<PAGE>

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


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

                                    FORM 10-K

          (Mark One)

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

                    For the fiscal year ended December 31, 1998

              [ ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
                    OF THE SECURITIES EXCHANGE ACT OF 1934

                    For the transition period from __________ to __________


                             Commission File Number
                                     1-9812

                                  TENERA, INC.
             (Exact name of registrant as specified in its charter)


             Delaware                                           94-3213541
   (State or other jurisdiction of                          (I.R.S. Employer
    incorporation or organization)                         Identification No.)

    One Market, Spear Tower, Suite 1850, San Francisco, California 94105-1018
               (Address of principal executive offices) (Zip Code)

       Registrant's telephone number, including area code: (415) 536-4744


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

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

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


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

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

     As of March 1, 1999, the aggregate market value of the Registrant's  Common
Stock held by  nonaffiliates  of the Registrant was $7,859,000 based on the last
transaction  price as reported on the American Stock Exchange.  This calculation
does not reflect a  determination  that certain  persons are  affiliates  of the
Registrant for any other purposes.

     The number of shares outstanding on March 1, 1999 was 10,129,403.





<PAGE>








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<PAGE>


                                      PART I


Item 1.  Business


General

     TENERA, Inc. ("TENERA" or the "Company"),  a Delaware  corporation,  is the
parent company of the subsidiaries described below.

      TENERA Rocky Flats,  LLC ("Rocky  Flats"),  a Colorado  limited  liability
company,  was formed in 1995 to provide  consulting and  management  services in
connection with  participation in the Performance Based  Integrating  Management
Contract  ("Rocky  Flats  Contract")  at the  DOE's  Rocky  Flats  Environmental
Technology Site ("Site").

      In 1997,  the Company  formed TENERA  Energy,  LLC  ("Energy")  and TENERA
Technologies,  LLC ("Technologies"),  both Delaware limited liability companies,
to  consolidate  its  commercial   electric  power  utility  business  and  mass
transportation business, respectively, into separate legal entities.

      In November  1997, the Company  consummated  the sale of all of the assets
("Asset Sale") of its  Technologies  subsidiary  (see Notes 1 and 9 to Financial
Statements).

      The  Company's  two  continuing  subsidiaries  provide  a broad  range  of
professional  consulting,  management,  and technical  services to solve complex
management,  engineering,  environmental,  and safety challenges associated with
the  operation,  asset  management,  and  maintenance  of power plants,  federal
government properties, and capital intensive industries.

      TENERA provides services to assist its commercial  electric power industry
clients with respect to nuclear and fossil plant  operations,  maintenance,  and
safety.  This  includes  change  management  and  organizational  effectiveness,
strategic business management, risk management, and ecological services. For its
governmental  clients,  TENERA provides the Department of Energy ("DOE") and DOE
prime  contractors  with  assistance in devising,  implementing,  and monitoring
strategies to improve  performance and cost  effectiveness  from an operational,
safety,  and  environmental  perspective at DOE-owned  nuclear reactor sites and
national research laboratories.

      TENERA has developed expertise in providing solutions to complex technical
and   regulatory   issues  facing  the  commercial   electric  power   industry,
particularly  nuclear  facilities.  Over  the  past  several  years,  commercial
electric  utilities  have  experienced  increased  competitive  pressure  due to
continued  deregulation.  For  example,  utilities  continue  to  find  it  more
difficult to recover total capital expenditures through rate increases,  as well
as facing increased  competition from independent  power producers,  alternative
energy  production,  and  cogeneration.  During the same period,  utilities have
responded to continued  regulatory  pressures to comply with complex  safety and
environmental  guidelines.  Safety problems and  environmental  issues have also
emerged at government-owned production facilities. A massive program is underway
throughout the DOE complex of nuclear facilities to comply with health,  safety,
and  environmental  requirements  similar  to  those  applicable  to  commercial
facilities,  principally  in the  areas of  hazardous  wastes,  decontamination,
decommissioning,  and remediation.  Electric utilities,  as well as a variety of
other  industries,   have  been  subjected  to  extensive  regulation  regarding
environmentally safe handling of hazardous materials.

      It has been  TENERA's  strategy to provide  solutions  to these  issues by
providing clients with a high level of professional  skills and a broad range of
scientific,  technological, and management resources. These include software and
data bases  which are used  either in support of  consulting  projects or as the
basis for development of stand alone software products and systems.  The Company
assists its clients in the initial identification and analysis of a problem, the
implementation of a feasible solution that the client believes will be sensitive
to  business and public interest constraints, and the ongoing monitoring of that
solution.

                                       1


<PAGE>


Background

      The  Company's  principal  markets  are the  commercial  electric  utility
industry  and the  DOE-owned  nuclear  materials  production  sites and national
research laboratories.  The electric utility industry has undergone considerable
change in  recent  years and faces a  complex  mix of  economic  and  regulatory
pressures.  There is continuing  deregulation of the production and distribution
of  electricity,  accompanied  by the  desire of  utilities  to meet  demand for
electricity through higher operating  efficiency.  Some of the Company's largest
commercial  clients  have  responded  to  a  more  competitive   environment  by
implementation  of significant  cost control measures and activity in the merger
and acquisition arena.

      Electric  utilities  and the  DOE-owned  nuclear  sites  also  face  close
scrutiny resulting from public concern over health, safety, and the environment.
The Company  believes  that  increased  enforcement  of  environmental  laws and
regulations  continues  to be  prompted by  publicity  and public  awareness  of
environmental problems and health hazards posed by hazardous materials and toxic
wastes.  The  dismantlement  and  cleanup  of  the  aging  DOE  weapons  complex
represents a significant market for the Company's service offerings.

      Economic  pressures  have  resulted  in  certain  changes  in the focus of
electric utility management. For example, the rate-making process now represents
a significant area of risk to utilities.  This has highlighted the importance of
careful  planning and  documentation  in connection with rate case  preparation.
Furthermore,  utilities  apparently  are  shifting  their  emphasis  to  ongoing
performance  reviews  in making  their  rate  base  decisions,  related  to such
measures as plant capacity  factors.  These changes in the  rate-making  process
subject the  utilities to  substantial  economic  penalties  for extended  plant
outages and have stimulated actions by them to assure more reliable operations.

      The DOE has  begun  the  implementation  of  programs  to  address  safety
problems  and   environmental   concerns  which  have  emerged  at  its  nuclear
facilities.  These programs are designed to bring the operations into compliance
with a variety of health,  safety,  and environmental  requirements,  similar to
those  applicable  to  the  commercial  electric  utility  industry.  The  DOE's
decontamination,  decommissioning,  and  remediation  programs are also aimed at
achieving  significant  cleanup of its hazardous  waste  production  and storage
facilities  and the partial  shutdown of nuclear  operations  at a number of its
sites.

      The markets for electric  utility and DOE facility  professional  services
and software products cover a broad range of activities. Typical markets include
waste management,  outage support, operating plant services,  licensing support,
safety  and   health   management,   maintenance   and   information   services,
decommissioning  consulting,  risk  assessment,  quality  assurance and control,
organizational  effectiveness,  engineering  support,  records management,  fuel
related services,  employee professional  training,  plant security, and surplus
asset disposal.

      In recent years,  the slowdown in construction of commercial  power plants
has placed a premium  on  extending  existing  plant  life and has  shifted  the
electric utility  commercial market emphasis.  This has also resulted in greater
attention by utilities to  management  systems for  preventive  maintenance  and
improved methods of plant operation.  This may, in time, result in the expansion
of the market for  services  and  software  associated  with the  efficient  and
profitable operation of existing capacity.


Services and Products

      The Company provides its services by utilizing its professional skills and
technological  resources in an  integrated  approach  which  combines  strategic
consulting, technical, and project management capabilities with software systems
and data bases.  Services performed by the Company typically include one or more
of the following: consultation with the client to determine the nature and scope
of the problem,  identification  and  evaluation  of the problem and its impact,
development  and design of a process for correcting the problem,  preparation of
business plans,  preparation of reports for obtaining regulatory agency permits,
and  analysis  in support  of  regulatory  and legal  proceedings.  The  Company
operates in one business  segment  providing  services which cover these general
areas: strategic consulting, management, and technical services and prior to the
Asset Sale, software services, products, and systems.

                                       2


<PAGE>


      The following  table reflects the percentage of revenues  derived for each
of these areas for the period  indicated  during the fiscal years ended December
31, 1996 through 1998:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
                                                                                Year Ended December 31,
                                                                          --------------------------------------
                                                                             1998         1997         1996
----------------------------------------------------------------------------------------------------------------
<S>                                                                        <C>           <C>          <C>
Consulting, Management, and Technical Services ........................     100.0%        86.4%        91.8%
Software Services, Products, and Systems* .............................        0 %        13.6%         8.2%

----------------------------------------------------------------------------------------------------------------
</TABLE>
  *   Reflects only 10 months of revenues in 1997 due to the Asset Sale.

      Consulting  and  Management   Services.   The  Company's   consulting  and
management  services  involve  determining  a solution  to client  problems  and
challenges in the design,  operation, and management of large facilities.  Focus
is also placed on providing expertise in the wide range of disciplines  required
to resolve complex legal and regulatory issues and offering  executives guidance
in strategic planning and implementing a coordinated, effective response to such
issues. The Company applies its professional skills,  software,  and specialized
data bases to all aspects of these  problems  and  challenges  in the  following
general areas:

        o  Strategic business management

        o  Organizational effectiveness and change management

        o  Risk management

        o  Environmental and ecological issues at DOE and electric
           utility facilities

        o  Operations and maintenance performance improvement

        o  Plant safety

        o  Nuclear safety and criticality at DOE facilities

        o  Engineering design review and verification

        o  Company/organized labor union consulting

        o  Technology enhanced training services

        o  Surplus property management and disposal services

      Software Services, Products, and Systems. Until the Asset Sale in November
1997, the Company offered a range of information  software  services,  products,
and systems.  The Company  continues to utilize  proprietary  software tools and
systems in  connection  with the risk  management,  operations  and  maintenance
performance improvement, and technology enhanced training service areas.


Marketing and Clients

      Marketing.  The Company's  marketing  strategy  emphasizes  its ability to
offer a broad range of  services  designed to meet the needs of its clients in a
timely and cost-efficient manner. The Company can undertake not only small tasks
requiring a few professionals  but also the management,  staffing,  design,  and
implementation  of major  projects which may last for several months and involve
large  numbers  of  professionals  and   subcontractors  in  several  geographic
locations.   Characteristic  of  TENERA's  marketing  strategy  are  significant
projects in which  initial  contracts  have been only a fraction of the ultimate
sale.

      The Company  provides  financial  incentives to attract  senior  technical
professionals with extensive utility industry  experience and to encourage these
individuals  to  market  the  complete  range of  TENERA's  services  throughout
existing and potential customer organizations.

      TENERA's marketing efforts are facilitated by the technical reputation and
industry   recognition  often  enjoyed  by  its  professional  staff.   TENERA's
reputation in the electric power industry and as a DOE  contractor,  often leads
to invitations to  participate at an early stage in the  conceptualization  of a
project.  During  this phase,  the  Company  assists  clients in  developing  an
                                       3


<PAGE>


approach for efficiently and productively  solving a problem. If new services or
products  are  developed  for a client,  they  generally  are  marketed to other
clients with similar needs.

      The Company's  reputation  also leads to  invitations  to  participate  in
large, multi-company teams assembled to bid on large DOE or utility projects.

      Clients. During the year ended December 31, 1998, TENERA provided services
to over 35 clients  involving over 65 contracts.  During the year ended December
31, 1997,  TENERA  provided  services and software to over 60 clients  involving
over 100  contracts  (included 20 clients and 30  contracts in the  Technologies
subsidiary).  Over 80% of TENERA's  clients  during the year ended  December 31,
1998, had previously used its services.

      During the year ended December 31, 1998, two clients, Kaiser-Hill Company,
LLC  ("Kaiser-Hill"),  prime  contractor of the Rocky Flats  Contract,  and Safe
Sites of Colorado,  LLC ("Safe Sites"), a prime subcontractor of the Rocky Flats
Contract,  accounted  for  approximately  64% of  the  Company's  total  revenue
(Kaiser-Hill - 37%; Safe Sites - 27%).  During the year ended December 31, 1997,
three clients  accounted for  approximately  67% of the Company's  total revenue
(Kaiser-Hill  - 43%; ComEd - 14%; and Pacific Gas and Electric - 10%) and 78% of
non-Technologies  revenue. The Company has maintained working relationships with
Kaiser-Hill and Safe Sites for four years,  during which time various  contracts
have been completed and replaced with new or follow-on  contracts.  There can be
no assurance  that these  relationships  will be maintained at current levels or
beyond  the  existing  contracts,  and the loss of these  clients  would  have a
material adverse effect on the Company (see "Operating Risks").


Operations

      The Company  primarily  contracts  for its  services in one of three ways:
time and materials ("T & M"), time and materials plus incentive fee ("TMIF"), or
fixed  price.  T & M and TMIF  contracts,  which cover a  substantial  amount of
TENERA's revenues,  are generally billed monthly by applying a multiplier factor
to specific  labor costs or by use of a fixed  hourly labor rate charged to each
project.  T  &  M  and  TMIF  contracts  are  generally  structured  to  include
"not-to-exceed"  ceilings;  however,  if after initial  review or after work has
started, it is noted that additional work is required, the contract normally can
be  renegotiated  to include such  additional  work and to increase the contract
ceiling accordingly. Also, prior to the Asset Sale, the Company received license
and annual maintenance fees from contracts  involving software products.  During
the year ended  December 31, 1997,  such fees amounted to $600,000  ($283,000 in
1996).

      Fixed-price  contracts  are  generally  applicable  where  TENERA has been
requested to deliver  services  and/or  products  previously  developed by it or
deliverable  to  multiple  customers.   At  December  31,  1998,  of  the  total
outstanding contracts, less than 10% were fixed-price.

      TENERA generally  receives  payments on amounts billed 30 to 90 days after
billing,  except for retention under  contracts.  Since the majority of TENERA's
clients  are  utility  companies,   DOE,  or  DOE  prime   contractors,   TENERA
historically  has  experienced  a low  percentage  of losses due to poor  credit
risks.


Backlog

      As of December 31, 1998,  TENERA had contracted a backlog of approximately
$18.5  million,  all of which is cancelable by the clients.  The Rocky Flats and
Energy subsidiaries account for $17.2 million and $1.3 million, respectively, of
the backlog.  Contracted backlog represents the aggregate of the remaining value
of those active contracts  entered into by TENERA for services which are limited
by a  contractual  amount  and does not  include  any  estimates  of  open-ended
services  contracts  or  unfunded  backlog  that may result  from  additions  to
existing contracts.

      Since all outstanding contracts are cancelable, there is no assurance that
the  revenues  from these  contracts  will be  realized by the  Company.  If any
contract is canceled,  there is no assurance that the Company will be successful
in replacing such contract.

                                       4


<PAGE>


Competition

      The market for consulting and  management  services is highly  competitive
and  TENERA  competes  with  several  larger  firms with  significantly  greater
resources.  The  primary  competitive  factor in the market for  consulting  and
management  services is price,  and certain of TENERA's  competitors are able to
offer  similar  services at prices  that are lower than those  offered by TENERA
(see "Operating Risks").


Research and Development

      It has been TENERA's policy to undertake development projects of software,
systems,  and  data  bases  only if they can be  expected  to lead  directly  to
proprietary  products  that may be generally  marketable.  A portion of TENERA's
research  and  development  effort  may  be  funded  through  customer-sponsored
projects,  although  the rights to the systems and data bases  generally  remain
with TENERA.  Because TENERA's research and development  activities  involve the
integration of customer-funded,  cost sharing, and TENERA-funded projects, it is
not  possible to  segregate  on a  historical  basis all of the  specific  costs
allocable as research and development costs. In 1998, TENERA spent under $50,000
on software development related to its consulting services business, in contrast
to  expending  in excess of  $1,531,000  in 1997  ($562,000 in 1996) on software
development related to its Technologies business prior to the Asset Sale.


Patents and Licenses

      The Company  does not hold any patents  material to its  business.  TENERA
relies upon trade secret laws and contracts to protect its proprietary rights in
software systems and data bases. The service and license  agreements under which
clients  acquire certain rights to access and use TENERA's  software  technology
generally  restrict the clients' use of the systems to their own  operations and
prohibit disclosure to others.


Personnel

      At December 31,  1998,  the Company  employed a total of 173  consultants,
engineers, and scientists and a supporting administrative staff of 23 employees.
Eight employees hold doctorates and 57 employees hold master's  degrees.  TENERA
also  retains  the  services  of numerous  independent  contractors  in order to
fulfill specific needs for particular  projects.  None of TENERA's employees are
represented by a labor union.


Item 2.  Properties

      The Company's headquarters are located in San Francisco,  California,  and
consist of approximately 13,500 square feet of leased office space,  expiring in
2000.  TENERA  also  leases  approximately  6,500  square  feet  in  Louisville,
Colorado,  expiring in 2000.  Additionally,  TENERA  maintains a 900 square feet
project  office  in San Luis  Obispo,  California  which  expires  in 1999 and a
month-to-month  lease  covering  approximately  200  square  feet  in  Richland,
Washington,  expiring in 1999. As a result of the Asset Sale, TENERA vacated its
office space in Hartford,  Connecticut,  and is subleasing the space until lease
expiration in 2000.

      The Company  believes that its facilities are well maintained and adequate
for its current needs.


Item 3.  Legal Proceedings

      None.


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

      None.

                                       5


<PAGE>


                                     PART II


Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters

      Shares of the Company's  Common Stock are listed for trading on AMEX under
the symbol TNR. The first  trading day on AMEX was June 30, 1995,  at which time
10,417,345 shares were outstanding. There were approximately 500 shareholders of
record as of March 1, 1999.

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
                                     1998                          1997                          1996
                           -------------------------     -------------------------     -------------------------
                                Price Range of                Price Range of                Price Range of
                             TENERA, Inc. Shares           TENERA, Inc. Shares           TENERA, Inc. Shares
                           -------------------------     -------------------------     -------------------------
                             High            Low           High            Low           High            Low
----------------------------------------------------------------------------------------------------------------
<S>                       <C>            <C>            <C>            <C>            <C>            <C>
First Quarter ......       $   0.875      $   0.50       $   0.9375     $   0.625      $   1.375      $   0.875
Second Quarter .....           1.00           0.5625         0.8125         0.50           1.4375         0.875
Third Quarter ......           1.6875         0.6875         0.625          0.50           1.0625         0.75
Fourth Quarter .....           2.75           0.75           0.8125         0.50           0.875          0.625
----------------------------------------------------------------------------------------------------------------
</TABLE>

      The  Board of  Directors  of the  Company  determines  the  amount of cash
dividends  which the Company may make to  shareholders  after  consideration  of
projected cash  requirements and a determination of the amount of retained funds
necessary to provide for growth of the Company's business.  The Company has made
no  distributions  since 1991.  The Company does not  anticipate  resumption  of
dividends in the foreseeable future.

                                       6


<PAGE>


Item 6.  Selected Financial Data

      The following  consolidated selected financial data of the Company for the
five prior years should be read in conjunction with the  consolidated  financial
statements and related notes included  elsewhere.  The earnings (loss) per share
amounts prior to 1997,  have been restated as required to comply with  Statement
of Financial  Accounting  Standards  No. 128,  "Earnings Per Share." For further
discussion  of earnings per share and the impact of Statement No. 128, see Notes
2 and 5 to the Consolidated Financial Statements.

                                  TENERA, INC.
                              FINANCIAL HIGHLIGHTS



  (In thousands, except per share and statistical amounts)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
                                                                       Year Ended December 31,
                                                       ---------------------------------------------------------
                                                         1998        1997         1996       1995        1994
----------------------------------------------------------------------------------------------------------------
<S>                                                  <C>         <C>          <C>         <C>         <C>
OPERATIONS DATA
Revenue .........................................     $ 27,445    $ 21,121     $ 24,003    $ 25,545    $ 23,600
Operating Income (Loss) .........................        1,874      (2,139)      (1,382)      1,203      (1,239)
Net Earnings (Loss) .............................        1,674      (1,890)      (1,080)        898      (1,202)
Earnings (Loss) per Share-- Basic ...............         0.17       (0.19)       (0.11)       0.07       (0.13)
Earnings (Loss) per Share-- Diluted .............         0.16       (0.19)       (0.11)       0.07       (0.13)
Weighted Average Shares-- Basic..................       10,124      10,123       10,248       9,920       9,555
Weighted Average Shares-- Diluted................       10,450      10,123       10,248      10,014       9,555

CASH FLOW DATA
Net Cash Provided(Used) by Operating Activities..     $    906    $ (2,681)    $  2,954    $   (286)   $     17
Net Increase(Decrease) in Cash and Cash Equivalents      1,069      (1,672)       2,490        (469)        363

FINANCIAL POSITION AT DECEMBER 31
Cash and Cash Equivalents .......................        3,361       2,292        3,964       1,474       1,943
Working Capital .................................        4,474       2,831        4,555       5,836       4,024
Total Assets ....................................        9,206       6,052        7,940      10,087       8,616
Total Liabilities ...............................        4,538       3,065        3,062       3,912       4,069
Shareholders' Equity.............................        4,668       2,987        4,878       6,175       4,547

OTHER INFORMATION
Number of Employees .............................          196         187          208         270         170
----------------------------------------------------------------------------------------------------------------
</TABLE>
                                       7


<PAGE>


Item 7.  Management's  Discussion and Analysis of Results of Operations and
Financial Condition


                                  TENERA, INC.
                              RESULTS OF OPERATIONS

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
                                                                                   Percent of Revenue
                                                                        -----------------------------------------
                                                                                Year Ended December 31,
                                                                        -----------------------------------------
                                                                         1998           1997          1996
-----------------------------------------------------------------------------------------------------------------
<S>                                                                    <C>           <C>           <C>
Revenue .............................................................    100.0%        100.0%        100.0%

Direct Costs ........................................................     75.5          61.7          64.7

General and Administrative Expenses .................................     19.7          38.5          38.7

Software Development Costs...........................................     --             7.2           2.3

Special Items Income (Expense), Net .................................      1.1           1.7          (0.2)

Litigation Judgment Cost.............................................     (0.1)          4.5          --

Other Income ........................................................      0.8           0.1           0.1
                                                                        --------      --------      --------

   Operating Income (Loss) ..........................................      6.8         (10.1)         (5.8)

Interest Income, Net ................................................      0.5           0.5           0.7
                                                                        --------      --------      --------
Net Earnings (Loss) Before Income Tax Expense (Benefit)..............      7.3%         (9.6)%        (5.1)%
                                                                        ========      ========      ========
-----------------------------------------------------------------------------------------------------------------
</TABLE>


Year Ended December 31, 1998 versus Year Ended December 31, 1997

      The  Company's  increased  revenue in its Rocky  Flats  subsidiary,  lower
overall  general and  administrative  expenses,  and  elimination of significant
ongoing development costs as a result of the Asset Sale in the fourth quarter of
1997,  resulted in net earnings,  before income tax expense,  special item,  and
adjustment to litigation  judgment costs,  of $1,653,000,  compared to a loss of
$1,434,000  in 1997 before  income tax benefit,  special  item,  and accrual for
litigation judgement costs.

      The revenue  increase in 1998 is primarily  the result of increased  Rocky
Flats Contract activity, partially offset by the absence of Technologies revenue
as a result of the Asset Sale. For 1998, the  concentration  of revenue from the
government  sector  increased  to  78%  of  total  revenue  from  53%  in  1997.
Approximately  one-half of the increase in revenue  concentration relates to the
loss of  Technologies  revenue as a result of the Asset Sale. The other one-half
of the revenue  concentration  increase  is due to higher  levels of Rocky Flats
Contract  activity  versus 1997.  The number of clients  served  during the year
decreased to 35 from 40 (excluding 20 clients  associated with the  Technologies
business) in 1997.

      Direct  costs  were  higher in 1998,  primarily  as a result of  increased
revenue  generation  opportunities  and the related use of  subcontractor  teams
under the Rocky Flats Contract. Gross margins decreased to 25%, in 1998 from 38%
in 1997,  mainly due to an increase in the  proportion  of revenue  derived from
lower margin government projects.

      General  and  administrative  costs  were  lower  compared  to a year ago,
primarily  reflecting  increased  utilization of employees on billable contracts
and  reduced  corporate  and  subsidiary   administrative  staffs.  General  and
administrative  expenses also decreased,  as a percentage of revenue,  to 20% in
1998 from 39% in 1997.

      Due  to  the  Asset  Sale,  the  Company's  software  product  development
expenditures were not material in 1998, as compared to $1,531,000 in 1997.

                                       8


<PAGE>


      Effective  November 14, 1997, the Company  consummated  the sale of all of
the assets  related to the  Technologies  business  for  $1,300,000  in cash,  a
promissory  note in the amount of $300,000,  a warrant to acquire 4% of the then
outstanding shares of the buyer's common stock,  exercisable upon the occurrence
of an  initial  public  offering  or a change  of  control  (as  defined  in the
warrant),   plus  the  assumption  of  all   liabilities   associated  with  the
Technologies business.  The Technologies  subsidiary was not expected to produce
profitable results in the subsequent twelve months due to  the anticipated  high
level  of  investment  needs  to  develop  its  products  and for  its  business
development  activities.  The  special  item of $355,000  in 1997  reflects  the
realized  gain  (exclusive of the effect of the note and warrant) from the Asset
Sale (see Notes 1 and 9 to the Consolidated Financial Statements).  The note was
repaid in full in February 1998, and an additional gain of $300,000 was reported
in 1998 as a special item. The warrant is deemed to have no value as of December
31, 1998 and December 31, 1997.

      On February 10, 1998,  the Company was notified by the Superior  Court for
Alameda  County of the trial  judge's  decision  against the  defendants  in the
action entitled PLM Financial  Services,  Inc. v TERA Corporation,  et al. (Case
No.  743 439-0, the "PLM  Litigation"), in which TENERA and others were named as
defendants.  Damages were not  specified in the Court's  decision,  but based on
exposure  estimates by the Company's  counsel,  the Company  accrued  litigation
judgement  expenses of $950,000 in 1997 related to this matter. In May 1998, the
Company  settled the case for $950,000 in cash, of which  approximately  $50,000
was paid by a co-defendant,  TERA Corporation  Liquidating Trust. The litigation
judgment  cost  adjustment  of $50,000 in 1998 reflects the lower amount paid by
the Company  versus the  accrual  established  in 1997 (see Note 8 to  Financial
Statements).

      Other income in 1998  reflects  temporary  accounting  and  administrative
services  provided to the buyer in the Asset Sale.  These services ceased during
the fourth  quarter of 1998.  Other income in 1997 reflects gains on the sale of
assets related to facility downsizing.

      Net  interest  income  in 1998  and  1997  represents  earnings  from  the
investment  of  cash  balances  in  short-term,  high-quality,   government  and
corporate debt instruments.  The higher net interest income in 1998, as compared
to a year ago, primarily reflects larger average cash balances.  The Company had
no borrowings under its line of credit during 1998 and 1997.


Year Ended December 31, 1997 versus Year Ended December 31, 1996

      Lower  revenue  and  higher  software  product  and  business  development
expenses  resulted in a pre-tax loss of $1,434,000,  before the special item and
litigation  judgement  costs,  compared to a pre-tax loss of  $1,167,000 in 1996
before the effect of special items.

      The revenue decrease was primarily the result of reduced  government sales
during  the first  nine  months  of 1997,  partially  offset by higher  software
revenue  related  to work on the  Technologies  subsidiary's  contract  with the
National  Railroad  Passenger  Corporation  ("Amtrak") which began in late 1996.
Concentration  of revenue from the government  sector  decreased to 53% of total
revenue for 1997 from 61% in 1996.  The number of clients served during the year
decreased to 60 (includes 20 clients in the Technologies  subsidiary) from 75 in
1996.  Revenue from software  license and maintenance fees during 1997 increased
to $600,000 from $283,000 in 1996, primarily due to new software installations.

      Direct  costs were  lower in 1997,  primarily  as a result of the  reduced
revenue  generation  opportunities.  Gross margins increased to 38% in 1997 from
35% in 1996 due to the reduction in the proportion of revenue derived from lower
margin  government  work,  partially offset by the effect of an increased mix of
higher cost  subcontracted  labor on fixed-price  contracts  associated with the
Technologies subsidiary.

      General  and  administrative  costs were lower in 1997  compared to a year
ago,  primarily  due to  lower  administrative  costs  throughout  the  Company,
partially  offset by increased  sales staff and  marketing  expenditures  in the
Technologies  subsidiary,  which  amounted  to  $908,000  in 1997,  compared  to
$241,000 in 1996.

                                       9


<PAGE>


      The level of the  Company's  internally  funded  investments  in  software
product development in the Technologies  subsidiary,  increased to $1,531,000 in
1997, as compared to $562,000 in 1996. The  development  expenditures  ceased in
November  1997,  as a result of the Asset  Sale of the  Technologies  subsidiary
described  below  (see  also  Note 1 and  Note 9 to the  Consolidated  Financial
Statements).

      Other  income  for 1997 was the same level as 1996.  Other  income in 1997
reflects  gains on the sale of fixed assets related to facility  downsizing.  In
1996,  other  income  primarily  relates  to the  liquidation  of the  Company's
interest in the Individual Plant Evaluation  Partnership,  a technical  services
partnership in which it was an operating participant.

      Effective  November 14, 1997, the Company  consummated  the sale of all of
the assets  related to the  Technologies  business  for  $1,300,000  in cash,  a
promissory  note in the amount of $300,000,  a warrant to acquire 4% of the then
outstanding shares of the buyer's common stock,  exercisable upon the occurrence
of an  initial  public  offering  or a change  of  control  (as  defined  in the
warrant),   plus  the  assumption  of  all   liabilities   associated  with  the
Technologies business.  The Technologies  subsidiary was not expected to produce
profitable  results  in the subsequent twelve months due to the anticipated high
level  of  investment  needs  to  develop  its  products  and for  its  business
development  activities.  The special  item of $355,000  in 1997,  reflects  the
realized gain (exclusive of the effect of the note and warrant) on sale from the
Asset Sale (see Notes 1 and 9 to the Consolidated  Financial  Statements).  Full
repayment of the note was contingent  upon a minimum amount of equity funding of
the buyer, which had not occurred at December 31, 1997.  Therefore,  the Company
provided an allowance for uncollectability  against the total amount of the note
as of December 31, 1997.  The note was repaid in full in February  1998,  and an
additional gain of $300,000 was reported in 1998. The warrant was deemed to have
no value as of December 31, 1998 and 1997.

      In 1996,  the special  items' net expense of $50,000 is  comprised  of two
items.  First,  in the second quarter of 1996,  the Company  recorded a $250,000
adjustment to the reserve  related to the settlement of specific  disputed costs
on certain  government  contracts  with the DOE. This positive  earnings  impact
resulted  from  a  further   reduction  of  the  reserve  for  sales  adjustment
established  in 1991,  and was based upon the  successful  completion of certain
government  audits and contract  closeouts of prior periods.  The second special
adjustment occurred in December 1996, and offset the first item. This adjustment
related to the  repricing  of debt owed to the  Company by one of its  executive
officers (see Note 3 to the Consolidated  Financial  Statements).  The principal
amount of the note was  reduced to the then  current  fair  market  value of the
stock held as  security,  resulting  in a charge to  earnings  of  approximately
$300,000.

      The  Company  accrued  litigation  judgement  expenses of $950,000 in 1997
related  to  the  PLM  Litigation  (see  Note 8 to  the  Consolidated  Financial
Statements).

      Net  interest  income  in 1997  and  1996  represents  earnings  from  the
investment  of  cash  balances  in  short-term,  high-quality,   government  and
corporate debt instruments,  partially offset by capital lease interest expense.
The lower net  interest  income in 1997,  as compared  to a year ago,  primarily
reflects  smaller  average cash balances in 1997.  The Company had no borrowings
under its line of credit during 1997 and 1996.


Liquidity and Capital Resources

      Cash and  cash  equivalents  increased  by  $1,069,000  during  1998.  The
increase was due to cash provided by operations  ($906,000),  cash proceeds from
the repayment of the Promissory Note ($300,000) and exercise of employee options
($7,000), partially offset by the acquisition of equipment ($146,000).

      Receivables  increased by $1,999,000 from December 31, 1997, primarily due
to an increase in Rocky Flats services  revenue in 1998. The allowance for sales
adjustments decreased by $58,000 reflecting the write-off of disallowed billings
associated with the government sector.

      Accounts payable increased by $1,876,000 since the end of 1997,  primarily
associated  with  supporting   increased   revenues  and  the  higher  usage  of
subcontractors under the Rocky Flats Contract.  Accrued compensation and related
expenses increased by $447,000 during 1998,  primarily reflecting an increase in
the number of Energy employees, the accrual of employer matching amounts payable
under the Company's  401(k) Savings Plan, and a higher vacation  accrual balance
related to an increase in average employee seniority.

                                       10


<PAGE>


      The  litigation   judgment  accrual  decreased  by  $950,000  due  to  the
settlement  of the PLM  Litigation  in May 1998 (see Note 8 to the  Consolidated
Financial Statements).

      No cash dividend was declared in 1998.

      The impact of  inflation  on project  revenue and costs of the Company was
minimal.

      At December 31, 1998, the Company had available $2,500,000 of a $3,000,000
revolving  loan facility with its lender which expires in May 2000.  The Company
has no outstanding borrowing against the line; however, $500,000 was assigned to
support standby letters of credit.

      Management believes that cash expected to be generated by operations,  the
Company's  working  capital,  and its loan  facility  are  adequate  to meet its
anticipated liquidity needs through the next twelve months.


Year 2000 Issue

      Many existing  computer programs use only two digits to identify a year in
the date field.  These programs were designed and developed without  considering
the  impact  of the  upcoming  change in the  century.  If not  corrected,  many
computer  applications  could fail or create erroneous results by or at the Year
2000. The Year 2000 issue affects virtually all companies and organizations. The
Company's  technical personnel are in the process of assessing the impact of the
Year 2000 issue on the Company's products and services.

      The  Company  has  established  a  two-phase  program  to ensure  that its
proprietary software and internal computer systems are Year 2000 compliant.  The
initial  phase,  which included  planning,  inventory and  assessment,  has been
substantially completed. The final phase, which consists of correction, testing,
deployment  and  acceptance,  is in process and is expected to be  completed  by
mid-1999.  The Company expects that the cost of making its proprietary  software
and  internal  systems  compliant  will be less than $50,000 and will not have a
material effect on its overall financial position or results of operations.

      The Company is also  beginning  the same  two-phase  program to assess the
risks to the Company of systems  owned and operated by outside  parties but used
by the  Company  in  its  leased  and  rented  facilities  which  have  embedded
technology,  such as elevator and telephone systems, security systems, and other
physical office infrastructure.  The Company is examining  infrastructure issues
on an  office-by-office  basis and the initial phase was completed at the end of
1998. No costs have been expended by the Company  through 1998.  The final phase
is  planned to be  completed  by  mid-1999  and the  Company  expects to develop
contingency  plans to address any such  embedded  technology  issues as they are
identified.

      The Company is in the  process of  communicating  with its major  clients,
subcontractors,  banking  institution,  and payroll vendor to determine  whether
they are or will be Year 2000  compliant.  By mid-1999,  the Company  expects to
have identified and develop  contingency  plans for any such clients and vendors
who will not be Year 2000 ready.

      Even with the effort to address the Year 2000 issue made by the Company to
date,  there can be no assurance that the systems of other entities on which the
Company  relies,  including  the  Company's  internal  systems  and  proprietary
software,  will be timely remediated,  or that a failure to remediate by another
entity  and/or the Company,  would not have a material  effect on the  Company's
results of operations.

      The  Company  will  utilize  both  internal  and  external   resources  to
reprogram, or replace, and test software for Year 2000 modifications.  The total
cost associated with the required  modifications and conversions is not expected
to  exceed  $50,000,  including  infrastructure  and  embedded  technology  (see
"Operating Risks").


Operating Risks

      Statements  contained in this report which are not historical  facts,  are
forward-looking  statements  as that term is defined in the  Private  Securities
Litigation  Reform Act of 1995. Such  forward-looking  statements are subject to
the  risks  and  uncertainties  which  could  cause  actual  results  to  differ
materially  from  those  projected,  including  those  risks  and  uncertainties
discussed below.

                                       11


<PAGE>


      History of  Losses;  Uncertainty  of Future  Profitability.  Net  earnings
(loss)  over the period  1990  through  1998 were $7.9  million  in 1990,  $(6.4
million) in 1991, $0.8 million in 1992,  $(0.3 million) in 1993,  $(1.2 million)
in 1994, $0.9 million in 1995,  $(1.1 million) in 1996,  $(1.9 million) in 1997,
and $1.7 million in 1998. There can be no assurance of the level of earnings, if
any, that the Company will be able to derive in the future.

      Reliance  on  Major   Customers.   During  fiscal  1998,   two  customers,
Kaiser-Hill  and Safe Sites,  accounted for  approximately  64% of the Company's
total revenues, and during 1997, three customers,  Kaiser-Hill, ComEd, and PG&E,
accounted  for  approximately  67% of  the  Company's  total  revenues  (78%  of
non-Technologies  revenue).  All outstanding  customer  contracts are cancelable
upon notice by either  party,  and  therefore,  there can be no  assurance  that
relationships  with customers will be maintained at existing levels,  or at all.
The  discontinuation  or material  reduction of business  relations  with any of
these customers would have a material  adverse impact on TENERA's  business (see
Item 1, "Business -- Marketing and Clients").

      Uncertainty  Regarding Industry Trends and Customer Demand. As a result of
the  slowdown in the  construction  of power plants and the absence of new power
plants scheduled for  construction,  as well as the gradual  deregulation of the
production and distribution of electricity,  the market for engineering services
relating to licensing and  construction of power plants has contracted,  and the
market for services  related to efficient and  profitable  operation of existing
capacity has expanded.  There can be no assurance  that (i) TENERA will have the
financial  and other  resources  necessary to  successfully  research,  develop,
introduce,  and market new products  and  services,  (ii) if, or when,  such new
products or services are introduced,  they will be favorably accepted by current
or potential  customers,  or (iii) TENERA will be otherwise able to fully adjust
its services and products to meet the changing  needs of the industry  (see Item
1, "Business -- Background").

      Uncertainty of Access to Capital.  Management currently believes that cash
expected to be generated from operations, the Company's working capital, and its
available loan facility,  are adequate to meet its anticipated  near-term needs.
If cash from operations is less than currently  anticipated,  TENERA may need to
seek other sources of capital.  There can be no guarantee that such sources will
be available in sufficient amounts or on terms favorable to TENERA, or at all.

      Reliance  on Key  Personnel.  Due  to the  nature  of the  consulting  and
professional services business,  the Company's success depends, to a significant
extent,  upon the continued services of its officers and key technical personnel
and  the  ability  to  recruit  additional  qualified  personnel.   The  Company
experienced a  historically  high rate of turnover as revenue and earnings began
to decline in 1991 and  thereafter.  Further loss of such officers and technical
personnel,   and  the  inability  to  recruit  sufficient  additional  qualified
personnel, could have a material adverse effect on the Company.

      Government  Contracts  Audits.  The  Company's  United  States  government
contracts  are  subject in all cases to audit by  governmental  authorities.  In
1994, an audit was concluded,  which began in 1991, of certain of its government
contracts  with  the  DOE  relating  to the  allowability  of  certain  employee
compensation  costs. The Company made a special charge to earnings in 1991 for a
$2.4 million  provision for the potential rate  adjustments then disputed by the
Company  and the  government.  As a result of  resolving  certain  issues in the
dispute,  the Company  recognized  increases to earnings of $500,000 in 1994 and
$250,000 in 1996. Cash payments to clients associated with the settlement, which
are estimated to be between $400,000 and $500,000, which were accrued for in the
1991 Special Charge to earnings, are expected to be made as government contracts
with  individual  clients  are closed  out.  There can be no  assurance  that no
additional  charges to earnings of the Company may result from future  audits of
the Company's government contracts.

      Competition.  The market for management and consulting  services is highly
competitive  and TENERA  competes with several  larger firms with  significantly
greater resources. Significant competitive factors in the market for engineering
and  management  services  are price and the ability to offer new  products  and
services  designed  to meet  changing  customer  demand.  A number  of  TENERA's
competitors  are able to offer such services at prices that are lower than those
offered by TENERA, and to devote far greater resources toward the development of
new products and services. This competition has had, and is expected to continue
to have, a material adverse impact on TENERA's business.

                                       12


<PAGE>


      Year 2000 Issue.  Many existing  computer  programs use only two digits to
identify a year in the date field.  These  programs  were designed and developed
without  considering  the impact of the upcoming  change in the century.  If not
corrected,  many computer applications could fail or create erroneous results by
or at the Year 2000.  The Year 2000 issue  affects  virtually  all companies and
organizations.  The Company has reviewed the potential problem and believes that
it will not have a material impact on its business  operations nor its financial
condition.  However, if the Company's major clients have not addressed their own
Year  2000  issues  adequately,  especially  regarding  their  accounts  payable
systems,  payment of the Company's  invoices  could be delayed and its cash flow
materially affected.



                                       13


<PAGE>


Item 8.  Financial Statements and Supplementary Data

                                  TENERA, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS



  (In thousands, except per share amounts)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
                                                                             Year Ended December 31,
                                                                  ----------------------------------------------
                                                                      1998            1997             1996
----------------------------------------------------------------------------------------------------------------
<S>                                                              <C>              <C>              <C>
Revenue ....................................................      $   27,445       $   21,121       $   24,003
Direct Costs ...............................................          20,718           13,038           15,527
General and Administrative Expenses ........................           5,416            8,131            9,281
Software Development Costs .................................              --            1,531              562
Special Items Income (Expense), Net ........................             300              355              (50)
Litigation Judgment Cost ...................................             (50)             950               --
Other Income ...............................................             213               35               35
                                                                  -------------    ------------     ------------
   Operating Income (Loss)..................................           1,874           (2,139)          (1,382)
Interest Income, Net .......................................             129              110              165
                                                                  -------------    ------------     ------------
   Net Earnings (Loss) Before Income Tax Expense(Benefit)...           2,003           (2,029)          (1,217)
Income Tax  Expense (Benefit)...............................             329             (139)            (137)
                                                                  -------------    ------------     ------------
Net Earnings (Loss).........................................      $    1,674       $   (1,890)      $   (1,080)
                                                                  =============    ============     ============
Net Earnings (Loss) per Share-- Basic ......................      $     0.17       $    (0.19)      $    (0.11)
                                                                  =============    ============     ============
Net Earnings (Loss) per Share-- Diluted ....................      $     0.16       $    (0.19)      $    (0.11)
                                                                  =============    ============     ============
Weighted Average Number of Shares Outstanding-- Basic.......          10,124           10,123           10,248
                                                                  =============    ============     ============
Weighted Average Number of Shares Outstanding-- Diluted.....          10,450           10,123           10,248
                                                                  =============    ============     ============
----------------------------------------------------------------------------------------------------------------
</TABLE>
  See accompanying notes.

                                       14


<PAGE>


                                  TENERA, INC.
                           CONSOLIDATED BALANCE SHEETS



  (In thousands, except share amounts)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
                                                                                           December 31,
                                                                                   -----------------------------
                                                                                      1998             1997
----------------------------------------------------------------------------------------------------------------
<S>                                                                               <C>              <C>
ASSETS
Current Assets
   Cash and cash equivalents ...............................................       $    3,361       $    2,292
   Receivables, less allowances of $1,300 (1997 - $1,358)
     Billed ................................................................            2,692            1,643
     Unbilled ..............................................................            2,734            1,726
   Other current assets ....................................................              225              235
                                                                                   ------------     ------------
       Total Current Assets ................................................            9,012            5,896
Property and Equipment, Net ................................................              194              156
                                                                                   ============     ============
         Total Assets ......................................................       $    9,206       $    6,052
                                                                                   ============     ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
   Accounts payable.........................................................       $    2,514       $      638
   Accrued compensation and related expenses ...............................            1,924            1,477
   Income taxes payable ....................................................              100               --
   Litigation judgment accrual .............................................               --              950
                                                                                   ------------     ------------
       Total Current Liabilities ...........................................            4,538            3,065
Commitments and Contingencies
Shareholders' Equity
   Common Stock, $0.01 par value, 25,000,000 authorized, 10,417,345 issued and
   outstanding .............................................................              104              104
   Paid in capital, in excess of par .......................................            5,699            5,698
   Retained earnings (Accumulated deficit)..................................             (835)          (2,509)
   Treasury stock-- 287,942 shares (1997 - 294,192 shares) .................             (300)            (306)
                                                                                   ------------     ------------
       Total Shareholders' Equity ..........................................            4,668            2,987
                                                                                   ------------     ------------
         Total Liabilities and Shareholders' Equity ........................       $    9,206       $    6,052
                                                                                   ============     ============
----------------------------------------------------------------------------------------------------------------
</TABLE>
  See accompanying notes.

                                       15


<PAGE>


                                  TENERA, INC.
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

  (In thousands, except share amounts)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
                                                     Paid-In       Retained
                                                   Capital in      Earnings
                                       Common        Excess      (Accumulated      Treasury
                                        Stock        of Par        Deficit)         Stock           Total
--------------------------------------------------------------------------------------------------------------
<S>                                <C>           <C>            <C>            <C>            <C>
December 31, 1995 ......             $    104      $ 5,698        $    461       $    (88)      $   6,175
Repurchase of 205,096 Shares               --           --              --           (217)           (217)
Net Loss ...............                   --           --          (1,080)            --          (1,080)
                                    ------------- -------------  -------------  -------------- ---------------
December 31, 1996 ......                  104        5,698            (619)          (305)          4,878
Repurchase of 1,694 Shares                 --           --              --             (1)             (1)
Net Loss ...............                   --           --          (1,890)            --          (1,890)
                                    ------------- -------------  -------------  -------------- ---------------
December 31, 1997 ......                  104        5,698          (2,509)          (306)          2,987
Reissuance of 6,250 Shares                 --            1              --              6               7
Net Earnings ...........                   --           --           1,674             --           1,674
                                    ============= =============  =============  ============== ===============
December 31, 1998 ......             $    104      $ 5,699        $   (835)      $   (300)      $   4,668
                                    ============= =============  =============  ============== ===============
--------------------------------------------------------------------------------------------------------------
</TABLE>
  See accompanying notes.

                                       16


<PAGE>


                                  TENERA, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS


  (In thousands)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
                                                                             Year Ended December 31,
                                                                  ----------------------------------------------
                                                                      1998            1997             1996
----------------------------------------------------------------------------------------------------------------
<S>                                                              <C>              <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES
   Net earnings (loss)......................................      $    1,674       $   (1,890)      $   (1,080)
   Adjustments to reconcile net earnings (loss) to
   cash provided (used) by operating activities:
     Depreciation ..........................................             108              231              272
     (Gain) Loss on sale of equipment ......................              (2)             (21)              (8)
     Gain on sale of Technologies business .................            (300)            (355)              --
     Decrease in allowance for sales adjustments ...........             (58)            (146)          (1,262)
     Deferred income taxes .................................              --               --              (90)
     Changes in assets and liabilities:
       Receivables .........................................          (1,999)          (1,243)           5,758
       Other current assets ................................              10              222              107
       Other assets ........................................              --               --               17
       Accounts payable ....................................            1876             (128)            (144)
       Accrued compensation and related expenses ...........             447             (301)            (382)
       Litigation judgment accrual .........................            (950)             950               --
       Income taxes payable ................................             100               --             (216)
       Non-Current liabilities .............................              --               --              (18)
                                                                  -------------    ------------     ------------
         Net Cash Provided (Used) by Operating Activities ..             906           (2,681)           2,954
CASH FLOWS FROM INVESTING ACTIVITIES
   Acquisition of property and equipment ...................            (146)            (311)            (258)
   Proceeds from sale of equipment .........................               2               21               11
   Proceeds from sale of Technologies business .............             300            1,300               --
                                                                  -------------    ------------     ------------
         Net Cash Provided (Used) in Investing Activities ..             156            1,010             (247)
CASH FLOWS FROM FINANCING ACTIVITIES
   Repurchase of equity ....................................              --               (1)            (217)
   Issuance of Common Stock from Treasury...................               7               --               --
                                                                  -------------    ------------     ------------
         Net Cash Provided (Used) by Financing Activities ..               7               (1)            (217)
                                                                  -------------    ------------     ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS .......           1,069           (1,672)           2,490

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR .............           2,292            3,964            1,474
                                                                  -------------    ------------     ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR ...................      $    3,361       $    2,292       $    3,964
                                                                  =============    ============     ============
----------------------------------------------------------------------------------------------------------------
</TABLE>
  See accompanying notes.

                                       17


<PAGE>


                                  TENERA, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 1998


Note 1. Organization

     TENERA, Inc. (the "Company"), a Delaware corporation, is the parent company
of the subsidiaries described below.

      TENERA Rocky Flats,  LLC ("Rocky  Flats"),  a Colorado  limited  liability
company,  was formed by the Company in 1995, to provide  consulting  services in
connection with  participation in the Performance Based  Integrating  Management
Contract  ("Rocky Flats  Contract") at the Department of Energy's  ("DOE") Rocky
Flats Environmental Technology Site. In May 1997, the Company's other government
business  was  consolidated  within the Rocky Flats  subsidiary.  This  business
provides  consulting  and  management  services to the DOE  directly and through
subcontracts with DOE prime  contractors.  These services provide  assistance to
DOE-owned  nuclear   facilities  in  devising,   implementing,   and  monitoring
strategies  to  upgrade  from  an   operational,   safety,   and   environmental
perspective.

      TENERA Energy, LLC ("Energy"),  a Delaware limited liability company,  was
formed by the Company in May 1997, to consolidate its commercial  electric power
utility business into a separate legal structure. The Energy subsidiary provides
consulting,   management  services,  and  training  programs  in  organizational
effectiveness  and  organizational  development,  environmental  outsourcing and
monitoring, risk analysis and modeling, and business process improvement.

      TENERA Technologies,  LLC  ("Technologies"),  a Delaware limited liability
company,  was  formed  by the  Company  in May  1997  to  consolidate  its  mass
transportation  business  into a separate  legal  entity.  Before the Asset Sale
described  below,  Technologies  provided  computerized  maintenance  management
software and consulting to the mass transit industry.  On November 14, 1997, the
Company  consummated  the sale of all of the assets  ("Asset  Sale")  related to
Technologies'  mass  transportation  business,  to Spear  Technologies,  Inc., a
California   corporation  newly  formed  by  former  members  of  the  Company's
management.  The Company  received  $1,300,000 in cash, a promissory note in the
amount of $300,000,  and a warrant to acquire 4% of the buyer's then outstanding
shares of common stock  exercisable  upon an initial public offering or a change
of control (as defined in the warrant).  The buyer also assumed all  liabilities
associated with the Technologies business (see also Note 9).


Note 2. Summary of Significant Accounting Policies

     Basis of Presentation.  The accompanying  consolidated financial statements
include  the  accounts of the Company  and its  subsidiaries.  All  intercompany
accounts and transactions have been eliminated.

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

      Cash and Cash  Equivalents.  Cash and cash  equivalents  consist of demand
deposits,  money market accounts,  and commercial paper issued by companies with
strong credit ratings.  The Company includes in cash and cash  equivalents,  all
short-term,  highly  liquid  investments  which  mature  within  three months of
acquisition.

      Property  and  Equipment.  Property  and  equipment  are  stated  at  cost
($2,382,000 and $2,236,000 at December 31, 1998 and 1997, respectively),  net of
accumulated  depreciation  ($2,188,000  and  $2,080,000 at December 31, 1998 and
1997,  respectively).  Depreciation is calculated using the straight line method
over the estimated useful lives, which range from three to five years.

      Revenue.  The Company  primarily offers its services to the electric power
industry and the DOE.  Revenue from  time-and-material  and cost plus  fixed-fee
contracts is recognized when costs are incurred;  from fixed-price contracts, on
the basis of percentage of work completed  (measured by costs incurred  relative
to total estimated project costs).

                                       18


<PAGE>


      The Company performs credit evaluations of these clients and normally does
not require collateral.  Reserves are maintained for potential sales adjustments
and  credit  losses;   such  losses  to  date  have  been  within   management's
expectations.  Actual  revenue and cost of contracts in progress may differ from
management  estimates  and such  differences  could be material to the financial
statements.

      During 1998,  two clients  accounted for 37% and 27% of the total revenue.
In 1997,  three clients  accounted for 43%, 14%, and 10% of the Company's  total
revenue,  and in  1996,  two  clients  accounted  for 56%  and 11% of the  total
revenue.

      Income Taxes. The Company is a C Corporation  subject to federal and state
statutory  income  tax rates for  income  earned.  Due to net losses in 1997 and
1996, an income tax benefit was recorded for each of those years. During 1998, a
provision for income taxes was made after taking into account net operating loss
carryforwards from previous years.

      Accounting for Stock-Based Compensation.  Statement of Financial Standards
No. 123, "Accounting for Stock-Based Compensation," ("FAS 123") became effective
for the Company's 1996 year. The Company continues to account for employee stock
options in accordance with Accounting Principles Board Opinion No. 25 ("APB 25")
and has provided the pro forma disclosures required by FAS 123 in Note 4.

      Per Share and Pro Forma Per  Share  Information.  In 1997,  the  Financial
Accounting  Standards Board issued Statement No. 128, "Earnings per Share" ("FAS
128").  FAS 128 replaced the  calculation of primary and fully diluted  earnings
(loss) per share with  basic and  diluted  earnings  per share.  Unlike  primary
earnings  per share,  basic  earnings  (loss) per share  excludes  any  dilutive
effects of options,  warrants, and convertible securities.  Diluted earnings per
share is very similar to the  previously  reported  fully  diluted  earnings per
share and includes the effect of dilutive stock options.  All earnings per share
amounts for all periods have been presented, and where appropriate,  restated to
conform to the FAS 128 requirements. A reconciliation of the denominators of the
basic and diluted earnings (loss) per share computations required by FAS 128 are
presented in Note 5.

      Comprehensive  Income (Loss). In 1997, the Financial  Accounting Standards
Board  issued No. 130,  "Reporting  Comprehensive  Income"  ("FAS  130"),  which
requires  that all items that are  required to be  recognized  under  accounting
standards as  comprehensive  income  (revenues,  expenses,  gains and losses) be
reported in a financial  statement that is displayed with the same prominence as
other  financial  statements.  The Company does not have material  components of
other comprehensive income.  Therefore,  comprehensive income (loss) is equal to
net earnings (loss) reported for all periods presented.

      Disclosures  about  Segments  of an  Enterprise.  In 1997,  the  Financial
Accounting  Standards  Board issued No. 131,  "Disclosures  about Segments of an
Enterprise and Related Information," (FAS 131"), which establishes standards for
the way public business  enterprises report information about operating segments
in annual financial statements. The Company has one reportable operating segment
under this  statement,  which is providing  services with respect to operations,
maintenance,    safety,   strategic   business   and   risk   management,    and
environmental/ecological  issues for electric  utility and DOE  facilities.  The
required disclosures are reflected in the financial statements.


Note 3. Related Party Transactions

      Individual Plant Evaluation Partnership ("IPEP"). The Company was an equal
participant in a partnership,  IPEP, with Westinghouse  Electric Corporation and
Fauske & Associates,  Inc.,  which  provided  executive  consulting  services to
commercial utility companies.
IPEP ceased activities in 1995 and dissolved in April 1996.

      The Company's  interest in IPEP was accounted for under the equity method.
Each of the  participants  shared equally in the earnings and losses of IPEP. No
income or losses were reported in 1998 and 1997. In 1996,  the Company  recorded
income of $17,000 related to the final liquidation of IPEP.

                                       19


<PAGE>


      Notes  Receivable.  The Company had no outstanding  notes receivables from
executive  officers at December 31, 1998, 1997, and 1996. In 1996, certain terms
of a note made by an executive officer, related to the purchase of stock by such
officer in 1988, were renegotiated to provide for a purchase price adjustment on
the stock securing the note balance,  and the remaining  balance of the note was
reduced to the then fair market value of the stock held as  security,  resulting
in a charge to operations of $300,419 in 1996.

      TERA Corporation Liquidating Trust ("Trust"). The Trust was established by
TERA Corporation ("Predecessor  Corporation") in 1986, to facilitate the orderly
sale or other  disposition  of the  remaining  assets  and  satisfaction  of all
remaining debts and liabilities of the Predecessor Corporation.  The Company did
not recognize any income or expense from the Trust in 1998,  1997,  and 1996. As
of May 31, 1998,  the Trust was  terminated  after the total  liquidation of its
assets in  connection  with the  settlement  of  litigation  with PLM  Financial
Services, Inc. (see Note 8).


Note 4. Employee Benefit Plans

      401(k)  Savings Plan. The 401(k)  Savings Plan is  administered  through a
trust that covers substantially all employees.  Employees can contribute amounts
to the plan, not exceeding 15% of salary. Effective January 1, 1996, the Company
matched these amounts with a 100% contribution on a matching  contribution base,
not exceeding 6% of the  employee's  salary.  As of January 1, 1997, the Company
amended the plan to discontinue the matching contribution.  Effective January 1,
1998, the Company reinstated the matching contribution equal to 50% of the first
4% of salary deferred. The Company, at its discretion, may also contribute funds
to the plan for the benefit of employees.  In 1998,  charges to earnings for the
401(k) Savings Plan were $233,000. There were no charges to earnings in 1997 for
the  401(k)  Savings  Plan and during  1996,  charges to  earnings  amounted  to
$397,000. During 1998, 1997, and 1996, no discretionary amounts were contributed
to the plan by the Company.

      Stock Option  Plans.  The Company has elected to follow APB 25 and related
interpretations  in  accounting  for its  employee  stock  options  because,  as
discussed below,  the alternative  fair value accounting  provided for under FAS
123 requires use of option  valuation  models that were not developed for use in
valuing employee stock options.  Under APB 25, because the exercise price of the
Company's employee stock options equals the market price of the underlying stock
on the date of grant, no compensation expense is recognized.

      Under the provisions of the Company's  Option Plan,  1,500,000  shares are
reserved for issuance upon the exercise of options  granted to key employees and
consultants.  During 1998,  options were granted for 300,000,  20,000 and 50,000
shares at an exercise  price of $0.725,  $0.5875 and $0.675,  respectively,  the
then fair market values,  expiring on February 19, 2004, April 20, 2004 and July
1, 2004,  respectively.  In 1997,  options  were  granted for 370,000 and 50,000
shares at an  exercise  price of $0.70 and  $0.65,  respectively,  the then fair
market  values,  expiring  on March 12, 2003 and May 1, 2003,  respectively.  In
1996, options were granted for 391,500 shares at an exercise price of $1.00, the
then fair market value,  expiring on February 1, 2002. During 1998,  options for
660,750 shares were canceled due to employee  terminations  (122,500 and 278,500
in 1997 and 1996,  respectively).  Options for 6,250  shares were  exercised  in
1998,  but no options were  exercised in 1997 and 1996. As of December 31, 1998,
options for 1,081,500  shares were  outstanding  and options for 669,500  shares
were exercisable.

      Under the provisions of the 1993 Outside Directors Compensation and Option
Plan, which was approved by the Board of Directors,  effective March 1, 1994, as
amended in 1998,  300,000  shares are reserved for issuance upon the exercise of
options granted to non-employee directors. During 1998, options were granted for
37,500  and  25,000   shares  at  an  exercise   price  of  $0.5625  and  $0.75,
respectively,  the then fair market value, expiring on March 1, 2008 and July 1,
2008,  respectively.  In 1997,  options  were  granted  for 32,000  shares at an
exercise  price of  $0.6875,  the then fair market  value,  expiring on March 1,
2007. In 1996,  options were granted for 50,000  shares at an exercise  price of
$1.00,  the then fair  market  value,  expiring on March 1, 2006.  During  1998,
options for 8,000 shares were canceled due to a director  resignation (12,500 in
1997 and none in 1996). No options were exercised in 1998, 1997, and 1996. As of
December 31, 1998,  options for 204,000 shares were outstanding and 141,500 were
exercisable.

                                       20


<PAGE>


      Pro forma  information  regarding net earnings  (loss) and earnings (loss)
per share is required by FAS 123 for fiscal years  beginning  after December 31,
1994,  and has been  determined  as if the Company had  accounted  for its stock
options under the fair value method of FAS 123. The fair value for these options
was estimated at the date of grant using a  Black-Scholes  option  pricing model
with the  following  weighted-average  assumptions  for  1998,  1997,  and 1996:
risk-free  interest  rates of 5.0% each for the February, March, April, and July
1998 grants; 6.0% and 5.85%, respectively, for the  March and  May  1997 grants;
and 5.2% and  5.7%,  respectively,  for the  February  and  March  1996  grants;
dividend yield of 0% for all years;  volatility  factors of the expected  market
price of the Company's  common stock of 0.48, and 0.51, and 0.53,  respectively;
and a  weighted-average  expected  life  of the  option  of five  years  for all
employee grants and seven years for director grants.

      The  Black-Scholes  option  valuation  model  was  developed  for  use  in
estimating the fair value of traded  options which have no vesting  restrictions
and are fully  transferable.  In addition,  options valuation models require the
input of highly  subjective  assumptions  including  the  expected  stock  price
volatility.   Because  the   Company's   stock   options  have   characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially  affect the fair value estimate,  in
management's  opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its stock options.

      For purposes of pro forma  disclosures,  the  estimated  fair value of the
options is  amortized to expense  over the vesting  periods of the options.  The
Company has elected to base its initial estimate of compensation  expense on the
total  number  of  options  granted.  Subsequent  revisions  to  reflect  actual
forfeitures  are made in the period  the  forfeitures  occur  through a catch-up
adjustment.  Because  of the large  number of  forfeitures  in 1998  related  to
options  granted  in  prior  years,  FAS  123  treatment   results  in  negative
compensation expense. Pro forma information regarding the Company's net earnings
(loss) and earnings (loss) per share follows:

  (In thousands, except for per share amounts)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
                                                                             Year Ended December 31,
                                                                  ----------------------------------------------
                                                                      1998            1997             1996
----------------------------------------------------------------------------------------------------------------
<S>                                                              <C>              <C>              <C>
Net Earnings (Loss)-- As Reported ..........................      $    1,674       $   (1,890)      $   (1,080)

Pro Forma Net Earnings (Loss)--FAS 123 .....................           1,672           (1,940)          (1,133)

Net Earnings (Loss) per Share-- As Reported Basic ..........      $     0.17       $    (0.19)      $    (0.11)
                                                                  =============    ============     ============
Net Earnings (Loss) per Share-- As Reported Diluted ........      $     0.16       $    (0.19)      $    (0.11)
                                                                  =============    ============     ============
Pro Forma Net Earnings (Loss) per Share-- FAS 123 Basic ....      $     0.17       $    (0.19)      $    (0.11)
                                                                  =============    ============     ============
Pro Forma Net Earnings (Loss) per Share-- FAS 123 Diluted ..      $     0.16       $    (0.19)      $    (0.11)
                                                                  =============    ============     ============
----------------------------------------------------------------------------------------------------------------
</TABLE>

                                       21


<PAGE>


      A summary of the Company's stock option activity, and related information
follows:

  (In thousands, except for per share amounts)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
                                                          Year Ended December 31,
                           -------------------------------------------------------------------------------------
                                     1998                          1997                          1996
                           -------------------------     -------------------------     -------------------------
                                          Weighted-                     Weighted-                     Weighted-
                                           Average                       Average                       Average
                                          Exercise                      Exercise                      Exercise
                            Options         Price         Options         Price         Options         Price
----------------------------------------------------------------------------------------------------------------
<S>                       <C>            <C>            <C>            <C>            <C>            <C>
Outstanding --
Beginning of Year ..           1,528      $    0.98          1,211      $    1.09          1,048      $    1.20
                                               0.98                          1.09                          1.20
Granted ............             432           0.70            452           0.69            441           1.00
Exercised ..........              (6)          1.19             --             --             --             --
Forfeited ..........            (669)          0.90           (135)          1.18           (278)          1.36
                           ==========     ==========     ==========     ==========     ==========     ==========
Outstanding--
End of Year ........           1,285      $    0.91          1,528      $    0.98          1,211      $    1.09
                           ==========     ==========     ==========     ==========     ==========     ==========
Exercisable at
End of Year ........             811      $    1.01            813      $    1.09            625      $    1.16

Weighted-Average Fair
Value of Options
Granted During the
Year ...............               $    0.35                     $    0.36                     $    0.52
----------------------------------------------------------------------------------------------------------------
</TABLE>
      Exercise  prices for options  outstanding as of December 31, 1998,  ranged
from $0.5875 to $1.75. The weighted-average  remaining contractual life of those
options is 5.0 years.

                                       22


<PAGE>


Note 5. Earnings (Loss) per Share

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

  (In thousands, except for per share amounts)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
                                                                             Year Ended December 31,
                                                                  ----------------------------------------------
                                                                      1998            1997             1996
----------------------------------------------------------------------------------------------------------------
<S>                                                              <C>              <C>              <C>
Numerator:
   Net earnings (loss) .....................................      $    1,674       $   (1,890)      $   (1,080)
Denominator:
  Denominator for basic earnings per share --
  weighted-average shares outstanding.......................          10,124           10,123           10,248
  Effect of dilutive securities:
    Employee & Director stock options(Treasury stock method)             326               --               --


  Denominator for diluted earnings per share --
  weighted-average common and common equivalent shares .....          10,450           10,123           10,248
                                                                  =============    ============     ============
Basic earnings (loss) per share  ...........................      $     0.17       $    (0.19)      $    (0.11)
                                                                  =============    ============     ============
Diluted earnings (loss) per share  .........................      $     0.16       $    (0.19)      $    (0.11)
                                                                  =============    ============     ============
----------------------------------------------------------------------------------------------------------------
</TABLE>
      Due to the loss from  operations,  earnings  (loss) per share for 1997 and
1996 are based on the weighted  average  number of common  shares  only,  as the
effect of including equivalent shares from stock options would be anti-dilutive.

                                       23


<PAGE>


Note 6. Income Taxes

      Deferred income taxes reflect the net tax effects of temporary differences
between the carrying  amounts of assets and liabilities for financial  reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's  deferred tax assets and  liabilities  as of December 31, 1998 and
1997, are as follows, using the liability method:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
                                                                                           December 31,
                                                                                   -----------------------------
                                                                                      1998             1997
----------------------------------------------------------------------------------------------------------------
<S>                                                                               <C>              <C>
Current Deferred Tax Assets
     Contract provisions not currently deductible ..........................       $      466       $      490
     Accrued expenses not currently deductible .............................              427              618
     Net operating loss carryforward .......................................               --              382
                                                                                   ------------     ------------
         Total Current Gross Deferred Tax Assets ...........................              893            1,490
     Less:  Valuation Allowance ............................................             (772)          (1,200)


Current Deferred Tax Liabilities
     Revenue differences related to timing .................................              121              290
                                                                                   ------------     ------------
         Net Current Deferred Tax Liabilities ..............................       $       --       $       --
                                                                                   ============     ============
----------------------------------------------------------------------------------------------------------------
</TABLE>
      The current and deferred tax  provisions  for the years ended December 31,
1998, 1997, and 1996, are as follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
                                                                              Year Ended December 31,
                                                                    ---------------------------------------------
                                                                       1998            1997             1996
-----------------------------------------------------------------------------------------------------------------
<S>                                                                <C>             <C>              <C>
Current:
     Federal .....................................................  $      256      $     (137)      $      (47)
     State .......................................................          73              (2)              --
                                                                    -----------     ------------     ------------
                                                                           329            (139)             (47)
                                                                    -----------     ------------     ------------

Deferred:
     Federal .....................................................          --              --              (77)
     State .......................................................          --              --              (13)
                                                                    -----------     ------------     ------------
                                                                            --              --              (90)
                                                                    -----------     ------------     ------------
     Tax Provision (Benefit) .....................................  $      329      $     (139)      $     (137)
                                                                    ===========     ============     ============
-----------------------------------------------------------------------------------------------------------------
</TABLE>

                                       24


<PAGE>


      The  valuation  allowance  decreased  by  $428,000,  during the year ended
December 31, 1998, for those deferred tax assets which may not be realized.  The
decrease  primarily relates to the usage of net operating loss carryforwards for
tax purposes.

      The provision (benefit) for income taxes differed from the amount computed
by applying the statutory  federal and state income tax rate for the years ended
December 31, 1998, 1997, and 1996, as follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
                                                                              Year Ended December 31,
                                                                    ---------------------------------------------
                                                                       1998            1997             1996
-----------------------------------------------------------------------------------------------------------------
<S>                                                                <C>             <C>              <C>
Federal Statutory Rate ...........................................      34%            (34)%            (35)%
State Taxes, Net of Federal Benefit ..............................       2%             (3)%             (1)%
Permanent Differences ............................................       1%             (2)%             (8)%
Valuation Allowance ..............................................     (21)%            39 %             33%
Net Operating Loss Carryback .....................................      --              (7)%             --
                                                                    -----------     ------------     ------------
Income Tax (Benefit) Provision ...................................      16%             (7)%            (11)%
                                                                    ===========     ============     ============
-----------------------------------------------------------------------------------------------------------------
</TABLE>

      The Company  paid income taxes of $222,000 in 1998 and received net income
tax refunds of $138,000 in 1997.

      At December 31, 1998, the Company had no net operating loss carryforwards.


Note 7. Commitments and Contingencies

      Leases.  The Company  occupies  facilities under  noncancelable  operating
leases expiring at various dates through 2000. The leases call for proportionate
increases  due to  property  taxes and  certain  other  expenses.  Rent  expense
amounted to $309,000 for the year ended  December 31, 1998 ($524,000 in 1997 and
$702,000 in 1996).

      Minimum rental  commitments under operating  leases,  principally for real
property, are as follows (in thousands):

  (Year Ending December 31)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
<S>                                                                                                <C>
1999 .........................................................................................      $      574
2000 .........................................................................................             414
                                                                                                    ============
Total Minimum Payments Required ..............................................................      $      988
                                                                                                    ============
----------------------------------------------------------------------------------------------------------------
</TABLE>

      Revolving  Loan  Agreement.  A loan  agreement  with a bank provides for a
revolving line of credit of $3,000,000,  through May 2000. At December 31, 1998,
$2,500,000 was available  under the credit line,  and in addition,  $500,000 was
assigned to support standby letters of credit.  Amounts  advanced under the line
of credit are secured by the Company's eligible accounts  receivable.  Under the
agreement,  the Company is obligated to comply with certain covenants related to
equity, quick ratio, debt/equity ratio, and profits. The interest rate under the
agreement is the bank's prime rate (7.75% at December  31,  1998).  During 1998,
1997,  and  1996,  the  Company  paid no  interest  expense,  as  there  were no
borrowings.

                                       25


<PAGE>


Note 8. Litigation Judgment

      On November 4, 1994, PLM Financial Services, Inc. ("PLM") filed an action,
entitled PLM Financial Services, Inc. v. TERA Corporation,  et al., Case No. 743
439-0,  against TENERA,  L.P. (the predecessor of the Company;  the "Predecessor
Partnership"),  among others, in the Superior Court of California for the County
of Alameda,  seeking damages in excess of $4.6 million in unpaid  equipment rent
and other  unspecified  damages  allegedly owing to PLM under an equipment lease
dated September 29, 1984 between PLM and TERA Power Corporation  ("TERA Power"),
a former  subsidiary of TERA Corporation (the  "Predecessor  Corporation").  PLM
named the  Predecessor  Partnership  in the action  pursuant to a Guaranty dated
September  24,  1984  of  the  lease  obligations  of  TERA  Power  made  by the
Predecessor Corporation.  Upon the liquidation of the Predecessor Corporation in
late  1986,  the stock of TERA  Power was  transferred  to the TERA  Corporation
Liquidating Trust (the "Trust") and was thereafter sold to Delta Energy Projects
Phases II, IV, and VI pursuant to a stock purchase agreement dated May 31, 1991.
TERA Power asserted various defenses to the claims asserted by PLM in the action
and the trial in this matter was concluded in August 1997. In February 1998, the
trial judge issued a minute order rendering his decision  against the defendants
in the action.  Accordingly,  for the year 1997, the Company accrued  litigation
judgment  expenses of $950,000 related to this matter.  In April 1998, the trial
judge entered a judgment in the amount of approximately  $830,000 plus costs and
attorney fees, against TERA Power and TENERA, as guarantor.  Counsel for PLM had
advised  counsel  for  TENERA  that PLM had  incurred  costs and  attorney  fees
exceeding $600,000,  and, if this matter was not settled,  PLM would file a cost
bill and motion for attorney fees in the action for such amounts.

      On May 1, 1998, the Company  settled the case for $950,000 in cash,  which
was less than the Company's  total exposure in the  litigation.  Of this amount,
approximately  $50,000  was paid by the Trust (to the extent of its  assets) and
the remainder was paid by the Company.


Note 9. Special Items

      On  November  14,  1997,  the Company  consummated  the sale of all of the
assets  related  to  Technologies'   mass   transportation   business  to  Spear
Technologies,  Inc., a California  corporation newly formed by former members of
the Company's management.  The Company received $1,300,000 in cash, a promissory
note in the amount of $300,000,  and a warrant to acquire 4% of the buyer's then
outstanding  shares of common stock  exercisable upon an initial public offering
or a change of control (as defined in the  warrant).  The buyer also assumed all
liabilities  associated  with the  Technologies  business.  The special  item of
$355,000 in 1997,  reflects  the gain on sale from the Asset Sale,  exclusive of
the effect of the note and warrant.  Full  repayment of the note was  contingent
upon a minimum amount of equity funding of the buyer,  which had not occurred at
December  31,  1998.  Therefore,  the  Company  provided  an  allowance  for the
potential  uncollectability  of the note in 1997. The note was repaid in full in
February  1998,  and the  additional  gain of $300,000 was reported as a special
item in 1998.  The warrant  was deemed to have no value as of December  31, 1998
and 1997. The revenues of the Technologies  subsidiary were $2.9 million for the
ten-month period ended October 31, 1997.

      There were two special  items in 1996.  One item  amounted to $250,000 and
reflects the  estimated  settlement of specific  disputed  costs on certain U.S.
Government  contracts with the DOE. This positive earnings  adjustment  resulted
from a partial  reduction  of the reserve for sales  adjustment  established  in
1991.  The  reserve  related to a dispute  between  the Company and the DOE with
respect to the  allowability  and amount of potential  rate  adjustments on U.S.
Government contracts for certain employee compensation costs.

      The other  special item in 1996,  related to the repricing of debt owed by
one of the Company's former executive officers.  In December 1996, certain terms
of the note related to the purchase of stock by a now former  executive  officer
in 1988,  were  renegotiated  to provide for a purchase price  adjustment on the
stock  securing  the note  balance  and a  corresponding  reduction  in the note
balance.  The remaining balance of the note was paid off, by the transfer to the
Company of the stock  purchased by the  executive  officer in 1988,  at the fair
market value of the stock. As a result, a charge of  approximately  $300,000 was
made in 1996 to adjust the price of the stock to the then  current  fair  market
value.

                                       26


<PAGE>


Note 10. Selected Quarterly Combined Financial Data (Unaudited)

      A summary of the Company's quarterly  financial results follows.  The 1996
and first three  quarters of 1997  earnings  (loss) per share  amounts have been
restated to comply with  Statement of Financial  Accounting  Standards  No. 128,
"Earnings per Share" (see also Notes 2 and 5).

  (In thousands, except per share or unit amounts)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
                                 Quarter Ended                                    Quarter Ended
                  ---------------------------------------------    ---------------------------------------------
                  12/31/98     9/30/98     6/30/98     3/31/98     12/31/97     9/30/97     6/30/97     3/31/97
----------------------------------------------------------------------------------------------------------------
<S>              <C>          <C>         <C>         <C>         <C>          <C>         <C>         <C>
Revenue .....     $ 7,887      $ 7,014     $ 6,453     $ 6,091     $ 5,789      $ 5,240     $ 4,692     $ 5,400
Direct Costs        6,060        5,363       4,797       4,498       3,646        3,228       2,946       3,218
General and
Administrative
Expenses ....       1,486        1,283       1,345       1,302       1,551        2,209       2,391       1,980
Software
Development
Costs .......          --           --          --          --         216          662         416         237
Special
Items
Income/
(Expense),             --           --          --         300         355           --          --          --
Net .........
Litigation
Judgment               --           --         (50)         --         950           --          --          --
Cost ........
Other Income           32           42          53          86          --           14          20           1
                  --------     -------     --------    --------    --------     --------    --------    --------
Operating
Income/(Loss)         373          410         414         677        (219)        (845)     (1,041)        (34)
Interest
Income ......          33           31          34          31          14           23          34          39
                  --------     -------     --------    --------    --------     --------    --------    --------
Net Earnings
(Loss)
Before
Income Tax
Expense/
(Benefit) ...         406          441         448         708        (205)        (822)     (1,007)          5
Income Tax
Expense/
(Benefit)  ..          80           20          54         175          --           --        (141)          2
                  --------     -------     --------    --------    --------     --------    --------    --------
Net
Earnings/
(Loss)  .....     $   326      $   421     $   394     $   533     $  (205)     $  (822)    $  (866)    $     3
                  ========     =======     ========    ========    ========     ========    ========    ========
Net Earnings/
(Loss) Per
Share-- Basic     $  0.03      $  0.04     $  0.04     $  0.05     $ (0.02)     $ (0.08)    $ (0.09)    $  0.00
                  ========     =======     ========    ========    ========     ========    ========    ========
Net Earnings/
(Loss) Per
Share--
Diluted .....     $  0.03      $  0.04     $  0.04     $  0.05     $ (0.02)     $ (0.08)    $ (0.09)    $  0.00
                  ========     =======     ========    ========    ========     ========    ========    ========
----------------------------------------------------------------------------------------------------------------
</TABLE>

                                       27


<PAGE>


                         REPORT OF INDEPENDENT AUDITORS







The Board of Directors and Shareholders
TENERA, Inc.





      We have audited the  accompanying  consolidated  balance sheets of TENERA,
Inc. at December 31, 1998 and 1997, and the related  consolidated  statements of
operations,  shareholders' equity, and cash flows for each of the three years in
the period  ended  December  31, 1998.  Our audits also  included the  financial
statement schedule listed in the Index at Item 14(a). These financial statements
and  schedule  are  the   responsibility  of  the  Company's   management.   Our
responsibility  is to  express  an opinion  on these  financial  statements  and
schedule based on our audits.

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

      In our opinion,  the consolidated  financial  statements referred to above
present fairly, in all material respects, the consolidated financial position of
TENERA, Inc. at December 31, 1998 and 1997, and the consolidated  results of its
operations  and its cash flows for each of the three  years in the period  ended
December 31, 1998, in conformity with generally accepted accounting  principles.
Also, in our opinion, the related financial statement schedule,  when considered
in relation to the basic financial  statements taken as a whole presents fairly,
in all material respects, the information set forth therein.







                                                         ERNST & YOUNG LLP

San Francisco, California
January 22, 1999


                                       28


<PAGE>



     Item 9. Changes in and  Disagreements  with  Accountants  on Accounting and
Financial Disclosure

      Not applicable.

                                       29


<PAGE>


                                    PART III


Item 10.  Directors and Executive Officers of the Registrant

      The  following  tables set forth certain  information  with respect to the
directors and executive officers of the Company.

      The directors of the Company are as follows:

           William A.  Hasler,  57,  has  served  as a  Director of  the Company
      since his election in March 1992 and  Chairman of the Board of the Company
      since July 1998.  Mr.  Hasler  is  Co-Chief  Executive  Officer  of Aphton
      Corporation, a bio-technology firm. Previously, Mr. Hasler was dean of the
      Walter  A.  Haas  School  of  Business  at  the  University of California,
      Berkeley.  Prior  to  his appointment  as dean in  1991,  Mr.  Hasler  was
      Vice Chairman of Management Consulting for KPMG Peat Marwick from  1986 to
      1991.  Mr. Hasler is also a  director  of  Asia  Pacific  Wire  and  Cable
      Corporation,   Ltd.,  Aphton   Corporation,  Walker   Systems,  and   TCSI
      Corporatin.

           Delbert F. Bunch, 56, has served as Director of the Company since his
      election in June 1998.  He previously served as  Senior Vice President  of
      the Company from 1988 to 1991.  Mr. Bunch has been President, since  1992,
      of  Management   Strategies,  Inc.,  a  private  consulting  firm  to  the
      commercial  and  U.S.  government  nuclear  industry.  Mr. Bunch  was  the
      Principal  Deputy  Secretary for Nuclear Energy, U.S. Department of Energy
      from 1983 to 1988.

           Jeffrey R.  Hazarian,  43, has  served as a Director  of the  Company
      since his  election  in October  1996,  and was named its  Executive  Vice
      President  in November  1997.  He has also  served as its Chief  Financial
      Officer and Corporate Secretary since 1992. Previously,  Mr. Hazarian held
      the position of Vice President of Finance from 1992 to 1997.

           Thomas S. Loo,  Esq., 55, was elected as a Director of the Company in
      February  1997.  He  previously  served as a Director of the Company  from
      August 1987 to September 1993. Mr. Loo has been a partner,  since 1986, of
      Bryan Cave LLP, general counsel to the Company. Mr. Loo has also served as
      a director of Teknekron Corporation since March 1989.

           Robert C. McKay,  47, has served as a Director  of the Company  since
      his election in June 1997, and was appointed its Chief  Executive  Officer
      and President in November 1997. Previously,  Mr. McKay was Chief Operating
      Officer of the  Company  since  April  1997.  He was  elected  Senior Vice
      President of the Company in December 1992.

           Andrea W. O'Riordan, 27, has served as Director of the Company  since
      her election  in  June  1998. Ms.  O'Riordan is an Applications  Marketing
      Coordinator   for   Oracle  Corporation.  Prior  to  her  joining   Oracle
      Corporation  in  1996,  Ms. O'Riordan  was  Marketing  Coordinator,  Latin
      America, for a Reuters Company, from 1993 to 1995.

           George L. Turin,  Sc.D.,  69, has served as a Director of the Company
      since his  election  in March  1995.  Previously,  Mr.  Turin  served as a
      Professor of Electrical Engineering and Computer Science at the University
      of California at Berkeley from 1960 to 1990. Mr. Turin also served as Vice
      President, Technology for Teknekron Corporation from 1988 to 1994.

      Officers  of the  Company  hold  office  at the  pleasure  of the Board of
Directors.  There  are no  familial  relationships  between  or among any of the
executive officers or directors of the Company.

                                       30


<PAGE>


Item 11.  Executive Compensation

      The following tables set forth certain information  covering  compensation
paid by TENERA to the Chief Executive  Officer ("CEO") and each of the Company's
other  executive  officers,  other than the CEO,  whose total annual  salary and
bonus exceeded  $100,000 (the "named  executives") for services to TENERA in all
their  capacities  during the fiscal years ended  December 31, 1998,  1997,  and
1996.


                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------
                                                   Annual Compensation             Awards
                                              ------------------------------    -------------
                                                                                 Securities        All Other
         Name and                                                                Underlying        Compensa-
    Principal Position            Year           Salary          Bonus(1)        Options(2)         tion(3)
---------------------------------------------------------------------------------------------------------------
<S>                              <C>         <C>               <C>             <C>               <C>

Robert C. McKay, Jr.              1998        $ 200,000        $ 152,500               --         $   3,200
Chief Executive Officer           1997          179,375            2,179           90,000                --
President                         1996          145,390               --           28,000             8,777
Jeffrey R. Hazarian               1998          159,000           50,400           75,000             3,180
Executive                         1997          145,875           25,000               --                --
Vice President and                1996          142,500               --           27,000             8,586
Chief Financial Officer

---------------------------------------------------------------------------------------------------------------
</TABLE>
  (1) Includes  $100,000  retention  bonus paid to Mr. McKay in 1998 (see "Other
      Compensation Arrangements" below) and 1998 accrued bonus of $3,000 for Mr.
      Hazarian paid in February 1999.
   (2)Reflects the number of options  granted  under  the 1992 Option Plan.  The
      options  expire at  the earlier of  the end of  the option period or three
      months after employment termination.
   (3)These amounts represent  the  amounts accrued for the benefit of the named
      executives under the Company's 401(k) Plan.


      The following  table sets forth  certain  information  concerning  options
granted during 1998 to the named executives:


                             OPTIONS GRANTS IN 1998
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
                                                                                          Potential Realizable
                                                                                            Value at Assumed
                                                                                         Annual Rates of Stock
                                                                                           Price Appreciation
                                                 Individual Grants                           for Option Term
                                ----------------------------------------------------     -----------------------
                                                % of
                                                Total
                                Number of      Options
                                Securities    Granted to
                                Underlying    Employees    Exercise or
                                 Options      in Fiscal     Base Price    Expiration
          Name                   Granted        Year        ($/Share)        Date            5%            10%
----------------------------------------------------------------------------------------------------------------
<S>                            <C>           <C>          <C>            <C>            <C>           <C>
Robert C. McKay, Jr. .....            --        --         $  --              --         $     --      $     --
Jeffrey R. Hazarian.......        75,000        20.27          0.725        2/19/04        18,493        41,954

----------------------------------------------------------------------------------------------------------------
</TABLE>

                                       31


<PAGE>


Other Compensation Arrangements

      The 1992 Option Plan  provides  that options may become  exercisable  over
such periods as provided in the agreement  evidencing the option award.  Options
granted to date,  including options granted to executive  officers and set forth
in the above tables,  generally  call for vesting over a four-year  period.  The
1992 Option Plan provides that a change in control of the Company will result in
immediate vesting of all options granted and not previously vested.

      Other than as set forth below for Mr. McKay, the Company has no employment
contracts or arrangements for its executive officers.

      Mr.  McKay,  upon  appointment  to Chief  Operating  Officer in 1997,  was
granted a retention bonus arrangement, amounting to $100,000, dependent upon his
continued  employment  through June 30, 1998. The bonus was paid to Mr. McKay in
1998 in accordance with the arrangement.


Directors Compensation

      Except as  described  below,  the  directors  of the  Company  are paid no
compensation  by the Company for their services as directors.  Delbert F. Bunch,
William A. Hasler,  Thomas S. Loo, Andrea W.  O'Riordan,  and George L. Turin as
non-employee  directors,  are  paid  a  retainer  of  $1,000  per  month.  These
non-employee  directors  are also paid a fee of $1,000  for each  meeting of the
Board and any Board  Committee  which they attend.  The 1993  Outside  Directors
Compensation  and Option Plan was approved by the Board effective March 1, 1994,
as amended by the Board in 1998, and reserves up to 300,000 options for issuance
to non-employee  directors.  In March 1998, 12,500 stock options were granted to
each of Messrs.  Hasler, Loo, and Turin. In July 1998, 12,500 stock options were
granted to each of Mr. Bunch and Ms. O'Riordan. During 1997, 8,000 stock options
were issued to each of Messrs.  Hasler,  Loo, Turin,  and Williams  (resigned in
December  1997).  During 1996,  12,500 stock  options were issued to each of Ms.
Cheng (resigned in February 1997) and Messrs.  Hasler, Turin, and Williams.  The
options expire ten (10) years after,  vest one (1) year after the date of grant,
and have an  exercise  price  equal to the fair  market  value of the  shares of
Common Stock on the date of grant. Upon exercise of the options,  a director may
not sell or otherwise  transfer more than 50% of the shares until six (6) months
after the date on which the director ceases to be a director of the Company. Due
to their  resignations,  Mr. Williams' 1997 options and Ms. Cheng's 1996 options
did not vest and were forfeited.


Compensation Committee Interlocks and Insider Participation

      During 1998, the Compensation Committee was composed of William A. Hasler,
Thomas S. Loo, Andrea W. O'Riordan, and George Turin. Thomas S. Loo is a partner
in the law firm of Bryan Cave LLP,  general counsel to the Company and Teknekron
Corporation, and is a director of Teknekron Corporation.  Andrea W. O'Riordan, a
director  of the  Company  since June 29,  1998,  is the  daughter  of Harvey E.
Wagner,  the Company's  largest  stockholder by virtue of a limited  partnership
interest in Incline Village Investment Group Limited  Partnership (see Item 12).
Mr. Wagner is also the sole stockholder and a director of Teknekron Corporation.

                                       32


<PAGE>


Item 12.  Security Ownership of Certain Beneficial Owners and Management

      (a)  Security Ownership of Certain Beneficial Owners

      The following  table sets forth certain  information  as of March 1, 1999,
with  respect  to  beneficial  ownership  of the  shares of Common  Stock of the
Company by each person who is known by the Company to own beneficially more than
5% of the shares of Common Stock:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
                                                                                                    Approximate
                                                                                     Shares           Percent
                                                                                  Beneficially      Beneficially
                              Name and Address                                       Owned             Owned
----------------------------------------------------------------------------------------------------------------
<S>                                                                              <C>               <C>
Harvey E. Wagner ..........................................................        3,708,658           36.6%(1)
P.O. Box 7463
Incline Village, NV  89450
Dr. Michael John Keaton Trust .............................................        1,106,887           10.9%(2)
P.O. Box 400
Orinda, CA  94563-0400
----------------------------------------------------------------------------------------------------------------
</TABLE>
  (1) Such shares are held of record by Incline Village Investment Group Limited
      Partnership,  a Georgia limited partnership,  and were contributed to such
      partnership  by Mr.  Wagner  in  exchange  for a 99%  limited  partnership
      interest.  An additional  37,462 shares,  as to which Mr. Wagner disclaims
      beneficial ownership, were contributed to such partnership by Mr. Wagner's
      spouse, Leslie Wagner, in exchange for a 1% general partner interest. Such
      partnership has sole voting and investment  power with respect to all such
      shares. Mr. Wagner  subsequently  transferred a 14.7% limited  partnership
      interest in the partnership to Ms.  O'Riordan,  a director of the Company,
      who  disclaims  beneficial  ownership  of all  the  shares  held  by  such
      partnership.
  (2) Mr. Keaton has sole voting and investment power with respect to all shares
      shown as  beneficially  owned by him,  subject to community  property laws
      where applicable.

                                       33


<PAGE>


      (b)  Security Ownership of Management

      The  following  table sets  forth  information  as of March 1, 1999,  with
respect to current beneficial ownership of shares of Common Stock by (i) each of
the  directors of the Company,  (ii) each of the named  executive  officers (see
Item  11.  "Executive  Compensation"),  and  (iii)  all  current  directors  and
executive officers as a group.


<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
                                                                       Shares           Shares
                                                                    Beneficially      Acquirable         Percentage
                             Name                                     Owned(1)        Within 60         Ownership(2)
                                                                                      Days(3)(4)
-------------------------------------------------------------------------------------------------------------------
<S>                                                                <C>               <C>               <C>
Delbert F. Bunch ..............................................         --                                 --
William A. Hasler .............................................       20,000           58,000(3)            *
Jeffrey R. Hazarian ...........................................        7,186          136,250(4)            1.4%
Thomas S. Loo..................................................         --             20,500(3)            *
Robert C. McKay, Jr............................................        1,789          181,000(4)            1.8%
Andrea W. O'Riordan (5)........................................         --               --                 *
George L. Turin................................................       45,504           48,000(3)            *
                                                                    ------------     -------------     ------------
All Directors and Executive Officers as a Group (7 persons) ...       74,479          443,750               5.1%

-------------------------------------------------------------------------------------------------------------------
</TABLE>
  (1) The persons named above have sole voting and investment power with respect
      to all shares of Common Stock shown as beneficially owned by them, subject
      to community property laws where applicable.
  (2) Based on the number of shares outstanding at, or acquirable within 60 days
      of March 1, 1999. Asterisks represent less than 1% ownership.
  (3) Represents options under the Company's 1993 Outside Directors Compensation
      and Option Plan which are  exercisable on March 1, 1999, or within 60 days
      thereafter.
  (4)  Represents  options  under  the  Company's  1992  Option  Plan  which are
  exercisable on March 1, 1999, or within 60 days thereafter.  (5) Ms. O'Riordan
  is the daughter of Harvey E. Wagner,  the Company's  largest  stockholder (see
  Item 12(a), "Security Ownership of
      Certain Beneficial Owners").

      Beneficial  ownership as shown in the tables above has been  determined in
accordance  with Rule 13d-3 under the  Exchange  Act.  Under this Rule,  certain
securities may be deemed to be beneficially  owned by more than one person (such
as  where  persons  share  voting  power  or  investment  power).  In  addition,
securities are deemed to be beneficially owned by a person if the person has the
right to acquire the securities (for example,  upon exercise of an option or the
conversion  of a  debenture)  within  60  days  of  the  date  as of  which  the
information is provided; in computing the percentage of ownership of any person,
the  amount  of  securities  outstanding  is  deemed to  include  the  amount of
securities beneficially owned by such person (and only such person) by reason of
these acquisition  rights. As a result,  the percentage of outstanding shares of
any  person as shown in the  preceding  tables do not  necessarily  reflect  the
person's actual voting power at any particular date.


Item 13.  Certain Relationships and Related Transactions

      See "Compensation Committee Interlocks and Insider Participation."

                                       34


<PAGE>


                                     PART IV

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

      (a)(1)  Financial Statements

      The  following  financial  statements  of the  Company are filed with this
      report and can be found in Part II, Item 8, on the pages indicated below:

                                                                            PAGE
        Consolidated  Statements of Operations--
        Year Ended December 31, 1998, 1997, and 1996 ....................... 14
        Consolidated Balance Sheets-- December 31, 1998 and 1997 ............15
        Consolidated Statements of Shareholders' Equity --
        Year Ended December 31, 1998, 1997, and 1996 ........................16
        Consolidated Statements of Cash Flows--
        Year Ended December 31, 1998, 1997, and 1996 ........................17
        Notes to Consolidated Financial Statements ..........................18
        Report of Independent Auditors ......................................28

(a)(2)  Financial Statement Schedules

      The following financial statement schedules with respect to the Company
      are filed in this report:

           Schedule VIII-- Valuation and Qualifying Accounts and Reserves ...37

      All other schedules are omitted because they are either not required or
      not applicable.

      (a)(3)  Exhibits

  2.1          Agreement  and  Plan  of  Merger  dated as of June 6, 1995  among
                  the  Registrant,   Teknekron  Technology  MLP  I  Corporation,
                  TENERA,  L.P., and TENERA Operating  Company,  L.P. (a form of
                  which  is  attached  as  Annex A to the  Registrant's  Consent
                  Solicitation Statement/Prospectus included in the Registration
                  Statement on Form S-4  (Registration  No.  33-58393)  declared
                  effective by the Securities and Exchange Commission ("SEC") on
                  June  2,  1995   (the   "Registration   Statement"),   and  is
                  incorporated herein by this reference).

  2.2          Asset  Acquisition  Agreement  dated  November 14,  1997, between
                  Registrant and Spear Technologies,  Inc. (filed as Exhibit 2.1
                  to the Registrant's Form 8K filed with the SEC on November 14,
                  1997 and incorporated by reference herein (the "Form 8-K")).

  3.1          Certificate of Incorporation of the Registrant dated October 27, 
                  1994 (filed by incorporation  by  reference to  Exhibit 3.3 to
                  the Registration Statement).

  3.2          By-Laws of the Registrant (filed by incorporation by reference to
                  Exhibit 3.4 to the Registration Statement).

  4.1          Form  of  Certificate  of  Common  Stock of  Registrant (filed by
                  incorporation by reference to Exhibit 4.5 to the  Registration
                  Statement).

  10.1(1)      Second Amendment, dated August 31, 1998, to Registrant's lease on
                  its properties located in Louisville, Colorado.

* 10.2(1)      Amended  and  Restated  1993  Outside  Director  Compensation and
                  Option Plan.
     --------------------------------------

  (1) Filed herewith.

   * Management contract or compensatory plan.

                                       35


<PAGE>


  11.1         Statement regarding computation of per share earnings:  See "Note
                  5 to Consolidated Financial Statements."

  21.1(1)      List of Subsidiaries of the Registrant.

  23.1(1)      Consent of Ernst & Young LLP, Independent Auditors.

  27.1(1)      Financial Data Schedule.

      (b)  Reports on Form 8-K

      No  reports  on Form 8-K  were  filed by the  Registrant  during  the last
      quarter of 1998.

      (c)  Exhibits (see Item 14(a)(3) above.)

      (d)  Financial Statement Schedules

      The schedules  listed in Item 14(a)(2) above should be used in conjunction
with the  Consolidated  Financial  Statements  of the Company for the year ended
December 31, 1998.




   ----------------------------
(1) Filed herewith.

                                       36


<PAGE>


                                                                   SCHEDULE VIII


                                  TENERA, INC.
                 VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

  (In thousands)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
                                                      Additions              Deductions
                                                     ------------    ---------------------------
                                        Balance       Charged to                                     Balance at
                                       Beginning      Costs and      Credited to                       End of
          Description                   of Year        Expenses      Special Item       Other           Year
----------------------------------------------------------------------------------------------------------------
<S>                                   <C>            <C>            <C>               <C>           <C>
1996
Reserve for Sales Adjustment
and Credit Losses .............         $ 2,888        $   289         $   250         $ 1,301         $ 1,626
1997
Reserve for Sales Adjustment
and Credit Losses .............           1,626             36             122             182           1,358
1998
Reserve for Sales Adjustment
and Credit Losses .............           1,358              9            --                67           1,300

----------------------------------------------------------------------------------------------------------------
</TABLE>

                                       37


<PAGE>


                                   SIGNATURES

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

Dated:  March 15, 1999



                                         TENERA, INC.

                                         By     /s/ JEFFREY R. HAZARIAN
                                            ------------------------------------
                                                    Jeffrey R. Hazarian
                                                   Chief Financial Officer


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


         Signature                       Title                        Date

   /s/ DELBERT F. BUNCH                Director                   March 15, 1999
---------------------------
      (Delbert F. Bunch)


   /s/ WILLIAM A. HASLER               Director                   March 15, 1999
---------------------------
      (William A. Hasler)
                                       Director,
                                Chief Financial Officer,
                                Executive Vice President,
                                and Corporate Secretary
   /s/ JEFFREY R. HAZARIAN     (Principal Financial Officer)      March 15, 1999
---------------------------
      (Jeffrey R. Hazarian)


   /s/ THOMAS S. LOO                   Director                   March 15, 1999
---------------------------
      (Thomas S. Loo)

                                       Director,
                                Chief Executive Officer,
                                     and President
   /s/ ROBERT C. MCKAY         (Principal Executive Officer)      March 15, 1999
---------------------------
      (Robert C. McKay)


   /s/ ANDREA W. O'RIORDAN             Director                   March 15, 1999
---------------------------
      (Andrea W. O'Riordan)

                                 Controller and Treasurer
   /s/ JAMES A. ROBISON, JR.   (Principal Accounting Officer)     March 15, 1999
---------------------------
      (James A. Robison, Jr.)


   /s/ GEORGE L. TURIN                 Director                   March 15, 1999
---------------------------
      (George L. Turin)

                                       38


<PAGE>


                                  EXHIBIT INDEX

Ex. 10.1          Second Amendment, dated August 31, 1998, to Registrant's lease
                  on its properties located in Louisville, Colorado

Ex. 21.1          List of Subsidiaries of the Registrant

Ex. 23.1          Consent of Independent Auditors

Ex. 27.1          Financial Data Schedule