10-K405

 
                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                           _________________________
                                        
                                   Form 10-K
                                        

[x]  Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
     Act of 1934.
     For the fiscal year ended December 31, 1998

                                       OR

[_]  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 0-14292
                                                -------
                                        
                               GTS DURATEK, INC.
             (Exact name of Registrant as specified in its charter)


                                                             
            Delaware                                                         22-2476180
- -------------------------------                                 ------------------------------------
(State or other jurisdiction of                                 (I.R.S. Employer Identification No.)
incorporation or organization)    
 
10100 Old Columbia Road, Columbia, Maryland                     21046
- -------------------------------------------                     -----
 (Address of principal executive offices)                       (Zip Code)
 
Registrant's telephone number, including area code:             (410) 312-5100
                                                                --------------

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

Securities registered pursuant to Section 12(g) 
of the Act:                                                     Common Stock, par value $0.01 Per Share




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

As of March 19, 1999, the aggregate market value of the outstanding shares of
the Registrant's Common Stock, par value $0.01 per share, held by non-affiliates
was approximately $53,445,470 based on the average closing price of the Common
Stock as reported by the NASDAQ National Market on March 19, 1999.
Determination of affiliate status for this purpose is not a determination of
affiliate status for any other purpose.

Indicate the number of shares outstanding of each of the Registrant's classes of
common stock, as of the most recent practicable date.


                 Class                             Outstanding at March 19, 1999
                 -----                             -----------------------------

Common stock, par value $0.01 per share                13,862,670 shares


                      DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's definitive Proxy Statement for its 1999 Annual
Meeting of Stockholders are incorporated by reference into Part III hereof.

 
                        Form 10-K Cross-Reference Sheet
                                        


                                                                           Page
                                                                     
PART I
   Item 1.     Business..................................................     1
   Item 2.     Properties................................................    20
   Item 3.     Legal Proceedings.........................................    20
   Item 4.     Submission of Matters to a Vote of Security Holders.......    21
 
PART II
   Item 5.     Market for Registrant's Common Equity and
               Related Stockholder Matters...............................    22
   Item 6.     Selected Financial Data...................................    23
   Item 7.     Management's Discussion and Analysis of
               Financial Condition and Results of Operations.............    24
   Item 7a.    Quantitative and Qualitative Information About Market Risk    30
   Item 8.     Financial Statements and Supplementary Data...............    31
   Item 9.     Changes in and Disagreements with Accountants
               on Accounting and Financial Disclosure....................    60
 
PART III
   Item 10.    Directors and Executive Officers of the Registrant*.......    61
   Item 11.    Executive Compensation*...................................    62
   Item 12.    Security Ownership of Certain Beneficial Owners
               and Management*...........................................    62
   Item 13.    Certain Relationships and Related Transactions*...........    62
 
PART IV
   Item 14.    Exhibits, Financial Statement Schedules and Reports
               on Form 8-K...............................................    63
 
Signatures...............................................................    64
 

* Incorporated by reference from registrant's definitive Proxy Statement for the
  Annual Meeting of Stockholders to be held May 19, 1999 which Proxy Statement
  will be filed not later than 120 days after the end of the fiscal year covered
  by this Annual Report on Form 10-K.

 
                                    Part I
                                        

Item 1.  Business

Overview

     GTS Duratek, Inc. (the "Company") provides waste treatment solutions for
radioactive, hazardous, mixed (i.e. intermingled radioactive and hazardous) and
other wastes. The Company combines proprietary technologies for treating various
waste streams with a staff of highly skilled personnel with significant
environmental experience to offer its customers a comprehensive approach to
their waste treatment needs that includes commercial waste processing services,
government waste processing services and technical support services. The
Company's strategy is to (i) provide the low cost solution to process
contaminated waste streams, (ii) combine its proprietary technologies and
technical support services to provide full-service waste treatment, and 
(iii) team, where appropriate, with other companies with complementary expertise
to advance GTS Duratek's treatment solutions within its target markets and into
new markets.

     The Company conducts its commercial waste processing operations principally
at its Bear Creek Operations Facility located in Oak Ridge, Tennessee. This
facility is the largest commercial waste processing facility for low-level
radioactive waste in the United States and has the capacity to process 30
million pounds of radioactive waste per year. Generators of low-level
radioactive waste send their waste to this facility where the Company, utilizing
a combination of treatment technologies, processes the waste, achieving
significant volume and mass reduction, before sending it to a landfill for
disposal. Accordingly, the Company believes its customers benefit from
significant cost savings as compared to other commercially available
alternatives. The Company's waste treatment technologies utilized at the Bear
Creek Operations Facility include incineration, compaction, and metal
decontamination and recycling. Other technologies used by the Company in its
commercial waste processing operations include vitrification, steam reforming,
thermal desorption and ion exchange. The Company's technologies can be used
independently or in tandem to process its customers' waste for long-term storage
and disposal. The Company's ability to integrate its waste treatment
technologies enables it to handle a diversity of waste streams in a cost-
effective manner.

     The Company also provides on-site waste processing services on large
government projects for the United States Department of Energy ("DOE"). The on-
site waste processing services provided by the Company on DOE projects include
program development, waste characterization, on-site waste treatment, facility
operation, packaging and shipping of residual waste, profiling and manifesting
the processed waste and selected technical support services. In November 1995,
the Company and BNFL, Inc. ("BNFL"), the U.S. subsidiary of British Nuclear
Fuels plc, formed a strategic alliance, agreeing to team on five major DOE
environmental remediation projects. To date, the Company and BNFL have been
jointly awarded contracts from the DOE on two of such projects, the Hanford Tank
Waste Remediation System and the Idaho Advanced Mixed Waste Treatment Facility
projects.

     The Company's technical support services encompass over 580 engineers,
consultants and technicians, some of whom are full-time employees and the
balance of whom are contract employees, who support and complement the Company's
commercial and government waste processing operations and also provide highly
specialized technical support services for the Company's customers. The
technical support services provide a consistent source of revenue and the
complementary expertise for the Company to expand and diversify its waste
treatment operations.  The technical support services provided by the Company
for its customers include site decontamination and decommissioning, radiological
engineering services, staff augmentation and outage support (principally to
assist nuclear power plants during regular maintenance shutdowns), environmental
and computer consulting and environmental safety and health training. Having
these technical resources available has enabled the Company to move its
technologies from bench-scale 

                                       1

 
laboratory testing to field operations and commercial application more rapidly
and to handle larger scope waste cleanup projects.

     On April 18, 1997, the Company acquired 100% of the outstanding capital
stock of The Scientific Ecology Group, Inc. ("SEG") from Westinghouse Electric
Corporation ("Westinghouse"). The Company's commercial waste processing at its
Bear Creek Operations Facility and a significant portion of its technical
support services, particularly the site decontamination and decommissioning
services, constituted the business of SEG and have been integrated into the
Company's operations since the date of acquisition. Also included in the
Company's current operations as a result of the acquisition are transportation
services for radioactive wastes. The Company maintains a fleet of tractors,
trailers and shipping containers for transporting radioactive wastes from
customers' sites for processing and disposal.

     The Company has developed the following joint venture and collaborative
arrangements, among others, in order to advance the commercialization of its
waste treatment technologies and increase the number of markets that it serves:

     .   The Vitreous State Laboratory of The Catholic University of America in
         Washington, D.C. ("VSL"). The Company has an established research and
         development relationship with the VSL, one of the leading research
         centers in the world for glass technology, including vitrification of
         waste.

     .   BNFL, Inc. ("BNFL"). In November 1995, the Company formed a strategic
         alliance with BNFL to jointly pursue up to five major DOE environmental
         remediation projects. BNFL is the U.S. subsidiary of British Nuclear
         Fuels plc, one of the largest processors of radioactive waste in the
         world. To date, the Company and BNFL have agreed to jointly pursue
         three major DOE waste treatment projects and have been jointly awarded
         contracts from the DOE on two such projects.

     .   The Carlyle Group ("Carlyle"). In January 1995, Carlyle, a Washington,
         D.C.-based private merchant bank, made a significant investment in the
         Company. Carlyle provided the Company with a significant capital
         infusion and, on a continuing basis, provides the Company with
         experience with companies that contract with the federal government.

     The Company seeks to utilize the complementary technical expertise or
commercial experience of the other parties in these collaborative arrangements
and, where possible, to develop additional collaborative arrangements, to pursue
its primary markets and expand into new markets.

Commercial Waste Processing

     The Company conducts its commercial waste processing operations principally
at its Bear Creek Operations Facility located in Oak Ridge, Tennessee. This
facility is the largest commercial waste processing facility for low-level
radioactive waste in the United States and has the capacity to process 30
million pounds of radioactive waste per year. Generators of low-level
radioactive waste send their waste to this facility where the Company, utilizing
a combination of treatment technologies, processes the waste, achieving
significant volume and mass reduction, before sending it to a landfill for
disposal. Accordingly, the Company believes its customers benefit from
significant cost savings as compared to other commercially available
alternatives. The Company's waste treatment technologies utilized at the Bear
Creek Operations Facility include incineration, compaction and metal
decontamination and recycling.

     Other technologies used by the Company in its commercial waste processing
operations include vitrification, steam reforming, thermal desorption and ion
exchange. The Company's technologies can be 

                                       2

 
used independently or in tandem to process its customers' waste for long-term
storage and disposal. The Company's ability to integrate its waste treatment
technologies enables it to handle a diversity of waste streams in a cost-
effective manner.

     The Company has developed or acquired several waste treatment technologies
for use on a variety of radioactive, hazardous, mixed and other waste streams.
The following is a brief summary of the waste treatment technologies that are
being utilized by the Company.

     Vitrification. The Company's vitrification technology converts waste to
environmentally stable, leach-resistant glass through a patented high-
temperature melter system known as a DuraMelter/TM/. The Company's vitrification
technology involves combining radioactive, hazardous, mixed and other waste with
glass-forming additives in a DuraMelter/TM/ that reaches temperatures of
1150degreesC to 1450degreesC (or 2100degreesF to 2640degreesF). The high
temperatures of the DuraMelter/TM/ cause the waste and any additives to form a
molten liquid that becomes solid glass as it cools. As the molten liquid cools,
the radioactive or hazardous atoms become chemically bonded in the molecular
structure of the glass for long-term storage or disposal, thereby virtually
eliminating contamination of the environment. For certain waste streams, the
Company's vitrification technology can achieve volume reductions of up to 97%.
The glass produced by the DuraMelter/TM/ passes the United States Environmental
Protection Agency's Toxicity Characteristic Leachate Procedure (TCLP), one of
the most commonly used criteria for waste acceptance, particularly hazardous and
mixed waste, at land disposal facilities.

     The DuraMelter/TM/ is a proprietary melter system within a refractory-lined
cavity incorporating submerged electrodes which heat up the materials within the
cavity. Contaminated waste materials are deposited onto a melt surface in either
a liquid (slurry) or a solid form. Glass forming additives are also introduced
into the system and the amount of such additives is dependent upon the
characteristics of the waste stream. As the electrodes in the DuraMelter/TM/
raise the temperature above 600degreesC, the waste and additive mixture becomes
electrically conductive. Resistance to the passage of electricity through the
mixture causes further heating and maintains the waste and additive mixture in a
molten state. This process is known as "joule heating" and typically requires
temperatures of about 1150degreesC. Within the DuraMelter/TM/, water evaporates
and organic substances are oxidized forming simple gases which are channeled
into the patented off-gas treatment system. The inorganic radioactive or
hazardous substances in the waste are dissolved into the molten glass mixture.
The molten glass exits through a side opening near the floor of the melting
cavity and, depending upon the characteristics of the waste stream, is either
discharged in bulk or directed into the proprietary GTS Duratek gem machine
where it forms into beads, 1 to 2 centimeters in diameter, for long-term
storage. As the beads of molten mixture cool, the inorganic radioactive or
hazardous substances become chemically bonded or "locked" into the molecular
structure of the glass.

     DuraMelters/TM/ range in size from small bench-scale units used for testing
and characterization of waste streams to commercial sized melters designed for
large waste treatment and remediation projects. Currently, the Company's largest
commercial operating DuraMelters/TM/ can process up to approximately 400 cubic
feet of waste per day. The design of the DuraMelter/TM/ can be modified
depending upon the characteristics of the waste stream to be processed. To
process waste streams that have a higher content of soil or sand, the Company
has designed a DuraMelter/TM/ with higher temperature capability (up to
1450degreesC or 2640degreesF). To process waste streams that include a high
content of corrosive elements such as sulfates, phosphates, lead and nitrates,
the Company has designed a DuraMelter/TM/ with multiple waste chambers to
protect the electrodes from the corrosiveness of the waste stream.

     Incineration. Incineration is the most cost-effective treatment for most
dry active waste and is the preferred waste treatment technology of many of the
Company's customers for nonhazardous waste oils and other waste liquids. The
Company's two incinerators at its Bear Creek Operations Facility are the only
two licensed commercial low-level radioactive waste incinerators in the United
States. Each of the Company's incinerators 

                                       3

 
is capable of processing solid waste at up to 1,600 pounds per hour and up to 30
gallons of radioactive, nonhazardous waste oils simultaneously. The proprietary
ash transport system of the Company's incinerators mixes ash with air, resulting
in complete burning of all combustible material without excessive particulate
carry-over common to most incinerators. In addition, the secondary chamber
utilizes two burners at up to 2200degreesF to ensure complete combustion of all
volatile materials. Incinerator ash and fly ash are compacted in the Company's
UltraCompactor/TM/ to form a high-density, nondispersible solid which is
packaged and shipped for disposal. The incinerators are also equipped with a
combination of emission control equipment and technology to maximize
environmental and employee safety, including a heat recovery boiler for off-gas
temperature control, a baghouse filter for particulate control, a dual HEPA bank
for contamination control, a wet scrubber for acid gas removal, an evaporator to
concentrate and solidify suspended and dissolved solids in the liquid from the
scrubbers and a recycling system so that water can be recycled for reuse or
processed in the incinerator which eliminates all liquid effluents.

     Compaction. Achieving maximum density is critical to cost-effective
radioactive waste disposal at most burial sites. The Company's
UltraCompactor/TM/ at its Bear Creek Operations Facility is the world's largest
compactor available for low-level radioactive waste, capable of compacting both
drums and boxes (up to 38 cubic feet) with the force of 10 million pounds. The
UltraCompactor/TM/ has a capacity of 70,000 cubic feet per month. Average volume
reduction using the Company's compaction technology is approximately six times
for dry active waste and eight times for asbestos. Typically, the waste
processed utilizing this technology is dry active waste and includes paper,
plastic, asbestos, metals, woods and filters. Other items that have been
successfully volume reduced using the UltraCompactor/TM/ include soils, motors,
pumps, pipes, valves and conduits. The Company also has a mobile compactor which
can be operated at the customer's site. The mobile supercompactor utilizes 2,200
tons of compaction force, achieves volume reduction rates of 60% to 80% and is
suited for smaller-scale jobs on concrete, rubble, steel structures, valve
bodies and other hard-to-compact material near theoretical density.

     Metal Decontamination and Recycling. The Company's metals processing
program at its Bear Creek Operations Facility provides a cost-effective solution
for radioactively contaminated metals utilizing its full-service capabilities of
surveying, decontaminating and melting. Upon arrival at the Company's Bear Creek
Operations Facility, the Company examines the metal and sorts it for processing
based on the contamination level of the metal to achieve the most cost-effective
process for recycling metal. If it is more cost-effective to dispose of it
rather than to recycle it, the Company will volume reduce the metal using its
UltraCompactor/TM/ and send it to an appropriate burial site. If the metal can
be decontaminated and commercially recycled, the Company will employ its
decontamination technologies which incorporate chemical, abrasive grit/shot,
sponge and carbon dioxide processing. The Company's specialized decontamination
equipment allows multiple shapes and metal types to be successfully treated for
commercial recycling. For those metals that cannot be economically
decontaminated to levels low enough for free release, the Company will utilize
its metal melting technology. The Company's 20 ton, 7,200 kw electric induction
furnace, the largest available in the United States, operates exclusively for
melting and recycling radioactively contaminated metal. This furnace is capable
of processing various types of ferrous metals over a broad alloy spectrum and
copper and lead. All of the metal processed through the metal melt furnace is
recycled into shield blocks and provided to various high-energy physics projects
throughout the United States and Canada. The decontamination and/or recycling of
radioactively contaminated metal has two principal benefits, it eliminates the
liability for the original waste generator and it eliminates the cost of burial.

     Steam Reforming. The Company's steam reforming technology is designed for
processing the toughest wastes including mixed waste, waste requiring
segregation and waste exhibiting high activity levels. In particular, the
Company has successfully utilized this technology to process radiologically
contaminated medical and biological wastes. The system's compact size,
containment integrity, in-drum processing option and steam-based chemistry offer
significant safety and regulatory advantages over most incinerator or other
thermal destruction systems. The Company holds exclusive rights to this
proprietary technology, which first 

                                       4

 
vaporizes organics in the waste, either in liquid or solid forms, and then
converts those gases to a dry, nonhazardous, mineral-like solid residue with
greater than 99.99% efficiency. Using its steam reforming technology, the
Company is able to achieve volume reductions of up to 100 times, depending on
the type of waste.

     The steam reforming process is conducted in a steam-laden, oxygen-deficient
environment that converts organic and biochemical compounds to carbon monoxide,
hydrogen, carbon dioxide and water. The two-step process first employs an
evaporation phase (between 700degreesF and 900degreesF) which breaks down and
vaporizes most organic compounds and water from the waste. The waste solids are
not exposed to higher temperatures which would tend to volatize metals and other
radionuclides from the residue. The volatized gases exit the evaporator and are
passed through a filter which removes any fine entrained particles from the
gases. Particulate-free gases exiting the filter are then co-mixed with
additional superheated steam and passed through a high-temperature reformer. The
gases, some of which are organic fractions of the original waste material, are
fully decomposed in the reformer at high destruction efficiencies. The resulting
products are simple gases and inert mineral-like residue.

     Because the Company's steam reforming technology does not use combustion
and because the secondary pollutants are not formed by the steam reforming
process, it is not classified as an incinerator by the United State
Environmental Protection Agency ("EPA") and is therefore easily permitted for
on-site operations. Accordingly, the Company can provide a compact mobile unit
for on-site processing at the customer's facility. For example, the Company
successfully processed high-level radioactive wastes at Portland General
Electric's Trojan Nuclear Plant. The project included sorting and packaging
spent fuel pool wastes submerged in 20 feet of water, removing wastes from the
fuel pool, destructing hydrogen bearing materials in the mobile steam reformer
and sealing the processed wastes in dry-storage capsules for long-term storage.

     Thermal Desorption. The Company's thermal desorption technology separates
hazardous wastes into more stable waste components that can either be safely
stored, recycled or used as additives in the processing of other waste streams.
The overall result is a reduction in the costs of treating and disposing of such
wastes. The Company utilizes this technology at its DuraTherm Recycling Center,
a RCRA Part B-permitted hazardous waste recycling center located near Houston,
Texas, where it processes high solid content petroleum refinery and
petrochemical manufacturing wastes to reclaim and recycle usable fuels. The
Company owns an 80% interest in the facility and the 20% minority interest is
owned by the operators of the facility, each of whom has entered into an
employment agreement providing for incentive compensation tied directly to the
financial performance of the facility.

     In the thermal desorption process, hydrocarbon sludges and cakes are placed
in a thermal desorber which utilizes temperatures from 500degreesF to
1350degreesF, depending on the particular waste being treated, to separate the
waste into four components. The components include solids which meet universal
treatment standards land disposal restrictions, water amenable to low-cost
conventional waste water treatment or deep well disposal, reusable oil and
noncondensable gases. The Company has conducted bench-scale and pilot-scale
testing of the thermal desorption technology for processing organic ion exchange
media and dry active waste debris. The results of this testing indicated that
the technology can be adapted to radioactive waste processing.

     Ion Exchange. The Company has developed a family of selective ion exchange
media, called DURASIL(R), which selectively targets and removes specific
radioactive, toxic or hazardous ions from wastewater while passing benign ions.
DURASIL(R) is formulated to separate specific contaminants from liquid waste
streams thereby allowing radioactive and hazardous ions to be removed and
separated into their respective species. Since radioactive and hazardous
materials are regulated by two different government agencies, this ability to
separate mixed waste greatly simplifies its disposal. DURASIL(R) also has
physical 

                                       5

 
characteristics that enable it to endure extreme waste water processing
conditions. It is mechanically stable and nonflammable, does not shrink or
swell, is virtually immune to radiation damage and has no effect on the pH of
the waste stream. The Company has developed different DURASIL(R) ion exchange
media depending on the characteristics of the liquid waste stream. The Company
manufactures and supplies highly specialized waste water purification systems
and the patented DURASIL(R) for commercial nuclear power plants, DOE facilities
and industrial clients.

Government Waste Processing

     The Company provides on-site waste processing services on large government
projects for the DOE. The on-site waste processing services provided by the
Company on DOE projects include program development, waste characterization, on-
site waste treatment, facility operation, packaging and shipping of residual
waste, profiling and manifesting the processed waste and selected technical
support services. In November 1995, the Company and BNFL formed a strategic
alliance, agreeing to team on five major DOE environmental remediation projects.
To date, the Company and BNFL have agreed to jointly pursue three major DOE
waste projects and have been jointly awarded contracts from the DOE on two of
such projects, the Hanford Tank Waste Remediation System ("TWRS") and the Idaho
Advanced Mixed Waste Treatment Facility projects.

     The Company is currently involved in several waste treatment projects for
the DOE. The following is a summary of the status of several of the Company's
major waste treatment projects with the DOE.

     Savannah River M-Area Project. The DOE's Savannah River site near Aiken,
South Carolina has approximately 18.7 million cubic feet in total currently
stored inventory and 20 years projected volume of low-level radioactive and
mixed wastes. This represents about 31% of all of such wastes throughout the DOE
weapons facilities. The Savannah River site is the largest single repository of
low-level radioactive and mixed wastes among all DOE sites.

     In November 1993, the Company was awarded a subcontract by the site
management and operations contractor, Westinghouse Savannah River Company
("WSRC"), to vitrify 90,000 cubic feet of low-level mixed waste sludge stored in
the M-Area tanks at Savannah River. GTS Duratek's subcontract represents only
0.5% of the total mixed waste inventoried at Savannah River. The Company's
obligations under this subcontract entailed vitrifying the waste and performing
ancillary services related to the handling of the waste, including removal of
the radioactive sludges from the storage tanks, cleanup and decontamination of
the storage tanks and placement of the containers of the glass waste in a secure
storage area.

     Construction of the on-site DuraMelter/TM/ began in July 1995 and the
Company began to process waste on-site in October 1996. The Company designed and
constructed the melter, managed construction of the facility that houses it and
serves as the operator of the melter. In addition, the Company's technical
personnel developed all operating, maintenance and radiological control
procedures and training programs and conducted the training. The M-Area contract
represents the first "privatization" type contract entered into by the DOE for
waste cleanup at its facilities. Pursuant to this contract, the Company owns and
operates the DuraMelter/TM/ under its subcontract with WSRC. The Company
believes that the DOE will enter into more of these privatization arrangements
with commercial vendors and that the Company's contract at Savannah River has
been used as a model for contemplated future privatized DOE waste cleanup
projects. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."

                                       6

 
     In March 1997, the Company decided to temporarily suspend processing of
radioactive waste and initiate an unscheduled controlled cool down of the
DuraMelter/TM/ at the Savannah River site.  After an extensive inspection of the
condition of the melter, the Company's management decided to undertake more
extensive repairs and modification of the facility, including melter box
replacement, before resumption of radioactive waste processing.  The
modifications were made so that the Company could more efficiently meet its
obligations under the existing contract as well as prepare the facility for
additional waste streams.  The M-Area facility resumed radioactive waste
processing operations during the fourth quarter of 1997.  As a result of the
necessary repairs and the delay in completing the waste processing required by
the contract, the Company recorded losses of $7.2 million on the M-Area contract
in 1997 which included the estimated costs of repairs to the melter and for
estimated losses to complete the fixed price contract.  During the fourth
quarter of 1998, the Company recorded a $1.8 million charge for additional costs
to be incurred to complete and close out the contract.  As of February 1999, the
Company successfully completed the contract to vitrify 660,000 gallons of mixed
waste sludge at the DOE's Savannah River site.

     As part of the M-Area contract, the Company constructed a $9.2 million
fixed facility at the DOE's Savannah River site.  This facility is capable of
processing additional waste streams present at this site and the melter
potentially has years of additional life.  As a result of a change in the site's
waste treatment priorities, no additional waste processing contracts have yet
been awarded to the Company, nor appear likely to be awarded.  Therefore, the
Company recorded a one-time asset impairment charge of $9.2 million in the
fourth quarter of 1998 to write off the Company's remaining investment in this
facility.

     Hanford Tank Waste Remediation System Project. In September 1996, the team
led by BNFL, of which the Company is a key member, was awarded a contract for
the Hanford Tank Water cleanup at the DOE's site in Hanford, Washington. The
Hanford site is the single largest DOE facility and contains the largest amount
of high-level radioactive waste in the United States with approximately 54
million gallons of high-level radioactive waste and low-level radioactive waste
which is contained in 177 underground storage tanks.

     The Company will provide the technical and support services for vitrifying
both the high-level and low-level waste for the project. Part I of the project
is divided into two parts. Part IA, which was concluded in January 1998,
consisted of completing the facility conceptual design, initiating the
environmental permitting process and submitting a proposal to the DOE for the
next phase. The Company completed its portion of Part IA by delivering the
conceptual design for high level waste (HLW) and low active waste (LAW) melters,
and by generating a cost estimate for the design and construction of these
systems. In addition during Part IA, glass formulation and validation testing on
a small scale was performed at the VSL.

     In July 1998, the DOE and BNFL reached an agreement for Phase 1B of the
Hanford TWRS contract.  The two part contract, worth approximately $6.9 billion
to the team, will result in the safe immobilization of approximately 10% mass,
or 20 to 25% of the radioactivity in Hanford's 54 million gallons of tank waste
by 2018.  Under the negotiated contract, the project will proceed in two parts
with a 24-month advance facility design phase that will result in securing
private project financing, filing regulatory permit applications, preparing to
begin construction, and establishing final fixed-unit prices and a schedule for
cleanup of the waste.  The second part of the project will provide for the
construction of the facilities, followed by treatment and immobilization of the
high and low-level waste contained in the tanks as determined in the first part
and established according to the fixed-price.

     In preparation for beginning the detailed design of the demonstration
facility, BNFL has funded $17 million to design, construct, own and operate a
pilot DuraMelter/TM/ at the Company's headquarters.  This pilot DuraMelter/TM/,
which commenced startup in December 1998, is an important development tool to be
used in the Hanford project.  The melter will process non-hazardous, non-
radioactive test materials using the Company's proven vitrification technology
for fusing contaminants in durable, ecologically safe glass.  The 

                                       7

 
melter, a 3.3 ton-per-day vitrification system, is a one-third scale version of
one of the 10 ton-per-day LAW melters to be built at the TWRS facility. It will
be used to test various equipment, components and processes and will provide
data necessary for the design of the radioactive melters to be used on the
Hanford site for cleanup of the tank waste.

     According to DOE estimates, the total Phase I contract is estimated to be
worth $6.9 billion over 18 years. Phase II of the cleanup, to convert all the
tank waste to glass, is expected to take 20 to 30 years to complete. The total
project is estimated by the DOE to cost in excess of $40 billion. The Company's
portion of the total contract is undetermined at this point. See "Joint Venture
and Collaborative Arrangements - BNFL."

     Idaho Advanced Mixed Waste Treatment Project. In December 1996, the team
led by BNFL, of which the Company is a key member, was awarded the sole contract
by the DOE for the Advanced Mixed Waste Treatment Project ("AMWTP") in Idaho
Falls, Idaho. Under the contract, the team will finance, construct and operate a
treatment facility for mixed radioactive and toxic wastes at the DOE's Idaho
National Engineering and Environmental Laboratory ("INEEL"). The facility will
treat and package for disposal approximately 65,000 cubic meters of mixed and
transuranic waste now stored or buried at INEEL. The contract also provides an
option for the team to treat an additional 120,000 cubic meters of mixed waste
generated by future cleanup operations at INEEL or other DOE sites.

     The BNFL-led team originally planned to utilize vitrification and
incineration technologies developed by the Company in the INEEL project.  In
June 1998, the team changed the technical process and has proposed the ash from
the incineration process to be micro-encapsulated (in cement) in lieu of
vitrified (melted into glass).  This change in process is being explored due to
changes in the waste acceptance criteria of the Waste Isolation Pilot Project
("WIPP"), which is less restrictive.  The acceptability of this change has not
yet been agreed to by the State of Idaho and the EPA.  The Company will retain a
major role in the project with responsibility for all the thermal processes.  In
addition, the Company's scope has been expanded to include other ancillary
processes.

     The Company will be responsible for the design, development, procurement,
and construction supervision of the waste processing systems. The AMWTP is split
into three phases with the intention of meeting important and aggressive
milestones agreed to by the DOE and the State of Idaho. Phase I includes the
permitting application process and is expected to conclude in April 1999. The
Company has completed its Phase I activities with the submission of its
conceptual design for the waste processing systems to BNFL in January 1998. BNFL
began the environmental permitting process in January 1998 with the submission
of the permit applications to the State of Idaho. Phase II includes the design
and construction of the facility and operational testing for a duration of up to
three years. Phase III includes the retrieval of the waste and operation of the
facility with an approximate duration of 12 years. After the completion of these
phases, there will be a decommissioning of the facility anticipated to take six
months. The total contract is estimated to be worth approximately $1 billion.
The Company's portion of the total contract is undetermined at this point. See
"Joint Venture and Collaborative Arrangements - BNFL."

Technical Support Services

     The Company's technical support services encompass over 580 engineers,
consultants and technicians, some of whom are full-time employees and the
balance of whom are contract employees, who support and complement the Company's
commercial and government waste processing operations and also provide highly
specialized technical support services for the Company's customers. The
technical support services provide a consistent source of revenue and the
complementary expertise for the Company to expand and diversify its waste
treatment operations. The technical support services provided by the Company for
its customers include site decontamination and decommissioning, radiological
engineering services, staff 

                                       8

 
augmentation and outage support (principally to assist nuclear power plants
during regular maintenance shutdowns), environmental and computer consulting and
environmental safety and health training. The Company provides these technical
support services either as a prime contractor or as a subcontractor to a diverse
group of electric utilities, industrial facilities, commercial businesses and
government agencies including Duke Power Company, Southern Nuclear Operating
Company, Vermont Yankee Nuclear Power Corporation and the DOE. Having these
technical resources available has enabled the Company to move its technologies
from bench-scale laboratory testing to field operations and commercial
application more rapidly and to handle larger scope waste cleanup projects.

     Site Decontamination and Decommissioning. The Company has performed
decontamination and decommissioning services at over 60 facilities worldwide,
including major scopes of work at two nuclear power plants which have been
completely decommissioned to United States Nuclear Regulatory Commission ("NRC")
requirements. The Company has performed decontamination and decommissioning at
the following commercial nuclear power plants: Fort St. Vrain Nuclear Generating
Station, Humboldt Bay Power Plant Unit 3, Shoreham Nuclear Power Station, Rancho
Seco Nuclear Station, Trojan Nuclear Power Plant and Maine Yankee Atomic Power
Company. Decontamination and decommissioning services provided by the Company
include site radiological surveys, waste characterization, decommissioning
planning, remediation, health physics support, radwaste services and final
surveys. The Company has the technical personnel, who have developed project
techniques accepted by the NRC, programs, procedures, equipment and
instrumentation to handle projects involving small hot cells to large nuclear
power stations. In addition, through its transportation and commercial waste
processing operations, the Company offers its customers a comprehensive solution
to their site decontamination and decommissioning problems.

     Radiological Engineering Services. The Company's technical personnel
provide commercial and government customers with a variety of radiological
engineering services including development of health physics and emergency
preparedness programs, MORT analysis, licensing procurement, instrumentation and
radiological training. Most of the Company's senior technical personnel
providing radiological engineering services are fully certified and have
extensive operating plant as well as NRC and DOE experience.

     Staff Augmentation and Outage Support Services. The Company provides
trained personnel to assist nuclear power plants undergoing periodic refueling,
maintenance outages, construction or decommissioning. There are 119 nuclear
power generating units in the United States, of which 108 are operational. To
control costs, utilities maintain their permanent staffs at the level needed for
steady-state power operations. They supplement their full-time staffs during
refueling and maintenance outages with skilled contract personnel. Every 12 to
24 months, nuclear power plants are shut down for scheduled maintenance that
typically takes 30 to 90 days. This shutdown and maintenance operation costs the
nuclear power facility on average $1 million for every day it is closed.
Accordingly, there is a strong economic incentive for the nuclear power
facilities to hire trained and experienced personnel for these maintenance
operations in order to complete the servicing as quickly and efficiently as
possible. The Company's trained technicians and personnel are experienced in
outage support procedures and are effective at helping to minimize the cost of
the power facilities' down time.

     The offering of services for operating nuclear power plants provides a
considerable market for the Company, despite the fact that no new plants have
been ordered in over 10 years. The demand for the Company's services results
from the extensive overhaul required to extend the life of aging plants,
replacement of major components of existing plants, startup of plants recovering
from long-term shutdown, modifications to the plants resulting from changing
legislation and the decommissioning of plants that have reached the end of their
useful lives.

     The Company's largest customer for staff augmentation services is Duke
Power Company, which accounted for approximately 12% and 7% of the Company's
total revenues in 1997 and 1998, respectively. Duke Power currently has seven
nuclear power units at three sites. Under a contract between the Company

                                       9

 
and Duke Power which expires in 2000, the Company provides a group of
technicians to the Duke Power system year-round and provides additional
personnel to Duke Power during planned maintenance outages. Other nuclear power
utilities to which the Company provides augmentation and outage support services
include Southern Nuclear Operating Company and Vermont Yankee Nuclear Power
Corporation.

     Environmental and Computer Consulting Services. The Company provides
extensive environmental consulting services to clients in the areas of
environmental remediation, facility decommissioning, Occupational Safety and
Health Act ("OSHA") and EPA compliance audits, site characterization, licensing
and permitting and air quality and emission studies. The Company either supplies
professionals and technical personnel to supplement client staffs or assumes
responsibility for entire projects. Included among the Company's available
personnel for such environmental consulting projects are chemical, civil and
environmental engineers, certified health physicists, chemists, toxicologists,
safety and health experts, regulatory compliance specialists, remediation
experts, radiological control technicians, hazardous material technicians,
decontamination experts and others. The Company also supplies professionals and
technical specialists in a wide range of scientific, engineering, data
processing and communications disciplines. These individuals perform computer
consulting services such as program assessment and development, computer
software development and testing, networking, web site development, quality
assurance audits, non-destructive examination and computer training for a broad
base of clients.

     Environmental Safety and Health Training. The Company provides radiation
protection and hazardous waste training services nationwide. The Company's
training specialists prepare candidates, consisting of health physics
technicians and professionals from nuclear power plants, universities and
laboratories nationwide, for the National Registry of Radiation Protection
Technologists and American Board of Health Physics certification examinations.
The Company's training programs enable customers to realize cost savings through
increased worker competence and productivity, enhanced workplace safety and
improved compliance with regulatory requirements.

     Transportation Services. As part of its technical support services, the
Company provides certain complementary services to its customers including
transportation services. Through a wholly owned subsidiary, Hittman Transport
Services, Inc. ("Hittman"), the Company maintains a fleet of tractors, trailers
and shipping containers for transporting radioactive waste and radioactively
contaminated equipment for processing and disposal. All of Hittman's vehicles
are constantly monitored via satellite to optimize waste pickup and delivery
scheduling. Hittman maintains terminal locations around the country that are
conveniently located to 90% of the commercial nuclear power plants in the United
States.

Joint Venture and Collaborative Arrangements

     In order to commercialize its technologies more rapidly and cost-
effectively, the Company has developed several important joint venture and
collaborative arrangements. The following is a summary of certain of these
relationships.

     VSL

     The Company has established a research and development relationship with
the VSL of The Catholic University in Washington, D.C. pursuant to which the VSL
provides ongoing research and development capabilities and technical services in
support of the Company's waste treatment projects, particularly its government
waste processing operations. In this complementary relationship, the VSL
provides the necessary technology and research and development support while the
Company advances the technology to commercial application.

                                       10

 
 
     The VSL, a research facility with a staff of 90 researchers, is one of the
leading research centers in the world for glass technology, including
vitrification. The laboratories at the VSL are equipped with highly
sophisticated analytical tools which enable the researchers to perform a
comprehensive array of analyses. The VSL's research and development capabilities
include waste characterization, testing of radioactive waste-loaded glasses to
evaluate glass durability, processability and leachability, glass dissolution
computer modeling, batch melting and the study of ion exchange media for
removing specific contaminants from liquid waste streams. Various
DuraMelter/TM/ models have been designed and constructed at the VSL for use by
the staff of the VSL in its research and analytical work. In addition, the
facility is fully licensed for radioactive and hazardous materials research. The
VSL is led by Pedro B. Macedo, Ph.D. and Theodore A. Litovitz, Ph.D. who are the
inventors and owners of the technology licensed exclusively to the Company for
ion exchange and the vitrification of radioactive, hazardous, mixed and other
wastes. See "Business - Patents and Other Intellectual Property Rights."

     In addition to being the source of the vitrification technologies used by
the Company, the VSL provides ongoing services to the Company in support of its
waste treatment projects, particularly its government waste processing
operations. The VSL conducts expert waste composition and glass treatability
studies before any project is commenced, assists in the initial test melt phase
of each project and works with the Company's engineers in the design adaptation
of the DuraMelter/TM/ technology to fit the waste characteristics of each new
cleanup project. In addition, the VSL conducts ongoing research and development
into improvements in the existing vitrification technologies and into entirely
new vitrification techniques, serving in effect as the research and development
arm of the Company. The primary advantage to the Company from its relationship
with the VSL is the access to leading vitrification technologies and ongoing
vitrification research without having to incur the ongoing overhead and
administrative expenses if such capabilities were in house.

     In return, the Company provides ongoing project funding for research
conducted at the VSL on behalf of the Company. During 1997 and 1998, the Company
paid $255,000 and $530,000, respectively, in research and development funding to
the VSL. For Company waste cleanup projects in which the VSL's technical
services are utilized by the Company, the Company pays the VSL on a time and
expense basis and includes the estimated cost for such services in its formal
bid proposal. The VSL is a not-for-profit institution so it does not include
extra fees or percentage profits in its cost estimates.

     BNFL

     In November 1995, the Company and BNFL entered into a strategic alliance
agreement. BNFL is the U.S. subsidiary of British Nuclear Fuels plc, a United
Kingdom-based company with annual revenues of approximately $2 billion
worldwide. British Nuclear Fuels plc is one of the largest processors of
radioactive waste in the world and is one of only two companies worldwide with
commercial experience in processing and stabilizing high-level radioactive
wastes. BNFL has been active in the U.S. radioactive waste market for the past
five years, including being selected as a member of the team to manage the DOE's
nuclear waste facility in Rocky Flats, Colorado. Pursuant to the terms of the
strategic alliance, the Company will receive a $1.0 million teaming fee for each
time that BNFL and the Company agree to jointly pursue a major DOE environmental
remediation project. To date, the Company and BNFL have agreed to jointly pursue
three major DOE environmental remediation projects and have been jointly awarded
contracts from the DOE on two of such projects.

     As part of the strategic alliance, BNFL invested $10.0 million in the
Company in the form of a convertible debenture. The debenture accrues non-cash
interest during the first five years at the one-year London Interbank Offered
Rate (LIBOR) and is convertible at the option of BNFL into 1,381,575 shares of
the Common Stock prior to November 7, 2000. BNFL also agreed to provide the
Company with research and development funding of at least $500,000 per year over
five years. The two parties will mutually agree on

                                       11

 
how the research and development funding will be spent, but the Company will
retain the rights to the vitrification processes that it develops through this
funding. The Company has agreed as part of the strategic alliance to sublicense
its radioactive waste vitrification technologies to BNFL for use only in the
United Kingdom.

     BNFL has funded $17 million to design, construct, own and operate a pilot
DuraMelter/TM/ at the Company's headquarters.  This pilot DuraMelter/TM/, which
commenced startup in December 1998, is an important development tool to be used
in the Hanford project.  The melter will process non-hazardous, non-radioactive
test materials using the Company's proven vitrification technology for fusing
contaminants in durable, ecologically safe glass.  The melter, a 3.3 ton-per-day
vitrification system, is a one-third scale version of one of the 10 ton-per-day
LAW melters to be built at the TWRS facility.  It will be used to test various
equipment, components and processes and will provide data necessary for the
design of the radioactive melters to be used on the Hanford site for cleanup of
the tank waste.

     DuraChem

     In September 1994, the Company formed a joint venture with Chem-Nuclear
Systems, Inc. ("Chem-Nuclear"), a subsidiary of WMX Technologies, Inc., to
design, construct and operate vitrification facilities to process commercial
radioactive waste for disposal, including low-level radioactive wastes from
nuclear power plants, hospitals, research laboratories and industrial
facilities. The joint venture entity, called DuraChem, is 55% owned by Chem-
Nuclear and 45% by the Company. The joint venture represents the combination of
the Company's proprietary vitrification technology and Chem-Nuclear's 23 years
of experience in providing radioactive waste handling and processing services.
DuraChem will pursue the disposal market for ion exchange resins which are
generated by nuclear power plants and contaminated wastes from hospitals and
laboratories. The vitrification facility of this joint venture is located at
Chem-Nuclear's waste processing center at Barnwell, South Carolina. The DuraChem
facility is located adjacent to the Barnwell landfill, one of the few facilities
in the United States permitted to accept commercially generated low-level
radioactive waste. The Company believes that DuraChem's location is advantageous
because of its proximity to the nation's primary facility for handling low-level
radioactive waste.

     In 1995, the Company and Chem-Nuclear constructed a vitrification facility
at Chem-Nuclear's radioactive waste processing center at Barnwell, South
Carolina. The Company designed and constructed a new DuraMelter/TM/ at the
facility and is responsible for the vitrification operations. Chem-Nuclear
manages the overall facility and is responsible for procuring all required
operating permits, obtaining the low-level radioactive waste from its customers,
transporting the waste to the facility and removing the waste for ultimate
disposal once it has been vitrified. The need for the services provided by
DuraChem was created by the closure of nationally accessible low-level
radioactive waste disposal sites and the delay by state compacts in opening new
regional sites. The high cost of disposal of certain low-level radioactive waste
materials has caused commercial generators of low-level radioactive waste, in
some instances, to store their waste at their facilities until regional sites
are opened or other low-cost disposal alternatives become available. The
DuraChem facility was expected to begin commercial operations in 1997; however,
as a result of the Company focusing its management and capital resources on (i)
restarting the M-Area melter, (ii) successfully and rapidly incorporating SEG's
business following the acquisition and (iii) meeting commitments to the DOE
privatization cleanups in Hanford, Washington and Idaho Falls, Idaho, the
Company announced in April 1997, that it would reduce the priority of, and
capital commitments to, other projects which have higher levels of marketplace
uncertainty or have longer-term financial prospects including the DuraChem joint
venture. The partners have agreed that the schedule for commencement of
operations at the DuraChem facility will be determined in 1999. The Company's
management anticipates commencement of the facility within the next two years,
however, changes in market conditions or other factors could result in
additional delays.

                                       12

 
     Vitritek

     Through a joint venture with Vitritek Holdings Company, L.L.C., ("Vitritek
Holdings") a privately held entity, the Company has extended its vitrification
technology to non-radioactive wastes. The joint venture entity, called Vitritek,
is 50% owned by each of the Company and Vitritek Holdings. The joint venture,
formed in December 1993, represents the consolidation of co-licensing rights to
non-radioactive vitrification technologies previously acquired by the Company
and Vitritek Holdings. Under the terms of the joint venture arrangement, all
funding requirements and all profits are shared equally. The joint venture may
pursue potential international opportunities during 1999; however, the Company
expects the joint venture to have limited operations during 1999.

Customers

     In its commercial waste processing operations, the Company derives revenues
from the processing and treatment of customer waste streams and from related
waste transportation services. Customers of the Company's commercial waste
processing services include electric utilities, government agencies, industrial
facilities, laboratories, hospitals and others. Revenues derived from commercial
waste processing operations represented approximately 49.6% and 45.6% of the
Company's total revenues in 1997 and 1998, respectively. The Company's
commercial waste processing operations relate primarily to the business
conducted by the former SEG and, prior to the acquisition of SEG in April 1997,
the Company's commercial waste processing operations were limited.

     In its government waste processing operations, the Company derives revenues
related to its proprietary vitrification technologies principally through
subcontracts with a combination of DOE contractors and subcontractors including
WSRC and BNFL. Revenues derived from DOE-related subcontracts represented
approximately 11.8% and 19.7% of the Company's total revenues during 1997 and
1998, respectively.

     The Company provides technical support services to a diverse group of
government agencies and utilities. Customers include the DOE, the United States
Department of Defense ("DOD"), the EPA, state environmental protection agencies,
Duke Power Company, Southern Nuclear Operating Company, New York Power
Authority, and Rocky Mountain Remediation Services. Revenues derived from
technical support services represented approximately 38.7% and 34.7% of the
Company's total revenues during 1997 and 1998, respectively.

     Revenues from Duke Power accounted for approximately 12% and 7% of the
Company's revenues for 1997 and 1998, respectively. No other customer accounted
for more than 5% of the Company's total revenues during 1998. The Company has a
contract with Duke Power which expires in 2000 pursuant to which it provides
technical support services and personnel.

Sales and Marketing Strategy

     The Company's operations to date, including the commercial waste processing
operations acquired in April 1997, have provided it with extensive knowledge of
commercial and DOE waste stream composition and the factors that influence the
remediation of those waste streams. The Company's internal sales force uses and
will continue to use that knowledge and operating experience to strengthen the
Company's competitive position when pursuing commercial and DOE waste
remediation projects. In addition, through its collaborative arrangements, the
Company will seek to utilize complementary technical expertise, marketing
resources and commercial experience of the other parties to develop additional
business in its primary markets, expand its capabilities in handling a greater
diversity of waste streams and replicate its operating model to pursue
international markets. The Company pursues markets where it can be the most
cost-effective 

                                       13

 
processor of the waste due to its technologies, geographical proximity to a
waste stream, government regulation or its ability to provide a comprehensive
approach to its customers' waste treatment needs.

     In its technical support services business, GTS Duratek will seek to
strengthen its relationships with its large utility customers, such as Duke
Power Company, Southern Nuclear Operating Company and Vermont Yankee Nuclear
Power Corporation which are significant contributors to the Company's total
revenues. The Company is also pursuing opportunities with utilities that are
downsizing and outsourcing service work as well as DOE sites that are
privatizing departments such as training and radiological controls. To enhance
the overall profitability of the technical support services business, the
Company is focusing on increasing market share in decontamination and
decommissioning services, environmental and computer consulting, radiation
instrument services and environmental health and safety training, all of which
generate relatively higher profit margins than staff augmentation and outage
support. Decontamination and decommissioning services provided to nuclear
facilities encompasses services from initial site characterization to project
completion.

Environmental Matters

     Environmental Laws and Regulations Creating a Demand for the Company's
     Waste Treatment Technologies

     Various environmental protection laws have been enacted and amended during
recent decades in response to public concern over the environment. The
operations of the Company's customers are subject to these evolving laws and the
implementing regulations. The Company believes that the obligations to comply
with the requirements of the following laws contribute to the demand for its
services:

     The Atomic Energy Act of 1954 ("AEA") and the Energy Reorganization Act of
1974 (the "ERA") authorize the Nuclear Regulatory Commission ("NRC") to regulate
the receipt, possession, use and transfer of radioactive materials, including
"source material," "special nuclear material," and "byproduct material."
Pursuant to its authority under the AEA, the NRC has adopted regulations that
address the management, treatment and disposal of low-level radioactive waste
and that require the licensing of low-level radioactive waste disposal sites by
NRC or NRC Agreement States.

     The processing, storage and disposal of high-level nuclear waste are
subject to the requirements of the Nuclear Waste Policy Act, as amended by the
Nuclear Waste Policy Act Amendments. These statutes regulate the disposal of
high-level nuclear waste by establishing procedures and schedules for siting
geologic repositories for such waste. The statutes also direct EPA to promulgate
environmental standards for the disposal of high-level nuclear waste, and
require the NRC to promulgate standards covering the licensing of waste
repositories. The NRC has issued regulations that address the storage and
disposal of high-level nuclear waste.

     The Uranium Mill Tailings Radiation Control Act ("UMTRCA") and the Uranium
Mill Tailings Remedial Action Amendments Act are intended to protect public
health and the environment from hazards associated with uranium ore milling
wastes at active and inactive uranium mills. UMTRCA designates specific inactive
mill sites for remedial action, and gives the DOE the responsibility for
carrying out remedial actions at these sites.

     The Low-Level Radioactive Waste Policy Act of 1980 ("LLRWPA") and the Low-
Level Radioactive Waste Policy Amendments Act of 1985 ("LLRWPA Amendments")
address the siting of new low-level radioactive waste disposal facilities.  
Each state is responsible for providing capacity for commercial low-level
radioactive waste generated within its borders. The LLRWPA also encourages
groups of states to enter into compacts providing for the development and
operation of low-level radioactive waste disposal facilities. 

                                       14

 
At the present time, no new radioactive waste disposal facilities have been
opened by state compacts and none are expected to open in the near future.

     The Resource Conservation and Recovery Act of 1976 ("RCRA"), as amended by
the Hazardous and Solid Waste Amendments of 1984 ("HSWA"), provides a
comprehensive framework for the regulation of the generation, transportation,
treatment, storage and disposal of hazardous waste. The intent of RCRA is to
control hazardous wastes from the time they are generated until they are
properly recycled or treated and disposed. RCRA prohibits improper hazardous
waste disposal and imposes criminal and civil liability for failure to comply
with its requirements. RCRA requires that hazardous waste generators,
transporters and operators of hazardous waste treatment, storage and disposal
facilities meet strict standards set by government agencies. In certain
circumstances, RCRA also requires operators of treatment, storage and disposal
facilities to obtain and comply with RCRA permits. The Land Disposal
Restrictions developed under the HSWA prohibit land disposal of specified wastes
unless these wastes meet or are treated to meet Best Demonstrated Available
Technology ("BDAT") treatment standards, unless certain exemptions apply.

     The Toxic Substances Control Act ("TSCA") provides the EPA with the
authority to regulate over 60,000 commercially produced chemical substances. The
EPA may impose requirements involving manufacturing, record keeping, reporting,
importing and exporting. The TSCA also established a comprehensive regulatory
program for PCBs which is analogous to the RCRA program for hazardous waste.

     The Clean Water Act, as amended, establishes standards, permits and
procedures for controlling the discharge of pollutants from wastewater sources.

     The Clean Air Act of 1970, as amended (the "Clean Air Act"), empowers the
EPA and the states to establish and enforce ambient air quality standards and
limits of emissions of pollutants from facilities. This has resulted in tight
control over emissions from technologies like incineration.

     The Comprehensive Environmental Response, Compensation and Liability Act of
1980 ("CERCLA" or "Superfund"), and subsequent amendments under the Superfund
Amendments and Reauthorization Act ("SARA"), as implemented by the National
Contingency Plan, provide for the investigation and remediation of sites
containing hazardous substances. The Superfund program's regulations require
that any remediation of the hazardous substances meet applicable and relevant
and/or appropriate regulatory requirements.  Superfund also establishes strict
and retroactive liability for parties who generated, stored, handled, managed or
transported hazardous substances or owned and operated the sites containing
them.  This creates a strong incentive for proper management and disposal of
hazardous waste.

     The Emergency Planning and Community Right to Know Act ("EPCRA") of 1986
requires companies to submit emergency and hazardous inventory forms to state
and local agencies for all materials requiring a material safety data sheet
under OSHA.  EPCRA requires full disclosure of environmental releases to the
public and contributes to public awareness and activism regarding corporate
environmental management issues.  To the extent a generator's waste can be
reported as being recycled, public pressure may be eliminated or significantly
reduced.

     The Pollution Prevention Act of 1990 establishes pollution prevention as a
national objective, naming it a primary goal wherever feasible. The act states
that if pollution cannot be prevented, materials should be recycled in an
environmentally safe manner.

     Under the mandate of the Federal Facility Compliance Act ("FFCA"), the DOE
is currently engaged in a program to treat and dispose of the mixed waste
currently stored at its facilities. The FFCA required DOE to develop and comply
with treatment and disposal plans for each of its facilities and charges DOE
with developing treatment and disposal capacity for these wastes where it does
not currently exist. The plans must 

                                       15

 
also address the need to treat and dispose of mixed wastes generated from the
remediation of contaminated DOE sites.

     Environmental Laws and Regulations Affecting the Use of the Company's Waste
     Treatment Technologies

     To the extent that the Company is engaged in the storage, processing or
disposal of mixed waste, the radioactive components are subject to the NRC
regulations promulgated under the AEA, while the hazardous components of the
waste are regulated by the EPA under RCRA.  To the extent that these regulations
have been delegated to the states, the state may also regulate mixed waste.

     Pursuant to the mandate of the AEA and the ERA, NRC regulations and
guidance address the classification and management of low-level radioactive
waste. The NRC regulations also govern the technical, monitoring and safety-
related aspects of developing and operating low-level radioactive waste disposal
facilities. Pursuant to its authority under the AEA, the NRC also has
established licensing requirements and operating procedures for such facilities.
The NRC requirements address siting criteria, site stability, the development
and implementation of institutional controls for the facility (e.g., access
restrictions, environmental monitoring and site maintenance), facility
operation, financial assurance, closure, and site stabilization.

     Under RCRA, wastes are classified as hazardous either because they are
specifically listed as such or because they display certain hazardous
characteristics. Under current regulations, waste residues derived from listed
hazardous wastes are considered hazardous wastes unless they are delisted
through a formal rulemaking process that may last a few months to several years.
For this reason, waste residue that is generated by the treatment of listed
hazardous wastes such as waste treated with the Company's vitrification
technologies, may be considered a hazardous waste without regard to the fact
that this waste residue may be environmentally benign. Subsequent management of
such waste residue would be subject to full RCRA regulation, including the
prohibition against land disposal without treatment in compliance with BDAT.  In
some cases, there is no current technology to treat mixed wastes, although EPA
policy places these wastes on a low enforcement priority.  The RCRA regulation
classifying such waste residue as hazardous has been overturned by the U.S.
Court of Appeals for the District of Columbia Circuit, but has been temporarily
reinstated until 2001 when the EPA is under court order to develop a revised
regulatory approach which would allow listed wastes to leave the hazardous waste
regulatory system if they met specified concentration limits. The Company's
ownership and operation of treatment facilities also exposes the Company to
potential liability for cleanup of releases of hazardous wastes under RCRA.

     Operators of hazardous waste treatment, storage and disposal facilities are
required to obtain RCRA Part-B permits from the EPA or from states authorized to
implement the RCRA program. Obtaining such permits is a lengthy and costly
process that requires regulatory inspection and approval of, among other things,
the facility design, equipment and operating plans and procedures. In addition,
applicants for a RCRA permit for a treatment, storage or disposal facility must
submit detailed information regarding all past waste management practices at
that facility and may be required to undertake corrective action for past
contamination of the site. The Company's DuraTherm facility in San Leon, Texas,
and its facilities in Oak Ridge, Tennessee, are RCRA Part-B permitted
facilities. The Company has developed procedures to ensure compliance with RCRA
permit provisions at the DuraTherm and Bear Creek Operations facilities,
including procedures for ensuring appropriate waste acceptance and scheduling,
waste tracking, manifesting and reporting, and employee training.

     If the Company engages in the transportation of hazardous materials, such
as radioactive materials, it will be subject to the requirements of the
Hazardous Materials Transportation Act, as amended by the Hazardous Materials
Transportation Uniform Safety Act. Pursuant to these statutes, the United States

                                       16

 
Department of Transportation regulates the transportation of hazardous materials
in commerce. Shippers and carriers of radioactive materials must comply with
both the general requirements for hazardous materials transportation and with
specific requirements for the transportation of radioactive materials. If the
Company engages in the storage and disposal of high-level nuclear waste it may
be subject to the Nuclear Waste Policy Act, as amended by the Nuclear Waste
Policy Act Amendments.

     CERCLA effectively imposes strict, joint and several retroactive liability
upon owners or operators of facilities where a release of hazardous substances
has occurred on parties who generated hazardous substances that were released at
such facilities and on parties who arranged for the transportation of hazardous
substances to such facilities. The Company's ownership and operation of
vitrification, storage and incineration facilities on-site expose the Company to
potential liability under CERCLA for releases of hazardous substances into the
environment at those sites. In the event that off-site storage or disposal
facilities utilized by the Company for final disposition of the glass and other
residues from the Company's vitrification, incineration and other treatment
processes are targeted for investigation and cleanup under CERCLA, the Company
could incur liability as a generator of such materials or by virtue of having
arranged for their transportation and disposal. The Company designs its
DuraMelters/TM/ and other processes to minimize the potential for release of
hazardous substances into the environment. In addition, the Company has
developed plans to manage and minimize the risk of CERCLA or RCRA liability,
including the training of operators, use of operational controls, and
structuring of its relationships with the entities responsible for the handling
of waste materials and by-products.

     Company facilities may have to obtain permits under the Clean Water Act,
the Clean Air Act, and corresponding state statutes. The necessity to obtain
such permits depends upon the facility's location and the expected emissions
from the facility. Additional state licenses or approvals may also be required.

     The Clean Air Act imposes strict requirements upon owners and operators of
facilities which emit pollutants into the air. Although the Company believes
that its treatment systems effectively traps particulates and prevents hazardous
emissions from being released into the air, which releases would violate the
Clean Air Act, the Clean Air Act may require permits prior to the construction
and operation of the Company's facilities, and may require additional emission
controls and restrictions on materials stored, used and incinerated at existing
or proposed facilities.

     The Clean Water Act establishes standards, permits and procedures for
controlling the discharge of pollutants from wastewater sources. The Company
believes that DuraMelters/TM/ generally will not be subject to the water
pollution control requirements of the Clean Water Act because DuraMelters/TM/
are designed to have no residual wastewater discharge. However, the Clean Water
Act's standard permits and procedures are potentially applicable to all other
water discharged from, or reused at, facilities owned or operated by the
Company.

     OSHA provides for the establishment of standards governing workplace safety
and health requirements, including setting permissible exposure levels for
hazardous chemicals which may be present in mixed wastes. The Company is
required to follow OSHA standards, including the preparation of material safety
data sheets, hazardous response training and process safety management. The NRC
has set regulatory standards for worker protection and public exposure to
radioactive materials or wastes.

Competition

     The market for the Company's waste treatment services is characterized as
the treatment and stabilization of certain radioactive, hazardous, mixed and
other wastes. The Company is aware of some competition from several large
companies and numerous small companies. Any of such companies may possess or
develop technologies superior to those of the Company. While the Company is
aware of 

                                       17

 
competition from companies with similar waste treatment technologies, the
primary competition comes from companies which provide waste treatment and
disposal services. The predominant waste treatment and disposal methods include
landfilling, deep-well injection, on-site containment and incineration or other
thermal treatment methods. Competition is based primarily on cost, regulatory
and permit restrictions, technical performance, dependability and environmental
integrity. The Company believes that it will be able to compete favorably on the
basis of these factors. The Company also believes that it has several
competitive advantages over its competitors including its proprietary waste
treatment technologies, its comprehensive approach to waste treatment,
demonstrated commercial success of its technologies, reputation for providing
quality service to its customers and strategic alliances. Many of the Company's
competitors have substantially greater financial and technical resources than
the Company and there can be no assurance that one or more of the Company's
competitors do not possess or will not develop waste treatment technologies that
are superior to those of the Company.

     In its technical support services business, the Company's competitors range
from major national and regional environmental service and consulting firms
which have large environmental remediation staffs to small local firms. Many of
the major national and regional environmental service and consulting firms have
greater financial, management and marketing resources than the Company. The
availability of skilled technical personnel, quality of performance, safety,
diversity of services and price are the key competitive factors.

Research and Development Activities

     The Company's research and development activities are conducted primarily
by the VSL for the enhancement of the Company's existing vitrification and ion
exchange technologies or the introduction of new vitrification technologies.
During 1996, 1997, and 1998, research and development activities were conducted
at the VSL under contracts totaling $1,343,000, $255,000 and $530,000,
respectively. The Company did not incur any additional research and development
costs during those years. In connection with various Company contracts or
subcontracts, the VSL conducts research and development under fixed-price and
cost-plus-fixed fee contracts. Under these contracts, the research is supervised
by Drs. Macedo and Litovitz and all inventions and discoveries are owned by them
and licensed to the Company under the exclusive license agreement. The Company
expects to spend a significant portion of the research and development funding
provided by BNFL with the VSL. See "Business - Joint Venture and Collaborative
Arrangements - VSL and -BNFL."

Patents and Other Intellectual Property Rights

     The Company licenses all of the patent and other intellectual property
rights to its proprietary vitrification and other waste treatment technologies
from the inventors of such technologies. Drs. Macedo and Litovitz, the inventors
of the Company's vitrification and ion exchange technologies, license the
patents and proprietary rights to such technologies to the Company under an
exclusive license agreement. The exclusive license agreement with Drs. Macedo
and Litovitz expires upon the expiration of the last patent covered by the
license agreement which is currently in the year 2012. The exclusive license
agreement, which currently encompasses 22 patents and one patent application,
also includes any process patents or technology rights related to the licensed
field which is subsequently developed by the VSL or Drs. Macedo and Litovitz.
Dr. Macedo and Litovitz own all of the vitrification and ion exchange patents
relating to the research and development work conducted by them at the VSL. The
Catholic University of America has agreed that all patents and technologies
developed at the VSL belong to Drs. Macedo and Litovitz and not to the
University. In turn, Drs. Macedo and Litovitz exclusively license the
vitrification technology rights and process patents developed by them at the VSL
to the Company.

                                       18

 
     The Company also licenses the rights to the thermal desorption technology
used in the processing of petrochemical waste by DuraTherm from the inventor of
such technology. The license agreement grants to the Company and DuraTherm the
exclusive rights to such technology and any subsequently developed related
technology and provides that any subsequently developed unrelated technology
which results from research and development funded or sponsored by the Company
or DuraTherm shall be assigned to such entities. The license agreement currently
covers three patents relating to thermal desorption, one pending patent and a
European patent application.

     In connection with the acquisition of SEG in April 1997, the Company
acquired the entire intellectual property portfolio of SEG, including all
patents and related trademarks and copyright pertaining to the detection,
storage, decontamination, processing and handling of radioactive and hazardous
waste materials. Specifically, the issued and active patents acquired by the
Company relate to the steam reforming, incineration, ultracompaction and
vitrification technologies used by SEG in its commercial waste processing
operations. As a result of the acquisition of SEG, the Company acquired rights
in 48 U.S. patents, 11 pending U.S. patent applications, 118 foreign patents and
35 pending foreign patent applications. Pursuant to the purchase agreement with
Westinghouse, the Company has granted Westinghouse a non-exclusive royalty-free
license to practice the technologies covered by certain of the patents acquired
by the Company.

     From time to time, the Company acquires or licenses technologies from third
parties that complement its existing waste processing technologies. In November
1997, the Company acquired a joint interest in several patents pertaining to the
gasification and vitrification of organic materials from Proler Environmental
Services, Inc. ("Proler"). The Company now owns Proler's interest in these
patents jointly with Hylsa SA, a company located and doing business in Mexico.

     The Company requires each of its employees to enter into standard
agreements pursuant to which the employee agrees to keep confidential all
proprietary information of the Company and to assign to the Company all rights
in any proprietary information or technology developed by the employee during
his or her employment or made thereafter as a result of any inventions conceived
or work done during such employment. Despite these precautions, it may be
possible for a third party to copy or otherwise obtain and use the company's
technology without authorization or to develop similar technology independently.
In addition, effective patent and trade secret protection may be unavailable or
limited in certain foreign countries.

     DURASIL(R) is a registered trademark held by the Company and DuraMelter/TM/
and DuraGem/TM/ are common law trademarks.

Employees

     As of December 31, 1998, the Company employed 964 employees, including 307
temporary field-assigned employees performing services for clients, 479 full-
time technical personnel and 178 in finance, administration and support
personnel. The Company contracts with most of the field-assigned personnel on an
as-needed basis and such personnel are not full-time employees of the Company.
Due to the seasonality of the technical support services business of the
Company, the number of temporary field-assigned employees generally increases to
approximately 600 during the fall peak outage season at the nation's nuclear
power plants. To date, the Company has been successful in attracting and
retaining qualified technical personnel, although there can be no assurance that
this success will continue. None of the Company's employees are subject to a
collective bargaining agreement. The Company has never experienced a work
stoppage and believes that its relations with its employees are good.

                                       19

 
Item 2.  Properties

     The company leases approximately 35,000 square feet of office space in
Columbia, Maryland which it uses as its administration and general corporate
offices. The initial lease term expires December 31, 2006.

     In April 1997, the Company acquired certain real property assets in
connection with its acquisition of SEG, including approximately 50 acres of land
in Oak Ridge, Tennessee, upon which the primary waste processing operations are
located. The Company acquired another approximately 50-acre parcel in Oak Ridge,
Tennessee, at which additional waste processing operations are conducted. The
Company also acquired a 13,500 square foot building in Richland, Washington,
which houses certain technical services operations.

     The Company's 80%-owned subsidiary, DuraTherm, owns a RCRA-permitted
hazardous waste recycling center located in San Leon, Texas. The facility is
located on 14.5 acres of land and consists of a recycling center on 8.5 acres
and 4,500 square feet of office and laboratory space. The facility and the land
are owned by DuraTherm.

Item 3.  Legal Proceedings

     On February 3, 1998, the Company's wholly owned subsidiary, SEG, and one of
SEG's former executives, were sued in federal district court in Boston,
Massachusetts.  The suit alleges that statements made in press releases by
Molten Metals Technology, Inc. ("MMT") were fraudulent and misleading under
federal securities laws and state common law fraud theories.  These statements
concerned a joint venture between SEG and MMT and some of these statements were
made in press releases which MMT issued jointly with SEG.  The complaint seeks
to hold the defendants liable for all of these statements.  The defendants moved
to dismiss the complaint, the plaintiffs chose to amend their pleading, and the
defendants moved to dismiss the amended complaint.  At the present time the
Company is unable to express a view on the probable ultimate outcome of the
litigation. In addition, the Company may have rights of indemnity against CBS
Corporation ("CBS"), the successor to Westinghouse which was the parent of SEG
at the time the allegedly misleading statements were made, if, among other
things, certain representations and warranties made by CBS in the definitive
purchase agreement pursuant to which the Company purchased SEG were breached.
CBS has agreed to assume all litigation costs associated with the defense of the
case, but has reserved the right to challenge the Company's claim for
indemnification for any settlement or judgment that may arise from the case.

     On or about February 25, 1999, Synthetica Technologies, Inc. ("Synthetica")
served the Company with a complaint filed in the Superior Court of California,
County of San Francisco.  In addition to the Company, the complaint names SEG,
Westinghouse, and two former SEG executives as defendants.  The complaint
alleges that SEG was required by a license agreement and a subsequent asset
purchase agreement to make certain payments to Synthetica in exchange for the
right to develop and commercialize Synthetica's waste disposal technology.
Synthetica claims that SEG did not make allegedly required payments and did not
comply with other alleged provisions of the contracts between SEG and
Synthetica.  Both the alleged license agreement and alleged asset purchase
agreement predate the Company's acquisition of SEG.  Synthetica advances claims
of fraud in the inducement, constructive fraud, actual fraud, breach of written
contract, breach of implied covenant of good faith and fair dealing, intentional
interference with contractual relations, intentional interference with economic
relations, negligent interference, negligent misrepresentation and breach of
fiduciary duty.  The complaint seeks to hold the individual defendants
personally liable for the alleged torts, and seeks to hold the Company and
Westinghouse vicariously liable for the alleged wrongdoing of SEG.  The
complaint also asserts claims solely against the individual defendants for trade
secret misappropriation that allegedly occurred when they left the employ of
SEG.  The complaint seeks rescission of the asset purchase agreement,
compensatory and exemplary damages in an unspecified amount and an 

                                       20

 
injunction against further trade secret misappropriation by the former SEG
executives. The defendants have not yet responded to the complaint, and at the
present time the Company is unable to express a view on the probable ultimate
outcome of the litigation.

     In addition, from time to time the Company is a party to litigation or
administrative proceedings relating to claims arising from its operations in the
normal course of business. Management of the Company, on the advice of counsel,
believes that the ultimate resolution of such litigation or administrative
proceedings currently pending against the Company is unlikely, either
individually or in the aggregate, to have a material adverse effect on the
Company's results of operations or financial condition.

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

     Not Applicable.

                                       21

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

     The Company's Common Stock is quoted on the NASDAQ National Market under
the symbol "DRTK". The following table sets forth, for the periods indicated,
the high and low sale prices of the Common Stock. The last reported sale price
of the Common Stock on the NASDAQ National Market on March 19, 1999 was $5.06.




                                                                       Price Range
                                                                      of Common Stock
                                                                   --------------------
                                                                     High        Low
                                                                   --------------------
                                                                          
        Year ended December 31, 1996:
             1st quarter                                            17-7/8      11-1/4
             2nd quarter                                            19-7/8      14-5/8
             3rd quarter                                            19-1/2      11-1/8            
             4th quarter                                            16-5/8      10-7/8
                                                                    
         Year ended December 31, 1997:                                          
             1st quarter                                            14-5/8       4-7/8
             2nd quarter                                            10-1/2       7-7/8
             3rd quarter                                            15-3/8       9-1/2
             4th quarter                                            15           9-3/4

         Year ended December 31, 1998:
             1st quarter                                            14           13-3/8
             2nd quarter                                            12-3/4       10  
             3rd quarter                                            12-3/8        5-3/8
             4th quarter                                             8-1/8        3-7/8                                  


     As of March 19, 1999, there were 1,500 holders of record of the Common
Stock and the Company estimates that there were approximately 6,800 beneficial
holders.

     The Company has never declared or paid a cash dividend on its Common Stock
and is currently prohibited from paying dividends under its revolving line of
credit with its principal lender. The Company will pay dividends on the 8%
Cumulative Convertible Redeemable Preferred Stock (the "Convertible Preferred
Stock") out of funds legally available therefore in accordance with the terms of
the Convertible Preferred Stock which require the payment of quarterly dividends
of $320,000 or $2.00 per share. The Company may not pay dividends on any of the
Common Stock unless the Company has paid all accumulated dividends on all of the
outstanding shares of Convertible Preferred Stock. To date, the Company has paid
all dividends on all of the outstanding shares of the Convertible Preferred
Stock. Except with respect to the dividends on the Convertible Preferred Stock,
the Company currently intends to retain earnings primarily for working capital
and development of waste treatment technologies and therefore does not
anticipate paying any cash dividends in the foreseeable future. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources."

                                       22

 
Item 6. Selected financial Data (in thousands, except per share amounts)
 


                                                                                  Years Ended December 31,
                                                                 -------------------------------------------------------------
                                                                     1994         1995        1996         1997         1998
                                                                 -----------    --------    --------    ---------    ---------
                                                                                                     
Statement of Operations Data:                              
   Revenues                                                      $    35,968   $  40,418   $  44,285   $  136,553   $  160,313
   Cost of revenues                                                   28,857      32,220      35,198      120,814      123,839
                                                                 -----------    --------    --------    ---------    ---------
        Gross profit                                                   7,111       8,198       9,087       15,739       36,474
   Selling, general and administrative expenses                        5,926       5,876       7,455       15,725       26,613
   Charge for asset impairment                                            --          --          --           --        9,224
                                                                 -----------    --------    --------    ---------    ---------
        Income (loss) from operations                                  1,185       2,322       1,632           14          637
   Interest income (expense), net                                       (595)         57       1,239          571         (545)
                                                                 -----------    --------    --------    ---------    ---------
        Income (loss) before income taxes
            and proportionate share of losses  
            by joint ventures                                            590       2,379       2,871          585           92
   Income taxes                                                           12         101         649          716          627
                                                                 -----------    --------    --------    ---------    ---------
        Income (loss) before proportionate
            share of losses by joint ventures                            578       2,278       2,222         (131)        (535)    
   Proportionate share of losses by joint ventures                      (321)       (824)       (165)        (150)      (1,474)
                                                                 -----------    --------    --------    ---------    ---------
         Net income (loss) before cumulative
            effect of change in accounting principle                     257       1,454       2,057         (281)      (2,009)
   Cumulative effect of change in accounting principle                    --          --          --           --         (420)
                                                                 -----------    --------    --------    ---------    ---------
         Net income (loss) and comprehensive
            income (loss)                                                257       1,454       2,057         (281)      (2,429)
   Preferred stock dividends and charges
      for accretion                                                       --      (1,394)     (1,500)      (1,503)      (1,507)
                                                                 -----------    --------    --------    ---------    ---------
         Net income (loss) attributable to
            common stockholders                                 $        257   $      60   $     557   $   (1,784)  $   (3,936)
                                                                 ===========    ========    ========    =========    =========
   Net income (loss) per share before cumulative
   effect of change in accounting principle:
        Basic                                                   $       0.03   $    0.01   $    0.05   $    (0.14)  $    (0.27)
                                                                 ===========    ========    ========    =========    =========
        Diluted                                                 $       0.03   $    0.01   $    0.04   $    (0.14)  $    (0.27)
                                                                 ===========    ========    ========    =========    =========
   Net income (loss) per share:
        Basic                                                   $       0.03   $    0.01   $    0.05   $    (0.14)  $    (0.30)
                                                                 ===========    ========    ========    =========    =========
        Diluted                                                 $       0.03   $    0.01   $    0.04   $    (0.14)  $    (0.30)
                                                                 ===========    ========    ========    =========    =========
   Basic weighted average common stock
        outstanding                                                    8,656       8,820      11,460       12,619       13,137
                                                                 ===========    ========    ========    =========    =========
   Diluted weighted average common stock
        and dilutive outstanding                                       8,966      11,213      13,404       12,619       13,137
                                                                 ===========    ========    ========    =========    =========
 

                                                                                         As of December 31,
                                                                 -------------------------------------------------------------
                                                                     1994        1995        1996         1997         1998
                                                                 -----------    --------    --------    ---------    ---------
                                                                                                     
Balance Sheet Data:
   Working capital (deficit)                                     $       (78)   $ 24,114    $ 62,161    $   8,363   $   15,359
   Total assets                                                       19,200      38,660      85,199      132,298      128,535
   Long-term debt, convertible debenture
      and capital lease obligation                                       502      10,123      10,939       11,557       13,102
   Redeemable convertible preferred stock                                 --      14,609      14,829       15,052       15,279
   Stockholders' equity                                                6,933       9,257      55,147       56,429       55,022
         


                                       23

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

Overview

     GTS Duratek, Inc. (the "Company") derives substantially all of its revenues
from commercial and government waste processing operations, and from technical
support services to electric utilities, industrial facilities, commercial
businesses and government agencies.  Commercial waste processing operations are
provided primarily at the Company's Bear Creek low-level radioactive waste
processing facility located in Oak Ridge, Tennessee which was the business
formerly conducted as The Scientific Ecology Group, Inc. ("SEG"). The Company
also provides on-site waste processing services on large government projects for
the United States Department of Energy ("DOE").  Technical support services are
generally provided pursuant to multi-year time and materials contracts.
Revenues are recognized as costs are incurred according to predetermined rates.
The contract costs primarily include direct labor, materials and the indirect
costs related to contract performance.

     On April 18, 1997, the Company acquired 100% of the outstanding capital
stock of SEG from Westinghouse Electric Corporation for approximately 
$22.4 million in cash including transaction costs and 156,986 shares of the
Company's Common Stock. The Company paid the cash portion of the purchase price
out of available cash. The acquisition of SEG was effective April 1, 1997 and,
accordingly, the Company's results of operations for the year ended December 31,
1997 reflect the operating results of SEG from April 1, 1997. The Company has
accounted for the transaction under the purchase method of accounting. The
Company paid $20.7 million in cash and $1.2 million in stock for an aggregate
purchase price of $72.7 million, which included liabilities assumed and
transaction costs. The aggregate purchase price exceeded the estimated fair
value of SEG's tangible assets by approximately $13.9 million. Such amount has
been allocated to intangible assets, principally goodwill, and is being
amortized over 30 years. SEG provided over 50% of the Company's revenue for 1998
and had a significant impact on the comparison of 1996 and 1997 results of
operations.

     Prior to the acquisition of SEG, the Company's waste treatment revenues
historically had been generated from government waste processing operations
pursuant to fixed-price and cost-plus-fixed-fee contracts with the United States
Department of Energy ("DOE").  Waste treatment revenues from the DOE were not
significant in 1997 and 1998.

     For the year ended December 31, 1998, operating profits increased 61.1%
from $7.2 million in 1997 to $11.6 million in 1998, excluding the effect of the
charges relating to the M-Area contract of $7.2 million in 1997 and $11.0
million in 1998, described below.

     In March 1997, the Company decided to temporarily suspend processing of
radioactive waste and initiate an unscheduled controlled cool down of its glass
melter at its M-Area processing plant located at the DOE's Savannah River site.
After an extensive inspection of the condition of the melter at the Savannah
River site, the Company's management made the decision to undertake more
extensive repairs and modification of the facility, including melter box
replacement, before resumption of radioactive waste processing.  The
modifications were made so that the Company could more efficiently meet its
obligations under the existing contract as well as prepare the facility for
additional waste streams.  The M-Area facility resumed radioactive waste
processing operations during the fourth quarter of 1997.  As a result of the
necessary repairs and the delay in completing the waste processing required by
the contract, the Company recorded losses of $7.2 million on the M-Area contract
in 1997 which included the estimated costs of repairs to the melter and
estimated losses to complete the fixed price contract.  As of February 1999, the
Company successfully completed the contract to vitrify 660,000 gallons of mixed
waste sludge at the DOE's 

                                       24

 
Savannah River Site. During the fourth quarter of 1998, the Company recorded a
$1.8 million charge for additional costs to be incurred to complete and close
out the contract.

     As part of the M-Area contract, the Company constructed a $9.2 million
fixed facility at the DOE's Savannah River Site. This facility is capable of
processing additional waste streams present at this site and the melter
potentially has years of additional life.  As a result of a change in the site's
waste treatment priorities at the site, no additional waste processing contracts
have yet been awarded to the Company, nor appear likely to be awarded.
Therefore, the Company recorded a one-time asset impairment charge of 
$9.2 million in the fourth quarter of 1998 to write off the Company's remaining
investment in this facility.

     The Company's future operating results will be affected by, among other
things, the duration of commercial waste processing contracts and amount of
waste to be processed by the Company's commercial waste processing operations
pursuant to these contracts; the timing of new DOE waste treatment projects,
including those pursued jointly with BNFL, Inc. and the duration of the Hanford
and Idaho Falls DOE projects.

Results of Operations

Year Ended December 31, 1997 Compared to Year Ended December 31, 1998.

     Revenues increased by $23.7 million or 17.4%, from $136.6 million in 1997
to $160.3 million in 1998. The increase was primarily attributable to a $15.6
million increase in government waste processing services, a $4.4 million
increase in commercial waste processing services at the Company's Bear Creek
low-level radioactive waste processing facility located in Oak Ridge, Tennessee,
a $2.8 million increase in technical support service revenues, and a $900,000
increase in waste processing revenues at the Company's DuraTherm hazardous waste
treatment facility located in San Leon, Texas. The increase in revenues in
government waste processing services was primarily the result of work performed
on the Hanford Tank Waste Remediation System contract awarded by BNFL to build
and operate a pilot melter at the Company's Columbia, Maryland headquarters and
performance on a project at Idaho Falls, Idaho.  The increase in revenues at the
Bear Creek facility was primarily the result of increased waste receipts during
1998 as compared to 1997.  The increase in revenues from technical support
services was primarily the result of more work performed on site decontamination
and decommissioning contracts and an increase in revenues from radiological
engineering services.  Revenues from DuraTherm increased as a result of
increased waste receipts during 1998 as compared to 1997.

     Gross profit increased by $20.7 million or 131.7% from $15.7 million in
1997 to $36.4 million in 1998.  Government waste processing services and the
Bear Creek facility accounted for increases in gross profit of $8.7 and $6.7
million, respectively.  Additionally, technical support services and the
DuraTherm facility accounted for increases in gross profit of $4.5 million and
$800,000 respectively.  The increase in gross profit from government waste
processing principally relates to the  loss recorded on the M-Area project in
1997 and the increase in gross profit in 1998 from government waste processing
attributable to the  increase in revenues from the Hanford Tank Waste
Remediation System contract and performance on the project at Idaho Falls, Idaho
previously mentioned.  The increase in gross profit at the Bear Creek facility
was the result of increased waste receipts over the prior year in addition to
measures taken in the third quarter to reduce fixed and variable operating
costs. The increase in gross profit from technical support services was the
result of a shift in mix toward performance on higher margin site
decontamination and decommissioning contracts and radiological engineering
services. The increase in gross profit at the DuraTherm facility was the result
of increased waste receipts over the prior year in addition to the Company's
continued efforts to reduce fixed and variable operating costs. As a percentage
of revenues, gross profit increased from 11.5% in 1997 to 22.8% in 1998 for the
reasons previously mentioned.

                                       25

 
     Selling, general and administrative expenses increased by $10.9 million, or
69.2%, from $15.7 million in 1997 to $26.6 million in 1998.  As a percentage of
revenues, selling, general and administrative expenses increased from 11.5% in
1997 to 16.6% in 1998.  The increase in selling, general and administrative
expenses was primarily attributable to: (i) the operations of SEG, which was
acquired by the Company effective April 1, 1997, (ii) higher than expected costs
incurred on proposals for two major commercial nuclear power plant
decommissioning projects,  (iii) severance charges associated with the re-
engineering of the processing methods at the Bear Creek facility, and (iv)
higher operating costs for government waste processing services as a result of
business growth in this area.

     Interest income (expense), net changed from income of $571,000 in 1997 to
an expense of $545,000 in 1998.  The change was the result of the decrease in
cash due to the purchase of SEG in April of 1997 and interest on short term
borrowings required to fund working capital needs.

     Income tax expense was $716,000 in 1997 and $627,000 in 1998. The effective
tax rate for 1997 and 1998 was adversely impacted by state income taxes on
income in certain states which could not be offset by losses in others and a
valuation allowance established with respect to a portion of the Company's
decontamination and decommissioning accruals.

     Proportionate share of losses by joint ventures increased from $150,000 in
1997 to $1,474,000 in 1998. The increase in the loss principally relates to the
charge, net of tax benefits,  taken by the Company for the proportionate share
of its 45% owned joint venture, DuraChem, which adopted Statement of Position
98-5 "Reporting on Costs of Start-up Activities" (SOP 98-5), which requires
start-up costs to be expensed as incurred.  The Company's proportionate share in
the loss of its 50% owned joint venture, Vitritek, increased from $150,000 in
1997 to $200,000 in 1998.  The Company expects Vitritek to have limited
operations in 1999. See Note 1 of Notes to Consolidated Financial Statements.

     In the fourth quarter of 1998, the Company also adopted the provisions of 
SOP 98-5. The cumulative, after tax effect of adoption was $420,000. The
adoption of SOP 98-5 by DuraChem and the Company reduced the Company's loss
before proportionate share of losses by joint ventures by approximately $78,000,
increased the net loss before cumulative effect of a change in accounting
principle by approximately $1.2 million, increased the net loss by approximately
$1.6 million, increased the per share net loss attributable to common
shareholders before cumulative effect of a change in accounting principle by
$0.09 per share and increased the per share net loss attributable to common
shareholders by $0.12 per share. In accordance with the pronouncement, the
Company and DuraChem adopted SOP 98-5 as of January 1, 1998, accordingly, the
Company will restate its 1998 quarterly results with each of its 1999 quarterly
fillings.

Year ended December 31, 1996 Compared to Year Ended December 31, 1997.

     Revenues increased by $92.3 million, or 208.4%, from $44.3 million in 1996
to $136.6 million in 1997.  The increase was primarily attributable to 
$84.3 million in revenues from the commercial waste processing operations of
SEG, which was acquired by the Company effective as of April 1, 1997, an
increase in waste processing revenues of $4.8 million at the Company's DuraTherm
commercial waste treatment facility, which commenced operations on May 1, 1996,
and an increase in technical support services revenues of $5.3 million which
were slightly offset by a decrease in revenues from government waste processing
operations. Revenues from government waste processing operations in 1997 were
adversely impacted by the shutdown of operations at the M-Area processing
facility. In addition, revenues in 1996 included $2.0 million in teaming fees
received from BNFL in exchange for the Company's agreement to exclusively team
with BNFL on two DOE waste treatment projects. The Company did not receive any
teaming fees from BNFL in 1997. Revenues from DuraTherm increased as the result
of increased waste receipts during 1997 as compared to 1996. The increase in
revenues from technical support services was primarily the result of more work

                                       26

 
performed on power plant outage and support services contracts with Duke Power
Company, New York Power Authority and Southern Nuclear Operating Company.

     Gross profit increased by $6.6 million, or 73.2%, from $9.1 million in 1996
to $15.7 million in 1997.  Commercial waste processing operations accounted for
an increase in gross profit of $16.5 million, consisting of an increase of 
$15.4 million from SEG's operations and $1.1 million from DuraTherm's
operations. This increase was offset by a decrease in gross profit of 
$7.7 million in government waste processing operations principally related to
the $7.2 million of losses recorded on the M-Area project in 1997 and the
absence of $2.0 million in teaming fees from BNFL that the Company recognized in
1996. As a percentage of revenues, gross profit decreased from 20.5% in 1996 to
11.5% in 1997. The decrease was principally a result of the losses recorded in
1997 on the M-Area contract and the absence of teaming fees from BNFL. As a
percentage of revenues, gross profit for SEG's operations was 18.3% in 1997. As
a percentage of revenues, gross profit for technical support services decreased
from 14.1% in 1996 to 11.7% in 1997 as a result of work performed on lower
margin contracts in 1997 as compared to 1996.

     Selling, general and administrative expenses increased by $8.3 million, or
110.9%, from $7.4 million in 1996 to $15.7 million in 1997.  The increase was
related almost entirely to SEG.  As a percentage of revenues, selling, general
and administrative expenses decreased from 16.8% in 1996 to 11.5% in 1997.  The
decrease is principally related to the acquisition of SEG which had lower
selling, general and administrative expenses as a percentage of revenues as
compared with the Company's other businesses.

     Interest income, net decreased by approximately $669,000 from 1996 to 1997.
The decrease was principally the result of lower average availability of excess
cash to invest in 1997 as compared to 1996 as a result of a major portion of
excess cash reserves being used to acquire SEG and for capital expenditures to
return the M-Area facility to radioactive operations.

     Income tax expense was $649,000 in 1996 as compared to $716,000 in 1997.
The effective tax rate in 1996 was reduced through the use of net operating loss
carryforwards.  The effective tax rate in 1997 was adversely impacted by state
income taxes on income in certain states which could not be offset by losses in
others and a valuation allowance established with respect to a portion of the
Company's decontamination and decommissioning accruals.

     The Company's proportionate share in the loss of its 50% owned joint
venture, Vitritek, decreased from $165,000 in 1996 to $150,000 in 1997.


Liquidity and capital resources

     During 1998, the Company used $6.2 million in cash flows for operating
activities.  Increases in amounts due from customers of $1.6  million and
declines in accounts payables, accrued liabilities and unearned revenues of
$15.1 million more than offset Company's income before non-cash charges of
approximately $12.0 million.

     During 1998, the Company used approximately $6.4 million in cash flows for
investing activities of which approximately $6.1 million was used for purchases
of plant and equipment. The investments in plant and equipment primarily
consisted of $3.2 million for improvements to the Bear Creek facility in Oak
Ridge, Tennessee and $1.6 million for improvements supporting the technical
services group.

     Cash flows used in operating and investing activities were funded by 
$11.5 million in cash from financing activities and $1.1 million of existing
cash resources. Cash flows from financing activities included 

                                       27

 
$10.9 million of short- term borrowings and $5.0 million in proceeds from the
exercise of stock options. During 1998, the Company also purchased 414,800
shares of treasury stock for $2.7 million.

     The Company has a backlog of orders of approximately $105.7 million at
December 31, 1998, of which approximately $81.2 million is expected to be
completed in 1999.

     In February 1999, the Company obtained a $60 million bank credit facility
which includes (i) a $35 million revolving line of credit, based on eligible
accounts receivable (as defined in the credit agreement), to fund working
capital requirements, (ii) a $20 million line of credit to finance acquisitions
or stock repurchases, and (iii) a $5 million line of credit to finance up to 75%
of new equipment purchases.  Substantially all of the Company's assets,
excluding real property and inventory, have been pledged as collateral.
Borrowings under the old credit facility were repaid from this credit facility.
Borrowings outstanding under the revolving line of credit bear interest at
either the bank's base rate, as defined, plus 1% (8.75% at December 31, 1998),
or the London Interbank Offered Rate (LIBOR) plus 2.25% (7.32% at December 31,
1998).  The interest rate is subject to adjustment after June 30, 1999,
depending upon the Company's ratio of debt to operating income.  In addition,
the Company's bank has also issued letters of credit in the aggregate amount of
$15.3 million to the State of Tennessee to provide security for SEG's obligation
to clean and remediate the Bear Creek facility upon its closure.  The new credit
facility has a five year term.  In connection with this new facility, the
Company has agreed to seek stockholder approval at its 1999 annual meeting of
stockholders to extend the mandatory redemption date of the outstanding
Convertible Preferred Stock beyond the maturity date of this new facility; if
this approval is not obtained, the credit facility converts to a three year
term.   At December 31, 1998, borrowings of $10,947,148 were outstanding under
the old credit facility. Based on borrowing criteria in the Company's new credit
facility the Company would have had additional borrowings of approximately 
$1.5 million to fund working capital needs at December 31, 1998.

     The Company believes cash flows from operations, cash resources at December
31, 1998 and, if necessary, borrowings available under the credit facility will
be sufficient to meet its operating needs, including the quarterly preferred
dividend requirement of $320,000 for at least the next twelve months.


New Accounting Pronouncements

     During 1999, the Company will adopt the provisions of Statements of
Financial Accounting Standards No. 133 Accounting for Derivative Instruments and
Hedging Activities. The Company does not expect that the new pronouncement will
have a material effect on the Company's financial condition or results of
operations.

Information Systems and the Impact of the Year 2000 Issue

     The Year 2000 issue results from a programming convention in which computer
programs use two digits rather than four to define the applicable year. The
inability of computer programs to recognize a year that begins with "20" could
result in system failures, miscalculations or errors causing disruptions of
operations or other business activities.

     GTS Duratek has undertaken a program to address the Year 2000 issue with
respect to (i) the Company's information systems, (ii) the Company's non-
information systems, and (iii) certain systems for the Company's major customers
and suppliers. As described below, the Company's Year 2000 program includes (i)
assessment of the problem, (ii) development of remedies, (iii) testing of such
remedies and (iv) the preparation of contingency plans to deal with the worst
case scenarios.

                                       28

 
     Information Systems -- The Company maintains information systems at each of
its operating divisions. Information systems at all of these locations have been
assessed. Information systems in Columbia, MD and Oak Ridge, TN have been
certified by the hardware and software manufacturers as Year 2000 compliant. The
Company is in the process of remediating information systems in San Leon, TX and
Pittsburgh, PA. The Company expects to have these systems remediated and tested
by June 1999.

     Non-Information Systems -- The Company has not completed its assessment of
the Year 2000 issue with respect to critical non-information systems. However,
management believes that such issues, if any, would be limited to its telephone
systems. The Company completed this assessment in December 1998. Remediation
required, if any, will be completed by June 1999. Programmable Logic Controller
(PLC) devices identified throughout the organization have been prioritized.
Replacement, remediation and contingency plans will be in place by October 1999.

     Customer and Supplier Systems -- The Company has begun informal discussions
with major customers and suppliers with respect to the Year 2000 issue. The
Company currently has limited electronic interfaces with customers and vendors
and, accordingly, is focused on its customer's and vendor's ability to operate
following January 1, 2000. The Company intends to make formal inquiries of its
key customers and suppliers during 1999 to complete this assessment and
establish contingency plans as necessary.

     Costs Related to the Year 2000 Issue -- To date the Company has incurred
less than $25,000 to remediate its Year 2000 information systems issues and
expects to incur an additional $150,000 to complete the remediation and testing
of the information systems. Costs to remediate the non-information systems are
expected to be approximately $250,000.

     Risk Related to the Year 2000 Issue -- Although the Company's Year 2000
efforts are intended to minimize the adverse effects of the Year 2000 issue on
the Company's operations, the actual effects of the issue cannot be known until
the Year 2000. Failure of the Company and its major customers and suppliers to
appropriately remediate the Year 2000 issue could have a material adverse effect
on the Company's financial condition and results of operations.

Forward Looking Information

     In response to the "safe harbor" provisions contained in the Private
Securities Litigation Reform Act of 1995, the Company is including in this
Annual Report on Form 10-K the following cautionary statements which are
intended to identify certain important factors that could cause the Company's
actual results to differ materially from those projected in forward-looking
statements of the Company made by or on behalf of the Company. Many of these
factors have been discussed in prior filings with the Securities and Exchange
Commission.

     The Company experienced significant growth in revenues during 1998,
primarily as a result of the acquisition of SEG in April 1997. The Company's
future operating results are largely dependent upon the Company's ability to
manage its commercial waste processing operations, which are formerly the
operations of SEG, including obtaining commercial waste processing contracts and
processing the waste under such contracts in a timely and cost-effective manner.
In addition, the Company's future operating results are dependent upon the
timing and awarding of contracts by the DOE for the cleanup of other waste sites
administered by it. The timing and award of such contracts by the DOE is
directly related to the response of governmental authorities to public concerns
over the treatment and disposal of radioactive, hazardous, mixed and other
wastes. The lessening of public concern in this area or other changes in the
political environment could adversely affect the availability and timing of
government funding for the cleanup of DOE and other sites containing radioactive
and mixed wastes. Additionally, revenues from technical support services have in

                                       29

 
the past and continue to account for a substantial portion of the Company's
revenues and loss of one or more technical support service contracts could
adversely affect the Company's future operating results.

     The Company's future operating results may fluctuate due to factors such
as: the timing of new commercial waste processing contracts and duration of and
amount of waste to be processed pursuant to those contracts; the acceptance and
implementation of the Company's waste treatment technologies in the government
and commercial sectors; the evaluation by the DOE and commercial customers of
the Company's technologies versus other competing technologies as well as
conventional storage and disposal alternatives; the timing of new government
waste processing projects, including those pursued jointly with BNFL, the
duration of such projects; and the timing of outage support projects and other
large technical support services projects at its customers' facilities.


Item 7A. Quantitative and Qualitative Information about Market Risk

The Company's major market risk is to changing interest rates. As of December
31, 1998, the Company had floating rate debt of $10.8 million under its bank
line of credit bearing interests at LIBOR plus 2.0% (7.07%). Average borrowings
under the Company's line of credit during 1998 were $7.1 million. The average
interest rate on such borrowings were 8.01%. As described above, in February
1999, the Company entered into a new bank credit facility. Under the terms of
such facility, the Company has the ability to reduce its borrowing costs by 50
basis points.

The Company has not purchased any interest rate derivative instruments but may
do so in the future. In addition, the Company does not have any foreign currency
or commodity market risk.

                                       30

 
Item 8. Financial Statements and Supplementary Data


                       GTS DURATEK, INC. AND SUBSIDIARIES
                                        
                               Table of Contents


 
                                                                  Page
                                                              
 
Independent Auditors' Report                                       32
 
Consolidated Balance Sheets at December 31, 1997 and 1998          33
 
Consolidated Statements of Operations for the years ended
 December 31, 1996, 1997 and 1998                                  35
 
Consolidated Statements of Stockholders' Equity for the years
 ended December 31, 1996, 1997 and 1998                            36
 
Consolidated Statements of Cash Flows for the years ended
 December 31, 1996, 1997 and 1998                                  37
 
Notes to Consolidated Financial Statements                         39


                                       31

 
                          Independent Auditors' Report
                                        

The Board of Directors and Stockholders
 GTS Duratek, Inc.:


We have audited the consolidated financial statements of GTS Duratek, Inc. and
subsidiaries as listed in the accompanying index. In connection with our audits
of the consolidated financial statements, we have also audited the consolidated
financial statement schedule listed under Item 14(a)(2). These consolidated
financial statements and financial statement schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedule based on our
audits.

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

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

                                                          KPMG LLP

Baltimore, Maryland
March 12, 1999

                                       32

 
                      GTS DURATEK, INC. AND SUBSIDIARIES

                          Consolidated Balance Sheets

                          December 31, 1997 and 1998


 
                                                                      1997               1998
                                                                --------------     --------------
                         ASSETS
                                                                              
Current assets:
 Cash and cash equivalents                                       $   7,026,249      $   5,944,274
 Receivables, less allowance for doubtful accounts of
  of $487,905 in 1997 and $571,441 in 1998                          28,912,271         35,350,150
 Prepaid expenses and other accounts receivable                      1,373,704          2,351,034
 Cost and estimated earnings in excess of billings
  on uncompleted contracts                                           9,072,828          4,254,591
 Prepaid expenses and other current assets                           1,667,938          3,676,937
 Deferred income taxes                                               1,525,286          1,006,066
                                                                --------------     --------------
    Total current assets                                            49,578,276         52,583,052

Property, plant and equipment, net                                  60,356,784         54,270,744
Investments in and advances to joint ventures, net                   6,362,526          4,131,406
Goodwill and other intangible assets, net                           13,877,802         13,658,521
Other assets                                                         2,122,793            804,933
Deferred income taxes                                                      --           3,085,976
                                                                --------------     --------------
                                                                $  132,298,181     $  128,534,632
                                                                ==============     ==============
          LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
 Short-term borrowings                                          $           --      $  10,947,148
 Accounts payable                                                   12,235,006         12,837,623
 Accrued expenses and other current liabilities                     12,042,413          5,856,300
 Unearned revenues                                                   8,256,541          3,380,477
 Waste processing and disposal liabilities                           8,681,102          4,202,561
                                                                --------------      -------------
    Total current liabilities                                       41,215,062         37,224,109

Convertible debentures                                              11,348,925         11,821,582
Facility and equipment decontamination and
 decommissioning liabilities                                         7,270,681          7,824,447
Other noncurrent liabilities                                           507,976          1,363,822
Deferred income taxes                                                  473,848                 --
                                                                --------------      -------------
    Total liabilities                                               60,816,492         58,233,960
                                                                --------------      -------------

8% Cumulative Convertible Redeemable Preferred Stock,
  $.01 par value; 160,000 shares authorized, issued and
  outstanding (liquidation value $16,320,000)                       15,052,355         15,279,085
                                                                --------------      -------------

                                                                                     (Continued)


                                       33

 
                      GTS DURATEK, INC. AND SUBSIDIARIES

                          Consolidated Balance Sheets

                          December 31, 1997 and 1998


                                                                         1997             1998
                                                                    --------------    -------------
                                                                                 
Stockholders' equity:
 Preferred stock - $.01 par value; authorized 4,840,000 shares;
  none issued                                                       $           --    $          --
 Common stock - $.01 par value; authorized 35,000,000
  shares; issued 12,879,057 in 1997 and 14,225,750 in 1998                 128,790          142,257
 Capital in excess of par value                                         67,278,739       72,513,024
 Accumulated deficit                                                   (10,806,418)     (14,742,524)
 Treasury stock at cost, 70,458 shares in 1997 and 485,258 shares
  in 1998                                                                 (171,777)      (2,891,170)
                                                                    --------------    -------------
        Total stockholders' equity                                      56,429,334       55,021,587
                                                                    --------------    -------------
Commitments and contingencies
                                                                    --------------    -------------
                                                                    $  132,298,181    $ 128,534,632
                                                                    ==============    =============

 
See accompanying notes to consolidated financial statements

                                       34

 
                      GTS DURATEK, INC. AND SUBSIDIARIES

                     Consolidated Statements of Operations

                 Years ended December 31, 1996, 1997 and 1998

 
 
                                                                     1996               1997                 1998
                                                                ---------------      ----------------      ----------------
                                                                                                   
Revenues                                                        $    44,284,618      $    136,552,821      $    160,313,077
Cost of revenues                                                     35,197,830           120,814,140           123,839,031
                                                                ---------------      ----------------      ----------------
    Gross profit                                                      9,086,788            15,738,681            36,474,046
Selling, general and administrative expenses                          7,455,069            15,724,895            26,613,548
Charge for asset impairment                                                  --                    --             9,223,948
                                                                ---------------      ----------------       ---------------
    Income from operations                                            1,631,719                13,786               636,550
Interest income (expense), net                                        1,239,667               570,795              (544,902)
                                                                ---------------      ----------------       ---------------
    Income before income taxes and proportionate                                                      
     share of losses of joint ventures                                2,871,386               584,581                91,648
Income taxes                                                            649,375               716,000               627,000
                                                                ---------------      ----------------       ---------------
                                                                                                      
    Income (loss) before proportionate share of                                                       
     losses of joint ventures                                         2,222,011              (131,419)             (535,352)
Proportionate share of losses of joint ventures                        (165,164)             (149,620)           (1,474,000)
                                                                ---------------      ----------------       ---------------
                                                                                                      
    Net income (loss) before cumulative effect                                                        
     of change in accounting principle                                2,056,847              (281,039)          (2,009,352)
Cumulative effect of change in accounting principle                                                               (420,000)
                                                                ---------------      ----------------       --------------
    Net income (loss) and comprehensive                                                               
     income (loss)                                                    2,056,847              (281,039)          (2,429,352)
Preferred stock dividends and charges for accretion                  (1,500,075)           (1,503,393)          (1,506,754)
                                                                ---------------      ----------------       --------------
    Net income (loss) attributable to common                                                          
     stockholders                                               $       556,772        $  (1,784,432)       $   (3,936,106)
                                                                ===============      ===============        ==============
                                                                                                      
Net income (loss) per share before cumulative effect                                                  
 of change in accounting principle:                                                                   
     Basic                                                      $          0.05      $         (0.14)     $         (0.27)
                                                                ===============      ===============      ===============
                                                                                                      
     Diluted                                                    $          0.04      $         (0.14)     $         (0.27)    
                                                                ===============      ===============      ===============
Net income (loss) per share:                                                                          
     Basic                                                      $          0.05      $         (0.14)     $         (0.30)   
                                                                ===============      ===============      ===============
     Diluted                                                    $          0.04      $         (0.14)     $         (0.30)   
                                                                ===============      ===============      ===============
 

See accompanying notes to consolidated financial statements.

                                       35

 
                      GTS DURATEK, INC. AND SUBSIDIARIES

                Consolidated Statements of Stockholders' Equity

                 Years ended December 31, 1996, 1997 and 1998

 
 
                                                                 
                                           Common stock            Capital in                                         Total stock 
                                   ----------------------------     excess of       Accumulated        Treasury         holders' 
                                      Shares          Amount        par value         deficit            stock           equity
                                   --------------  ------------  ---------------  ----------------  ---------------  -------------
                                                                                                    
Balance, December 31, 1995              9,475,878  $     94,758    $  18,912,751     $  (9,578,758)    $   (171,777)  $  9,256,974

Net income                                     --            --               --         2,056,847               --      2,056,847

Exercise of options and warrant           442,183         4,421        1,120,201                --               --      1,124,622

Income tax benefit from exercise
 of non-qualified stock options               --            --         1,036,040                --               --      1,036,040

Other issuances of common stock             1,170            12           19,338                --               --         19,350

Issuance of common stock
 for cash                               2,500,000        25,000       43,128,110                --               --     43,153,110

Preferred stock dividend and
 charges for accretion                         --            --               --        (1,500,075)              --     (1,500,075)
                                   --------------  ------------  ---------------  ----------------  ---------------  -------------
Balance, December 31, 1996             12,419,231       124,191       64,216,440        (9,021,986)        (171,777)    55,146,868

Net loss                                       --            --               --          (281,039)              --       (281,039)

Exercise of options and warrant           302,015         3,021        1,037,757               --                --      1,040,778

Income tax benefit from exercise
 of non-qualified stock options                --            --          827,000               --                --        827,000

Other issuances of common stock               825             8            6,489               --                --          6,497

Issuance of common stock in
 acquisition of The Scientific
 Ecology Group, Inc.                      156,986         1,570        1,191,053                --               --      1,192,623

Preferred stock dividend and
 charges for accretion                         --            --               --        (1,503,393)              --     (1,503,393)
                                   --------------  ------------  ---------------  ----------------  ---------------  -------------
Balance, December 31, 1997             12,879,057       128,790       67,278,739       (10,806,418)        (171,777)  $ 56,429,334

Net loss                                       --            --               --        (2,429,352)              --     (2,429,352)

Exercise of options and warrant         1,346,693        13,467        4,994,285                --               --      5,007,752

Income tax benefit from exercise
 of non-qualified stock options                --            --          240,000                --               --        240,000

Treasury stock purchases                       --            --               --                --       (2,719,393)    (2,719,393)

Preferred stock dividend and
 charges for accretion                         --            --               --        (1,506,754)              --     (1,506,754)
                                   --------------  ------------  ---------------  ----------------  ---------------  -------------
Balance, December 31, 1998             14,225,750  $    142,257  $    72,513,024  $    (14,742,524) $    (2,891,170)  $ 55,021,587
                                   ==============  ============  ===============  ================  ===============  =============
 
See accompanying notes to consolidated financial statements.

                                       36

 
 
 
                                                                     1996              1997              1998
                                                                ---------------   ---------------   ---------------
                                                                                            
Cash flows from operating activities:
 Net income (loss)                                              $     2,056,847   $      (281,039)  $     (2,429,352)
 Adjustments to reconcile net income (loss) to net
  cash provided by (used in) operating activities:
   Depreciation and amortization                                        826,613         3,721,239          4,798,933
   Accrued interest on convertible debenture                            595,966           666,028            472,657
   Proportionate share of losses of joint venture                       165,164           149,620          2,289,000
   Charge for asset impairment                                               --                --          9,223,948
   Cumulative effect of change in accounting
    principle                                                                --                --            688,879
   Deferred income tax benefit                                         (693,857)         (357,581)        (3,040,604)
   Income tax benefit from exercise of
    non-qualified stock options                                       1,036,040           827,000            240,000
   Changes in operating items, net of effects from
    businesses acquired in 1996 and 1997:
      Receivables                                                     1,528,795        (8,933,233)       (6,995,960)
      Costs and estimated earnings in excess of
       billings on uncompleted contracts                             (1,248,766)        1,811,372         4,818,237
      Prepaid expenses and other current assets                        (537,483)        1,074,154        (2,008,999)
      Accounts payable, accrued expenses and
       other current liabilities                                       (283,858)       (1,537,425)       (6,002,251)
      Unearned revenues                                                      --        (6,866,459)       (4,876,064)
      Waste processing and disposal liabilities                              --         3,026,900        (4,478,541)
      Facility and equipment decontamination
       and decommissioning liabilities                                       --         1,550,408           553,766
      Other                                                            (201,139)         (293,482)          592,490
                                                                ---------------   ---------------   ---------------
    Net cash provided by (used in) operating
     activities                                                       3,244,322        (5,442,498)       (6,153,861)
                                                                ---------------   ---------------   ---------------

Cash flows from investing activities:
 Additions to property, plant and equipment                          (7,438,862)      (10,995,723)       (6,137,279)
 Acquisitions of businesses, net of cash acquired                      (278,446)      (22,330,427)               --
 Advances to joint ventures                                          (2,067,070)         (551,162)          (57,880)
 (Advances to) repayments from employees, net                          (730,249)          322,701          (419,249)
 Other                                                                 (269,516)          (31,866)          191,179
                                                                ---------------   ---------------   ---------------
    Net cash used in investing activities                           (10,784,143)      (33,586,477)       (6,423,229)
                                                                ---------------   ---------------   ---------------
 
                                                                     (Continued)

                                       37

 
 
 
                                                                     1996              1997              1998
                                                                ---------------   ---------------   ---------------
                                                                                            
Cash flows from financing activities:
 Net proceeds from short-term borrowing                         $            --   $            --   $    10,947,148
 Reduction of long-term debt and capital lease
  obligation                                                           (537,143)          (48,177)         (135,392)
 Preferred stock dividends paid                                      (1,280,000)       (1,280,000)       (1,280,000)
 Proceeds from issuance of common stock                              44,297,082         1,047,275         5,007,752
 Treasury stock purchases                                                    --                --        (2,719,393)
 Deferred financing costs                                                    --                --          (325,000)
                                                                ---------------   ---------------   ---------------
    Net cash provided by (used in) financing
      activities                                                     42,479,939          (280,902)       11,495,115
                                                                ---------------   ---------------   ---------------
    Net change in cash and cash equivalents                          34,940,118       (39,309,877)       (1,081,975)

Cash and cash equivalents, beginning of year                         11,396,008        46,336,126         7,026,249
                                                                ---------------   ---------------   ---------------
Cash and cash equivalents, end of year                          $    46,336,126   $     7,026,249   $     5,944,274
                                                                ===============   ===============   ===============
 
See accompanying notes to consolidated fincial statements.

                                       38

 
                      GTS DURATEK, INC. AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements

                          December 31, 1997 and 1998


(1) Organization, Description of Business and Basis of Presentation

    GTS Duratek, Inc. (GTS or the Company) is an environmental services company
    that provides waste treatment solutions for radioactive, hazardous, mixed
    (i.e. intermingled radioactive and hazardous) and other wastes. The Company
    combines proprietary technologies for treating various waste streams with a
    staff of highly skilled personnel with significant environmental experience
    to offer its customers a comprehensive approach to their waste treatment
    needs that includes commercial waste processing services, government waste
    processing services and technical support services. The Company's 
    proprietary technologies include vitrification, incineration, compaction,
    metal decontamination and recycling, thermal desorption and ion exchange
    used independently or in tandem to process its customers waste for long-term
    storage and disposal. The Company has a staff of engineers, consultants and
    technicians who implement the Company's waste treatment technologies and
    provide highly specialized technical support services for its customers. The
    technical support services provided by the Company include site
    decontamination and decommissioning, radiological engineering services,
    staff augmentation and outage support to assist nuclear power plants during
    maintenance shutdowns and environmental and computer consulting and
    environmental safety and health training.


(2) Summary of Significant Accounting Policies and Practices

    (a)  Principles of Consolidation

         The consolidated financial statements include the accounts of the
         Company and its subsidiaries, all of which are wholly owned except for
         DuraTherm, Inc. which is 80% owned. All significant intercompany
         balances and transactions have been eliminated in consolidation.
         Investments in subsidiaries and joint ventures in which the Company
         does not have control or majority ownership are accounted for under the
         equity method.

    (b)  Cash and Cash Equivalents

         The Company considers all highly liquid investments with initial
         maturities of three months or less to be cash equivalents. Cash
         equivalents, consisting principally of overnight repurchase agreements,
         were $7,026,249 and $5,944,274 at December 31, 1997 and 1998,
         respectively.

    (c)  Property, Plant, and Equipment

         Property, plant and equipment are carried at cost. Replacements,
         maintenance and repairs which do not extend the lives of the assets are
         expensed as incurred. The Company provides for depreciation of
         property, plant, and equipment when such assets become operational,
         primarily on a straight-line basis over useful lives of three to ten
         years. Leasehold improvements are amortized over the shorter of the
         asset life or the term of the lease.

                                                                     (Continued)

                                       39

 
                      GTS DURATEK, INC. AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements

                          December 31, 1997 and 1998


    (d)  Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of

         The Company reviews long-lived assets and certain identifiable
         intangibles for impairment whenever events or changes in circumstances
         indicate that the carrying amount of an asset may not be recoverable.
         Recoverability of assets to be held and used is measured by a
         comparison of the carrying amount of an asset to future undiscounted
         net cash flows expected to be generated by the asset. If such assets
         are considered to be impaired, the impairment to be recognized is
         measured by the amount by which the carrying amount of assets exceed
         the fair value of the assets. Assets to be disposed of are reported at
         the lower of the carrying amount or fair value less costs to sell.

    (e)  Goodwill and Other Intangible Assets

         Goodwill is attributable to the acquisition of The Scientific Ecology
         Group, Inc. (SEG) during 1997 (see note 3), and is being amortized on a
         straight-line basis over a thirty-year period. Other intangibles
         consist principally of amounts assigned to covenants not-to-compete and
         costs incurred to obtain and maintain patents. Covenant and patent
         amounts are being amortized over ten and seventeen years, respectively,
         on a straight-line basis.

         The Company assesses the recoverability of goodwill by determining
         whether amortization of the goodwill balance over its remaining life
         can be recovered through undiscounted cash flows of the acquired
         entities. The amount of impairment, if any, is measured based on
         projected discounted cash flows using a discount rate reflecting the
         Company's average cost of funds. The assessment of the recoverability
         of goodwill will be impacted if estimated future operating cash flows
         are not achieved.

    (f)  Facility and Equipment Decontamination and Decommissioning

         The Company accrues decontamination and decommissioning (D&D) costs for
         facilities and equipment ratable over the period to the estimated 
         date of site closure (see note 12).

    (g)  Revenue Recognition

         Revenue from the Company's commercial waste processing facilities is
         recognized when waste is processed. Generally, the Company processes
         customer wastes under fixed-unit-price contracts which allow for
         additional billings for burial price increases occurring within a set
         period of time following the Company's receipt of the waste, or if the
         waste differs from contract specifications. The Company is responsible
         for placing processed waste in containers and in a form that meets
         disposal site criteria. The Company delivers reports to customers
         confirming that their waste has been processed and buried in accordance
         with the terms of its contracts. Upon completion of processing, the
         Company accrues for burial and secondary waste processing costs.
         Unearned revenues relate principally to progress billings for customer
         waste received and not yet processed.

                                                                     (Continued)

                                       40

 
                      GTS DURATEK, INC. AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements

                          December 31, 1997 and 1998



         Revenue from long-term waste treatment projects and technical support
         services is generated under fixed-price and time-and-materials
         contracts. Revenue from contracts is recognized on the percentage-of-
         completion method as costs are incurred and includes estimated fees at
         predetermined rates as measured by the cost-to-cost method. Contract
         costs includes all direct labor, material costs and the indirect costs
         related to contract performance. Differences between recorded costs,
         estimated earnings and final billings are recognized in the period in
         which they become determinable. Costs and estimated earnings in excess
         of billings on uncompleted contracts are recorded as assets. Billings
         in excess of costs and estimated earnings on uncompleted contracts are
         recorded as liabilities. Retainages, amounts subject to future
         negotiation and amounts related to claims are not material.

    (h)  Income Taxes

         Deferred tax assets and liabilities are recognized for the estimated
         future tax consequences of temporary differences between the financial
         reporting and tax bases of assets and liabilities based on enacted tax
         rates in effect when such amounts are expected to be realized based on
         consideration of available evidence, including tax planning strategies
         and other factors. The effects of changes in tax laws or rates on
         deferred tax assets and liabilities are recognized in the period that
         includes the enactment date.

    (i)  Start-Up Costs

         The Company's 45% owned subsidiary DuraChem capitalized certain costs
         of starting-up its processing facility in Barwell, South Carolina. In
         addition, the Company capitalized certain costs in developing employee
         records and documenting credentials for personnel in its technical
         services segment. In April 1998, the AICPA issued Statement of Position
         98-5 Reporting on Costs of Start-up Activities (SOP 98-5), which
         requires such costs be expensed as incurred. In the fourth quarter of
         1998, the Company and DuraChem adopted the provisions of SOP 98-5. The
         Company's proportionate share of the cumulative, after tax effect of
         DuraChem's adoption of SOP 98-5 of $1.3 million was recognized in the
         1998 consolidated statement of operations as a proportionate share of
         losses by joint ventures. The Company's cumulative, after tax effect of
         adoption of SOP 98-5 was $420,000. The adoption of SOP 98-5 reduced the
         Company's loss before proportionate share of losses by joint ventures
         by approximately $78,000, increased the net loss before cumulative
         effect of a change in accounting principle by approximately $1.2
         million, increased the net loss by approximately $1.6 million,
         increased the per share net loss attributable to common shareholders
         before cumulative effect of a change in accounting principle by $0.09
         per share and increased the per share net loss attributable to common
         shareholders by $0.12 per share. In accordance with the pronouncement,
         the Company and DuraChem adopted SOP 98-5 as of January 1, 1998,
         accordingly, the Company will restate its 1998 quarterly results with
         each of its 1999 quarterly fillings.

                                                                     (Continued)

                                       41

 
                      GTS DURATEK, INC. AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements

                          December 31, 1997 and 1998


    (j)  Stock Option Plan

         The Company accounts for stock options using the intrinsic value method
         prescribed by Accounting Principles Board ("APB") Opinion No. 25,
         Accounting for Stock Issued to Employees, and related interpretations,
         with proforma disclosures of net income (loss) and net income (loss)
         per share as if the fair value based method prescribed by Statement of
         Financial Accounting Standards ("SFAS") No. 123, Accounting for Stock-
         Based Compensation, had been used.

    (k)  Net Income Per Share

         Basic EPS is computed by dividing income available to common
         stockholders by the weighted-average number of common shares
         outstanding for the period. Weighted average shares used in computing
         basic EPS were 11,460,000, 12,619,000 and 13,137,000 for the years
         ended December 31, 1996, 1997 and 1998, respectively. Diluted EPS
         reflects the potential dilution that could occur if securities or other
         contracts to issue common stock were exercised or converted into common
         stock or resulted in the issuance of common stock that then shared in
         the earnings of the entity. Weighted average shares used in computing
         diluted EPS were 13,404,000, 12,619,000 and 13,137,000 for the years
         ended December 31, 1996, 1997 and 1998, respectively. The difference
         between basic and diluted weighted average shares relates to the
         dilutive effect of stock options and warrants where the exercise price
         is less than the average market value of the Company's common stock for
         the year of calculation. Conversion of the Company's convertible
         debentures and preferred stock is not included in the calculation of
         diluted EPS as such conversion is anti-dilutive.

    (l)  Fair Value of Financial Instruments

         The estimated fair value of financial instruments, including accounts
         receivable, accounts payable and long-term debt, approximate carrying
         values.

    (m)  Use of Estimates

         The preparation of financial statements in conformity with generally
         accepted accounting principles requires management to make estimates
         and judgments that affect the reported amounts of assets and
         liabilities and disclosures of contingencies at the date of the
         financial statements and revenues and expenses recognized during the
         reporting period. Actual results could differ significantly from those
         estimates.

         Significant estimates and judgments made by management include: (i) the
         recovery of investments in and advances to joint ventures (see note 6),
         (ii) the amount of waste processing and disposal liabilities (see note
         11) and (iii) the current cost to decommission and decontaminate the
         commercial waste processing facilities and equipment (see note 12).

                                                                     (Continued)

                                       42

 
                      GTS DURATEK, INC. AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements

                          December 31, 1997 and 1998


    (n)  Reclassifications

         Certain amounts for 1996 and 1997 have been reclassified to conform to
         the presentation for 1998.


(3) The Scientific Ecology Group, Inc. Acquisition

    On April 18, 1997, the Company acquired 100% of the outstanding capital
    stock of The Scientific Ecology Group, Inc. (SEG), since renamed GTS 
    Duratek-Bear Creek, Inc., from Westinghouse Electric Corporation for
    approximately $22.4 million in cash including transactions costs and 156,986
    shares of the Company's common stock. The Company paid the cash portion of
    the purchase price out of available cash. SEG, which is based in Oak Ridge,
    Tennessee, is the largest commercial radioactive waste processing Company in
    the United States, offering an extensive range of waste processing services
    and technologies including incineration, compaction and metal
    decontamination and recycling to commercial generators of radioactive
    wastes. SEG also provides site decontamination and decommissioning and other
    technical support services to clients including government facilities,
    commercial facilities and university/research/test facilities. In addition,
    SEG provides transportation services of radioactive wastes, maintaining a
    fleet of tractors, trailers and shipping containers for transporting
    radioactive wastes.

    The acquisition was effective as of April 1, 1997 and, accordingly, the
    Company's results of operations for the year ended December 31, 1997 reflect
    the operating results of SEG from such date. The Company has accounted for
    the transaction under the purchase method of accounting. The aggregate
    purchase price of $72.7 million, which includes liabilities assumed and
    transaction costs, exceeded the estimated fair value of SEG's tangible
    assets by approximately $13.9 million. Such amount has been allocated to
    intangible assets, principally goodwill, and is being amortized over 30
    years.

    The aggregate purchase price for SEG was as follows:

                                                                                            
   Cash purchase price                                                                            $     20,702,000
   Fair value of 156,986 shares of common stock at an estimated
     value of $7.60 per share                                                                            1,193,000
   Liabilities assumed                                                                                  49,145,573
   Transaction costs                                                                                     1,688,427
                                                                                                  ----------------
                                                                                                  $     72,729,000
                                                                                                  ================

   
                                                                     (Continued)

                                       43

 
                      GTS DURATEK, INC. AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements

                          December 31, 1997 and 1998



   The aggregate purchase price was allocated to acquired assets based upon
   their estimated fair values as follows:

                                                                                                 
Cash                                                                                                $           60,000
Accounts receivable                                                                                         12,665,000
Cost and estimated earnings in excess of billings on uncompleted contracts                                   1,928,000
Prepaid expenses and other assets                                                                            1,842,000
Property, plant and equipment                                                                               42,007,000
Goodwill and other intangible assets                                                                        13,924,000
Other assets                                                                                                   303,000
                                                                                                    ------------------
                                                                                                    $       72,729,000
                                                                                                    ==================



   Assuming the SEG acquisition had been consummated on January 1, 1997,
   revenues, net loss and net loss per share would have been $162,720,000,
   $12,188,000 and $0.97, respectively, for the year ended December 31, 1997.


(4) Other Accounts Receivable

    Other accounts receivable, at December 31, 1997, includes a loan of $314,426
    to one of the Company's executive officers. Other accounts receivable, at
    December 31, 1998, include loans of $465,000 and $275,000 to two of the
    Company's executive officers. The loans bear interest at market rates and
    are due by December 31, 1999.


(5) Property, Plant and Equipment

    Property, plant and equipment at December 31 consists of the following:



                                                                                1997                     1998
                                                                           ------------------     -------------------- 
                                                                                             
Land and land improvements                                                 $          560,000     $            560,000
Buildings                                                                          14,926,452               15,376,383
Machinery and equipment                                                            42,016,324               37,220,299
Leasehold improvements, furniture and fixtures                                      8,552,971               11,195,977
Construction in progress                                                            1,738,627                1,629,747
                                                                           ------------------     --------------------
                                                                                   67,794,374               65,982,406
                                                                                                
Less accumulated depreciation and amortization                                      7,437,590               11,711,662
                                                                           ------------------     --------------------
                                                                           $       60,356,784     $         54,270,744
                                                                           ==================     ====================

                                                                     (Continued)
   

                                       44

 
                         GTS DURATEK, INC. AND SUBSIDIARIES
   
                     Notes to Consolidated Financial Statements

                          December 31, 1997 and 1998


     Machinery and equipment, at December 31, 1997, included costs related to a
     waste processing facility constructed on United States Department of Energy
     (DOE) property in South Carolina by the Company that was placed in service
     in December 1997. During 1998, the Company recorded an asset impairment
     charge of $9.2 million with respect to the abandonment of this facility
     (see note 8).


(6)  Investments in and Advances to Joint Ventures

     The Company has investments in and advances to each of its 50% or less
     owned joint ventures. A description of each is as follows:

    (a)  DuraChem

         The Company and Chem-Nuclear Systems, Inc. (Chem-Nuclear), a subsidiary
         of WMX Technologies, Inc., have formed DuraChem to design, build and
         operate vitrification facilities to process commercial radioactive
         waste for disposal. Under the joint venture agreement, the Company
         contributes 45% of the facility construction costs and share
         proportionately in DuraChem's results of operations. Management of 
         Chem-Nuclear and the Company temporarily suspended construction of the
         project. The partners have agreed that the schedule for commencement of
         operations at the DuraChem facility will be determined in 1999. The
         Company's management anticipates commencement of the facility within
         the next two years, however, changes in market conditions or other
         factors could result in additional delays.

         The Company's investment in, and advances to, DuraChem at December 31,
         1997 and 1998 of $5,341,046 and $3,253,885, respectively, related to
         construction costs of the facility in Barnwell, South Carolina. For the
         year ended December 31, 1998, DuraChem's net loss of approximately
         $4,642,000 related entirely to the adoption of SOP 98-5 (see note 2).
         For the year ended December 31, 1998, the Company recognized its
         proportionate share of the loss in the consolidated statement of
         operations. After the adoption of SOP 98-5, DuraChem had total assets
         of $4,281,000 at December 31, 1998 consisting exclusively of fixed
         assets.

    (b)  Vitritek Environmental, Inc. ("Vitritek")

         Through Vitritek, the Company has extended its vitrification technology
         to non-radioactive hazardous waste such as asbestos, fly ash and
         medical waste. Vitritek is owned equally by the Company and Vitritek
         Holdings LLC. Formed in December 1993, Vitritek represents the
         consolidation of co-licensing rights to non-radioactive vitrification
         technologies previously acquired by the Company and Vitritek Holdings
         LLC. Under the terms of the joint venture arrangement, all funding
         requirements and all profits are shared equally.


                                                                     (Continued)

                                       45

 
                      GTS DURATEK, INC. AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements

                          December 31, 1997 and 1998


         The Company's investment in, and advance to, Vitritek at December 31,
         1997 and 1998, were $1,021,480 and $877,521, respectively. For the
         years ended December 31, 1996, 1997 and 1998, Vitritek had net losses
         of $680,327, $649,240, and $750,000, respectively. For the years ended
         December 31, 1996, 1997 and 1998, the Company recognized its
         proportionate share of the loss in the consolidated statements of
         operations after intercompany eliminations. Vitritek had fixed assets
         and total assets of $876,242 and $1,651,242, respectively, at December
         31, 1998.

(7)  Goodwill and Other Intangible Assets

     Goodwill and other intangible assets at December 31 consist of the 
     following:


                                                                                   1997                1998
                                                                            ----------------     ---------------
                                                                                           
Goodwill                                                                    $     13,806,000     $    13,924,000
Other intangible assets                                                            1,285,849           1,540,735
                                                                            ----------------     ---------------
                                                                                  15,091,849          15,464,735
                                                                                                 
Less accumulated amortization                                                      1,214,047            1,806,214
                                                                            ----------------     ----------------
                                                                            $     13,877,802     $     13,658,521
                                                                            ================     ================

(8) DOE Savannah River M-Area Project

    In November 1993, the Company received a contract to process 90,000 cubic
    feet of low-level mixed waste sludge stored at the DOE's Savannah River site
    in Aiken, South Carolina. To meet its obligations under the contract, the
    Company constructed a glass melter and began processing waste in October
    1996. In March 1997, the Company decided to temporarily suspend processing
    of radioactive waste and initiate an unscheduled controlled cool down of its
    glass melter at its M-Area processing plant located at the DOE's Savannah
    River site. After an extensive inspection of the condition of the melter at
    the Savannah River site, the Company's management made the decision to
    undertake more extensive repairs and modification of the facility, including
    melter box replacement, before resumption of radioactive waste processing.
    The modifications were made so that the Company could more efficiently meet
    is obligations under an existing contact as well as prepare the facility for
    additional waste streams. The M-Area facility resumed radioactive waste
    processing operations during the fourth quarter of 1997. As a result of the
    necessary repairs and the delay in completing the waste processing required
    by the contract, the Company recorded losses of $7.2 million on the M-Area
    contract in 1997 which included the estimated costs of repairs to the melter
    and for the estimated losses to complete the fixed price contract. During
    the fourth quarter of 1998, the Company recorded a $1.8 million charge for
    additional costs to be incurred to complete and close out the contract.


                                                                     (Continued)

                                       46

 
                      GTS DURATEK, INC. AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements

                          December 31, 1997 and 1998

     At the time of modifying the glass melter and throughout 1998, the
     Company's believed, based on discussion with DOE and Savannah River
     officials, that contracts for processing additional waste streams would be
     awarded to the Company. Since completion of the existing contract, the
     Company requested that additional waste streams be awarded, however, as a
     result of a change in the site's waste treatment priorities, management
     believes the award of future contracts is unlikely. Accordingly, in the
     fourth quarter 1998, the Company recorded an asset impairment charge of
     $9.2 million related to the carrying value of the glass melter which will
     be abandoned.


(9)  Short-Term Borrowings

     In February 1999, the Company obtained a $60 million bank credit facility
     which includes (i) a $35 million revolving line of credit, based on
     eligible accounts receivable (as defined in the credit agreement), to fund
     working capital requirements, (ii) a $20 million line of credit to finance
     acquisitions or stock purchases, and (iii) a $5 million line of credit to
     finance up to 75% of new equipment purchases. Substantially all of the
     Company's assets, excluding real property and inventory, have been pledged
     as collateral. Borrowings under the old credit facility were repaid with
     proceeds from this credit facility. Borrowings outstanding under the
     revolving line of credit bear interest at either the bank's base rate, as
     defined, plus 1% (8.75% at December 31, 1998) or the London Interbank
     Offered Rate (LIBOR) rate plus 2.25% (7.32% at December 31, 1998). The
     interest rate is subject to adjustment after June 30, 1999, depending upon
     the Company's ratio of debt to operating income. In addition, the Company's
     bank has also issued letters of credit in the aggregate amount of $15.3
     million to the State of Tennessee to provide security for SEG's obligation
     to clean and remediate SEG's facility upon its closure. The new credit
     facility has a five year term. At December 31, 1998, $10,947,148 million in
     borrowings were outstanding under the old credit facility. Based on
     borrowing criteria in the Company's new credit facility the Company would
     have had available additional borrowings of approximately $1.5 million to
     fund working capital needs at December 31, 1998.

     The Company paid interest expense of $62,890, $8,701 and $443,962 during
     the years ended December 31, 1996, 1997 and 1998, respectively.


(10) Accrued Expenses and Other Current Liabilities

     Accrued expenses and other current liabilities at December 31 consist of
     the following:



                                                                1997                       1998
                                                      -----------------------    -----------------------
                                                                            
Salaries and related expenses                         $             3,189,709     $            2,134,585
Preferred stock dividend payable                                      320,000                    320,000
Income taxes payable                                                  735,516                  1,965,319
Other accrued expenses                                              7,797,188                  1,436,396
                                                      -----------------------     ----------------------
                                                      $            12,042,413     $            5,856,300
                                                      =======================     ======================

                                                                     (Continued)

                                       47

 
                      GTS DURATEK, INC. AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements

                          December 31, 1997 and 1998

(11) Waste Processing and Disposal Liabilities

     During customer waste processing at the Company's Oak Ridge, Tennessee
     facility, the Company creates waste by-products (secondary waste) which
     become the Company's responsibility to process and send to burial.
     Management evaluates the content of this waste and accrues the estimated
     costs of processing and disposal based on anticipated processing methods
     and current disposal sites and rates. The ultimate cost of processing and
     disposal, however, will depend on the actual contamination of the waste,
     the amount of processing, volume reduction and disposal density. At
     December 31, 1997 and 1998, the Company has accrued $6,212,900 and
     $1,801,762 related to such waste, respectively.

     In addition, the Company has accrued $2,468,202 and $2,400,799 for
     processed customer waste awaiting burial at December 31, 1997 and 1998,
     respectively. The Company ships a significant portion of waste to
     Envirocare of Utah, Inc. (Envirocare), at a cost significantly lower than
     waste shipped to the burial site in Barnwell, South Carolina. The
     accompanying consolidated financial statements reflect various accruals and
     estimates assuming Envirocare continues to be a viable disposal site at
     rates presently in effect. If Envirocare's licenses are not renewed or at
     some future date if Envirocare's rate structure were to change
     significantly, the Company's costs to dispose of waste would likely
     increase. Management has not determined the impact, if any, either of these
     scenarios would have on the Company's liabilities or future operating
     costs.


(12) Facility and Equipment Decontamination and Decommissioning (D&D)

     The Company has estimated the current costs to decontaminate and
     decommission (D&D) its commercial waste processing facilities and equipment
     to be approximately $17.9 million. Based on the current market and
     projections for the demand for future waste processing, the Company
     estimates it will operate at its Tennessee and Texas sites for at least the
     next 29 years. Accordingly, the Company is accruing the expected D&D costs
     plus an amount for inflation over such period. Management is unable to
     estimate the effects of changes in technology, future increases in burial
     rates and the timing of D&D activities on the estimated D&D costs.
     Uncertainties related to any of these factors could have a significant
     impact on the Company's estimated D&D costs. Management updates the D&D
     estimates on an annual basis. During the years ended December 31, 1997 and
     1998, the Company accrued D&D costs of $1,550,000 and $473,000,
     respectively.

     The Company has issued $15.3 million of letters of credit to the State of
     Tennessee to provide security for the Company's obligation to clean and
     remediate SEG's facilities upon closure and has funded with cash $328,000
     of a $575,000 bond required by the State of Texas with respect to its San
     Leon, Texas desorption facility.
  
                                                                     (Continued)

                                       48

 
                       GTS DURATEK, INC. AND SUBSIDIARIES
 
                   Notes to Consolidated Financial Statements
 
                           December 31, 1997 and 1998
 
(13) Convertible Debenture

     In 1995, the Company and BNFL, Inc. (BNFL) entered into a strategic
     alliance agreement. BNFL is the U.S. subsidiary of BNFL plc, a United
     Kingdom-based company experienced in processing and stabilizing high level
     radioactive waste. Under the terms of the strategic alliance, the Company
     and BNFL have agreed to jointly pursue up to five major DOE waste
     stabilization projects. The terms of the strategic alliance provide that
     BNFL pay the Company a teaming fee of $1 million each time the two
     companies agree to exclusively pursue together a DOE waste stabilization
     project. During 1995, the Company received one teaming fee and during 1996,
     the Company received two teaming fees for its agreement to pursue DOE waste
     treatment projects. No fees were received by the Company in 1997 or 1998.
     During 1996, the team of BNFL and the Company were awarded Phase I
     contracts at the DOE's Hanford and Idaho facilities.

     As part of the strategic alliance, BNFL agreed to provide the Company with
     research and development funding of approximately $500,000 per year over
     the next five years. For the years ended December 31, 1997 and 1998, BNFL
     provided research and development funding of $251,000 and $530,000,
     respectively. In addition, the Company earned approximately $4.5 million
     during 1998 as a result of work performed on the Hanford Tank Waste
     Remediation System contract awarded by BNFL to build and operate a pilot
     melter at the Company's Columbia, Maryland headquarters.

     In November 1995, in connection with the formation of the strategic
     alliance, the Company received proceeds of $9,830,280, net of debt issue
     costs, from the issuance of a $10 million convertible debenture to BNFL.
     The debenture accrues interest during the first five years at the one-year
     London Interbank Offered Rate (LIBOR). The debenture and the accrued
     interest are convertible into 1,381,575 shares of the Company's common
     stock on or before November 7, 2000. The debenture is to be repaid in
     annual installments over a five-year period commencing on November 8, 2000.
     The conversion and repayment dates can be extended under certain
     circumstances. At December 31, 1997 and 1998, the balance due BNFL of
     $11,348,925 and $11,821,582 included accrued interest of $1,348,925 and
     $1,821,582, respectively.

     The estimated fair value of the convertible debentures at December 31, 1998
     approximated its carrying value.


(14) 8% Cumulative Convertible Redeemable Preferred Stock

     In January 1995, the Company issued for $16 million, 160,000 shares of 8%
     Cumulative Convertible Redeemable Preferred Stock, par value $.01 per share
     (the "Convertible Preferred Stock") and an option (the "Carlyle Option") to
     purchase up to an additional 1.25 million shares of the Company's common
     stock, at any time prior to January 24, 1999 for $3.75 per share to
     investment partnerships sponsored and controlled by The Carlyle Group
     ("Carlyle"). During 1998, Carlyle exercised its option to purchase
     1,206,809 shares for $4,525,534. The Convertible Preferred Stock is
     initially convertible into the Company's common stock at a conversion price
     of $3 per share and, if not previously converted, the Company is required
     to redeem the outstanding Convertible Preferred Stock on

                                                                     (Continued)

                                        49

 
                      GTS DURATEK, INC. AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements

                          December 31, 1997 and 1998



     January 24, 2002 for $100 per share plus accrued and unpaid dividends. The
     Company is required to pay quarterly dividends on the Convertible Preferred
     Stock of $320,000.

     The proceeds, net of offering expenses of $1,309,974, from the issuance of
     the Convertible Preferred Stock and Carlyle Option were $14,690,026, of
     which $14,410,026 was allocated to the Convertible Preferred Stock and
     $280,000 was allocated to the fair value of the Carlyle Option. The
     difference between the carrying value of the Convertible Preferred Stock
     and the redemption value is being accreted through charges to stockholders'
     equity over a six-year period to January 24, 2002.

     The estimated fair value of the Convertible Preferred Stock at December 31,
     1998 was approximately $20.2 million.


(15) Stockholders' Equity

     In April 1996, the Company completed the sale of 2,500,000 shares of common
     stock resulting in proceeds of $43,153,110, net of transaction costs.

     During the years ended December 31, 1996, 1997 and 1998, the Company
     received compensation deductions, for income tax purposes, upon exercise of
     non-qualified stock options by employees. The benefits of such deductions,
     which are included in stockholders' equity, were $1,036,040, $827,000 and
     $240,000 for the years ended December 31, 1996, 1997 and 1998,
     respectively.

     During 1998, the Company repurchased 414,800 shares of its common stock.
     The repurchased shares are reflected as treasury stock in the consolidated
     balance sheet.


(16) Stock Option Plans and Warrants

     The Company has a non-qualified Stock Option Plan (the "Plan") which
     authorizes a committee of the Board of Directors to grant options to
     purchase shares of the Company's common stock to directors, officers and
     employees of the Company. The exercise price of such options may not be
     less than 85% of the fair market value of the common stock on the date of
     grant and the exercise period may not be more than ten years after such
     date.

     At December 31,1998, there were 614,900 additional shares available for
     grant under the Plan. The per share weighted-average fair value of stock
     options granted during 1996, 1997 and 1998 were $7.13, $5.92 and $5.22,
     respectively, on the date of grant using the Black Scholes option-pricing
     model with the following weighted-average assumptions: expected dividend
     yield 0%, risk-fee interest rate of 6.6%, expected volatility of 73.0%
     (69.4% in 1997 and 56% in 1996), and an expected life of four years.

     The Company applies APB Opinion No. 25 in accounting for its Plan and,
     accordingly, no compensation cost has been recognized for its stock options
     in the financial statements. Had the

                                                                     (Continued)

                                      50
 


 
                      GTS DURATEK, INC. AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements

                          December 31, 1997 and 1998

   Company determined compensation cost based on the fair value at the grant
   date for its stock options under SFAS No. 123, the Company's net income
   (loss) attributable to common stockholders and net income (loss) per share on
   a diluted basis, would have been $259,000 and $0.02, ($2,524,000) and ($0.20)
   and ($4,208,000) and ($0.32) for the years ended December 31, 1996, 1997 and
   1998, respectively.

   Pro forma results reflect only options granted since January 1995. Therefore,
   the full impact of calculating compensation cost for stock options under SFAS
   No. 123 is not reflected in the pro forma net income amounts presented above
   because compensation cost is reflected over the options' vesting period of
   five years and compensation cost for options granted prior to January 1, 1995
   is not considered.

   Changes in options and warrants outstanding, options and warrants exercisable
   and shares reserved for issuance are as follows:




                                                               Weighted 
                                                                average
                                                               exercise          Number of
                                                                 price            shares
                                                            -------------      ------------
                                                                         
December 31, 1995                                           $      3.26          3,194,798
Granted                                                           12.59             77,000
Exercised                                                          2.54           (442,183)
Terminated                                                         1.50             (2,900)
                                                            -----------        -----------
December 31, 1996                                           $      3.74          2,826,715
Granted                                                           10.46            144,500
Exercised                                                          3.45           (302,015)
                                                            -----------        -----------
December 31, 1997                                                  4.15          2,669,200
Granted                                                            8.78            167,000     
Exercised                                                          3.72         (1,346,693)
                                                            -----------        -----------
December 31, 1998                                           $      5.06          1,489,507
                                                            ===========        ===========  


                                                                     (Continued)

                                       51 


 
                      GTS DURATEK, INC. AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements

                          December 31, 1997 and 1998


   At December 31, 1998, the Company has reserved 8,819,315 shares for issuance
   of options, warrants and securities convertible into the Company's common
   stock. The following table summarizes information about outstanding and
   exercisable options and warrants at December 31, 1998:




                                 Outstanding                                                         Exercisable
- ---------------------------------------------------------------------------------    -----------------------------------------
                                                   Weighted
                                                   average            Weighted                                     Weighted
     Range of                                     remaining           average                                      average
     exercise                 Number             contractual          exercise               Number                exercise
      price                 outstanding              life              price               exercisable              price
- ------------------    ---------------------    --------------    ----------------    ---------------------    ----------------
                                                                                               
   1.00 - $  1.50              18,000              0.5 years     $      1.03                   18,000  $             1.03
   2.34                       233,000              1.0 years            2.34                  233,000                2.34
   2.97 - $  3.75             850,207              0.8 years            3.54                  850,207                3.54
   5.50                        60,000              5.0 years            5.50                       --                  --
  10.13 - $ 10.63             251,300              3.9 years           10.53                   36,075               10.46
  12.75 - $ 13.75              77,000              2.0 years           12.91                   38,500               12.91
                           ----------                                                     -----------
                            1,489,507                                                       1,175,782
                           ==========                                                     ===========


(17)    Income Taxes
 
        The provision (benefit) for income taxes for the years ended December 31
consist of the following:
                



                                        1996            1997            1998
                                  --------------    ------------    ------------
                                                           
Current:                                          
  State                           $      182,826    $    400,000    $    741,945
  Federal                              1,160,406         673,581       1,841,780
                                  --------------    ------------    ------------
                                                  
                                       1,343,232       1,073,581       2,583,725
                                  --------------    ------------    ------------
                                                  
Deferred:                                         
  State                                  (88,956)        (53,637)       (339,808)                              
  Federal                               (604,901)       (303,944)     (2,700,796)
                                 ---------------   -------------    ------------
                                        (693,857)       (357,581)     (3,040,604)
                                 ---------------   -------------    ------------          
                                 $       649,375   $     716,000    $   (456,879)
                                 ===============   =============    ============


                                       52 


 
                      GTS DURATEK, INC. AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements

                          December 31, 1997 and 1998


   The provision (benefit) for the years ended December 31 is allocated as
   follows:



                                                                  1996           1997           1998
                                                               ----------     ----------     -----------
                                                                                     
   Continuing operations                                      $   649,375     $  716,000     $   627,000
   Proportionate share of losses of joint ventures                     --             --        (815,000)
   Cumulative effect of change in accounting principle                 --             --        (268,879)
                                                              -----------     ----------     -----------
                                                              $   649,375     $  716,000     $  (456,879)
                                                              ===========     ==========     ===========

   The provision for income taxes for the years ended December 31, 1996, 1997,
   and 1998 is reconciled to the amount computed by applying the statutory
   Federal income tax rate of 34% to income before income taxes and
   proportionate share of losses of joint ventures as follows:



                                                                  1996               1997               1998
                                                         ---------------     ---------------    ----------------
                                                                                          
Federal income tax at statutory rate                     $       976,000     $      199,000     $        31,000
State income taxes, net of Federal tax benefit                    61,954            228,599             405,000
Use of net operating loss carryforwards                         (388,579)                --                  --
Valuation allowance                                                   --            269,000             356,000
Other                                                                 --             19,401            (165,000)
                                                           -------------      -------------     ---------------
                                                         $       649,375     $      716,000     $       627,000
                                                           =============      =============     ===============


   The tax effects of temporary differences that give rise to significant
   portions of the deferred tax assets and liabilities at December 31 consist of
   the following:


                                                                        1997                  1998
                                                                  ----------------     ------------------
                                                                                 
Allowance for doubtful accounts                                   $         59,668     $        222,878
Capitalized inventory costs                                                 56,410               56,414
Accelerated depreciation                                                  (564,386)          (2,813,796)
Reserve for contract loss                                                  507,000              344,395
Charge for asset impairment                                                     --            3,597,598
Write-off of start-up costs                                                     --              394,954
Loss of joint venture                                                           --              815,000
Facility and equipment decontamination and                                                 
    decommissioning liabilities                                            604,659              963,405
Net operating loss carryforwards                                           766,128                   --
Alternative minimum tax                                                    126,980            1,419,042
Other                                                                     (236,021)            (282,848)
                                                                  ----------------     ----------------
                                                                         1,320,438            4,717,042
                                                                                           
Less valuation allowance                                                   269,000              625,000
                                                                  ----------------     ----------------
                                                                  $      1,051,438     $      4,092,042
                                                                  ================     ================

                                                                     (Continued)

                                       53 


 
                      GTS DURATEK, INC. AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements

                          December 31, 1997 and 1998




     In assessing the realizability of deferred tax assets, management
     considered whether it was more likely than not that some portion or all of
     the deferred tax assets will be realized. The ultimate realization of the
     deferred tax assets is dependent upon the generation of future taxable
     income during periods in which temporary differences become deductible.
     Management considered income taxes paid during the previous three years and
     projected future taxable income in making this assessment. Based upon the
     level of historical taxable income and projections for future taxable
     income over the periods in which the temporary differences are deductible,
     management has deemed a valuation allowance of $625,000 is necessary at
     December 31, 1998.

     The Company paid income taxes of $551,089, $334,067 and $427,550 in the
     years ended December 31, 1996, 1997 and 1998.


(18) Profit Investment and Deferred Compensation Plans

     The Company maintains a Profit Investment Plan for employees who have
     completed one year of service with the Company. The Plan permits pre-tax
     contributions to the Plan by participants pursuant to Section 401(k) of the
     Internal Revenue Code of 1% to 14% of base compensation. The Company
     matches 25% of the participants' eligible contributions based on a formula
     set forth in the Plan and may make additional matching contributions.
     Employer contributions vest at a rate of 20% per year of service. The
     Company's matching contributions were $102,000, $466,485 and $466,495 for
     the years ended December 31, 1996, 1997 and 1998, respectively.


(19) Segment Reporting

     The Company has three primary segments (i) commercial waste processing,
     (ii) government waste processing and (iii) technical services. Below is a
     brief description of each of the segments:

       1. Commercial Waste Processing (CWP) -- The Company conducts its
          commercial waste processing operations principally at its Bear Creek
          Operations Facility located in Oak Ridge, TN. The Company's waste
          treatment technologies include: incineration; compaction; metal
          decontamination and recycling; vitrification; steam reforming; thermal
          desorption; and ion exchange. Commercial waste processing customers
          primarily include commercial nuclear utilities and petrochemical
          companies.

       2. Government Waste Processing (GWP) -- The Company provides on-site
          waste processing services on large government projects for the DOE.
          The on-site waste processing services provided by the Company on DOE
          projects include program development, waste characterization, on-site
          waste treatment, facility operation, packaging and shipping of
          residual waste, profiling and manifesting the processed waste and
          selected technical support services. The Company is currently involved
          in several waste treatment projects for the DOE including: Hanford
          Tank Waste Remediation System project, Idaho Advanced Mixed Waste
          Treatment Project and Rocky Mountain Remediation Services Project.

                                                                     (Continued)

                                       54 


 
                      GTS DURATEK, INC. AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements

                          December 31, 1997 and 1998


       3. Technical Services (TS) -- The Company's technical support services
          encompass approximately 500 employees, consultants and technicians,
          some of whom are full-time employees and the balance of whom are
          contract employees, who support and complement the Company's
          commercial and government waste processing operations and also
          provides highly specialized technical support services for the
          Company's customers. The Company provides these technical support
          services either as a prime contractor or as a subcontractor to a
          diverse group of government agencies, electric utilities, industrial
          facilities and commercial businesses including Duke Power Company,
          Southern Nuclear Operating Company and Vermont Yankee Nuclear Power
          Corporation.

   The accounting policies of the operating divisions are the same as those
   described in the summary of significant accounting policies. The Company's
   segment information is as follows:

 
 
                                                                    1998
                                -----------------------------------------------------------------------------
                                                                                 UNALLOCATED
                                      CWP            GWP              TS            ITEMS       CONSOLIDATED
                                -------------   -------------   -------------   ------------   --------------
                                                                                           
Revenues from external   
  customers                      $ 73,019,423    $ 31,644,340    $ 55,649,314    $        --    $ 160,313,077
Income (loss) from operations       8,147,733      (8,140,543)        629,360             --          636,550
Interest income                            --              --              --        371,717          371,717
Interest expense                           --              --              --       (916,619)        (916,619)
Depreciation and
  amortization
  expense                           3,940,692         286,206         572,035             --        4,798,933
Proportionate share of
  losses of joint
  ventures                                 --              --              --     (1,474,000)      (1,474,000)
Income tax expense                         --              --              --        627,000          627,000 
Investments in and
  advances to joint
  ventures                                 --              --              --      4,131,406        4,131,406
Capital expenditure for
  additions to
  long-lived assets                 3,373,311         487,047       1,611,394        665,527        6,137,279
Total assets                       71,077,591      21,731,656      16,191,189     19,534,196      128,534,632
 
 

                                       55 


 
                      GTS DURATEK, INC. AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements

                          December 31, 1997 and 1998

 
 
                                                                    1997
                                -----------------------------------------------------------------------------
                                                                                 UNALLOCATED
                                      CWP            GWP              TS            ITEMS       CONSOLIDATED
                                -------------   -------------   -------------   ------------   --------------
                                                                                           
Revenues from external   
  customers                      $ 67,675,574    $ 16,051,707    $ 52,825,540    $        --    $ 136,552,821
Income (loss) from operations       4,154,479      (6,310,587)      2,169,894             --           13,786
Interest income                            --              --              --      1,245,875        1,245,875
Interest expense                           --              --              --       (675,080)        (675,080)
Depreciation and
  amortization
  expense                           2,974,682         402,638         343,919             --        3,721,239
Proportionate share of
  losses of joint
  ventures                                 --              --              --       (149,620)        (149,620)
Income tax expense                         --              --              --        716,000          716,000   
Investments in and
  advances to joint
  ventures                                 --              --              --      6,362,526        6,362,526
Capital expenditure for
  additions to
  long-lived assets                 5,216,493       4,803,503         633,517        342,210       10,995,723
Total assets                       69,494,873      17,456,086      26,778,335     18,568,887      132,298,181
 

   With the acquisition of SEG, the Company changed the groupings of its
   operating businesses. Accordingly, information for the year ended 
   December 31, 1996 in the manner presented above is not available.

   The Company's revenues are derived primarily from utilities and through
   subcontracts from a combination of DOE contractors and subcontractors. In
   1996, two customers comprised 28% and 12% of the Company's annual revenues.
   In 1997, one customer comprised 12% of the Company's annual revenue. During
   1998, no customer comprised more than 10% of the Company's annual revenues.

   Accounts receivable and costs and estimated earnings in excess of billing on
   uncompleted contracts relating to DOE contractors and subcontractors amounted
   to $5,350,245 and $9,692,568 at December 31, 1997 and $15,429,393 and
   $3,055,158 at December 31, 1998, respectively. The Company estimates an
   allowance for doubtful accounts based on the credit worthiness of its
   customers as well as general economic conditions. Consequently, an adverse
   change in those factors could affect the Company's estimate of its bad debts.

                                                                     (Continued)

                                       56 


 
                      GTS DURATEK, INC. AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements

                          December 31, 1997 and 1998



(20) Commitments and Contingencies

     (a)  Royalty Agreements

          The Company has entered into an exclusive licensing agreement with the
          inventors of the vitrification technology, pursuant to which the
          inventors have granted to the Company the exclusive license and rights
          to all vitrification technology and process patents which they
          develop. The exclusive license agreement expires 17 years after the
          last licensed patent is granted, which at this time will be in 2012.
          The agreement provides for a guaranteed minimum royalty of $100,000
          per year throughout the term of the agreement. During 1996, the
          Company was obligated to make payments of 1% to 3% of net sales
          values, as defined. Royalty expense was $100,000, $100,000 and
          $141,000 for the years ended December 31, 1996, 1997 and 1998,
          respectively.

          The Company also licenses the rights to the thermal desorption
          technology used in the processing of petrochemical waste by DuraTherm
          from the inventor of such technology. The Company and DuraTherm are 
          co-licensees under the license agreement and are collectively 
          obligated to pay to the inventor of the technology an annual royalty
          payment equal to the greater of (i) $50,000 or (ii) 1% of the net
          revenues generated from the operation of the desorber equipment
          (excluding net revenues generated from equipment acquired in the
          DuraTherm acquisition) incorporating the technology and 5% of the
          sales of any such equipment. No royalty expense was earned for the
          year ended December 31, 1996. Royalty expense was $50,000 for each of
          the years ended December 31, 1997 and 1998.

     (b)  Leases

          The Company has several noncancellable leases which cover real
          property, machinery and equipment and certain manufacturing
          facilities. Such leases expire at various dates with, in some cases,
          options to extend their terms. Several of the leases contain
          provisions for rent escalation based primarily on increases in real
          estate taxes and through operating costs incurred by the lessor. Rent
          expense approximated $292,000, $2,317,000 and $1,978,000 for the years
          ended December 31, 1996, 1997 and 1998, respectively.

                                       57 


 
                      GTS DURATEK, INC. AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements

                          December 31, 1997 and 1998


       The following is a schedule of future minimum annual lease payments for
       all long-term operating leases for the year ending December 31, 1998:

                                                                      
         1999                                          $    1,569,000      $      407,329
         2000                                                 950,000             312,554
         2001                                                 661,000             290,268
         2002                                                 476,000             290,268
         2003                                                 475,000             135,981
         Thereafter                                         1,424,000                  --
                                                                            -------------
Future minimum lease payments                                                   1,436,400
Less portion representing interest                                                156,377
Less current portion of capital lease obligation                                  357,329
                                                                           --------------
Long-term portion of capital lease 
  obligation                                                               $      922,694   
                                                                           ==============      
 



          During 1998, the Company entered into several new capital lease
          obligations valued at $1,207,395.
          
     (c)  Legal Proceedings

          On February 3, 1998, the Company's wholly owned subsidiary, SEG, and
          one of SEG's former executives, were sued in federal district court in
          Boston, Massachusetts. The suit alleges that statements made in press
          releases by Molten Metals Technology, Inc. ("MMT") were fraudulent and
          misleading under federal securities laws and state common law fraud
          theories. The defendants moved to dismiss the complaint, the
          plaintiffs chose to amend their pleadings, and the defendants moved to
          dismiss the amended complaint. At the present time the Company is
          unable to express a view on the probable ultimate outcome of the
          litigation. In addition, the Company may have rights of indemnity
          against CBS Corporation ("CBS"), the successor to Westinghouse
          Electric Corporation which was the parent of SEG at the time the
          allegedly misleading statements were made, if, among other things,
          certain representations and warranties made by CBS in the definitive
          purchase agreement pursuant to which the Company purchased SEG were
          breached. CBS has agreed to assume all litigation costs associated
          with the defense of the case, but has reserved the right to challenge
          the Company's claim for indemnification for any settlement or judgment
          that may arise from the case.

          On or about February 25, 1999, Synthetica Technologies, Inc.
          ("Synthetica") served the Company with a complaint filed in the
          Superior Court of California, County of San Francisco. In addition to
          the Company, the complaint names SEG, Westinghouse, and two former SEG
          executives as defendants. The complaint alleges that SEG was required
          by a license agreement and a subsequent asset purchase agreement to
          make certain payments to Synthetica in exchange for the right to
          develop and commercialize Synthetica's waste disposal technology.
          Synthetica claims

                                       58 


 
                      GTS DURATEK, INC. AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements

                          December 31, 1997 and 1998

       that SEG did not make allegedly required payments and did not comply with
       other alleged provisions of the contracts between SEG and Synthetica.
       Both the alleged license agreement and alleged asset purchase agreement
       predate the Company's acquisition of SEG.  Synthetica advances claims of
       fraud in the inducement, constructive fraud, actual fraud, breach of
       written contract, breach of implied covenant of good faith and fair
       dealing, intentional interference with contractual relations, intentional
       interference with economic relations, negligent interference, negligent
       misrepresentation and breach of fiduciary duty.  The complaint seeks to
       hold the individual defendants personally liable for the alleged torts,
       and seeks to hold the Company and Westinghouse vicariously liable for the
       alleged wrongdoing of SEG.  The complaint also asserts claims solely
       against the individual defendants for trade secret misappropriation that
       allegedly occurred when they left the employ of SEG.  The complaint seeks
       rescission of the asset purchase agreement, compensatory and exemplary
       damages in an unspecified amount and an injunction against further trade
       secret misappropriation by the former SEG executives.  The defendants
       have not yet responded to the complaint, and at the present time the
       Company is unable to express a view on the probable ultimate outcome of
       the litigation.

       In addition, the Company is involved in various claims and legal actions
       arising in the ordinary course of business. In the opinion of management,
       the ultimate disposition of these matters will not have a material
       adverse effect on the Company's consolidated financial position, results
       of operations or liquidity.

                                       59 


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

         None.

                                       60 


 
                                    PART III
                                        
ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Executive Officers of GTS Duratek as of March 19, 1999

     The following table sets forth the names of the executive officers of the
Company, their positions with the Company and their principal business
experience for the last five years:



Name                       Age                      Position                            Principal Business Experience
- ------------------------------------------------------------------------------------------------------------------------------ 
                                                                       
Daniel A. D'Aniello           52      Chairman of the Board of Directors        Managing Director, The Carlyle Group since
                                                                                1987. Chairman of the Board of the Company
                                                                                since January 1995.
 
Robert E. Prince              51      President, Chief Executive Officer        President and Chief Executive Officer of the
                                      and Director                              Company since November 1990 and director
                                                                                since 1991; Founder of General Technical
                                                                                Services, Inc. (GTS) in October 1984;
                                                                                President and Chief Executive Officer of GTS
                                                                                from 1987 to 1992.
 
Robert F. Shawver             42      Executive Vice President and Chief        Executive Vice President of the Company since
                                      Financial Officer                         May 1993; Chief Financial Officer and Chief
                                                                                Administrative Officer of the Company since
                                                                                1987; Vice President of the Company from 1987
                                                                                to 1993.
 
Craig T. Bartlett             36      Treasurer                                 Treasurer of the Company since February 1996;
                                                                                Controller of the Company since February
                                                                                1993; Director, Financial Operations of the
                                                                                Company from 1991 to 1993; Assistant
                                                                                Controller of the Company from 1988 to 1991.
 
C. Paul Delete                50      Senior Vice President, Technology         Senior Vice President of Technology Services
                                      Services and Operations                   and Operations and Support of the Company
                                                                                since January 1996; President of Analytical
                                                                                Resources, Inc. (an environmental consulting
                                                                                firm acquired by the Company in 1996) from
                                                                                1984 to January 1996.
 
Diane L. Leviski              38      Vice President, Human Resources           Vice President of Human Resources of the
                                                                                Company since February 1996; Director of
                                                                                Human Resources from 1988 to 1996; Manager of
                                                                                Human Resources of the Company from 1985 to
                                                                                1988.

Leslie M. Hill                43      President, Bear Creek Operations          President of Bear Creek Operations since May
                                                                                1997. Mr. Hill held several senior management
                                                                                positions with New York Power Authority from
                                                                                January 1982 to April 1997.
 
Ian S. Howard                 44      Vice President, Radiological              Group Vice President of Radiological
                                      Engineering and Field Services            Engineering and Field Services since December
                                                                                1998. Deputy Director, Bear Creek Operations
                                                                                from April 1997 to December 1998. Project
                                                                                Director of the Company from 1985 to 1997.


                                       61 


 
     Information regarding the Company's Board of Directors is incorporated by
reference from the text and tables under Election of Board of Directors in the
Company's definitive Proxy Statement for the Annual Meeting of Stockholders to
be held May 19, 1999 (the "1999 Proxy Statement"), which Proxy Statement will be
filed not later than 120 days after the end of the fiscal year covered by this
Annual Report on Form 10-K.


ITEM 11.  EXECUTIVE COMPENSATION

     The text and tables under Executive Compensation in the Company's 1999
Proxy Statement are incorporated herein by reference.


ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     (a)  Except as indicated in the 1999 Proxy Statement, the Company knows of
          no person who on March 19, 1999, owned beneficially more than 5% of
          its Common Stock.
 
     (b)  The stock ownership information contained in the text and tables under
          Securities Beneficially Owned in the Company's 1999 Proxy Statement is
          incorporated herein by reference.

     (c)  The Company knows of no arrangements the operation of which may at a
          subsequent date result in a change of control of the Company.


ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The text under Executive Compensation and Certain Transactions with
Management and Others in the Company's 1999 Proxy Statement is incorporated
herein by reference.

                                       62 


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

     (a) (1) The following consolidated financial statements of GTS Duratek and
             its subsidiaries are included in Item 8:

     Independent Auditors' Report
 
     Consolidated Balance Sheets at December 31, 1997 and December 31, 1998

     Consolidated Statements of Operations for the years ended December 31,
     1996, 1997 and   1998

     Consolidated Statements of Stockholders' Equity for the years ended
     December 31, 1996,   1997 and 1998

     Consolidated Statements of Cash Flows for the years ended December 31,
     1996, 1997 and 1998

     Notes to Consolidated Financial Statements

     (a) (2) The following is a list of all financial statement schedules for
             the years ended December 31, 1996, 1997 and 1998 filed as part of 
             this Report:

   Schedule II - Valuation and Qualifying Accounts

Schedules other than those listed above have been omitted because they are not
required or are not applicable, or the required information has been included in
the Consolidated Financial Statements or the Notes thereto.

   (a) (3)  See accompanying Index to Exhibits...........................   66

     (b)  Reports on Form 8-K.

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

     (c) The following is a list of exhibits filed herewith:

     Exhibit No.             Document
     -----------             --------

       21.1           Subsidiaries of the Registrant
       23.1           Consent of KPMG LLP
       27.1           Financial Data Schedule

     (d) The following is a list of financial statement schedules filed
herewith:

          Schedule II - Valuation and Qualifying Accounts

                                       63 


 
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.
 
 
                                     GTS DURATEK, INC.
                                
Dated:  March 29, 1999

                                 By: /s/ ROBERT E. PRINCE
                                     --------------------
                                     Robert E. Prince
                                     President and Chief Executive 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 capacity and on the dates indicated.

                                     Principal Executive Officer:
                                   
March 29, 1999
                                    /s/ ROBERT E. PRINCE
                                    --------------------
                                     Robert E. Prince
                                     President and Chief Executive Officer

                                     Principal Financial Officer:

March 29, 1999
                                    /s/ ROBERT F. SHAWVER
                                    ---------------------
                                     Robert F. Shawver
                                     Executive Vice President and
                                     Chief Financial Officer

                                     Principal Accounting Officer:

March 29, 1999
                                    /s/ CRAIG T. BARTLETT
                                    ---------------------
                                     Craig T. Bartlett
                                     Treasurer

                                     The Board of Directors:

March 29, 1999
                                    /s/ DANIEL A. D'ANIELLO
                                    -----------------------
                                     Daniel A. D'Aniello

March 29, 1999
                                    /s/ J. A. FRED BROTHERS
                                    -----------------------
                                     J. A. Fred Brothers

March 29, 1999
                                    /s/ EARLE C. WILLIAMS
                                    ---------------------
                                     Earle C. Williams
 
 

                                       64 


 
                                  
March 29, 1999
                                    /s/ DR. FRANCIS J. HARVEY
                                    -------------------------
                                     Dr. Francis J. Harvey

March 29, 1999
                                    /s/ ADMIRAL JAMES D. WATKINS
                                    ----------------------------
                                     Admiral James D. Watkins

March 29, 1999
                                    /s/ GEORGE V. MCGOWAN
                                    ---------------------
                                     George V. McGowan

March 29, 1999
                                    /s/ ROBERT E. PRINCE
                                    --------------------
                                     Robert E. Prince
 
 

                                       65


 
                      GTS DURATEK, INC. AND SUBSIDIARIES

                       Valuation and Qualifying Accounts

                                  Schedule II

 
 
                                                  Charges      Charges                       Balance
                                    Balance at   to costs     to other                       at end
                                     beginning     and        accounts -    Deductions -       of
                                     of period   expenses    describe (a)   describe (b)     period
                                    ----------   --------    -----------    ------------    --------
                                                                               
Allowance for dubtful accoounts:
  Year ended December 31, 1998      $  487,905     483,477             --        (399,941)    571,441       
  Year ended December 31, 1997      $  107,964      48,000        334,615          (2,674)    487,905
  Year ended December 31, 1996      $   68,964      39,000             --              --     107,964
                                    ==========    ========    ===========    ============    ========
 
(a)  Charges to other accounts represent allowance for doubtful accounts related
     to SEG at the date of acquisition.

(b)  Deductions represent write-offs of specifically identified accounts.

                                       66 


 
EXHIBITS INDEX


Exhibit
No.
- ---

3.1   Amended and Restated Certificate of Incorporation of the Registrant.
      Incorporated herein by reference to Exhibit 3.1 of the Registrant's
      Quarterly Report on Form 10-Q for the quarter ended March 31, 1996 (File
      No. 0-14292).

3.2   By-Laws of the Registrant. Incorporated herein by reference to Exhibit 3.3
      of the Registrant's Registration Statement on Form S-1 (File No. 
      33-2062).

4.1   Certificate of Designations of the 8% Cumulative Convertible Redeemable
      Preferred Stock dated January 23, 1995. Incorporated herein by reference
      to Exhibit 4.1 of the Registrant's Current Report on Form 8-K filed on
      February 1, 1995 (File No. 0-14292).

4.2   Stock Purchase Agreement among Carlyle Partners II, L.P., Carlyle
      International Partners II, L.P., Carlyle International Partners III,
      L.P., C/S International Partners, Carlyle-GTSD Partners, L.P., Carlyle-
      GTSD Partners II, L.P. and GTS Duratek, Inc. and National Patent
      Development Corporation dated as of January 24, 1995. Incorporated herein
      by reference to Exhibit 4.2 of the Registrant's Current Report on Form 8-
      K filed on February 1, 1995 (File No. 0-14292).

4.3   Stockholders Agreement by and among GTS Duratek, Inc., Carlyle 
      Partners Partners II, L.P., Carlyle International Partners II, L.P.,
      Carlyle International Partners III, L.P., C/S International Partners,
      Carlyle-GTSD Partners, L.P., Carlyle-GTSD Partners II, L.P. and GTS
      Duratek, Inc. and National Patent Development Corporation dated as of
      January 24, 1995. Incorporated herein by reference to Exhibit 4.3 of the
      Registrant's Current Report on Form 8-K filed on February 1, 1995 (File
      No. 0-14292).

4.4   Registration Rights Agreement by and among GTS Duratek, Inc., Carlyle
      Partners II, L.P., Carlyle International Partners II, L.P., Carlyle-
      International Partners III, L.P., C/S International Partners, Carlyle-
      GTSD Partners, L.P., Carlyle-GTSD Partners II, L.P. and GTS Duratek, Inc.
      and National Patent Development Corporation dated as of January 24, 1995.
      Incorporated herein by reference to Exhibit 4.4 of the Registrant's
      Current Report on Form 8-K filed on February 1, 1995 (File No. 0-14292).

4.5   Convertible Debenture issued by GTS Duratek, Inc., General Technical
      Services, Inc., GTS Instrument Services Incorporated to BNFL Inc. dated
      November 7, 1995. Incorporated herein by reference to Exhibit 10.20 of
      the Registrant's Quarterly Report on Form 10-Q for the quarter ended
      September 30, 1995 (File No. 0-14292).

10.1  1984 Duratek Corporation Stock Option Plan, as amended. Incorporated
      herein by reference to Exhibit 10.9 of the Registrant's Annual Report on
      Form 10-K for the year ended December 31, 1990 (File No. 0-14292).

                                       67


 
10.2  Asset Purchase Agreement dated August 20, 1990 between Chem-Nuclear
      Systems, Inc. and Duratek Corporation. Incorporated herein by reference
      to Exhibit 1 to the Registrant's Current Report on Form 8-K filed on
      August 20, 1990 (File No. 0-14292).

10.3  License Agreement dated as of August 17, 1992 between GTS Duratek, Inc.
      and Dr. Theodore Aaron Litovitz and Dr. Pedro Buarque de Macedo.
      Incorporated herein by reference to Exhibit 10.9 of the Registrant's
      Annual Report on Form 10-K for the year ended December 31, 1992. (File No.
      0-14292).

10.4  Stockholders' Agreement dated December 28, 1993 between GTS Duratek, Inc.
      and Vitritek Holdings, L.L.C. Incorporated herein by reference to Exhibit
      3 of the Registrant's Current Report on Form 8-K dated December 22, 1993.
      (File No. 0-14292).

10.5  Agreement dated January 14, 1994 between GTS Duratek, Inc. and
      Westinghouse Savannah River Company. Incorporated herein by reference to
      Exhibit 10.17 of the Registrant's Annual Report on Form 10-K for the year
      ended December 31, 1993. (File No. 0-14292).

10.6  Agreement dated September 15, 1994 between DuraChem Limited Partnership, a
      Maryland limited partnership, by and among CNSI Sub, Inc. and GTSD Sub,
      Inc., as the General Partners, and Chemical Waste Management, Inc. and
      GTS Duratek, Inc., as the Limited Partners. Incorporated herein by
      reference to Exhibit 10.19 of the Registrant's Annual Report on Form 10-K
      for the year ended December 31, 1994. (File No. 0-14292).

10.7  Teaming Agreement by and between GTS Duratek, Inc. and BNFL Inc. dated
      November 7, 1995. Incorporated herein by reference to Exhibit 10.20 of
      the Registrant's Quarterly Report on Form 10-Q for the quarter ended
      September 30, 1995. (File No. 0-14292).

10.8  Sublicense Agreement by and between GTS Duratek, Inc. and BNFL Inc. dated
      November 7, 1995. Incorporated herein by reference to Exhibit 10.21 of
      the Registrant's Quarterly Report on Form 10-Q for the quarter ended
      September 30, 1995. (File No. 0-14292).

10.9  Stockholders' Agreement by and among Bird Environmental Gulf Coast, Inc.,
      GTS Duratek, Inc., GTSD Sub II, Inc., Jim S. Hogan, Mark B. Hogan, Barry
      K. Hogan and Sam J. Lucas III dated November 29, 1995. Incorporated
      herein by reference to Exhibit (c)(3) of the Registrant's Current Report
      on Form 8-K filed on December 11, 1995. (File No. 0-14292).

10.10 Technology License Agreement by and among GTS Duratek, Inc., Bird
      Environmental Gulf Coast, Inc. and Jim S. Hogan dated November 29, 1995.
      Incorporated herein by reference to Exhibit (c)(4) of the Registrant's
      Current Report on Form 8-K filed on December 11, 1995. (File No. 0-
      14292).

10.11 Stock Purchase Agreement by and between Westinghouse Electric Corporation
      and GTS Duratek, Inc. dated as of April 18, 1997. Incorporated herein by
      reference to Exhibit (c)(2) of the Registrant's Current Report on 
      Form 8-K filed on April 18, 1997. (File No. 0-14292).

                                       68


 
 
10.12  GTS Duratek, Inc. Executive Compensation Plan. Incorporated herein by
       reference to Exhibit 10.19 of the Registrant's Quarterly Report on Form
       10-Q for the quarter ended September 30, 1997. (File No. 0-14292).

10.13  Amended and Restated Credit Agreement as of February 1, 1999 between GTS
       Duratek, Inc., GTS Duratek Bear Creek, Inc., GTS Duratek Colorado, Inc.,
       Hittman Transport Services, Inc., GTS Instrument Services, Incorporated,
       General Technical Services, Inc., Analytical Resources, Inc., GTSD Sub
       III, Inc. and First Union National Bank, First Union Commercial
       Corporation, Wachovia Bank, N.A. and National Bank of Canada.

10.14  Amended and Restated Security Agreement dated as of February 1, 1999
       between GTS Duratek, Inc., GTS Duratek Bear Creek, Inc., GTS Duratek
       Colorado, Inc., Hittman Transport Services, Inc., GTS Instrument
       Services, Incorporated, General Technical Services, Inc., Analytical
       Resources, Inc., GTSD Sub III, Inc. and First Union National Bank, First
       Union Commercial Corporation, Wachovia Bank, N.A. and National Bank of
       Canada.

21.1   Subsidiaries of the Registrant. (Filed herewith).

23.1   Consent of KPMG LLP. (Filed herewith).

27.1   Financial Data Schedule. (Filed herewith).

                                       69

EX-21

 
                                                            EXHIBIT 21.1

SUBSIDIARIES OF GTS DURATEK, INC.

General Technical Services, Inc. (dba GTS Duratek)      (Maryland)
GTS Instrument Services, Incorporated                   (Maryland)
GTSD Sub, Inc.                                          (Maryland)
GTSD Sub II, Inc.                                       (Maryland)
GTSD Sub III, Inc.                                      (Maryland)
Analytical Resources, Inc.                              (Pennsylvania)
DuraTherm, Inc.                                         (Maryland)
GTS Duratek Bear Creek, Inc.                            (Tennessee)
Hittman Transport Services, Inc.                        (Delaware)
GTS Duratek Colorado, Inc.                              (Delaware)
SEG Nevada, Inc.                                        (Delaware)
SEG Equity Holdings, Inc.                               (Delaware)

EX-23.1

 
                                                            EXHIBIT 23.1

CONSENT OF INDEPENDENT AUDITORS


The Board of Directors
GTS Duratek, Inc.:


We consent to incorporation by reference in the Registration Statement on Form
S-8 (No. 33-60075) of GTS Duratek, Inc. our report dated March 12, 1999,
relating to the consolidated balance sheets of GTS Duratek, Inc. and
subsidiaries as of December 31, 1997 and 1998 and the related consolidated
statements of operations, stockholders' equity, and cash flows and related
schedule for each of the years in the three-year period ended December 31, 1998,
which report appears in the December 31, 1998 annual report on Form 10-K of GTS
Duratek, Inc.



KPMG LLP


Baltimore, Maryland
March 26, 1999


See accompanying notes to consolidated financial statements.

EX-27

 


 
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1998 AND THE CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998 OF GTS DURATEK,
INC. AND SUBSIDIARIES, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.

       
                                                                          
<PERIOD-TYPE>                   YEAR                        YEAR                  
<FISCAL-YEAR-END>                          DEC-31-1998                 DEC-31-1997
<PERIOD-START>                             JAN-01-1998                 JAN-01-1997
<PERIOD-END>                               DEC-31-1998                 DEC-31-1997 
<CASH>                                       5,944,274                   7,026,249
<SECURITIES>                                         0                           0
<RECEIVABLES>                               42,527,216                  39,846,708
<ALLOWANCES>                                  (571,441)                   (487,905)
<INVENTORY>                                  2,405,961                   1,104,874
<CURRENT-ASSETS>                            52,583,052                  49,578,276
<PP&E>                                      65,982,406                  67,794,374
<DEPRECIATION>                            (11,711,662)                  (7,437,590)
<TOTAL-ASSETS>                             128,534,632                 132,298,181
<CURRENT-LIABILITIES>                       37,224,109                  41,215,062
<BONDS>                                     11,821,582                  11,348,925
<PREFERRED-MANDATORY>                       15,279,085                  15,052,355
<PREFERRED>                                          0                           0
<COMMON>                                       142,257                     128,790
<OTHER-SE>                                  54,879,330                  56,300,544
<TOTAL-LIABILITY-AND-EQUITY>               128,534,632                 132,298,181
<SALES>                                              0                           0
<TOTAL-REVENUES>                           160,313,077                 136,552,821
<CGS>                                                0                           0
<TOTAL-COSTS>                              123,839,031                 120,814,140
<OTHER-EXPENSES>                            35,753,960                  15,676,895
<LOSS-PROVISION>                                83,536                      48,000
<INTEREST-EXPENSE>                             544,902                    (570,795)
<INCOME-PRETAX>                                 91,648                     584,581
<INCOME-TAX>                                   627,000                     716,000
<INCOME-CONTINUING>                         (2,009,352)                   (281,039)
<DISCONTINUED>                                       0                           0
<EXTRAORDINARY>                                      0                           0
<CHANGES>                                     (420,000)                          0
<NET-INCOME>                                (2,429,352)                   (281,039)
<EPS-PRIMARY>                                    (0.30)                      (0.14)
<EPS-DILUTED>                                    (0.30)                      (0.14)