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

                                    FORM 10-K

(Mark One)

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

For the fiscal year ended November 30, 1998

                                       OR

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

For the transition period from ________________ to __________________

                         Commission file number 0-10621

                            AMERICAN ECO CORPORATION
             (Exact name of Registrant as specified in its charter)

      Ontario, Canada                                            52-1742490
   (State or other jurisdiction                               (I.R.S. Employer
of incorporation or organization)                            Identification No.)

                 154 University Avenue, Toronto, Ontario M5H 3Y9
          (Address of principal executive offices, including zip code)

                                 (416) 340-2727
              (Registrant's telephone number, including area code)

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

                                                      Name of each exchange on
Title of each class                                       which registered
-------------------                                       ----------------
      None                                                     None

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

                           Common Shares, no par value
                             Shareholder Rights Plan
                             -----------------------
                                (Title of Class)

     Indicate  by check mark  whether the  Registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
Registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes _X_  No___

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

     At January 31, 1999, the aggregate market value of the voting stock held by
non-affiliates  of the  Registrant  was  $38,488,000,  and the  number of Common
Shares outstanding of the Registrant was 21,610,810.

               Documents Incorporated in Reference:  None


<PAGE>


                                    FORM 10-K

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                                 Page
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<S>                                                                                                               <C>
PART I
        Item 1.  Business........................................................................................  3
        Item 2.  Properties...................................................................................... 18
        Item 3.  Legal Proceedings............................................................................... 19
        Item 4.  Submission of Matters to a Vote of Security Holders............................................. 19

PART II
        Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters........................... 20
        Item 6.  Selected Financial Data......................................................................... 21
        Item 7.  Management's Discussion and Analysis of Financial Condition and Results of Operations........... 22
        Item 8.  Financial Statements and Supplementary Data..................................................... 29
        Item 9.  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure............ 58

PART III
        Item 10.  Directors and Executive Officers of the Registrant............................................. 59
        Item 11.  Executive Compensation......................................................................... 62
        Item 12.  Security Ownership of Certain Beneficial Owners and Management................................. 63
        Item 13.  Certain Relationships and Related Transactions................................................. 64

PART IV
        Item 14.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K............................... 68
</TABLE>


                                       -2-

<PAGE>


                                     PART I

Unless otherwise indicated all dollar amounts are in United States dollars.  For
a statement regarding forward looking statements  contained herein, see "Item 7.
Management's  Discussion  and Analysis of Results of  Operations  and  Financial
Condition - Information Regarding Forward Looking Statements."

Item 1. Business

General

     American Eco  Corporation  (the  "Company" or "American  Eco")  through its
subsidiaries is a leading provider of industrial support,  specialty fabrication
and environmental remediation services to principally three industry groups: (i)
energy,  (ii) pulp and  paper  and (iii)  power  generation.  The  Company  also
provides construction management services to a select group of commercial owners
and developers. The Company offers its customers a single-source solution for an
extensive  array of support  services  such as equipment  and  facility  repair,
maintenance,   refurbishment,  retrofit  and  expansion.  Specialty  fabrication
services offered by the Company include the construction of decks,  well jackets
and modules for  offshore  oil and gas  platforms,  the  fabrication  of piping,
pressure vessels and other equipment used in process industries, the erection of
structural steel support systems and the manufacture of electrical  switch gear,
power  distribution  panels,  bus ducts and  control  rooms.  The  Company  also
manufactures,   sells,   installs  and  operates  SAREX(C)  oil  filtration  and
separation systems worldwide.

     The Company has strategically positioned itself as a single-source provider
of support  services,  which can be performed by an outside service company with
greater  efficiency,  safety  and  cost-effectiveness.  By  outsourcing  support
services,  the  Company's  customers  can  focus  on  their  core  manufacturing
processes, reduce operating costs, improve safety and conserve human and capital
resources.

     American Eco's business has benefitted from several market trends. First is
the shift among industrial  companies toward  outsourcing  maintenance and other
non-core services.  Companies have increased their use of outside contractors to
control their internal  labor and insurance  costs and to eliminate the need for
maintaining expensive,  under-utilized equipment.  Second, the mounting costs of
training  skilled  employees,  maintaining  a  satisfactory  safety  record  and
complying  with  rapidly  changing  government  regulations  favors  experienced
outsourcing  providers.  Third is a preference  by customers to simplify  vendor
management  by working with  larger,  single-source  providers  which have broad
geographic coverage. These trends had driven American Eco's acquisition strategy
to consolidate  regionally fragmented service providers in the United States and
Canada. American Eco has realized significant growth through acquiring companies
which provide services to several industries in different  geographical regions.
Between  fiscal 1993 and fiscal  1998,  the Company  acquired  nine  businesses,
including two  environmental  companies which were  subsequently  sold in August
1997.  The  Company's  revenues and net  operating  income were $7.6 million and
$322,000 for the fiscal year ended November 30, 1993 and were $299.8 million and
a loss of $30.2  million  for the  fiscal  year ended  November  30,  1998.  The
Company's strategy is to continue to pursue strategic acquisitions which broaden
and deepen its geographic presence,  expand service offerings or client base and
contribute to earnings growth.

     American Eco believes it has achieved a competitively  advantaged  position
in the industrial  support,  specialty  fabrication and construction  management
markets  it  serves  by  consistently  providing  high-quality,   cost-effective
services on a safe and timely basis.  The Company's  key  competitive  strengths
include: (i) long-standing  customer  relationships,  (ii) an outstanding safety
and  quality  record,  (iii)  a  broad  offering  of  value-added  services  and
capabilities,  (iv) the ability to provide its services in the United States and
Canada and (v) an experienced  management team in the field and at the corporate
level.

     During 1998, the Company recorded certain  impairment,  severance and other
charges that  management  believes are not  reflective of the Company's  core or
on-going business activities and are therefore viewed by management

                                       -3-

<PAGE>



as  non-recurring.  These charges  related  primarily to certain  investments in
Dominion Bridge Corporation  ("Dominion Bridge") and certain of its subsidiaries
all of which filed  "notices of intent to submit a proposal"  under the Canadian
Bankruptcy and Insolvency Act in August 1998, to an impairment in its investment
in US Industrial Services, Inc. ("USIS"), and to severance costs of $3.2 million
relating  primarily  to  changes  in  senior  management  positions  both at the
corporate offices and at certain subsidiaries.  In addition, management recorded
charges of $4.6 million  related to certain single project joint ventures during
the  fourth  quarter  which  were not  anticipated  by  management  or the joint
ventures.

     In February  1998,  the Company  purchased $5.0 million of common stock and
warrants of Dominion  Bridge and,  pursuant to a Letter of Intent,  was to enter
into a credit facility,  provide  management  services and acquire the assets of
Dominion  Bridge.  Although  the  Company  did not  enter  into  those  proposed
transactions  with  Dominion  Bridge,  it did enter into joint venture and other
arrangements  with  Dominion  Bridge  with  regard  to a joint  venture  project
involving  the  construction  of a major  pipeline  in  Ontario,  Canada and the
fabrication  and  construction  of two  semi-submersible  oil drilling  rigs. In
August 1998, Dominion Bridge and its principal operating  subsidiaries in Canada
sought protection under the Canadian bankruptcy laws. Consequently, American Eco
has taken a one-time write-down of $13.8 million from its investment in Dominion
Bridge and other Dominion Bridge related activities,  including the cessation of
the projects for the two oil drilling rigs.

     During  fiscal 1998,  the Company  underwent  several  management  changes.
Michael E. McGinnis who was Chairman of the Board, President and Chief Executive
Officer  surrendered  the position of President in July 1998.  Frank J. Fradella
was then elected  President.  Mr. Fradella had served as an executive officer of
the Company from October 1996 to May 1997 and,  from May 1997 through July 1998,
he had been President of USIS, a partially owned  subsidiary of the Company.  At
which  time,  David L.  Norris,  who had been Senior  Vice  President  and Chief
Administrative  Officer of the Company resigned.  In September 1998, the Company
terminated  the employment of Bruce D. Tobecksen as Vice President and Treasurer
and named K.  Mitchell  Posner as  Executive  Vice  President,  Chief  Financial
Officer and Director of Corporate  Development.  In December 1998, Mr.  Fradella
resigned as President to return to a private  company.  Mr. Posner  announced at
same time that he would leave his  positions  with the Company and return to the
investment  banking  industry.  In December  1998,  Mr.  McGinnis was re-elected
President and ceased serving as Chairman of the Board, and J.C. Pennie,  who was
Vice Chairman of the Board, then became Chairman of the Board.

     On May 21, 1998, the Company issued $120 million  principal amount of 95/8%
Senior  Notes  due  May 15,  2008.  The  net  proceeds  from  the  issuance  was
approximately  $116.1  million,  of  which  $71.2  million  was  used  to  repay
outstanding  indebtedness,  including $65.1 million of the Company's  Credit and
Guaranty Agreement, dated as of August 22, 1997.

     At January 31, 1999, the Company operated  primarily  through the following
first and second tier subsidiaries: C.A. Turner Construction Company, a Delaware
corporation  ("C.A.  Turner" and, together with Action Contract Services Inc., a
Delaware corporation, the "Turner Group"); Cambridge Construction Service Corp.,
a  Nevada  corporation  ("Cambridge");  Lake  Charles  Construction  Company,  a
Louisiana  corporation  ("Lake  Charles  Construction"  and,  together  with its
wholly-owned   subsidiaries,   the  "Lake  Charles  Group");   Industra  Service
Corporation,  a British Columbia,  Canada corporation  ("Industra Service");  MM
Industra, Limited, a Nova Scotia, Canada corporation ("MM Industra"); United Eco
Systems,  Inc., a Delaware corporation  ("United Eco");  Separation and Recovery
Systems,  Inc.,  a  Nevada  corporation  ("SRS");   Chempower,   Inc.,  an  Ohio
corporation  ("Chempower");  and Specialty Management Group, Inc., d.b.a/CCG,  a
Texas corporation ("CCG").

Business Strategy

     The  Company's  objectives  are to continue to  strengthen  and broaden its
position as a leading provider of industrial support,  specialty fabrication and
construction management services to the energy, pulp and paper, power generation
and retail  industries  in North  America,  and thereby  increase  cash flow and
profitability.  To  achieve  these  objectives,  the  Company  is  pursuing  the
following business strategies:

                                       -4-

<PAGE>


     Acquire  Complementary  Service  Businesses.  The Company evaluates,  on an
ongoing basis, potential  acquisitions of complementary  businesses in an effort
to further strengthen and broaden its single-source service offering, and expand
its  customer  base  and  geographic  presence.  Management  believes  that  the
industrial  support  services,  specialty  fabrication  and commercial  services
markets are fragmented  markets which are entering a period of consolidation due
to: (i)  customer  demand for greater  breadth and quality of service,  (ii) the
need to service  multiple  customer  facilities,  thus  enabling the customer to
reduce  its  vendor   relationships  and  (iii)  the  increased   importance  of
established  safety and  environmental  compliance  records.  These factors have
increased the necessary economies of scale and scope in the support services and
specialty  fabrication  markets,  eroded the competitiveness of smaller industry
participants, and increased the barriers to entry for new competitors.

     Strengthen  Competitive Position in Growing Outsourcing Market.  Management
believes that participants in the energy,  pulp and paper,  power generation and
retail industries, in an effort to remain competitive, will continue to increase
their reliance on the  independent  contractors to provide support and specialty
fabrication  services.  Management is expanding the  Company's  capabilities  to
provide its customers a  single-source  solution for their support  services and
specialty fabrication needs.

     Cross-Sell  Services.  The sales  staff,  operations  managers and business
development  personnel of each of the Company's  subsidiaries  are familiar with
the  capabilities  of all the  Company's  subsidiaries.  The Company  trains its
personnel to identify  cross-selling  opportunities and integrate the breadth of
the Company's services into each bid proposal. This provides the customer a more
comprehensive  portfolio of services.  The Company's  cross-selling  initiatives
have  resulted  in several  successful  projects  which have  involved  multiple
operating subsidiaries of the Company and the performance of services internally
which were historically performed by third parties.

     Maintain  Decentralized  Operating Structure.  While at the corporate level
the Company retains centralized control over certain  administrative and finance
functions,  its  operating  subsidiaries  maintain  a high  level  of  autonomy.
Management  believes that the  Company's  decentralized  operating  structure is
critical to its success,  as many decisions to purchase its services are made by
local  customers  based on established  relationships  and a service  provider's
ability to respond rapidly to the customer's needs. In addition, the Company has
instituted  programs to improve  subsidiary  reporting  procedure  and eliminate
functional redundancy.

Development of the Business

     The Company  was  organized  under the laws of Ontario,  Canada in 1969 and
entered the environmental business in 1987 under the name ECO Corp. Between 1987
and 1992, the Company developed and marketed certain environmental technologies,
including  commercial and residential food waste composting systems. The Company
discontinued its composter operations, which resulted in the eventual write-down
or sale of  substantially  all of the assets  associated with such operations by
1993.  Since 1993, the Company has entered its current lines of business and has
grown substantially through acquisitions of other companies. In fiscal 1997, the
Company sold its subsidiaries Eco Environmental Inc. ("Eco  Environmental")  and
Environmental Evolutions, Inc. ("Environmental  Evolutions") which significantly
reduced the operations  and results of the  environmental  remediation  services
segment.

Acquisitions

     In November 1993, the Company purchased the operating assets and businesses
of the  Turner  Group,  which is  located  in Port  Arthur,  Texas and  provides
construction,  maintenance,  demolition,  and industrial maintenance services to
petroleum  and  petrochemical  refineries  along the Gulf Coastal  region of the
United States.  Management  believes that as a result of the  acquisition of the
Turner Group, the Company is well positioned to provide  industrial  maintenance
services to the petroleum and petrochemical  refining industry. The Turner Group
has a 55-year  operating  history  and is  located  in the  region  that has the
largest crude refinery capacities in the United States.


                                       -5-

<PAGE>



     In June 1994, the Company  acquired  Cambridge,  a construction  management
company located in Dallas,  Texas which provides project  management  consulting
services to small contractors.

     In July 1995,  the Company  acquired the Lake Charles Group, a construction
company  located in Lake Charles,  Louisiana.  The Lake Charles Group  commenced
operations in 1986 and provides  general  contracting,  industrial  maintenance,
heating and air  conditioning  and industrial sheet metal services to commercial
and light industrial clients.

     Effective May 31, 1996,  the Company  acquired  United Eco, a  construction
company  which is  headquartered  in High Point,  North  Carolina  and  provides
environmental  contracting,   remediation,  waste  water,  ground  contamination
treatment  and  recycling  services to clients in the  eastern and  southeastern
regions of the  United  States.  United  Eco  operates  two  thermal  desorption
treatment facilities.

     Effective  July  1,  1996,  the  Company  acquired  all of the  issued  and
outstanding  shares  of  capital  stock  of  SRS,  which  is  based  in  Irvine,
California.  SRS manufactures and distributes a proprietary line of SAREX(R) oil
filtration and separation systems.  There are approximately  30,000 such systems
currently installed in one-half of the world's oil and petrochemical  tankers as
well as in major oil refineries.

     Effective July 22, 1996, the Company acquired  Industra  Service,  which is
based in Vancouver,  British Columbia, Canada. Industra Service is an industrial
engineering and environmental services company which provides industrial support
services to the power  generation,  petroleum  and  petrochemical  refining  and
forest products industries principally in western Canada and northwestern United
States.  The Company effected a take-over bid for Industra Service by exchanging
1,486,997 shares of the Company's  Common Shares,  which had a fair market value
of $10.7 million,  for 94.0% of the outstanding shares of Industra common stock.
In December 1996, the Company  received  authorization  to acquire the remaining
6.0% of Industra Service  outstanding  common stock. The Company  currently owns
all of the outstanding common stock of Industra Service.

     On  September  3,  1996,  the  Company  acquired  certain  assets  of M & M
Manufacturing  Limited  Partnership  of Dartmouth,  Nova Scotia,  which provided
pipefitting, assembling, machining and fabrication services to the petroleum and
petrochemical  refining,  power  generation,  forest  products  and offshore oil
exploration   industries.   The  Company  conducts  the  operations  of  M  &  M
Manufacturing Limited Partnership through MM Industra,  which was formed for the
acquisition.  Prior to their acquisition by the Company, the operations of M & M
Manufacturing  Limited  Partnership  had  been  idle  and in  receivership.  The
Province of Nova Scotia  awarded the Company its bid to purchase and operate the
assets of the bankrupt company,  and MM Industra commenced operations in October
1996.

     On March 4, 1997, the Company  completed its  acquisition  of Chempower,  a
manufacturing,  construction  and  environmental  services company for the power
generation and chemical processing industries,  headquartered in Akron, Ohio. As
a result of the merger,  all of the  shareholders  of Chempower,  other than two
principal  shareholders (the "Principal  Shareholders"),  received $6.20 in cash
for each of their Chempower shares, and all Chempower optionholders received, in
cash,  the  difference  between $6.20 and the exercise price per share for their
outstanding options. The Principal Shareholders received a portion of the merger
consideration in cash and the balance in the form of a $15.9 million  promissory
note of  Chempower,  which was paid in August  1997.  In  addition,  the Company
acquired  property  from the  shareholders  of  Chempower  in the amount of $4.0
million,  which was  being  leased by  Chempower.  Based on the total  7,565,113
Chempower shares outstanding on the effective date of the merger and the amounts
due to Chempower  optionholders,  the total  acquisition cost was  approximately
$50.0 million.

     On September 1, 1997,  the Company  acquired CCG, a provider of maintenance
and specialty  construction services to commercial and retail clients throughout
Canada  and the  United  States.  CCG has  developed  a  proprietary  management
information software system which it will expand to include the Company's energy

                                       -6-

<PAGE>



management services for industrial clients.  The consideration for CCG consisted
of 265,000  Common Shares of the Company,  which Common Shares had a fair market
value of approximately $2.6 million.

     In May 1998,  the Company  completed  acquisition  of the Pictou  facility,
located in Nova Scotia,  from the  Province of Nova Scotia for Common  Shares of
the  Company  and  cash  totaling  approximately  $8.5  million.  As part of the
consideration for the transaction,  the Company issued a three-year  zero-coupon
note of  approximately  $928,000,  which  principal  amount is to be  reduced by
approximately $7,500 for each job created by the Company at the Pictou facility.
In addition, the Company will receive a grant of approximately $1.1 million from
the  Province  of Nova  Scotia  for  improvements  to the  facility.  The Pictou
facility  is  comprised  of  a  fabrication  facility,  which  has  historically
conducted shipbuilding,  ship repair and conversion, and industrial fabrication,
and  administrative  offices  located  on 10 acres in the Port of  Pictou,  Nova
Scotia.  The  Pictou  facility  and the  Company's  MM  Industra  subsidiary  in
Dartmouth,  Nova  Scotia are the only  existing  fabrication  facilities  in the
Province of Nova  Scotia  which are capable of  fabricating  certain  components
required to service the needs of the  offshore oil and gas industry off the east
coast of Canada.

Other Business Ventures

     Dominion Bridge Corporation

     On February  20,  1998,  the Company and  Dominion  Bridge,  entered into a
non-binding letter of intent (the "Letter of Intent") which provided for (a) the
purchase of $5.0  million of Dominion  Bridge  common  stock and warrants by the
Company (the  "Dominion  Bridge  Stock  Purchase"),  (b) a working  capital loan
facility  (the  "Dominion  Bridge Loan  Facility")  of up to $25.0 million to be
provided by the Company to Dominion Bridge, (c) the engagement of the Company to
provide certain management  services to Dominion Bridge, and (d) the acquisition
by the Company of the  business  and assets of  Dominion  Bridge.  The  Dominion
Bridge Stock  Purchase was  completed on February 20, 1998,  whereby the Company
acquired  1,924,077  shares of common  stock and  warrants  for the  purchase of
192,308 shares,  or  approximately  6.3% of the  outstanding  shares of Dominion
Bridge.  Immediately  following the  consummation  of the Dominion  Bridge Stock
Purchase,  Michael E. McGinnis, the President and Chief Executive Officer of the
Company, was elected to serve on Dominion Bridge's Board of Directors and on the
Executive Committee thereof.

     Dominion  Bridge   primarily   operated  as  a  diversified   international
engineering and construction  company in North America,  Australia and Southeast
Asia, and had additional  operations in  shipbuilding  and repair and industrial
specialty  fasteners.  In August 1998,  Dominion  Bridge's  principal  operating
subsidiaries  in Canada  sought  protection  under the Canadian  Bankruptcy  and
Insolvency Act for a stay of proceedings from their creditors. As of January 31,
1999,  those Dominion Bridge  subsidiaries  remained under "notices of intent to
submit a proposal" under the Bankruptcy and Insolvency Act.

     On May 8, 1998,  the Company  announced  that it had  entered  into a joint
venture with Steen Contractors Ltd., ("Steen"), a subsidiary of Dominion Bridge,
for the fabrication and  installation of 54 miles of high pressure  pipeline for
the  southern and eastern  Ontario  region.  On November  17, 1998,  the Company
announced  that it purchased  the balance of the  interest in the joint  venture
held by Steen. On June 9, 1998, the Company announced that it had entered into a
joint  venture with MIL Davie  Industries  ("Davie"),  a subsidiary  of Dominion
Bridge,  for  the  fabrication  and  construction  of two  semi-submersible  oil
drilling  rigs. The project known as the Amethyst II and III was being built for
Petrodrill Offshore, Inc. ("Petrodrill"). The project was to be completed by the
end of 1999.

     In July 1998, the Company  accepted a novation of the contracts  originally
issued to Davie and issued a subcontract to Davie for the actual construction of
the Amethyst II and III rigs by reason of the notices of intent.  On November 5,
1998,  the Company  announced  that it had invoked a clause in its contract with
Petrodrill  which  rescinded its project  associated  with the  construction  of
Amethyst  II and III  based  upon  default  for  non-payment  of an  outstanding
invoice.  The  construction  activity on this  project  has  ceased.  Petrodrill
formally terminated the

                                       -7-

<PAGE>



contract on November 5, 1998,  asserting  default by Davie and the Company under
certain provisions of the contract.  Negotiations are currently underway between
the Company and Petrodrill to resolve this matter,  although no assurance can be
given that these  negotiations  will  result in a  settlement  favorable  to the
Company.

     US Industrial Services Inc.

     At  January  31,  1999,  the  Company  owned  approximately  81.9%  of  the
outstanding  Common  Stock of USIS.  The USIS Common  Stock is traded on the OTC
Bulletin Board.  In November 1998, USIS sold the assets,  subject to the related
liabilities, of its subsidiary J.L. Manta, Inc., and in December 1998, USIS sold
its P.W.  Stephens  Residential  Inc.  subsidiary.  USIS is engaged in  asbestos
abatement and lead hazard removal primarily in the midwest.  It recently engaged
a consulting  firm to prepare a strategic  business plan to assist in refocusing
USIS in  other  businesses,  one of  which  may be the  commercial  real  estate
construction and management business.

     In May 1998,  USIS  effected  a  recapitalization,  including  a  corporate
migration  to Delaware by its  predecessor  EIF  Holdings,  Inc.  and a 1-for-10
reverse stock split of its Common Stock. Upon the recapitalization,  the Company
acquired 1,000,000 shares of USIS Common Stock pursuant to a February 1996 Stock
Purchase Agreement.  The closing had been delayed pending the  recapitalization.
At that time,  the Company held certain  promissory  notes (the "Notes") of USIS
consisting of  outstanding  principal  and interest in the  aggregate  amount of
$17.9  million.  The  outstanding  amount of the Notes  had been  reduced  by $1
million,  representing the purchase price for the 1,000,000 shares. In 1996, the
Company had provided  USIS a $5.2  million line of credit,  which line of credit
was increased to $20.0  million by September  1997.  The Notes were  convertible
into  shares  of USIS  Common  Stock  at a price  equal to 85.0% of the five day
weighted average price of such shares immediately preceding the conversion date.
As of July 24, 1998, the Company sold the Notes to USIS Acquisition, L.L.C. (the
"Holder"),  an  unrelated  entity,  for  $5.0  million  in  cash  and a  secured
promissory  note for $12.9  million  repayable on January 29,  1999.  The Holder
converted the Notes into 5,295,858  shares of USIS Common Stock, and secured its
promissory  note to the  Company  with a  pledge  of the  5,295,858  shares.  In
November  1998, the Holder advised the Company that the Holder would not be able
to pay its note at  maturity,  and the  Company  took  ownership  of the pledged
shares in discharge of the Holder's note.

Overview of Business and Geographical Segments

     The  Company is pursuing a strategy  of  becoming a  single-source  service
provider for the petroleum and petrochemical refining, power generation,  forest
products  and retail  industries  in the United  States and Canada.  Within this
general line of business,  the Company provides  industrial  support,  specialty
fabrication, environmental remediation and construction management services.


                                       -8-

<PAGE>



     The  following  table  provides  information  with respect to the Company's
principal business segments.

<TABLE>
<CAPTION>
                                       Environmental         Industrial          Specialty         Construction 
                                       Remediation            Support           Fabrication         Management
                                        Services(1)           Services           Services           Services(2)  
                                        -----------           --------           --------           -----------  
                                                                      (In thousands)
<S>                                      <C>                 <C>                 <C>                 <C>      
Fiscal 1998
Contract revenue from customers          $   6,227           $ 148,138           $ 116,286           $  29,138
Operating income (loss) .......               (851)            (18,125)            (10,258)                353
Depreciation and amortization .                842               3,092                 806                 176
Capital expenditures ..........                816               3,482              21,109                 256

Fiscal 1997
Contract revenue from customers          $ (12,125           $ 147,424           $  51,562           $   9,367
Operating income (loss) .......             (1,437)             11,768              10,472                 168
Depreciation and amortization .                923               3,336                 990                 133
Capital expenditures ..........                312               1,871               1,536                --

Fiscal 1996
Contract revenue from customers          $ (18,489           $ 094,584           $  06,456                --
Operating income ..............              2,885               3,522               3,073                --
Depreciation and amortization .                699               1,063                 470                --
Capital expenditures ..........                516               1,336               6,155                --
</TABLE>


----------
(1)  The sale of Eco Environmental  and  Environmental  Evolutions on August 31,
     1997  had   significantly   reduced  the  operations  and  results  of  the
     environmental remediation services segment.

(2)  Revenues from CCG were recognized commencing September 1, 1997.

                                       -9-

<PAGE>


     The following  table  provides  information  with respect to the geographic
segmentation of the Company's business.

                                               Canada          United States
                                               ------          -------------
                                                      (In thousands)
Fiscal 1998
Contract revenue ...................          $ 123,053           $ 176,736
Operating income (loss) ............             (6,123)            (22,758)
Depreciation and amortization ......                480               4,436
Capital expenditures during the year             22,962               2,701

Fiscal 1997
Contract revenue ...................          $  50,835           $ 169,643
Operating income ...................              6,503              14,468
Depreciation and amortization ......              1,223               4,190
Capital expenditures during the year                124               3,595

Fiscal 1996
Contract revenue ...................          $  06,509           $ 113,020
Operating income ...................                256               9,224
Depreciation and amortization ......                166               2,066
Capital expenditures during the year              6,151               1,856

Principal Industries Served by the Company

     Power Generation

     As the Federal  Energy  Regulatory  Commission  has begun to implement  the
provisions  of the Energy  Policy Act of 1992,  which  deregulates  the electric
power  generation  industry by allowing  independent  power  producers and other
companies  access to its transmission  and  distribution  systems,  the electric
utility  industry in the United  States have  become  increasingly  competitive.
Utilities  are  attempting to reduce their  operating  costs in order to produce
power at  competitive  market  rates,  and are  accomplishing  this, in part, by
deferring  repairs and refurbishing  their existing power stations.  In the near
term,  such  deferred  maintenance  may reduce the amount of  available  outside
contract  business.  However,  in the longer terms,  utility  companies may make
necessary  repairs in a manner  similar to the evolution of  outsourcing  in the
petroleum refining industry.

     Energy

     The Company provides industrial support and specialty  fabrication services
to the energy  industry,  with particular  focus on (i) petroleum  refineries in
North America, (ii) petrochemical and chemical facilities and (iii) the offshore
oil and gas industry in eastern Canada.

     Petroleum Refineries. The typical petroleum refinery in North America is an
aging  facility  that must  process  crude oil at high  utilization  rates while
complying with  stringent  environmental  regulations.  High  utilization  rates
accelerate a facility's rate of  deterioration  and increase the need for repair
and maintenance work. The Company

                                      -10-

<PAGE>



believes  that any increase in U.S.  refining  capacity is likely to require the
refurbishment or expansion of existing  facilities due to the prohibitively high
cost to construct  new  facilities.  The Company  believes  that plant  managers
increasingly  hire  independent  contractors  to  maintain  the  operability  of
refineries and have generally reduced their internal maintenance personnel.

     Petroleum  refiners repair and replace process equipment and piping systems
on an on-going  basis in order to maintain the  operability  and  efficiency  of
their facilities,  and to ensure that such facilities comply with current safety
and environmental regulations.  Refinery maintenance projects vary in scope from
routine repairs to major capital  improvements and turnarounds which require the
shutdown  of certain  operating  units or the entire  refinery.  In  addition to
routine  maintenance,   refiners  periodically   undertake  capital  improvement
projects to  refurbish  their  facilities.  Such  projects  can require from six
months to three years to complete depending upon the type,  utilization rate and
operating requirements of the particular refinery.

     In the Company's core operating region along the U.S. Gulf Coast,  there is
an  aggregate of  approximately  6.8 million  barrels of crude oil  distillation
capacity,  which  accounts  for  approximately  42%  of  total  U.S.  crude  oil
distillation capacity.

     Petrochemical/Chemical.  The  petrochemical  and  chemical  industries  are
capital-intensive   and  heavily  regulated.   Continuous  capital  spending  is
necessitated by the large plant sizes and economies of scale required to process
end-products  efficiently,  as well as the complex  technology and sophisticated
safety and environmental  equipment  utilized in these facilities.  High capital
costs  represent  significant  barriers to entry in this industry,  so any entry
into the industry or increase in capacity is likely to result from the expansion
or  refurbishment  of existing  facilities  due to the  prohibitively  high cost
associated   with   building   a   "grass-roots"   facility.   As   such,   when
petrochemical/chemical  processors undertake  significant facility  modification
programs, they also typically expand the rated capacity of their facilities.

     Canadian  Offshore  Oil and Gas.  Recent  offshore  oil and gas activity in
eastern  Canada has  concentrated  on the  development of the Hibernia and Terra
Nova fields, and Sable Island. The Company fabricated nine utility shaft modules
for the Hibernia  field and delivered  production  well jackets to Sable Island.
The alliance which is developing Sable Island has committed that it will perform
the  majority of the  fabrication  work for the project in the  Province of Nova
Scotia.  The Company  operates  the only  facilities  in Nova Scotia  capable of
fabricating the production well jackets,  decks and certain other  components of
these offshore  platforms.  Management  believes that Sable Island will generate
significant  fabrication and maintenance  revenues for the Company over the next
three years.

     Pulp and Paper

     The pulp and paper industry  experienced  severe pricing  pressure from the
fall of 1995 through the spring of 1997 due  principally  to overbuilt  customer
inventories  caused by substantial  price hikes during the period from  mid-1994
to the fall of 1995. As a result of this pricing  pressure,  many plant managers
deferred  maintenance and canceled capital  expenditure  projects.  The American
Forest & Paper  Association's  annual capacity  survey projects  capacity growth
from 1997 to 1999 at an annual rate of 1.5% which is below the  average  rate of
2.6% from 1986 to 1995, but suggests pulp and paper  producers are taking a more
conservative  view toward pulp and paper demand  growth.  This modest  projected
capacity  increase  should  translate  into greater  stability in pulp and paper
prices.

     In November  1997,  the U.S.  Environmental  Protection  Agency (the "EPA")
issued the Cluster  Rule which is an  integration  of the Federal  Clean Air and
Clean Water Acts. The Cluster Rule imposes stricter environmental regulations on
the pulp and paper  industry  through the reduction of  pollutants  generated by
using  elemental  chlorine free  bleaching  technologies  which rely on chlorine
dioxide  rather  than  pure  chlorine.  The EPA  estimates  that the cost of the
equipment and mill  modifications  required to comply with the Cluster Rule will
be approximately

                                      -11-

<PAGE>



$2.5 billion  over the next three years.  The Cluster Rule is expected to affect
155 mills across the U.S. and improve the water quality in 73 rivers and streams
receiving discharges from pulp and paper mills.

Industrial Support Services

     The  Company  provides  industrial  support  services  to  clients  in  the
petroleum and  petrochemical  refining,  power  generation  and forest  products
industries  through the Turner Group, the Lake Charles Group,  Industra Service,
Chempower and SRS. The industrial  support service  business  segment  generated
approximately 49.4% of the Company's revenues during fiscal 1998.

     Turnarounds.   Turnaround   services   include  the  maintenance  of  crude
distillation units,  catalytic reformer units,  delayed coker units,  alkylation
units, platformers,  fluid catalytic cracking units and butamer units as part of
a single project.  These services also include the maintenance and  modification
of heat exchangers, heaters, vessels and piping.

     Planning and Project  Management.  The Company has  developed  the planning
capabilities,  operational skills and field supervision  techniques necessary to
manage  all  aspects  of  turnaround  projects  and other  facility  maintenance
services.  During  the  management  of a  turnaround  project,  the  Company  is
responsible  for cost control  procedures,  resource  planning  and  scheduling,
safety control,  hazardous  material  handling,  personnel  hiring and training,
equipment  and  tools  procurement,   field  inspections,  and  overall  project
coordination.  Certain  specialized types of welding are often provided directly
by the  Company.  Typically a portion of a  turnaround  project is  performed by
subcontractors  under the supervision of the Company.  The Company also develops
suggested maintenance programs that incorporate its project experience.

     Fluid  Catalytic  Cracking  Turnarounds.  Fluid  Catalytic  Cracking  Units
("FCCU")  require a high level of maintenance  due to extreme  temperatures,  in
excess of  1000(degree)F  inside the FCCU.  The high  temperature  degrades  the
refractory  lining and stainless steel  components  inside the FCCU.  Refractory
lining is heat  resistant  material  designed to insulate the inner shell of the
FCCU. The main  components of a FCCU are the reactor,  the  regenerator  and the
flue gas exhaust system.  The majority of FCCU  maintenance  during a turnaround
project is on this equipment.  Major maintenance work is typically  performed to
increase the efficiency of, and reduce the air pollution from, the FCCU.

     Dismantling  and  Demolition.   Dismantling  and  demolition  services  are
provided when a customer has  decommissioned  an entire  facility or unit within
its plant. A typical dismantling project begins by identifying  potential safety
hazards and  preparing a work plan.  This  includes an estimate of the number of
personnel  and type of equipment  necessary  to complete the project.  Personnel
then examine and, if necessary,  drain refinery  pipelines or remove asbestos or
other hazardous materials.  Dismantled equipment is typically cut into scrap and
sold in the scrap market.  The Company salvages certain  equipment for resale by
the customer.

     ASME Code Stamp. The Company's subsidiaries which comprise the Turner Group
are qualified to perform  welding  services on equipment  that contain  American
Society of Mechanical  Engineer  ("ASME")  stamps.  State agencies and insurance
companies  typically  require that  ASME-certified  welders perform  services on
ASME-coded equipment.

     Instrumentation and Electrical.  These services include lighting, power and
instrumentation  wiring  for  electrical  systems  up to  5,000  volts,  and the
installation,  termination,   troubleshooting  and  commissioning  of  switches,
transformers,  and associated control and monitoring  equipment.  The Company is
qualified to calibrate and commission both  electrical and pneumatic  instrument
systems.  The Turner Group has had extensive  experience with the conversion and
physical design of distribution control systems.


                                      -12-

<PAGE>



     Site  Remediation.  Site  remediation  includes  the on-site  clean-up  and
treatment of hazardous and  non-hazardous  organic and  inorganic  contaminants.
Waste services  include  removal,  encapsulation,  stabilization,  treatment and
disposal services. The Company employs bioremediation, vapor extraction, thermal
desorption  and  other  techniques  to  degrade   hazardous  and   non-hazardous
contaminates  in  soil,  sludges,   slurries,   and  liquids  contaminated  with
hydrocarbons, creosote, pentachlorophenol,  pentachloroethylene, PCB's, digester
sulfides,  phenols,  benzene,  toluene,  chlorinate  aliphatic  solvents and raw
sewage. The Company has developed and licenses certain technologies that it uses
in its site  remediation  business.  The  Company's  United Eco  subsidiary  has
executed a licensing  agreement with Solucorp Industries Ltd.  ("Solucorp"),  to
use materials  contaminated with heavy metals.  The MBS technology uses a mobile
facility to process large quantities of soils, ash,  sediments and sludges.  The
agreement permits United Eco to use this technology throughout North America.

Specialty Fabrication Services

     The  Company  provides  specialty  fabrication  services  to clients in the
petroleum  and  petrochemical   refining,   forest  products  and  offshore  oil
exploration  industries  through  the  Turner  Group,  the Lake  Charles  Group,
Industra  Service,  Chempower,  SRS and MM  Industra.  The  Company's  specialty
fabrication  service  business  segment  generated  approximately  38.8%  of the
Company's revenues during fiscal 1998.

     The specialty  fabrication  services market includes general industrial and
offshore  construction  projects,  ranging greatly in size and complexity of the
project.  The market in which the Company  participates is affected by the state
of the economy in general as well as the levels of capital  expenditures  in the
chemical, petrochemical and refining industries.

     Offshore Oil and Gas  Structures.  The Company  operates two  facilities in
Nova Scotia,  Canada capable of fabricating  platform topsides up to 1,800 tons,
production  well  jackets  and  piles  up  to  3,000  tons,   subsea  templates,
accommodation  modules, BOP carriers and separation modules for use in the harsh
offshore  environments  of eastern  Canada and the North Sea. In  addition,  the
Company's  facilities  have  historically  engaged  in the  refit,  maintenance,
upgrade and modification of drilling rigs and other offshore structures utilized
by oil and gas companies and drilling contractors. The acquisition of the Pictou
facility provides an additional facility in Nova Scotia which, historically, has
conducted shipbuilding, ship repair and conversion, and industrial fabrication.

     Industrial Fabrication. The Company owns and operates approximately 795,000
square feet of facilities in North  America  where it fabricates  piping,  power
boiler assemblies,  pressure vessels,  reactors,  drums, towers,  precipitators,
tanks,  exchanger  tubing,  heater  coils and other  equipment  used in  process
industries.  The Company also performs  emergency  fabrication as necessary.  In
many  instances,  facilities  are operated 24 hours a day to assist a turnaround
project.

     Electrical   Switch  Gear,  Bus  Ducts  and  Sheet  Metal.   The  Company's
manufacturing  services include the design and fabrication of electrical  switch
gear, power  distribution  panels,  bus ducts and control rooms for mass transit
authorities,  utilities, chemical and other industrial and commercial customers.
Chempower  also  manufacturers  custom sheet metal  products which include metal
casings for use in the gaming and electronics industries.

     Oil Separation and Removal Systems. SRS manufactures,  sells,  installs and
operates the SAREX(R) process, an integrated, three phase, oily water processing
treatment system that combines centrifugal  technology for sludge dewatering and
oil  recovery.  This process is  currently  utilized by  hydrocarbon  processing
customers in the United States,  France, South Africa,  Venezuela,  Saudi Arabia
and Singapore. Over 30,000 SAREX(R) oil separation and removal systems have been
installed in oil tankers and petroleum refineries around the world.

     Structural  Steel  Support  Systems.  The  Company  fabricates  and erects,
according to customer  specifications,  structural steel support systems such as
pipe racks.


                                      -13-

<PAGE>


Commercial Management Services

     The Company provides construction management services to a national network
of retailers  with solid  development  and growth  histories.  The  capabilities
include tenant  improvement,  renovations,  additions and design build services.
These services are an outgrowth of the Company's  September 1997  acquisition of
CCG.  With the  growing  emphasis  on  renovations  and  additions  to  existing
properties,  the Company's clients,  which are various national retail chains as
well  as  regional  and  local   developers,   have   shifted   their  focus  to
rehabilitation.  These clients have  embarked on programs to modernize  existing
facilities to remain  competitive and  aesthetically  pleasing to its customers.
The Company's  focus is on fast track projects that require  attention to detail
and comprehensive  scheduling methods,  along with onsite  professional  project
management. The construction management services segment generated approximately
9.7% of the Company's revenues during fiscal 1998.

Environmental Remediation Services

     The Company provides  environmental  remediation and waste services through
United Eco, Industra Service, Chempower, Cambridge and SRS. Remediation includes
the on-site  clean-up and  treatment of hazardous and  nonhazardous  organic and
inorganic  contaminants  utilizing  a number  of  technologies.  Waste  services
include removal, encapsulation,  stabilization, treatment and disposal services.
The environmental  remediation services business segment generated approximately
2.1% of the Company's  revenues  during fiscal 1998. In fiscal 1997, the Company
sold Eco Environmental and Environmental  Evolutions  effective as of August 31,
1997 as part of the  Company's  strategic  plan to focus on  industrial  support
services and specialty fabrication services.

     Growth in the environmental remediation industry has been influenced by the
following legislation:

     CERCLA--The   Comprehensive   Environmental   Response,   Compensation  and
     Liability Act of 1990 ("CERCLA" or the "Superfund  Act"). The Superfund Act
     authorizes the  Environmental  Protection  Agency (the "EPA") to coordinate
     responses  to  environmental  emergencies  and  establishes  liability  for
     cleanup costs and  environmental  damages on present and/or previous owners
     and operators of treatment  facilities and disposal sites,  and persons who
     generated,  transported or arranged for the disposal or  transportation  of
     wastes to such  facilities.  These  provisions are  enforceable by lawsuits
     initiated by either the EPA or private citizens.

     FFCA--The Federal  Facilities  Compliance Act of 1992 allows states and the
     EPA to enforce solid and hazardous  waste and  violations  against  federal
     facilities,  including  those operated by the Department of Defense ("DOD")
     and the Department of Energy ("DOE"),  the primary federal  hazardous waste
     generators.

     Management recognizes that the environmental remediation industry, which is
largely the  creation of federal  legislation,  is sensitive to shifts in public
opinion and legislation. While there is growing anti-regulatory sentiment in the
United States, management does not believe that this political trend will have a
substantial impact on the Company's environmental services business. The Company
has targeted projects  involving soil, coal and tar remediation and ground water
cleanup.  The cleanup projects on which the Company typically works have already
been designed and planned and, management  believes,  are unlikely to be delayed
or cancelled in the near term as a result of deregulation, if any.

Marketing

     The Company  obtains its contracts  either  through a  competitive  bidding
process or on a  negotiated  basis with  long-standing  customers.  The  Company
typically  prepares bids for its services on a project basis.  Fee  arrangements
for services are typically  bid either on a  field-price  or a detailed time and
material  billing   schedule.   Bids  are  generally  awarded  based  on  price,
scheduling,  performance,  quality  and  safety.  A  substantial  portion of the
Company's maintenance service is recurring in nature.


                                      -14-

<PAGE>



     The sales staff,  operations managers and business development personnel of
each of the Company's subsidiaries are familiar with the capabilities of all the
Company's   subsidiaries.   The  Company   trains  its   personnel  to  identify
cross-selling  opportunities and integrate the breadth of the Company's services
into  each  bid  proposal.  This  provides  the  customer  a more  comprehensive
portfolio of services. The Company's cross-selling  initiatives have resulted in
several successful projects which have involved multiple operating  subsidiaries
of  the  Company  and  the  performance  of  services   internally   which  were
historically performed by third parties. The Company is attempting to cross-sell
its services so that it may win larger,  single-source turnkey projects.  During
fiscal  1996,  SRS,  Industra  Service and United Eco were awarded a contract to
construct a remediation facility,  Mid-Atlantic Recycling Technologies ("MART"),
in New Jersey to treat soils  contaminated by hydrocarbons,  heavy coal tars and
polychlorinated   biphenyls.   The  facility  serves  utilities,   environmental
contractors and heavy manufacturing  industries  throughout the northeast United
States,  and incorporated site remediation  technologies  provided by United Eco
and SRS. The facility commenced operation in July 1997, and the Company sold its
interest in MART in  November  1997.  In fiscal  1997,  the  Company  obtained a
contract to  fabricate  and erect a 850-ton  bulk  material  ship loader in Port
Moody,  British  Columbia.   MM  Industra  fabricated  the  "bridge"  and  other
components  of the ship  loader,  while  Industra  Service  completed  the final
assembly,  erection,  testing and  commissioning of the ship loader.  In January
1998,  SRS  assigned  all of its  fabrication  of SAREX  units to MM Industra in
Halifax.  Proposals  have been submitted for several  projects  employing one or
more of the Company's  subsidiaries.  The award of these projects are pending at
this time.  The Company  has also  entered  into  strategic  alliances  with key
technology  suppliers in an effort to position itself for larger contracts.  The
Company has  expanded its  partnership  to include  Kournar  Offshore to provide
operation and maintenance services for offshore gas and oil platforms in eastern
Canada.

     The Company also enters into partnering arrangements and strategic alliance
with its customers,  whereby the Company participates in the pre-planning stages
of projects. This early involvement by the Company enhances its knowledge of the
customers' needs.

     The  Company,  through its SRS  subsidiary,  has entered in four  strategic
alliances  with  established  companies in Venezuela,  France,  Saudi Arabia and
South Africa.  These  alliances  will enhance the Company's  ability to grow its
other industrial support and specialty  fabrication business  internationally by
providing the Company an  international  presence.  Effective  January 1999, the
Company  established an  international  marketing group headed by Besim Halef, a
corporate Vice President.

Competition

     The market for  industrial  support  services  is highly  competitive  with
numerous  companies  of various  sizes,  geographic  presence  and  capabilities
participating.  Management  believes  that the typical  provider  of  industrial
support  services  in North  America is a small- to  medium-sized  company  that
serves  customers in one region,  and offers a limited  range of  services.  The
Company   competes  with  numerous   small,   independent   contractors   which,
collectively, have a significant overall share of the market for these services.
Certain of the Company's  competitors have greater financial  resources or offer
specialized  technologies  or services not  provided by the Company.  Management
believes that none of the Company's  competitors match the Company's  geographic
diversity  and  breadth of  services.  The  principal  competitive  factors  for
industrial support services are price,  quality,  scope of services offered, and
safety.

     The specialty  fabrication  market in North  America is highly  fragmented,
with  few  large  participants.  Many of the  Company's  competitors  are  local
entities.  The principal  competitive factors for specialty fabrication services
are price, quality, product availability, ability to meet delivery schedule, and
safety.


                                      -15-

<PAGE>



Research and Development

     The Company does not have a research and development program. However, when
required for specific applications the Company obtains technology licenses.

Customers

     During fiscal 1998 the Company generated  approximately 88% of its revenues
from  industrial  customers in general and 44% of its revenues from customers in
the petroleum and  petrochemical  refining  business in particular.  TransCanada
Pipeline  Limited  ("TransCanada   Pipeline"),   Huntsman  Chemical  Corporation
("Huntsman  Chemical"),  Petrodrill  Construction  Inc.  ("Petrodrill"),  Oramet
International,  Inc. ("Oramet") and Kilborne  Engineering together accounted for
approximately  40.2% of the Company's total revenues in fiscal 1998, compared to
31.3% of  revenues  from  its top six  customers  in  fiscal  1997.  TransCanada
Pipeline  accounted for approximately 16% of the Company's fiscal 1998 revenues,
under the former joint  venture with Steen,  a  subsidiary  of Dominion  Bridge,
which  contract  has been  completed  and is  non-recurring,  Huntsman  Chemical
accounted for  approximately  8.3% of the Company's  fiscal 1998  revenues,  and
Petrodrill  accounted for  approximately  5.4% of such revenues under a contract
which has been terminated.  No other customer  accounted for more than 5% of the
Company's  revenues  in fiscal  1998.  Management  believes  that the  Company's
continued  efforts to expand and  diversify  its customer base should reduce the
Company's dependence on certain key customers.

Backlog

     At November  30,  1998,  the  Company's  backlog was  approximately  $275.0
million,  compared to approximately  $215.0 million of backlog for such contract
work at November 30, 1997.  Approximately  $63.0 million of the total backlog at
November  30, 1998 was  associated  with  recurring  work,  such as  maintenance
activity  which is not under firm contract but which has a high  probability  of
recurring.  Backlog represents the amount of revenue that the Company expects to
realize from work to be performed on uncompleted  contracts in progress and from
contractual  agreements  upon  which  work  has not  commenced  within  the next
12-month period.  Contracts included in backlog may have provisions which permit
cancellation  or delay in their  performance by the customer and there can be no
assurance  that  any work  orders  included  in  backlog  will not be  modified,
canceled or delayed.

Employees

     At January 31,  1999,  the Company  employed  approximately  700  full-time
employees  and  1,450  hourly  workers.  Total  employment  levels  ranged  from
approximately  1,580 to 3,080 workers per week during fiscal 1998. The Company's
experience has been that hourly-rate  employees are generally  available over an
extended period of time in the quantity,  and at the skill levels  necessary for
its projects.  Some of the employees are covered by union contracts  expiring at
various dates.  The Company has not experienced a significant  work stoppage and
considers its employee relations to be good.

Raw Materials

     The  Company  has  not  experienced  any  difficulties  obtaining  the  raw
materials needed by its operating subsidiaries.

Government Regulation and Risk Management

     Certain of the Company's  services  involve contact with crude oil, refined
petroleum  products,  asbestos  and other  substances  classified  as  hazardous
material under the various federal,  state and local  environmental  laws. Under
these laws,  hazardous material is regulated from the point of generation to the
point of disposal.  In addition,  the EPA has issued  regulations  for hazardous
waste remediation contractors. To management's knowledge, the operating segments
have obtained all required  permits and licenses in the  jurisdictions  in which
they operate.

                                      -16-

<PAGE>


     The Company's United States operations are subject to regulations issued by
the United States  Department of Labor under the Occupational  Safety and Health
Act ("OSHA").  These  regulations set forth strict  requirements  for protecting
personnel  involved with any materials that are  classified as hazardous,  which
includes materials  encountered when performing many of the Company's  services.
There are similar federal and provincial rules governing the Company's  Canadian
operations.  Violations  of these  rules can result in fines and  suspension  of
licenses.  To the best of  management's  knowledge,  the  Company and all of its
operating  subsidiaries  are in  material  compliance  with  OSHA  and  Canadian
regulations.

     The Company's  safety and training  efforts are conducted  primarily at the
subsidiary level. In addition to training designed to advance the skill level of
individual  employees,  the Company uses entry level  screening and  broad-based
skills  development  programs  to improve  the  overall  quality  and  technical
competence  of its work force.  The Company has a designated  safety  officer at
each of its  operating  subsidiaries  who is  responsible  for  compliance  with
applicable  governmental  procedures  and the  Company's  internal  policies and
practices.  All of the  Company's  technicians  are  subject to  pre-employment,
scheduled and random drug testing.  The Company's  operations  and personnel are
subject to significant  regulations and  certification  requirements  imposed by
federal, state and other authorities.

     The Company maintains  worker's  compensation  insurance in accordance with
statutory  requirements and  contractors'  general  liability  insurance with an
annual aggregate coverage limit that varies with each subsidiary.  The Company's
general liability insurance  specifically  excludes all pollution related claims
and fines  levied  against  the  Company  as a result of any  violations  by the
Company of the  regulations  issued by the  Department  of Labor under OSHA.  To
date,  the Company has not  incurred any  significant  fines or penalties or any
liability for pollution,  environmental  damage,  toxic torts or personal injury
from exposure to hazardous  wastes.  However,  a successful  liability claim for
which the Company is only partially insured or completely uninsured could have a
material adverse effect on the Company. In addition,  if the Company experiences
a  significant  amount of such  claims,  increases  in the  Company's  insurance
premiums could  materially and adversely  affect the Company.  Any difficulty in
obtaining  insurance coverage  consistent with industry practice may also impair
the  Company's  ability  to obtain  future  contracts,  which in most  cases are
conditioned upon the availability of specified insurance  coverage.  The Company
has not experienced any difficulty in obtaining  adequate insurance coverage for
its businesses.

     The Company has arranged for a surety line to post  performance and payment
bonds on contracts should a customer request that the Company post such bonds as
a condition to the granting of a contract to the Company.


                                      -17-

<PAGE>


Item 2.  Properties

     The location,  ownership, primary use and approximate square footage of the
facilities  of the Company are set forth in the following  table.  The principal
administrative  offices of the Company  are  maintained  in Toronto,  Canada and
Houston,  Texas.  The Company owns 13  facilities  and leases an  additional  11
facilities  in the United  States and  Canada.  The  Company  believes  that its
existing facilities are adequate to meet current  requirements and that suitable
additional or substitute  space would be available as needed to accommodate  any
expansion of operations.

<TABLE>
<CAPTION>
                                                                                                                      Approximate
                                                                                            Primary                   Square Feet
                    Business Unit and Site Location             Ownership                   Use (1)                 of Floor Space
                    -------------------------------             ---------                   -------                 --------------
<S>                                                              <C>                    <C>                              <C>
American Eco
        Toronto, Ontario..............................           Leased                       Adm.                         2,000

        Houston, Texas................................           Leased                       Adm.                        14,000

CCG
        Dallas, Texas.................................           Leased                       Adm.                         7,000

Chempower
        Canton, Ohio..................................            Owned                    Adm./Mfg.                     205,000

        Cincinnati, Ohio..............................            Owned                   Adm./Const.                     25,000

        Las Vegas, Nevada.............................           Leased                    Adm./Mfg.                      47,000

        Washington, Pennsylvania......................            Owned                 Adm./Const./Mfg.                 112,000(2)

        Waverly, Tennessee............................            Owned                 Adm./Const./Mfg.                  95,000

        Winfield, West Virginia.......................            Owned                   Adm./Const.                     90,000

Industra Service
        Edmonton, Alberta.............................           Leased             Adm./Const./Fabr./Ther.               50,000

        New Westminster, British Columbia.............            Owned           Adm./Const./Mfg./Fabr./Ther.            74,000

        Portland, Oregon..............................           Leased                 Adm./Const./Eng.                  22,000

        Greenville, South Carolina....................           Leased                    Adm./Eng.                      14,000

        Seattle, Washington...........................           Leased                       Adm.                        19,000

Lake Charles Group
        Lake Charles, Louisiana.......................            Owned                Adm./Const./Fabr.                  10,000

MM Industra
        Dartmouth, Nova Scotia........................            Owned                    Adm./Mfg.                      60,000

        Dartmouth, Nova Scotia........................            Owned                   Mfg./Const.                    180,000

        Pictou, Nova Scotia...........................            Owned                   Mfg./Const.                     85,000

SRS
        Irvine, California............................           Leased                    Adm./Mfg.                      24,000
</TABLE>


                                      -18-


<PAGE>



<TABLE>
<CAPTION>
<S>                                                              <C>                   <C>                                <C>
Turner Group
        Bridge City, Texas............................            Owned                    Adm./Fabr.                      2,700

        Port Arthur, Texas(3).........................            Owned                 Adm./Const./Mfg.                  29,000

United Eco
        Highpoint, North Carolina.....................            Owned                Adm./Const./Remed.                  7,500

        Apex, North Carolina..........................           Leased                       Adm.                         5,000

        Blacksburg, Virginia..........................           Leased                       Lab.                         5,000
</TABLE>

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

(1)  Adm.  =   Administration;   Const.   =  Construction   warehouse;   Mfg.  =
     Manufacturing  facility;  Fabr.  =  Fabrication  facility;  Ther. = Thermal
     facility; Eng. = Engineering facility;  Remed. = Remediation facility; Lab.
     = Laboratory.

(2)  Amount includes  approximately  30,000 square feet of floor space leased to
     unaffiliated  tenants. 

(3)  This  facility is situated on 6.5 acres and contains  15,000 square feet of
     office and warehouse  space and 14,000  square feet of covered  fabrication
     area. The facility is in close proximity to the Intercoastal Waterway.

Item 3.  Legal Proceedings

     The  Company  and its  operating  subsidiaries  are  currently  involved in
various  claims  and  disputes  in the  normal  course of  business.  Management
believes  that  the  disposition  of all  such  claims,  individually  or in the
aggregate,  will not have a material  adverse effect on the Company's  financial
condition, results of operations or cash flows.

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

     The Company did not submit any matter to a vote of shareholders  during the
last quarter of fiscal 1998 through the solicitation of proxies or otherwise.

                                      -19-

<PAGE>


                                     PART II

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

Public Market for Common Shares

     The Company's  Common  Shares are traded on The Toronto Stock  Exchange and
the  Nasdaq   National   Market  under  the  trading   symbols  ECX  and  ECGOF,
respectively.  The  Company's  Common  Shares were traded on the American  Stock
Exchange under the symbol ECG until November 16, 1995 when the Company  delisted
from such exchange and listed its Common Shares on the Nasdaq  National  Market.
As of January  31,  1999,  there were 694  shareholders  of record.  The Company
believes that the number of beneficial holders is significantly greater than the
number  of record  holders  as a large  number  of shares  are held of record in
nominee or broker names.

     The following  table provides the quarterly high ask and low bid prices for
the Company's  Common Shares on the Nasdaq National Market and The Toronto Stock
Exchange for the two years ended November 30, 1998.

<TABLE>
<CAPTION>
                                                     Nasdaq                     Toronto Stock
                                                 National Market                  Exchange
                                            -----------------------         ----------------------
                                                     (US$)                          (CDN$)
                                            High Ask        Low Bid          High            Low
                                            --------        -------         ------          ------
<S>                                          <C>             <C>            <C>             <C>
Fiscal year ended November 30, 1998
        First quarter .............          $12.25          $ 8.69         $17.75          $12.25
        Second quarter ............           11.25            6.75          16.00           10.00
        Third quarter .............            8.00            2.44          11.40            4.00
        Fourth quarter ............            3.19            1.81           4.90            2.90
Fiscal year ended November 30, 1997
        First quarter .............            9.43            6.68          12.60            9.10
        Second quarter ............            8.50            6.75          11.50            9.70
        Third quarter .............           10.18            5.87          14.05            8.25
        Fourth quarter ............           14.75            9.12          20.05           12.95
</TABLE>

     The Company is subject to  covenants  in its  Indenture  which  restrict or
limit the payment of cash dividends on its Common Shares.  Notwithstanding  such
restrictions  and  limitations,  it is the  Company's  present  policy to retain
future earnings for use in its business.

Private Placements of Common Shares

     During the fourth  quarter of fiscal  1998,  the Company did not effect any
private placements of its Common Shares.


                                      -20-

<PAGE>


Item 6.  Selected Financial Data.

     The Turner Group was acquired in October  1993,  Cambridge  was acquired in
June 1994,  the Lake  Charles  Group was  acquired  in July 1995,  Environmental
Evolutions  was acquired in January  1996,  both SRS and  Industra  Service were
acquired in July 1996, MM Industra was acquired in September 1996, Chempower was
acquired in March 1997 and CCG was acquired in September 1997. Eco Environmental
and Environmental  Evolutions were sold by the Company in August 1997, effective
as of August 31, 1997.  The statement of operations  for the year ended November
30, 1994  reflects six months of  operations  for  Cambridge.  The  statement of
operations  for the year  ended  November  30,  1995  reflects  five  months  of
operations for the Lake Charles Group.  The statement of operations for the year
ended November 30, 1996 reflects  eleven months of operations for  Environmental
Evolutions,  six months of operations  for United Eco, four months of operations
for SRS and Industra  Service and one month of operations  for MM Industra.  The
statement  of  operations  for the year ended  November 30, 1997  reflects  nine
months of operations for Chempower,  three months of operations for CCG and nine
months of operations for Eco Environmental and Environmental Evolutions prior to
their sale. The following  information  should be read in  conjunction  with the
Consolidated   Financial   Statements   and  the  notes  thereto  and  "Item  7.
Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations," included elsewhere herein.

<TABLE>
<CAPTION>
                                                      Fiscal Year Ended
                                                         November 30
                                -----------------------------------------------------------
                                  1998          1997        1996        1995         1994
                                ---------     ---------   ---------   ---------   ---------
                                          (In thousands, except per share information)
<S>                             <C>           <C>         <C>         <C>         <C>      
Statement of Operations Data:
Total revenue ...............   $ 299,789     $ 220,478   $ 119,529   $  46,684   $  34,991
Operating income (loss) .....     (28,881)       20,971       9,480       3,773       1,747
Interest expense ............       9,506         4,946       1,747         713         681
Pretax income (loss) ........     (39,885)       19,264       7,954       3,060       1,066
Net income (loss) ...........     (30,179)       17,435       8,763       2,852         903
                                =========     =========   =========   =========   =========

Net income (loss) per share .   $   (1.44)    $    1.08   $    0.81   $    0.40   $    0.15
                                =========     =========   =========   =========   =========

Weighted average shares
outstanding .................      20,965        16,218      10,846       7,217       6,191

Balance Sheet Data:
Working capital .............   $  91,238     $  59,907   $   3,280   $   6,639   $   6,441
Total assets ................     250,383       211,786     104,484      31,061      22,947
Current debt ................         630         8,081      22,107       4,497       3,785
Long-term debt ..............     120,689        51,722       6,720       2,100       4,977
Shareholders' equity ........      90,238       107,099      55,043      18,736      11,299
</TABLE>



                                      -21-

<PAGE>


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

Overview

     American  Eco is a leading  provider of  industrial  support and  specialty
fabrication services to principally three industry groups: (i) energy, (ii) pulp
and paper and (iii) power  generation.  The Company also  provides  construction
management  services to a select group of commercial owners and developers.  The
Company offers its customers a  single-source  solution for a extensive array of
support   services   such  as  equipment  and  facility   repair,   maintenance,
refurbishment, retrofit and expansion. Specialty fabrication services offered by
the Company  include the  construction  of decks,  well  jackets and modules for
offshore oil and gas platforms,  the fabrication of piping, pressure vessels and
other  equipment used in process  industries,  the erection of structural  steel
support   systems  and  the  manufacture  of  electrical   switch  gear,   power
distribution panels, bus ducts and control rooms. The Company also manufactures,
sells,  installs and operates  SAREX(R) oil filtration  and  separation  systems
worldwide.

     The trend toward greater  customer  emphasis on  outsourcing  dictates that
support  services  companies  provide an  increasing  breadth of services.  This
market trend is the primary tenet of the Company's acquisition strategy, and has
precipitated  consolidation  in the support  services and specialty  fabrication
markets in North America.  The Company has grown  significantly in the past five
years  through  the  acquisition  of  nine  industrial   support  and  specialty
fabrication service providers in various  complementary  geographic regions. The
Company had also acquired two environmental  remediation  companies,  which were
subsequently sold in August 1997.

     A substantial portion of the Company's work is recurring in nature,  either
through term contracts or long-standing customer relationships.  At November 30,
1998,  the  Company  had  project   backlog  of   approximately   $275  million,
substantially all of which it expects to realize within the next twelve months.

Seasonality and Quarterly Fluctuations

     The Company's  revenues from its  industrial,  environmental  and specialty
fabrication  segments may be affected by the timing of scheduled  outages at its
industrial  customers'  facilities  and by weather  conditions  with  respect to
projects  conducted  outdoors.  The effects of seasonality  may be offset by the
timing  of large  individual  contracts,  particularly  if all or a  substantial
portion of the contracts fall within a one-to two-quarter  period.  Accordingly,
the  Company's  quarterly  results may  fluctuate  and the results of one fiscal
quarter  should not be deemed to be  representative  of the results of any other
quarter or for the full fiscal year.

Recognition of Revenues

     The  Company  recognizes  revenues  and  profits  on  contracts  using  the
percentage-of-completion      method      of      accounting.      Under     the
percentage-of-completion  method,  contract  revenues are accrued based upon the
percentage that accrued costs to date bear to total estimated costs. As contacts
can extend over more than one accounting  period,  revisions in estimated  total
costs and profits  during the course of work are reflected  during the period in
which the facts  requiring  the revisions  become know.  Losses on contracts are
charged to income in the period in which such losses are first  determined.  The
percentage-of-completion  method of accounting can result in the  recognition of
either costs and  estimated  profits in excess of billings or billings in excess
of costs and estimated profits on uncompleted contracts, which are classified as
current assets and liabilities,  respectively,  in the Company's  balance sheet.
See Note 1 to Consolidated Financial Statements.



                                      -22-

<PAGE>


Results of Operations

Fiscal 1998 to fiscal 1997

     Revenues

     The  Company's  revenues  grew 36% to $299.8  million  in fiscal  1998 from
$220.4 million in fiscal 1997 partly as a result of the  recognition of revenues
from a joint  venture  project  with MIL Davie  Industries,  Ltd. and a one-time
project  involving  the  construction  of a major  pipeline  project in Ontario,
Canada with Steen.  Total revenues relating to these projects was $56.0 million.
Most  operating  units  generated  internal  growth in fiscal 1998.  MM Industra
experienced a 381%  increase in revenues  over fiscal 1997  primarily due to the
inclusion of revenue from the previously  mentioned  contracts and joint venture
in Canada, Industra Service generated a 25.7% increase in revenue from expansion
of its Edmonton,  Alberta,  Canada unit, Chempower generated a 37.6% increase in
revenue over fiscal 1997 as fiscal 1998 was the first full  reporting year since
its acquisition by the Company,  and The Turner Group generated a 14.1% increase
in revenue  from  existing  operations.  CCG had  generated  a 210%  increase in
revenue,  however,  its fiscal 1997 revenues were recognized only from September
1, 1997 to  November  30,  1997.  Two  operating  divisions,  SRS and United Eco
Systems,  each showed a decline in revenue in fiscal 1998 of approximately  50%.
The decline  relates  primarily to work  performed by these  divisions in fiscal
1997 for MART.

     During  fiscal  1998,  the  Company  generated  approximately  49.4% of its
revenues  from  industrial  support  services,  38.8% of its  revenues  from the
specialty  fabrication  business,  9.7% of its  revenues  from the  construction
management services,  and 2.1% from its environmental  remediation services. The
Company  has  provided  its  services  to the  energy,  pulp  and  paper,  power
generation,  and retail  industries in North  America.  Approximately  1% of the
Company's revenues have been generated from international opportunities.

     Huntsman Chemical,  TransCanada Pipeline,  Petrodrill, Oramet and Kilbourne
Engineering  together  accounted for approximately  40.2% of the Company's total
revenues in fiscal 1998  compared to the  Company's  top six customers in fiscal
1997  which  accounted  for  approximately  31.3% of  revenues  for  such  year.
TransCanada  Pipeline  accounted for approximately 16% of the Company's revenues
in fiscal  1998 under a joint  venture  with  Steen,  a  subsidiary  of Dominion
Bridge,  which  contract  has  been  completed  and is  non-recurring,  Huntsman
Chemical  accounted  for  approximately  8.3% of the fiscal  1998  revenues  and
Petrodrill  accounted for  approximately  5.4% of such revenues under a contract
which has been  terminated  (see "Item 1. Business - Other Business  Ventures").
None  of the  other  above-listed  customers  represented  more  than  5% of the
Company's  fiscal 1998 revenues.  The Company is expanding and  diversifying its
customer base in an attempt to reduce the Company's  dependence in the future on
certain key customers.

     The Company's  industrial support segment generated $148.1 million or 49.4%
of the Company's  total  revenues in fiscal 1998  compared to $147.4  million or
66.9% of the Company's  total  revenues in fiscal 1997.  Management  anticipates
that this trend  should  not  continue  in fiscal  1999 and the  Company  should
experience  an  increase  in  dollars  and  percent of total  revenues  from its
industrial support segment.

     The specialty  fabrication  business  segment  generated  $116.3 million or
38.8% of the Company's  total  revenues in fiscal 1998 compared to $51.6 million
or 23.4% of the Company's  total revenues in fiscal 1997.  The increase  results
primarily  from the revenues of $56.0  million  generated by the Steen and Davie
projects.  Management  anticipates that the specialty  fabrication business will
continue to grow and  provide  consistent  recurring  revenue for the Company by
reason of the expansion into Edmonton,  Alberta and its presence in the offshore
oil and gas industry in Canada.

     The revenues  generated from the Company's  construction  management  group
increased to $29.1  million or 9.7% of the  Company's  total  revenues in fiscal
1998 compared to 4.2% in fiscal 1997.  Revenue is generated  primarily  from the
CCG unit based in Dallas,  Texas  which was  acquired as of  September  1, 1997.
Accordingly,  revenues  from fiscal 1997 are included only for the fourth fiscal
quarter of such year.

                                      -23-

<PAGE>


     The revenues  generated from the Company's  environmental  services segment
decreased by 47.9% to $6.3  million in fiscal 1998 from $12.1  million in fiscal
1997, which decrease  reflects the sale of Eco  Environmental  and Environmental
Evolutions on August 31, 1997.

     Operating Expenses

     The Company's total operating  expenses  increased  approximately  60.7% to
$328.7  million in fiscal  1998 from  $199.5  million in fiscal 1997 partly as a
result of adding the operations of the joint ventures to MM Industra's  revenues
and including Chempower and CCG for the full year of fiscal 1998. Expressed as a
percentage of total revenues,  operating expenses were  approximately  109.6% in
fiscal 1998 compared to 90.5% in fiscal 1997. Direct costs increased to 84.6% in
fiscal 1998 compared to 73.8% in fiscal 1997 as a direct result of joint venture
activity.  Selling,  general  and  administrative  expenses  increased  to $42.6
million in fiscal 1998 compared to $31.2 million in fiscal 1997. As a percentage
of  total  revenues,  selling,  general  and  administrative  expenses  remained
constant  at 14.2% in fiscal 1998 and in fiscal  1997.  Operating  expense  also
includes the $1.6 million  expense  incurred to purchase the 49% interest in the
Steen  Pipeline  joint  venture  not  originally  owned by the  Company and $4.5
million in fees paid related to the Steen  pipeline  joint  venture,  which have
been  categorized  as  operating  expenses  associated  with the Steen  pipeline
project due to its treatment as a one-time project, rather than a going concern.
SG&A was  negatively  impacted by certain  costs  associated  with the Company's
management  changes and $3.0 million in non-cash  accounts  receivable and other
charges  taken in the  fourth  quarter of fiscal  1998.  SG&A also  includes  an
aggregate  of $0.4  million  in signing  bonuses  paid to Mr.  Fradella  and Mr.
Posner,  who are no longer  employed  by the  Company.  The Company is intent on
reducing  overhead costs at all levels.  An aggressive  plan was  implemented in
late 1998 to reduce corporate SG&A by at least $2.5 million in fiscal 1999.

     The Company's  interest  expense on long term debt increased in fiscal 1998
to $9.5 million from $4.9 million and as a percentage of total revenue, interest
expense  increased to 3.0% compared to 2.2% in fiscal 1997.  During fiscal 1998,
the Company  issued $120 million  principal  amounts of 9-5/8%  Senior Notes and
repaid approximately $71.3 million of outstanding indebtedness.  At November 30,
1998,  the  Company's  debt to equity ratio was 1.8:1 and its current  ratio was
3.4:1.  Management will seek to control future operating expenses, but there can
be no assurance that the Company's cost control policies will be as effective.

     Provision for Income Tax.

     In fiscal  1998 the Company has a loss  before  provision  for  recovery of
income  taxes of $39.9  million.  A  recovery  of income  taxes of $9.7  million
reduced  the  Company's  net  loss  to  $30.2  million.  The  recovery  includes
approximately $2.4 million of net operating loss carryback.

     Net Income (Loss).

     The  Company  incurred  a net loss of $30.2  million  or $1.44 per share in
fiscal 1998  compared to a profit of $17.4  million or $1.08 per share in fiscal
1997. A tax recovery of $9.7 million in fiscal 1998  compares to a tax provision
of $1.8 million in tax expense in fiscal 1997.


                                      -24-

<PAGE>


Fiscal 1997 Compared to Fiscal 1996

     Revenues

     The  Company's  revenues  grew 84.0% to $220.4  million in fiscal 1997 from
$119.5 million in fiscal 1996, primarily as a result of reporting the results of
Chempower  from February 27, 1997, CCG from September 1, 1997 and a full year of
operations  for MM Industra,  SRS and Industra  Services  which were acquired in
fiscal 1996.  These results are partially  offset by a decrease in revenues from
Lake Charles  Construction  that  generated  $49.0 million in revenues in fiscal
1996 from a single contract.  In addition,  Eco  Environmental and Environmental
Evolutions were included only through their disposal date of August 31, 1997.

     During  fiscal  1997,  the  Company  generated  approximately  66.9% of its
revenues  from the  provision of  industrial  support  services and 44.7% of its
revenues from the  provisions  of such  services to petroleum and  petrochemical
refining customers. Huntsman Chemical,  International Paper, Mobil Oil, American
Electric   Power,   Ashland  Oil  and  Brown  &  Root  together   accounted  for
approximately  31.3% of the Company's total revenues in fiscal 1997, compared to
18.0% of the  Company's  top six  customers  in fiscal 1996.  Huntsman  Chemical
accounted for 7.9% of the Company's revenues in fiscal 1997.  Although,  none of
the customers  represented more than 10% of the Company's revenues,  the loss of
any one or more key  customers  could  have a  material  adverse  effect  on the
Company's  results of operations and financial  condition.  Management  believes
that the Company's  continued efforts to expand and diversify its customer base,
in addition to the effects of a full year of operations  from  Chempower and the
operations of Dominion Bridge,  assuming  completion of such  acquisition,  will
further reduce the Company's dependence on certain key customers.

     The Company's  industrial support segment generated $147.4 million or 66.9%
of the  Company's  total  revenues in fiscal 1997  compared to $94.6  million or
79.0% in fiscal 1996.  This 56.0% increase in revenue is primarily the result of
reporting  Chempower's revenues from February 1997 and the effect of a full year
of revenue from Industra and CCG's revenues from  September 1, 1997.  Management
anticipates  that the  revenues  generated  by its  industrial  support  service
segment  will  represent a larger  percentage  of revenues in fiscal 1998 as the
Company benefits from a full year of operations from Chempower.

     The revenues  generated from the Company's  environmental  services segment
decreased  34.6% to $12.1  million in fiscal  1997 from $18.5  million in fiscal
1996.  This  decrease  primarily  reflects  the  sale of Eco  Environmental  and
Environmental  Evolutions on August 31, 1997. As a percentage of total  revenues
the   Company's   environmental    remediation   service   segment   contributed
approximately  5.5% of total  revenues of fiscal 1997 compared to 15.5% of total
revenues in fiscal 1996.

     The specialty fabrication business segment generated $51.6 million or 23.4%
of the Company's total revenues in fiscal 1997, compared to $6.5 million or 5.4%
in fiscal 1996.  Management  anticipates  that the increase in revenues from the
Company's  specialty  fabrication service segment will continue and this segment
will  contribute a greater  percentage of the Company's total revenues in fiscal
1998 as a result of  increased  business  at MM  Industra,  SRS and  Chempower's
Controlled Power Division.

     The construction  management  segment comprised 4.2% of the Company's total
revenues in fiscal  1997.  Revenues  included  in this  segment  were  primarily
generated by CCG, which was acquired as of September 1, 1997. Accordingly,  this
segment included revenues only for the fourth quarter of fiscal 1997.

     Operating Expenses.

     The Company's total operating  expenses  increased  approximately  81.3% to
$199.5  million in fiscal 1997 from $110.1 million in fiscal 1996 primarily as a
result of adding the  operations of Chempower,  from February 27, 1997, CCG from
September  1,  1997  and the  1996  acquisitions  of MM  Industra  and  Industra
Services.  Expressed as a percentage of total revenues,  operating expenses were
approximately 90.5% in fiscal 1997 compared to 92.0% in

                                      -25-

<PAGE>



fiscal 1996.  Selling,  general and  administrative  expenses  incurred to $31.2
million in fiscal 1997 compared to $20.6 million in fiscal 1996. As a percentage
of total revenues,  selling,  general and  administrative  expenses decreased to
14.1% in  fiscal  1997  compared  to 17.2%  in  fiscal  1996.  The  decrease  is
attributable to the Company's plan to control  overhead  expenses at all levels,
which was implemented in fiscal 1996 and continued in fiscal 1997. The Company's
interest  expense on long-term debt increased to $4.9 million from $1.7 million,
and as a  percentage  of  total  revenue,  interest  expense  increased  to 2.2%
compared to 1.5% in fiscal 1996. Depreciation and amortization increased to $5.4
million in fiscal 1997 from $2.2  million in fiscal  1996.  As a  percentage  of
total revenues,  depreciation and amortization  increased to 2.4% in fiscal 1997
from 1.9% in fiscal 1996.  Management believes that the Company has been able to
contain operating  expenses through a program instituted in fiscal 1994 pursuant
to which project managers are required to track such cost control  indicators as
labor productivity and potential project cost overruns.

     Operating expenses of the Company's industrial support segment increased to
$135.7  million in fiscal 1997  compared to $92.8  million in fiscal 1996.  As a
percentage of revenues from the industrial  support segment,  operating expenses
decreased to 92.0% in fiscal 1997 compared to 98.2% in fiscal 1996.

     Operating  expenses  of  the  Company's   environmental   services  segment
decreased to $13.6  million in fiscal 1997  compared to $16.6  million in fiscal
1996.  As a percentage  of revenues  from the  environmental  services  segment,
operating  expenses  increased  to 111.9% in fiscal  1997  compared  to 90.0% in
fiscal 1996. Management does not expect this deteriorating trend to continue due
to the sale of two environmental operating units as of August 31, 1997.

     Operating expenses of the Company's specialty  fabrication services segment
increased  to $40.1  million in fiscal 1997  compared to $4.3  million in fiscal
1996.  As a  percentage  of revenues  from the  specialty  fabrication  services
segment,  operating expenses increased to 82.5% in fiscal 1997 compared to 67.0%
in fiscal 1996.  This  significant  increase is due to a full year of operations
for MM Industra and nine months of operations for Chempower's  Controlled  Power
Division.  Management believes that the specialty  fabrication  services segment
will  continue to grow based on the  significant  backlog of  contracts  in this
segment.

     Operating  expenses  of  the  Company's  construction  management  services
segment includes  expenses of CCG for the fourth quarter of fiscal 1997. CCG was
acquired as of September 1, 1997.

     Provision for Income Tax.

     In fiscal 1997, the Company  applied the remaining $3.2 million in net loss
carry forwards and began to accrue income taxes. The Company had $1.8 million in
tax expenses in fiscal 1997.  At November 30, 1997,  the Company had no tax loss
carry forwards.

     Net Income.

     Net income  increased  approximately  99.0% to $17.4 million,  or $1.08 per
share,  in fiscal 1997 from $8.8 million,  or $0.81 per share, in fiscal 1996. A
tax recovery of $809,000  contributed  approximately  9.2% of the  Company's net
income in fiscal 1996  compared to a provision of $1.8 million in tax expense in
fiscal 1997.

     Liquidity and Capital Resources

     The  Company's  cash  increased  from $1.3  million on November 30, 1997 to
$21.8  million  at  November  30,  1998.  The  significant  increase  in cash is
primarily the result of the May 1998 issuance of $120 million of 9-5/8% ten-year
senior notes.  The proceeds from the note issue were utilized to retire existing
bank debt and notes payable of approximately $71.2 million. The remainder of the
proceeds  were used for  working  capital  or remain  as  available  cash to the
Company.  The cash balance as of November 30, 1998 included  approximately  $7.5
million of restricted cash.

                                      -26-

<PAGE>

     During  fiscal  year  1998,  the  Company  utilized  net cash in  operating
activities of $3.8 million  compared to net cash utilized in operations of $18.9
million for fiscal  1997.  In fiscal  1998,  the Company had a net loss of $30.2
million which includes the writedown of investments and non-recurring charges of
$27.5  million.  The change in  deferred  income  taxes of $12.6  million  and a
build-up of inventory of $5.0  million were  partially  offset by an increase in
accounts payable of $4.2 million and a change in the cost of estimated  earnings
in excess of billings of $1.9 million.

     During  fiscal  1998,  net cash used in investing  activities  increased to
$23.3  million  from $12.5  million in fiscal  1997.  Net cash used in investing
activities  during the current  fiscal year  consisted  primarily  of  increased
investments in joint venture  activities,  partially offset by the proceeds from
payments received on its notes receivable in the current period.

     The Company's financing activities in fiscal 1998 provided $48.6 million of
net cash  compared to $32.4  million in fiscal  1997.  The  increase in 1998 was
primarily due to the May 1998  issuance of $120 million of the senior notes.  As
permitted by the Indenture under which the senior notes were issued, the Company
expects to obtain a line of credit facility of approximately  $30 million during
the next 60 to 90 days secured by the Company's accounts receivable.  The credit
facility  would be used to assist the Company's  working  capital needs and help
finance the Company's growth strategy through acquisitions.

     The  Company's  cash   requirements   consist  of  working  capital  needs,
obligations  under its leasing and promissory  notes,  and funding for potential
acquisitions.  The Company believes that its current cash position, the expected
cash flow from operations,  and the anticipated availability of a line of credit
should  be  sufficient  throughout  the next 12 months to  finance  its  working
capital needs,  planned  capital  expenditures,  debt service  requirements  and
acquisition strategy.

     The accounts receivable at November 30, 1998 were $50.8 million compared to
$50.4  million at November 30, 1997 after  deducting  allowances of $2.4 million
and $2.1  million for doubtful  accounts at fiscal 1998 and 1997,  respectively.
The current  portion of notes  receivable  decreased to $5.1 million at November
30, 1998 from $17.8 million at November 30, 1997. This decrease is primarily due
to the  renegotiation  of notes payable in fiscal 1998.  Inventory  increased to
$23.0 million at November 30, 1998 from $18.1 million at November 30, 1997.  The
increase in inventory is a result of the  Company's  36% increase in revenues in
fiscal 1998.

     Property,  plant, and equipment  increased to $54.8 million at November 30,
1998 from  $33.0  million  at  November  30,  1997 as a result of the  Company's
acquisition  of the Pictou  Shipyard  in  Pictou,  Nova  Scotia  and  additional
specialty  fabrication  equipment needed for its specialty  fabrication segment.
Accounts payable and accrued liabilities  increased to $32.6 million at November
30, 1998 from $28.4  million from  November 30, 1997.  This increase in accounts
payable is primarily due to increased operations and revenues for fiscal 1998.

Information Regarding Forward Looking Statements

     This Annual Report on Form 10-K includes forward looking  statements within
the meaning of Section 27A of the  Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934.  Forward-looking  statements include statements
concerning plans, objectives,  goals,  strategies,  future events or performance
and underlying  assumptions and other statements which are other than statements
of historical facts.  Forward looking statements involve risks and uncertainties
which could cause actual results or outcomes to differ materially. The Company's
expectations  and beliefs are  expressed  in good faith and are  believed by the
Company  to  have  a  reasonable  basis  but  there  can  be no  assurance  that
management's   expectations,   beliefs  or  projections   will  be  achieved  or
accomplished.  In addition to other  factors  and  matters  discussed  elsewhere
herein,  the following  are important  factors that, in the view of the Company,
could cause  actual  results to differ  materially  from those  discussed in the
forward-looking  statements:  the  ability of the  Company to continue to expand
through  acquisitions,  the  availability  of debt or equity capital to fund the
Company's expansion program and capital requirements, the ability of the Company
to manage  its  expansion  effectively,  the  reduction  in  outsourcing  by the
industrial groups serviced by the

                                      -27-

<PAGE>



Company, the collection and realization of its investments and notes receivable,
the economic conditions that could affect demand for the Company's services, the
ability of the Company to complete  projects  profitably  and the severe weather
conditions that could delay projects.

Impact of the Year 2000 Issue

     The Year 2000 Issue is the result of computer  programs being written using
two digits  rather than four digits to define the  applicable  year.  Any of the
Company's  computer programs that have  data-sensitive  software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result in
a  system  failure  or  miscalculations   causing   disruptions  of  operations,
including,  among other things, a temporary  inability to process  transactions,
send invoices or engage in other routine business activities.

     Based  on a  recent  assessment,  the  Company  determined  that it will be
required to modify or replace  significant  portions of its software so that its
computer  systems will  properly  utilize  dates beyond  December 31, 1999.  The
Company  presently  believes that with  modifications  to existing  software and
conversions to new software,  the Year 2000 Issue can be mitigated.  However, if
such  modifications  and conversions are not made, or are not completed  timely,
the Year 2000  Issue  could  have a  material  impact on the  operations  of the
Company.

     Based on presently available information,  the Company has initiated formal
communications  with all of its  significant  suppliers  and large  customers to
determine  the extent to which the Company is vulnerable to the failure of these
third parties to remediate their own Year 2000 Issues.  However, there can be no
guarantee that the systems of other companies on which the Company's system rely
will be timely  converted,  or that a failure to convert by another company or a
conversion  that is  incompatible  with the  Company's  systems,  would not have
material adverse effect on the Company.

     The Company will utilize both internal and external resources to reprogram,
or replace, and test the software for Year 2000 modifications. The Company plans
to complete the Year 2000 project within one year, but no later than April 1999.
The total cost of the Year 2000  project is  estimated  at $1.5  million  and is
being funded through  operating cash flows of the Company.  Of the total project
cost,  approximately  $1.0  million  is  attributable  to  the  purchase  of new
software,  which will be  capitalized.  The  remaining  $500,000,  which will be
expensed as incurred over the next two years, is not expected to have a material
effect on the results of operations of the Company.

     The  costs  of the  project  and the  date on which  the  Company  plans to
complete the Year 2000  modifications  are based on management's best estimates,
which were derived utilizing  numerous  assumptions of future events,  including
the continued availability of certain resources,  third party modification plans
and other factors.  However, there can be no guarantee that these estimates will
be  achieved,  and actual  results  could  differ  materially  from such  plans.
Specific factors that might cause such material differences include, but are not
limited to, the  availability  and cost of personnel  trained in this area,  the
ability  to  locate  and  correct  all  relevant   computer  codes  and  similar
uncertainties.

                                      -28-

<PAGE>



Item 8.  Financial Statements and Supplementary Data.
















                            AMERICAN ECO CORPORATION

                        CONSOLIDATED FINANCIAL STATEMENTS

                                NOVEMBER 30, 1998










                                      -29-

<PAGE>



                     REPORT OF CERTIFIED PUBLIC ACCOUNTANTS


February 23, 1999


To the Shareholders and Directors of
AMERICAN ECO CORPORATION


In our opinion,  the  accompanying  consolidated  balance sheets and the related
consolidated  statements  of  operations,  shareholders'  equity and  changes in
financial  position  present  fairly,  in all material  respects,  the financial
position of AMERICAN ECO CORPORATION  and  subsidiaries at November 30, 1998 and
1997, and the result of their  operations and their cash flows for the two years
then ended in  conformity  with  generally  accepted  accounting  principles  of
Canada.  These  financial  statements  are the  responsibility  of the Company's
management;  our  responsibility  is to express  an  opinion on these  financial
statements  based on our audits.  We conducted our audits of these statements in
accordance with generally accepted auditing standards which 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,  assessing the accounting  principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion  expressed
above.

As discussed in Note 1 of the Notes to the  Consolidated  Financial  Statements,
the Company changed its method of accounting for income taxes in 1998.


PricewaterhouseCoopers LLP

Miami, Florida




                                      -30-

<PAGE>





                         Karlins Arnold & Corbitt, P.C.



                        REPORT OF INDEPENDENT ACCOUNTANTS



To the Board of Directors and Shareholders of
American Eco Corporation


We  have  audited  the  accompanying   consolidated  statements  of  operations,
shareholders'   equity  and  changes  in  financial  position  of  American  Eco
Corporation for the year ended November 30, 1996, which as described in Note 16,
have been prepared on the basis of accounting  principles  generally accepted in
Canada.  These consolidated  financial  statements are the responsibility of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
consolidated financial statements based on our audit.

We conducted our audit in accordance with auditing standards  generally accepted
in the United States (and in Canada).  U.S.  standards  require that we plan and
perform the audit to obtain reasonable  assurance about whether the consolidated
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 present fairly, in
all  material  respects,  the  consolidated  financial  position of American Eco
Corporation  as of  November  30,  1996,  and the  consolidated  results  of its
operations  and  changes  in  financial  position  for the  year  then  ended in
conformity with generally accepted accounting principles in Canada.


/s/ Karlins Arnold & Corbitt, P.C.
(successor to Karlins Fuller Arnold & Klodosky P.C.)

Houston, Texas
January 31, 1997



                                      -31-

<PAGE>


                            AMERICAN ECO CORPORATION
                           CONSOLIDATED BALANCE SHEET
                      (United States Dollars in thousands)

<TABLE>
<CAPTION>
                                                                                                   At November 30
                                                                                            ----------------------------
                                                                                              1998                1997
                                                                                            --------            --------
                                     ASSETS
<S>                                                                                         <C>                <C>      
CURRENT ASSETS
    Cash                                                                                    $  21,821           $   1,259
    Accounts receivable, trade, less allowance for doubtful accounts of $2,378 in
        1998 and $2,078 in 1997, respectively                                                  50,793              50,349
    Current portion of notes receivable                                                         5,080              17,757
    Costs and estimated earnings in excess of billings                                         11,202              13,145
    Inventory                                                                                  23,080              18,079
    Refundable income taxes                                                                     2,419                  --
    Deferred income tax                                                                         9,464               1,133
    Prepaid expenses and other current assets                                                   4,427               6,920
                                                                                            ---------           ---------
        TOTAL CURRENT ASSETS                                                                  128,286             108,642
                                                                                            ---------           ---------

PROPERTY, PLANT AND EQUIPMENT, net                                                             54,835              33,023
                                                                                            ---------           ---------

OTHER ASSETS
    Goodwill, net of accumulated amortization of $2,781 in 1998 and $1,592 in 1997
        respectively                                                                        $  30,767              30,484
    Notes receivable                                                                           17,504              28,578
    Investments                                                                                13,855               9,142
    Other Assets                                                                                5,136               1,917
                                                                                            ---------           ---------
        TOTAL OTHER ASSETS                                                                     67,262              70,121
                                                                                            ---------           ---------

        TOTAL ASSETS                                                                        $ 250,383           $ 211,786
                                                                                            =========           =========

                      LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
    Accounts payable and accrued liabilities                                                $  32,584           $  28,400
    Notes payable                                                                                  --               8,904
    Current portion of long-term debt                                                             630               8,081
    Billings in excess of costs and estimated earnings                                          3,834               3,350
                                                                                            ---------           ---------
        TOTAL CURRENT LIABILITIES                                                              37,048              48,735
                                                                                            ---------           ---------

LONG-TERM LIABILITIES
    Senior notes                                                                              118,000                  --
    Long-term debt                                                                              2,689              51,722
    Deferred income tax liability                                                               1,334               3,144
    Other liabilities                                                                           1,074               1,086
                                                                                            ---------           ---------
        TOTAL LONG-TERM LIABILITIES                                                           123,097              55,952
                                                                                            ---------           ---------

        TOTAL LIABILITIES                                                                     160,145             104,687
                                                                                            ---------           ---------

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY
    Share capital                                                                              89,854              75,577
    Contributed surplus                                                                         2,845               2,845
    Cumulative foreign exchange                                                                (2,470)             (1,511)
    Retained earnings                                                                               9              30,188
                                                                                            ---------           ---------
        TOTAL SHAREHOLDERS' EQUITY                                                             90,238             107,099
                                                                                            ---------           ---------
        TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                          $ 250,383           $ 211,786
                                                                                            =========           =========
</TABLE>

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

                                      -32-

<PAGE>

                            AMERICAN ECO CORPORATION
                      CONSOLIDATED STATEMENT OF OPERATIONS
                   FOR THE THREE YEARS ENDED NOVEMBER 30, 1998
                      (United States Dollars in thousands)

<TABLE>
<CAPTION>
                                                                     1998              1997              1996
                                                                 ------------      ------------      ------------
<S>                                                              <C>               <C>               <C>         
REVENUE                                                          $    299,789      $    220,478      $    119,529
                                                                 ------------      ------------      ------------

COSTS AND EXPENSES
    Direct costs of revenue                                           253,638           162,882            87,203
    Selling, general and administrative expenses                       42,637            31,243            20,616
    Asset impairment and severance charges                             27,479                --                --
    Depreciation and amortization                                       4,916             5,382             2,232
                                                                 ------------      ------------      ------------
    Total operating costs                                             328,670           199,507           110,049
                                                                 ------------      ------------      ------------

(LOSS) INCOME FROM OPERATIONS                                         (28,881)           20,971             9,480

OTHER INCOME (EXPENSE)
   Interest expense, net                                               (9,506)           (4,946)           (1,747)
   Gain on sale of assets and subsidiaries                                 --             2,682                --
   Foreign exchange income                                                332               557               221
   Loss on early extinguishment of debt                                (1,830)               --                --
                                                                 ------------      ------------      ------------
   Total other income (expense)                                       (11,004)           (1,707)           (1,526)
                                                                 ------------      ------------      ------------
INCOME (LOSS) BEFORE PROVISION FOR (RECOVERY OF)                      (39,885)           19,264             7,954
    INCOME TAXES

PROVISION FOR (RECOVERY OF) INCOME TAXES                               (9,706)            1,829              (809)
                                                                 ------------      ------------      ------------

NET (LOSS) INCOME                                                $    (30,179)     $     17,435      $      8,763
                                                                 ============      ============      ============

Earnings (loss) per common share
    Basic                                                        $      (1.44)     $       1.08      $       0.81
                                                                 ============      ============      ============
    Adjusted basic                                               $      (1.44)     $       1.03      $       0.78
                                                                 ============      ============      ============
    Fully diluted                                                $      (1.44)     $       0.90      $       0.74
                                                                 ============      ============      ============

Weighted average number of shares used in computing earnings
    (loss) per common share
    Basic                                                          20,965,383        16,218,034        10,846,516
                                                                 ============      ============      ============
    Adjusted basic                                                 20,965,383        17,667,960        11,435,636
                                                                 ============      ============      ============
    Fully diluted                                                  20,965,383        21,809,562        12,325,043
                                                                 ============      ============      ============
</TABLE>

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

                                                       -33-

<PAGE>


                            AMERICAN ECO CORPORATION
                 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
                   FOR THE THREE YEARS ENDED NOVEMBER 30, 1998
                      (United States Dollars in thousands)

<TABLE>
<CAPTION>
                                       Share Capital             Share                     Cumulative                       Total
                                       -------------            Capital     Contributed     Foreign        Retained    Shareholders'
                                   Shares         Amount      Subscribed       Surplus      Currency       Earnings        Equity   
                                ----------     ----------     ----------     ----------    ----------     ----------     ----------
<S>                             <C>             <C>            <C>            <C>           <C>            <C>            <C>      
Balance, November 30, 1995       8,859,472      $  11,803      $      98      $   2,845     $      --      $   3,990      $  18,736

Conversion of debentures           198,820          1,284                                                                     1,284 
Issued for acquisitions          4,283,204         27,269                                                                    27,269 
Issued for cash                    594,940          1,743                                                                     1,743 
Issued for services                281,000          1,753                                                                     1,753 
Share issue cost                                   (4,441)                                                                   (4,441)
Subscriptions collected                                              (64)                                                       (64)
Net income                                                                                                     8,763          8,763
                                ----------     ----------     ----------     ----------    ----------     ----------     ----------

Balance, November 30, 1996      14,217,436         39,411             34          2,845            --         12,753         55,043

Conversion of debentures         3,126,366         21,150                                                                    21,150 
Issued for acquisitions          1,010,913          8,570                                                                     8,570 
Issued for notes                   811,260          7,784                                                                     7,784 
Issued for cash                    376,575          1,613                                                                     1,613 
Issued for services                 66,530            578                                                                       578 
Share issue cost                                   (3,563)                                                                   (3,563)
Cumulative foreign exchange                                                                    (1,511)                       (1,511)
Subscriptions collected             20,000             34            (34)                                                        --
Net income                                                                                                    17,435         17,435
                                ----------     ----------     ----------     ----------    ----------     ----------     ----------
Balance, November 30, 1997      19,629,080         75,577             --          2,845        (1,511)        30,188        107,099
                                                                                                                          
Issued for prior acquisitions      138,856          1,526                                                                     1,526
Issued for asset acquisitions    1,122,142          9,220                                                                     9,220
Issued for cash                    320,933          1,470                                                                     1,470
Issued for services                157,500            700                                                                       700
Issued for warrants                241,667          1,450                                                                     1,450
Share issue cost                                      (89)                                                                      (89)
Cumulative foreign exchange                                                                      (959)                         (959)
Net loss                                                                                                     (30,179)       (30,179)
                                ----------     ----------     ----------     ----------    ----------     ----------     ----------
                                                                                                                          
Balance, November 30, 1998      21,610,178      $  89,854      $      --      $   2,845     $  (2,470)     $       9      $  90,238
                                ==========     ==========     ==========     ==========    ==========     ==========     ==========
</TABLE>


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


                                      -34-

<PAGE>


                            AMERICAN ECO CORPORATION
             CONSOLIDATED STATEMENT OF CHANGES IN FINANCIAL POSITION
                   FOR THE THREE YEARS ENDED NOVEMBER 30, 1998
                      (United States Dollars in thousands)

<TABLE>
<CAPTION>
                                                                                         1998              1997              1996
                                                                                      ---------         ---------         ---------
<S>                                                                                   <C>               <C>               <C>      
CASH FLOWS FROM OPERATING ACTIVITIES:

Net income                                                                            $ (30,179)        $  17,435         $   8,763
    Adjustments to reconcile net income to net cash provided by
        operating activities:
    Asset impairments                                                                    27,140                --                --
    Loss on early extinguishment of debt                                                  2,400                --                --
    Gain on repurchase of senior notes                                                     (570)               --                --
    Gain on sale of assets and subsidiaries                                                  --            (2,682)               (2)
    Depreciation and amortization                                                         4,916             5,382             2,232
    Change in deferred income taxes                                                      (7,287)            1,829               490
    Noncash income, net                                                                      --               325                --
    Change in accounts receivable                                                          (444)          (15,932)           (1,823)
    Change in refundable income taxes                                                    (2,419)               --                --
    Change in notes receivable                                                            3,549           (14,000)               --
    Change in costs and estimated earnings in excess of billings                          1,943            (7,824)             (363)
    Change in inventory                                                                  (5,001)              106            (2,511)
    Change in prepaid expenses                                                             (465)            1,424              (748)
    Change in other assets                                                               (2,046)               --                --
    Change in accounts payable                                                            4,185            (4,523)           (2,312)
    Change in billings in excess of costs and estimated earnings                            484              (458)               34
    Change in other liabilities                                                             (12)               --                --
                                                                                      ---------         ---------         ---------
Net cash (used in) provided by operating activities                                      (3,806)          (18,918)            3,752
                                                                                      ---------         ---------         ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
    Capital expenditures                                                                (11,794)           (3,134)           (4,803)
    Proceeds from sale of equipment                                                          --             3,448                53
    Acquisition of business, net of cash acquired                                            --           (10,493)             (568)
    Proceeds from notes receivables                                                       8,775               996             3,257
    Disbursements for notes receivables                                                  (3,820)           (2,094)           (8,350)
    Increase in investment                                                              (16,450)           (1,277)           (6,156)
                                                                                      ---------         ---------         ---------
Net cash used in investing activities                                                   (23,289)          (12,554)          (16,567)
                                                                                      ---------         ---------         ---------

CASH FLOWS FROM FINANCING ACTIVITIES:
    Proceeds from senior notes                                                          116,139                --                --
    Proceeds from notes payable                                                           5,700            33,500            14,920
    Proceeds from long-term debt                                                            498            58,500               428
    Principal payments on notes payable                                                 (14,604)          (53,196)           (7,412)
    Principal payments on long-term debt                                                (59,068)           (7,607)           (1,015)
    Proceeds from sales/leaseback                                                            --             4,000                --
    Repurchase of senior notes                                                           (1,430)               --                --
    Debt issuance costs                                                                      --            (1,917)               --
    Stock issuance costs                                                                    (89)           (2,479)               --
    Issuance of common stock                                                              1,470             1,613             5,506
                                                                                      ---------         ---------         ---------
Net cash provided by financing activities                                                48,616            32,414            12,234
                                                                                      ---------         ---------         ---------

EFFECT OF FOREIGN EXCHANGE FLUCTUATIONS ON CASH                                            (959)               --                --

NET INCREASE (DECREASE) IN CASH                                                          20,562               942              (581)

CASH AT BEGINNING OF YEAR                                                                 1,259               317               898
                                                                                      ---------         ---------         ---------

CASH AT END OF YEAR                                                                   $  21,821         $   1,259         $     317
                                                                                      =========         =========         =========

<CAPTION>

Supplemental Disclosures of Cash Flow Information

                                                                                         1998              1997              1996
                                                                                      ---------         ---------         ---------
<S>                                                                                   <C>               <C>               <C>      
Cash paid during the years for:
    Interest                                                                          $   9,548         $   4,718         $   1,614
    Income taxes                                                                      $   1,810         $     281         $      --
</TABLE>

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


                                      -35-

<PAGE>


                            AMERICAN ECO CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                      (United States Dollars in thousands)


American Eco Corporation  and its  wholly-owned  subsidiaries  ("the Company" or
"AEC")  provide  industrial  services,   environmental  services  and  specialty
manufacturing  to the  petrochemical,  refining,  forest  products  and offshore
fabrication  industries.  The  Company  also  provides  construction  management
services to a select group of commercial owners and developers.

1.   Basis of Presentation and Summary of Significant Accounting Policies

The  Consolidated  Financial  Statements  have been prepared in accordance  with
accounting  principles  generally  accepted  in Canada  ("Canadian  GAAP").  The
differences between Canadian and United States GAAP are described in Note 18.

The accompanying  consolidated  financial statements include the Company and its
wholly-owned   subsidiaries.   All   significant   intercompany   balances   and
transactions have been eliminated.

Revenue Recognition - The Company recognizes revenues and profits on fixed price
contracts    using    the    percentage-of-completion    method.    Under    the
percentage-of-completion  method,  contract  revenues are accrued based upon the
percentage  that  accrued  costs  to date  bear to  total  estimated  costs.  As
contracts  can  extend  over  more  than one  accounting  period,  revisions  in
estimated total costs and profits during the course of work are reflected during
the period in which the facts  requiring the revisions  become known.  Losses on
contracts  are  charged to income in the  period in which such  losses are first
determined.

Inventory - Inventory is valued on the lower of cost or market method, with cost
determined on the first-in, first-out method.

Property,  Plant and  Equipment  - Property  and  equipment  are stated at cost.
Expenditures  for additions,  major renewals and betterments are capitalized and
expenditures  for  maintenance  and repairs are charged to earnings as incurred.
When  property  and  equipment  are retired or  otherwise  disposed of, the cost
thereof  and the  applicable  accumulated  depreciation  are  removed  from  the
respective  accounts  and the  resulting  gain or loss is reflected in earnings.
Depreciation  and  amortization  are provided over the estimated useful lives of
the respective assets using the straight-line  method over the following periods
based on their estimated useful lives:

Goodwill - The cost in excess of the fair value of the net assets of  businesses
acquired at their respective  acquisition dates are amortized on a straight-line
basis over 40 years. The Company regularly  assesses the carrying value in order
to  determine  whether an  impairment  has  occurred,  taking into  account both
historical and forecasted results of operations.

Income  Taxes - Effective  November 1, 1998,  the Company  changed its method of
accounting  for income  taxes to CICA  3465,  "Income  Taxes."  Under CICA 3465,
deferred  future  income  taxes are  provided on an asset and  liability  method
whereby  deferred  future  income  tax  assets  are  recognized  for  deductible
temporary  differences  and  operating  loss or tax  credit  carryforwards,  and
deferred   income  tax   liabilities   are  recognized  for  taxable   temporary
differences.  Temporary  differences are the differences  between the amounts of
assets and liabilities recorded for income tax and financial reporting purposes.
Deferred  future  income  tax  assets are  recognized  only to the  extent  that
management  determines  that it is more likely than not that the deferred future
income tax asset will be realized.

Previously,  income taxes were  provided on a tax  allocation  basis whereby the
provision was based on accounting income and deferred income taxes resulted from
temporary differences which arose between accounting income and taxable income.

Other  Assets - Included in other assets is  approximately  $4.5 million of debt
issuance costs which are being amortized over the term of the debt (10 years).

Per Share  Data - Basic  earnings  (loss) per share has been  calculated  on the
basis of net earnings for the year  divided by the  weighted  average  number of
common shares outstanding during the period.  Adjusted basic earnings (loss) per
share has been calculated  assuming the actual debt conversion  occurring during
the year  had  taken  place  at the  beginning  of the  year,  or at the date of
issuance if issued  during the year.  Fully  diluted  earnings  (loss) per share
additionally  assumes all options and warrants have been  exercised at the later
of the beginning of the fiscal period or the option issue date.  For fiscal year
1998,  1,526,000  options and  3,141,000  warrants  have been  excluded as their
impact would have been anti-dilutive.


                                      -36-

<PAGE>


                            AMERICAN ECO CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   Basis of  Presentation  and  Summary  of  Significant  Accounting  Policies
     (continued)

Translation   of  Financial   Statements   into  United  States  Dollars  -  The
consolidated  financial  statements are expressed in United States dollars using
foreign currency translation procedures established by the Canadian Institute of
Chartered Accountants.

For  self-sustaining  operations,  the assets and  liabilities  denominated in a
foreign currency are translated at exchange rates in effect at the balance sheet
date. The resulting gains and losses are accumulated in a separate  component of
shareholders'  equity.  Revenues and expenses are translated at average exchange
rates  prevailing  during the period.  For integrated  purposes  current assets,
current liabilities and long-term debt are translated into United States dollars
using  year end  rates  of  exchange;  all  other  assets  and  liabilities  are
translated at applicable  historical rates of exchange.  Revenues,  expenses and
certain  costs are  translated  at annual  average  exchange  rates  except  for
inventory,  depreciation  and  amortization  which are  translated at historical
rates.  Realized exchange gains and losses and currency translation  adjustments
relative to long-term  monetary  items with a fixed and  ascertainable  life are
deferred and amortized on a straight-line basis over the life of the item.

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

Reclassifications  - Certain amounts from prior years have been  reclassified to
conform to the current year's presentation.

2.   Business Combinations

1997

Effective  February 28, 1997, the Company acquired all of the outstanding common
stock of Chempower,  Inc.  ("Chempower").  All of the stockholders of Chempower,
other than two principal  stockholders (the "Principal  Stockholders")  received
$6.20 in cash for each of their  Chempower  shares.  The Principal  Stockholders
received  a  portion  of  their  consideration  in  cash  and  the  balance  was
represented by a $15.9 million promissory note paid in August 1997. Based upon a
total of  approximately  7.6 million  Chempower  shares  outstanding,  the total
acquisition cost was approximately $50 million,  including  acquisition costs of
approximately $3 million. The acquisition was partially funded by a placement by
the Company of $15 million,  9.5%, 10 year  Convertible  Debentures.  Concurrent
with the Chempower  acquisition,  the Company entered into installment  purchase
agreements with Holiday Properties, a general partnership owned by the Principal
Stockholders.  These agreements provided for the acquisition of three parcels of
real property which had been leased to Chempower.  The aggregate  purchase price
for the three properties amounted to $4.5 million, of which $.5 million was paid
on February  28,  1997.  The purchase  price and  expenses  associated  with the
acquisition  exceed the fair value of net assets acquired by  approximately  $12
million.

Effective  September 1, 1997, the Company acquired all of the outstanding common
stock of Specialty  Management  Group Inc.  d/b/a/ CCG  Commercial  Construction
Group  ("CCG"),  in exchange for 265,000  shares of Company  common stock with a
fair market value of approximately  $2.6 million.  The aggregate  purchase price
and expenses associated with the acquisition exceed the fair value of net assets
acquired by approximately $3.6 million.

1996

Effective  January 1, 1996, the Company  acquired all of the outstanding  common
stock of Environmental Evolutions, Inc. ("Environmental Evolutions") in exchange
for 400,000  shares of Company  common  stock with a fair  market  value of $2.4
million.  The  purchase  price  and  expenses  associated  with the  acquisition
exceeded the fair value of net assets by approximately $3.3 million and has been
included in  goodwill.  Pro forma  results  were not  material to the  Company's
financial position or results of operations.
See Note 4 to Consolidated Financial Statements.

Effective May 31, 1996, the Company  acquired  substantially  all the assets and
assumed certain  liabilities of United Eco Systems,  Inc.  ("United  Eco").  The
purchase  price  consisted of 315,000 shares of Company common stock with a fair
market value of $2.5 million.  The purchase price and expenses  associated  with
the  acquisition  exceeded  the fair  market  value of net  assets  acquired  by
approximately $2.8 million and has been included in goodwill.  Pro forma results
were not material to the Company's financial position or results of operations.

Effective July 1, 1996, the Company acquired all of the outstanding common stock
of Separation and Recovery Systems,  Inc. ("SRS").  The purchase price consisted
primarily of 753,634 shares of the Company common stock with a fair market value
of $5.7 million, which approximated the book value of SRS.


                                      -37-

<PAGE>


                            AMERICAN ECO CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


2.   Business Combinations (continued)

Effective  July 22, 1996,  the Company  acquired all of the  outstanding  common
stock of Industra Service Corporation  ("Industra").  AEC exchanged 0.425 common
shares for each common  share of  Industra,  or  1,647,459  shares of AEC common
shares. The purchase price and expenses associated with the acquisition exceeded
the fair value of net assets of the  business  acquired  by  approximately  $6.5
million.

All acquisitions have been accounted for using the purchase method; accordingly,
the assets and liabilities  have been recorded at their estimated fair values at
the date of acquisition. The excess purchase price and related expenses over the
fair value of net assets  acquired is included in  Goodwill.  Under the purchase
method of accounting, the results of operations are included in the consolidated
financial statements from their acquisition dates.

The unaudited pro forma results,  assuming the CCG, Chempower,  SRS and Industra
acquisitions had occurred at December 1, 1996, are as follows:

                                               1997
                                            --------
  Revenues                                  $245,898
  Net income                                $ 12,348
  Basic earnings per share                  $   0.74

The unaudited pro forma summary is not necessarily  indicative either of results
of  operations  that would have occurred had the  acquisitions  been made at the
beginning of the periods  presented,  or of future  results of operations of the
combined companies.


3.   Disposal of Eco Environmental and Environmental Evolutions

As  of  August  31,  1997,  the  Company  sold  Eco  Environmental   Inc.  ("Eco
Evnironmental")   and  Environmental   Evolutions  to  Eurostar  Interests  Ltd.
("Eurostar") in exchange for a note in the amount of $11 million  collateralized
by a $3.0  million  performance  bond.  Eurostar  assigned  its  interest in Eco
Environmental  and Environmental  Evolutions to UKstar (Canada) Inc.  ("UKstar")
which in turn transferred its interest in Eco  Environmental  and  Environmental
Evolutions to Eco Technologies  International  Inc. ("ETI"), a Canadian company.
The  Chairman of the Company  serves as  Secretary  of UKstar and as Chairman of
ETI,  and a director of the Company is also a director  of ETI.  The note,  with
interest  at the rate of 10%,  was due on August  31,  1998.  As a result of the
transaction, the Company recorded a gain of approximately $2.5 million.

In August 1998, a portion of the note was paid, and in November 1998, a new note
for the balance of $8.0 million,  plus interest of 9.75%, is due from UKstar, on
September  30,  2000  with  interest  installments  of  $227,028  due  quarterly
commencing February 28, 1999. This note is collaterized by 500,000 common shares
of ETI and a $3.0 million performance bond.


4.   Impairment, Severance and Other Charges

During  1998,  the Company  recorded  certain  impairment,  severance  and other
charges that  management  believes are not  reflective of the Company's  core or
on-going  business   activities  and  are  therefore  viewed  by  management  as
non-recurring.  These  charges  related  primarily  to  certain  investments  in
Dominion Bridge Corporation  ("Dominion Bridge") and certain of its subsidiaries
all of which filed  "notices of intent to submit a proposal"  under the Canadian
Bankruptcy  and Insolvency Act in August 1998 (see Note 6), an impairment in its
investment in US Industrial  Services Inc. (see Note 7), and severance  costs of
$3.2  million  relating  primarily  to  changes  in  certain  senior  management
positions both at the corporate offices and at certain subsidiaries. In addition
managment  recorded  charges of $4.6 million  related to certain  single project
joint  ventures  during  the  fourth  quarter  which  were  not  anticipated  by
management or the joint ventures.


                                      -38-

<PAGE>


                            AMERICAN ECO CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5.   Notes Receivable

<TABLE>
<CAPTION>
                                                                                                                1998          1997
                                                                                                              -------       -------
<S>                                                                                                             <C>           <C> 
US Industrial Services, Inc., due August, 1998, maximum borrowings of $20 million,
interest at prime plus 2%, uncollateralized.  See Note 7 to Consolidated Financial
Statements.                                                                                                      $ --       $17,876
                                                                                                     
George E. Phillips Holdings, Ltd., $2.8 million due and paid in January 1998, quarterly             
payments of $446,166 from February, 1998 through August, 2002, with final payments due in            
November 2002, interest at 10% collateralized by 50% of the issued and outstanding                   
shares of common stock of Mid Atlantic Recycling Technologies, Inc. ("MART").                                  11,034        14,000
                                                                                                     
UKstar, $9.3 million note presented net of unrecognized interest income of $1.3                      
million, due September 2000, with quarterly interest installments of $227,028, interest              
at 9.75%, collaterized by 500,000 common shares of ETI and a $3.0 million                            
performance bond.                                                                                               8,029        11,000
                                                                                                     
Receivables from joint ventures.  See Note 8 to Consolidated Financial Statements.                              3,002         1,500
                                                                                                     
Notes receivable from officers and directors.  See Note 15 to Consolidated Financial                 
Statements.                                                                                                     1,213         1,468
                                                                                                     
Miscellaneous notes receivable                                                                                    742           491
                                                                                                              -------       -------
                                                                                                               24,020        46,335
Less reserve for notes receivable                                                                              (1,436)           --
                                                                                                              -------       -------
Total notes receivable                                                                                         22,584        46,335
                                                                                                              -------       -------
Current portion                                                                                                 5,080        17,757
                                                                                                              -------       -------
Long-term portion                                                                                             $17,504       $28,578
                                                                                                              =======       =======
</TABLE>

6.   Acquisition of Dominion Bridge Corporation

On February 20, 1998, the Company and Dominion Bridge entered into a non-binding
Letter of Intent which provided for (a) the purchase of $5.0 million of Dominion
Bridge common stock and warrants to purchase Dominion Bridge common stock by the
Company,  (b) a working  capital  loan  facility  of up to $25.0  million  to be
provided by the Company to Dominion Bridge, (c) the engagement of the Company to
provide certain  management  services to Dominion Bridge and (d) the acquisition
by the Company of the  business and assets of Dominion  Bridge.  The purchase of
$5.0 million  dollars of Dominion  Bridge stock was  consummated on February 20,
1998,  the  President and Chief  Executive  Officer of the Company also became a
member of the Board of Directors  of Dominion  Bridge.  On March 23,  1998,  the
Company  announced  that it had  withdrawn  the Letter of Intent and  terminated
negotiations for any further transactions. The Company subsequently entered into
two projects with Davie Industries and Steen Pipeline,  subsidiaries of Dominion
Bridge,  to perform certain  contract work in Canada.  The Company  subsequently
acquired  Dominion  Bridge's  interest in the Steen Pipeline  transaction for an
additional $2.8 million.

On August  11,  1998,  Dominion  Bridge  filled  "notices  of intent to submit a
proposal"  under the Canadian  Bankruptcy and Insolvency  Act. During the fourth
quarter of fiscal 1998, the Company,  after reviewing its prospects for recovery
of its  investments in Dominion  Bridge,  determined that it was probable that a
recovery  of its  investment  would not  occur.  As a result,  during the fourth
quarter,  the Company  recorded a charge of  approximately  $13.8 million.  This
amount  includes  primarily the Company's  initial $5.0 million  investments  in
Dominion  Bridge,  costs  associated  with the Company's  investment in Dominion
Bridge and amounts advanced to Dominion Bridge during 1998,  primarily  relating
to the two joint projects with Davie Industries and Steen Pipeline.

During the fourth  quarter of 1998,  the Company  recorded  revenues and cost of
revenues of $56.0 million and $44.8  million,  which relate to work performed in
the second and third quarters on the two Dominion Bridge joint projects.  In the
prior  quarters,  these  amounts  had been  recorded  as a single  net amount in
revenues.


                                      -39-

<PAGE>


                            AMERICAN ECO CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

7.   US Industrial Services, Inc. (formerly EIF Holdings, Inc.)

During  June 1996,  the  Company  purchased  4,600,000  shares of US  Industrial
Services,  Inc. ("USIS") common stock for $2.8 million. On November 7, 1996, the
Company  acquired an additional  200,000 shares of USIS common stock through the
issuance of 25,000  shares of its common  stock,  and on November 20, 1996,  the
Company  purchased  4,000,000  shares of USIS in exchange  for $70  thousand and
300,000  shares of the  Company's  common  stock.  At  November  30,  1997,  the
Company's  total  investment  in  USIS  was   approximately   $5.2  million  and
represented  36% of USIS's total common  stock.  Additionally  during 1996,  the
Company  entered into a Stock  Purchase  Agreement with USIS whereby the Company
had an option to purchase 10,000,000 shares of USIS for $1 million.  This option
was subject to USIS  stockholders  increasing  the  authorized  number of common
shares.  The Company has  accounted  for its  investment in USIS pursuant to the
equity method of accounting commencing January 1, 1997.

In February 1996, the Company agreed to loan money to USIS pursuant to a line of
credit agreement with a maximum  borrowing of $5.2 million.  This line of credit
was not  collateralized  and was due on July 31, 1997.  Effective July 31, 1997,
the line of credit was  renewed,  extended  and modified to increase the maximum
borrowing amount to $15 million and extend the maturity to February 18, 1998. On
September 30, 1997, the Company  increased the maximum  borrowing  amount to $20
million.  This renewal  included an option for the Company to convert the entire
indebtedness  into common  shares of USIS at 85% of the average  market price of
the  previous  five days,  subject to  approval  of an increase in the number of
authorized  shares by USIS's  stockholders.  On February 18,  1998,  the Company
extended  the  maturity  date of the line of credit to August  18,  1998.  As of
November 30,  1997,  the total  receivable  from USIS was $17.9  million,  which
included accrued interest of $1.04 million. The Company received interest income
of $0.8 million related to the loan outstanding during 1997.

On  November  19,  1997,  USIS  completed  its  acquisition  of JL  Manta,  Inc.
("Manta"),  an  Illinois  corporation  which  provided  specialized  maintenance
services for clients in the  industrial,  environmental  and  low-level  nuclear
sectors.  Pursuant to the terms of a Stock Purchase Agreement, USIS acquired all
of the issued and outstanding  common stock of Manta for  consideration  of $4.7
million  in cash and  $2.2  million  in  convertible  promissory  notes of USIS,
payable in  installments  with a final  payment  due on  November  18, 2000 (the
"Stockholder Notes").

In June 1998, the Company  acquired  1,000,000  shares of USIS. This acquisition
was made pursuant to a February 1996 Stock Purchase  Agreement,  and gave effect
to a one-for-ten  reverse split of the shares in June 1998 and a reincorporation
approved by stockholders in May 1998.

Subsequently,  the Company held certain  promissory  notes of USIS consisting of
principal and interest in the aggregate of $17.9 million. The notes were reduced
by $1 million representing the purchase price for the 1,000,000 shares purchased
under the February 1996 Stock Purchase Agreement. The Company sold the remaining
portion of the notes to USIS Acquisition,  L.L.C. ("UALC"), an unrelated entity,
for $5.0 million in cash and a secured promissory note for $12.9 million payable
on January 29, 1999.  UALC  converted  the notes into  5,295,858  shares of USIS
common stock and secured its promissory note to the Company with a pledge of all
acquired  shares.  In November 1998, UALC advised the Company that UALC would be
unable  to pay its note at  maturity,  and the  Company  took  ownership  of the
pledged  shares in discharge of the note.  As a result of the  transaction,  the
Company's ownership interest increased from 21% to 82% of the outstanding common
stock of USIS at November 30, 1998.

In  November  1998,  USIS  sold the  assets  of Manta  and  transferred  related
liabilities,  including  the  credit  facility,  to Kenny  Industrial  Services,
L.L.C., for $23.0 million consisting of a combination of cash and notes.

On December 31, 1998, USIS sold the assets of P.W. Stephens Residential Inc. and
transferred  its  liabilities,  to American  Temporary  Sanitation Inc. for $2.4
million  consisting of $1.0 million in cash and a five year  promissory note for
$1.4 million  payable  quarterly  through 2004,  together with interest at prime
rate plus 2.5% per annum.

Primarily as a result of UALC  defaulting on the note payable to the Company and
the fees  incurred  by USIS in their sale of Manta,  the Company  recognized  an
impairment in its net  investment in USIS of $7 million.  USIS is in the process
of selling its remaining operating assets and as such the Company's net carrying
value  approximates  the book  value of USIS's  remaining  assets  plus the gain
recognized on the sale of P.W.  Stephens  Residential  Inc. This total amount of
$12.4 million is included in Investments on the Company's  consolidated  balance
sheet.


                                      -40-

<PAGE>


                            AMERICAN ECO CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8.   Investment in SRS Joint Ventures

The Company, through its wholly owned subsidiary SRS, participate in three joint
ventures  with equity  interests  ranging  from 33% to 50%.  Each of these joint
ventures is involved in operating SRS' waste treatment equipment.

At November 30, 1998, the Company's total investment in these joint ventures was
approximately  $1.2  million  and the  Company  had  receivables  from the joint
ventures of approximately $1.7 million. During 1998, the Company sold and leased
certain equipment to the joint ventures for approximately  $2.3 million.  During
1997, the Company sold and leased certain equipment to the joint ventures in the
amount of approximately $5 million.  The Company deferred profit on transactions
with the joint ventures to the extent of its ownership  interests in the amounts
of approximately $.3 million and $1.6 million in 1998 and 1997, respectively.

The results of operations and financial position of these joint ventures are not
material to the  Company's  financial  position and results of  operations as of
November 30, 1998 and 1997.


9.   Inventory

The components of inventory are as follows:                      1998      1997
                                                               -------   -------
Raw material                                                   $ 8,388   $ 6,358
Consumable supplies                                              4,207     3,345
Finished goods                                                  10,485     8,376
                                                               -------   -------

                                                               $23,080   $18,079
                                                               =======   =======

10.  Property, Plant and Equipment

Property, plant and equipment consists of the following:         1998      1997
                                                               -------   -------
Land                                                           $11,223   $ 5,570
Buildings                                                       20,831    14,140
Fabrication, machinery, mobile and other equipment              27,693    17,356
Furniture and fixtures                                           2,634     1,978
Buildings and equipment under capital leases                     4,448     2,362
Leasehold improvements                                           1,451     1,389
                                                               -------   -------
                                                                68,280    42,795
Accumulated depreciation and amortization                       13,445     9,772
                                                               -------   -------
                                                               $54,835   $33,023
                                                               =======   =======


Depreciation  expense for the years ended  November 30, 1998,  1997 and 1996 was
$3,673, $4,467 and $1,695, respectively.

11.  Long-Term Debt including Capital Leases

Note payable to Union Bank of California,  payable             $    --   $52,500
$2,386,364  per  quarter  beginning  April,  1998,
interest at LIBOR plus 3.25% collateralized by the
stock of AEC's subsidiaries,  their guarantees and
substantially all assets of AEC.

Note  payable  to Deere Park  Capital  management,                  --     5,000
payable   interest  only  until  June,  1998  then
monthly  payments of $83,333 plus  interest  until
final  payment  in  May,  2000,  interest  at 10%,
uncollateralized.

Capital  lease  obligation  to Sunnybank  Property               2,061
Ltd.,  payable  $22,160  monthly  with an implicit
rate of 11.44% with final payments due October 31,
2018

Notes payable, other                                             1,258     2,303
                                                               -------   -------
                                                                 3,319    59,803
Current portion                                                    630     8,081
                                                               -------   -------
Long-term portion                                              $ 2,689   $51,722
                                                               =======   =======


                                      -41-

<PAGE>


             AMERICAN ECO CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


11.  Long-Term Debt including Capital Leases (continued)

The aggregate  principal  payments on long-term debt during the years subsequent
to November 30, 1998 are: 1999 - $630;  2000 - $540;  2001 - $513;  2002 - $395;
2003 - $304; thereafter $937.

At  November  30,  1997,  there  was  approximately   $8,904  of  notes  payable
outstanding.  Included in this amount was a payable to Union Bank of  California
under  a  revolving  credit  facility  in the  amount  of  $8,500.  The  maximum
borrowings under the credit facility was $12,000, bearing interest at either the
prime rate plus 2% or LIBOR plus 3% and was  collateralized by substantially all
of the assets of the Company.  This revolving  credit  facility was to expire on
August  31,  2002.  Additionally,  the  Company  had a balance  of $397  under a
revolving  credit  facility with  Comerica.  The maximum  borrowings  under this
facility  was $500 and it was  collateralized  by the  assets  of CCG.  All such
amounts were repaid during 1998.


12.  Senior Notes

In May 1998,  the Company issued $120 million of 9 5/8% Senior Notes that mature
May 15, 2008.  Interest on the Notes is payable  semi-annually in arrears on May
15 and November 15 of each year.  The Notes are  redeemable at the option of the
Company in whole or in part,  at any time on or after May 15, 2003, at specified
redemption prices.

The net proceeds from the issuance of the Notes was $116.1 million.  The Company
used proceeds of $71.2  million to repay credit  facilities,  other  outstanding
indebtedness and accrued interest associated with such indebtedness.

As a result of the  refinancing,  the Company recorded a $2.4 million charge for
the early  extinguishment  of debt,  primarily  related to the prepaid financing
costs of the bank debt.  The  Company  also  recorded  an asset of $4.5  million
related to prepaid  financing  costs  associated  with the Notes.  This asset is
being amortized over the ten year term of the Notes.

In September 1998, the Company  repurchased  $2.0 million of Senior Notes on the
open market at a discounted price of $1.4 million. The transaction resulted in a
gain of $.6 million on the early extinguishment of debt.


13.  Lease Agreements

The Company  leases  equipment  and office and warehouse  space under  operating
leases that expire at various  times  through  September  2002.  Future  minimum
payments, by year and in the aggregate,  under these operating leases, consisted
of the following at November 30:

1999                                $ 1,609
2000                                $ 1,332
2001                                $ 1,084
2002                                $   828
2003                                $   520
                                    -------
Total minimum lease payment         $ 5,373
                                    =======

Rent expense for the years ended  November 30, 1998,  1997 and 1996  amounted to
$1,522; $634 and $538, respectively.

In May 1997, the Company entered into a sales/leaseback transaction with a third
party for machinery and equipment.  In conjunction  with this  transaction,  the
Company recorded a deferred gain of $1.2 million,  which is being amortized over
the sixty month life of the lease.


14.  Costs and Estimated Earnings on Jobs in Progress

                                                          1998            1997
                                                        --------        --------
Costs, estimated earnings and billings are
summarized as follows:

Costs incurred on uncompleted jobs                      $126,323        $186,518
Estimated earnings                                        13,993          28,432
                                                        --------        --------
                                                         140,316         214,950
Billings to date                                         132,948         205,155
                                                        --------        --------
                                                        $  7,368        $  9,795
                                                        ========        ========


                                      -42-

<PAGE>


                            AMERICAN ECO CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


14.  Costs and Estimated Earnings on Jobs in Progress (continued)

Included in the accompanying balance sheet under the following captions:

Costs and estimated earnings in excess of billings        $ 11,202     $ 13,145
Billings in excess of costs and estimated earnings          (3,834)      (3,350)
                                                          --------     --------
                                                          $  7,368     $  9,795
                                                          ========     ========


15.  Related Party Transactions

For the years ended  November 30, 1998 and 1997,  the Company had business  with
related parties.  The details of these  transactions and balances owing from and
to these parties are as follows:

Pursuant  to  an  agreement   between  the  Company  and  Windrush   Corporation
("Windrush"),  dated December 1, 1997,  Windrush receives a fee of $10 per month
in consideration for services plus fees negotiated on a project-by-project basis
for other specific services. The agreement expires on December 1, 2002 and has a
five year  renewable  term.  The  Chairman of the Company  owns 50% of Windrush.
Pursuant  to this  agreement,  Windrush  received  $303  during  the year  ended
November 30, 1998.

In July 1998, a subsidiary  of the Company  entered into a 15 year capital lease
for an office, shop and warehouse in Edmonton, Alberta from a company in which a
director of the Company is President  and has a 25%  interest.  The annual lease
payments are  approximately  $310. During the year ended November 30, 1998, this
director was paid $38.5 for services rendered during the year.

In August 1998, the Board of Directors authorized the Company to loan up to $100
to each Director for the purpose of using the proceeds to purchase the Company's
Common  Shares in the open market.  These loans are to be repaid in three years,
bear  interest  at the  rate  of  9-5/8%  per  annum,  and  are  unsecured.  The
outstanding balance of these loans,  including interest, as of November 30, 1998
was $360.

In  September  1998,  the  Company  loaned $100 to an  executive  officer of the
Company,  repayable  over three  years with  prepayments  from  future  bonuses,
together with interest at the rate of 6% per annum.

During the year ended November 30, 1997,  fees  aggregating  $522 were paid to a
director in his  capacity as an officer of the  Company.  Additionally,  another
director was paid $113 for services rendered during the year.

During fiscal 1997,  the Company loaned $84 to the Chairman of the Board for the
purpose of purchasing Common Shares of the Company in the open market.  The loan
increased  his  indebtedness  to the  Company.  The loan was to mature on May 7,
1998,  and the maturity was  extended to May 31, 1999,  bearing  interest at the
rate of 10.0% per annum and was  collateralized  by the  purchased  shares.  The
outstanding balance of the loan, including interest, as of November 30, 1998 was
$688.

In May 1997,  the  Company  loaned $305 at 8.5%  interest  per annum to a former
officer  of the  Company,  for the  purchase  of a home in  connection  with his
relocation  to the Company's  headquarters  in Houston,  Texas.  The loan was to
mature in May 1998 and was extended to February 1, 2003,  and is unsecured.  The
outstanding balance of the loan, including interest, as of November 30, 1998 was
$320.

In June 1997, the Company loaned $60 to the Vice Chairman of the Board. The loan
was to mature in June 1998,  and was extended to May 31, 1999 bears  interest at
the rate of 8.5% per annum and is  unsecured.  The  outstanding  balance  of the
loans, including interest, as of November 30, 1998 was $65.


                                      -43-

<PAGE>


                            AMERICAN ECO CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


16.  Income Taxes

Canada

Income tax expense varies from the amount that would be computed by applying the
basic combined Canadian federal and provincial rate of 45.31%, as follows:

<TABLE>
<CAPTION>
                                                            1998           1997           1996
                                                          --------       --------       --------
<S>                                                       <C>            <C>            <C>     
Basic rate applied to pre-tax income                      $(18,072)      $  8,542       $  3,526
Reduction due to income taxes in other jurisdictions         4,624         (5,316)        (2,603)
Increase in valuation allowance                              5,648             --             --
Other                                                          183           (247)          (137)
Reduction of income taxes due to application
  of loss carryforwards                                         --         (2,507)          (786)
                                                          --------       --------       --------
Effective Canadian tax expense                            $ (7,617)      $    472       $     --
                                                          ========       ========       ========
</TABLE>


The Company has Canadian  non-capital  income tax losses available to be carried
forward in the amount of $9.6 million  expiring  through 2005.  The Company also
has capital losses available to be carried forward indefinitely in the amount of
$5 million.

United States

The components of the provision for (recovery of) income taxes are as follows:

<TABLE>
<CAPTION>
                                                            1998           1997           1996
                                                          --------       --------       --------
<S>                                                       <C>            <C>            <C>     
Federal                                                   $ (1,767)      $  4,076       $   (865)
State                                                         (322)           360             50
Reduction of income taxes due to application of
    loss carryforwards                                          --         (1,710)            --
Benefits from previously unrecorded tax items                   --         (1,529)            --
Other                                                           --            151              6
                                                          --------       --------       --------
                                                          $ (2,089)      $  1,357       $   (809)
                                                          ========       ========       ======== 
</TABLE>


The Company has income tax losses  generated by its  subsidiaries  in the United
States  available to be carried  forward in the amount of $6.6 million  expiring
through 2005.

<TABLE>
Total tax expense (benefit) consisting of
<S>                                                       <C>            <C>            <C>     
    Current                                               $ (2,419)      $     --       $   (815)
    Deferred                                                (7,287)         1,829              6
                                                          --------       --------       --------
                                                          $(9,706)      $  1,829       $   (809)
                                                          ========       ========       ======== 
</TABLE>

Deferred  income taxes result from timing  differences  between the recording of
income  for  accounting  purposes  and for  income  tax  purposes  and  from the
estimated  future tax benefit  from  operating  losses  when,  in the opinion of
management, realization of such benefits is not virtually certain.

During 1998, the Company  adopted the  provisions of CICA Section 3465,  "Income
Taxes."  CICA 3465.  The Company has elected not to restate  prior years and the
impact on the  current  year is not  material.  Had the Company  restated  prior
years, the prior year tax provision would have increased by  approximately  $1.0
million as certain net operating loss carryforwards  which were utilized in 1997
would  have  been  credit  to  goodwill  and not to the  income  tax  provision.
Additionally,  goodwill  amortization  would have been  reduced  for each of the
remaining  years of its useful  life.  The annual  impact is not material to the
Company's results of operations.


                                      -44-

<PAGE>


                            AMERICAN ECO CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

17.  Share Capital

Authorized Share Capital

The authorized share capital consists of unlimited Class A Preference shares and
unlimited, no par value common shares.

Share Warrants

As of November 30, 1998, the Company had 3.1 million outstanding share warrants,
which call for the issuance of one common share upon presentation of the warrant
at issue prices ranging from $4.00 to $9.56.  These  warrants  expire at various
times through September, 2002.

Stock Options

In May 1998, the Stockholders  amended the Company's 1995 Stock Option Plan (the
"Plan"). Under the Plan, the Company is authorized to issue 3,504,369 options to
purchase shares.

Information with regard to stock options is as follows:

                                                  Shares      Option Price Range
                                                  ------      ------------------

Outstanding, November 30, 1995                   495,700              $

Granted                                          460,313         $3.23-$9.76
Cancelled                                        (66,000)        $3.23-$5.69

Exercised                                       (336,850)        $1.79-$6.00
                                               ---------
Outstanding, November 30, 1996                   553,163         $1.76-$9.76
Granted                                          993,500         $6.67-$7.72
Cancelled                                       (143,888)        $1.76-$7.09
Exercised                                       (267,075)        $1.79-$7.72
                                               ---------
Outstanding, November 30, 1997                 1,135,900         $1.79-$9.76
                                               ---------
Granted                                          715,500        $6.36-$10.76
Cancelled                                       (212,700)        $3.20-$6.00
Exercised                                       (112,600)        $1.66-$3.20
                                               ---------
Outstanding, November 30, 1998                 1,525,900         $1.66-$6.00
                                               =========
Options current exercisable                      608,900         $1.66-$6.00
                                               =========


The weighted  average fair value of options  granted during 1998,  1997 and 1996
were $3.59, $6.42 and $3.04, respectively.

The weighted  average  exercise price and remaining term as of November 30, 1998
are $1.83 and five years, respectively.


18.  Differences   Between  Canadian  and  United  States   Generally   Accepted
     Accounting Principles and Practices

The  consolidated  financial  statements  have been prepared in accordance  with
accounting  principles  generally  accepted in Canada  ("Canadian  Basis") which
differ in certain  respects from those principles and practices that the Company
would have followed had its consolidated  financial  statements been prepared in
accordance with  accounting  practices  generally  accepted in the United States
("U.S. Basis").

During 1998,  the Company  issued $120 million in Senior Notes (see note 12) and
used certain of the proceeds to retire existing  indebtedness.  As a result, the
Company recorded a charge of $2.4 million  relating to the early  extinguishment
of debt.  Under  U.S.  Basis,  such  amount  would  have  been  presented  as an
extraordinary item, net of tax. Additionally, the Company repurchased $2 million
face amount of Senior Notes for approximately $1.43 million, resulting in a gain
of $570. Under U.S. Basis, this gain would also be presented as an extraordinary
item.


                                      -45-

<PAGE>


                            AMERICAN ECO CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

18.  Difference Between Canadian and United States Generally Accepted Accounting
     Principles and Practices (continued)

During  1997,  the  Company  sold $18  million  aggregate  principal  amount  of
convertible debentures (the "Debentures").  In connection with these Debentures,
the Company  issued  approximately  1.7 million stock  purchase  warrants to the
holders and as placement fees to third parties.  Under Canadian Basis, the total
amount allocated to the conversion feature was being charged to interest expense
over ten years.  All of these  Debentures  were  converted  during  1997 and the
unamortized  amount of $11.8 million was charged to equity.  Had the U.S.  Basis
been followed,  the intrinsic value of the conversion  feature of  approximately
$3.5 million  would have been  charged to interest  expense  immediately  as the
Debentures contained a beneficial conversion feature on the date of issuance.

During June 1996, the Company acquired a 16% interest in USIS. This interest was
accounted  for under the cost  method of  accounting.  Commencing  on January 1,
1997,  the Company began  accounting for its investment in USIS under the equity
method as its ownership  percentage had increased to 36%. Under Canadian  Basis,
the change is accounted for  prospectively.  Under U.S. Basis, the Company would
have recorded an adjustment  to accrue its  proportionate  share (16%) of USIS's
losses  from the period  when the Company  first  invested  in USIS  through the
period  when they  commenced  equity  method  accounting.  The  total  amount of
additional  losses which the Company would have recorded is  approximately  $1.5
million.

Under  Canadian  Basis,  income tax losses  available to be carried  forward are
recognized  only when there is  virtual  certainty  that they will be  realized.
Under U.S.  Basis,  income  tax  losses  available  to be  carried  forward  are
recognized  when it is more likely than not that they will be realized.  For the
years ended November 30, 1996 and 1995,  there were no  significant  differences
between these two methods.

Under U.S. Basis,  utilization of pre-acquisition net operating losses should be
credited to goodwill rather than as a reduction in the income tax provision,  as
is practice under Canadian Basis. Therefore,  under U.S. Basis, the goodwill and
income tax provision would have been adjusted by approximately $1.0 million.

The  following is a  reconciliation  of net income under  Canadian  Basis to net
income under U.S. Basis.

<TABLE>
<CAPTION>
                                                                      1998                               1997
                                                          ----------------------------       -----------------------------
                                                          Canadian Basis    U.S. Basis       Canadian Basis     U.S. Basis
                                                          --------------    ----------       --------------     ----------
<S>                                                          <C>             <C>                 <C>             <C>     
Pre-tax income (loss)                                        $(39,885)       $(38,055)           $ 19,264        $ 14,264
Provision for (benefit of) income taxes                        (9,706)         (9,011)              1,629           2,878
                                                             --------        --------            --------        --------
Income (loss) before extraordinary items                      (30,179)        (29,044)             17,435          11,386
Loss from early extinguishment of debt                             --          (1,135)                 --              --
                                                             --------        --------            --------        --------
Net income (loss)                                             (30,179)        (30,179)             17,435          11,386
                                                             ========        ========            ========        ========
Net income (loss) per share before extraordinary
    items - Basic                                               (1.44)          (1.39)               1.08             .66
Extraordinary income (loss)                                        --           (0.05)                 --              --
                                                             --------        --------            --------        --------
Net income (loss)                                               (1.44)          (1.44)               1.08             .66
                                                             ========        ========            ========        ========
</TABLE>


Under U.S.  Basis,  primary and fully  diluted  earnings per share is calculated
using the treasury stock method.  The calculation of earnings per share for 1997
under U.S. Basis is as follows:

    Net income                                                      $11,386
    Net income per share - Primary                                    $0.66
    Net income per share - Fully diluted                              $0.65

    Weighted average number of shares
    Primary                                                      17,142,519
    Fully Diluted                                                18,784,330

SFAS No. 123 "Accounting for Stock Based Compensation,"  issued in October 1995,
defines a fair value method of accounting for employee stock options. Under this
fair value method,  compensation cost is measured at the grant date based on the
fair value of the award and is recognized over the vesting period.  SFAS No. 123
allows, and the Company has elected, to continue to measure compensation cost in
accordance  with  APB  No.  25  for  purposes  of  the  U.S.  to  Canadian  GAAP
reconciliation.  Accordingly,  the Company is providing the disclosures required
by SFAS No. 123.


                                      -46-

<PAGE>


                            AMERICAN ECO CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


18.  Difference Between Canadian and United States Generally Accepted Accounting
     Principles and Practices (continued)

The pro forma net income and basic  earnings per share  amounts  below have been
derived using the  Black-Scholes  stock option  pricing model with the following
assumptions for each stock option grant during the respective year:

<TABLE>
<CAPTION>
Assumptions                                           1998               1997               1996
                                                  -----------        -----------        -----------
<S>                                                   <C>            <C>                <C>
Risk-free interest rates                                 5.5%        6.37%-6.63%        5.60%-5.75%
Expected life of stock options (years)                      5                  5                  5
Expected volatility of common stock                       55%                55%                55%
Expected annual dividends of stock options                  0                  0                  0
Net income - as reported                              (30,179)           $17,435             $8,763
Net income - pro forma                                (31,100)           $17,191             $8,311
Basic earnings per share - as reported                  (1.44)             $1.08              $0.81
Basic earnings per share - pro forma                    (1.48)             $1.06              $0.77
</TABLE>


The pro forma effects on net income and income per common share for fiscal 1998,
1997 and 1996 may not be representative  of the pro forma effects  Statements of
Financial Accounting Standards No. 123 "Accounting for Stock Based Compensation"
may have in future years.

In June,  1997, the Financial  Accounting  Standards  Board issued SFAS No. 130,
"Reporting  Comprehensive Income", and SFAS No. 131, "Disclosures about Segments
of an Enterprise  and Related  Information",  which are both effective for years
beginning after December 15, 1997. SFAS 130 establishes  standards for reporting
and display of  comprehensive  income and its  components  (revenues,  expenses,
gains, and losses) in a full set of general-purposes  financial  statements.  It
further  requires that an enterprise  a) classify  items of other  comprehensive
income by their nature in a financial  statement and b) display the  accumulated
balance of other  comprehensive  income  separately  from retained  earnings and
additional  paid-in  capital in the equity  section of a statement  of financial
position.  SFAS  131  establishes  standards  for the way that  public  business
enterprises  report  information  about operating  segments in annual  financial
statements and requires that those enterprises report selected information about
operating  segments in interim  financial  reports issued to  shareholders.  The
adoption of SFAS 130 and 131 are for disclosure purposes only.


19.  Retirement Plans

The Company has a  profit-sharing  plan (defined  contribution)  retirement plan
covering  substantially  all  employees,  except  employees who are members of a
union who bargained separately for retirement  benefits.  Employees are eligible
upon attaining the age  twenty-one  (21) and completing one (1) year of service.
The amount of  contribution  to the plan is determined  annually by the Board of
Directors and may vary from zero to fifteen percent of covered compensation.

The Company,  through its collective  bargaining agreements with various unions,
contributes to the unions'  retirement  plans.  For the years ended November 30,
1998, 1997 and 1996, an expense of $2.7 million,  $2.7 million and $1.5 million,
respectively, was incurred for these retirement plans.

20.  Convertible Debt

On January 24, 1997, the Company sold $15 million aggregate  principal amount of
9.5%  Convertible  Debentures  ("January  Debentures")  due  January  24,  2007,
together with  1,125,000  warrants to purchase the  Company's  common stock at a
price of $9.56. In connection with this transaction,  the Company issued 300,000
warrants to a placement agent and incurred costs of approximately $1.5 million.

On February 14, 1997, the Company sold $1 million aggregate  principal amount of
9.5%  Convertible  Debentures  ("February  Debentures")  due  February  3, 2007,
together with 71,429 warrants to purchase the Company's  common stock at a price
of $9.49. In connection  with this  transaction,  the Company  incurred costs of
approximately $100.

On March 3, 1997, the Company sold $3 million aggregate principal amount of 9.5%
Convertible  Debentures  ("March  Debentures") due March 3, 2007,  together with
225,000  warrants to purchase the Company's common stock at a price of $9.21. In
connection with this  transaction,  the Company  incurred costs of approximately
$50.


                                      -47-

<PAGE>


                            AMERICAN ECO CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

20.  Convertible Debt (continued)

The total  proceeds were allocated  between the warrants  issued to the holders,
the conversion  feature and debt based on discounted cash flows and an effective
interest rate of 12%. All of these  debentures were converted into common shares
during 1997 and the unamortized costs were charged to shareholders'  equity upon
conversion.


21.  Litigation

At November 30, 1997,  the Company had been  involved in an  arbitration  with a
customer  whereby the customer  claimed damages from the Company  totaling $19.3
million consisting of delay damages and cost of completion.  The Company counter
claimed for $2.4  million for breach of  subcontract  and $10.0  million for the
customer bad faith and intentional misconduct.  On June 16, 1997, the arbitrator
ruled in favor of the Company and awarded the Company  $1.3 million net of costs
of $1.1 million.  The Company has received such amounts and has included them in
its results of operations for 1997.

At November 30, 1998,  there were various claims and disputes  incidental to the
business.  The  Company  believes  that the  disposition  of all such claims and
disputes,  individually or in the aggregate,  should not have a material adverse
affect upon the  Company's  financial  position,  results of  operations or cash
flows.


22.  Financial Statements

Concentration of Credit Risk

Financial  instruments that potentially  subject the Company to concentration of
credit  risk  consist  principally  of cash and trade  accounts  receivable.  At
November  30,  1998,  and 1997,  the  Company had notes  receivable  balances of
$22,585 and $46,335, respectively, with various entities or persons as described
in Note 4 to Consolidated  Financial Statements.  Although some of the notes are
collateralized  or  partially  collateralized,  the ultimate  collectibility  is
dependent on the financial conditions of the various debtors.  Concentrations of
credit  risk with  respect to trade  receivables  are  limited  due to the large
number of customers  comprising  the Company's  customer based and their diverse
industries and geographic  areas.  The Company has write offs, net of recoveries
of $707 in 1998, $466 in 1997 and $286 in 1996.

Fair Value of Financial Instruments

The carrying amounts of cash, cash equivalents,  accounts  receivable,  accounts
payable  and accrued  liabilities  approximate  fair value  because of the short
maturity of these items. The carrying amounts of long-term debt approximate fair
value  because  the  interest  rates on these  instruments  change  with  market
interest rates.


23.  Segments of the Business

The Company  operates in Canada and the United States in three primary  industry
segments:  (1)  Environmental   Remediation  Services  which  involves  asbestos
removal,  insulation and other  environmental  services,  (2) Industrial Support
Services which involves the repair,  maintenance  and  modification  of boilers,
pressure  vessels and tubing used in industrial  facilities and the provision of
engineering   services,   (3)  Specialty  Fabrication  Services  which  involves
construction   of   high-quality   custom  steel  and  alloy  products  and  (4)
Construction Management Services which involves tenant improvement,  renovation,
addition and design services to a national


                                      -48-

<PAGE>


                            AMERICAN ECO CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

23.  Segments of the Business (continued)

network of retailers. It is the Company's policy to price intersegment contracts
on an  equivalent  basis  to that  used  for  pricing  external  contracts.  The
following is a summary of selected data for these business segments:

<TABLE>
<CAPTION>
                                                     Environmental      Industrial       Specialty       Construction
                                                      Remediation        Support        Fabrication       Management       Total
                                                        Services         Services         Services         Services     Consolidated
                                                       ---------        ---------       -----------      ------------   ------------
<S>                                                    <C>              <C>              <C>              <C>             <C>      
1998
Contract revenue                                       $   6,227        $ 148,138        $ 116,286        $  29,138       $ 299,789
Operating income (loss)                                     (851)         (18,125)         (10,258)             353         (28,881)
Depreciation and amortization                                842            3,092              806              176           4,916
Capital expenditures during the year                         816            3,482           21,109              256          25,663
Identifiable assets                                        6,640          125,865          108,742            9,136         250,383

1997
Contract revenue                                       $  12,125        $ 147,424        $  51,562        $   9,367       $ 220,478
Operating income (loss)                                   (1,437)          11,768           10,472              168          20,971
Depreciation and amortization                                923            3,336              990              133           5,382
Capital expenditures during the year                         312            1,871            1,536               --           3,719
Identifiable assets                                        7,375          133,390           61,020           10,001         211,786

1996
Contract revenue                                       $  18,489        $  94,584        $   6,456               --       $ 119,529
Operating income                                           2,885            3,522            3,073               --           9,480
Depreciation and amortization                              1,063              470               --            2,232
Capital expenditures during the year                         516            1,336            6,155               --           8,007
Identifiable assets                                       22,988           29,121           19,668               --          71,777
</TABLE>


The  following  table  provides  information  with  respect  to  the  geographic
segmentation of the Company's business.

<TABLE>
<CAPTION>
                                                                                                                            Total
                                                                                          Canada       United States    Consolidated
                                                                                          ------       -------------    ------------
<S>                                                                                     <C>              <C>              <C>
1998
Contract revenue                                                                        $ 123,053        $ 176,736        $ 299,789 
Operating income                                                                           (6,123)         (22,758)         (28,881)
Depreciation and amortization                                                                 480            4,436            4,916
Capital expenditures during the year                                                       22,962            2,701           25,663
Identifiable assets                                                                       172,504           77,879          250,383

1997
Contract revenue                                                                        $  50,835        $ 169,643        $ 220,478
Operating income                                                                            6,503           14,468           20,971
Depreciation and amortization                                                               1,223            4,159            5,382
Capital expenditures during the year                                                          124            3,595            3,719
Identifiable assets                                                                       122,472           89,314          211,786

1996
Contract revenue                                                                        $   6,509        $ 113,020        $ 119,529
Operating income                                                                              256            9,224            9,480
Depreciation and amortization                                                                 166            2,066            2,232
Capital expenditures during the year                                                        6,151            1,856            8,007
Identifiable assets                                                                        20,988           50,789           71,777
</TABLE>


                                      -49-

<PAGE>


                            AMERICAN ECO CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

24.  Significant Transactions

In November  1997,  the Company sold its 50%  ownership in MART to a third party
for $14.0  million,  payable  quarterly over five years with interest at 10% per
annum.  During fiscal 1997,  two of the Company's  subsidiaries  (SRS and United
Eco) sold  equipment and provided  services to MART.  SRS sold to MART equipment
for $4.0 million and United Eco provided construction, maintenance and operation
services  for  approximately  $6.6  million.  MART is a state of the art thermal
treatment facility which treat soils, sediments and other materials contaminated
with hazardous and non-hazardous chemicals.

The 1997 Consolidated  Statement of Operations includes revenue and direct costs
of  $24.6  million  and  $14.4  million,  respectively,   resulting  from  these
transactions.


                                      -50-

<PAGE>


                            AMERICAN ECO CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


25.  Guarantor Financial Statement Information

Set forth below are condensed  consolidating financial statements of the Company
(Parent) the Guarantor Subsidiaries and the Company on a consolidated basis.

AMERICAN ECO CORPORATION
CONSOLIDATING BALANCE SHEET
AT NOVEMBER 30, 1998
(United States Dollars in thousands)

<TABLE>
<CAPTION>
                                                                        Company        Guarantor
                                                                        (Parent)      Subsidiaries     Eliminations     Consolidated
                                                                       ---------      ------------     ------------     ------------
<S>                                                                    <C>              <C>              <C>              <C>      
CURRENT ASSETS
    Cash .......................................................       $  11,283        $  10,538        $      --        $  21,821
    Accounts receivable ........................................             767           50,026               --           50,793
    Current portion of notes receivable ........................           1,916            3,164               --            5,080
    Amounts receivable from subsidiaries .......................         105,093         (105,093)              --               --
    Costs and estimated earnings in excess of billings .........              --           11,202               --           11,202
    Inventory ..................................................              --           23,080               --           23,080
    Refundable income taxes ....................................           2,419               --               --            2,419
    Deferred income taxes ......................................           8,142            1,322               --            9,464
    Prepaid expenses and other current assets ..................           1,003            3,424               --            4,427
                                                                       ---------        ---------        ---------        ---------
        TOTAL CURRENT ASSETS ...................................         130,623           (2,337)              --          128,286
                                                                       ---------        ---------        ---------        ---------

PROPERTY, PLANT AND EQUIPMENT, net .............................             881           53,954               --           54,835
                                                                       ---------        ---------        ---------        ---------

OTHER ASSETS
    Goodwill ...................................................              --           30,767               --           30,767
    Notes receivable ...........................................          17,244              260               --           17,504
    Investments ................................................          54,635            1,450          (42,230)          13,855
    Other assets ...............................................           4,493              643               --            5,136
                                                                       ---------        ---------        ---------        ---------
        TOTAL OTHER ASSETS .....................................          76,372           33,120          (42,230)          67,262
                                                                       ---------        ---------        ---------        ---------
        TOTAL ASSETS ...........................................       $ 207,876        $  84,737        $ (42,230)       $ 250,383
                                                                       =========        =========        =========        =========


        LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
    Accounts payable and accrued liabilities ...................       $   5,482        $  27,102        $      --        $  32,584
    Notes payable ..............................................              --               --               --               --
    Current portion of long-term debt ..........................              --              630               --              630
    Billings in excess of costs and estimated earnings .........              --            3,834               --            3,834
                                                                       ---------        ---------        ---------        ---------
        TOTAL CURRENT LIABILITIES ..............................           5,482           31,566               --           37,048
                                                                       ---------        ---------        ---------        ---------

LONG TERM LIABILITIES
    Senior notes ...............................................         118,000               --               --          118,000
    Long-term debt .............................................              70            2,619               --            2,689
    Deferred income tax liability ..............................             191            1,143               --            1,334
    Other liabilities ..........................................              --            1,074               --            1,074
                                                                       ---------        ---------        ---------        ---------
        TOTAL LONG-TERM LIABILITIES ............................         118,261            4,836               --          123,097
                                                                       ---------        ---------        ---------        ---------

        TOTAL LIABILITIES ......................................         123,743           36,402               --          160,145
                                                                       ---------        ---------        ---------        ---------

SHAREHOLDERS' EQUITY
    Share capital ..............................................          89,854               19              (19)          89,854
    Contributed surplus ........................................           2,845           42,211          (42,211)           2,845
    Cumulative foreign exchange ................................          (4,291)           1,821               --           (2,470)
    Retained earnings ..........................................          (4,275)           4,284               --                9
                                                                       ---------        ---------        ---------        ---------
        TOTAL SHAREHOLDERS' EQUITY .............................          84,133           48,335          (42,230)          90,238
                                                                       ---------        ---------        ---------        ---------

        TOTAL LIABILITIES & SHARHEOLDERS' EQUITY ...............       $ 207,876        $  84,737        $ (42,230)       $ 250,383
                                                                       =========        =========        =========        =========
</TABLE>


                                      -51-

<PAGE>


                            AMERICAN ECO CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

25.  Guarantor Financial Statement Information (continued)

CONSOLIDATED STATEMENT OF INCOME
For the Year Ended November 30, 1998
(United States Dollars in thousands)
                (Unaudited)


<TABLE>
<CAPTION>
                                                       Company       Guarantor
                                                       (Parent)     Subsidiaries    Eliminations    Consolidated
                                                      ---------     ------------    ------------    ------------
<S>                                                   <C>             <C>             <C>            <C>      
REVENUE ...........................................   $      --       $ 299,789       $      --      $ 299,789
                                                      ---------       ---------       ---------      ---------

COST AND EXPENSES
    Direct costs of revenue .......................          --         253,638              --        253,638
    Selling, general and administrative expenses ..       4,107          38,530              --         42,637
    Asset impairment and severance charges ........      19,199           8,280              --         27,479
    Depreciation and amortization .................         119           4,797              --          4,916
                                                      ---------       ---------       ---------      ---------
    Total operating costs .........................      23,425         305,245              --        328,670
                                                      ---------       ---------       ---------      ---------

OPERATING INCOME                                        (23,425)         (5,456)             --        (28,881)
                                                      ---------       ---------       ---------      ---------

OTHER INCOME (EXPENSE)
    Interest expense, net .........................         127          (9,633)             --         (9,506)
    Foreign exchange income .......................         332              --              --            332
    Loss on early extinguishment of debt ..........      (1,830)             --              --         (1,830)
                                                      ---------       ---------       ---------      ---------
    Total other income (expense) ..................      (1,371          (9,633)             --        (11,004)
                                                      ---------       ---------       ---------      ---------

INCOME BEFORE PROVISION FOR (RECOVERY OF)               (24,796)        (15,089)             --        (39,885)
    INCOME TAXES

PROVISION FOR (RECOVERY OF) INCOME TAX                   (9,706)             --              --         (9,706)
                                                      ---------       ---------       ---------      ---------

NET (LOSS)                                            $ (15,090)      $ (15,089)      $      --      $ (30,179)
                                                      =========       =========       =========      ========= 
</TABLE>


                                      -52-

<PAGE>


                            AMERICAN ECO CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

25.  Guarantor Financial Statement Information (continued)

CONSOLIDATED STATEMENT OF CHANGES IN FINANCIAL POSITION
For the Year Ended November 30, 1998
(United States Dollars in thousands)

<TABLE>
<CAPTION>
                                                                            Company        Guarantor
                                                                            (Parent)      Subsidiaries   Eliminations   Consolidated
                                                                           ---------      ------------   ------------   ------------
<S>                                                                        <C>             <C>             <C>            <C>       
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ..........................................................      $ (15,090)      $ (15,089)      $      --      $ (30,179)
    Adjustments to reconcile net income to net cash provided by
        operating activities:
        Asset impairments ...........................................         28,629          (1,489)             --         27,140
        Loss on early extinguishment of debt ........................          2,400              --              --          2,400
        Gain on repurchase of senior notes ..........................           (570)             --              --           (570)
        Depreciation and amortization ...............................            119           4,797              --          4,916
        Change in deferred income taxes .............................         (6,334)           (953)             --         (7,287)
        Change in refundable income taxes ...........................         (2,419)             --              --         (2,419)
        Change in accounts receivable ...............................            603          (1,047)             --           (444)
        Change in costs and estimated earnings in excess                          --           1,943              --          1,943
            of billings .............................................
        Change in inventory .........................................             --          (5,001)             --         (5,001)
        Change in prepaid expenses ..................................          1,439          (1,904)             --           (465)
        Change in other assets ......................................         (3,320)          1,274              --         (2,046)
        Change in notes receivable ..................................          3,549              --              --          3,549
        Change in accounts payable ..................................          4,466            (281)             --          4,185
        Change in billings in excess of costs and estimated                       --             484              --            484
            earnings ................................................
        Change in deferred gain .....................................             --             (12)             --            (12)
                                                                           ---------       ---------       ---------      --------- 
Net cash provided by (used in) operating activities .................         13,472         (17,278)             --         (3,806)
                                                                           ---------       ---------       ---------      --------- 

CASH FLOWS FROM INVESTING ACTIVITIES:
    Capital expenditures ............................................           (162)        (11,632)             --        (11,794)
    Proceeds from notes receivable ..................................          8,425             350              --          8,775
    Disbursements for notes receivable ..............................         (2,195)         (1,625)             --         (3,820)
    Increase in investment ..........................................        (18,898)          2,448              --        (16,450)
                                                                           ---------       ---------       ---------      --------- 
Net cash used in investing activities ...............................        (12,830)        (10,459)             --        (23,289)
                                                                           ---------       ---------       ---------      --------- 

CASH FLOWS FROM FINANCING ACTIVITIES:
    Proceeds from senior notes ......................................        116,139              --              --        116,139
    Proceeds from notes payable .....................................          5,700              --              --          5,700
    Proceeds from long-term debt ....................................             30             468              --            498
    Disbursements/receipts on intercompany debt .....................        (35,720)         21,116              --        (14,604)
    Principal payments on notes payable .............................        (14,200)        (44,868)             --        (59,068)
    Principal payments on long-term debt ............................        (58,515)         58,515              --             --
    Repurchase of senior notes ......................................         (1,430)             --              --         (1,430)
    Debt issuance costs .............................................             --              --              --             --
    Stock issuance costs ............................................            (89)             --              --            (89)
    Issuance of common stock ........................................          1,470              --              --          1,470
                                                                           ---------       ---------       ---------      --------- 
Net cash provided by financing activities ...........................         13,385          35,231              --         48,616
                                                                           ---------       ---------       ---------      --------- 

EFFECT OF FOREIGN EXCHANGE FLUCTUATIONS ON CASH                               (2,890)          1,931              --           (959)
                                                                           ---------       ---------       ---------      --------- 

NET INCREASE IN CASH ................................................         11,137           9,425              --         20,562

CASH AT BEGINNING OF PERIOD .........................................            146           1,113              --          1,259
                                                                           ---------       ---------       ---------      --------- 

CASH AT END OF PERIOD ...............................................      $ (11,283)      $  10,538       $      --      $  21,821
                                                                           =========       =========       =========      =========
</TABLE>

<TABLE>
<CAPTION>
Supplemental disclosure of noncash investing and financing activities

                                                                            Company      Subsidiaries   Eliminations   Consolidated
                                                                           ---------       ---------       ---------      --------- 
<S>                                                                            <C>               <C>             <C>          <C>
Acquisition of subsidiaries through issuance of stock                          1,526             --              --           1,526
Acquisition of assets through issuance of stock                                8,910             --              --           8,910
</TABLE>


                                      -53-

<PAGE>


                            AMERICAN ECO CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


25.  Guarantor Financial Statement Information (continued)

CONSOLIDATING BALANCE SHEET
AT NOVEMBER 30, 1997
(United States Dollars in thousands)

<TABLE>
<CAPTION>
                                       ASSETS
                                                                        Company        Guarantor
                                                                        (Parent)      Subsidiaries     Eliminations     Consolidated
                                                                       ---------      ------------     ------------     ------------
<S>                                                                    <C>              <C>              <C>              <C>      
    CURRENT ASSETS
    Cash .......................................................       $     146        $   1,113        $      --        $   1,259
    Accounts receivable ........................................           1,370           48,979               --           50,349
    Amounts receivable from subsidiaries .......................          57,768          (57,768)              --               --
    Current portion of notes receivable ........................          15,573            2,184               --           17,757
    Costs and estimated earnings in excess of billings .........              --           13,145               --           13,145
    Inventory ..................................................              --           18,079               --           18,079
    Deferred income taxes ......................................             855              278               --            1,133
    Prepaid expenses and other current assets ..................           5,398            1,522               --            6,920
                                                                       ---------        ---------        ---------        ---------
        TOTAL CURRENT ASSETS ...................................          81,110           27,532               --          108,642
                                                                       ---------        ---------        ---------        ---------

PROPERTY, PLANT AND EQUIPMENT, net .............................             837           32,186               --           33,023
                                                                       ---------        ---------        ---------        ---------

OTHER ASSETS
    Goodwill ...................................................              --           30,484               --           30,484
    Notes receivable ...........................................          28,578               --               --           28,578
    Investments ................................................          47,474            2,372          (40,704)           9,142
    Other assets ...............................................              --            1,917               --            1,917
                                                                       ---------        ---------        ---------        ---------
        TOTAL OTHER ASSETS .....................................          76,052           34,773          (40,704)          70,121
                                                                       ---------        ---------        ---------        ---------
        TOTAL ASSETS ...........................................       $ 157,999        $  94,491        $ (40,704)       $ 211,786
                                                                       =========        =========        =========        =========


                         LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
    Accounts payable and accrued liabilities ...................       $   1,017        $  27,383        $      --        $  28,400
    Notes payable ..............................................           8,334              570               --            8,904
    Current portion of long-term debt ..........................           8,081               --               --            8,081
    Billings in excess of costs and estimated earnings .........              --            3,350               --            3,350
                                                                       ---------        ---------        ---------        ---------
        TOTAL CURRENT LIABILITIES ..............................          17,432           31,303               --           48,735
                                                                       ---------        ---------        ---------        ---------

LONG TERM LIABILITIES
    Long-term debt .............................................          50,639            1,083               --           51,722
    Deferred income tax liability ..............................           2,092            1,052               --            3,144
    Other liabilities ..........................................              --            1,086               --            1,086
                                                                       ---------        ---------        ---------        ---------
        TOTAL LONG-TERM LIABILITIES ............................          52,731            3,221               --           55,952
                                                                       ---------        ---------        ---------        ---------

        TOTAL LIABILITIES ......................................          70,163           34,524               --          104,687
                                                                       ---------        ---------        ---------        ---------

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY
    Share capital ..............................................          75,577               19              (19)          75,577
    Contributed surplus ........................................           2,845           40,685          (40,685)           2,845
    Cumulative foreign exchange ................................          (1,401)            (110)              --           (1,511)
    Retained earnings ..........................................         (10,815)          19,373               --           30,188
                                                                       ---------        ---------        ---------        ---------
        TOTAL SHAREHOLDERS' EQUITY .............................          87,836           59,967          (40,704)         107,099
                                                                       ---------        ---------        ---------        ---------

        TOTAL LIABILITIES & SHAREHOLDERS' EQUITY ...............       $ 157,999        $  94,491        $ (40,704)       $ 211,786
                                                                       =========        =========        =========        =========
</TABLE>


                                      -54-

<PAGE>


                            AMERICAN ECO CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

25.  Guarantor Financial Statement Information (continued)

CONSOLIDATED STATEMENT OF INCOME
For the Year Ended November 30, 1997
(United States Dollars in thousands)

<TABLE>
<CAPTION>
                                                                   Company          Guarantor
                                                                   (Parent)        Subsidiaries       Eliminations      Consolidated
                                                                  ---------        ------------       ------------      ------------
<S>                                                               <C>                <C>                <C>               <C>      
REVENUE .................................................         $  20,952          $ 199,526          $      --         $ 220,478
                                                                  ---------          ---------          ---------         ---------

COST AND EXPENSES
    Direct costs of revenue .............................             9,858            153,024                 --           162,882
    Selling, general and administrative expenses ........             1,989             29,254                 --            31,243
    Interest expense, net ...............................             2,053              2,893                 --             4,946
    Depreciation and amortization .......................               484              4,898                 --             5,382
    Gain on sale of assets and subsidiaries .............            (2,459)              (223)                --            (2,682)
    Foreign exchange income .............................              (545)               (12)                --              (557)
                                                                  ---------          ---------          ---------         ---------
                                                                     11,380            189,834                 --           201,214
                                                                  ---------          ---------          ---------         ---------
INCOME BEFORE PROVISION FOR
    INCOME TAXES ........................................             9,572              9,692                 --            19,264

PROVISION FOR INCOME TAX ................................             2,100               (271)                --             1,829
                                                                  ---------          ---------          ---------         ---------

NET INCOME ..............................................         $   7,472          $   9,963          $      --         $  17,435
                                                                  =========          =========          =========         =========
</TABLE>


                                      -55-

<PAGE>


                            AMERICAN ECO CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

25.  Guarantor Financial Statement Information (continued)

CONSOLIDATED STATEMENT OF CHANGES IN FINANCIAL POSITION
For the Year Ended November 30, 1997
(United States Dollars in thousands)

<TABLE>
<CAPTION>
                                                                             Company       Guarantor
                                                                             (Parent)     Subsidiaries   Eliminations  Consolidated
                                                                             --------     ------------   ------------  ------------
<S>                                                                          <C>            <C>            <C>           <C>     
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .............................................................     $  7,472       $  9,963       $     --      $ 17,435
    Adjustments to reconcile net income to net cash provided by
        operating activities:
    Gain on sale of assets and subsidiaries ............................       (2,459)          (223)            --        (2,682)
    Depreciation and amortization ......................................          484          4,898             --         5,382
    Change in deferred income taxes ....................................        2,092           (263)            --         1,829
    Noncash income, net ................................................          648           (323)            --           325
    Change in accounts receivable ......................................       (1,032)       (14,900)            --       (15,932)
    Change in notes receivable .........................................      (14,000)            --             --       (14,000)
    Change in costs and estimated earnings in excess of billings .......           --         (7,824)            --        (7,824)
    Change in inventory ................................................           --            106             --           106
    Change in prepaid expenses .........................................        2,979         (1,555)            --         1,424
    Change in accounts payable and accrued liabilities .................         (372)        (4,151)            --        (4,523)
    Change in billings in excess of costs and estimated                            --           (458)            --          (458)
        earnings .......................................................     --------       --------       --------      --------
    Net cash provided by (used in) operating activities ................       (4,188)       (14,730)            --       (18,918)
                                                                             --------       --------       --------      --------

CASH FLOWS FROM INVESTING ACTIVITIES:
    Capital expenditures ...............................................         (461)        (2,673)            --        (3,134)
    Proceeds from sales of equipment ...................................           --          3,448             --         3,448
    Acquisition of business, net of cash acquried ......................      (10,481)           (12)            --       (10,493)
    Proceeds from notes receivable .....................................          775            221             --           996
    Disbursements for notes receivable .................................       (5,436)         3,342             --        (2,094)
    Increase in investment .............................................       (1,277)            --             --        (1,277)
                                                                             --------       --------       --------      --------
Net cash provided by (used in) investing activities ....................      (16,880)         4,326             --       (12,554)
                                                                             --------       --------       --------      --------

CASH FLOWS FROM FINANCING ACTIVITIES:
    Proceeds from notes payable ........................................       33,500             --             --        33,500
    Proceeds from long-term debt .......................................       58,500             --             --        58,500
    Principal payments on notes payable ................................      (15,834)       (37,362)            --       (53,196)
    Principal payments on long-term debt ...............................           --         (7,607)            --        (7,607)
    Proceeds from sales/leaseback ......................................           --          4,000             --         4,000
    Disbursements/receipts on intercompany debt ........................      (50,762)        50,762             --            --
    Debt issuance costs ................................................       (1,917)            --             --        (1,917)
    Debenture issuance costs ...........................................           --             --             --            --
    Stock issuance costs ...............................................       (2,479)            --             --        (2,479)
    Issuance of common stock ...........................................        1,613             --             --         1,613
                                                                             --------       --------       --------      --------
Net cash provided by financing activities ..............................       22,621          9,793             --        32,414
                                                                             --------       --------       --------      --------

EFFECT OF FOREIGN EXCHANGE FLUCTUATIONS ON CASH ........................       (1,401)         1,401             --            --
                                                                             --------       --------       --------      --------

NET INCREASE IN CASH ...................................................          152            790             --           942

CASH AT BEGINNING OF PERIOD ............................................           (6)           323             --           317
                                                                             --------       --------       --------      --------

CASH AT END OF PERIOD ..................................................     $    146       $  1,113       $     --      $  1,259
                                                                             ========       ========       ========      ========

Supplemental disclosure of cash flow information
    Cash payments for interest .........................................        1,788          2,930             --         4,718
    Cash payments for income taxes .....................................           --            281             --           281
                                                                             ========       ========       ========      ========
</TABLE>


                                      -56-

<PAGE>


                            AMERICAN ECO CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


25.  Guarantor Financial Statement Information (continued)

<TABLE>
<CAPTION>
Supplemental disclosure of noncash investing and financing activities

                                                                      Company    Subsidiaries     Elimination    Consolidated
                                                                      -------    ------------     -----------    ------------
<S>                                                                    <C>          <C>                 <C>         <C>
Notes receivable issued for sale of subsidiaries..................     11,000           --              --          11,000
Notes receivable increase to USIS through stock issuance..........      7,784           --              --           7,784
Acquisition of subsidiaries through issuance of stock.............      5,296           --              --           5,296
Debentures converted to stock.....................................     21,500           --              --          21,500
Transfer of assets to/from parent and subsidiaries................        (26)          26              --              --
Acquisition of equipment for notes payable........................         --           58              --              58
Transfer of investment from subsidiary to parent..................      1,000       (1,000)             --              --
</TABLE>


                                      -57-
 
<PAGE>


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

     In May 1997, the shareholders  ratified the selection of Coopers & Lybrand,
L.L.P. (now  PricewaterhouseCoopers  LLP), as auditors of the Company, effective
May 7, 1997.  Karlins  Fuller  Arnold & Klodosky,  P.C.,  now  Karlins  Arnold &
Corbitt, P.C., ("Karlins Fuller"),  which had been the Company's prior auditors,
resigned as auditors of the Company,  effective May 7, 1997. The Company has had
no disagreements with Karlins Fuller during fiscal 1996 or 1995 on any matter of
accounting  principles or practices,  financial statement disclosure or auditing
scope or procedure. The reports of Karlins Fuller for either fiscal 1996 or 1995
did not contain an adverse  opinion or a disclaimer of opinion or were qualified
or modified as to uncertainty, audit scope or accounting principles.




                                      -58-
<PAGE>



                                    PART III

Item 10.  Directors and Executive Officers of the Registrant.

     The names of the  executive  officers  and  directors  are set forth below,
together  with the  positions  held by each such person in the Company and their
ages  as of  January  31,  1999.  All  directors  are  elected  annually  by the
shareholders  of the Company and serve until their  successors  are duly elected
and  qualified.  Officers are elected by the Board of Directors and serve at the
will of the Board of Directors.


          Name                    Age                   Positions
          ----                    ---                   ---------

Michael E. McGinnis                49         President, Chief Executive Officer
                                              and Director

J.C. Pennie                        59         Chairman of the Board of
                                              Directors

Matthew D. Hill                    29         Senior Vice President Operations
                                              North America

Besim Halef                        43         Vice President of Marketing

Lanell Matlock                     46         Assistant Vice President and
                                              Controller

Bruce A. Rich                      59         Secretary

Barry Cracower                     60         Director

William A. Dimma                   70         Director

Hon. Donald R. Getty               65         Director

Executive Officers

     Michael E.  McGinnis  has been the Chief  Executive  Officer of the Company
since 1993,  the President  since  December 1998 having served as President from
1993 to July 1998,  a  director  since  1994 and was  Chairman  from May 1997 to
December  1998.  He  was  the  President  and  Chief  Executive  Officer  of Eco
Environmental,  a provider of environmental  remediation  services to industrial
clients,  when it was  acquired  by the  Company in 1993.  Prior to joining  Eco
Environmental,  in 1992,  Mr.  McGinnis was employed  with The Brand  Companies,
Inc., one of the largest  asbestos  abatement  contractors in the United States.
Mr.  McGinnis  joined  The  Brand  Companies  in  1965  and  served  in  various
operational and  administrative  capacities for over 27 years.  Mr. McGinnis has
been a director of USIS since  February  1996,  having served as its Chairman of
the Board from June 1996 to October  1997,  and was President of USIS from March
1996 to August 1996.  He was a director of Dominion  Bridge from  February  1998
through March 1999.

     J.C.  Pennie has been a director of the Company since  February  1992,  the
Chairman of the Board of Directors since December 1998 and was the Vice-Chairman
from October 1993 to December 1998. Mr. Pennie served as the Company's President
and Chief  Executive  Officer in 1992 in order to  execute  the  downsizing  and
reorganization  of the Company.  Since 1974,  he has been  President of Windrush
Corporation which provides  management and financial  services to turnaround and
start-up  companies.  He is  the  Chairman  of  Imark  Corporation  and  of  Eco
Technologies International, Inc., Canadian companies.

     Matthew D. Hill has served as Senior Vice  President  Operations  for North
America  since  December  1998,  having  served  as Vice  President/Director  of
Operations, Gulf Coast, and President of The Turner Group from

                                      -59-
<PAGE>



April 1997 to December  1998. He served as the Company's  Executive  Director of
Administration  from January 1997 until March 1997 and as the Company's Director
of Special Projects from March 1996 until January 1997. Prior thereto,  Mr. Hill
was the Manager of Eco  Environmental's  Spill Response Division from April 1995
to March  1996.  Prior to joining  Eco  Environmental,  Mr.  Hill had been Plant
Manager of Alumatech, Inc., a specialty aluminum trailer manufacturer, since May
1992.

     Besim Halef has been Vice President of Marketing since January 1999, having
served as the Division  President of MM Industra since June 1996.  Between April
1994 and May 1996,  Mr. Halef served as a project  general  manager for National
Heavy  Industries  Limited,  Saudi Arabia in connection  with a project to build
specialty  fabrication  facilities in the Kingdom of Saudi Arabia. Mr. Halef had
served in various  capacities  at M&M  Manufacturing  Limited  Partnership,  the
predecessor  of MM  Industra,  between  1985  and  1994,  most  recently  as the
Executive Vice President and General  Manager of that company from March 1991 to
April 1994.

     Lanell  Matlock has been  Assistant  Vice  President and  Controller of the
Company since  December 1997. For 20 years prior thereto she was employed by the
Real Estate  division  of  Mitchell  Energy &  Development  Corp.  and the audit
division of Arthur Andersen & Co. LLP in Houston, Texas.

     Bruce A. Rich has been Secretary of the Company since May 1997. He has been
a partner in Thelen Reid & Priest LLP, a New York, New York law firm since 1992,
and prior thereto was a partner in another law firm. His law firm performs legal
services for the Company.

Outside Directors

     Barry  Cracower has been a director of the Company since December 1996. Mr.
Cracower has been the  President of Pharmx Rexall Drug Stores Ltd., a drug store
chain  based in Concord,  Ontario,  since  1990.  Prior to 1990,  he held senior
executive positions at several major Canadian corporations.  Mr. Cracower served
on the Board of Directors of the  predecessor  corporation  to the Company,  ECO
Corp., in 1992 during its  restructuring.  He also is as a director of Algonquin
Mercantile Corporation, a Canadian company.

     William A. Dimma has been a director of the Company since January 1997. Mr.
Dimma has served as the  Chairman  of the Board of Canadian  Business  Media Ltd
since 1992,  and York  University  since 1991.  For more than five years through
1993,  Mr. Dimma served as the Deputy  Chairman  and also as the  President  and
Chief Executive Officer of Royal LePage Limited, a Canadian real estate company.
In addition to the  companies  mentioned  above,  Mr. Dimma is a director of the
Greater Toronto Airport Authority,  Magellan Aerospace  Corporation,  IPL Energy
Inc., a pipeline and gas distribution  company,  London Life Insurance  Company,
Sears  Canada  Inc.  and Trilon  Financial  Corporation,  a  financial  services
company.

     Hon. Donald R. Getty has been a director of the Company since January 1997.
Mr.  Getty has been the  President  and Chief  Executive  Officer  of  Sunnybank
Investments  Ltd., an investment  and  consulting  company  located in Edmonton,
Alberta,  since December 1992. Mr. Getty has held elected and appointive offices
in Canadian government,  most recently as the Premier of the Province of Alberta
from 1985 to 1992 and as the  Minister of Energy and Natural  Resources  for the
Provincial  Government  of Alberta  between 1971 and 1979.  Mr. Getty  currently
serves on the boards of directors of Guyanor Resources S.A., a mining company in
French Guyana; and Nationwide Resources, Mera Petroleum, an oil and gas company,
Cen Pro  Technologies,  an  engineering  company  and Eclipse  Investments,  all
located in Canada. Mr. Getty is also a director and Vice Chairman of the Alberta
Racing  Corporation,  which is  responsible  for all  forms of horse  racing  in
Alberta, Canada.



                                      -60-
<PAGE>



Significant Employees

     Larry Cundy has served as the Division Chief Executive  Officer of Industra
since April 1997. For more than twenty years prior thereto, he had been employed
by Parsons  Power Inc. and its  predecessor,  his last position  being  Regional
Director of Sales.

     Joseph D.  DeFranco has served as the Division  President of SRS since July
1996 when SRS was  acquired  by the  Company.  Mr.  DeFranco  had  served as the
President, Chief Executive Officer, Treasurer and a director of SRS since 1973.

     Michael  Fugitt has served as the  Division  President  of The Turner Group
since April 1998, having held various positions at The Turner Group since 1989.

     Andrew Scott  Hamilton has served as the Division  President of MM Industra
since  February  1998,  from 1996 to 1998,  he was Product  Director for BC Fast
Ferries,  and from 1995 to 1996, he was a project manager for M&M  Manufacturing
Limited Partnership in Nova Scotia.

     Willi Hamm has served as the Division  President of Industra  Service since
June 1997, having been a senior executive at Industra Service since 1986.

     Cecil  Hodgkinson has served as the Division  President of Action  Contract
Services since March 1997,  having been with The Turner Group from 1989 to March
1997 with his last position being Manager of Estimating.

     John  Hoyle  has  served as the  Division  President  of  United  Eco since
November 1996.  Mr. Hoyle had been the President of Four Seasons  Environmental,
Inc., an environmental services company,  between July 1996 and August 1993, and
served  as the  Vice  President  of that  corporation  between  August  1993 and
September 1990.

     C.N. Jones has served as the Division President of CCG since September 1997
when CCG was acquired by the Company.  Mr. Jones had served as the  President of
CCG since 1991.

     David  Krache has  served as the  Division  President  of  Chempower  since
September 1998. From May 1998 to September 1998, Mr. Krache had been at Dominion
Bridge,  and from  April 1994 to May 1998,  he had been  President  of  National
Service Cleaning Corp., a subsidiary of NSC Corp.

Board of Directors Matters

     The Board of Directors has an Audit Committee, a Compensation Committee and
a Corporate  Governance  Committee.  The Audit Committee  reviews the annual and
quarterly financial statements,  and material investments and transactions,  and
meets with the outside accountants and senior management regarding,  among other
items, internal control procedures  established by the Company. The Compensation
Committee sets the level of  compensation of the Company's  executive  officers.
The  Corporate  Governance  Committee  monitors  compliance  with the  corporate
governance guidelines of the Company.

     During  the 1998  fiscal  year,  the  Board of  Directors  met in person or
telephonically  11  times,  and  each  director  attended  at  least  75% of the
meetings.  The Board of Directors  also  authorized  corporate  actions  through
written consents.

Compliance With Certain Reporting Requirements

     Section  16(a) of the  Securities  Exchange Act of 1934  requires  that the
officers,  directors  and 10.0%  shareholders  of a domestic  issuer  report the
ownership  and purchase or sale of the equity  securities  of such issuer to the
SEC.  Based  on the  Company's  records,  the  Company  believes  its  officers,
directors and 10.0% shareholders are in compliance with Section 16(a) for fiscal
1998.



                                      -61-
<PAGE>


Item 11.  Executive Compensation.

     The following table discloses the compensation  awarded to or earned by the
Chief Executive Officer and the other most highly compensated executive officers
of the Company as of the end of fiscal 1998 whose annual salary plus other forms
of compensation exceeded $100,000 (the "Named Executive Officers").

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                                                        Long-Term        All Other
                                                            Annual Compensation                       Compensation      Compensation
                                            -------------------------------------------------------   -------------     ------------
         Name                                                                                          Securities
         and                                                                        Other Annual       Underlying
      Position                 Year          Salary ($)         Bonus ($)          Compensation ($)    Options (#)
---------------------      -----------      -----------         ---------          ----------------   -------------
<S>                            <C>           <C>                 <C>                  <C>                <C>              <C>
Michael E. McGinnis            1998          300,000(1)                0              11,676(2)           40,000                0
Chairman of the                1997          279,166(1)                0              10,885(2)          150,000                0
Board, President and           1996          252,276(1)                0               6,439(2)           20,000                0
Chief Executive
Officer

Frank J. Fradella              1998          125,577             168,912               4,000(2)              -0-                0
President(3)

David L. Norris                1998          151,443(1)                0               5,709(2)              -0-           89,250(6)
Senior Vice President          1997          161,538                                   4,900(2)           70,000                0
and Chief Financial            1996                0                   0                   0              25,000
Officer (4)

Bruce D. Tobecksen             1998          186,115                   0               6,000(2)           75,000          750,000(6)
Vice President and
Treasurer(5)

J. C. Pennie                   1998                0                   0             303,000(7)           40,000                0
Vice-Chairman                  1997                0                   0             112,885(7)          100,000                0
of the Board                   1996                0                   0             109,140(7)                0                0
</TABLE>

----------
(1)  Includes $1,056, $1,600 and $1,138 of deferred compensation  contributed by
     the  Company  to Mr.  McGinnis'  401K Plan in fiscal  1998,  1997 and 1996,
     respectively,  and includes $1,916 of deferred compensation  contributed by
     the Company to Mr. Norris' 401K Plan in fiscal 1998.

(2)  Represents automobile lease payments paid by the Company.

(3)  Mr.  Fradella  served as  President  from July  1998 to  December  1998 and
     remained as a consultant through January 1999.

(4)  Mr. Norris became an employee in August 1996.  From August 1996 to February
     1997, he had been an executive officer of USIS, and the Company  reimbursed
     USIS  for  compensation  amounts  paid by USIS to Mr.  Norris.  Mr.  Norris
     resigned in July 1998.

(5)  Mr. Tobecksen became  Vice-President  and Treasurer in January 1998 and was
     terminated in September 1998.

(6)  Represents severance payment pursuant to his employment agreement.

(7)  Represents fees paid to Windrush Corporation,  50% of which is owned by Mr.
     Pennie,  for executive and secretarial  services for the Company's  Toronto
     office.

Employment Contracts

     The  Company  and  Michael E.  McGinnis  have  entered  into an  employment
agreement  pursuant  to which Mr.  McGinnis  receives  an annual  base salary of
$300,000,  an  automobile  allowance  of $750 per month plus any  operating  and
maintenance   expenses  associated  with  such  vehicle,   and  is  entitled  to
participate in an annual bonus program determined by the level of basic earnings
per share of the Company for each fiscal year of the term of the


                                      -62-
<PAGE>


employment  agreement.  The agreement provides for up to five years compensation
if he is terminated  without cause, or upon his death or disability,  subject to
certain limitations. The employment agreement terminates on May 1, 2002.

     The  Company  and David L.  Norris  entered  into a three  year  employment
agreement  effective  May 1, 1997 pursuant to which Mr. Norris was to be paid an
annual base salary of $225,000,  an automobile  allowance of $750 per month plus
any operating and  maintenance  expenses  associated  with such vehicle,  and to
participate in an annual bonus program determined by the level of basic earnings
per share of the  Company  for each  fiscal  year of the term of the  employment
agreement.  The  agreement  provides for up to three years  compensation  if Mr.
Norris  was  terminated  by  the  Company   without  cause  subject  to  certain
limitations.  Mr.  Norris'  employment  terminated  on July 21,  1998,  and upon
termination  Mr.  Norris  received  $89,250  for acting as a  consultant  to the
Company.

     The Company and Bruce D.  Tobecksen  entered  into a three year  employment
agreement  effective  January 1, 1998  pursuant  to which Mr.  Tobecksen  was to
receive an annual base salary of $250,000,  an automobile  allowance of $750 per
month plus any operating and maintenance  expenses associated with such vehicle,
and be entitled to  participate  in an annual bonus  program  determined  by the
level of basic  earnings  per share of the  Company  for each fiscal year of the
term of the employment  agreement.  The agreement provided for up to three years
compensation if Mr. Tobecksen is terminated by the Company without cause subject
to certain limitations.  Mr. Tobecksen's  employment with the Company terminated
as of September  25, 1998.  Pursuant to a Termination  Agreement,  he received a
lump sum  payment of  $750,000,  his options to purchase  75,000  Common  Shares
became fully  vested and  exercisable  for one year and his benefits  were to be
continued through the earlier of (i) December 31, 2000 or (ii) the date on which
he became eligible for comparable benefits by reason of subsequent employment.

Compensation of Directors

     The directors of the Company who are not otherwise employees or consultants
of the Company  receive  CDN$20,000 per year. In addition,  the directors of the
Company  receive  CDN$1,000  per Board or  committee  meeting  attended  and all
reasonable  expenses  incurred by the  directors  in respect of their duties are
reimbursed  by the  Company.  None  of the  directors  of the  Company  receives
compensation in his capacity as a director  pursuant to any other arrangement or
in lieu of any  standard  arrangement  except  through  the  granting  of  stock
options.

     During fiscal 1998, Hon. Donald R. Getty performed  various  consulting and
advisory  services  for the Company on the  TransCanada  and Amethyst II and III
projects for which he received fees in the aggregate amount of $38,500.



                                      -63-
<PAGE>


Stock Options

     The  following  table  provides  information  with respect to stock options
granted to the Named Executive Officers during fiscal 1998.

                              Stock Options Granted
                     in Fiscal Year Ended November 30, 1998

<TABLE>
<CAPTION>
                                                                                                  Market Value                      
                                                          % of Total                              of Securities                     
                                                           Options                                 Underlying                       
                                   Securities             Granted to                               Options on                       
                                     Under                Employees              Exercise          the Date of                      
                                    Options              in Financial             Price               Grant                         
Name                              Granted (#)                Year                 (CDN$)             (CDN$)        Expiration Date
--------                       ----------------         ---------------       --------------       -----------     ---------------
<S>                                  <C>                     <C>                <C>                 <C>                 <C> 
Michael E. McGinnis                  40,000                   5.6%                    9.75            390,000           6/18/03
Frank J. Fradella                       -0-                    --                      --               --                 --
David L. Norris                         -0-                    --                      --               --                 --
Bruce D. Tobecksen                   75,000                  10.5%              9.75-16.50          1,068,750           9/25/99
J.C. Pennie                          40,000                   5.6%                    9.75            390,000           6/18/03
</TABLE>

     The  following  table  provides  information  with respect to stock options
exercised by the Named Executive  Officers during the fiscal year ended November
30, 1998 and the balance of stock options  remaining after such  exercises.  All
stock options described below were presently exercisable at November 30, 1998.

                       Aggregated Stock Options Exercised
                     in Fiscal Year Ended November 30, 1998
                           and Fiscal Year-End Values
                     ---------------------------------------

<TABLE>
<CAPTION>
                                                                                 Number of Securities      Value of Unexercised
                                                                                Underlying Unexercised     In-the-Money Stock
                                                                                  Options at Fiscal         Options at Fiscal
                                                                                       Year-End                 Year-End
                                                                                         (#)                    (CDN$)(1) 
                                                                                ----------------------     --------------------
                                   Securities
                                   Acquired
                                     Upon                                            Exercisable/             Exercisable/
                  Name            Exercise(#)           Value Realized (US$)        Unexercisable             Unexercisable
                  ----            -----------           --------------------        -------------             -------------
<S>                                 <C>                       <C>                   <C>                            <C>
Michael E. McGinnis                 100,000(2)                $421,460              80,000/130,000                 0/0
Frank J. Fradella                     --                         --                 30,000/20,000                  0/0
David L. Norris                       --                         --                 33,000/52,000                  0/0
Bruce Tobecksen                       --                         --                   75,000/-0-                   0/0
J.C. Pennie                           --                         --                 48,000/92,000                  0/0
</TABLE>

----------
(1)  Based on the  closing  price of the  Common  Shares  on The  Toronto  Stock
     Exchange on November 30, 1998 of CDN$3.00.

(2)  Options  exercised to provide  shares to offset margin calls,  which margin
     calls resulted in losses to Mr. McGinnis.


                                      -64-
<PAGE>



Item 12.  Security Ownership of Certain Beneficial Owners and Management.

     The following  table sets forth as of January 31, 1999 the number of Common
Shares beneficially owned by (i) each person known to be the beneficial owner of
more than five percent of the outstanding  Common Shares,  (ii) each director of
the Company,  (iii) each Named Executive Officer and (iv) all executive officers
and  directors of the Company as a group as known by the Company or as reflected
on the records of the transfer agent.


            Name and Address of                   Amount and Nature of
             Beneficial Owner                    Beneficial Ownership(1)
----------------------------------------      ------------------------------


                                                Number            Percentage
                                              ----------          ----------


Michael E. McGinnis ....................      188,840(2)             0.9%

J.C. Pennie ............................       95,400(3)             0.4%

Hon. Donald R. Getty ...................       93,000(4)             0.4%

Barry Cracower .........................       82,000(4)             0.4%

William A. Dimma .......................       68,000(4)             0.3%

Directors and executive
officers as a group (6 persons) ........      538,940(5)             2.5%

----------
*    Unless  otherwise  indicated,  the address is c/o American Eco Corporation,
     154 University Avenue, Toronto, Ontario M5H 3Y9.

(1)  Unless otherwise  indicated,  the Company has been advised that each person
     above has sole voting and investment power over the Common Shares indicated
     above. The number of shares beneficially owned includes Common Shares which
     each  beneficial  owner has the right to acquire  within 60 days of January
     31, 1999.

(2)  Includes 114,000 Common Shares underlying stock options.

(3)  Includes (i) 68,000 Common Shares underlying stock options, (ii) 700 Common
     Shares  owned  by his  wife  and  (iii)  26,700  Common  Shares  owned by a
     corporation of which he is a 50% owner.

(4)  Includes 68,000 Common Shares underlying stock options.

(5)  Includes Common Shares disclosed in notes (2), (3) and (4) above.



                                      -65-
<PAGE>


Item 13.  Certain Relationships and Related Transactions.

Transactions with Management or Affiliates of Management

     Pursuant to an  agreement  between the  Company  and  Windrush  Corporation
("Windrush"),  dated  December 1, 1997,  Windrush  receives a fee of $10,000 per
month in consideration for executive services for administration,  strategic and
marketing  planning  provided to the Company plus fees which are negotiated on a
project-by-project  basis for other specific services  rendered.  This agreement
expires on December 1, 2002, and has a five-year  renewable term.  J.C.  Pennie,
the Chairman of the Board of Directors of the Company, owns 50% of Windrush.

     As of August 31, 1997, the Company sold Eco Environmental and Environmental
Evolutions to Eurostar  Interests Ltd.  ("Eurostar")  for an aggregate  purchase
price of $11.0 million payable in a one-year  promissory  note (the  "EcoNote"),
which was to be collateralized by all of the capital stock of Eurostar. Eurostar
assigned its  interest in Eco  Environmental  and  Environmental  Evolutions  to
UKstar (Canada) Inc.  ("UKstar"),  which in turn transferred its interest in Eco
Environmental  and Environmental  Evolutions to Eco Technologies  International,
Inc. ("ETI"), a Canadian public company. UKstar owns 85.5% of ETI. Windrush owns
3.2% of UKstar's  parent  company and 1.4% of ETI. Mr. Pennie also serves as the
Secretary of UKstar and as the Chairman of ETI, and Barry  Cracower,  a director
of the  Company,  also is a director  of ETI.  In  February  1998,  UKstar  paid
$603,000 to the Company for  reimbursement of monies advanced by the Company for
the operating  expenses of Eco Environmental  and Environmental  Evolutions from
September  30, 1997 to November  30,  1997.  In October  1998,  UKstar paid $3.0
million on the Eco Note,  and is to repay the remaining  $9,313,975 on September
30, 2000 with quarterly interest installments of $227,028, which obligations are
collateralized  by  500,000  shares  of ETI  Common  Stock  and a  $3.0  million
performance bond.

     In July 1998,  Industra Service entered into a 15 year lease for an office,
shop and warehouse in Edmonton, Alberta from a company in which Donald R. Getty,
a director of the Company, is President and has a 25% interest. The annual lease
payments  are  $474,000(CDN$).  Management  believes  the  lease  terms  are  at
commercially reasonable rates.

Indebtedness of Management or Affiliates of Management

     In August 1998, the Board of Directors authorized the Company to loan up to
$100,000 to each  Director for the purpose of using the proceeds to purchase the
Company's  Common  Shares in the open  market.  These  loans are to be repaid in
three years,  bear interest at the rate of 9-5/8% per annum,  and are unsecured.
Messrs.  Fradella,  Getty  and  Pennie  each  took a loan for  $100,000  and Mr.
Cracower  took a loan for  $50,000.  As of  November  30,  1998,  the  following
Director loans were outstanding:  Mr. Fradella - $102,874, Mr. Getty - $102,847,
Mr. Pennie - $102,874 and Mr. Cracower - $51,437.

     During fiscal 1997,  the Company  loaned $84,100 to Michael E. McGinnis for
the purpose of purchasing  Common Shares of the Company in the open market.  The
loan  increased  his  indebtedness  to the Company to $630,057.  The loan was to
mature on May 7, 1998,  and the maturity  was extended to May 31, 1999,  bearing
interest at the rate of 10.0% per annum and is  collateralized  by the purchased
shares. The outstanding balance of the loan, including interest,  as of November
30, 1998 was $687,502.

     In May 1997,  the Company  loaned  $305,000 at 8.5%  interest  per annum to
David L. Norris for the purchase of a home in connection  with his relocation to
the Company's headquarters in Houston, Texas. The loan was to mature in May 1998
and was extended to February 1, 2003, and is unsecured.  The outstanding balance
of the loan, including interest, as of November 30, 1998 was $319,806.

     In June 1997, the Company  loaned $60,105 to J. C. Pennie.  The loan was to
mature in June 1998, and was extended to May 31, 1999 bears interest at the rate
of 8.5% per  annum and is  unsecured.  The  outstanding  balance  of the  loans,
including interest, as of November 30, 1998 was $64,878.


                                      -66-
<PAGE>



     In September 1998, the Company loaned $100,000 to Besim Halef, an executive
officer,  repayable  over three  years with  prepayments  from  future  bonuses,
together with interest at the rate of 6% per annum.




                                      -67-
<PAGE>


                                     PART IV

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

(a)  Financial Statements:

     The following  audited  consolidated  financial  statements of American Eco
     Corporation and subsidiaries are included in Item 8:

     Report of Independent Auditors

     Consolidated Balance Sheet as of November 30, 1998 and 1997

     Consolidated  Statement  of Income for the years ended  November  30, 1998,
     1997 and 1996

     Consolidated Statement of Shareholders' Equity for the years ended November
     30, 1998, 1997 and 1996

     Consolidated Statement of Changes in Financial Position for the years ended
     November 30, 1998, 1997 and 1996

     Notes to Consolidated Financial Statements

     The following  consolidated  financial  statement schedules of American Eco
     Corporation and subsidiaries are included in Item 14(d):

     All schedules to the consolidated  financial statements required by Article
     7 of Regulation S-X are not required under related  instructions or are not
     applicable and, therefore, have been omitted.


(b)  Reports on Form 8-K

     The Company did not file a report on Form 8-K during the fourth  quarter of
fiscal 1998.

(c)  Exhibits

3.1.1     Letters Patent  (Certificate of Incorporation)  filed February 6, 1969
          (incorporated   by   reference   to  Exhibit   3.1.1  to  the  Company
          registration statement on Form 10, dated September 19, 1990 [the "Form
          10"]).

3.1.2     Supplementary  Letters Patent,  dated June 26, 1970  (incorporated  by
          reference to Exhibit 3.1.2 to the Form 10).

3.1.3     Articles of Amendment,  filed June 16, 1975 (incorporated by reference
          to Exhibit 3.1.3 to the Form 10).

3.1.4     Articles of Amendment,  filed June 23, 1978 (incorporated by reference
          to Exhibit 3.1.4 to the Form 10).

3.1.5     Articles of Amendment,  filed June 20, 1986 (incorporated by reference
          to Exhibit 3.1.5 to the Form 10).

3.1.6     Articles of Amendment,  filed June 17, 1987 (incorporated by reference
          to Exhibit 3.1.6 to the Form 10).

3.1.7     Articles of Amendment, certified on November 19, 1993 (incorporated by
          reference  3.1.7 to the Company's  Form 10-K for the fiscal year ended
          November 30, 1996 [the "1996 Form 10-K"]).


                                      -68-
<PAGE>


3.1.8     Articles of  Amendment,  certified  on May 27, 1997  (incorporated  by
          reference  to Exhibit 3.1 to the  Company's  Form 10-Q for the quarter
          ended May 31, 1997 [the "May 1997 Form 10-Q"]).

3.2.1     By-Laws (incorporated by reference to Exhibit 3.2 to the Form 10.).

3.2.2     By-Law  Number 10  (incorporated  by reference to Exhibit 3.2.2 to the
          1996 Form 10-K).

3.2.3     Rights Agreement,  dated as of April 1998, between the Company and The
          CIBC Mellon Trust Company  (incorporated  by reference to Exhibit 4 to
          the Company's Form 8-K for an event of April 9, 1998.)

4.1       Share Option Plan  (incorporated by reference to Exhibit to Management
          Information  Circular to the Company's Form 6-K,  dated  September 27,
          1995).

4.2       Indenture, dated as of May 14, 1998, among the Company, the Guarantors
          named  therein  and State  Street Bank and Trust  Company,  as Trustee
          (incorporated  by reference to Exhibit 4.1 to the  Company's  Form 4.1
          for an event of May 21, 1998).

4.3       Form  of  Common  Stock  Purchase   Warrant   expiring  May  29,  2002
          (incorporated by reference to Exhibit 4.5 to the May 1997 Form 10-Q).

*10.1     Agreement,  dated as of  December  1, 1997  between  the  Company  and
          Windrush Corporation.

10.2      Share  Exchange   Agreement,   dated  June  1,  1994,  among  Westlake
          Interests,   Ltd.,   Cambridge,   the   Company  and  Marc  A.  Sparks
          (incorporated by reference to Exhibit 10.7.1 to the 1994 Form 20-F).

10.3      Acquisition  Agreement,  dated July 31, 1995,  between the Company and
          Kenneth Hagan and Janet Hagan.  (incorporated  by reference to Exhibit
          2.7.1 to the 1995 Form 20-F).

10.4.1    Agreement  and Plan of Merger  dated as of April 26,  1996,  among the
          Company  SRS  Acquisition  Corporation  and  Separation  and  Recovery
          Systems,  Inc. ("SRS") (incorporated by reference to Exhibit 10.4.1 to
          the 1996 Form 10-K).

10.4.2    Business Loan Agreement, dated as of February 7, 1996, between Bank of
          America  National  Trust  and  Savings   Association  ("BA")  and  SRS
          (incorporated by reference to Exhibit 10.4.2 to the 1996 Form 10-K).

10.4.3    Amendment No. 1 to Business Loan Agreement,  dated as of July 3, 1996,
          between SRS and BA (incorporated by reference to Exhibit 10.4.3 to the
          1996 Form 10-K).

10.4.4    Continuing Guarantee,  dated as of July 3, 1996 from the Company to BA
          (incorporated by reference to Exhibit 10.4.4 to the 1996 Form 10-K).

10.4.5    Subordination  Agreement,  dated July 3, 1996, among the Company,  SRS
          and BA  (incorporated  by reference to Exhibit 10.4.5 to the 1996 Form
          10-K).

10.5      Acquisition  Agreement,  dated as of May 31, 1996, between the Company
          and United Eco  Systems,  Inc.  (incorporated  by reference to Exhibit
          10.5 to the 1996 Form 10-K).

10.6.1    WCMA Note,  Loan and Security  Agreement,  dated as of August 23, 1996
          between  American  Eco/SP   Corporation  and  Merrill  Lynch  Business
          Financial  Services,  Inc.  ("MLBFS")  (incorporated  by  reference to
          Exhibit 10.6.1 to the 1996 Form 10-K).



                                      -69-
<PAGE>



10.6.2    Security  Agreement,  dated as of August 26, 1996 between C.A.  Turner
          Maintenance,  Inc.  ("Turner") and MLBFS (incorporated by reference to
          Exhibit 10.6.2 to the 1996 Form 10-K).

10.6.3    Unconditional Guaranty, dated as of August 26, 1996 of Turner in favor
          of MLBFS (incorporated by reference to Exhibit 10.6.3 to the 1996 Form
          10-K).

10.6.4    Unconditional Guaranty, dated as of August 26, 1996 of American Eco/SP
          Corporation  in favor of MLBFS  (incorporated  by reference to Exhibit
          10.6.4 to the 1996 Form 10-K).

10.7      Acquisition Agreement and Plan of Reorganization,  dated as of January
          1, 1996  between  Jim  Wright,  Mark L.  Crawford  and Aaron  Fine (as
          shareholders of Environmental  Evolutions,  Inc.) and the Company,  as
          amended March 15, 1996  (incorporated  by reference to Exhibit 10.7 to
          the 1996 Form 10-K).

10.8.1    Agreement,  dated April 9, 1996 between the Company and Wayne E. Shaw,
          and as amended on April 17,  1996,  April 18,  1996,  May 23, 1996 and
          June 12, 1996 (incorporated by reference to Exhibit 1 to the Company's
          Registration Statement on Form F-8).

10.8.2    Arrangement Agreement, dated November 13, 1996, among Industra Service
          Corporation,  519742  B.C.  Ltd.  and  the  Company  (incorporated  by
          reference to Exhibit 10.8.2 to the 1996 Form 10-K).

10.9.1    Agreement and Plan of Merger,  dated as of September  10, 1996,  among
          the Company, Sub Acquisition Corp. and Chempower,  Inc.  ("Chempower")
          (incorporated by reference to Exhibit 10.9.1 to the 1996 Form 10-K).

10.9.2    Financing  Agreement,  dated  February  28,  1997,  among the Company,
          Chempower,  Toomas  J.  Kukk and Mark L.  Rochester  (incorporated  by
          reference to Exhibit 10.9.2 to the 1996 Form 10-K).

10.9.3    Loan  Agreement,  dated  as of  February  28,  1997,  by  and  between
          Chempower, Inc. and First National Bank of Ohio ("FNBO") (incorporated
          by reference to Exhibit 10.9.7 to the 1996 Form 10-K).

10.9.4    Purchase  Agreement,  dated as of February 28, 1997, between Chempower
          and Holiday  Properties  ("Holiday")  (incorporated  by  reference  to
          Exhibit 10.9.9 to the 1996 Form 10-K).

10.10     Acquisition  Agreement,  dated as of  August  31,  1997,  between  the
          Company and  Eurostar  Interests  Ltd.  (incorporated  by reference to
          Exhibit 10.1 to the  Company's  Form 10-Q for the quarter ended August
          31, 1997).

10.11     Lease,  dated as of August 15,  1996,  between  11011 Jones Road Joint
          Venture  Group and the Company  (incorporated  by reference to Exhibit
          10.11 to the 1996 Form 10-K).

10.12     Employment Agreement,  dated December 1, 1995, between the Company and
          Michael E. McGinnis, as amended May 1, 1996 (incorporated by reference
          to Exhibit 10.12.1 to the 1996 Form 10-K).

10.13.1   Employment  Agreement,  effective  as of January 1, 1998,  between the
          Company and Bruce  Tobecksen  (incorporated  by  reference  to exhibit
          10.12.2 to the Company's  Form 10-K for the fiscal year ended November
          30, 1998).

*10.13.2  Termination  Agreement,  dated as of September  15, 1998,  between the
          Company and Tobecksen.

10.14     Employment  Agreement,  effective  as of August 1, 1996,  between  the
          Company  and David L. Norris  (incorporated  by  reference  to Exhibit
          10.12.3 to the 1996 Form 10-K).



                                      -70-
<PAGE>



10.15     Credit and  Guaranty  Agreement,  dated as of August 22,  1997,  among
          American  Eco Funding  Corp.,  as  Borrower,  the  Company,  as Parent
          Guarantor, and Union Bank of California,  N.A. as Agent ("Union Bank")
          (without schedules or exhibits)  (incorporated by reference to Exhibit
          10.1.1 to the Company's Form 8-K for an event of August 29, 1997).

10.16.1   Letter of Intent,  dated  February 20,  1998,  between the Company and
          Dominion  Bridge  Corporation  ("Dominion  Bridge")  (incorporated  by
          reference  to Exhibit 10.1 to the  Company's  Form 8-K for an event of
          February 20, 1998 [the "February 1998 Form 8-K"]).

10.16.2   Securities Purchase Agreement,  dated as of February 20, 1998, between
          the Company and Dominion Bridge  (incorporated by reference to Exhibit
          10.2 to the February 1998 Form 8-K"]).

10.16.3   Warrant Agreement,  dated February 20, 1998, issued by Dominion Bridge
          (incorporated  by reference to Exhibit 10.3 to the February  1998 Form
          8-K").

10.16.4   Registration Rights Agreement,  dated as of February 20, 1998, between
          the Company and Dominion Bridge  (incorporated by reference to Exhibit
          10.4 to the February 1998 Form 8-K").

10.17     Acquisition  Agreement,  dated as of  September  1, 1997,  between the
          Company and Jones Partners, Ltd. (incorporated by reference to Exhibit
          10.15 to the  Company's  Form 10-K for the fiscal year ended  November
          30, 1997).

*21.      Subsidiaries of the Company.

*27.      Financial Data Schedule.

----------
*    Filed herewith

(d)  Financial Statement Schedules

     The  financial   statement   schedules   required  by  Regulation  S-K  are
incorporated by reference to Item 14(a).



                                      -71-
<PAGE>


                                   SIGNATURES

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




                                    AMERICAN ECO CORPORATION


Dated:  March 10, 1999              By: /s/ Michael E. McGinnis                 
                                       -----------------------------------------
                                       Michael E. McGinnis, President and Chief
                                       Executive Officer

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


<TABLE>
<CAPTION>
       Signature                         Title                                     Date
       ---------                         -----                                     ----
<S>                        <C>                                                  <C>
/s/ Michael E. McGinnis                                                                           
-----------------------                                                                           
Michael E. McGinnis        President, Chief Executive Officer and Director                        
                           (Principal Executive Officer)                        March 10, 1999

/s/ J.C. Pennie                                                                                   
-----------------------                                                                           
J.C. Pennie                Chairman of the Board of Directors                   March 10, 1999


/s/ Lanell Matlock                                                                                
-----------------------                                                                           
Lanell Matlock             Assistant Vice President and Controller              March 10, 1999


/s/ Barry Cracower                                                                                
-----------------------                                                                           
Barry Cracower             Director                                             March 10, 1999


-----------------------                                                                           
William A. Dimma           Director                                             March   , 1999


/s/ Donald R. Getty                                                                               
-----------------------                                                                           
Hon. Donald R. Getty       Director                                             March 10, 1999
</TABLE>



                                      -72-
<PAGE>


                                INDEX TO EXHIBITS

Exhibit Number                         Document
--------------                         --------

 * 10.1              Agreement, dated as of December 1, 1997, between the 
                     Company and Windrush Corporation.

 * 10.13.2           Termination Agreement, dated as of September 15, 1998 
                     between the Company and Bruce Tobecksen.

 * 21.               Subsidiaries of the Company.

 * 27.               Financial Data Schedule.

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

*Filed herewith