U. S. SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                    FORM 8-K
                                 CURRENT REPORT


     PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


       Date of Report (Date of earliest event reported) December 31, 1996



                 FORENSIC TECHNOLOGIES INTERNATIONAL CORPORATION
             (Exact name of registrant as specified in its charter)

<TABLE>
<CAPTION>
<S>                                  <C>                      <C>
           Maryland                            0-                         52-1261113
(State of other jurisdiction of     (Commission File Number)  (IRS Employer Identification No.)
        incorporation)
</TABLE>

                 2021 Research Drive, Annapolis, Maryland 21401
          (Address of principal executive offices, including Zip Code)


                                 (410) 224-8770
              (Registrant's telephone number, including area code)



<PAGE>



                 FORENSIC TECHNOLOGIES INTERNATIONAL CORPORATION

ITEM 5.   OTHER EVENTS


        A Form 8K was  previously  filed  on  October  15,  1996  reporting  the
acquisition  of  Teklicon,  Inc.  The  required  financial  statements  of  this
acquisition were filed on Form 8K dated November 27, 1996.

        In as much as, the above  acquisition  was accounted for as a pooling of
interest,  the Company's financial  statements have been restated.  In order to
have  current  combined  financial  statements  of the  Company on file with the
Securities and Exchange  Commission,  this Form 8K includes financial statements
restated to include Teklicon, Inc.


ITEM 7.   FINANCIAL STATEMENTS AND EXHIBITS

        (a)  Financial  Statements.  Audited  financial  statements  of Forensic
Technologies  International, Corp.,  Inc., for the years ended December 31, 1995
and 1994.



                                   SIGNATURES


         Pursuant to the  requirements  of the  Securities  and  Exchange Act of
1934,  the  Registrant has duly caused this report to be signed on its behalf by
the undersigned, hereunto duly authorized.


                           FORENSIC TECHNOLOGIES INTERNATIONAL CORPORATION
                                   (Registrant)



                                         By: /s/ Gary Sindler
                                             ------------------------
                                             Gary Sindler
                                             Executive Vice President and Chief
                                               Financial Officer


DATED: December 31, 1996



<PAGE>



                         REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders
Forensic Technologies International Corporation

We have  audited  the  accompanying  consolidated  balance  sheets  of  Forensic
Technologies  International  Corporation  and subsidiary as of December 31, 1994
and 1995, and the related consolidated  statements of operations,  stockholders'
equity and cash flows for the years then ended.  These financial  statements are
the responsibility of the Company's management. Our responsibility is to express
and opinion on these financial  statements based on our audits. We did not audit
the fiscal year 1995  financial  statements  of  Teklicon,  Inc., a wholly owned
subsidiary,  which statements reflect $941,988 of total assets at March 31, 1996
and $3,053,564 of total revenues for the year then ended.  Those statements were
audited  by other  auditors  whose  report  has been  furnished  to us,  and our
opinion,  insofar as it relates to data  included for  Teklicon,  Inc., is based
solely on the report of the other auditors.

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 and the report of other auditors provide a reasonable
basis for our opinion.

In our  opinion,  based on our  audits  and the  report of other  auditors,  the
consolidated  financial  statements  referred to above  present  fairly,  in all
material respects,  the consolidated financial position of Forensic Technologies
International  Corporation and subsidiary at December 31, 1994 and 1995, and the
consolidated results of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles.


                                                               Ernst & Young LLP

Baltimore, Maryland
December 23, 1996



<PAGE>

                                                                 

                          INDEPENDENT AUDITOR'S REPORT
                          ----------------------------

                                        
                                                          
                                                          
Teklicon, Inc.                                            
Mountain View, California                                 
                                                          

We have audited the accompanying balance sheet of Teklicon (a corporation) as of
March 31, 1996 and the related statements of operations,  retained earnings, and
cash  flows  for  the  year  then  ended.  These  financial  statements  are the
responsibility of the company's management.  Our responsibility is to express an
opinion on these financial statements based on our audit.

We conducted our audit 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 audit provides a reasonable basis for our opinion.

In our opinion,  the financial statements referred to above represent fairly, in
all material respects, the financial position of Teklicon,  Inc. as of March 31,
1996,  and the  results of its  operations  and its cash flows for the year then
ended in conformity with generally accepted accounting principles


                                             /s/ Young, Craig & Co.

July 25, 1996



<PAGE>




         Forensic Technologies International Corporation and Subsidiary
                           Consolidated Balance Sheets
<TABLE>
<CAPTION>
                                                                                     December 31,
                                                                    ------------------------------------------------
                                                                          1994                         1995
                                                                    ------------------         ---------------------
<S>                                                                   <C>                             <C>          
ASSETS                                                                 (Restated)                (Restated)

Current assets:
 Cash and cash equivalents..............................              $       245,918                 $     244,925
 Accounts receivable, less allowance of $129,260 in 1994                   
   and  $212,262 in 1995................................                    3,579,920                     4,633,850
 Unbilled receivables, less allowance of $79,223 in 1994                 
 and $164,935 in 1995...................................                    1,907,526                     2,230,674
 Deferred income taxes..................................                      149,923                       419,310
 Prepaid expenses.......................................                      136,577                       145,805
                                                                    ------------------         ---------------------
Total current assets....................................                    6,019,864                     7,674,564
Property and equipment:
 Buildings..............................................                           --                       411,241
 Furniture and equipment................................                    5,569,460                     6,576,259
 Leasehold improvements.................................                      469,666                       677,348
                                                                              -------                       -------
                                                                            6,039,126                     7,664,848
 Accumulated depreciation and amortization..............                   (4,212,054)                   (4,784,174)
                                                                           ----------                    ---------- 
                                                                            1,827,072                     2,880,674
Deferred income taxes...................................                       55,556                         4,090
Other assets............................................                      168,235                       196,662
                                                                              -------                       -------
Total assets............................................                  $ 8,070,727                  $ 10,755,990
                                                                   ===================        ======================
</TABLE>
   The accompanying notes are an integral part of these financial statements.

<PAGE>


         Forensic Technologies International Corporation and Subsidiary
                     Consolidated Balance Sheets (Continued)
<TABLE>
<CAPTION>

                                                                                         December 31,
                                                                           -----------------------------------------
                                                                                 1994                   1995
                                                                           -----------------     -------------------
Liabilities and stockholders' equity                                          (Restated)            (Restated)
<S>                                                                              <C>                   <C>         
Current liabilities:
 Accounts payable                                                                $  610,492            $  1,171,201
 Borrowings under line of credit                                                    572,239               2,110,391
 Accrued compensation expense                                                       406,386                 933,841
 Income taxes payable                                                               161,563                 208,296
 Current portion of deferred revenue                                                333,333                 138,889
 Current portion of capital lease obligations                                       322,251                  63,463
 Accrued loss on disposal of discontinued operations                                     --                 478,828
 Other current liabilities                                                          245,752                 310,554
                                                                           -----------------     -------------------
Total current liabilities                                                         2,652,016               5,415,463
Deferred revenue, less current portion                                              138,889                      --
Long-term debt and capital lease obligations, less current  portion                  81,671                 206,747
8% Convertible Subordinated Debentures, due to stockholders                       1,800,000               1,800,000
Series A Redeemable Convertible Preferred Stock, $.01 par value, stated           
at  redemption value                                                              1,560,000               1,560,000
Common Stock subject to repurchase                                                      --                  310,930
Commitments and contingent liabilities                                                  --                       --
Stockholders' equity:                                                                
 Common stock, $.01 par value:
 Class A:
  Authorized shares -- 9,800,000; Shares issued and outstanding and
  not subject to repurchase - 2,231,613 in 1994 and 1,989,059 in 1995                22,316                  19,891
 Class B:                                                                            
  Authorized shares -- 6,300,000; Issued and outstanding shares --
  1,688,400 in 1994 and 1,524,600 in 1995                                            16,884                  15,246
 Additional paid-in capital                                                         987,922                     850
 Retained earnings                                                                  883,313               1,455,773
 Less: Unearned compensation recorded upon issuance of common stock                (72,284)                (28,910)
                                                                           -----------------     -------------------
Total stockholders' equity                                                        1,838,151               1,462,850
                                                                           -----------------     -------------------
Total liabilities and stockholders' equity                                       $8,070,727             $10,755,990
                                                                           =================     ===================
</TABLE>
   
   The accompanying notes are an integral part of these financial statements.

<PAGE>
         Forensic Technologies International Corporation and Subsidiary
                      Consolidated Statements of Operations
<TABLE>
<CAPTION>
                                                                 Years Ended December 31,
                                                           -----------------------------------
                                                                    1994               1995
                                                           ------------------  ----------------
                                                               (Restated)         (Restated)
<S>                                                           <C>               <C>        
Revenues                                                      $20,253,897       $23,381,303
Direct cost of revenues                                        10,499,161        11,366,249
Selling, general and administrative expenses                    8,319,848         9,886,791
                                                           ------------------  ----------------
Total costs and expenses                                       18,819,009        21,253,040
                                                           ------------------  ----------------
                                                                1,434,888         2,128,263
Other income (expenses):
Interest and other income                                         172,527            41,669
Interest expense                                                 (281,850)         (263,824)
                                                           ------------------  ----------------
                                                                 (109,323)         (222,155)
                                                           ------------------  ----------------
Income  from continuing operations before                       
  income taxes                                                  1,325,565         1,906,108
Income taxes                                                      552,278           778,665
                                                           ------------------  ----------------
Income from continuing operations                                 773,287         1,127,443
Discontinued operations:
 Loss from discontinued operations (net of  income tax                 
  benefit of $44,460)                                                 --            (65,074)
 Loss on disposal of discontinued operations (net of income
   tax benefit of $248,520)                                           --           (365,109)
                                                           -----------------   ----------------
Net income                                                   $   773,287        $   697,260
                                                           =================   ================
Earnings Per Share Data:

 Per common and common equivalent share:
  Income from continuing operations                          $      0.33        $      0.49
                                                           =================   ================
                                               
 
  Net income                                                 $      0.33        $      0.31  
                                                           =================   ================
Per common share, assuming full dilution:  
  Income from continuing operations                          $      0.25        $      0.37
                                                           =================   ================

  Net income                                                 $      0.25        $      0.23
                                                           =================   ================
</TABLE>

   The accompanying notes are an integral part of these financial statements.


<PAGE>

         Forensic Technologies International Corporation and Subsidiary
          Consolidated Statements of Stockholders' Equity (as restated)
<TABLE>
<CAPTION>
                                                    Class A              Class B            Additional
                                                     Common              Common               Paid-in              Retained         
                                                      Stock               Stock               Capital              Earnings         
                                                 ----------------    ----------------    ------------------    -----------------    
<S>                                                      <C>                 <C>                <C>                    <C>          
Balance at January 1, 1994                               $22,610             $19,152            $1,118,754             $339,532     
 Award of 323,400 shares of Class B Common                                                                                
Stock under the 1992 Employee Stock Bonus                                    
Award Program                                                                  3,234                 8,316
 Repurchase of 550,200 shares of Class B                                             
Common Stock                                                                  (5,502)              (14,148)     
 Repurchase of 29,400 shares of Class A Common                                                                         
Stock                                                       (294)                                                      (104,706) 
 Purchase of options to purchase 105,000                                                                                    
shares of Class A  Common Stock                                                                   (125,000)  
 Amortization of unearned compensation                                                                                              
 Dividends paid on Series A Redeemable                                                                                      
Convertible Preferred  Stock ($.19 per share)                                                                          (124,800)
 Net income for 1994.                                                                                                   773,287     
                                                 ----------------    ----------------    ------------------    -----------------    
Balance at December 31, 1994                              22,316              16,884               987,922              883,313     
 Repurchase of 163,800 shares of Class B                                                                               
Common Stock                                                                  (1,638)               (4,212)
 Repurchase of 184,514 shares of Class A                                                                            
Common Stock                                              (1,845)                                 (722,510)  
 Amortization of unearned compensation                                                                                              
 Dividends paid on Series A Redeemable                                                                                     
Convertible Preferred Stock ($.19 per share)                                                                           (124,800)  
 Reclassification of Class A Common Stock                                                                            
subject to   repurchase                                     (580)                                 (310,350)     
 Other                                                                                              50,000                          

 Net income for 1995                                                                                                    697,260     
                                                 ----------------    ----------------    ------------------    -----------------    
Balance at December 31, 1995                             $19,891             $15,246        $          850           $1,455,773     
                                                 ================    =================   ==================    =================    
</TABLE>

<TABLE>
<CAPTION>                                                
                                                       Unearned                 Total
                                                     Compensation
                                                -----------------    ----------------
<S>                                                   <C>                 <C>       
Balance at January 1, 1994.                              $(139,073)         $ 1,360,975
 Award of 323,400 shares of Class B Common                                      
Stock under the 1992 Employee Stock Bonus
Award Program                                                                    11,550
 Repurchase of 550,200 shares of Class B                                        
Common Stock                                                                    (19,650)
 Repurchase of 29,400 shares of Class A Common 
Stock                                                                          (105,000)
 Purchase of options to purchase 105,000 
shares of Class A Common Stock                                                 (125,000)
 Amortization of unearned compensation                     66,789                66,789
 Dividends paid on Series A Redeemable                                         
Convertible Preferred  Stock ($.19 per share)                                  (124,800)
 Net income for 1994                                                            773,287
                                                      ------------          ------------
Balance at December 31, 1994                              (72,284)            1,838,151
 Repurchase of 163,800 shares of Class B                                        
Common Stock                                                                    (5,850)
 Repurchase of 184,514 shares of Class A                                       
Common Stock                                                                   (724,355)
 Amortization of unearned compensation                     43,374                43,374
 Dividends paid on Series A Redeemable                                        
Convertible Preferred Stock ($.19 per share)                                   (124,800)
 Reclassification of Class A Common Stock                                      
subject to repurchase                                                          (310,930)
 Other                                                                           50,000

 Net income for 1995                                                            697,260
                                                     -------------          ------------
Balance at December 31, 1995                            $ (28,910)          $ 1,462,850
                                                     =============          ============
</TABLE>

The accompanying notes are an integral part of these financial statements.


<PAGE>
         Forensic Technologies International Corporation and Subsidiary
                      Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
                                                                             Years Ended December 31,
                                                                        --------------------------------
                                                                           1994               1995
                                                                        ------------         -----------
                                                                         (Restated)          (Restated)
<S>                                                                        <C>               <C>        
Cash flow from operating activities
Net income                                                                 $ 773,287         $   697,260
  Adjustments to reconcile net income to net cash provided by  operating
  activities:
  Depreciation                                                               864,596             637,837
  Amortization                                                                17,152              20,835
  Non-cash compensation.                                                      66,789              43,374
  Provision for doubtful accounts                                             41,370             168,714
  Deferred income taxes                                                     (139,424)           (217,921)
  Loss on disposal of assets                                                      --              26,281
  Loss on disposal of discontinued Annapplix  division                            --             613,629
  Gain on sale of technology                                                (121,989)                 --
  Changes in operating assets and liabilities:
   Unbilled receivables                                                     (307,329)           (423,885)
   Accounts receivable                                                        28,624            (971,907)
   Income taxes refundable                                                   121,867                  --
   Prepaid expenses                                                           45,367              (9,228)
   Accounts payable                                                         (317,408)            560,709
   Accrued compensation expense                                               59,885             527,455
   Income taxes payable                                                      166,297              96,732
   Deferred revenue.                                                        (333,333)           (333,333)
   Other current liabilities                                                (214,624)             64,802
                                                                        ------------         -----------
    Net cash provided by operating activities                                751,127           1,501,354

Cash flow from investing activities
  Proceeds from sale of marketable securities                                202,370                  --
  Purchase of property and equipment                                        (625,454)         (1,608,939)
  Proceeds from sale of property and equipment                                    --              22,608
  Acquisition of Applix Software Computer Service.                                --            (200,000)
  Purchase of other assets                                                  (96,934)             (40,975)
                                                                        ------------         -----------
    Net cash used in investing activities                                  (520,018)          (1,827,306)

Cash flow from financing activities
  Proceeds from issuance of Class B Common Stock.                            11,550                   --
  Repurchase of Class B Common Stock                                        (19,650)              (5,850)
  Repurchase of Class A Common Stock and purchase of
   options to purchase Class A Common Stock                                 (65,000)            (724,355)
  Net borrowings (repayments) under line of credit                         (242,761)           1,538,152
  Payments of capital lease obligations                                    (434,970)            (358,188)
  Dividends paid                                                           (124,800)            (124,800)
                                                                        ------------         -----------
    Net cash provided by (used in) financing
     activities                                                            (875,631)             324,959
                                                                        ------------         -----------
Net decrease in cash and cash
 equivalents                                                               (644,522)                (993)
Cash and cash equivalents at beginning of year                              890,440              245,918
                                                                        ------------         -----------
Cash and cash equivalents at end of year                               $    245,918        $     244,925
                                                                        ============        ============
</TABLE>
   The accompanying notes are an integral part of these financial statements.


<PAGE>


         FORENSIC TECHNOLOGIES INTERNATIONAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 1995

         1.       BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation of Financial Statements

Description of Business

         Forensic  Technologies  International  Corporation  and Subsidiary (the
Company) provides communication,  engineering,  and other trial support services
to the litigation  industry.  These  services  include event  investigation  and
analysis,  expert testimony,  courtroom visual presentation,  computer animation
and   simulation,   jury  analysis  and  selection,   exposure   assessment  and
computerized  document  storage and  retrieval.  The  Company has seven  offices
serving all regions of the United States.

On September 30, 1996 the Company  acquired all of the outstanding  common stock
of Teklicon,  Inc.  ("Teklicon") in exchange for 415,000 shares of common stock.
The  acquisition  was accounted for as a pooling of interests and,  accordingly,
the Company's  financial  statements have been restated for all periods prior to
the merger to include the financial  position,  results of operations,  and cash
flows of Teklicon. The accompanying  consolidated balance sheets at December 31,
1994 and 1995 include the  financial  position of Teklicon at March 31, 1995 and
March 31, 1996, respectively,  the fiscal year-end of Teklicon. The accompanying
consolidated  statements of operations,  stockholders' equity and cash flows for
the years ended December 31, 1994 and 1995 include the results of operations and
cash flows of  Teklicon  for its fiscal  years  ended  March 31,  1995 and 1996,
respectively.

Principles of Consolidation

The  consolidated  financial  statements  include the accounts of a wholly-owned
subsidiary. All significant intercompany transactions have been eliminated.



<PAGE>
         FORENSIC TECHNOLOGIES INTERNATIONAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                         DECEMBER 31, 1995 - (Continued)


Use of Estimates

         The  preparation of financial  statements in conformity  with generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that affect the amounts  reported in the financial  statements  and
accompanying notes. Actual results could differ from those estimates.
         The Company uses estimates to determine the amount of the allowance for
doubtful  accounts   necessary  to  reduce  accounts   receivable  and  unbilled
receivables to their expected net realizable  value.  The Company  estimates the
amount of the required allowance by reviewing the status of significant past-due
receivables  and  analyzing  historical  bad debt  trends.  The  Company has not
experienced significant variations in the estimate of the allowance for doubtful
accounts, due primarily to credit policies, collection experience, and a lack of
concentration of accounts receivable.

Significant Accounting Policies

Cash Equivalents

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

Property and Equipment

         Property  and  equipment  is stated at cost and  depreciated  using the
straight-line  method.  Buildings  are  depreciated  over a period  of 40 years,
furniture and equipment is depreciated  over estimated useful lives ranging from
5 to 7 years,  and leasehold  improvements  are amortized over the lesser of the
estimated useful life of the asset or the lease term.


<PAGE>
         FORENSIC TECHNOLOGIES INTERNATIONAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                         DECEMBER 31, 1995 - (Continued)
Revenue Recognition

         The Company  derives most of its  revenues  from  professional  service
activities.  The  majority  of these  activities  are  provided  under "time and
materials" billing arrangements,  and revenues, consisting of fees and expenses,
are recorded as work is performed and expenses are incurred. Revenues recognized
in  excess  of  amounts  billed  to  clients  have  been  recorded  as  unbilled
receivables in the accompanying consolidated balance sheets.

         The Company also enters into fixed price  contracts for its  litigation
support  services  that are  accounted  for using  the  percentage-of-completion
method.  Income for these  contracts is  recognized  based on the  percentage of
contract  completion  determined  by the total  expenses  incurred  to date as a
percentage of total estimated expenses at the completion of the contract.

Direct Cost of Revenues

         Direct  cost  of  revenues  consists  primarily  of  billable  employee
compensation and related payroll benefits,  the cost of consultants  assigned to
revenue generating activities,  and direct expenses billable to clients.  Direct
cost of revenues does not include an allocation of overhead costs.

Accounting for Impairment of Long-lived  Assets and for Long-lived  Assets to Be
Disposed of

         In 1995 the Company  adopted the  provisions  of  Financial  Accounting
Standards Board  Statement No. 121,  Accounting for the Impairment of Long-Lived
Assets and for  Long-Lived  Assets to Be Disposed Of, issued in March 1995.  The
Statement  prescribes the  accounting  for the impairment of long-lived  assets,
such as property,  plant and equipment  and  intangible  assets,  as well as the
accounting  for  long-lived  assets that are held for disposal.  The adoption of
this Statement in 1995 did not have a material impact on the reported results of
operations of the Company.

         Under Statement No. 121, the Company is not required to actively search
for  impairments  of assets that are  employed in the  business or to perform an
asset-by-asset  analysis to determine whether an impairment  exists.  Instead, a
review  is  necessary  only  when  events  or  circumstances  indicate  that  an
impairment  might exist.  When one or more  indicators  are present,  assets are
grouped at the lowest level for which there are  identifiable  cash flows.  Then
the expected future  undiscounted  cash flows from the use and eventual disposal
of each group of assets are estimated  and compared with the carrying  amount of
that group of assets.  If the sum of the  estimated  undiscounted  cash flows is
less  than the  carrying  amount  of the  assets,  an  impairment  loss  will be
recorded. The impairment loss is measured by comparing the fair value

<PAGE>
         FORENSIC TECHNOLOGIES INTERNATIONAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                         DECEMBER 31, 1995 - (Continued)

of the assets with their carrying amount.  Assets held for disposal are reported
at the lower of the assets'  carrying amount or fair value less costs related to
the assets' disposition.

Stock Options Granted to Employees

         The  Company   records   compensation   expense  for  all   stock-based
compensation  plans using the intrinsic  value method  prescribed by APB Opinion
No. 25, Accounting for Stock Issued to Employees.  In October 1995 the Financial
Accounting  Standards  Board  issued  FASB  Statement  No. 123,  Accounting  for
Stock-Based  Compensation,  which encourages  companies to recognize expense for
stock-based  awards  based  on  their  estimated  value  on the  date of  grant.
Statement  No. 123,  effective  for 1996,  does not require  companies to change
their existing  accounting  for  stock-based  awards,  but if the new fair value
method is not  adopted,  pro forma  income and earnings per share data should be
provided in the footnotes to the financial  statements.  The Company  intends to
continue to account for stock-based compensation plans using the intrinsic value
method,  and will  supplementally  disclose in its 1996  consolidated  financial
statements  the required pro forma  information  as if the fair value method had
been adopted.

Income Taxes

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


<PAGE>
         FORENSIC TECHNOLOGIES INTERNATIONAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                         DECEMBER 31, 1995 - (Continued)





2.       EARNINGS PER SHARE

The following  table  summarizes the  computations  of share amounts used in the
computation  of earnings per share  presented in the  accompanying  consolidated
statements of operations.
<TABLE>
<CAPTION>
                                                                     December 31,
                                                               1994              1995
                                                            --------------    -------------
                                                              (Restated)        (Restated) 
<S>                                                           <C>              <C>      
COMMON AND COMMON EQUIVALENT SHARES:
 Weighted average number of shares of common                   
  stock outstanding during the period                           2,279,063        2,157,606
 Options to purchase common stock issued within one              
year of registration statement.                                    41,700           41,700
 Dilutive effect of other options and  warrants.                   41,686           83,530
                                                            --------------    ------------- 
 Total common and common equivalent shares of                  
  stock considered outstanding during the year.                 2,362,449        2,282,836
                                                            ==============    =============    
COMMON SHARES, ASSUMING FULL DILUTION:
 Weighted average number of shares of common stock             
outstanding during the period                                   2,279,063        2,157,606
 Options to purchase common stock issued                          
  within one year of registration statement.                       41,700           41,700
 Dilutive effect of other options and  warrants                    41,686          125,373
 Assumed conversion of Series A Redeemable                       
  Convertible Preferred Stock.                                    655,200          655,200
 Assumed conversion of 8% Convertible                                                     
  Subordinated Debentures                                         378,000          378,000 
                                                                  -------          -------   
 Total fully diluted securities considered                     
  outstanding during the year                                   3,395,649        3,357,879
                                                            ==============    =============    
</TABLE>
<PAGE>
         FORENSIC TECHNOLOGIES INTERNATIONAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                         DECEMBER 31, 1995 - (Continued)


          Earnings  per  common and  common  equivalent  share is based upon the
average number of shares of common stock outstanding during each year,  adjusted
for the  dilutive  effect  of  common  stock  equivalents  determined  using the
treasury stock method.  The  computations  also assume that the dilutive  effect
(determined  using the treasury  stock  method) of certain  options and warrants
issued within one year of the Company's  initial filing to register common stock
for  sale to the  public  in March  1996 are  outstanding  for all  periods,  as
required by the SEC.

          Earnings per common share,  assuming full  dilution,  is calculated on
the same basis as the previously described primary computation,  except that the
calculation  in 1994 and 1995 assumes  that the Series A Redeemable  Convertible
Preferred Stock and the 8% Convertible Subordinated Debentures were converted on
the first  day of the  fiscal  year,  and that the fair  value of the  Company's
common  stock on the last day of the fiscal year  (rather  than the average fair
value  during  the  year) is used to  determine  the  dilutive  effect  of stock
options.

3.        SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

          The Company paid interest of $276,839 and $491,375 and income taxes of
$408,272 and $628,984 during fiscal years 1994 and 1995, respectively.

          The  Company  entered  into  the  following   non-cash  investing  and
financing activities:
<TABLE>
<CAPTION>
                                                                                          Years ended December 31,
                                                                               -----------------------------------------------
                                                                                       1994                     1995
                                                                                -------------------     ----------------------
<S>                                                                                   <C>                    <C>        
Acquisition of equipment under capital leases                                         $ 47,305               $   175,368
Redemption of Class A Common Stock and purchase of option to purchase                 $165,000               $        --
Class A Common Stock in exchange for software
</TABLE>

4.        ACQUISITIONS AND DISCONTINUED OPERATIONS

          On September 30, 1996, the Company issued 415,000 shares of its common
stock for all of the outstanding common stock of Teklicon.  Teklicon is based in
Mountain View, California and provides expert witness testimony to attorneys and
businesses.  The merger has been  accounted for as a  pooling-of-interests  and,
accordingly,  the  Company's  financial  statements  have been  restated for all
periods prior to the acquisition to include the financial  position,  results of
operations  and  cash  flows  of  Teklicon.  Revenues  and  net  income  for the
individual entities are as follows:

                               Forensic  
                             Technologies
                            International
                             Corporation        Teklicon            Combined
                             -----------        --------            --------
Year Ended
December 31, 1994:
     Revenues               $ 17,547,055     $ 2,706,842           $ 20,253,897
     Net income             $    638,830     $   134,457           $    773,287

Year Ended
December 31, 1995:
     Revenues               $ 20,327,739     $ 3,053,564           $ 23,381,303
     Net income (loss)      $    705,893     $    (8,633)          $    697,260


          On February 1, 1995, the Company acquired for $200,000 in cash certain
assets of a sole  proprietorship  doing  business as "Applix  Software  Computer
Service",  and formed the  Annapplix  division  of the  Company.  The  Annapplix
division  is a provider  of general  data  processing  consulting  services  and
network  administration  services,  and is considered a separate  segment of the
Company's operations.



<PAGE>
         FORENSIC TECHNOLOGIES INTERNATIONAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                         DECEMBER 31, 1995 - (Continued)

          The  acquisition  was  accounted  for  using  the  purchase  method of
accounting  and the results of operations of the acquired  business are included
in the accompanying 1995  consolidated  statement of operations from February 1,
1995, the date of acquisition, through December 31, 1995. The excess of the cost
of the  acquisition  over the fair value of the assets  acquired of $135,604 was
recorded as goodwill and is  amortized  using the  straight-line  method over 15
years.

          In January 1996,  the Board of Directors and management of the Company
committed to a formal plan to sell the Annapplix division based on an assessment
that the division was not complementary to its core litigation support services.
In March 1996, the Company agreed to sell the division to a group  including the
former owner,  who currently  manages the division as an officer of the Company,
and certain other officers and stockholders of the Company. The Company sold the
furniture, equipment, and intangible assets of the division in exchange for cash
of $150,000,  and retained ownership of billed and unbilled accounts receivable,
buildings  and accounts  payable.  The  effective  date of the sale was April 1,
1996.

          The Company has recorded the results of operations  and estimated loss
on the sale of Annapplix as a  discontinued  operation in the 1995  consolidated
financial  statements.  The estimated  loss on the sale of $365,109  includes an
accrual of  $285,000  for the  estimated  operating  losses,  net of the related
income tax benefit,  for the period from January 1, 1996 through March 31, 1996,
the date of disposal.

          During  1995,  Annapplix  reported  revenues of $3.2  million and loss
before an income tax benefit of $109,534.  Expenses  attributable to the segment
include interest expense related to debt incurred to purchase assets used by the
division and an allocation of $80,000 of other consolidated interest that is not
directly attributable to or related to other operations. The allocated interest,
consisting of interest expense on the line of credit,  is allocated based on the
ratio of the net assets to be sold to total  consolidated  net assets  excluding
the balance of the line of credit.

5.        BORROWINGS UNDER LINE OF CREDIT

          The  Company  has a demand  line of credit  with a bank due on May 31,
1996  under  which  the  Company  may  borrow  up to $3.1  million,  subject  to
restrictions  based on the available  collateral.  Borrowings under this line of
credit bear  interest at the London  Interbank  Offered Rate plus 2.5%,  and are
secured by all of the Company's assets not otherwise pledged as collateral.  The
estimated  average  borrowing  rate  during  1994 and  1995  was 8.1% and  8.3%,
respectively.  In connection  with this credit line,  the Company is required to
maintain a minimum  tangible net worth and comply with certain  other  financial
ratios and covenants.


<PAGE>
         FORENSIC TECHNOLOGIES INTERNATIONAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                         DECEMBER 31, 1995 - (Continued)

6.         DEFERRED REVENUE

          On June 22,  1993,  the  Company  entered  into an  agreement  with an
unrelated  entity whereby the Company  agreed to market the entity's  litigation
consulting  related  services and granted to the entity the exclusive  worldwide
right to  market  the  Company's  litigation  consulting  related  products  and
services through May 31, 1996. In consideration for this agreement,  the Company
was paid  $1,000,000,  which is being recognized as revenue over the term of the
agreement.  For the years  ended  December  31,  1994 and 1995,  the Company has
recognized  $333,333,  and $333,333,  respectively,  as revenue. At December 31,
1995,  the  remaining  $138,889 is  recorded as deferred  revenue in the balance
sheet.

7. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS

Long-term Debt

          Long-term  debt consists of a $79,920  mortgage note payable to a bank
bearing  interest  at the  prime  rate  plus  1.5% and  secured  by the  related
building.  The note requires  monthly  payments of $444 through December 1, 1998
and a lump-sum payment of the entire principal on January 1, 1999.

Capital Leases

          The Company  leases  furniture  and equipment  under  capital  leases.
Property and equipment  includes the following amounts for leases that have been
capitalized:

                                            1994                 1995
                                       -----------------     ----------------
Furniture and equipment                $   2,395,701            $ 2,476,290

Less accumulated amortization              1,996,887              2,148,630
                                       -----------------     ----------------

                                      $    398,814              $ 327,660
                                       =================     ================

Amortization  of leased  assets is included  in  depreciation  and  amortization
expense.

          Future minimum payments under capital lease obligations consist of the
following at December 31, 1995:


<PAGE>
         FORENSIC TECHNOLOGIES INTERNATIONAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                         DECEMBER 31, 1995 - (Continued)


1996                                                         $ 74,590

1997                                                           49,455

1998                                                           33,022

1999                                                           31,857

2000                                                           28,898
                                                   -------------------

Total minimum lease payments                                  217,822

Amounts representing interest                                  27,532
                                                   -------------------

Present value of net minimum lease payments                  
(including current portion of $63,463)                       $190,290
                                                   ===================
8.         CONVERTIBLE SUBORDINATED DEBENTURES

          On July 21,  1994 the  Company  issued  $1,800,000  of 8%  Convertible
Subordinated  Debentures to its  stockholders,  due no later than July 15, 2000.
The Debentures bear interest at a rate of 8% per annum, payable semi-annually on
January 15 and July 15,  beginning on January 15, 1994.  The Company may, at its
option,  pay any accrued interest due by issuing additional  debentures.  During
1994 and 1995, the Company expensed and paid $144,000 of interest to the holders
of the Debentures.

          In May 1996 the Company  completed its initial public offering and the
Debentures converted into 378,151 shares of Class A Common Stock.


<PAGE>
         FORENSIC TECHNOLOGIES INTERNATIONAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                         DECEMBER 31, 1995 - (Continued)

9.     SERIES A REDEEMABLE CONVERTIBLE PREFERRED STOCK AND CLASS A COMMON STOCK

          The Company had  authorized the issuance of 655,200 shares of Series A
Redeemable Convertible Preferred Stock ("Preferred Stock"). At December 31, 1994
and 1995,  655,200  shares  were  outstanding.  Each  share of  Preferred  Stock
converted into 655,200 shares of Class A Common Stock  immediately  prior to the
closing of the Company's initial public offering in May 1996. The holders of the
Company's  Preferred Stock had certain rights,  including  redemption rights, as
described below.

Rights of Holders of Series A  Redeemable Convertible Preferred Stock

          The holders of the  Preferred  Stock were  entitled  to receive,  when
declared by the Board of  Directors,  cumulative  semi-annual  dividends  at the
annual rate of $.19 per share.

          Each share of Preferred Stock had a preference on liquidation of $2.38
per share plus accrued and unpaid  dividends,  and was convertible at the option
of the holder at any time into an equivalent  number of shares of Class A Common
Stock, subject to adjustment in certain circumstances.

         Each share of  Preferred  Stock was subject to  redemption  at any time
after May 8, 1996 for $2.38 per share at the option of the holder.

          The  holders of  Preferred  Stock had  substantially  the same  voting
rights as the holders of Class A Common Stock.

Shares Reserved for Future Issuance

          The Company has reserved  1,291,105 shares of Class A Common Stock for
future issuance upon the conversion of 8% Convertible  Subordinated  Debentures,
Series A  Redeemable  Convertible  Preferred  Stock,  Class B Common  Stock  and
outstanding stock options.



<PAGE>
         FORENSIC TECHNOLOGIES INTERNATIONAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                         DECEMBER 31, 1995 - (Continued)

10.        EMPLOYEE STOCK BONUS AWARD PROGRAM AND CLASS B COMMON STOCK

          The Company has adopted the 1992  Employee  Stock Bonus Award  Program
(the  Program)  which  authorized  the issuance of  1,500,000  shares of Class B
Common Stock.  Each employee under the level of senior management is eligible to
receive shares under the Program. The Company issued 323,400 shares during 1994,
under the Program.  Compensation charged to selling,  general and administrative
expense during 1994 related to these awards was $11,550.

          The Company  determines the amount of  compensation  expense to record
based on an  estimate  of the value of the  Class B Common  Stock at the date of
grant, as approved by the Board of Directors.  The estimated value of 100 shares
of Class B Common Stock is equal to the estimated  value of one share of Class A
Common  Stock (the  conversion  rate of Class B Common Stock into Class A Common
Stock).  The  estimated  value of Class B Common Stock  granted to employees was
$.0357 per share in 1994.

          The  holders of the Class B Common  Stock are not  entitled to vote on
any matter submitted to a vote of stockholders,  nor do they have any preemptive
rights.  Subject to the  preference of the Preferred  Stock,  dividends  will be
declared and paid on the Class B Common Stock  whenever  dividends  are declared
and paid on the Class A Common  Stock.  The amount of  dividend  payable to each
holder of Class B Common  Stock is the  dividend  that would be  received if the
Class B Common Stock were converted into shares of Class A Common Stock.

         The Class B Common Stock automatically  converted into 15,246 shares of
Class A Common Stock upon the closing of the Company's  initial public  offering
in May 1996.

11.        RESTRICTED STOCK GRANTS

          During  1991,  the  Company  approved  a stock  issuance  whereby  key
employees  were granted and issued  201,839  restricted  shares of the Company's
Class A Common Stock  subject to certain  vesting  provisions  expiring in equal
annual  amounts over a four-year  period.  As of December 31, 1994, all of these
shares were fully vested.

          During  1992,  the  Company  awarded an  additional  72,853  shares of
restricted  Class A Common Stock to a key employee,  subject to certain  vesting
provisions  expiring in equal  annual  amounts  over a four-year  period.  As of
December 31, 1995, 12,142 of these shares remain subject to vesting provisions.



<PAGE>
         FORENSIC TECHNOLOGIES INTERNATIONAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                         DECEMBER 31, 1995 - (Continued)

          The market  value of the  shares  awarded  was  recorded  as  unearned
compensation  at the date of issuance  and  reported as a separate  component of
stockholders'  equity. The unearned  compensation is being charged to expense as
earned  over the  four-year  vesting  period.  Compensation  charged to selling,
general and  administrative  expense was $66,789 and $43,365 in 1994,  and 1995,
respectively.

12.       STOCK OPTION PLAN

          The 1992 Stock  Option Plan was  approved by the  stockholders  of the
Company in May 1992.  The plan  provides for the granting to key  employees  and
directors  of  incentive  and  non-qualified  stock  options to  purchase  up to
1,212,548 shares of Class A Common Stock.  Incentive stock options granted under
the plan allow for the  purchase of Class A Common Stock at prices not less than
the fair  market  value of the  Class A Common  Stock at the date of grant for a
term of no more than ten years.  Non-qualified  stock options  granted under the
plan allow for the  purchase of Class A Common Stock at prices not less than 50%
of the fair market value of the Class A Common Stock at the date of grant, for a
term of no more than ten years.  Vesting provisions for individual awards are at
the discretion of the Board of Directors.

          The following table  summarizes the option activity under the Plan for
the two-year period ended December 31, 1995:

<TABLE>
<CAPTION>
                                                                         1994               1995
                                                                     -------------     ----------------
<S>                                                                       <C>                  <C>    
Options outstanding at January 1                                          125,059              209,059

Options granted..............................                              84,000               35,700

Options exercised............................                                  --                   --

Options forfeited............................                                  --              (2,100)
                                                                     -------------     ----------------

Options outstanding at December 31..........                              209,059              242,659
                                                                     =============     ================
Options exerciseable at December 31..........                                  --              103,849
                                                                     =============     ================
Average exercise price per share for options granted during the
year                                                                     $   3.57             $   4.76
                                                                     =============     ================
Weighted-average exercise price per share of outstanding options
at end of year..........                                                 $   2.86             $   3.13
                                                                     =============     ================
</TABLE>


<PAGE>
         FORENSIC TECHNOLOGIES INTERNATIONAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                         DECEMBER 31, 1995 - (Continued)

 13.      FAIR VALUES OF FINANCIAL INSTRUMENTS

          The carrying amount of the Company's financial instruments, consisting
primarily  of  cash  and  cash   equivalents,  accounts   receivable,   unbilled
receivables,   accounts  payable,  and  borrowings  under  the  line  of  credit
approximate  fair  value.  The  8%  Convertible   Subordinated   Debentures  and
Convertible  Redeemable  Preferred  Stock  automatically  converted into Class A
Common Stock upon the closing of the Company's  initial  public  offering in May
1996.  Because of the  conversion,  the securities are not considered  financial
instruments.

14.        INCOME TAXES

          Significant  components  of the  Company's  deferred  tax  assets  and
liabilities at December 31 are as follows:
<TABLE>
<CAPTION>
                                                                    1994                1995
                                                                -------------     ----------------
<S>                                                              <C>                   <C>     
Deferred tax assets:

Allowance for doubtful accounts                                  $ 83,393              $150,879

Loss on disposal of discontinued Annapplix division                    --               246,097

Accrued vacation                                                   34,643                64,030

Deferred revenue                                                  188,889                55,556

Other                                                               6,666                10,756
                                                                -------------     ----------------
Total deferred tax assets                                         313,591               527,318

Valuation allowance for deferred tax assets                            --                    --
                                                                -------------     ----------------
Deferred tax assets after valuation allowance                     313,591               527,318

Deferred tax liability:

Use of cash basis for income tax purposes by Teklicon, Inc.        82,895                79,831

Prepaid expenses                                                   25,217                24,087
                                                                -------------     ----------------
Net deferred tax asset                                           $205,479              $423,400
                                                                =============     ================
</TABLE>


<PAGE>
         FORENSIC TECHNOLOGIES INTERNATIONAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                         DECEMBER 31, 1995 - (Continued)



          Income tax expense attributable to continuing  operations consisted of
the following:


                                     1994                          1995
                                -------------                 ----------------

Current:

 Federal............               $ 538,378                       $575,119

 State..............                 152,147                        152,085
                                -------------                 ----------------
                                     690,526                        727,204
 Deferred (benefit):

 Federal............                (108,247)                        37,714

 State..............                 (30,001)                        13,747
                                -------------                 ----------------
                                    (138,248)                        51,461
                                -------------                 ----------------
                                   $ 552,278                       $778,665
                                =============                 ================

         The  Company's  provision  for income taxes  resulted in effective  tax
rates that varied from the statutory federal income tax rate as follows:


                                                   1994               1995
                                               ------------    ----------------
 Expected federal income tax provision at 34%   $450,692            $648,077

Expenses not deductible for tax purposes          20,886              31,383

State income taxes, net of federal benefit        74,375             107,295

Other                                              6,325              (8,090)
                                               ------------    ----------------

                                               $ 552,278           $ 778,665
                                               ============    ================



<PAGE>
         FORENSIC TECHNOLOGIES INTERNATIONAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                         DECEMBER 31, 1995 - (Continued)



15.       OPERATING LEASES

         The Company leases office space under  noncancelable  operating  leases
that expire in various years through 2003.  The leases for certain  office space
contain  provisions  whereby the future  rental  payments  may be  adjusted  for
increases in maintenance and insurance above specified amounts. The Company also
leases certain  furniture and equipment in its operations under operating leases
having initial terms of less than one year.
         Future  minimum  payments  under  noncancelable  operating  leases with
initial terms of one year or more consist of the following at December 31, 1995:

         1996                                    $  746,512
         1997                                       757,588
         1998                                       732,741
         1999                                       590,481
         2000                                       345,155
         Thereafter                               1,148,484
                                                  ---------
         Total minimum lease
         payments                                $4,320,961
                                                ===========

Rental expense consists of the following for the year ended December 31,:


                                          1994                1995
                                     ----------------     --------------
Furniture and equipment              $ 79,450             $ 99,146

Office and storage                    863,280              818,962
                                     ----------------     --------------

                                     $942,730             $918,108
                                     ================     ==============

16.      EMPLOYEE BENEFIT PLAN

         The  Company  maintains  a qualified  defined  contribution  plan which
covers substantially all employees. Under the plan, participants are entitled to
make both pre-tax and after-tax contributions.  The Company matches a percentage
of  participant  contributions,  limited  to 6% of  the  participant's  eligible
compensation.  The percentage  match is based on each  participant's  respective
years of service. The Company recorded expense of $102,175, and $116,201, during
1994 and 1995, respectively, related to this plan.

<PAGE>
         FORENSIC TECHNOLOGIES INTERNATIONAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                         DECEMBER 31, 1995 - (Continued)


17.       COMMITMENTS

         The Company has entered  into an  agreement  with a former  employee to
repurchase or cause another to purchase 29,018 shares of Class A Common Stock at
$4.76187 per share in January 1996 and 29,022  shares of Class A Common Stock at
$5.95238 per share in January 1997.  The former  employee  retains all ownership
rights in the Class A Common Stock until repurchase. This commitment of $310,930
is classified as Common Stock subject to repurchase in the accompanying  balance
sheet at December 31, 1995. In January 1996 the Company paid the former employee
the installment due of $138,180 and retired the Common Stock repurchased.

18.       SUBSEQUENT EVENTS

         On January 12, 1996,  the Board of  Directors  approved the issuance of
options to purchase 184,800 shares of Class A Common Stock to key employees. The
exercise price of the granted  shares is $6.38 per share,  or the estimated fair
market  value of a share of Class A Common  Stock at the date of grant,  and the
options vest ratably over a three-year period. These options are included in the
earnings per share computation, as discussed in Note 2, Earnings Per Share.

         On January 26, 1996, the Board of Directors  approved a 4.2-for-1 stock
split of the Company's Class A Common Stock.  The  application of  anti-dilution
provisions effectively resulted in a 4.2-for-1 split of the Class B Common Stock
and Series A Redeemable Preferred Stock. The stated par values of the common and
preferred  stocks were not  changed.  All share and per share  amounts have been
restated  to  retroactively  reflect  the split of the Class A Common  Stock and
effective  split of the Class B Common Stock and Series A  Redeemable  Preferred
Stock.

         The Board of  Directors on January 26, 1996  advised,  and at the March
20, 1996 annual meeting of stockholders,  the stockholders approved, amended and
restated  articles  of  incorporation  that,  among  other  things  changed  the
authorized  number of shares of  preferred  stock of all  classes  to  4,000,000
shares  upon the closing of the initial  public  offering in May 1996.  Upon the
closing  of the  initial  public  offering,  no shares of  preferred  stock were
outstanding.
[{"type": "8-K", "sequence": "1", "description": "FORM 8-K", "secsgml_size_bytes": 72679}]
{"company-data": {"conformed-name": "FORENSIC TECHNOLOGIES INTERNATIONAL CORP", "cik": "0000887936", "assigned-sic": "8742", "irs-number": "521261113", "state-of-incorporation": "MD", "fiscal-year-end": "1231"}, "filing-values": {"form-type": "8-K", "act": "34", "file-number": "333-02002", "film-number": "96689194"}, "business-address": {"street1": "2021 RESEARCH DR", "city": "ANNAPOLIS", "state": "MD", "zip": "21401", "phone": "4102248770"}}
U. S. SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                    FORM 8-K
                                 CURRENT REPORT

     PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

       Date of Report (Date of earliest event reported) December 31, 1996

                 FORENSIC TECHNOLOGIES INTERNATIONAL CORPORATION
             (Exact name of registrant as specified in its charter)
Maryland                            0-                         52-1261113
(State of other jurisdiction of     (Commission File Number)  (IRS Employer Identification No.)
        incorporation)
2021 Research Drive, Annapolis, Maryland 21401
          (Address of principal executive offices, including Zip Code)

                                 (410) 224-8770
              (Registrant's telephone number, including area code)
FORENSIC TECHNOLOGIES INTERNATIONAL CORPORATION

ITEM 5.   OTHER EVENTS

        A Form 8K was  previously  filed  on  October  15,  1996  reporting  the
acquisition  of  Teklicon,  Inc.  The  required  financial  statements  of  this
acquisition were filed on Form 8K dated November 27, 1996.

        In as much as, the above  acquisition  was accounted for as a pooling of
interest,  the Company's financial  statements have been restated.  In order to
have  current  combined  financial  statements  of the  Company on file with the
Securities and Exchange  Commission,  this Form 8K includes financial statements
restated to include Teklicon, Inc.

ITEM 7.   FINANCIAL STATEMENTS AND EXHIBITS

        (a)  Financial  Statements.  Audited  financial  statements  of Forensic
Technologies  International, Corp.,  Inc., for the years ended December 31, 1995
and 1994.

                                   SIGNATURES

         Pursuant to the  requirements  of the  Securities  and  Exchange Act of
1934,  the  Registrant has duly caused this report to be signed on its behalf by
the undersigned, hereunto duly authorized.

                           FORENSIC TECHNOLOGIES INTERNATIONAL CORPORATION
                                   (Registrant)

                                         By: /s/ Gary Sindler
                                             ------------------------
                                             Gary Sindler
                                             Executive Vice President and Chief
                                               Financial Officer

DATED: December 31, 1996
REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders
Forensic Technologies International Corporation

We have  audited  the  accompanying  consolidated  balance  sheets  of  Forensic
Technologies  International  Corporation  and subsidiary as of December 31, 1994
and 1995, and the related consolidated  statements of operations,  stockholders'
equity and cash flows for the years then ended.  These financial  statements are
the responsibility of the Company's management. Our responsibility is to express
and opinion on these financial  statements based on our audits. We did not audit
the fiscal year 1995  financial  statements  of  Teklicon,  Inc., a wholly owned
subsidiary,  which statements reflect $941,988 of total assets at March 31, 1996
and $3,053,564 of total revenues for the year then ended.  Those statements were
audited  by other  auditors  whose  report  has been  furnished  to us,  and our
opinion,  insofar as it relates to data  included for  Teklicon,  Inc., is based
solely on the report of the other auditors.

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 and the report of other auditors provide a reasonable
basis for our opinion.

In our  opinion,  based on our  audits  and the  report of other  auditors,  the
consolidated  financial  statements  referred to above  present  fairly,  in all
material respects,  the consolidated financial position of Forensic Technologies
International  Corporation and subsidiary at December 31, 1994 and 1995, and the
consolidated results of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles.

                                                               Ernst & Young LLP

Baltimore, Maryland
December 23, 1996
INDEPENDENT AUDITOR'S REPORT
                          ----------------------------

                                        
                                                          
                                                          
Teklicon, Inc.                                            
Mountain View, California                                 
                                                          

We have audited the accompanying balance sheet of Teklicon (a corporation) as of
March 31, 1996 and the related statements of operations,  retained earnings, and
cash  flows  for  the  year  then  ended.  These  financial  statements  are the
responsibility of the company's management.  Our responsibility is to express an
opinion on these financial statements based on our audit.

We conducted our audit 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 audit provides a reasonable basis for our opinion.

In our opinion,  the financial statements referred to above represent fairly, in
all material respects, the financial position of Teklicon,  Inc. as of March 31,
1996,  and the  results of its  operations  and its cash flows for the year then
ended in conformity with generally accepted accounting principles

                                             /s/ Young, Craig & Co.

July 25, 1996
Forensic Technologies International Corporation and Subsidiary
                           Consolidated Balance Sheets
December 31,
                                                                    ------------------------------------------------
                                                                          1994                         1995
                                                                    ------------------         ---------------------
ASSETS                                                                 (Restated)                (Restated)

Current assets:
 Cash and cash equivalents..............................              $       245,918                 $     244,925
 Accounts receivable, less allowance of $129,260 in 1994                   
   and  $212,262 in 1995................................                    3,579,920                     4,633,850
 Unbilled receivables, less allowance of $79,223 in 1994                 
 and $164,935 in 1995...................................                    1,907,526                     2,230,674
 Deferred income taxes..................................                      149,923                       419,310
 Prepaid expenses.......................................                      136,577                       145,805
                                                                    ------------------         ---------------------
Total current assets....................................                    6,019,864                     7,674,564
Property and equipment:
 Buildings..............................................                           --                       411,241
 Furniture and equipment................................                    5,569,460                     6,576,259
 Leasehold improvements.................................                      469,666                       677,348
                                                                              -------                       -------
                                                                            6,039,126                     7,664,848
 Accumulated depreciation and amortization..............                   (4,212,054)                   (4,784,174)
                                                                           ----------                    ---------- 
                                                                            1,827,072                     2,880,674
Deferred income taxes...................................                       55,556                         4,090
Other assets............................................                      168,235                       196,662
                                                                              -------                       -------
Total assets............................................                  $ 8,070,727                  $ 10,755,990
                                                                   ===================        ======================
The accompanying notes are an integral part of these financial statements.
Forensic Technologies International Corporation and Subsidiary
                     Consolidated Balance Sheets (Continued)
December 31,
                                                                           -----------------------------------------
                                                                                 1994                   1995
                                                                           -----------------     -------------------
Liabilities and stockholders' equity                                          (Restated)            (Restated)
Current liabilities:
 Accounts payable                                                                $  610,492            $  1,171,201
 Borrowings under line of credit                                                    572,239               2,110,391
 Accrued compensation expense                                                       406,386                 933,841
 Income taxes payable                                                               161,563                 208,296
 Current portion of deferred revenue                                                333,333                 138,889
 Current portion of capital lease obligations                                       322,251                  63,463
 Accrued loss on disposal of discontinued operations                                     --                 478,828
 Other current liabilities                                                          245,752                 310,554
                                                                           -----------------     -------------------
Total current liabilities                                                         2,652,016               5,415,463
Deferred revenue, less current portion                                              138,889                      --
Long-term debt and capital lease obligations, less current  portion                  81,671                 206,747
8% Convertible Subordinated Debentures, due to stockholders                       1,800,000               1,800,000
Series A Redeemable Convertible Preferred Stock, $.01 par value, stated           
at  redemption value                                                              1,560,000               1,560,000
Common Stock subject to repurchase                                                      --                  310,930
Commitments and contingent liabilities                                                  --                       --
Stockholders' equity:                                                                
 Common stock, $.01 par value:
 Class A:
  Authorized shares -- 9,800,000; Shares issued and outstanding and
  not subject to repurchase - 2,231,613 in 1994 and 1,989,059 in 1995                22,316                  19,891
 Class B:                                                                            
  Authorized shares -- 6,300,000; Issued and outstanding shares --
  1,688,400 in 1994 and 1,524,600 in 1995                                            16,884                  15,246
 Additional paid-in capital                                                         987,922                     850
 Retained earnings                                                                  883,313               1,455,773
 Less: Unearned compensation recorded upon issuance of common stock                (72,284)                (28,910)
                                                                           -----------------     -------------------
Total stockholders' equity                                                        1,838,151               1,462,850
                                                                           -----------------     -------------------
Total liabilities and stockholders' equity                                       $8,070,727             $10,755,990
                                                                           =================     ===================
The accompanying notes are an integral part of these financial statements.
Forensic Technologies International Corporation and Subsidiary
                      Consolidated Statements of Operations
Years Ended December 31,
                                                           -----------------------------------
                                                                    1994               1995
                                                           ------------------  ----------------
                                                               (Restated)         (Restated)
Revenues                                                      $20,253,897       $23,381,303
Direct cost of revenues                                        10,499,161        11,366,249
Selling, general and administrative expenses                    8,319,848         9,886,791
                                                           ------------------  ----------------
Total costs and expenses                                       18,819,009        21,253,040
                                                           ------------------  ----------------
                                                                1,434,888         2,128,263
Other income (expenses):
Interest and other income                                         172,527            41,669
Interest expense                                                 (281,850)         (263,824)
                                                           ------------------  ----------------
                                                                 (109,323)         (222,155)
                                                           ------------------  ----------------
Income  from continuing operations before                       
  income taxes                                                  1,325,565         1,906,108
Income taxes                                                      552,278           778,665
                                                           ------------------  ----------------
Income from continuing operations                                 773,287         1,127,443
Discontinued operations:
 Loss from discontinued operations (net of  income tax                 
  benefit of $44,460)                                                 --            (65,074)
 Loss on disposal of discontinued operations (net of income
   tax benefit of $248,520)                                           --           (365,109)
                                                           -----------------   ----------------
Net income                                                   $   773,287        $   697,260
                                                           =================   ================
Earnings Per Share Data:

 Per common and common equivalent share:
  Income from continuing operations                          $      0.33        $      0.49
                                                           =================   ================
                                               
 
  Net income                                                 $      0.33        $      0.31  
                                                           =================   ================
Per common share, assuming full dilution:  
  Income from continuing operations                          $      0.25        $      0.37
                                                           =================   ================

  Net income                                                 $      0.25        $      0.23
                                                           =================   ================
The accompanying notes are an integral part of these financial statements.
Forensic Technologies International Corporation and Subsidiary
          Consolidated Statements of Stockholders' Equity (as restated)
Class A              Class B            Additional
                                                     Common              Common               Paid-in              Retained         
                                                      Stock               Stock               Capital              Earnings         
                                                 ----------------    ----------------    ------------------    -----------------
Balance at January 1, 1994                               $22,610             $19,152            $1,118,754             $339,532     
 Award of 323,400 shares of Class B Common                                                                                
Stock under the 1992 Employee Stock Bonus                                    
Award Program                                                                  3,234                 8,316
 Repurchase of 550,200 shares of Class B                                             
Common Stock                                                                  (5,502)              (14,148)     
 Repurchase of 29,400 shares of Class A Common                                                                         
Stock                                                       (294)                                                      (104,706) 
 Purchase of options to purchase 105,000                                                                                    
shares of Class A  Common Stock                                                                   (125,000)  
 Amortization of unearned compensation                                                                                              
 Dividends paid on Series A Redeemable                                                                                      
Convertible Preferred  Stock ($.19 per share)                                                                          (124,800)
 Net income for 1994.                                                                                                   773,287     
                                                 ----------------    ----------------    ------------------    -----------------    
Balance at December 31, 1994                              22,316              16,884               987,922              883,313     
 Repurchase of 163,800 shares of Class B                                                                               
Common Stock                                                                  (1,638)               (4,212)
 Repurchase of 184,514 shares of Class A                                                                            
Common Stock                                              (1,845)                                 (722,510)  
 Amortization of unearned compensation                                                                                              
 Dividends paid on Series A Redeemable                                                                                     
Convertible Preferred Stock ($.19 per share)                                                                           (124,800)  
 Reclassification of Class A Common Stock                                                                            
subject to   repurchase                                     (580)                                 (310,350)     
 Other                                                                                              50,000                          

 Net income for 1995                                                                                                    697,260     
                                                 ----------------    ----------------    ------------------    -----------------    
Balance at December 31, 1995                             $19,891             $15,246        $          850           $1,455,773     
                                                 ================    =================   ==================    =================
Unearned                 Total
                                                     Compensation
                                                -----------------    ----------------
Balance at January 1, 1994.                              $(139,073)         $ 1,360,975
 Award of 323,400 shares of Class B Common                                      
Stock under the 1992 Employee Stock Bonus
Award Program                                                                    11,550
 Repurchase of 550,200 shares of Class B                                        
Common Stock                                                                    (19,650)
 Repurchase of 29,400 shares of Class A Common 
Stock                                                                          (105,000)
 Purchase of options to purchase 105,000 
shares of Class A Common Stock                                                 (125,000)
 Amortization of unearned compensation                     66,789                66,789
 Dividends paid on Series A Redeemable                                         
Convertible Preferred  Stock ($.19 per share)                                  (124,800)
 Net income for 1994                                                            773,287
                                                      ------------          ------------
Balance at December 31, 1994                              (72,284)            1,838,151
 Repurchase of 163,800 shares of Class B                                        
Common Stock                                                                    (5,850)
 Repurchase of 184,514 shares of Class A                                       
Common Stock                                                                   (724,355)
 Amortization of unearned compensation                     43,374                43,374
 Dividends paid on Series A Redeemable                                        
Convertible Preferred Stock ($.19 per share)                                   (124,800)
 Reclassification of Class A Common Stock                                      
subject to repurchase                                                          (310,930)
 Other                                                                           50,000

 Net income for 1995                                                            697,260
                                                     -------------          ------------
Balance at December 31, 1995                            $ (28,910)          $ 1,462,850
                                                     =============          ============
The accompanying notes are an integral part of these financial statements.
Forensic Technologies International Corporation and Subsidiary
                      Consolidated Statements of Cash Flows
Years Ended December 31,
                                                                        --------------------------------
                                                                           1994               1995
                                                                        ------------         -----------
                                                                         (Restated)          (Restated)
Cash flow from operating activities
Net income                                                                 $ 773,287         $   697,260
  Adjustments to reconcile net income to net cash provided by  operating
  activities:
  Depreciation                                                               864,596             637,837
  Amortization                                                                17,152              20,835
  Non-cash compensation.                                                      66,789              43,374
  Provision for doubtful accounts                                             41,370             168,714
  Deferred income taxes                                                     (139,424)           (217,921)
  Loss on disposal of assets                                                      --              26,281
  Loss on disposal of discontinued Annapplix  division                            --             613,629
  Gain on sale of technology                                                (121,989)                 --
  Changes in operating assets and liabilities:
   Unbilled receivables                                                     (307,329)           (423,885)
   Accounts receivable                                                        28,624            (971,907)
   Income taxes refundable                                                   121,867                  --
   Prepaid expenses                                                           45,367              (9,228)
   Accounts payable                                                         (317,408)            560,709
   Accrued compensation expense                                               59,885             527,455
   Income taxes payable                                                      166,297              96,732
   Deferred revenue.                                                        (333,333)           (333,333)
   Other current liabilities                                                (214,624)             64,802
                                                                        ------------         -----------
    Net cash provided by operating activities                                751,127           1,501,354

Cash flow from investing activities
  Proceeds from sale of marketable securities                                202,370                  --
  Purchase of property and equipment                                        (625,454)         (1,608,939)
  Proceeds from sale of property and equipment                                    --              22,608
  Acquisition of Applix Software Computer Service.                                --            (200,000)
  Purchase of other assets                                                  (96,934)             (40,975)
                                                                        ------------         -----------
    Net cash used in investing activities                                  (520,018)          (1,827,306)

Cash flow from financing activities
  Proceeds from issuance of Class B Common Stock.                            11,550                   --
  Repurchase of Class B Common Stock                                        (19,650)              (5,850)
  Repurchase of Class A Common Stock and purchase of
   options to purchase Class A Common Stock                                 (65,000)            (724,355)
  Net borrowings (repayments) under line of credit                         (242,761)           1,538,152
  Payments of capital lease obligations                                    (434,970)            (358,188)
  Dividends paid                                                           (124,800)            (124,800)
                                                                        ------------         -----------
    Net cash provided by (used in) financing
     activities                                                            (875,631)             324,959
                                                                        ------------         -----------
Net decrease in cash and cash
 equivalents                                                               (644,522)                (993)
Cash and cash equivalents at beginning of year                              890,440              245,918
                                                                        ------------         -----------
Cash and cash equivalents at end of year                               $    245,918        $     244,925
                                                                        ============        ============
The accompanying notes are an integral part of these financial statements.
FORENSIC TECHNOLOGIES INTERNATIONAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 1995

         1.       BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation of Financial Statements

Description of Business

         Forensic  Technologies  International  Corporation  and Subsidiary (the
Company) provides communication,  engineering,  and other trial support services
to the litigation  industry.  These  services  include event  investigation  and
analysis,  expert testimony,  courtroom visual presentation,  computer animation
and   simulation,   jury  analysis  and  selection,   exposure   assessment  and
computerized  document  storage and  retrieval.  The  Company has seven  offices
serving all regions of the United States.

On September 30, 1996 the Company  acquired all of the outstanding  common stock
of Teklicon,  Inc.  ("Teklicon") in exchange for 415,000 shares of common stock.
The  acquisition  was accounted for as a pooling of interests and,  accordingly,
the Company's  financial  statements have been restated for all periods prior to
the merger to include the financial  position,  results of operations,  and cash
flows of Teklicon. The accompanying  consolidated balance sheets at December 31,
1994 and 1995 include the  financial  position of Teklicon at March 31, 1995 and
March 31, 1996, respectively,  the fiscal year-end of Teklicon. The accompanying
consolidated  statements of operations,  stockholders' equity and cash flows for
the years ended December 31, 1994 and 1995 include the results of operations and
cash flows of  Teklicon  for its fiscal  years  ended  March 31,  1995 and 1996,
respectively.

Principles of Consolidation

The  consolidated  financial  statements  include the accounts of a wholly-owned
subsidiary. All significant intercompany transactions have been eliminated.
FORENSIC TECHNOLOGIES INTERNATIONAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                         DECEMBER 31, 1995 - (Continued)

Use of Estimates

         The  preparation of financial  statements in conformity  with generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that affect the amounts  reported in the financial  statements  and
accompanying notes. Actual results could differ from those estimates.
         The Company uses estimates to determine the amount of the allowance for
doubtful  accounts   necessary  to  reduce  accounts   receivable  and  unbilled
receivables to their expected net realizable  value.  The Company  estimates the
amount of the required allowance by reviewing the status of significant past-due
receivables  and  analyzing  historical  bad debt  trends.  The  Company has not
experienced significant variations in the estimate of the allowance for doubtful
accounts, due primarily to credit policies, collection experience, and a lack of
concentration of accounts receivable.

Significant Accounting Policies

Cash Equivalents

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

Property and Equipment

         Property  and  equipment  is stated at cost and  depreciated  using the
straight-line  method.  Buildings  are  depreciated  over a period  of 40 years,
furniture and equipment is depreciated  over estimated useful lives ranging from
5 to 7 years,  and leasehold  improvements  are amortized over the lesser of the
estimated useful life of the asset or the lease term.
FORENSIC TECHNOLOGIES INTERNATIONAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                         DECEMBER 31, 1995 - (Continued)
Revenue Recognition

         The Company  derives most of its  revenues  from  professional  service
activities.  The  majority  of these  activities  are  provided  under "time and
materials" billing arrangements,  and revenues, consisting of fees and expenses,
are recorded as work is performed and expenses are incurred. Revenues recognized
in  excess  of  amounts  billed  to  clients  have  been  recorded  as  unbilled
receivables in the accompanying consolidated balance sheets.

         The Company also enters into fixed price  contracts for its  litigation
support  services  that are  accounted  for using  the  percentage-of-completion
method.  Income for these  contracts is  recognized  based on the  percentage of
contract  completion  determined  by the total  expenses  incurred  to date as a
percentage of total estimated expenses at the completion of the contract.

Direct Cost of Revenues

         Direct  cost  of  revenues  consists  primarily  of  billable  employee
compensation and related payroll benefits,  the cost of consultants  assigned to
revenue generating activities,  and direct expenses billable to clients.  Direct
cost of revenues does not include an allocation of overhead costs.

Accounting for Impairment of Long-lived  Assets and for Long-lived  Assets to Be
Disposed of

         In 1995 the Company  adopted the  provisions  of  Financial  Accounting
Standards Board  Statement No. 121,  Accounting for the Impairment of Long-Lived
Assets and for  Long-Lived  Assets to Be Disposed Of, issued in March 1995.  The
Statement  prescribes the  accounting  for the impairment of long-lived  assets,
such as property,  plant and equipment  and  intangible  assets,  as well as the
accounting  for  long-lived  assets that are held for disposal.  The adoption of
this Statement in 1995 did not have a material impact on the reported results of
operations of the Company.

         Under Statement No. 121, the Company is not required to actively search
for  impairments  of assets that are  employed in the  business or to perform an
asset-by-asset  analysis to determine whether an impairment  exists.  Instead, a
review  is  necessary  only  when  events  or  circumstances  indicate  that  an
impairment  might exist.  When one or more  indicators  are present,  assets are
grouped at the lowest level for which there are  identifiable  cash flows.  Then
the expected future  undiscounted  cash flows from the use and eventual disposal
of each group of assets are estimated  and compared with the carrying  amount of
that group of assets.  If the sum of the  estimated  undiscounted  cash flows is
less  than the  carrying  amount  of the  assets,  an  impairment  loss  will be
recorded. The impairment loss is measured by comparing the fair value
FORENSIC TECHNOLOGIES INTERNATIONAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                         DECEMBER 31, 1995 - (Continued)

of the assets with their carrying amount.  Assets held for disposal are reported
at the lower of the assets'  carrying amount or fair value less costs related to
the assets' disposition.

Stock Options Granted to Employees

         The  Company   records   compensation   expense  for  all   stock-based
compensation  plans using the intrinsic  value method  prescribed by APB Opinion
No. 25, Accounting for Stock Issued to Employees.  In October 1995 the Financial
Accounting  Standards  Board  issued  FASB  Statement  No. 123,  Accounting  for
Stock-Based  Compensation,  which encourages  companies to recognize expense for
stock-based  awards  based  on  their  estimated  value  on the  date of  grant.
Statement  No. 123,  effective  for 1996,  does not require  companies to change
their existing  accounting  for  stock-based  awards,  but if the new fair value
method is not  adopted,  pro forma  income and earnings per share data should be
provided in the footnotes to the financial  statements.  The Company  intends to
continue to account for stock-based compensation plans using the intrinsic value
method,  and will  supplementally  disclose in its 1996  consolidated  financial
statements  the required pro forma  information  as if the fair value method had
been adopted.

Income Taxes

         The Company uses the liability  method of accounting  for income taxes.
Under this method,  deferred tax assets and liabilities are determined  based on
differences  between financial reporting and tax bases of assets and liabilities
and are  measured  using the  enacted  tax rates and laws that will be in effect
when the differences are expected to reverse.
FORENSIC TECHNOLOGIES INTERNATIONAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                         DECEMBER 31, 1995 - (Continued)

2.       EARNINGS PER SHARE

The following  table  summarizes the  computations  of share amounts used in the
computation  of earnings per share  presented in the  accompanying  consolidated
statements of operations.
December 31,
                                                               1994              1995
                                                            --------------    -------------
                                                              (Restated)        (Restated)
COMMON AND COMMON EQUIVALENT SHARES:
 Weighted average number of shares of common                   
  stock outstanding during the period                           2,279,063        2,157,606
 Options to purchase common stock issued within one              
year of registration statement.                                    41,700           41,700
 Dilutive effect of other options and  warrants.                   41,686           83,530
                                                            --------------    ------------- 
 Total common and common equivalent shares of                  
  stock considered outstanding during the year.                 2,362,449        2,282,836
                                                            ==============    =============    
COMMON SHARES, ASSUMING FULL DILUTION:
 Weighted average number of shares of common stock             
outstanding during the period                                   2,279,063        2,157,606
 Options to purchase common stock issued                          
  within one year of registration statement.                       41,700           41,700
 Dilutive effect of other options and  warrants                    41,686          125,373
 Assumed conversion of Series A Redeemable                       
  Convertible Preferred Stock.                                    655,200          655,200
 Assumed conversion of 8% Convertible                                                     
  Subordinated Debentures                                         378,000          378,000 
                                                                  -------          -------   
 Total fully diluted securities considered                     
  outstanding during the year                                   3,395,649        3,357,879
                                                            ==============    =============
FORENSIC TECHNOLOGIES INTERNATIONAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                         DECEMBER 31, 1995 - (Continued)

          Earnings  per  common and  common  equivalent  share is based upon the
average number of shares of common stock outstanding during each year,  adjusted
for the  dilutive  effect  of  common  stock  equivalents  determined  using the
treasury stock method.  The  computations  also assume that the dilutive  effect
(determined  using the treasury  stock  method) of certain  options and warrants
issued within one year of the Company's  initial filing to register common stock
for  sale to the  public  in March  1996 are  outstanding  for all  periods,  as
required by the SEC.

          Earnings per common share,  assuming full  dilution,  is calculated on
the same basis as the previously described primary computation,  except that the
calculation  in 1994 and 1995 assumes  that the Series A Redeemable  Convertible
Preferred Stock and the 8% Convertible Subordinated Debentures were converted on
the first  day of the  fiscal  year,  and that the fair  value of the  Company's
common  stock on the last day of the fiscal year  (rather  than the average fair
value  during  the  year) is used to  determine  the  dilutive  effect  of stock
options.

3.        SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

          The Company paid interest of $276,839 and $491,375 and income taxes of
$408,272 and $628,984 during fiscal years 1994 and 1995, respectively.

          The  Company  entered  into  the  following   non-cash  investing  and
financing activities:
Years ended December 31,
                                                                               -----------------------------------------------
                                                                                       1994                     1995
                                                                                -------------------     ----------------------
Acquisition of equipment under capital leases                                         $ 47,305               $   175,368
Redemption of Class A Common Stock and purchase of option to purchase                 $165,000               $        --
Class A Common Stock in exchange for software
4.        ACQUISITIONS AND DISCONTINUED OPERATIONS

          On September 30, 1996, the Company issued 415,000 shares of its common
stock for all of the outstanding common stock of Teklicon.  Teklicon is based in
Mountain View, California and provides expert witness testimony to attorneys and
businesses.  The merger has been  accounted for as a  pooling-of-interests  and,
accordingly,  the  Company's  financial  statements  have been  restated for all
periods prior to the acquisition to include the financial  position,  results of
operations  and  cash  flows  of  Teklicon.  Revenues  and  net  income  for the
individual entities are as follows:

                               Forensic  
                             Technologies
                            International
                             Corporation        Teklicon            Combined
                             -----------        --------            --------
Year Ended
December 31, 1994:
     Revenues               $ 17,547,055     $ 2,706,842           $ 20,253,897
     Net income             $    638,830     $   134,457           $    773,287

Year Ended
December 31, 1995:
     Revenues               $ 20,327,739     $ 3,053,564           $ 23,381,303
     Net income (loss)      $    705,893     $    (8,633)          $    697,260

          On February 1, 1995, the Company acquired for $200,000 in cash certain
assets of a sole  proprietorship  doing  business as "Applix  Software  Computer
Service",  and formed the  Annapplix  division  of the  Company.  The  Annapplix
division  is a provider  of general  data  processing  consulting  services  and
network  administration  services,  and is considered a separate  segment of the
Company's operations.
FORENSIC TECHNOLOGIES INTERNATIONAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                         DECEMBER 31, 1995 - (Continued)

          The  acquisition  was  accounted  for  using  the  purchase  method of
accounting  and the results of operations of the acquired  business are included
in the accompanying 1995  consolidated  statement of operations from February 1,
1995, the date of acquisition, through December 31, 1995. The excess of the cost
of the  acquisition  over the fair value of the assets  acquired of $135,604 was
recorded as goodwill and is  amortized  using the  straight-line  method over 15
years.

          In January 1996,  the Board of Directors and management of the Company
committed to a formal plan to sell the Annapplix division based on an assessment
that the division was not complementary to its core litigation support services.
In March 1996, the Company agreed to sell the division to a group  including the
former owner,  who currently  manages the division as an officer of the Company,
and certain other officers and stockholders of the Company. The Company sold the
furniture, equipment, and intangible assets of the division in exchange for cash
of $150,000,  and retained ownership of billed and unbilled accounts receivable,
buildings  and accounts  payable.  The  effective  date of the sale was April 1,
1996.

          The Company has recorded the results of operations  and estimated loss
on the sale of Annapplix as a  discontinued  operation in the 1995  consolidated
financial  statements.  The estimated  loss on the sale of $365,109  includes an
accrual of  $285,000  for the  estimated  operating  losses,  net of the related
income tax benefit,  for the period from January 1, 1996 through March 31, 1996,
the date of disposal.

          During  1995,  Annapplix  reported  revenues of $3.2  million and loss
before an income tax benefit of $109,534.  Expenses  attributable to the segment
include interest expense related to debt incurred to purchase assets used by the
division and an allocation of $80,000 of other consolidated interest that is not
directly attributable to or related to other operations. The allocated interest,
consisting of interest expense on the line of credit,  is allocated based on the
ratio of the net assets to be sold to total  consolidated  net assets  excluding
the balance of the line of credit.

5.        BORROWINGS UNDER LINE OF CREDIT

          The  Company  has a demand  line of credit  with a bank due on May 31,
1996  under  which  the  Company  may  borrow  up to $3.1  million,  subject  to
restrictions  based on the available  collateral.  Borrowings under this line of
credit bear  interest at the London  Interbank  Offered Rate plus 2.5%,  and are
secured by all of the Company's assets not otherwise pledged as collateral.  The
estimated  average  borrowing  rate  during  1994 and  1995  was 8.1% and  8.3%,
respectively.  In connection  with this credit line,  the Company is required to
maintain a minimum  tangible net worth and comply with certain  other  financial
ratios and covenants.
FORENSIC TECHNOLOGIES INTERNATIONAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                         DECEMBER 31, 1995 - (Continued)

6.         DEFERRED REVENUE

          On June 22,  1993,  the  Company  entered  into an  agreement  with an
unrelated  entity whereby the Company  agreed to market the entity's  litigation
consulting  related  services and granted to the entity the exclusive  worldwide
right to  market  the  Company's  litigation  consulting  related  products  and
services through May 31, 1996. In consideration for this agreement,  the Company
was paid  $1,000,000,  which is being recognized as revenue over the term of the
agreement.  For the years  ended  December  31,  1994 and 1995,  the Company has
recognized  $333,333,  and $333,333,  respectively,  as revenue. At December 31,
1995,  the  remaining  $138,889 is  recorded as deferred  revenue in the balance
sheet.

7. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS

Long-term Debt

          Long-term  debt consists of a $79,920  mortgage note payable to a bank
bearing  interest  at the  prime  rate  plus  1.5% and  secured  by the  related
building.  The note requires  monthly  payments of $444 through December 1, 1998
and a lump-sum payment of the entire principal on January 1, 1999.

Capital Leases

          The Company  leases  furniture  and equipment  under  capital  leases.
Property and equipment  includes the following amounts for leases that have been
capitalized:

                                            1994                 1995
                                       -----------------     ----------------
Furniture and equipment                $   2,395,701            $ 2,476,290

Less accumulated amortization              1,996,887              2,148,630
                                       -----------------     ----------------

                                      $    398,814              $ 327,660
                                       =================     ================

Amortization  of leased  assets is included  in  depreciation  and  amortization
expense.

          Future minimum payments under capital lease obligations consist of the
following at December 31, 1995:
FORENSIC TECHNOLOGIES INTERNATIONAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                         DECEMBER 31, 1995 - (Continued)

1996                                                         $ 74,590

1997                                                           49,455

1998                                                           33,022

1999                                                           31,857

2000                                                           28,898
                                                   -------------------

Total minimum lease payments                                  217,822

Amounts representing interest                                  27,532
                                                   -------------------

Present value of net minimum lease payments                  
(including current portion of $63,463)                       $190,290
                                                   ===================
8.         CONVERTIBLE SUBORDINATED DEBENTURES

          On July 21,  1994 the  Company  issued  $1,800,000  of 8%  Convertible
Subordinated  Debentures to its  stockholders,  due no later than July 15, 2000.
The Debentures bear interest at a rate of 8% per annum, payable semi-annually on
January 15 and July 15,  beginning on January 15, 1994.  The Company may, at its
option,  pay any accrued interest due by issuing additional  debentures.  During
1994 and 1995, the Company expensed and paid $144,000 of interest to the holders
of the Debentures.

          In May 1996 the Company  completed its initial public offering and the
Debentures converted into 378,151 shares of Class A Common Stock.
FORENSIC TECHNOLOGIES INTERNATIONAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                         DECEMBER 31, 1995 - (Continued)

9.     SERIES A REDEEMABLE CONVERTIBLE PREFERRED STOCK AND CLASS A COMMON STOCK

          The Company had  authorized the issuance of 655,200 shares of Series A
Redeemable Convertible Preferred Stock ("Preferred Stock"). At December 31, 1994
and 1995,  655,200  shares  were  outstanding.  Each  share of  Preferred  Stock
converted into 655,200 shares of Class A Common Stock  immediately  prior to the
closing of the Company's initial public offering in May 1996. The holders of the
Company's  Preferred Stock had certain rights,  including  redemption rights, as
described below.

Rights of Holders of Series A  Redeemable Convertible Preferred Stock

          The holders of the  Preferred  Stock were  entitled  to receive,  when
declared by the Board of  Directors,  cumulative  semi-annual  dividends  at the
annual rate of $.19 per share.

          Each share of Preferred Stock had a preference on liquidation of $2.38
per share plus accrued and unpaid  dividends,  and was convertible at the option
of the holder at any time into an equivalent  number of shares of Class A Common
Stock, subject to adjustment in certain circumstances.

         Each share of  Preferred  Stock was subject to  redemption  at any time
after May 8, 1996 for $2.38 per share at the option of the holder.

          The  holders of  Preferred  Stock had  substantially  the same  voting
rights as the holders of Class A Common Stock.

Shares Reserved for Future Issuance

          The Company has reserved  1,291,105 shares of Class A Common Stock for
future issuance upon the conversion of 8% Convertible  Subordinated  Debentures,
Series A  Redeemable  Convertible  Preferred  Stock,  Class B Common  Stock  and
outstanding stock options.
FORENSIC TECHNOLOGIES INTERNATIONAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                         DECEMBER 31, 1995 - (Continued)

10.        EMPLOYEE STOCK BONUS AWARD PROGRAM AND CLASS B COMMON STOCK

          The Company has adopted the 1992  Employee  Stock Bonus Award  Program
(the  Program)  which  authorized  the issuance of  1,500,000  shares of Class B
Common Stock.  Each employee under the level of senior management is eligible to
receive shares under the Program. The Company issued 323,400 shares during 1994,
under the Program.  Compensation charged to selling,  general and administrative
expense during 1994 related to these awards was $11,550.

          The Company  determines the amount of  compensation  expense to record
based on an  estimate  of the value of the  Class B Common  Stock at the date of
grant, as approved by the Board of Directors.  The estimated value of 100 shares
of Class B Common Stock is equal to the estimated  value of one share of Class A
Common  Stock (the  conversion  rate of Class B Common Stock into Class A Common
Stock).  The  estimated  value of Class B Common Stock  granted to employees was
$.0357 per share in 1994.

          The  holders of the Class B Common  Stock are not  entitled to vote on
any matter submitted to a vote of stockholders,  nor do they have any preemptive
rights.  Subject to the  preference of the Preferred  Stock,  dividends  will be
declared and paid on the Class B Common Stock  whenever  dividends  are declared
and paid on the Class A Common  Stock.  The amount of  dividend  payable to each
holder of Class B Common  Stock is the  dividend  that would be  received if the
Class B Common Stock were converted into shares of Class A Common Stock.

         The Class B Common Stock automatically  converted into 15,246 shares of
Class A Common Stock upon the closing of the Company's  initial public  offering
in May 1996.

11.        RESTRICTED STOCK GRANTS

          During  1991,  the  Company  approved  a stock  issuance  whereby  key
employees  were granted and issued  201,839  restricted  shares of the Company's
Class A Common Stock  subject to certain  vesting  provisions  expiring in equal
annual  amounts over a four-year  period.  As of December 31, 1994, all of these
shares were fully vested.

          During  1992,  the  Company  awarded an  additional  72,853  shares of
restricted  Class A Common Stock to a key employee,  subject to certain  vesting
provisions  expiring in equal  annual  amounts  over a four-year  period.  As of
December 31, 1995, 12,142 of these shares remain subject to vesting provisions.
FORENSIC TECHNOLOGIES INTERNATIONAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                         DECEMBER 31, 1995 - (Continued)

          The market  value of the  shares  awarded  was  recorded  as  unearned
compensation  at the date of issuance  and  reported as a separate  component of
stockholders'  equity. The unearned  compensation is being charged to expense as
earned  over the  four-year  vesting  period.  Compensation  charged to selling,
general and  administrative  expense was $66,789 and $43,365 in 1994,  and 1995,
respectively.

12.       STOCK OPTION PLAN

          The 1992 Stock  Option Plan was  approved by the  stockholders  of the
Company in May 1992.  The plan  provides for the granting to key  employees  and
directors  of  incentive  and  non-qualified  stock  options to  purchase  up to
1,212,548 shares of Class A Common Stock.  Incentive stock options granted under
the plan allow for the  purchase of Class A Common Stock at prices not less than
the fair  market  value of the  Class A Common  Stock at the date of grant for a
term of no more than ten years.  Non-qualified  stock options  granted under the
plan allow for the  purchase of Class A Common Stock at prices not less than 50%
of the fair market value of the Class A Common Stock at the date of grant, for a
term of no more than ten years.  Vesting provisions for individual awards are at
the discretion of the Board of Directors.

          The following table  summarizes the option activity under the Plan for
the two-year period ended December 31, 1995:
1994               1995
                                                                     -------------     ----------------
Options outstanding at January 1                                          125,059              209,059

Options granted..............................                              84,000               35,700

Options exercised............................                                  --                   --

Options forfeited............................                                  --              (2,100)
                                                                     -------------     ----------------

Options outstanding at December 31..........                              209,059              242,659
                                                                     =============     ================
Options exerciseable at December 31..........                                  --              103,849
                                                                     =============     ================
Average exercise price per share for options granted during the
year                                                                     $   3.57             $   4.76
                                                                     =============     ================
Weighted-average exercise price per share of outstanding options
at end of year..........                                                 $   2.86             $   3.13
                                                                     =============     ================
FORENSIC TECHNOLOGIES INTERNATIONAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                         DECEMBER 31, 1995 - (Continued)

 13.      FAIR VALUES OF FINANCIAL INSTRUMENTS

          The carrying amount of the Company's financial instruments, consisting
primarily  of  cash  and  cash   equivalents,  accounts   receivable,   unbilled
receivables,   accounts  payable,  and  borrowings  under  the  line  of  credit
approximate  fair  value.  The  8%  Convertible   Subordinated   Debentures  and
Convertible  Redeemable  Preferred  Stock  automatically  converted into Class A
Common Stock upon the closing of the Company's  initial  public  offering in May
1996.  Because of the  conversion,  the securities are not considered  financial
instruments.

14.        INCOME TAXES

          Significant  components  of the  Company's  deferred  tax  assets  and
liabilities at December 31 are as follows:
1994                1995
                                                                -------------     ----------------
Deferred tax assets:

Allowance for doubtful accounts                                  $ 83,393              $150,879

Loss on disposal of discontinued Annapplix division                    --               246,097

Accrued vacation                                                   34,643                64,030

Deferred revenue                                                  188,889                55,556

Other                                                               6,666                10,756
                                                                -------------     ----------------
Total deferred tax assets                                         313,591               527,318

Valuation allowance for deferred tax assets                            --                    --
                                                                -------------     ----------------
Deferred tax assets after valuation allowance                     313,591               527,318

Deferred tax liability:

Use of cash basis for income tax purposes by Teklicon, Inc.        82,895                79,831

Prepaid expenses                                                   25,217                24,087
                                                                -------------     ----------------
Net deferred tax asset                                           $205,479              $423,400
                                                                =============     ================
FORENSIC TECHNOLOGIES INTERNATIONAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                         DECEMBER 31, 1995 - (Continued)

          Income tax expense attributable to continuing  operations consisted of
the following:

                                     1994                          1995
                                -------------                 ----------------

Current:

 Federal............               $ 538,378                       $575,119

 State..............                 152,147                        152,085
                                -------------                 ----------------
                                     690,526                        727,204
 Deferred (benefit):

 Federal............                (108,247)                        37,714

 State..............                 (30,001)                        13,747
                                -------------                 ----------------
                                    (138,248)                        51,461
                                -------------                 ----------------
                                   $ 552,278                       $778,665
                                =============                 ================

         The  Company's  provision  for income taxes  resulted in effective  tax
rates that varied from the statutory federal income tax rate as follows:

                                                   1994               1995
                                               ------------    ----------------
 Expected federal income tax provision at 34%   $450,692            $648,077

Expenses not deductible for tax purposes          20,886              31,383

State income taxes, net of federal benefit        74,375             107,295

Other                                              6,325              (8,090)
                                               ------------    ----------------

                                               $ 552,278           $ 778,665
                                               ============    ================
FORENSIC TECHNOLOGIES INTERNATIONAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                         DECEMBER 31, 1995 - (Continued)

15.       OPERATING LEASES

         The Company leases office space under  noncancelable  operating  leases
that expire in various years through 2003.  The leases for certain  office space
contain  provisions  whereby the future  rental  payments  may be  adjusted  for
increases in maintenance and insurance above specified amounts. The Company also
leases certain  furniture and equipment in its operations under operating leases
having initial terms of less than one year.
         Future  minimum  payments  under  noncancelable  operating  leases with
initial terms of one year or more consist of the following at December 31, 1995:

         1996                                    $  746,512
         1997                                       757,588
         1998                                       732,741
         1999                                       590,481
         2000                                       345,155
         Thereafter                               1,148,484
                                                  ---------
         Total minimum lease
         payments                                $4,320,961
                                                ===========

Rental expense consists of the following for the year ended December 31,:

                                          1994                1995
                                     ----------------     --------------
Furniture and equipment              $ 79,450             $ 99,146

Office and storage                    863,280              818,962
                                     ----------------     --------------

                                     $942,730             $918,108
                                     ================     ==============

16.      EMPLOYEE BENEFIT PLAN

         The  Company  maintains  a qualified  defined  contribution  plan which
covers substantially all employees. Under the plan, participants are entitled to
make both pre-tax and after-tax contributions.  The Company matches a percentage
of  participant  contributions,  limited  to 6% of  the  participant's  eligible
compensation.  The percentage  match is based on each  participant's  respective
years of service. The Company recorded expense of $102,175, and $116,201, during
1994 and 1995, respectively, related to this plan.
FORENSIC TECHNOLOGIES INTERNATIONAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                         DECEMBER 31, 1995 - (Continued)

17.       COMMITMENTS

         The Company has entered  into an  agreement  with a former  employee to
repurchase or cause another to purchase 29,018 shares of Class A Common Stock at
$4.76187 per share in January 1996 and 29,022  shares of Class A Common Stock at
$5.95238 per share in January 1997.  The former  employee  retains all ownership
rights in the Class A Common Stock until repurchase. This commitment of $310,930
is classified as Common Stock subject to repurchase in the accompanying  balance
sheet at December 31, 1995. In January 1996 the Company paid the former employee
the installment due of $138,180 and retired the Common Stock repurchased.

18.       SUBSEQUENT EVENTS

         On January 12, 1996,  the Board of  Directors  approved the issuance of
options to purchase 184,800 shares of Class A Common Stock to key employees. The
exercise price of the granted  shares is $6.38 per share,  or the estimated fair
market  value of a share of Class A Common  Stock at the date of grant,  and the
options vest ratably over a three-year period. These options are included in the
earnings per share computation, as discussed in Note 2, Earnings Per Share.

         On January 26, 1996, the Board of Directors  approved a 4.2-for-1 stock
split of the Company's Class A Common Stock.  The  application of  anti-dilution
provisions effectively resulted in a 4.2-for-1 split of the Class B Common Stock
and Series A Redeemable Preferred Stock. The stated par values of the common and
preferred  stocks were not  changed.  All share and per share  amounts have been
restated  to  retroactively  reflect  the split of the Class A Common  Stock and
effective  split of the Class B Common Stock and Series A  Redeemable  Preferred
Stock.

         The Board of  Directors on January 26, 1996  advised,  and at the March
20, 1996 annual meeting of stockholders,  the stockholders approved, amended and
restated  articles  of  incorporation  that,  among  other  things  changed  the
authorized  number of shares of  preferred  stock of all  classes  to  4,000,000
shares  upon the closing of the initial  public  offering in May 1996.  Upon the
closing  of the  initial  public  offering,  no shares of  preferred  stock were
outstanding.