comprised  predominantly of Compaq desktop
computer systems,  IBM notebooks,  the Microsoft Windows 95 operating system and
numerous  versions  and  variations  of  commercially  available  software.  The
majority  of the  desktop  computer  systems,  notebooks  and  operating  system
software  with  applicable  Y2K patches,  is currently  believed to be Year 2000
compliant.  EA leases all of its computer hardware and consequently replaces all
equipment  on a  three-year  schedule.  This  rotation  minimizes  any Year 2000
problems  in this  area.  Desktop  application  software  varies  greatly in its
ability to accurately process Year 2000 information.

It is currently  believed that the Company's major  applications,  including its
financial  management,  human resources,  and laboratory  (LIMS) systems are not
Year 2000  compliant.  However,  a full  assessment  was not  completed on these
systems  because they are  scheduled  for  replacement  in the  upcoming  fiscal
period.  These  systems are being  replaced  to improve  their  performance  and
functionality.  Replacement of these systems was not accelerated due to the Year
2000 issue.

EA's  laboratory  is  comprised  of many  different  models  of  Hewlett-Packard
laboratory  equipment.  The hardware is currently believed to be compliant.  The
system level software used on this equipment is still under review.

The non-IT and  miscellaneous  category  includes items such as phone  switches,
voice mail systems,  environmental  controls  systems,  and the like.  The phone
switches are believed to be Year 2000 compliant. The voice mail system and other
remaining systems are currently under review.

Remediation / Replacement

Networking and Communications  Systems - In early calendar 1998, EA restructured
its network topology. The Company currently believes that this redefinition will
significantly  upgrade  EA's  overall   communications   capabilities,   improve
reliability and performance,  and believes it will be Year 2000 compliant.  This
upgrade will be  accomplished  through the  replacement  of all critical  system
components  that have potential  Year 2000 problems.  Two of four critical field
systems have already been  replaced.  The remaining two will be completed by the
spring of 1999.  The  upgrading  of the EA  corporate  headquarters'  systems is
underway and will be completed  during the first  quarter of calendar  1999.  EA
selected MCI Worldcom as its communications  services provider. MCI Worldcom has
advised EA that it is fully Year 2000 compliant.

Coincident with the hardware upgrades, EA is upgrading its database capabilities
to be Year 2000 compliant.  The database  capabilities are presently expected to
be in place  during  the first  quarter  of  calendar  1999.  EA has  retained a
consultant  to convert all  applicable  databases to compliant  software.  These
database  conversions will continue through the first three quarters of calendar
1999.

Desktop Computing - To address EA's desktop software computing  environment,  EA
standardized on the Microsoft Office Suite of application products in the second
quarter  of fiscal  1998.  The MS Office  product  is not fully  compliant.  Any
remaining non-compliant applications are being addressed on a project-by-project
basis.  We  anticipate  this  process to be  completed  in the third  quarter of
calendar 1999.

Major  Applications  - EA plans  to  replace  its  financial  management,  human
resources and laboratory systems in 1998/99.  The Company has selected financial
and  laboratory  packages  that are fully Year 2000  compliant.  The  process to
replace  these  systems  will begin in December  of 1998.  We  anticipate  these
systems  to be fully  operational  by the end of the third  calendar  

<PAGE>

quarter of 1999. The Company is completing its review of fully  compliant  human
resources systems. Once selected,  the implementation will begin in January 1999
and is expected to be completed in April 1999.

EA  Laboratories - As part of the EA  Laboratories'  maintenance  agreement with
Hewlett-Packard  (HP), the manufacturer will be completing an independent review
of the labs'  hardware and software  systems during  November 1998.  This review
will be at no cost to EA Laboratories. We have already determined the laboratory
hardware is  compliant.  HP's review will  confirm this  assessment  and provide
additional  insight  into the status of the  software  required to operate  this
equipment. Any deficiencies with this software will be addressed early in 1999.

Non-IT and  Miscellaneous  Systems - Phone  switches  in the branch  offices are
currently under review.  The manufacturer of our voice mail systems is currently
providing input  regarding the status of the systems.  Should Year 2000 upgrades
be required for these systems,  they will be performed  during the first half of
1999.  We will begin a formal review of our  environmental  control and facility
systems  early in 1999.  Issues with these systems will be addressed as they are
identified.

Testing

EA has  tested  and will  continue  to test,  the Year 2000  worthiness  of each
upgraded  system,  as it is  installed.  In each case,  e.g.,  desktop  systems,
networks,  major systems,  etc., this  compliance  testing is comprised of three
independent  assessments:  first, review of the product manufacturer's Year 2000
compliance testing  certifications and results--no product is selected unless it
has been identified by the  manufacturer to have passed a comprehensive  battery
of Year 2000 tests;  second,  testing of these products  prior to  installation;
third,   outside   consultants  or  subcontractors   will  conduct   independent
assessments of all of these products.

Risks and Contingency Plans

Based on the  progress the Company has made toward Year 2000  compliance  during
1998, together with its plans for 1999, the Company does not foresee significant
risks associated with these efforts at this time. Since EA has adopted a plan to
address these issues in a timely  manner,  it has not developed a  comprehensive
contingency  plan should these issues fail to be  completed  successfully  or in
their entirety.  However, as we monitor our progress during 1999, if the Company
identifies  significant risks or is unable to meet its anticipated timeline, the
Company will develop contingency plans as deemed necessary at that time.

Third-Party Vendors, Utilities and Customers

The fact that EA provides environmental consulting services, which are primarily
labor-based,  substantially  minimizes the risks  associated with potential Year
2000 problems with its internal systems and suppliers.  The Company  maintains a
broad base of vendors and  suppliers  and  believes  there is little risk to its
ongoing operations from Year 2000 problems encountered by its outside vendors.

EA will be contacting  each of its major vendors and utilities early in calendar
1999 to inquire into each  system's  Year 2000  compliance.  The Company  cannot
fully  assess  the  degree  to  which  its  customers,   particularly  the  U.S.
Government,  will  successfully  complete a Year 2000 upgrade on a timely basis.
Because a significant  portion of the Company's  business is from contracts with
various federal government agencies, a failure by the U.S. Government to achieve
Year 2000  compliance  could have a significant  adverse effect on the Company's
future business, financial operations and results of operations.

<PAGE>

Reasonably Likely "Worst-Case" Scenarios

EA has gone to significant  lengths to provide  redundancy in each major system.
For example, four independent communication paths have been defined between EA's
branch offices and its  headquarters  location.  Any of these paths will provide
data access to the systems  required to continue normal business  operations.  A
failure in any single  major  system will not result in the  cessation of normal
work  processes.  When fully  implemented  during the final quarter of 1999, the
failure of any single system will pose only a minimal risk.

The greatest  "reasonably  likely,  worst-case  scenario" to EA will be from the
outside,   primarily   customers  and   subcontractors.   If  our  customers  or
subcontractors fail to prepare adequately for Year 2000, there could be numerous
and significant  effects on EA. For example,  subcontractors  may not be able to
obtain or deliver  needed data;  EA employees  might be unable to perform  work,
resulting in a loss of revenue;  payments may fail to arrive on time. Any or all
of  these  contingencies  could,  under  certain  circumstances,   result  in  a
substantial and material impact on EA's financial performance.

Costs to Address Year 2000 Issues

In  summary,  the Company  does not believe  that Y2K costs will have a material
impact to its operating income.  Because the Company leases all of its hardware,
remediation  of these  items  will be  completed  by  replacing  them,  with the
associated  lease expense  included in the Company's normal operating costs. The
cost  of  remediation  of  database  software,  miscellaneous  desktop  software
upgrades, and non-IT systems is expected to be less than $30,000. However, it is
possible that non-compliant Hewlett-Packard software in EA Laboratories may have
a material  impact,  although  the exact  amount is not known at this time.  The
replacement of major applications was previously planned to improve  performance
and functionality  requirements.  These replacements were not accelerated due to
Year 2000 issues;  as such the costs of these  systems are part of the Company's
capital budget.

Forward-Looking Statements

The foregoing contains  "forward-looking  information" within the meaning of The
Private  Securities   Litigation  Reform  Act  of  1995.  Such   forward-looking
statements  may be  identified  by an  asterisk  (*) or by such  forward-looking
terminology  as "may,"  "will,"  "believe,"  "anticipate,"  "expect," or similar
words or variations thereof. Such forward-looking statements involve significant
risks and uncertainties,  including,  among other things,  risks associated with
(1) substantial reliance on government contracts,  public budgetary restrictions
and  uncertainties,  discrepancies  between awarded  contract amounts and actual
revenues,  and  cancellation of contracts at the option of the  government,  (2)
timing and award of contracts,  (3) timing and performance of contracts, and (4)
successful  bidding  of  government  and  non-government  contracts  in  a  very
competitive environment. IN EACH CASE, ACTUAL RESULTS MAY DIFFER MATERIALLY FROM
SUCH  FORWARD-LOOKING  STATEMENTS.  Other  important  factors  that the  Company
believes may cause actual results to differ materially from such forward-looking
statements  are  discussed  throughout  this Report and in the  Company's  other
filings  with the  Securities  and  Exchange  Commission.  The Company  does not
undertake to publicly  update or revise its  forward-looking  statements even if
experience or future changes indicate that any such results or events (expressed
or implied) will not be realized.

<PAGE>

CONSOLIDATED BALANCE SHEETS
-----------------------------------------------------------------------------
August 31,                                          1998              1997
-----------------------------------------------------------------------------
ASSETS
Current Assets:
   Cash and cash equivalents . . . . . . . . . . .   $ 1,782,600   $ 2,333,300
   Accounts receivable, net. . . . . . . . . . . .     8,441,900     9,498,800
   Costs and estimated earnings in excess of
      billings on uncompleted contracts. . . . . .     6,394,900     5,653,800
   Refundable income taxes . . . . . . . . . . . .       407,600     1,883,900
   Prepaid expenses and other. . . . . . . . . . .     1,090,600     1,865,500
------------------------------------------------------------------------------
         Total Current Assets. . . . . . . . . . .    18,117,600    21,235,300
------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT, at cost:
   Furniture, fixtures and equipment . . . . . . .    13,106,900    12,599,200
   Leasehold improvements  . . . . . . . . . . . .     3,675,600     3,664,800
------------------------------------------------------------------------------
   Total property and equipment, at cost . . . . .    16,782,500    16,264,000
   Less-accumulated depreciation and amortization    (15,001,400)  (13,867,200)
------------------------------------------------------------------------------
      Net Property and Equipment . . . . . . . . .     1,781,100     2,396,800
------------------------------------------------------------------------------
OTHER ASSETS . . . . . . . . . . . . . . . . . . .     3,576,200     3,009,800
------------------------------------------------------------------------------
   Total Assets. . . . . . . . . . . . . . . . . .   $23,474,900   $26,641,900
------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities:
   Accounts payable . . . . . . . . . . . . . . . .  $ 4,494,300   $ 4,306,900
   Accrued expenses . . . . . . . . . . . . . . . .      735,100     2,694,600
   Accrued salaries, wages and benefits . . . . . .    2,270,800     2,891,200
   Current portion of long-term debt. . . . . . . .      438,800       648,300
   Billings in excess of costs and estimated
      earnings on uncompleted contracts . . . . . .      246,700       512,200
------------------------------------------------------------------------------
      Total Current Liabilities . . . . . . . . . .    8,185,700    11,053,200
------------------------------------------------------------------------------
LONG-TERM DEBT, net of current portion  . . . . . .    1,279,800     2,331,700
------------------------------------------------------------------------------
      Total Liabilities . . . . . . . . . . . . . .    9,465,500    13,384,900
------------------------------------------------------------------------------
COMMITMENTS
------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY:
   Common stock, $.01 par value; voting 10,000,000
      shares authorized; 6,285,500 and 6,227,300
      shares issued and outstanding . . . . . . . .       62,900        62,300
   Preferred stock, $.01 par value; 8,000,000
      shares authorized; none issued. . . . . . . .          --            --
   Capital in excess of par value . . . . . . . . .   11,049,300    10,902,300
   Retained earnings  . . . . . . . . . . . . . . .    2,897,200     2,292,400
------------------------------------------------------------------------------
      Total Stockholders' Equity. . . . . . . . . .   14,009,400    13,257,000
------------------------------------------------------------------------------
      Total Liabilities and Stockholders' Equity     $23,474,900   $26,641,900
----------------------------------------------------------------- ------------
The accompanying notes are an integral part of these balance sheets.

<PAGE>

<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------------------
Year Ended August 31,                               1998           1997           1996
--------------------------------------------------------------------------------------------

<S>                                             <C>            <C>             <C>         
Total revenue . . . . . . . . . . . . . . . .   $ 59,987,200   $ 73,890,900    $ 88,307,800
Less - Subcontractor costs. . . . . . . . . .    (11,406,600)   (21,435,800)    (23,954,100)
Less - Other direct project costs . . . . . .     (6,883,700)   (11,434,900)    (10,289,200)
   Net revenue . . . . . . . . . . . . . . . .    41,696,900     41,020,200      54,064,500 
--------------------------------------------------------------------------------------------
Operating costs and expenses:
   Direct salaries and other operating . . . .    31,473,800     37,560,300      46,535,500
   Sales, general and administrative . . . . .     9,374,400      8,481,900       7,972,600
   Gain on "key employee" life insurance . . .      (261,100)          --              --
   Restructuring charges . . . . . . . . . . .          --        3,000,100            --
--------------------------------------------------------------------------------------------
      Total operating expenses . . . . . . . .    40,587,100     49,042,300      54,508,100
--------------------------------------------------------------------------------------------
Income (loss) from operations . . . . . . . .      1,109,800     (8,022,100)       (443,600)
--------------------------------------------------------------------------------------------
Interest expense. . . . . . . . . . . . . . .       (244,600)      (446,400)       (464,900)
Interest income . . . . . . . . . . . . . . .         98,800         91,600         107,400
--------------------------------------------------------------------------------------------
Income (loss) before income taxes . . . . . .        964,000     (8,376,900)       (801,100)
--------------------------------------------------------------------------------------------
(Benefit from) provision for income taxes . .        359,200     (2,969,300)       (221,000)
--------------------------------------------------------------------------------------------
Net income (loss) . . . . . . . . . . . . . .    $   604,800   $ (5,407,600)    $  (580,100)
--------------------------------------------------------------------------------------------
Basic earnings (loss) per share . . . . . . .          $0.10         $(0.87)         $(0.09)
Diluted earnings (loss) per share . . . . . .          $0.10         $(0.87)         $(0.09)
--------------------------------------------------------------------------------------------
Weighted average shares outstanding . . . . .      6,255,500      6,205,700       6,138,100
Effect of dilutive stock options. . . . . . .         91,100           --               --
Diluted weighted average shares outstanding .      6,346,600      6,205,700       6,138,100
--------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.

<TABLE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
-------------------------------------------------------------------------------
For the Years Ended August 31, 1998, 1997, and 1996
                                                            Capital in
                                                 Common     Excess of      Retained
                                                  Stock     Par Value      Earnings         Total
----------------------------------------------------------------------------------------------------
<S>             <C> <C>                          <C>        <C>            <C>           <C>        
Balance, August 31, 1995 . . . . . . . . . .     $60,900    $10,538,700    $8,280,100    $18,879,700
Issuance of stock. . . . . . . . . . . . . .         900        233,000           --         233,900
Tax benefit from stock options exercised . .         --          24,600           --          24,600
Net Loss . . . . . . . . . . . . . . . . . .         --            --        (580,100)      (580,100)
----------------------------------------------------------------------------------------------------
Balance, August 31, 1996 . . . . . . . . . .      61,800     10,796,300     7,700,000     18,558,100
Issuance of stock. . . . . . . . . . . . . .         500        106,000           --         106,500
Net Loss . . . . . . . . . . . . . . . . . .         --            --      (5,407,600)    (5,407,600)
----------------------------------------------------------------------------------------------------
Balance, August 31, 1997 . . . . . . . . . .      62,300     10,902,300     2,292,400     13,257,000
Issuance of stock. . . . . . . . . . . . . .         600        147,000           --         147,600
Net Income . . . . . . . . . . . . . . . . .         --            --         604,800        604,800
----------------------------------------------------------------------------------------------------
Balance, August 31, 1998 . . . . . . . . . .     $62,900    $11,049,300    $2,897,200    $14,009,400
----------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.

<PAGE>

<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------------------------

Year Ended August 31,                                           1998          1997          1996
--------------------------------------------------------------------------------------------------
CASH FLOWS FROM (USED FOR) OPERATING ACTIVITIES:
<S>                                                        <C>            <C>           <C>        
   Net income (loss) . . . . . . . . . . . . . . . . . .   $   604,800    $(5,407,600)  $ (580,100)
   Noncash expenses included in net income (loss) -
      Depreciation and amortization. . . . . . . . . . .     1,162,200      1,427,100    1,683,900
      Current benefit from income taxes. . . . . . . . .          --       (2,969,300)    (221,000)
   Changes in operating assets and liabilities -
      Decrease in accounts receivable, net . . . . . . .     1,056,900      3,193,900    2,165,400
      (Increase) decrease in costs and estimated earnings
         in excess of billings on uncompleted contracts .     (741,100)     6,828,400   (1,747,200)
      Increase in prepaid expenses and other assets . . .     (183,500)      (314,000)    (110,800)
      Decrease in accounts payable and accrued expenses .   (2,392,500)      (370,900)  (1,149,400)
      Refunds of income taxes (net of payments) . . . . .    1,868,300        244,200     (430,800)
      Decrease (increase) in billings in excess of costs
         and estimated earnings on uncompleted contracts      (265,500)      (685,500)     148,400
--------------------------------------------------------------------------------------------------
      Net cash flows from (used for) operating activities    1,109,600      1,946,300     (241,600)
--------------------------------------------------------------------------------------------------
CASH FLOWS USED FOR INVESTING ACTIVITIES:
   Purchase of equipment, net . . . . . . . . . . . . . .     (546,500)      (699,000)  (1,008,500)
--------------------------------------------------------------------------------------------------
      Net cash flows used for investing activities. . . .     (546,500)      (699,000)  (1,008,500)
--------------------------------------------------------------------------------------------------
CASH FLOWS FROM (USED FOR) FINANCING ACTIVITIES:
   Net borrowings from revolving line of credit. . . . .      (635,400)       481,200    3,000,000
   Proceeds from issuance of common stock. . . . . . . .       147,600        106,500      233,900
   Reduction of long-term debt and short-term borrowings      (626,000)      (810,300)  (4,489,100)
--------------------------------------------------------------------------------------------------
      Net cash flows from (used for) financing activities   (1,113,800)      (222,600)  (1,255,200)
--------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS . .      (550,700)     1,024,700   (2,505,300)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD . . . . .     2,333,300      1,308,600    3,813,900
--------------------------------------------------------------------------------------------------

CASH AND CASH EQUIVALENTS, END OF PERIOD . . . . . . . .   $ 1,782,600    $ 2,333,300  $ 1,308,600
--------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>

          EA ENGINEERING, SCIENCE, AND TECHNOLOGY, INC. & SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
               FOR THE YEARS ENDED AUGUST 31, 1998, 1997, AND 1996


Note 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Basis of Presentation--

The accompanying  consolidated  financial  statements present the accounts of EA
Engineering,  Science, and Technology, Inc. (EA); its wholly-owned subsidiaries,
EA  International,  Inc.  and  EA  Financial,  Inc.;  and EA  Financial,  Inc.'s
wholly-owned  subsidiaries,  EA Global,  Inc. and EA de Mexico, S.A. de C.V. The
entities are  collectively  referred to herein as the "Company." All significant
intercompany transactions have been eliminated in consolidation.

Segment Information--

The Company is organized around two operating  segments.  The primary segment is
Management Consulting Services, provided through a network of offices throughout
the United States, Mexico and Guam; and Analytical Services provided through its
laboratory facility located in Maryland.

Revenue Recognition--

The Company is an  international  consulting firm  specializing in the fields of
energy,  the  environment,  health and safety,  and analytical  services.  These
services are  generally  performed  under  time-and-material,  fixed-price,  and
cost-plus-fixed-fee  contracts.  Task orders from these contracts vary in length
from one month to two years.

The  Company's  Management  Consulting  Services  segment  accounts for contract
revenues    and    costs    under     fixed-price     contracts     using    the
percentage-of-completion  method.  The  percentage  of  completion is determined
using the  "cost-to-cost"  method for each contract cost  component.  Under this
method,  direct labor and other  contract costs incurred to date are compared to
periodically  revised  estimates of the total of each contract cost component at
contract  completion to determine the  percentage of revenues to be  recognized.
Revenues from time-and-material and cost-plus-fixed-fee contracts are recognized
currently  as the work is  performed.  The majority of the  Analytical  Services
segment  contracts  are on a fixed-unit  priced  basis.  Revenue for  fixed-unit
priced  contracts  is  recognized  currently  as  sample  units  are  processed.
Provision for estimated losses on uncompleted  contracts,  to the full extent of
the loss,  is made during the period in which the Company  first  becomes  aware
that a loss on a contract is probable.

Contract costs and estimated earnings recognized in excess of amounts billed are
classified as current  assets under "costs and  estimated  earnings in excess of
billings on  uncompleted  contracts."  Billings in excess of contract  costs and
estimated  earnings are  classified as current  liabilities  under  "billings in
excess of costs and estimated earnings on uncompleted contracts."

Generally,  contracts  provide for the billing of costs  incurred and  estimated
fees on a monthly basis.  Amounts  included in "costs and estimated  earnings in
excess of billings  on  uncompleted  contracts"  in the  accompanying  financial
statements will be billed within twelve months of the balance sheet date.

Major Clients--

Various agencies of the federal government accounted for approximately 50%, 46%,
and 45% of the Company's (primarily  Management Consulting Services) net revenue
for the years ended August 31, 1998, 1997, and 1996, respectively. Additionally,
various agencies of the federal  government  accounted for approximately 45% and
40% of the Company's  accounts  receivable  and costs and estimated  earnings in
excess of  billings  on  uncompleted  contracts  as of August 31, 1998 and 1997,
respectively.  One  industrial  client  accounted for  approximately  54% of the
Analytical  Services  segment's  gross sales and over 70% of its external client
billings.  In addition to this one client, major external clients for Analytical
Services in fiscal 1997 and 1996 included the federal  government  and two other
industrial clients.

Cash and Cash Equivalents--

Cash equivalents  consist of money market  instruments with a purchased original
maturity of three  months or less,  stated at cost,  which  approximates  market
value.

<PAGE>

Property and Equipment--

Property and equipment are depreciated using the straight-line method over their
estimated  useful lives ranging from 3 to 10 years.  Leasehold  improvements are
amortized  over the  shorter  of the  estimated  useful  life or the term of the
lease. Depreciation expense for the fiscal years ended August 31, 1998, 1997 and
1996 was $1,162,200, $1,427,100 and $1,683,900, respectively.

Reclassifications--

For  historical  comparisons,  net revenue in past periods has been  adjusted to
include other direct project costs in addition to subcontract costs. In previous
years,  only subcontract costs were deducted from total revenue to arrive at net
revenue.  Additionally,  operating  costs in past  years have been  adjusted  to
include  sales  and  marketing  costs in the  category  of  sales,  general  and
administrative  costs. In previous periods,  these costs were included in direct
salaries and other operating costs.

Risks and Uncertainties--

Reliance on major government  contracts subjects the Company to risks associated
with public budgetary  restrictions  and  uncertainties,  discrepancies  between
awarded contract amounts and actual revenues,  and cancellation at the option of
the government. The Company attempts to mitigate these risks by staffing only to
meet reasonably anticipated average workloads, by using subcontractors to handle
peak  workloads,  and by  obtaining  termination  benefit  contract  provisions.
Cancellation of any of the Company's major government contracts,  however, could
have a material adverse effect on the Company.

Use of Estimates--

The preparation of financial  statements in accordance  with generally  accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amount of assets, liabilities,  revenues and expenses in the
financial   statements  and  in  the   disclosures  of  contingent   assets  and
liabilities. While actual results could differ from these estimates,  management
believes  that actual  results  will not be  materially  different  from amounts
provided in the accompanying consolidated financial statements.

Supplemental Disclosures of Cash Flow Information--

Cash paid during the years ended August 31, 1998,  1997,  and 1996 for interest,
was $233,700, $467,200, and $474,200, respectively.  Retirements of property and
equipment  for  the  same  periods  were  $28,000,   $897,200,  and  $2,602,400,
respectively.

Accounting for Income Taxes--

Deferred  income  taxes are recorded to reflect the tax  consequences  on future
years for differences  between the tax basis of assets and liabilities and their
financial reporting amounts.

Accounting Pronouncements--

In February  1997, the FASB issued  Statement No. 128 (SFAS 128),  "Earnings Per
Share," which  establishes  new standards for computing and presenting  earnings
per share.  SFAS 128 is effective  for financial  statements  issued for periods
ending after  December 15,  1997,  including  interim  periods.  Management  has
implemented SFAS 128.

In February 1997, the FASB issued  Statement No. 129 (SFAS 129),  "Disclosure of
Information  about  Capital   Structure,"  which  eliminates  the  exemption  of
nonpublic entities from certain disclosure requirements of APB Opinion No. 15 as
provided by FASB  Statement  No. 21. SFAS 129 is  effective  for periods  ending
after December 15, 1997. Management has implemented SFAS 129.

In June  1997,  the  FASB  issued  Statement  No.  130  (SFAS  130),  "Reporting
Comprehensive  Income,"which  establishes standards for reporting and display of
comprehensive  income  and  its  components  in a full  set of  general  purpose
financial  statements.  SFAS 130 is effective for fiscal years  beginning  after
December 15, 1997.  Management is currently  evaluating the impact SFAS 130 will
have on the  Company's  financial  reporting  for fiscal year ending  August 31,
1999.

<PAGE>

In July 1997, the FASB issued Statement No. 131 (SFAS 131),  "Disclosures  About
Segments of an  Enterprise  and Related  Information,"  which  establishes a new
approach for determining segments within a company and reporting  information on
those segments.  SFAS 131 is effective for fiscal years beginning after December
15, 1997.  Management  has elected to implement  SFAS 131 for the fiscal  period
ended August 31, 1998.

In February  1998,  the FASB  issued  Statement  No. 132 (SFAS 132),  "Employers
Disclosure about Pensions and Other Postretirement Benefits," which standardizes
the disclosure requirements for pensions and other postretirement benefit plans.
SFAS 132 is  effective  for fiscal  years  beginning  after  December  15, 1997.
Management has not yet determined  whether the  implementation  of SFAS 132 will
have an impact on the Company's  financial  reporting for the fiscal year ending
August 31, 1999.

In June 1998,  the FASB issued  Statement  No. 133 (SFAS 133),  "Accounting  for
Derivative Instruments and Hedging Activities," which establishes accounting and
reporting  standards for derivative  instruments,  including certain  derivative
instruments embedded in other contracts and for hedging activities.  SFAS 133 is
effective for all fiscal quarters of fiscal years beginning after June 15, 1999.
The Company does not hold  derivatives  and, as such,  SFAS 133 will not have an
impact.

Note 2.  SEGMENT FINANCIAL INFORMATION:

The following table provides selected  financial  information as reviewed by the
Company's  management in making  decisions  about  allocating  resources to each
segment and assessing its performance.

<TABLE>
                                           Management Consulting Svcs.       Analytical Services
------------------------------------------------------------------------------------------------------- 
Year Ended August 31,                      1998       1997       1996      1998       1997       1996
-------------------------------------------------------------------------------------------------------
                                                             (in thousands, except per share amounts)
<S>                                       <C>        <C>        <C>        <C>        <C>        <C>   
Gross revenue                             $56,484    $72,559    $86,390    $3,503     $1,332     $1,918
Intercompany sales                         (2,870)    (4,370)    (5,457)    2,870      4,370      5,457
-------------------------------------------------------------------------------------------------------
Total gross revenue                        53,614     68,189     80,933     6,373      5,702      7,375
Net revenue                                36,696     37,443     48,495     5,000      3,577      5,569
-------------------------------------------------------------------------------------------------------
Operating and administrative expenses      35,506     44,305     48,457     5,080      4,737      6,051
-------------------------------------------------------------------------------------------------------
Income (loss) from operations               1,190     (6,862)        38       (80)    (1,160)      (482)
Net interest                                 (122)      (287)      (209)      (24)       (67)      (148)
Income taxes                                 (401)     2,534         47        42        435        174
-------------------------------------------------------------------------------------------------------
Net income (loss).                        $   667    $(4,615)    $ (124)  $   (62)    $ (792)    $ (456)
-------------------------------------------------------------------------------------------------------
Diluted earnings (loss) per share           $0.11     $(0.74)    $(0.02)   $(0.01)    $(0.13)    $(0.07)

Net property/equipment                    $ 1,133    $ 1,534     $2,000    $  648     $  863     $1,125
</TABLE>

<PAGE>

Furthermore,  the Company's  management  team reviews its Management  Consulting
Services by each  geographical  office  location.  The following  represents net
revenue, by office, for the fiscal year ended August 31, 1998.

      Management Consulting Services (in 000s)
      ----------------------------------------------------------

      Boston, MA                                         $ 1,195
      Newburgh, NY                                         2,420
      Berkeley Heights, NJ                                 2,220
      Baltimore, MD                                       14,631
      Washington, DC                                         865
      Dallas, TX                                           2,201
      Chicago, IL                                            630
      Lincoln, NB                                          1,700
      San Francisco, CA                                    3,426
      Sacramento, CA                                       1,435
      Seattle, WA                                          2,109
      Anchorage, AK                                          917
      Guam                                                 2,030
      Mexico                                                 218
      Hawaii                                                 175
      Others                                                 524
      ----------------------------------------------------------
         Total net revenue                               $36,696
      ==========================================================

Prior to fiscal  1998,  the Company did not keep  revenue  data by  geographical
region.  To gather this information would be impractical;  therefore,  it is not
included.  Additionally,  in the past the Company has not  identified  assets by
segments;  therefore,  any  asset  information  provided  by  segment  has  been
estimated.

Note 3.  INCOME TAXES:

The provision for (benefit from) income taxes includes  current and deferred tax
amounts summarized as follows:

                                                    Year Ended August 31,
-------------------------------------------------------------------------------
                                               1998         1997          1996
-------------------------------------------------------------------------------
Current tax expense (benefit):
  Federal                                   $(43,500)  $(1,659,500)    $(18,400)
  State                                          --            --        (4,300)
-------------------------------------------------------------------------------
                                             (43,500)   (1,659,500)     (22,700)
-------------------------------------------------------------------------------
Deferred tax expense (benefit):
  Federal                                    337,400    (1,309,800)    (160,600)
  State                                       65,300          --        (37,700)
-------------------------------------------------------------------------------
                                             402,700    (1,309,800)    (198,300)
-------------------------------------------------------------------------------
Provision for (benefit from) income taxes   $359,200   $(2,969,300)   $(221,000)
===============================================================================

<PAGE>

Total deferred tax assets and liabilities as of August 31, 1998 and 1997 and the
sources of the differences  between the tax and financial reporting basis of the
Company's assets and liabilities  which give rise to the deferred tax assets and
liabilities are as follows:

                                            Year Ended August 31,
   ------------------------------------------------------------------
                                            1998              1997
   ------------------------------------------------------------------
   Deferred tax assets:
     Property and equipment              $1,031,300         $ 929,600
     Accrued expenses and reserves          493,900         1,878,900
     Net operating loss                   1,254,900           398,200
   ------------------------------------------------------------------
                                          2,780,100         3,206,700
   ==================================================================
   Deferred tax liabilities:
     Prepaid expenses                         9,300            99,300
     Miscellaneous                          269,600           203,500
   ------------------------------------------------------------------
                                         $  278,900        $  302,800
   ==================================================================

The net deferred tax assets of $2,501,200  and  $2,903,900 as of August 31, 1998
and 1997 are included to the extent  appropriate  in Prepaid  expenses and other
and Other Assets in the accompanying consolidated balance sheets.

Reconciliation of the statutory federal income tax rate and the effective income
tax rate is summarized as follows:

<TABLE>

                                                            Year Ended August 31,
 -----------------------------------------------------------------------------------
                                                          1998      1997      1996
 -----------------------------------------------------------------------------------
<S>                                                       <C>       <C>       <C>  
 Statutory federal income tax rate                        34.0%     34.0%     34.0%
 State income tax, net of federal income tax effect        5.3       5.3       5.3
 Non-recognition of future benefit from foreign loss       1.9      (0.4)     (4.8)
 Other                                                    (3.9)     (3.5)     (6.9)
 ----------------------------------------------------------------------------------
 Effective income tax rate                                37.3%     35.4%     27.6%
 ==================================================================================
</TABLE>

Note 4.  ACCOUNTS RECEIVABLE:

Accounts receivable consist of the following:

                                               Year Ended August 31,
  -----------------------------------------------------------------------
                                             1998                 1997
  -----------------------------------------------------------------------
  Contract accounts receivable            $7,383,500          $ 8,802,400
  Retainage by clients                     1,315,600            1,228,400
  -----------------------------------------------------------------------
  Total accounts receivable                8,699,100           10,030,800
  Less-Allowance for doubtful accounts      (257,200)            (532,000)
  -----------------------------------------------------------------------
  Accounts receivable, net                $8,441,900          $ 9,498,800
  =======================================================================

Management  anticipates that  substantially all retainages will be billed within
one year.

<PAGE>

Note 5.  CONSTRUCTION LOSS:

In fiscal  1997,  the Company  recognized  estimated  losses  related to certain
landfill  projects.  These  losses  are  included  in  accrued  expenses  in the
consolidated  balance  sheets.  As of  August  31,  1998 and 1997,  the  related
balances were $90,100 and $1,337,900,  respectively. For the period ended August
31, 1998, a total of $829,500 of the previously  recognized  losses was reversed
into income as change orders and various settlements were realized.

Note 6.  BANK FINANCING ARRANGEMENTS:

The Company  entered into a new credit  arrangement  with a regional bank during
fiscal  year 1997  consisting  of: (i) an  $8,500,000  revolving  line of credit
secured by  receivables;  (ii) a $500,000 term loan; and (iii) an equipment line
of credit of $1,500,000.  Of the $8,500,000 revolving line of credit, $2,500,000
is  available  for  acquisitions,   joint  ventures  and  licensing  agreements.
Borrowings  under the  revolving  line of credit are limited to a percentage  of
certain  accounts  receivable  and costs  and  estimated  earnings  in excess of
billings on uncompleted contracts (up to a maximum of $4,000,000). The agreement
was effective  August 22, 1997.  During fiscal years 1998,  1997,  and 1996, the
Company  was either in  compliance  or had  obtained  waivers  on all  covenants
related to these and prior related arrangements.

Short-term borrowings  information resulting from the financing  arrangements is
as follows:

                                                 Year Ended August 31,
                                              ------------------------------
                                             1998        1997        1996
  --------------------------------------------------------------------------
  Balance as of end of period               $  --     $     --    $     --
  Maximum outstanding month-end
    balance during the period                  --      3,615,300   5,490,900
  Average outstanding month-end
    balance during the period                  --        564,000     598,800
  Weighted average interest rate
    during the period                          --          11.5%        8.4%
  Interest rate at the end of period           --          11.5%        8.3%
  ==========================================================================

The weighted  average  interest rate has been  calculated  based upon the actual
daily interest  expense and the daily average balance  outstanding.  The Company
had no short-term  borrowing  during fiscal 1998.  For the year ended August 31,
1997,  the Company only  maintained  short-term  borrowing  balances  during the
months of April  through  August.  Prior to April and at the end of August 1997,
all borrowings  were  considered  long term. For the year ended August 31, 1996,
short-term balances were for nine months through May 31, 1996.

<PAGE>

Long-term debt consists of the following:

<TABLE>
August 31,                                                              1998             1997
------------------------------------------------------------------------------------------------
<S>                  <C>                                              <C>             <C>       
Revolving credit facility  payable to commercial bank effective 
  August 22, 1997, interest charged at LIBOR plus 200; facility 
   expires September 2000                                              $1,192,400     $1,827,700

Note payable to a  commercial  bank  payable in equal  monthly  
   installments  of $29,600, which includes interest at 9.1%, 
   through December 1999 secured by certain computer equipment            418,300        720,500

Note payable to a  commercial  bank  payable  in equal  installments
   of $43,651 through  December 1997.  Thereafter,  $21,429,  plus
   interest charged at LIBOR plus 200 through January 1999; secured by
   leasehold improvements and certain analytical laboratory equipment     107,900        431,800
------------------------------------------------------------------------------------------------
Total long-term debt                                                    1,718,600      2,980,000
Less-current portion                                                     (438,800)      (648,300)
------------------------------------------------------------------------------------------------
Long-term portion                                                      $1,279,800     $2,331,700
================================================================================================
</TABLE>

The debt repayment schedule for the outstanding notes payable is as follows:

    Year Ending August 31,
    -------------------------------------------------------
    1999                                          $ 438,800
    2000                                             87,500
    2001 and thereafter                           1,192,300
    -------------------------------------------------------
    Total notes payable                          $1,718,600
    =======================================================

The fair  value  of the  Company's  outstanding  indebtedness  approximated  its
carrying value at August 31, 1998.

Note 7.  LEASE COMMITMENTS:

The Company's  central office,  laboratory  facilities,  regional  offices,  and
certain  furniture and equipment are held under operating  leases.  These leases
expire at various dates through  fiscal 2007, and certain leases call for annual
proportionate  increases  due to  property  taxes and  certain  other  operating
expenses. Lease expense amounted to $6,061,000,  $8,030,200, and $8,912,300, for
the years ended August 31, 1998,  1997,  and 1996,  respectively.  Lease expense
included payments of approximately $1,900,400,  $2,016,500,  and $2,054,900, for
years ended August 31, 1998, 1997, and 1996, respectively, to partnerships whose
partners  include the  Chairman  of the Board of EA and  certain  members of his
family for its  central  office,  and  Loveton,  Maryland,  regional  office and
laboratory  facility.  These payments  include  reimbursements  of approximately
$873,000 per year for pass-through  taxes and operating expenses incurred by the
lessor which include local property taxes,  janitorial and mechanical  equipment
maintenance,  and  utility  costs  related to the  operation  of both office and
laboratory  leased  space.  Management  of the  Company  believes  the terms and
conditions of the  transactions  between the Company and entities with which the
Chairman is  affiliated,  are at least as favorable to the Company as could have
been obtained from third parties and are in the best interest of the Company.

<PAGE>

The minimum  lease  commitments  under  noncancellable  operating  leases are as
follows:

      Year Ending August 31,
      -------------------------------------------------------
      1999                                        $ 3,549,900
      2000                                          2,774,900
      2001                                          2,400,000
      2002                                          2,139,800
      2003                                          2,023,800
      2004 and thereafter                           6,470,700
      =======================================================
      Total minimum payments                      $19,359,100
      =======================================================

Note 8.  NET INCOME (LOSS) PER SHARE:

In accordance with Statement of Financial  Accounting  Standards  (SFAS) No. 128
"Earnings per Share," basic  earnings  (loss) per share is based on the weighted
average number of shares of common stock outstanding during the period.  Diluted
earnings  (loss) per share is based on the weighted  average number of shares of
common stock and common stock equivalents  outstanding during the period. Common
stock   equivalents  are  calculated  using  the  treasury  stock  method.   All
disclosures  with  regard  to the  shares  of common  stock  have been  adjusted
retroactively  to reflect two 3-for-2 stock splits,  effected in the form of 50%
stock dividends  wherein,  on February 23, 1994 and July 5, 1994, one additional
share of stock was issued for each two shares outstanding as of the record dates
of February 8, 1994 and June 28, 1994, respectively.

Note 9.  PROFIT SHARING:

EA maintains a defined contribution plan in which all employees who are at least
21 years of age and have completed six months of credited service, as defined by
the plan,  are eligible to  participate.  The plan  provides  for  discretionary
employer  contributions for each fiscal year, in amounts determined  annually by
the Board of Directors. The plan also includes a 401(k) provision,  allowing for
Company matching  contributions.  For the years ended August 31, 1998, 1997, and
1996, matching contributions to the plan made under the 401(k) provisions of the
plan, were $472,100, $534,900, and $729,200, respectively.  Certain officers and
stockholders  of the Company serve as trustees to the plan under  appointment of
the Board of Directors.

Note 10.  STOCK OPTION AND EMPLOYEE STOCK PURCHASE PLANS:

The Company  maintains an Amended and Restated  Stock Option Plan (the  "Plan"),
which provides for the grant of  nonqualified  stock options and incentive stock
options to certain key employees and officers of the Company. The exercise price
of an option  granted  under the Plan may not be less than the fair market value
of the  underlying  shares of Common Stock on the date of the grant.  A total of
799,800  options are issued and  outstanding  as of August 31,  1998,  having an
average exercise price of $2.43. The exercise prices of the outstanding  options
ranged  between  $1.39 and $11.75,  which  equaled the fair market  value at the
dates of grant.  Of the outstanding  options,  400,000 are held by the President
and CEO. The  exercise  price of the 400,000  shares  ranges  between  $2.25 and
$3.67, which was equal to the market value on the dates of grant.

<PAGE>

The Company  maintains an Employee Stock Purchase Plan (the "Purchase  Plan") to
provide  eligible  employees  with the  opportunity  to  purchase  shares of the
Company's Common Stock through voluntary payroll deductions.  Under the Purchase
Plan,  eligible employees may purchase shares through monthly payroll deductions
at 95% of current  market  value at the time of  purchase.  The Company pays all
administrative expenses related to employee purchases. A total of 120,600 shares
remain  authorized  for  distribution  under the Purchase  Plan as of August 31,
1998.

The Company  maintains two  Non-Employee  Director  Stock Option Plans (1993 and
1995)  which  provide  for the  granting of  nonqualified  stock  options to its
non-employee  directors.  The exercise price of the 17,000  options,  which were
outstanding as of August 31, 1998, ranged between $2.03 and $6.13, which equaled
the fair market value at the dates of grant.  A total of 33,500  options  remain
reserved for the Director Stock Option Plans as of August 31, 1998.

The Company  accounts  for these plans under APB Opinion No. 25,  under which no
compensation  cost has been  recognized.  Had  compensation  cost for plans been
determined  consistent  with FASB  Statement  No. 123, the  Company's net income
(loss) and earnings  (loss) per share would have changed the following pro forma
amounts:

Year Ended August 31,                    1998          1997          1996
-----------------------------------------------------------------------------
Net income (loss)           As Reported  $604,800    $(5,407,600)  $(580,100)
                            Pro Forma     513,200     (5,470,200)   (580,100)

Earnings (loss) per share   As Reported     $0.10         $(0.87)     $(0.09)
                            Pro Forma        0.08          (0.88)      (0.09)

Diluted earnings (loss)     As Reported     $0.10         $(0.87)     $(0.09)
  per share                 Pro Forma        0.08          (0.88)      (0.09)

A summary of the status of  activity in fiscal  years 1998,  1997 and 1996 under
the Company's Employee Stock Option Plan and Non-Employee  Director Stock Option
Plans (1993 and 1995) follows:

<TABLE>
                                              1998                 1997                     1996
---------------------------------------------------------------------------------------------------------
                                    Shares    Wgtd.Avg.     Shares   Wgtd.Avg.     Shares     Wgtd.Avg.
                                     (000)    Exer.Price     (000)   Exer.Price     (000)     Exer.Price
---------------------------------------------------------------------------------------------------------
<S>                                   <C>        <C>          <C>       <C>          <C>         <C>  
Outstanding at beginning of year      616        $2.37        180       $4.13        341         $4.30
Granted                               273         2.65        506        2.10         11          4.61
Exercised                             (27)        2.45         --          --        (28)         1.41
Forfeited                             (45)        2.72        (70)       4.96       (144)         5.08
Expired                                 --          --          --         --          --           --
---------------------------------------------------------------------------------------------------------
Outstanding at end of year            817         2.44        616        2.37        180          4.13
Exercisable at year end               269        $2.59        164       $2.99        136         $3.40
---------------------------------------------------------------------------------------------------------
Weighted Average Fair Value of
 Options Granted                                 $1.35                  $0.96                    $1.79
</TABLE>

The fair value of each option  grant is estimated on the date of grant using the
Black-Scholes   option-pricing   model  with  the   following   weighted-average
assumptions  used for grants in 1998,  1997 and 1996:  Risk-free  interest rates
ranging from 5.19% to 6.68%;  expected volatility is 63% in 1998 and 62% in 1997
and 1996.

<PAGE>

Note 11.  COMPANY RESTRUCTURING:

On March 25, 1997 the Company implemented a major organizational  realignment to
reposition itself in the marketplace. In connection with the restructuring,  the
Company  incurred  charges of  $3,000,100  during the fiscal 1997 third  quarter
related  to   severance,   planned   reduction   in  office   space,   suspended
implementation of a new project/financial system, and other related costs.

This restructuring included a staff reduction of approximately 125 employees.

As of August  31,  1998 and 1997,  the  Company  had  accruals  of  $76,600  and
$880,100,   respectively,   included  as  other  current   liabilities   in  the
accompanying  consolidated  balance  sheet  for costs to be  incurred  in future
periods in connection with the restructuring.

Note 12.  "KEY EMPLOYEE" LIFE INSURANCE

In April  1998,  adjustments  were  made to the  actual  cash  value of two "key
employee"  life insurance  policies for the Chairman of the Board,  of which the
Company is the named  beneficiary.  Prior to April 1998, the policies had a cash
surrender value of $515,500, which was included in Other Assets on the Company's
balance  sheet.  In fiscal 1994,  the asset value of the policies was originally
adjusted downward due to bankruptcy proceedings involving the original insurance
company.  In April 1998,  Phoenix Home Life Mutual  Insurance Co., the successor
underwriter  of the policies,  confirmed  that the cash  surrender  value of the
policies was $776,600. As a result, Other Assets was increased by $261,100,  and
a one-time gain was recognized during the period.

Note 13.  RELATED PARTY TRANSACTIONS

At the  request  of its  former  primary  lender  and in order to  maintain  its
favorable  relationship with that lender, the Company in December 1996 purchased
from  this  lender  the  secured  loans  of  three  former  EA  officers.  These
interest-free demand loans, in the aggregate amount of $301,000,  are secured by
pledges of the Company's common stock. The differential between the current fair
market value of the pledged stock and the amount of the loans is fully  reserved
within the Company's balance sheet.

<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders of
EA Engineering, Science, and Technology, Inc.:

We have audited the accompanying  consolidated balance sheets of EA Engineering,
Science,  and Technology,  Inc. (a Delaware  corporation) and subsidiaries as of
August 31, 1998 and 1997, and the related consolidated statements of operations,
changes in  stockholders'  equity and cash flows for each of the three  years in
the  period  ended  August  31,  1998.   These  financial   statements  are  the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the financial position of EA Engineering,  Science,  and
Technology,  Inc.  and  subsidiaries  as of August  31,  1998 and 1997,  and the
results of their  operations and their cash flows for each of the three years in
the  period  ended  August 31,  1998,  in  conformity  with  generally  accepted
accounting principles.


/s/ ARTHUR ANDERSEN LLP


Baltimore, Maryland
October 30, 1998

<PAGE>

INSIDE BACK COVER

DIRECTORS & OFFICERS AND CORPORATE INFORMATION

Directors

Edmund J. Cashman, Jr.*
Senior Executive Vice President of Legg
Mason, Inc. and Legg Mason Wood Walker,
Inc.; Director/Trustee, Various Legg Mason
Registered Investment Companies

Donald A. Deieso, Ph.D.
President and Chief Executive Officer of the Company

Loren D. Jensen, Ph.D.
Chairman of the Board of the Company

Rudolph P. Lamone, Ph.D.*
Chairman of the Board, Michael D. Dingman
Center for Entrepreneurship, Robert H. Smith
School of Business, University of Maryland
College of Business and Management

Cleaveland D. Miller, Esq.*
Managing Partner of  Semmes, Bowen &
Semmes, a Professional Corporation

George G. Radcliffe*
Chairman of the Board, Emeritus, The
Baltimore Life Insurance Company; Trustee
Emeritus of  The Johns Hopkins University


*Audit, Ethics and Compensation Committee Member

Subsidiaries

EA Financial, Inc.
900 Market Street, Suite 200
Wilmington, Delaware 19801

EA de Mexico, S.A. de C.V.
Newton 53, Suite 11
Colonia Polanco-Chapultepec
Mexico, D.F.  11560

EA International, Inc.
11019 McCormick Road
Hunt Valley, Maryland 21031

OFFICERS

Loren D. Jensen, Ph.D., Chairman of the Board

Donald A. Deieso, Ph.D., President and Chief Executive Officer

Bijan S. Saless, Executive Vice President, Sales and Marketing

Jack P. Adler, Esq., Senior Vice President, Secretary and General Counsel

Barbara L. Posner, Senior Vice President, Finance and Administration

Edward M. Greco, President, EA International, Inc.

Reza Karimi, Ph.D., President, EA Laboratories

STOCKHOLDER INFORMATION

Independent Public Accountants
Arthur Andersen LLP
Baltimore, Maryland

Legal Counsel
Semmes, Bowen & Semmes
Baltimore, Maryland

Registrar and Transfer Agent
ChaseMellon Shareholder Services
Pittsburgh, Pennsylvania

Common Stock Listing
NASDAQ Symbol: EACO

Annual Meeting
The Annual Meeting of the Stockholders will
be held on January 14, 1999 at 9:00 a.m. (EST)
at Marriott's Hunt Valley Inn in Hunt Valley,
Maryland.

SEC Form 10-K
The Company's Form 10-K Annual Report
for the year ended August 31, 1998 has
been filed with the Securities and Exchange
Commission.  A copy of this Report is
available upon request.

Corporate Headquarters
EA Engineering, Science, and Technology, Inc.
11019 McCormick Road
Hunt Valley, Maryland 21031
www.eaest.com

BACK COVER

Corporate Headquarters
EA Engineering, Science, and Technology, Inc.
11019 McCormick Road
Hunt Valley, MD  21031
Phone:  (410)584-7000
Fax:  (410) 771-1625

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