U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

(Mark One)

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

                     For the fiscal year ended June 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 0-28140

                      USA BRIDGE CONSTRUCTION OF N.Y., INC.
                      -------------------------------------
             (Exact name of registrant as specified in its charter)

               New York                                11-3032277
--------------------------------------------------------------------------------
(State or other jurisdiction of                       (I.R.S. Employer 
Incorporation or organization)                       Identification No.)

53-09 97th Place, Corona, New York                         11368
--------------------------------------------------------------------------------
(Address of principal executive offices)                (Zip Code)

                                 (7l8) 699-0100
                                 --------------
                (Issuer's telephone number, including area code)

        SECURITIES registered pursuant to Section 12(b) of the Act: NONE

           SECURITIES registered pursuant to Section 12(g) of the Act:

                          Common Stock, $.001 par value
                                (Title of Class)

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

         Check if no disclosure of delinquent  filers in response to Item 405 of
Regulation S-B is contained in this form,  and no disclosure  will be contained,
to the best of  Registrant*s  knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part III of this Form  10-KSB or any
amendment to this Form 10-KSB [ ].

         The  Issuer's  revenues  for its fiscal  year ended June 30,  1998 were
$16,544,354.
<PAGE>
         The  aggregate  market  value of the voting  stock on November 30, 1998
(consisting of Common Stock,  $.001 par value per share) held by  non-affiliates
was  approximately  $293,205  based upon the average  closing bid price for such
Common Stock on said date $.4375,  as reported by a market maker.  On such date,
there were 2,749,182 shares of Registrant*s Common Stock outstanding.

                   (APPLICABLE ONLY TO CORPORATE REGISTRANTS)

         State the number of outstanding  shares of each of the Issuer's classes
of  common  equity,  as of  the  latest  practicable  date  (January  7,  1999):
2,749,182.
<PAGE>
                                     PART I


ITEM 1.  DESCRIPTION OF BUSINESS

         U.S.A.   Bridge   Construction   of  N.Y.,  Inc.  ("the  Company")  was
incorporated  in the State of New York,  on  September  4, 1990,  as Metro Steel
Structures,  Ltd. The Company amended its Certificate of Incorporation to effect
a change in its name to its current name during January 1998. Additionally,  the
Company amended its authorized  capital (i) to increase the number of authorized
shares of common  stock from 200 to  10,000,000  ("the Common  Stock");  (ii) to
increase  the par value of the Common Stock from no par value to $.001 par value
per share;  (iii) to authorize 500,000 shares of preferred stock, par value $.01
per share ("the Preferred  Stock");  and (iv) to designate 400,000 shares of the
Company*s Preferred Stock as "Series A Preferred Stock."

         The  Company,  via a direct  ownership  of 48.5% by USABG Corp.  and an
indirect ownership of 7.5% by the Company's  President,  Joseph Polito, is a 56%
owned  subsidiary  of USABG  Corp.  ("USABG").  The  Company was formed to serve
primarily  as a  general  contractor  for  construction  projects  sponsored  by
federal,  state,  and local  government  authorities  in the New York  State and
Metropolitan areas; however, it operated initially only as a subcontractor as it
needed  financing  to enable  it to obtain  bonding  which is  required  for all
municipal  projects.  The Company has  provided  steel  erection  for  building,
roadway,  and bridge  repair  projects  for  general  contractors  who have been
engaged by private and  municipal/governmental  customers.  As of June 30, 1998,
the Company  completed in excess of  twenty-one  (21) projects with an aggregate
project  value in excess of  $40,000,000  and is  currently  engaged  in two (2)
projects  which will be  completed  between  January and  February  1999 with an
aggregate value of approximately  $11,600,000  inclusive of change orders. While
the Company plans to maintain its subcontractor  presence in the steel industry,
it intends also to focus on obtaining projects as a general  contractor.  During
the fiscal year ended June 30,  1998,  the Company  acted as a prime  contractor
which  has the  same  characteristics  as a  general  contractor  for one of its
projects.

Company's Ability to Continue as a Going Concern

          As a result of the  Company's  net loss of  $2,093,969  for the fiscal
year ended June 30, 1998, a working capital deficiency of $3,207,294 and backlog
balance of $877,410 as of June 30,  1998,  substantial  doubt  exists  about the
Company's  ability to  continue as a going  concern.  As of June 30,  1998,  the
Company owes  approximately  $2,154,856 of payroll taxes and related penalty and
interest.  Certain taxing  authorities have filed liens against the Company as a
result of such unpaid  taxes.  In order to  mitigate  these  uncertainties,  the
Company is  aggressively  pursuing in trying to obtain  additional  contracts in
order to mitigate its low backlog and vigorously  attempting to settle  disputes
in  connection  with  mechanics'  liens  placed on certain  projects in order to
collect its receivables. However, there can be no assurance that it will be able
to obtain additional  contracts and settle its disputes and generate substantial
revenue.

Construction Projects

          In May 1996,  the  Company  entered a  subcontracting  agreement  with
Lehrer McGovern Bovis, Inc. (general contractor) for the terminal restoration of
the Grand Central Terminal owned by Metro-North Commuter Railroad.  The contract
is valued at  $5,365,144  including  change  orders  and as of June 30,  1998 is
approximately  92% complete.  Such contract is expected to be completed  between
January and February 1999.
<PAGE>
          In July  1996,  the  Company  entered  into a  contract  with  Tishman
Construction  Corporation  of  New  York  (construction  manager)  amounting  to
$6,235,750  including change orders,  to perform steel erection  services on the
Louis  Vuitton  Office  Tower  owned by Starre  Realty and  located on East 57th
Street in New York,  New York. As of June 30, 1998, the project was 93% complete
and it is expected to be completed between January and February 1999.

          In May  1998,  the  Company's  bid on a  project  to  build a  medical
building in Queens, New York was accepted by the developer thereof, 47-01 Queens
Blvd.  Realty Corp. The Company shall act as general  contractor for the project
as well as a subcontractor  providing  structural steel fabrication and erection
therefor.  The project is valued at approximately $2.4 million. In addition, the
Company has been given the exclusive  right to perform the interior  tenant work
on the medical  building  which is valued at  approximately  $3  million.  As of
January 7, 1999 such contract has been  postponed and no  commencement  date has
been determined.

          The following  table lists,  as of June 30, 1998, (i) all companies in
which Joseph Polito, the Company's President, is either an Officer, Director, or
principal shareholder; and (ii) the activities engaged in by such companies with
the Company:
<TABLE>
<CAPTION>
                        Year                       J. Polito's     Activities with the            Place of
Name (1)                of Inc.    Title           Ownership (%)   Company and USABG              Business
--------                -------    -----           -------------   -----------------              --------
<S>                     <C>        <C>                <C>          <C>                            <C> 
USA Bridge              1990       Pres./Director     56.3%        Provides steel erection for    Queens, NY
Construction of                                                    buildings, roadway and
N.Y., Inc. (3)(4)                                                  bridge repair projects.

R.S.J.J. Realty         1983       Pres./Director      100%        Leases the offices and         Queens, NY
Corp. (3)                                                          storage space to USABG and
                                                                   the Company

Crown Crane, Ltd. (3)   1988            --              50%        Supplies cranes to the         Brooklyn, NY
                                                                   Company for the use in the
                                                                   erection of steel

Atlas Gem Leasing,      1986       Pres./Director      100%        Supplies welding machines      Queens, NY
Inc. (3)                                                           and compressors to the
                                                                   Company

Atlas Gem Erectors      1986       Pres./Director      100%        Sold certain construction      No office
Co., Inc. (3)                                                      contracts to the Company;
                                                                   ceased operations 9/94.

USABG Corp. (2)         1988       Pres./Director     66.3%        Parent company                 Queens, NY

Royal Steel Services,   1997            --             100%        Formed to provide steel        Queens, NY
Inc. (5)                                                           erection for projects
                                                                   smaller than the Company's
                                                                   projects
</TABLE>
------------------
<PAGE>
(1)       Except as disclosed hereunder, no company listed is beneficially owned
          by another entity, nor does any company have any subsidiaries.
(2)       Incorporated in the State of Delaware.
(3)       Incorporated in the State of New York.
(4)       Joseph M. Polito,  through his ownership of approximately 66.3% of the
          outstanding  shares  of  USABG's  Common  Stock,  may  be  deemed  the
          beneficial  owner of the shares of the Company's common stock owned by
          USABG.
(5)       Incorporated in the State of New York.  Joseph M. Polito,  through his
          ownership of approximately  66.3% of the outstanding shares of USABG's
          Common  Stock,  may be deemed  the  beneficial  owner of the shares of
          Royal Steel common stock owned by USABG.


         Prior to leasing  equipment from Crown Crane,  Ltd.  ("Crown") or Atlas
Gem Leasing,  Inc.  ("AGLI"),  the Company  compares the costs  thereof to those
costs it might otherwise  incur from like  companies.  The Company will transact
business  with Crown and AGLI only on terms which may be  considered  similar to
the terms it might achieve elsewhere. In connection with such transactions,  the
audit  committee  of the  Company's  Board  of  Directors  intends  to  exercise
reasonable  judgment  and take such steps as it deems  necessary  to resolve any
specific  conflict of interest which may occur and will determine  what, if any,
specific  measures,  such as retention of an  independent  advisor,  independent
counsel,  or special committee,  may be necessary or appropriate.  The fact that
Joseph M. Polito is an Officer,  Director,  and principal  shareholder  in other
companies,  including  those that transact  business with the Company and USABG,
opens the potential that there may be conflicts of interest in decisions made by
Mr.  Polito,  which  decisions may compromise his fiduciary duty to the Company.
Any remedy under state law, in the event such  circumstances  arise, most likely
would be prohibitively expensive and time consuming.

The Contract Process; Bidding

         The  Company  obtains  its  projects  primarily  through the process of
competitive  bidding.  In order to be fully apprised of bid  solicitations,  the
Company (i) subscribes to bid reporting  services;  (ii) monitors trade journals
including Engineering Record News, Dodge Report, and Brown's Letter, Inc.; (iii)
monitors daily newspapers and real estate publications; (iv) utilizes membership
and networking in affiliated organizations including Allied Building Trades; (v)
maintains  contracts  with  developers and other general  contractors;  and (vi)
requests  notification from various government  agencies as to bid solicitations
being requested.

          In response to bid  requests,  the Company  submits to the  soliciting
entity a proposal detailing its qualifications, the services to be provided, and
the cost of its services.  Based on its  evaluation of the proposals  submitted,
the  soliciting  entity awards the contract to the bidder it deems  appropriate.
Generally,  the contract for a project is awarded to the lowest bidder, although
other factors may be taken into consideration.

          The  Company  submits  its bids after  management  performs a detailed
review of the  project  specifications,  an  internal  review  of the  Company's
capabilities  and  equipment  availability,  and an  assessment  of whether  the
project is likely to attain targeted  profit  margins.  In bidding on contracts,
there are two types of bid requests made by the soliciting  entity:  a unit cost
bid and a lump-sum bid. The unit cost bid is based upon a cost per unit basis; a
lump-sum  bid  obligates  the Company to complete  the project at a fixed price.
<PAGE>
With a lump-sum bid, the risk of estimating the quantity of units required for a
particular  project is on the  Company,  while with a unit cost bid, the Company
must estimate the per unit cost, not the number of units needed. Any increase in
the  Company's  unit cost over its unit bid price or cost over its lump-sum bid,
whether due to inefficiency,  faulty  estimates,  weather,  inflation,  or other
factors,  must be borne by the Company and may  adversely  affect its results of
operations.

          Upon  receipt  by a New York City  agency of  notification  that a bid
submitted  for a project has been  declared the low bid, the city's  procurement
policy requires that the New York Finance Committee then approve all funds to be
allocated to such  project.  During this time, if the Company is the low bidder,
it must  provide the New York City agency with such  documents as are required -
including  a Payment and  Performance  Bond and a Labor and  Material  Bond - in
order to be approved to undertake  the  project.  Once the New York City Finance
Committee  has cleared the  allocation of funds for a project and the agency has
cleared all documentation required to be submitted by the contractor, a starting
date and time table is set up for the project.

          Most government  contracts  provide for termination of the contract at
the election of the customer,  although in such event,  the Company is generally
entitled to receive a small  cancellation  fee. Many of the Company's  contracts
are also subject to completion  requirements  with liquidated  damages  assessed
against it if schedules are not met.

          Unlike the general contractor, the prime contractor is responsible for
performance of that category  alone,  not the entire  project.  Like the general
contractor,  the prime contractor typically contracts directly with the owner or
via the owner's construction manager acting as agent therefor;  thus, unlike the
subcontractor, the prime contractor is responsible exclusively to the owner.

          As  general  contractor,  the  Company  will  be  responsible  for the
performance of the entire contract,  including work assigned to  subcontractors.
Accordingly,  the Company is subject to liability associated with the failure of
subcontractors to perform as required under the contract;  thus, the Company may
require its subcontractors to furnish Performance Bonds.

          Affirmative action  regulations  require that the Company use its best
efforts to hire minority subcontractors for a portion of the project and some of
these minority subcontractors may not be able to obtain such surety bonds.

Insurance and Bonding

          The  Company   maintains   general   liability  and  excess  liability
insurance,   insurance  covering  its  construction   equipment,   and  workers*
compensation  insurance  in amounts it believes  are  consistent  with  industry
practices.  The Company carries liability insurance of $1,000,000 per occurrence
which management believes is adequate for its current operations.

          Although  the  Company  generally  has not been  required  to  provide
Performance Bonds to general contractors when acting as a subcontractor,  it may
be required to furnish bonds  guaranteeing its performance as a subcontractor in
the future.

          The Company will continue attempting to bid on both private and public
sector projects as a general contractor. Most of these projects, both public and
private sector,  require Bid Bonds and Payment and Performance Bonds. A Bid Bond
is a bond issued by a bonding company which is usually in an amount equal to 10%
of the bid  price  and  which  guarantees  that the  contractor  will be able to
<PAGE>
produce such other  additional  documents and  information  required in order to
commence the project including the issuance of a Performance Bond. A Performance
Bond is a guarantee by a surety,  customarily  100% of the value of the contract
amount,  that the contractor will complete the project pursuant to the terms and
conditions of the contract.  Most government  contracts allow for termination of
the  contract at the  election  of the  customer,  although  in such  event,  is
generally  entitled to receive a small  cancellation  fee. Both of the Company*s
current  contracts are also subject to completion  requirements  with liquidated
damages assessed against the Company if schedules are not met.

          The Company's  ability to obtain bonding and its bonding  capacity are
primarily  determined by its net worth,  liquid working  capital  (consisting of
cash and accounts  receivable),  past  performance,  management  expertise,  the
number and size of projects under construction,  and various other factors.  The
larger the project and/or the more projects in which the Company is engaged, the
greater the bonding, net worth, and liquid working capital requirements.  Surety
companies  consider such factors in light of the amount of the Company*s  surety
bonds then outstanding and the surety companies* current underwriting standards,
which standards may change periodically.  Therefore, the Company may be required
to maintain certain levels of tangible net worth in connection with establishing
and maintaining  bonding limits.  As a practical  matter,  such levels may limit
dividends,  if any,  which  might  have  been  declared  and which  would  limit
corporate funds available for other purposes.

          In  determining  whether  to issue a bond,  surety  companies  perform
credit checks and other due diligence  disclosure  requirements  and investigate
the Company's  capitalization,  working capital, past performance,  management*s
expertise,  and such other factors as are discussed  above. The surety companies
require  companies  receiving bonding to maintain certain amounts of capital and
liquid assets and base the amount of bonding they will issue on a formula, which
is usually  based on certain  industry  standards  which take into  account such
factors. As a result of the Company's current financial  condition,  the Company
may be unable to obtain any bonding.  The surety companies also require that the
bonds be personally guaranteed by Joseph Polito.

          Bonding  requirements vary depending upon the nature of the project to
be performed.  The Company  anticipates  paying  premiums of between 1 1/4% to 3
1/2% of the total amount of the contracts to be performed.  Since these premiums
are generally  payable at the beginning of a project,  the Company must maintain
sufficient  working  capital to satisfy the premium  prior to receiving  revenue
from the project.  Bonding premiums are a line item in the submitted bid and are
included as part of the Company*s billing to its clients.

          In December 1996, the Company  obtained a commitment for a Surety Bond
Line of Credit ($10,000,000 single project limit) from United American Guarantee
Company,  Ltd. ("UAGC") for its general  contracting  projects.  This commitment
allowed the Company to pursue those general  contracting  projects in the public
and  private  sectors  which  require   performance   bonds.  The  UAGC  bonding
committment ceased as a result of UAGC's filing for bankruptcy. Accordingly, the
Company does not currently  have any bonding.  The Company's  current  financial
condition may prevent the Company from obtaining future bonding.

         New York State and City agencies  require bonds from bonding  companies
licensed by the State of New York. Therefore,  the Company may be precluded from
working on certain  projects if it cannot obtain bonding from a bonding  company
licensed by New York. This is not always an issue,  however,  as the requirement
is sometimes waived (as in the Grand Central Terminal project) for although
<PAGE>
general  contractors  prefer  that a  subcontractor  be  licensed  by a New York
licensed  bonding company,  they will waive the requirement  when necessary.  In
addition, USABG or the Company may engage in joint ventures with other companies
who are bonded by a New York  licensed  bonding  company,  thereby  allowing  it
access it might otherwise not have had.

Work in Progress; Backlog and Seasonality

          Contracts as a subcontractor and general contractor often involve work
periods in excess of one year.  Revenue on uncompleted  fixed price contracts is
recorded  under the percentage of completion  method of accounting.  The Company
begins to recognize  profit on its contracts when it first accrues direct costs.
As is standard  construction  industry  practice,  a portion of billings  may be
retained by the customer until certain contractual obligations are fulfilled.

          The  following is a list,  as of June 30, 1998,  of those  projects in
which the Company is currently engaged:
<TABLE>
<CAPTION>
                                                                                     (2) Costs
                                    Contract                                            & Est.    
                                      Date/                   Costs         (1)       Profit in                    Backlog   
Contract Party/       Contract        Est.       Type of     incurred    % of Job     Excess of       Gross       Amount at  
Project Name           Amount       Completion   Contract     to date    Complete      Billings    Receivables    06/30/98     
------------           ------       ----------   --------     -------    --------      --------    -----------    --------
<S>                  <C>             <C>         <C>         <C>            <C>        <C>          <C>            <C>    
Lehrer McGovern,                     May 1996    Lump Sum     3,759,006
Bovis, Inc./          5,365,144      Jan/Feb                                92%         68,254      1,117,178      434,846
Grand Central                        1999
Terminal

Tishman
Construction
Corp./Louis                          July 1996   Lump Sum     4,449.658
Vuitton N.A.(3)       6,235,750      Jan/Feb                                93%         71,186        302,815      442,564
                                     1999
Total Signed                                                 $8,208,664
Contracts            11,600,894                                                        139,440      1,419,993      877,410
</TABLE>
-----------

          (1)  Completion  percentage is as of June 30, 1998 and is based on the
percentage  of costs  incurred  through that date to the  estimated  cost of the
project.
          (2) "Costs and estimated earnings in excess of billings on uncompleted
contracts,"  represents  revenues  recognized  in  excess of  amounts  billed on
respective uncompleted contracts at the end of each period.  "Billings in excess
of costs and estimated earnings on uncompleted  contracts,"  represents billings
which exceed revenues recognized on respective  uncompleted contracts at the end
of each period.
          (3) The Company is prime contractor (similar to general contractor) on
this project.


          For the year ended June 30,  1998,  the Company   had three  unrelated
customers which accounted for approximately 61%, 14% and 17%,  respectively,  of
total revenues. At June 30, 1998 the Company had two unrelated customers,  which
accounted for approximately 67% and 11% of total net contracts receivables.]
<PAGE>
Seasonality

          Though the  Company  does not believe its  business is  seasonal,  its
operations  slow during the winter months due to the decreased  productivity  of
the workers caused by their inability to work in severe weather conditions. As a
result of the foregoing, the Company's costs are increased.

Suppliers; Subcontractors; Unions

          The Company  currently  depends upon  various  vendors to supply spare
parts,  cranes,  and other  heavy  equipment,  and its  ability to hire  skilled
workers  depends upon its ability to comply with certain  union  agreements  and
contracts.  The Company  rents  cranes from Crown,  a company of which Joseph M.
Polito is a 50% shareholder, and rents generators and other equipment from AGLI,
a company which is wholly-owned by Mr. Polito.  The Company  believes that there
are a sufficient number of vendors, so that in the event any individual or group
of vendors can no longer service the Company's  needs,  the Company will be able
to find other vendors at competitive prices.

          As is standard  practice in the construction  industry,  the Company's
employees,  other than its office employees, are not salaried individuals.  They
are union employees who are hired on an as-needed, or per project, basis and are
paid an hourly wage which is set by the unions  with which they are  associated.
The Company hires skilled steel workers  represented by the International  Union
of  Structural  Ironworkers  local 40,  361, & 417 and  International  Operating
Engineers  locals 14, 14B, 15, 15A,  15C,  15D, and 825 and Cement  Masons local
472.  The  Company  must  comply  with its  agreements  with the  unions,  which
agreements  regulate all  employment  issues  including pay,  overtime,  working
conditions,  vacations,  benefits,  etc.  between  the  Company  and  the  union
employees. These agreements expire on June 30, 1999.

          The Company believes that it has a good  relationship  with the Unions
and is in compliance with all union  agreements.  No assurance can be given that
the Company will  continue to be in compliance  with the Unions or  successfully
negotiate  extensions to the Company's agreements with such Unions. In the event
problems or conflicts  with the Unions arise or there is a loss of skilled steel
and operating  engineers,  this would have a detrimental effect on the Company's
operations.

          The  Company's  success  as a  general  contractor,  in part,  will be
dependent  upon its ability to hire workers and comply with union  contracts and
agreements  and its ability to oversee and retain  qualified  subcontractors  to
perform  certain work.  The Company will be responsible  for  performance of the
entire contract,  including the work done by  subcontractors.  Accordingly,  the
Company may be subject to  substantial  liability  if a  subcontractor  fails to
perform as required.

Competition

          The Company is one of the many subcontractors  which erect and furnish
steel for projects. All aspects of the Company's business are, and will continue
to  be,  highly  competitive.  The  Company  is a  subcontractor  and a  general
contractor specializing,  but not exclusively,  in bridge and roadway repair and
replacement  as  well  as in  fabricating  and  erecting  steel  structures  for
buildings.  The Company's competitors are numerous,  and many have substantially
greater marketing,  financial,  bonding,  and human resources.  When contractors
seek  construction  contracts,  they request bids from  numerous  subcontractors
based on the various requirements of the project.  These subcontractors  compete
primarily as to price, name recognition, and prior performance.
<PAGE>
          The  driving  force  behind  the  Company's  name  recognition  in the
construction industry is the 30 plus year presence therein of Joseph Polito (and
certain  employees),  which presence  serves also to confirm the Company's prior
performance.  In addition,  regarding prior  performance,  while the Company has
operated only since 1993,  AGLI, a former steel erector  subcontractor  or prime
contractor  for  private and  governmental  construction  projects  owned by Mr.
Polito,  was  incorporated  in 1986  and  operated  as such  until  the  Company
purchased its assets in 1993.

Government Regulation

          The  Company  must  comply  with  the  rules  and  regulations  of the
Occupational Safety and Health  Administration  ("OSHA"), a federal agency which
regulates  and  enforces  the safety rules and  standards  for the  construction
industry. In addition,  the Company must comply with a wide range of other state
and  local  rules  and  regulations   applicable  to  its  business,   including
regulations covering labor relations, safety standards,  affirmative action, and
the protection of the environment including those pertaining to water discharge,
air emissions, and hazardous and toxic substance discharge. Continued compliance
with  OSHA and the  broad  federal,  state,  and  local  regulatory  network  is
essential and costly.  The failure to comply with such regulations or amendments
to current laws or regulations imposing more stringent  requirements may have an
adverse effect on the Company*s  operations.  The Company believes that it is in
substantial compliance with all applicable laws and regulations.

Employees

          As of June 30, 1998,  the Company had three  Executive  Officers,  two
administrative  assistants,  one  comptroller,  one project  estimator,  and two
employees  in the  accounting  department.  The  number of union  employees  the
Company utilizes depends on the number and size of projects in which the Company
is  engaged  and can range  from  10-200  employees,  some of whom are  employed
full-time and others of whom are employed  part-time.  These union employees are
represented by the International  Union of Structural  Ironworkers local 40, 361
and 417;  International  Operating  Engineers locals 14, 14B, 15, 15A, 15C, 15D,
825; and Cement  Masons local 472. The  Company's  contracts  with these Unions,
which contracts regulate all employment issues between the Company and the union
employees - including pay, overtime,  working conditions,  vacations,  benefits,
etc. - expire on June 30, 1999. The Company considers its relationships with the
unions and its employees to be good.

ITEM 2.   DESCRIPTION OF PROPERTY

          The  Company  shares  office  space with  USABG (at 53-09 97th  Place,
Corona, New York 11368) which leases  approximately  25,000 square feet of space
(approximately  24,000 square feet of which is utilized for storage  space) from
an affiliate company,  R.S.J.J.  Realty Corp. ("RSJJ"). RSJJ is owned by USABG*s
majority  stockholder  and the Company's  President,  Joseph Polito.  The lease,
pursuant  to which the Company  pays rent of $20,000 per month to RSJJ,  expired
during  March  1998,  however,  it  was  extended  through  December  31,  1998.
Subsequent  to December 31, 1998,  the Company will rent such facility from RSJJ
on a  month-to-month  basis at a  materially  reduced  amount.  The Company also
leased  a yard  for  storage  material  pursuant  to an oral  agreement  with an
unrelated party,  which agreement  required  monthly payments of $3,500.  During
July 1998, the Company settled unpaid rent amounting to approximately $87,500 as
of June 30, 1998 for accrued rent through December 31, 1997 and was forgiven for
any rent from January 1998 through June 1998 for $10,000.  The Company  believes
that the terms of these leases are  comparable  and  competitive  to those terms
which might have been negotiated with an unaffiliated landlord.
<PAGE>
          In February  1998,  the Company  agreed to issue 106,667 shares of its
common stock to USABG as consideration  for USABG's issuance of 48,000 shares of
Common Stock to RSJJ in consideration for payment in full of the rent due by the
Company to RSJJ for the period from January 1, 1998 to December  31,  1998.  The
value of the shares  issued was recorded at the value of the rent  otherwise due
under the lease ($240,000). The stock was issued in March 1998.

          As of May 1997,  the  Company was in arrears in the amount of $480,000
in payments due under its lease with RSJJ.  This  arrearage was  converted  into
equity as follows:  the Company  issued 270,000 shares of common stock to USABG,
for the  cancellation of the debt owed to RSJJ.  USABG,  in turn,  issued 50,000
shares of its Common  Stock to Joseph  Polito  and  37,500  shares of its Common
Stock to RSJJ.  RSJJ then  transferred  all of such shares to RSJJ*s  mortgagor,
which agreed to accept said shares as payment of RSJJ*s outstanding mortgage.

ITEM 3.   LEGAL PROCEEDINGS

          The Company is not a party to any material litigation and is not aware
of any threatened  litigation  that would have a material  adverse effect on its
business, except for the litigation matters discussed below.

Mechanics Liens

39th Street Bridge

          This action was filed on February  26, 1997 in New York State  Supreme
Court,  Queens County. It names the Company,  Metro Steel Structures,  Ltd., and
McKay  Enterprises,  Inc. as plaintiffs  and Perini  Corporation,  Department of
Transportation  of the City of New York,  and  Fidelity  and Deposit  Company of
Maryland  as  defendants.  The  Company*s  claim for  relief in this  action was
$844,932.  This claim is based upon filed  mechanic*s liens and general contract
law. The claim is for labor  performed and materials  supplied  including  money
owed under the contract  regarding the  rehabilitation of the 39th Street Bridge
over the Long  Island  Rail Road and Amtrak in Queens,  New York.  On October 7,
1998,  the Company  entered into an agreement  with Perini  whereby it agreed to
release  and  discharge  in full its  claims  against  Perini for 20% of the net
amount to be recovered  and  collected  by Perini in  connection  with  Perini's
action against the City of New York.

Robert Moses Causeway

          This action was commenced May 9, 1997,  and involves  money due to the
Company for work it performed at the Robert Moses Causeway Project.  The Company
filed a  mechanic's  lien in the  amount of  $279,346.  This claim is based upon
filed  mechanic*s  liens  and  general  contract  law.  The  claim is for  labor
performed and  materials  supplied  including  money owed under the contract and
money due for "extra"  work  regarding  the  rehabilitation  of the Robert Moses
Causeway  Northbound Bridge over the State Boat Channel,  in Suffolk County, New
York.  The action  against Kiska  Construction  Corp.  seeks  foreclosure of the
mechanic's  lien  and a  judgment  for the  amount  of  $279,346  against  Kiska
Construction Corp. and the bonding company, Seaboard Surety Company.  Currently,
the Company is in the process of  completing  pre-trial  discovery.  The Company
intends to prosecute the action until such time as a judgment or settlement  can
be obtained.
<PAGE>
Claims By Perini Corporation

          On February 7, 1997,  Perini  Corporation  filed an action against the
Company and Metro Steel Structures,  Ltd. in New York State Supreme Court, Kings
County.  Perini*s  claims  against  the  Company  total  $1,140,560  and  allege
defective work on the Stillwell Avenue project and upon a loss/profit  agreement
for both the Stillwell  Avenue project and the 39th Street Bridge  project.  The
Company has  counterclaimed for the amounts set forth in the above discussion of
the two actions involving Perini Corporation,  and its claims are based upon the
same theories as those set forth above. (See above "Mechanics Liens").

Claims by and against Eklecco

          This action  involves  work  performed by the Company at the Palisades
Mall in Nyack, New York. This action was commenced ins October,  1997 by Eklecco
(f/k/a Pyramid Company of Rockland)  seeking to vacate the Company's  mechanic's
lien  in  the  amount  of  $13,640,747,   seeking  judgment  in  the  amount  of
$500,000,000  for violations of contract,  interference of contract and punitive
damages.  Thereafter, the Company served an answer with counterclaims seeking to
foreclose on its $13,640,747  mechanic's lien,  seeking a judgment in the amount
of $13,640,747 relating to work performed at the project,  seeking $1,420,000 in
bonus money promised to the Company and seeking punitive damages.  The Company's
mechanic's  lien was reinstated by the court and a bond was purchased by Eklecco
and issued for the amount of the lien,  plus interest.  The Company is currently
in the process of  pre-trial  discovery,  which is  scheduled to be completed by
June 1999. The Company intends to vigorously  defend against Eklecco's claims as
well as vigorously prosecute its claims against Eklecco.

Humphreys & Harding, Inc. Claim against the Company

          The  Company  performed  the  steel  erection  work to  construct  the
Republic  of Korea  Permanent  Mission  to the  United  Nations at 335 East 45th
Street,   Manhattan.   Humphreys  &  Harding  commenced  an  action  to  recover
$6,326,000, which includes $1,604,000 as cost to complete after the Company left
the job, $2,790,000 for delay and other damages,  $234,000 as liquidated damages
under the "time of the essence"  provision to the  contract and  $1,698,000  for
claims by other  subcontractors  for delay. The Company has commenced a separate
action for $1,878,872  representing  extras and retainage due, $1,488,775 on the
mechanic's  lien,  and $667,000 and $92,500 for  interference  with contracts of
Wheeling Corrugated and Canam Steel.

Claim Against and By State Insurance Fund

          In December 1995, the Commissioners of the State Insurance Fund of New
York for and on behalf of the State Insurance Fund commenced suit against Joseph
Polito, Ronald Polito, Steven Polito, the Company, Metro Steel Structures,  Ltd.
(now known as the Company),  One Carnegie,  and others in the US District  Court
for  the  Southern  District  of  New  York,   alleging  that  certain  workers*
compensation  insurance  policies  obtained for various insured  defendants were
obtained  fraudulently  and that the  defendant  corporations  failed to pay the
appropriate premiums. The claims against the Company, amounting to approximately
$3 million,  are limited to a policy  covering the period April 29, 1993 through
December  1994.  The  Company,  Messrs.  Polito,  and all other  defendants  are
defending against this action and believe that State Insurance Fund's legitimate
claims should not exceed $300,000.
<PAGE>
          A settlement  conference was requested by plaintiff's  counsel and the
parties have met on several occasions to discuss settlement. Plaintiff's counsel
requested that the defendant submit documentary evidence to support its position
and the same has now been  furnished to  plaintiff's  counsel.  This  submission
supports  defendant's  contention  that its  liability  for premiums  should not
exceed three hundred thousand  dollars.  Active  negotiations are in their final
stages and  plaintiff's  counsel is in the process of drafting final  settlement
documents. The Company believes this matter will likely be settled with a modest
cash payment to be made to the plaintiff  (less than  $60,000.00) on the signing
of settlement  documents.  Any additional  payments would involve assignments of
portions  of  current  accounts  receivable,  to be due and  payable  only  when
received and any  balances  then  remaining  would be payable at the end of five
years. It is expected that based upon current negotiations a final settlement of
all the terms and conditions  will be in place by the end of this year but until
all settlement documents are formally and finally executed, no assurances may be
made.

Subpoena by the Securities and Exchange Commission and Grand Jury Subpoena

          The Company  effected an  underwritten  initial public offering of its
securities in August,  1995 (the "IPO"). On July 15, 1997, as part of an inquiry
into the  activities of a principal  underwriter  of the IPO, the Securities and
Exchange  Commission  (the  "SEC")  issued  an  Order of  Private  Investigation
relating to such  underwriter  and three  companies,  including the Company,  in
which the  underwriter  had  acted as  principal  underwriter.  Prior to the SEC
issuing its Order of Private  Investigation,  the Company and its  officers  and
directors  have fully  cooperated  with the  Commission in  connection  with its
present inquiry.

          In January  1998,  pursuant to a formal order by the SEC in the Matter
of Cable & Co. Worldwide Inc. and certain other issues,  N.Y.-6385,  the Company
was subpoenaed by the SEC to produce certain records.  The companies  subject to
the subpoena each had their initial public  offerings  underwritten  by the same
underwriter, the subpoena was complied with and there has been no follow up from
the SEC. At this juncture,  the inquiry is too preliminary to form any judgments
or assessments regarding any possible liability of the Company.

Grand Jury Subpoena

          In September  1998,  the Company  received a Grand Jury Subpoena Duces
Tecum from the United States District Court for the Eastern District of New York
and a  search  warrant,  for  the  records  of the  Company  and  USABG  and any
affiliated  companies as well as those of Joseph  Polito.  The Company  believes
that the Grand Jury  investigation is related to general subject matter the same
as the SEC  investigation.  Grand Jury  investigations  can result in a range of
actions from a finding of no true bill to indictments and  prosecutions  for any
number of federal offenses.  Criminal prosecutions can result in a wide range of
penalties, including probation,  imprisonment, fines, restitution and forfeiture
of assets depending upon the specific type and severity of the offense.  In view
of the fact that this investigation  appears to be in its initial stage, at this
juncture  the  investigation  is too  preliminary  to  assert  any  judgment  or
assessments regarding any possible liability of USABG and the Company.

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

          None.

<PAGE>
                                     PART II

ITEM 5.   MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

         The  Company's  Common  Stock was quoted on the Nasdaq  National  Stock
Market until  November 30, 1998. The following  table sets forth  representative
high and low sales price quotes as reported by a market maker, during the period
from August 9, 1995 through November 30, 1998.  Price quotations  reflect prices
between dealers and do not include resale mark-ups, mark-downs, or other fees or
commissions.


                                                            Common Stock
                                                     ---------------------------
         Calendar Period                               Low                 High
         ---------------                               ---                 ----

                1997

         01/01/97-03/31/97                           1   3/8             2   3/4
         04/01/97 - 06/30/97                         1  9/16             2   5/8
         07/01/97 - 09/30/97                         2  3/16             2 23/32
         10/01/97 - 12/31/97                           15/16             2   3/4
                1998

         01/01/98 - 03/31/98                         1 13/32             3   3/8
         04/01/98 - 06/30/98                         1   1/2             1  5/16
         07/01/98 - 09/30/98                         1  3/16             1  3/16
         10/01/98 - 11/30/98                             1/4                7/16


         In October 1997, the Company's Board of Directors  adopted a resolution
decreasing the exercise price of the  outstanding  Warrants from $6.00 to $3.00.
No other terms of the Warrants were amended.  In addition,  the Board authorized
the Company to prepare and file a  Post-Effective  Amendment to its registration
statement  to update the  information  therein  enabling  the Warrants to become
exercisable.  Each Warrant  entitles the holder thereof to purchase one share of
the  Company's  Common  Stock,  at an exercise  price of $3.00 per share,  until
August 8,  2000.  The  Warrants  and the  Common  Stock  underlying  same are in
registered  form  pursuant to the terms of a Warrant  Agreement  executed by and
between the Company and North American  Transfer Co., as warrant agent,  so that
the holders of the  Warrants  will receive  unrestricted  shares of Common Stock
upon their exercise thereof and payment therefor. No value was attributed to the
Warrants as of the date of the decrease in exercise  price to $3.00 per share as
the market price of the Common Stock for a  substantial  period of time prior to
the decrease was less than $3.00 per share.

         As of November 24, 1998, there were 45 registered  holders of record of
the  Company's  Common  Stock,  $.001 par value,  which  number,  determined  by
stockholder  records,  does not include  beneficial  owners of the Common  Stock
whose  shares  are held in names  of  various  security  holders,  dealers,  and
clearing  agencies.  The  Company  believes  there  are in  excess  of 500  such
beneficial holders of the Common Stock.

         Effective  November 30, 1998,  the Company's  Common Stock was delisted
for failure to meet the maintenance criteria.  The Nasdaq delisting panel was of
the opinion  that the Company  failed to present a plan which would enable it to
<PAGE>
comply with the bid price,  market value of public float and filing requirements
within  a  reasonable  period  of  time  and  to  sustain  compliance  with  all
requirements for continued  listing on The Nasdaq Small Cap Market over the long
term. The Common Stock is currently  listed on the "pink sheets" and the Company
intends to reapply to the OTC Bulletin  Board for listing  after filing its 10-K
for the year ended June 30, 1998  ("Fiscal  1998") and 10-Q for the period ended
September 30, 1998.

         The Company has paid no  dividends  for the last two fiscal years or in
the first quarter of fiscal 1998;  nor does it have any present plan to pay such
dividends.  Payment of future  dividends will be determined from time to time by
the  Company's  Board of  Directors  based  upon its  future  earnings,  if any,
financial condition, capital requirements, and other factors. The Company is not
presently  subject to any  contractual or similar  restriction on its present or
future ability to pay such dividends.
<PAGE>
ITEM 6. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

General

         Information  set forth  herein  contains  "forward-looking  statements"
which  can be  identified  by the  use of  forward-looking  terminology  such as
"believes,"  "expects," "may," "should" or "anticipates" or the negative thereof
or other  variations  thereon or comparable  terminology,  or by  discussions of
strategy.  No  assurance  can be given  that the future  results  covered by the
forward-looking  statements will be achieved.  The Company cautions readers that
important  factors may affect the Company's  actual results and could cause such
results  to differ  materially  from  forward-looking  statements  made by or on
behalf of the Company.  Such factors  include,  but are not limited to, changing
market conditions,  the impact of competitive  products,  pricing,  limited cash
flow and acceptance of the Company's products.

         The  Company's  operations  are  substantially  controlled by Joseph M.
Polito,  its President,  since he owns  approximately  66.3% of the  outstanding
shares of USABG and may be considered the beneficial  owner of the Company.  Mr.
Polito is also a 100% shareholder of RSJJ. RSJJ leases the administrative office
space to the Company at a cost of $20,000 per month  pursuant to a signed  lease
agreement  expiring on December 31, 1998. Mr. Polito has ownership  interests in
Waldorf Steel Fabricators,  Inc.  ("Waldorf") (which ceased operations on August
1, 1995),  Crown and AGLI which  provided  services to the Company for the years
ended June 30, 1998 and 1997.

         The  Company  commenced  operations  in or  about  June  1993 to  serve
primarily  as a  general  contractor  for  construction  projects  sponsored  by
federal,  state,  and local  government  authorities  in the New York  State and
Metropolitan  areas.  Though  formed to  operate  as a general  contractor,  the
Company has operated  primarily as a subcontractor  and as a prime contractor on
two  projects.  As of June 30,  1998,  the  Company has  completed  in excess of
twenty-one  (21)  projects  with an  aggregate  project  value of  approximately
$40,000,000 and is currently engaged in two (2) projects with an aggregate value
of approximately  $11,600,000 (inclusive of change orders). The Company plans to
maintain its subcontractor  presence in the steel industry;  however, it intends
also to focus on obtaining projects as a general contractor.

         As of June  30,  1998,  the  backlog  balance  on these  two  contracts
amounted to $877,000. Such contracts are expected to be completed during January
and February 1999.

         In December 1996,  the Company  obtained a commitment for a Surety Bond
Line of Credit  ($10,000,000  single  project  limit)  from UAGC for its general
contracting  projects.  This  commitment  allowed  the  Company to pursue  those
general  contracting  projects in the public and private  sectors  which require
Performance Bonds. However, since New York State and City agencies require bonds
from bonding  companies  licensed by the State of New York and UAGC is not a New
York licensed bonding  company,  the Company has been unable to bid as a general
contractor  on  projects  for New York  State  and New York City  agencies.  The
Company has approached  several New York licensed bonding  companies,  but as of
the date hereof, has not been approved by any company to receive bonding.

         The UAGC  bonding  commitment  ceased as a result of UAGC's  filing for
bankruptcy.  Accordingly,  the Company currently does not have any bonding.  The
Company's  current  financial  condition may prevent the Company from  obtaining
future bonding.
<PAGE>
         Though the  Company  does not believe its  business  is  seasonal,  its
operations are generally slow in the winter months due to the decrease in worker
productivity  because  of  weather  conditions.  Accordingly,  the  Company  may
experience a seasonal pattern in its operating results with lower revenue in the
third quarter of each fiscal year.  Interim  results may also be affected by the
timing of bid  solicitation,  the stage of  completion  of major  projects,  and
revenue  recognition  policies.  For the years ended June 30, 1998 and 1997, the
Company  obtained  new  contracts  valued  at only  approximately  $115,000  and
1,113,000,  respectively.  The Company did not obtain any material new contracts
for the year ended June 30, 1998  because it did not provide the lowest bids for
the  projects for which it  submitted  same and as a result of its  inability to
obtain bonding.  The Company continues to bid on available  contracts,  however,
there can be no assurance that it will be able to obtain any.

         The  following  schedule  summarizes  changes in  backlog on  contracts
during the year ended June 30, 1998.  Backlog  represents  the amount of revenue
the  Company  expects  to  realize  from  work to be  performed  on  uncompleted
contracts in progress at year end and from contractual  agreements on which work
has not yet begun.
<TABLE>
<CAPTION>
<S>                                                                                        <C>           
         Backlog balance at July 1, 1997                                                   $    6,088,048
         Change orders to contracts in progress at July 1, 1997                                11,219,030
         New contracts during the year ended June 30, 1998                                        114,686
                                                                                           -------------- 
                                                                                               17,421,764
         Less: contract revenue earned during the year ended June 30, 1998                     16,544,354
                                                                                           --------------

         Backlog balance at June 30, 1998                                                  $      877,410
                                                                                           --------------
</TABLE>
         The  change  orders  for the year  ended  June  30,  1998  amounted  to
approximately $6,400,000 for Eklecco and a total of approximately $4,800,000 for
the remaining  projects,  primarily Grand Central and Louis Vuitton.  In January
1998,  due  to  certain  project  disputes,  the  Company  received  a  contract
termination  letter from the general  contractor for the Korean Mission project.
The  dispute  arose  from  the  delivery,  by  a  subcontractor,  of  improperly
fabricated  steel  to the  Company.  As a result  of the  dispute,  the  general
contractor on the project  subcontracted the steel fabrication and erection to a
third party in breach of its contract with the Company.  The Company  intends to
seek legal redress from the steel  fabricator  and from the general  contractor.
The Company expects to complete the Grand Central and Louis Vuitton  projects by
February 1999.

         The  Company's  failure to obtain new  contracts  could have a material
impact on net revenues and income from  continuing  operations  in the future if
this trend continues.  The Company's current backlog and the expected collection
on liens over the next six to twelve months is not  anticipated to be sufficient
to meet its operating needs and accordingly raises the issue about the Company's
ability to continue as a going concern.
 
         The Company  recognizes  revenue and costs for all contracts  under the
percentage of completion  method measured by the percentage of costs incurred to
date to  estimated  total costs for each  contract.  Cost of  contract  revenues
includes all direct material and labor costs and those indirect costs related to
contract performance.  General and administrative  expenses are accounted for as
<PAGE>
period  costs  and  are,  therefore,  not  included  in the  calculation  of the
estimates  to complete  construction  contracts in  progress.  Material  project
losses are provided for in their entirety without reference to the percentage of
completion.  As  contracts  can  extend  over  one or more  accounting  periods,
revisions  in costs and  earnings  estimated  during  the course of the work are
reflected during the accounting period in which the facts became known.

         The current asset,  "costs and estimated earnings in excess of billings
on uncompleted  contracts,"  represents revenues recognized in excess of amounts
billed  on  respective  uncompleted  contracts  at the end of each  period.  The
current  liability,  "billings  in  excess  of costs and  estimate  earnings  on
uncompleted  contracts," represents billings which exceed revenues recognized on
respective uncompleted contracts at the end of each period.

         An amount equal to the costs  attributable to unapproved  change orders
and claims is  included  in the total  estimated  revenue  when  realization  is
probable  and the  amount can be  estimated.  The  Company  has  elected  not to
recognize  any portion of the revenue  associated  with such  unapproved  change
orders and claims  until the amounts have been  received or awarded.  Claims are
amounts  in excess of the  agreed  contract  price  which the  Company  seeks to
collect  for  customer-caused  delays,  errors in  specifications  and  designs,
contract  terminations,  or  change  orders  which  are  either  in  dispute  or
unapproved.

Year Ended June 30, 1998 Compared to Year Ended June 30, 1997

         Contract  revenues for the years ended June 30, 1998 and 1997  amounted
to $16,544,354  and  $15,455,699,  respectively.  This represents an increase of
$1,088,655  (or  approximately  7%).  During the year ended June 30,  1998,  the
Company  obtained  new  contracts  and  change  orders  to  previous   contracts
aggregated approximately  $11,333,716 which have been substantially completed as
of June 30, 1998. (See Backlog Schedule)

         Below is a summary of the  Company's  billings and  collection  for the
year ended June 30, 1998:
<TABLE>
<CAPTION>
                       Gross Contract and                    Allowance for               Net Contract
                      Retainable Receivable                  Uncollectibles               Receivables
                      ---------------------                  --------------               -----------
<S>                        <C>                                 <C>                        <C>          
Balances at
June 30, 1997              $ 11,249,297                        $ 2,287,000                $ 8,962,297

Billings for the
year ended                   19,830,745                          2,377,932                 17,452,813

Collections for the
year ended                  (15,838,909)                                --                (15,838,909)
                           ------------                        -----------                -----------

Balances at
June 30, 1998                15,241,133                          4,664,932                 10,576,201

Less: Non-current
Current Portion              10,876,108                          2,444,169                  8,431,939
                           ------------                        -----------                -----------

Current Portion            $  4,365,025                        $ 2,220,763                $ 2,144,262
                           ============                        ===========                ===========
</TABLE>
<PAGE>
         As  of  June  30,  1998,  the  Company   increased  its  allowance  for
uncollectibles up to $4,664,932 to reserve for the potential uncollectibility of
certain receivables for which mechanic's liens were filed and for the settlement
of certain  mechanics  liens on a certain job  subsequent  to year end.  Through
December 31, 1998, the Company collected approximately $1,600,000 which includes
the  settlement of a mechanic lien for $525,000  before legal expenses and other
costs.  For the years  ended  June 30,  1998 and  1997,  the  Company  had three
unrelated  customers,  respectively,  which accounted for approximately 61%, 14%
and 17% and 53%, 19% and 15%,  respectively,  of total revenues.  As of June 30,
1998 the Company had two unrelated  customers which accounted for  approximately
65% and 11% of total net contract and retainage receivables.

         The  Company's  gross profit for the years ended June 30, 1998 and 1997
amounted to 22% and 28%, respectively. The decrease in gross profit for the year
ended June 30, 1998 as  compared to the year ended June 30, 1997 is  primarily a
result of the effect of change orders and  adjustments  to estimated  costs,  as
well as the interruption and termination of certain jobs.

         General and administrative expenses have increased by $503,361 (or 16%)
to $2,839,425  for the year ended June 30, 1998,  from  $2,336,064  for the year
ended June 30,  1997.  The  increase in general  administration  costs is mainly
attributable  to the  amortization  of stock based  compensation to officers and
employees  of the  Company in  connection  with  stock  issued  pursuant  to the
Company's  Incentive  Plan  and an  increase  in  legal  and  professional  fees
associated  with the settlement of a mechanic's lien filed by the Company during
its year ended June 30, 1997.

         The  Company's  bad debt expense  amounted to  $2,376,187  for the year
ended June 30, 1998 as compared to $1,287,000  for the year ended June 30, 1997.
The allowance for doubtful accounts at June 30, 1998 is based on a review of the
Company's  aging  of its  receivable,  various  mechanic  liens  filed,  and the
settlement of previously  accounts  receivables  for which  mechanic  liens were
placed. Lastly, as of June 30, 1998, the Company has classified a portion of its
contracts  receivables  as  non-current  since  the  Company  cannot  reasonably
estimate  the timing such  receivables  will be collected as a result of various
mechanic liens filed.

         The Company's interest expense increased to $263,661 for the year ended
June 30,  1998 as a result of the  interest  accrued on its newly  issued  notes
payable in  connection  with unpaid union dues and interest  expense  associated
with unpaid payroll taxes.

         As of June 30, 1998,  the Company has recorded a  non-recurring  charge
amounting to $300,000 associated with an estimated potential  settlement with an
ongoing lawsuit with the State Insurance Fund for unpaid insurance  premiums for
prior years.

Liquidity and Capital Resources

         The accompanying  financial statements have been prepared assuming that
the Company will continue as a going  concern.  For the year ended June 30, 1998
the Company  generated a net loss amounting to $2,093,969  after recording a bad
debt expense  amounting to  $2,376,187  in  connection  with the  settlement  of
certain  contract  receivable and by increasing its allowance for bad debts as a
result of various mechanic's liens placed on completed contracts during the year
ended June 30, 1998 and the recording of a non-recurring  charge of $300,000 for
a potential  settlement of unpaid  insurance  resulting from an ongoing  lawsuit
from the State Insurance Fund.
<PAGE>
         Additionally,  as of June 30, 1998,  the Company has a working  capital
deficiency  amounting  to  approximately  $3,207,294.  The Company has  recorded
certain contracts and retainages  receivables as non-current since the timing of
their collectibility cannot yet be determined as a result pending litigations in
connection  with claims and pending  change  orders.  As of June 30,  1998,  the
Company's  backlog amounted to approximately  $877,000.  Backlog  represents the
amount of revenue the Company  expects to realize  from work to be  performed on
uncompleted  contracts  and  from  contracts  on which  work has not yet  begun.
Lastly,  as of June 30,  1998,  the Company  owes  approximately  $2,154,856  of
payroll taxes and related  penalties and interest.  Certain  taxing  authorities
have filed certain  liens against the Company as a result of the unpaid  payroll
taxes.

         The Company is aggressively  trying to obtain  additional  contracts in
order to  mitigate  its low  backlog  and is  vigorously  attempting  to  settle
disputes in connection with mechanics' liens placed on certain projects in order
to collect its receivables and liquidate its payroll taxes,  however,  there can
be no  assurance  that it will be able to  obtain  additional  contracts.  These
factors raise  substantial  doubt about the  Company's  ability to continue as a
going concern.  The financial  statements do not include adjustments relating to
the  recoverability  and realization of assets and classification of liabilities
that might be necessary should the Company be unable to continue in operation.

         The timing of the  collectibility  of $8,431,939,  which represents the
noncurrent amount of receivables (net of allowances)  associated with mechanic's
liens placed by the Company on certain jobs, cannot be determined by the Company
due to the  surrounding  circumstances  and  the  legal  process  associated  in
collecting funds whereby a lien has been placed on a project.

         The allowance for doubtful accounts was increased to $4,664,932 at June
30, 1998 from  $2,287,000  at June 30, 1997 to reflect the filing of  mechanic's
liens  on  certain  jobs  as well  as a  review  of the  aging  of the  accounts
receivable and the settlement of certain receivables  subsequent to year end. No
further adjustments to the allowance have been deemed necessary by management as
of June 30, 1998.

         As a result of the slow  collection  process  associated with the above
circumstances,  the Company was unable to pay its  payroll tax  obligations  and
rent on a timely basis.  Upon the collection or settlement of a major portion of
contracts  receivable,  the Company's  first priority is to pay down its payroll
tax  obligations  as much as  possible.  The  accrued  and unpaid  rent has been
settled by the Company with USABG  issuing  stock to its  landlord,  RSJJ. As of
June 30, 1998,  the Company owes  approximately  $2,154,856 of payroll taxes and
related  estimated  penalties and interest.  As of June 30, 1998 and  subsequent
thereto,  federal  and state tax liens have been filed  against  the  Company in
connection with unpaid payroll taxes.  Although as of June 30, 1998, the Company
has not entered into any formal  repayment  agreements  with the  respective tax
authorities,  it has been  attempting  to make  monthly  payments  based on oral
agreements and available funds.

         In December 1997,  the Company  entered into an agreement with the Iron
Workers  Local 40, 361 and 417 Joint  Security  Funds (the  "Union") in order to
liquidate $1,750,000 owed for unpaid union dues and benefits previously recorded
as accounts  payable.  The Company  agreed to pay $75,000 by January 1998 and at
least $25,000 monthly  commencing March 1, 1998 with interest at 9.5% per annum.
As collateral,  the Company  assigned its retainage  receivable from the EklecCo
<PAGE>
project as well as $1,750,000 of the Company's  related  mechanic's  lien (which
was discharged on the lien-debtor's  payment of a bond with the court). Upon the
distribution  of any funds under such bond, the Union will be repaid any balance
it is owed, in full,  and the Company shall receive the remainder  thereof.  The
Company will receive  credit for any payments  received by the Union  related to
the assigned  portion of the bond.  The amount  outstanding  at June 30, 1998 is
$1,575,000,  of which $300,000 has been  classified as current and $1,275,000 as
non-current.

         During the two years ended June 30, 1998 and 1997,  the Company  issued
shares for services as follows:

         (i) During February 1997, pursuant to a Form S-8 Registration Statement
filed with the  Securities  and  Exchange  Commission,  the  Company  registered
125,000  common  shares  underlying  options of its  President  pursuant  to the
Company's  Incentive  Plan.  The options were granted  December 2, 1996 and were
exercisable  at $1.10  per  share  (110% of the bid  price of $1.00 per share on
November 27, 1996) and expire on November 27, 2001. These options were exercised
on March 25, 1997  resulting  in the Company  issuing  125,000  shares of common
stock.

         (ii) During June 1997,  pursuant  to an  agreement  with RSJJ to settle
$480,000 in accrued rent,  the Company issued 270,000 shares of its common stock
to USABG for the cancellation of the debt owed to RSJJ.  USABG, in turn,  issued
50,000  shares of its common stock to its  President and 37,500 shares of common
stock to RSJJ. RSJJ then transferred all of such common shares to its mortgagor,
which  agreed to accept said shares as payment of RSJJ's  outstanding  mortgage.
These shares have been valued at $480,000 which  represents the amount of unpaid
rent as of December 31, 1997.

         (iii) During December 1997, the Company authorized the issuance, in its
third  quarter,  of 290,000  shares of Common  Stock,  pursuant to its Incentive
Plan.  Of the 290,000  shares issued in March 1998 to  management,  150,000 were
issued  to  the  Company's  President,  70,000  were  issued  to  the  Company's
Secretary,  and 70,000 were  issued to the  Company's  Treasurer.  Half of these
shares  vested on June 1, 1998,  and half vest on January 1, 1999.  The  Company
also  authorized  the  filing  of a  Post-Effective  Amendment  to the  Form S-8
Registration  Statement  initially filed in February 1997 to register for resale
the 290,000 common shares issued  pursuant to the Company's  Incentive  Plan. In
addition to the  foregoing,  the Company also  authorized the issuance of 50,000
common shares to certain of its employees and  consultants.  In connection  with
these  issuances,  the Company  recorded  deferred  compensation  and consulting
expenses  amounting  to  approximately  $459,000  which is based on the  average
closing  bid price of $1.50 per  share for the month of March  1998,  with a 10%
discount in order to reflect their fair value as a result of their  restrictions
at time of issuance.  The above shares,  which do not vest  immediately and were
recorded as deferred compensation,  are being amortized over the vesting period.
For the year ended June 30, 1998,  compensation and consulting  expense amounted
to $291,215.

         (iv) During  February  1998,  the Company  issued 106,667 shares of its
common stock to USABG, as  consideration  to USABG, for issuing 48,000 shares of
its own common  stock to RSJJ in  consideration  for payment in full of the rent
due by the Company to RSJJ for the period from January 1, 1998 through  December
31, 1998. The value of the shares issued by the Company is recorded at the value
of the rent otherwise due under the lease which amounted to $240,000.
<PAGE>
         Net cash provided by operating  activities  for the year ended June 30,
1998 and 1997 amount to $8,289 and $58,821 respectively.

         The Company used 745,338 in cash for financing  activities for the year
ended  June 30,  1998.  Such cash used  primarily  for  advances  made to USABG,
principal  payments on long term debt and  repayment and advances to officer and
affiliates.  For the year ended June 30, 1997, the Company provided  $520,416 of
cash from officer and related parties.

         The Company is not a party to any material  litigation and is not aware
of any threatened  litigation  that would have a material  adverse effect on its
business, except for the litigation matters discussed below.

Litigations

39th St. Bridge

         This  action was filed on February  26, 1997 in New York State  Supreme
Court,  Queens County. It names The Company,  Metro Steel Structures,  Ltd., and
McKay  Enterprises,  Inc. as plaintiffs  and Perini  Corporation,  Department of
Transportation  of the City of New York,  and  Fidelity  and Deposit  Company of
Maryland  as  defendants.  The  Company*s  claim for  relief in this  action was
$844,932.  This claim is based upon filed  mechanic*s liens and general contract
law. The claim is for labor  performed and materials  supplied  including  money
owed under the contract  regarding the  rehabilitation of the 39th Street Bridge
over the Long  Island  Rail Road and Amtrak in Queens,  New York.  On October 7,
1998,  USABG  entered  into an  agreement  with Perini  whereby  USABG agreed to
release  and  discharge  in full its  claims  against  Perini for 20% of the net
amount to be recovered  and  collected  by Perini in  connection  with  Perini's
action against the City of New York.

Robert Moses Causeway

         This action was  commenced May 9, 1997,  and involves  money due to The
Company for work it performed at the Robert Moses Causeway Project.  The Company
filed a  mechanic's  lien in the  amount of  $279,346.  This claim is based upon
filed  mechanic*s  liens  and  general  contract  law.  The  claim is for  labor
performed and  materials  supplied  including  money owed under the contract and
money due for "extra"  work  regarding  the  rehabilitation  of the Robert Moses
Causeway  Northbound Bridge over the State Boat Channel,  in Suffolk County, New
York.  The action  against Kiska  Construction  Corp.  seeks  foreclosure of the
mechanic's  lien  and a  judgment  for the  amount  of  $279,346  against  Kiska
Construction Corp. and the bonding company, Seaboard Surety Company.  Currently,
USABG is in the process of completing pre-trial  discovery.  The Company intends
to  prosecute  the action  until such time as a judgment  or  settlement  can be
obtained.

Claims By Perini Corporation

         On February 7, 1997,  Perini  Corporation  filed an action  against The
Company and Metro Steel Structures,  Ltd. in New York State Supreme Court, Kings
County.  Perini*s  claims  against  The  Company  total  $1,140,560  and  allege
<PAGE>
defective work on the Stillwell Avenue project and upon a loss/profit  agreement
for both the Stillwell  Avenue project and the 39th Street Bridge  project.  The
Company has  counterclaimed for the amounts set forth in the above discussion of
the two actions involving Perini Corporation,  and its claims are based upon the
same theories as those set forth above. (See above "Mechanics Liens").

Claims by and against EklecCo

         This action  involves  work  performed by The Company at the  Palisades
Mall in Nyack, New York. This action was commenced ins October,  1997 by EklecCo
(f/k/a Pyramid Company of Rockland)  seeking to vacate The Company's  mechanic's
lien  in  the  amount  of  $13,640,747,   seeking  judgment  in  the  amount  of
$500,000,000  for violations of contract,  interference of contract and punitive
damages.  Thereafter, The Company served an answer with counterclaims seeking to
foreclose on its $13,640,747  mechanic's lien,  seeking a judgment in the amount
of $13,640,747 relating to work performed at the project,  seeking $1,420,000 in
bonus money promised to The Company and seeking punitive damages.  The Company's
mechanic's  lien was reinstated by the court and a bond was purchased by EklecCo
and issued for the amount of the lien, plus interest.  USABG is currently in the
process of pre-trial discovery, which is scheduled to be completed by June 1999.
The Company  intends to vigorously  defend against  EklecCo's  claims as well as
vigorously prosecute its claims against EklecCo.

Humphreys & Harding, Inc. Claim against The Company

         The Company performed the steel erection work to construct the Republic
of Korea  Permanent  Mission  to the  United  Nations  at 335 East 45th  Street,
Manhattan.  Humphreys & Harding commenced an action to recover $6,326,000, which
includes  $1,604,000  as cost to  complete  after  The  Company  left  the  job,
$2,790,000 for delay and other damages, $234,000 as liquidated damages under the
"time of the essence"  provision to the  contract and  $1,698,000  for claims by
other  subcontractors for delay. The Company has commenced a separate action for
$1,878,872  representing  extras and retainage due, $1,488,775 on the mechanic's
lien,  and  $667,000  and $92,500 for  interference  with  contracts of Wheeling
Corrugated and Canam Steel.

Claim Against and By State Insurance Fund

         In December 1995, the  Commissioners of the State Insurance Fund of New
York for and on behalf of the State Insurance Fund commenced suit against Joseph
Polito, Ronald Polito, Steven Polito, The Company, Metro Steel Structures,  Ltd.
(now known as The Company),  One Carnegie,  and others in the US District  Court
for  the  Southern  District  of  New  York,   alleging  that  certain  workers*
compensation  insurance  policies  obtained for various insured  defendants were
obtained  fraudulently  and that the  defendant  corporations  failed to pay the
appropriate premiums. The claims against The Company, amounting to approximately
$3 million,  are limited to a policy  covering the period April 29, 1993 through
December  1994.  The  Company,  Messrs.  Polito,  and all other  defendants  are
defending against this action and believe that State Insurance Fund's legitimate
claims should not exceed $300,000.

         A settlement  conference was requested by  plaintiff's  counsel and the
parties have met on several occasions to discuss settlement. Plaintiff's counsel
requested that the defendant submit documentary evidence to support its position
and the same has now been  furnished to  plaintiff's  counsel.  This  submission
supports  defendant's  contention  that its  liability  for premiums  should not
exceed three hundred thousand  dollars.  Active  negotiations are in their final
stages and  plaintiff's  counsel is in the process of drafting final  settlement
<PAGE>
documents. The Company believes this matter will likely be settled with a modest
cash payment to be made to the plaintiff  (less than  $60,000.00) on the signing
of settlement  documents.  Any additional  payments would involve assignments of
portions  of  current  accounts  receivable,  to be due and  payable  only  when
received and any  balances  then  remaining  would be payable at the end of five
years. It is expected that based upon current negotiations a final settlement of
all the terms and conditions  will be in place by the end of this year but until
all settlement documents are formally and finally executed, no assurances may be
made.

Subpoena by the Securities and Exchange Commission and Grand Jury Subpoena

         The Company  effected an  underwritten  initial public  offering of its
securities  in August 1996 (the "IPO").  In January  1998, as part of an inquiry
into the  activities of a principal  underwriter of the IPO, an Order of Private
Investigation  was  issued by the SEC  relating  to such  underwriter  and three
companies,  including  the  Company,  in  which  the  underwriter  had  acted as
principal underwriter, in which The Company was subpoenaed by the SEC to produce
certain  records.  The  Company  and  its  officers  and  directors  have  fully
cooperated  with the SEC and there has been no additional  inquiry from the SEC.
At this  juncture,  the  inquiry is too  preliminary  to form any  judgments  or
assessments regarding any possible liability of the Company.

         In September 1998, the Company and USABG received a Grand Jury Subpoena
Duces Tecum from the United States  District  Court for the Eastern  District of
New York and a search  warrant,  for the records of The  Company,  USABG and any
affiliated  companies as well as those of Joseph  Polito.  The Company  believes
that the Grand Jury  investigation is in connection with an investigation of the
underwriter  pending  in the  United  States  District  Court  for the  Southern
District of New York. Grand Jury investigations can result in a range of actions
from a finding of no true bill to indictments and prosecutions for any number of
federal offenses. Criminal prosecutions can result in a wide range of penalties,
including probation,  imprisonment,  fines, restitution and forfeiture of assets
depending  upon the specific  type and  severity of the offense.  In view of the
fact  that  this  investigation  appears  to be in its  initial  stage,  at this
juncture  the  investigation  is too  preliminary  to  assert  any  judgment  or
assessments regarding any possible liability of USABG and the Company.

ITEM 7. FINANCIAL STATEMENTS

         See Item 13 for Financial Statements for the fiscal year ended June 30,
1998.

ITEM  8.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
FINANCIAL DISCLOSURE

         Not applicable.
<PAGE>
                                    PART III


ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Officers and Directors.

         The names, ages, and positions of the Company's  Executive Officers and
Directors are as follows:

                                                     Position with the
Name                                Age              Company
----                                ---              ----------------------

Joseph M. Polito                    64               President and Director
Ronald J. Polito                    39               Secretary and Director
Steven J. Polito                    36               Treasurer and Director
Marvin Weinstein                    66               Director
Ronald Murphy                       56               Director


         All Directors hold office until the next annual meeting of stockholders
or until their  successors  are elected and  qualify.  Vacancies on the Board of
Directors  may be  filled  by the  remaining  Directors.  Officers  are  elected
annually by, and serve at the discretion  of, the Board of Directors.  There are
no family  relationships  between  or among any  Officers  or  Directors  of the
Corporation,  except that Joseph  Polito is the father of both Steven and Ronald
Polito.  The Company has an audit committee and compensation committee,  both of
which include the outside Directors and Ronald Polito as the inside Director. 

         Joseph M. Polito has been the  president  and a Director of the Company
since its inception in 1990, and prior to the Acquisitions in April 1994, he was
the sole  shareholder of the Company.  He has been the President and Director of
USABG since April 1994.  Mr. Polito  oversees all of the  Company's  operations.
Since 1988,  Mr.  Polito has been a 50%  shareholder  of Crown,  a company which
leases cranes for construction  projects to the Company.  Since 1986, Mr. Polito
has been the  president  and 100%  shareholder  of Atlas Gem  Leasing,  Inc.,  a
company which leases generators and other construction equipment to the Company.
Mr.  Polito has also been the president  and sole  Director and  shareholder  of
Waldorf  since  1990.  Before  it  ceased  operating  in  August  1995,  Waldorf
fabricated  steel and sold same to The Company.  Since 1983, Mr. Polito has been
the president and 100% shareholder of RSJJ, a company which owns and leases real
property.

         Since 1976,  Mr. Polito has been a member of the Allied  Building Metal
Industries,  Inc.  ("ABMII"),  a trade  association  which has the  authority to
negotiate with the unions in order to better the construction  industry.  He was
the president of same from 1992 until 1993. Since approximately 1987, Mr. Polito
has been the Chairman of the Steel  Institute  of New York, a trade  association
similar to ABMII. From the mid-1980's to the mid-1990's, Mr. Polito was a member
of the Building Trades Association Joint Safety Committee.  Since the mid-1980's
he has served on the Council of Presidents of New York Building  Congress,  Inc.
Since the mid-1970's, Mr. Polito has been a member of the International Union of
Structural  Ironworkers,  locals 40, 361, and 417: he has been co-chairman since
the early 1990's.
<PAGE>
         Ronald J. Polito has been the  secretary  and a Director of the Company
since its  inception in 1990.  He has been the Secretary and a Director of USABG
since April 1994.  Mr.  Polito  oversees the daily  progress on all projects and
analysis of the final costs and profits of jobs  completed  and the  preparation
and bidding on new projects.  Since its  inception in 1994,  Mr. Polito has been
the secretary and a Director of MD. From its inception in 1990 until March 1995,
he was also the treasurer of The Company.  Since  December  1990, Mr. Polito has
been the secretary of One Carnegie and Waldorf.  Since 1983, Mr. Polito has been
the secretary of RSJJ. Mr. Polito received a Bachelor of Science Degree in Civil
Engineering from Brooklyn Polytechnical  Institute in 1981. He is the son of Mr.
Joseph Polito.

         Steven J. Polito was elected treasurer of the Company in March 1995. He
has been Treasurer of USABG since March 1995 and a Director of USABG since April
1994.  Mr.  Polito  oversees  the daily  operations  for projects in process and
projects completed,  including purchasing and leasing of materials and machinery
and the  distribution of labor. He had previously been a Project Manager and has
been a Director of the Company since its inception in 1990.  Since its inception
in 1994,  Mr.  Polito also has been the  treasurer  and a Director of MD.  Since
1988, Mr. Polito has been the treasurer of One Carnegie,  Waldorf,  and RSJJ. He
is the son of Mr. Joseph Polito.

         Marvin  Weinstein  was  elected  Director  of the  Company and USABG in
January  1998.  Mr.  Weinstein  was the  President  and sole  shareholder  of M.
Weinstein  Associates  from  1988 to  1996.  This  company  provided  consulting
services to the companies in the steel industry.  Mr. Weinstein retired in 1996.
Neither the Company nor USABG  engaged M.  Weinstein  Associates  to provide any
consulting services.

         Ronald Murphy was elected Director of the Company in February 1988. Mr.
Murphy has been a private  investigator since 1997. Prior thereto,  from 1983 to
1996, Mr. Murphy was involved in the construction industry.  From 1993-1996,  he
was Field  Operations  Supervisor  for The  Steel  Institute  of New York.  From
1983-1993,  he was  office  manager  and  supervisor  for Crown  and Atlas  Gem,
respectively.  Prior to entering the construction  industry,  from 1966 to 1982,
Mr. Murphy was a New York City police officer.


Significant Employees of the Company

         Richard  Miller has been an  employee of the  Company  since  September
1997. When Falcon was formed, he became a chief executive officer thereof.


         Thomas  J.  Hayes has been a chief  estimator,  project  manager,  vice
president in the structural steel industry  (fabrication and erection) for forty
years with such companies such as Grand Iron Works, Pecker Iron Works, Gem Steel
Erectors,  Polito  Enterprises,  Waldorf Steel  Fabricators,  and at present the
Company.

<PAGE>
         As permitted  under New York  Business  Corporation  Law, the Company's
Certificate of Incorporation  eliminates the personal liability of the Directors
to the Company or any of its  shareholders  for  damages  for  breaches of their
fiduciary  duty as Directors.  As a result of the  inclusion of such  provision,
stockholders  may be unable to recover  damages  against  Directors  for actions
taken by them which  constitute  negligence  or gross  negligence or that are in
violation of their  fiduciary  duties.  The  inclusion of this  provision in the
Company's  Certificate of Incorporation  may reduce the likelihood of derivative
litigation against Directors and other types of shareholder litigation.

         Insofar as indemnification for liabilities arising under the Act may be
permitted  to  Directors,  Officers,  and  controlling  persons of the  Company,
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that  in  the  opinion  of  the   Securities   and  Exchange   Commission   such
indemnification  is  against  public  policy  as  expressed  in the  Act and is,
therefore,  unenforceable. In the event that a claim for indemnification against
such liabilities  (other than the payment by the Company of expenses incurred or
paid by a  Director,  Officer,  or  controlling  person  of the  Company  in the
successful  defense of any  action,  suit or  proceeding)  is  asserted  by such
Director, Officer, or controlling person in connection with the Securities being
registered,  the Company  will,  unless in the opinion of its counsel the matter
has been  settled by  controlling  precedent,  submit to a court of  appropriate
jurisdiction the question whether such  indemnification  by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue by such court.

ITEM 10. EXECUTIVE COMPENSATION

Summary of Cash and Certain Other Compensation

         The following  provides  certain  information  concerning  all Plan and
Non-Plan (as defined in Item 402 (a)(i) of Regulation S-B) compensation  awarded
to,  earned by, or paid by the  Company  during the years  ended June 30,  1998,
1997, and 1996.
<PAGE>
<TABLE>
<CAPTION>
                                           Summary Compensation Table

                                        Annual Compensation
                           ------------------------------------------------ 
     (a)           (b)        (c)              (d)                (e)               (f)             (g)
Name                                                                            Restricted
and Principal                                                 Other Annual         Stock          Options/
Position          Year     Salary ($)        Bonus ($)      Compensation($)     Awards($)(1)      SARS (#)
--------          ----     ----------        ---------      ---------------     ------------      --------
<S>               <C>       <C>                 <C>           <C>                <C>             <C>                 
Joseph Polito     1998      $364,000            -             $125,585(2)
President and     1997       330,000            -               68,642(2)        $175,000       
Director          1996       300,000            -              111,911(2)                          

Ronald Polito     1998      $107,800            -             $ 21,407(3)
Secretary and     1997       118,800            -               26,631(3)          $4,375        
Director          1996       125,000            -               13,071(3)               -              -
         

Steven Polito     1998      $ 84,915            -             $  4,768(4)
Treasurer and     1997        86,580            -                8,572(4)         $4,375(      
Director          1996        94,000            -                8,275(4)              -               -
 
</TABLE>
---------------

(1)      At the end of the fiscal year,  Joseph M. Polito held 205,000 shares of
         Restricted  Stock valued at $243,438.  Ronald  Polito and Steven Polito
         held 70,000 and 70,000,  respectively,  of  Restricted  Stock valued at
         $83,125.  Valuations are based on the closing bid price of Common Stock
         ($1.1875) on June 30, 1998.

(2)      Includes  (i) the  payment of premiums  on a life  insurance  policy of
         $65,969,  $10,722, and $54,362 for the years ended June 30, 1998, 1997,
         and 1996, respectively; (ii) the payment of travel expenses of $50,000,
         $50,000,  and $50,000 for the years ended June 30, 1998, 1997 and 1996,
         respectively;  (iii) the  payment  of an  automobile  lease of  $9,616,
         $7,920  and $7,549 for the years  ended June 30,  1998,  1997 and 1996,
         respectively; and (iv) the issuance of 37,500 shares of Common Stock. .
         See "-Employment and Consulting Agreements."
<PAGE>
                                        (Footnotes continued from previous page)

(3)      Includes (i) payments on the lease of an automobile  of $4,059,  $5,416
         and  $5,416  for the  years  ended  June  30,  1998,  1997,  and  1996,
         respectively;  (ii) the payment of  premiums  on a term life  insurance
         policy of  $10,148,  $8,510,  and $4,684  for the years  ended June 30,
         1998,  1997, and 1996,  respectively;  and (iii) a travel  allowance of
         $7,200, $12,705, and $2,971 for the years ended June 30, 1998, 1997 and
         1996, respectively.

(4)      Includes (i) the payment of an automobile lease of $1,768,  $5,304, and
         $5,304 for the years ended June 30, 1998, 1997 and 1996,  respectively;
         and (ii) a travel allowance of $3,000, $3,268, and $2,971 for the years
         ended June 30, 1998, 1997, and 1996, respectively.

<PAGE> 
                  The  following  table  contains  information  with  respect to
employees of the Company and options held as of June 30, 1998.
<TABLE>
<CAPTION>

                                     AGGREGATED OPTION/SAR EXERCISE IN LAST FISCAL YEAR
                                                AND FY-END OPTION/SAR VALUES

         (a)                    (b)                     (c)                      (d)                           (e)
                                                                                                             Value of
                                                                                                        Unexercised In-The-  
                                                                              Number of                        Money
                                                                             Unexercised                  Options/SAR's at
                                                                         Options/SAR's at FY-                 FY-End($)
                       Shares Acquired on              Value            End (#) Exercisable/                 Exercisable/
        Name             Exercise (#)             Realized($)               Unexercisable                 Unexercisable (1)
        ----             ---------------          --------------            -------------                 -----------------
<S>                          <C>                     <C>                     <C>                              <C>
Joseph M. Polito               --                       --                    25,000/25,000                        --
</TABLE>
------------

(1)  Based on the closing  price of Common  Stock  ($1.1875) on June 30, 1998 as
     reported by a market  maker.  Since the Options are  exercisable  at $5.50,
     there is no value to such options as of such date.

 
         Joseph  Polito  entered into an employment  agreement  with the Company
dated April 4, 1995,  whereby Mr.  Polito  agreed to devote 80% of his  business
time to the affairs of the Company. The agreement is for a term of approximately
three years and expires on June 30, 1998. Pursuant to the terms of the agreement
Mr.  Polito is to receive an annual  salary of $300,000 per annum until June 30,
1996  with  10%  yearly  escalation,  subject  to  adjustment  by the  Board  of
Directors.  Mr.  Polito  is also to  receive  a yearly  non-accountable  expense
allowance of $50,000. Mr. Polito received stock options under the Company's 1994
Senior  Management  Incentive Plan to purchase 25,000 shares at $5.50 per share,
vesting  at the rate of 7,500 in each of April 1996 and 1997 and 10,000 in April
1998.  Mr.  Polito  also has the right to receive a yearly  bonus  equal to five
percent (5%) of the first $1,000,000,  upon reaching $1,000,000 and five percent
(5%) of the next $500,000,  upon reaching $1,500,000 and five percent (5%) after
$1,500,000,  of all the pre-tax profits of the Company. The Company shall pay to
Mr. Polito a monthly draw of $10,000 against the bonus.

         Pursuant  to the  agreement,  the Company  shall pay the  premiums on a
$3,500,000  life insurance  policy for the benefit of individuals as directed by
Mr. Polito, with an estimated yearly premium of $80,000. The agreement restricts
Mr.  Polito from  competing  with the Company for a period of one year after the
termination of his employment. The agreement provides for severance compensation
to be paid to Mr.  Polito if his  employment  with the Company is  terminated or
there is a decrease in  responsibilities or duties following a change in control
of the Company. The severance compensation shall be made in one payment equal to
three times the aggregate  annual  compensation  paid to the Employee during the
preceding calendar year.
<PAGE>
         Steven and Ronald Polito receive annual salary compensations of $94,000
and  $125,000,   respectively,  from  the  Company,  which  compensation  levels
commenced  in March 1995 and April 1994,  respectively.  Both  individuals  also
receive a car allowance equal to the monthly lease payments on their automobiles
and travel  expenses.  Ronald Polito  receives the payment of premiums on a life
insurance policy of which he chooses the  beneficiaries.  Neither individual has
entered into an employment agreement with the Company.

1994 Senior Management Incentive Plan

         In  December  1994,  the  Board of  Directors  adopted  the  Management
Incentive  Plan  (the  "Management  Plan")  which  was  thereafter  approved  by
shareholder  consent.  The  Management  Plan  provides for the issuance of up to
1,000,000  shares of the Company's  Common Stock in connection with the issuance
of stock options and other stock purchase rights to Executive Officers and other
key employees.

         The  adoption of the  Management  Plan was  prompted  by the  Company's
desire (i) to attract  and retain  qualified  personnel,  whose  performance  is
expected to have a  substantial  impact on the  Company's  long-term  profit and
growth potential, by encouraging those persons to acquire equity in the Company;
and (ii) to provide the Board with sufficient flexibility regarding the forms of
incentive  compensation which the Company will have at its disposal in rewarding
Executive Officers without unnecessarily  depleting the Company's cash reserves.
The Management Plan is designed to augment the Company's  existing  compensation
programs  and is intended to enable the  Company to offer  Executive  Officers a
personal interest in the Company's growth and success through the grant of stock
options and/or other rights pursuant to the Management  Plan. It is contemplated
that only those executive  management  employees  (generally the Chairman of the
Board,   Vice-Chairman,   Chief  Executive  Officer,  Chief  Operating  Officer,
President,  and Vice Presidents of the Company) who perform  services of special
importance  to the Company  will be eligible to receive  compensation  under the
Management Plan. As of the date of this Prospectus,  the Company's  Officers and
Directors are Joseph Polito, Ronald Polito, Steven Polito, Marvin Weinstein, and
Ronald Murphy,  though the Management Plan also includes Messrs.  Bauer, Panayi,
and Kubilus.  A total of  1,000,000  shares of Common Stock will be reserved for
issuance under the Management Plan.

         Unless otherwise  indicated,  the Management Plan is to be administered
by the Board of Directors  or a committee  of the Board,  if such a committee is
appointed  for this  purpose (the Board or such  committee,  as the case may be,
shall be  referred  to in the  following  description  as the  "Administrator").
Subject to the specific  provisions of the Management  Plan,  the  Administrator
will have the discretion to determine (i) the recipients of the awards; (ii) the
nature of the awards to be granted; (iii) the dates such awards will be granted;
(iv) the terms and conditions of the awards;  and (v) the  interpretation of the
Management  Plan,  except that any award  granted to any employee of the Company
who is also a Director of the  Company  shall also be subject - in the event the
persons  serving as members of the  Administrator  of the Management Plan at the
time such  award is  proposed  to be  granted do not  satisfy  the  requirements
regarding  the  participation  of a  disinterested  persons as set forth in Rule
16b-3 ("Rule 16b-3")  promulgated under the Exchange Act - to the approval of an
auxiliary  committee  consisting  of not  less  than  two  individuals  who  are
considered  "disinterested  persons" as defined under Rule 16b-3. As of the date
hereof,  the Company  has not yet  determined  who will serve on such  auxiliary
committee, if one is required.
<PAGE>
         The Management Plan generally  provides that,  unless the Administrator
determines  otherwise,  each option or right granted shall become exercisable in
full upon certain  "change of control"  events as  described  in the  Management
Plan,  or  subject  to any right or option  granted  under the  Management  Plan
(through  merger,   consolidation,   reorganization,   recapitalization,   stock
dividend,  dividend  in  property  other than  cash,  stock  split,  liquidating
dividend,  combination  of  shares,  exchange  of  shares,  change in  corporate
structure, or otherwise), the Administrator will make appropriate adjustments to
such  plans  and the  classes,  number of  shares,  and price per share of stock
subject to outstanding rights or options.  Generally, the Management Plan may be
amended by action of the Board of Directors, except that any amendment which (i)
would increase the total number of shares subject to such plan;  (ii) extend the
duration  of such plan;  (iii)  materially  increase  the  benefits  accruing to
participants  under such plan; or (iv) change the category of persons who can be
eligible for awards under such plan, must be approved by the affirmative vote of
a majority of the  shareholders  entitled to vote. The  Management  Plan permits
awards to be made thereunder until November 2004.

         Directors  who are not  otherwise  employed by the Company  will not be
eligible for  participation in the Management Plan. The Management Plan provides
for four  types  of  awards:  stocks  options,  incentive  stock  rights,  stock
appreciation rights (including limited stock appreciation rights) and Restricted
Stock purchase agreements (as described below).

         Stock Options.  Options granted under the Management Plan may be either
incentive  stock  options  ("ISOs")  or  options  which do not  qualify  as ISOs
("non-ISOs").  ISOs may be granted  at an option  price of not less than 100% of
the fair market value of the Common  Stock on the date of grant,  except that an
ISO granted to any person who owns capital stock  representing  more than 10% of
the total  combined  voting  power of all classes of Common Stock of the Company
("10%  stockholder")  must be granted at an exercise  price of at least 110% for
the fair market value of the Common Stock on the date of the grant. The exercise
price of the  non-ISOs  may not be less than 85% of the fair market value of the
Common  Stock  on  the  date  of  grant.  Unless  the  Administrator  determines
otherwise,  no ISO or non-ISO may be  exercisable  earlier than one year from he
date of grant.  ISOs may not be granted to persons who are not  employees of the
Company.  ISOs granted to persons other than 10% stockholders may be exercisable
for a period of up to ten (10) years form the date of grant; ISOs granted to 10%
stockholders  may be exercisable  for a period of up to five years from he dated
of grant.  No  individual  may be granted  ISOs that become  exercisable  in any
calendar  year for Common  Stock having a fair market value at the time of grant
in excess of $100,00. Non-ISOs may be exercisable for a period of up to thirteen
(13) years from the date of grant.

         Payment for shares of Common  Stock  purchases  pursuant to exercise of
stock options shall be paid in full in (i) cash,  (ii) by certified  check,  or,
(iii) at the discretion of the  Administrator by shares of Common Stock having a
fair market value equal to the total  exercise price or (iv) by a combination of
the above.  The  provision  that permits the delivery of already owned shares of
stocks as payment  for the  exercise  of an option may permit  "pyramiding."  In
general,  pyramiding  enables a holder  to start  with as little as one share of
common  stock and, by using the shares of common stock  acquired in  successive,
simultaneous exercises of the option, to exercise the entire option,  regardless
of the number of shares covered  thereby,  with no additional cash or investment
other than the original share of common stock used to exercise the option.
<PAGE>
         Upon termination of employment or consulting services, an optionee will
be entitled to  exercise  the vested  portion of an option for a period of up to
three  months  after the date of  termination,  except  that if the  reason  for
termination was a discharge for cause, the option shall expire immediately,  and
if the reason  for  termination  was for death or  permanent  disability  of the
optionee, the vested portion of the option shall remain exercisable for a period
of twelve (12) months thereafter.

         On  December  2,  1996,  the  Company  granted  to Joseph  Polito,  the
Company's  president,  an option to purchase 125,000 shares at an exercise price
of $1.10  per  share  (110% of the ten  market  price)  in  accordance  with the
Management  Plan. The shares were  registered for resale  pursuant to a Form S-8
registration  statement  filed in February  1997. On March 25, 1997,  Mr. Polito
exercised the option. On April 11, 1997, Mr.
Polito re-sold 60,000 of these shares.

         In December  1997, the Company  authorized  the issuance,  in its third
fiscal  quarter,  of 340,000  shares of Common Stock to  management  and certain
employees  and  consultants  of the Company.  290,000 of such shares were issued
pursuant to the Company's Management Plan as follows: 150,000 were issued to the
Company's President,  70,000 were issued to the Company's Secretary,  and 70,000
were issued to the Company's Treasurer.  The remaining 50,000 shares were issued
to  employees  and  consultants.  The Company  also  authorized  the filing of a
Post-Effective  Amendment  to the  Form  S-8  Registration  Statement  filed  in
February 1997, wherein the sale of the aforesaid shares is to be registered.

         Incentive  Stock Rights.  Incentive  stock rights  consist of incentive
stock  units  equivalent  to one  share of  Common  Stock in  consideration  for
services performed for the Company.  Each incentive stock unit shall entitle the
holder thereof to receive,  without  payment of cash or property to the Company,
one  share of Common  Stock in  consideration  for  services  performed  for the
Company or any subsidiary by the employee, subject to the lapse of the incentive
periods,  whereby  the  Company  shall  issue  such  number of  shares  upon the
completion of each specified period. If the employment or consulting services of
the holder with the Company  terminate prior to the end of the incentive  period
relating to the units  awarded,  the rights  shall  thereupon  be null and void,
except  that if  termination  is caused by death or  permanent  disability,  the
holder or his/her heirs,  as the case may be, shall be entitled to receive a pro
rata portion of the shares  represented by the units, based upon that portion of
the  incentive  period which shall have elapsed  prior to the holder's  death or
disability.

         Stock Appreciation  Rights (SARs). SARs may be granted to recipients of
options under the Management Plan. SARs may be granted  simultaneously  with, or
subsequent  to, the grant of a related option and may be exercised to the extent
that  the  related  option  is  exercisable,  except  that  no  general  SAR (as
hereinafter  defined) may be exercised within a period of six months of the date
of grant of such SAR, and no SAR granted with respect to an ISO may be exercised
unless the fair market value of the Common Stock on the date of exercise exceeds
the exercise  price of the ISO. A holder may be granted  general SARs  ("general
SARs") or limited SARs ("Limited SARs"), or both. General SARs permit the holder
thereof to receive an amount (in cash,  shares of Common Stock, or a combination
of both) equal to the number of SARs  exercised  multiplied by the excess of the
fair market  value of the Common  Stock on the  exercise  date over the exercise
<PAGE>
price of the related  option.  Limited SARs are similar to General SARs,  except
that, unless the Administrator determines otherwise,  they may be exercised only
during  a  prescribed  period  following  the  occurrence  of one or more of the
following  "Change of  Control"  transaction:  (i) the  approval of the Board of
Directors of  consolidation  or merger in which the Company is not the surviving
corporation,  the sale of all of substantially all the assets of the Company, or
the liquidation or dissolution of the Company; (ii) the commencement of a tender
or exchange offer for the Company's Common Stock (or securities convertible into
Common Stock) without the prior consent of the Board;  (iii) the  acquisition of
beneficial  ownership by any person or other  entity  (other than the Company or
any employee benefit plan sponsored by the Company) of securities of the Company
representing  25% or more  of the  voting  power  of the  Company's  outstanding
Securities;  or (iv) if during any period of two years or less,  individuals who
at the beginning of such period  constitute the entire Board cease to constitute
a majority of the Board, unless the election, or the nomination for election, of
each new Director is approved by at least a majority of the Directors then still
in office.

         The exercise of any portion of either the related  option or the tandem
SARs will cause a  corresponding  reduction  in the  number of shares  remaining
subject to the option or the tandem SARs,  thus  maintaining  a balance  between
outstanding options and SARs.

         Restricted  Stock  Purchase   Agreements.   Restricted  Stock  purchase
agreements  provide  for the sale by the  Company  of shares of Common  Stock at
prices  to be  determined  by the  Board,  which  shares  shall  be  subject  to
restrictions  on disposition for a stated period during which the purchaser must
continue employment with the Company in order to retain the shares. Payment must
be made in cash. If termination  of employment  occurs for any reason within six
months  after the date of  purchase,  or for any  reason  other than death or by
retirement  with the consent of the Company of the Company  after the  six-month
period but prior to the time that the  restrictions  on disposition  lapse,  the
Company shall have the option to reacquire  the shares at the original  purchase
price.

         Restricted  shares awarded under the Management Plan will be subject to
a period of time  designated  by the  Administrator  (the  "restricted  period")
during  which the  recipient  must  continue  to render  services to the Company
before the restricted  shares will become  vested.  The  Administrator  may also
impose other  restrictions,  terms and conditions that must be fulfilled  before
the restricted shares may vest.

         Upon the grant of restricted shares,  stock certificates  registered in
the name of the recipient will be issued and such shares will constitute  issued
and outstanding  shares of Common Stock for all corporate  purposes.  The holder
will have the right to vote the  restricted  shares and to receive  all  regular
cash  dividends  (and  such  other   distributions  as  the   Administrator  may
designate),  if any, which are paid or distributed on the restricted shares, and
generally to exercise all other rights as a holder of Common Stock, except that,
until the end of the restricted  period;  (i) the holder will not be entitled to
take possession of the stock certificates representing the restricted shares and
(ii) the holder will not be entitled to sell,  transfer or otherwise  dispose of
the  restricted  shares.  A breach  of any  restrictions,  terms  or  conditions
established  by the  Administrator  with respect to any  restricted  shares will
cause a forfeiture of such restricted shares.
<PAGE>
         Upon   expiration  of  the  applicable   restriction   period  and  the
satisfaction of any other applicable  conditions,  all or part of the restricted
shares and any dividends or other  distributions  not  distributed to the holder
(the "retained distributions") thereon will become vested. Any restricted shares
and any retained distributions thereon which do not so vest will be forfeited to
the Company.  If prior to the  expiration of the  restricted  period a holder is
terminated  without  cause or  because  of a total  disability  (in each case as
defined in the Management Plan), or dies, then,  unless otherwise  determined by
the  Administrator at the time of the grant, the restricted period applicable to
each award of restricted shares will thereupon be deemed to have expired. Unless
the Administrator  determines  otherwise,  if a holder's  employment  terminates
prior to the expiration of the applicable restricted period for any reason other
than as set forth above,  all restricted  shares and any retained  distributions
thereon will be forfeited.

         Accelerating of the vesting of the restricted shares shall occur, under
the provisions of the Management Plan, on the first day following the occurrence
of any of the following:  (a) the approval by the stockholders of the Company of
an "Approved Transaction"; (b) a "Control Purchase"; or (c) a "Board Change."

         An "Approved Transaction" is defined as (A) any consolidation or merger
of the  Company  in  which  the  Company  is not  the  continuing  or  surviving
corporation  or pursuant to which shares of Common Stock would be converted into
cash,  securities or other  property other than a merger of the Company in which
the holders of the Common  Stock  immediately  prior to the merger have the same
proportionate ownership of Common Stock of the surviving corporation immediately
after the merger,  or (B) any sale, lease,  exchange,  or other transfer (in one
transaction or a series of related  transactions) of all, or substantially  all,
of the assets of the  Company,  or (C) the  adoption of any plan or proposal for
the liquidation or dissolution of the Company.

         A "Control  Purchase" is defined as  circumstances  in which any person
(as such term is defined in Sections 13(d)(3) and 14(d)(2) of the Exchange Act),
corporation or other entity (other than the Company or any employee benefit plan
sponsored by the Company) (A) shall purchase any Common Stock of the Company (or
securities  convertible into the Company's Common Stock) for cash, securities or
any other consideration  pursuant to at tender offer or exchange offer,  without
the prior consent of the Board of Directors, or (B) shall become the "beneficial
owner" (as such term is defined in Rule 13d-3 under the Exchange Act),  directly
or indirectly,  of Securities of the Company  representing  twenty-five  percent
(25%) or more of the combined voting power of the then outstanding Securities of
the  Company   ordinarily   (and  apart  from  rights   accruing  under  special
circumstances) having the right to vote in the election of Directors (calculated
as provided in paragraph (d) of such Rule 13d-3 in the case of rights to acquire
the Company's Securities).

         A "Board  Change"  is  defined as  circumstances  in which,  during any
period of two  consecutive  years or less,  individuals  who at the beginning of
such period constitute the entire Board shall Cease for any reason to constitute
a majority  thereof  unless the election,  or the nomination for election by the
Company's stockholders,  of each new Director was approved by a vote of at least
a majority of the Directors then still in office.
<PAGE>
                            PRINCIPAL SECURITYHOLDERS

         The  following  table  sets  forth  information  with  respect  to  the
beneficial ownership of shares of Common Stock by (i) each person (including any
"group" as that term is used in Section 13(d)(3) of the Securities  Exchange Act
of 1934,  as  amended),  known by the Company to be the owner of more than 5% of
the  outstanding  shares of Common  Stock;  (ii)  each  Director;  and (iii) all
Officers  and  Directors  as a group.  Except  to the  extent  indicated  in the
footnotes to the following table, each of the individuals listed below possesses
sole voting power with respect to the shares of Common Stock listed opposite his
name.

                                                              Percent of Common
Name and Address                  Number of Shares Owned        Stock Owned (1) 
----------------                  ----------------------        --------------- 
                                                                                
                                                                                
USABG Corp. (1)(2)                                                              
53-09  97th Place                         1,562,332                  56.8%      
Corona, New York 11368                             
                                                                                
Joseph M. Polito (2)                                                            
c/o USABG Corp.                                                                 
53-09  97th Place                         1,562,332                  56.8%      
Corona, New York 11368                             
                                                                                
Steven J. Polito                                                                
c/o USABG Corp.                              70,000                   2.5%      
53-09  97th Place                                                               
Corona, New York 11368                             
                                                                                
Ronald J. Polito                                                                
c/o USABG Corp.                              70,000                   2.5%      
53-09  97th Place                                                               
Corona, New York 11368                             
                                                                                
Marvin Weinstein                                                                
c/o USABG Corp.                                --                  --           
53-09  97th Place                                                               
Corona, New York 11368                             
                                                                                
Ronald Murphy                                                                   
c/o USABG Corp.                                --                  --           
53-09  97th Place                                                               
Corona, New York 11368                             
                                                                                
All Officers and Directors                                                      
as a group (5 persons)                    1,702,332                  61.9%      
                                                              

(1)      Includes (i) 205,000 shares of Common Stock issued to Joseph M. Polito,
         as  President  of the  Company,  55,000  of which  shares  were  issued
         pursuant  to  the  exercise  of  an  option  granted  pursuant  to  the
         Management Plan and 150,000 of which shares were issued pursuant to the
         Management  Plan;  and (ii) 25,000  shares  issuable to Mr. Polito upon
         exercise of a vested  option.  See "Certain  Relationships  and Related
         Transactions."
<PAGE>
                                                  (footnotes from previous page)


(2)      Joseph Polito owns  approximately  62.8% of the  outstanding  shares of
         Corp. and may be considered  the beneficial  owner of the shares of the
         Company owned by USABG.  Includes  25,000 shares issuable upon exercise
         of a vested option granted to Joseph Polito. See "Certain Relationships
         and Related Transactions."


Employment and Consulting Agreements

         Joseph  Polito  entered into an employment  agreement  with the Company
dated April 4, 1995,  whereby Mr.  Polito  agreed to devote 80% of his  business
time to the affairs of the Company. The agreement is for a term of approximately
three  years  and  terminated  on June 30,  1998.  Pursuant  to the terms of the
agreement  Mr. Polito is to receive an annual salary of $300,000 per annum until
June 30, 1998 with 10% yearly escalation,  subject to adjustment by the Board of
Directors.  Mr.  Polito  is also to  receive  a yearly  non-accountable  expense
allowance of $50,000.  Mr.  Polito  received a stock option under the  Company's
1994 Senior  Management  Incentive  Plan to purchase  6,250 shares at $22.00 per
share,  vesting at the rate of 1,875 in each of April 1996 and 1997 and 2,500 in
April 1998.  Mr.  Polito  also has the right to receive a yearly  bonus equal to
five percent (5%) of the first  $1,000,000,  upon reaching  $1,000,000  and five
percent (5%) of the next  $500,000,  upon reaching  $1,500,000  and five percent
(5%) after  $1,500,000,  of all the pre-tax profits of the Company.  The Company
shall pay to Mr. Polito a monthly draw of $10,000 against the bonus. The Company
and its President  extended the  agreement  for an additional  three years until
June 30, 2001 under the same terms.

         Pursuant  to the  agreement,  the Company  shall pay the  premiums on a
$3,500,000  life insurance  policy for the benefit of individuals as directed by
Mr. Polito, with an estimated yearly premium of $80,000. The agreement restricts
Mr.  Polito from  competing  with the Company for a period of one year after the
termination of his employment. The agreement provides for severance compensation
to be paid to Mr.  Polito if his  employment  with the Company is  terminated or
there is a decrease in  responsibilities or duties following a change in control
of the Company. The severance compensation shall be made in one payment equal to
three times the aggregate  annual  compensation  paid to the Employee during the
preceding calendar year.

         Steven  and  Ronald  Polito  receive  annual  salary  compensations  of
approximately  $94,000  and  $125,000,  respectively,  from the  Company,  which
compensation levels commenced in March 1995 and April 1994,  respectively.  Both
individuals  also receive a car allowance equal to the monthly lease payments on
their  automobiles  and travel  expenses.  Ronald Polito receives the payment of
premiums  on a life  insurance  policy of which he  chooses  the  beneficiaries.
Neither individual has entered into an employment agreement with the Company.


ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS


         During  the years  ended  June 30,  1998 and  1997,  the  Company  paid
$154,856 and $214,000,  respectively,  to Crown for leasing cranes  necessary to
perform steel erection services. Joseph M. Polito owns 50% of Crown.
<PAGE>
         During the years ended June 30, 1998 and 1997, the Company paid $44,000
and $35,000,  respectively,  to AGLI for certain machinery  necessary to perform
steel erection services. AGLI is wholly-owned by Joseph M. Polito.

         As of June  30,  1998,  the  Company  has  advanced  funds  to  various
affiliates. These advances are non-interest bearing and are due on demand. As of
June 30, 1998, such advances amounted to $126,489.

         As of  June  30,  1998,  the  total  due to  officers  and  affiliates,
amounting to $386,457,  represents advances made by the President of the Company
and affiliated entities which bear no interest and are due on demand.

         As of June 30, 1998,  the Company has advanced  $405,458 to its parent,
USABG. Such advances bear no interest and are due on demand.

         Included in general and administrative expenses is rent expense paid in
cash and stock by the Company  pursuant to a signed lease agreement with RSJJ, a
company owned by the Company's  President.  The lease expires December 31, 1998.
Rent expense for both years ended June 30, 1998 and 1997 amounted to $240,000.

                                     PART IV

ITEM 13.          EXHIBITS AND REPORTS ON FORM 8-K

(a) The following  financial  statements of the Company are included as Part II,
Item 8:

                                                                     Page
                                                                     ----

         Independent Auditors Report                                  F-1
         Balance Sheet                                                F-2
         Statements of Operations                                     F-3
         Statement of Stockholders* Equity                            F-4
         Statements of Cash Flows                                  F-5 - F-6
         Notes to Financial Statements                             F-7 - F-24

(b)      During the last quarter, the Company filed no reports on Form 8-K.

(c) All exhibits,  except those  designated with an asterisk (*) which are filed
herewith,  have previously been filed with the Commission in connection with the
Company's  Registration Statement on Form SB-2 - dated August 9, 1995 under file
No. 33-89230-NY (the "SB-2") - or are incorporated herein, pursuant to 17 C.F.R.
'230.411,  by reference to the document  wherein same were initially  filed. All
exhibits  which do not include an * or specific  reference are  incorporated  by
reference to the SB-2.

         3.1        Certificate of  Incorporation of the Company filed September
                    4, 1990.
         3.2        Certificate of Amendment to the Certificate of Incorporation
                    of the Company filed January 31,1995.
         3.3        By-Laws of the Company.
         3.3        Specimen Common Stock Certificate.
         4.1        Specimen Redeemable Common Stock Warrant Certificate.
         4.3        Form of Redeemable  Common Stock Warrant  Agreement  between
                    the Company and Continental Stock Transfer & Trust Company.
         4.4        Form of Special Warrant.
         4.6        USABG Corp. note issued in January 1995.
         4.7        Form of Promissory  Note sold in Private  Placement in March
                    1995.
         4.8        Stock option and Agreement issued to Joseph Polito.
<PAGE>
         10.2       Stock Purchase Agreement between Corp. and the Company.
         10.3       Employment Agreement of Joseph Polito.
         10.4       Lease  Agreement  between the Company  and  R.S.J.J.  Realty
                    Corp.
         10.5       The Company Incentive Stock Option Plan.
         10.6       Agreement  between  Iron  Workers  Local  Union  40 and  the
                    Company.
         10.7       Agreement  between  Local Union 14, 14B, 15, 15A,  15C, 15D,
                    International Union of Operating Engineers,  AFL-CIO and the
                    Company.
         10.8       Agreement between Local 780 and the Company.
         10.9       Subcontractor   agreement  between  the  Company  and  McKay
                    Enterprises, Inc., with respect to the reconstruction of 4th
                    Avenue Bridge.
         10.10      Subcontractor  agreement  between  the  Company  and  Perini
                    Corporation, with respect to the rehabilitation of Stillwell
                    Avenue Station on Coney Island.
         10.11      Subcontractor  agreement  between  the  Company  and  Perini
                    Corporation,  with  respect  to the  rehabilitation  of 39th
                    Street Bridge over L.I.R.R.
         10.12      Subcontractor   agreement  between  the  Company  and  KISKA
                    Construction   Corporation-USA,    with   respect   to   the
                    rehabilitation of Robert Moses Causeway.
         10.13      Agreement between Atlas and the Company pursuant to the sale
                    of contracts.
         10.14      Promissory Note issued to First Bank of the Americas.
         10.15      Subcontractor   agreement  between  the  Company  and  McKay
                    Enterprises, Inc., with respect to the rehabilitation of the
                    Kosciuszko Bridge.
         10.17      Agreement  to  capitalize  the  $400,000  debt into  320,000
                    shares of USABG Corp.
         10.18      Subcontractor  agreement  between the  Company and  Trataros
                    Construction Inc. (the Williamsburg  Houses project),  dated
                    April 11, 1996.  (Incorporated by reference to Exhibit 10.18
                    to Form 10-KSB for the year ended June 30, 1997).
         10.19      Subcontractor  agreement  between the  Company and  Hannibal
                    Construction  Co., Inc. (the  "Hellgate  Viaduct  Structures
                    project),  dated October 30, 1996 (Incorporated by reference
                    to Exhibit  10.19 to Form 10-KSB for the year ended June 30,
                    1997).
         10.20      Subcontractor  agreement  between the Company and N.Y.  Iron
                    (the  Indonesian  Mission  project),  dated November 6, 1996
                    (Incorporated  by reference to Exhibit  10.20 to Form 10-KSB
                    for the year ended June 30, 1997).
         10.21      Prime contractor  agreement between the Company and EklecCo.
                    (the  Palisades  Power Mall  project),  dated June 17,  1996
                    (Incorporated  by reference to Exhibit  10.21 to Form 10-KSB
                    for the year ended June 30, 1997).
         10.22      Subcontractor  agreement  between  the  Company  and  Lehrer
                    McGovern, Bovis, Inc. (the Louis Vuitton project), dated May
                    15, 1996 (Incorporated by reference to Exhibit 10.22 to Form
                    10-KSB for the year ended June 30, 1997).
         10.23      Prime contractor  agreement  between the Company and Tishman
                    Construction  Corporation  of New York,  dated July 24, 1996
                    (Incorporated  by reference to Exhibit  10.23 to Form 10-KSB
                    for the year ended June 30, 1997).
         10.24      Subcontractor  agreement between the Company and Humphreys &
                    Harding, Inc. (the Korean Mission project), dated January 15
                    1997  (Incorporated  by reference  to Exhibit  10.24 to Form
                    10-KSB for the year ended June 30, 1997).
<PAGE>
         10.25      Agreements,  dated November 1997, by and between the Company
                    and The Iron  Workers  Locals 40,  361 & 417 Joint  Security
                    Funds in connection with the EklecCo  project  (Incorporated
                    by reference to the Company's Post Effective Amendment No. 2
                    to Form SB-2 dated April 13, 1998).




<PAGE>

                                   SIGNATURES


         In  accordance  with  Section  13 or 15(d)  of the  Exchange  Act,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned, thereunto duly authorized, this 22nd day of January, 1999.


                                           USA BRIDGE CONSTRUCTION OF N.Y., INC.



                                           By:      /s/ Joseph M. Polito
                                                    --------------------
                                                    Joseph M. Polito, President


         In accordance  with the Exchange Act, this report has been signed below
by the following  persons on behalf of the  Registrant and in the capacities and
on the dates indicated.


Date: January 22, 1999                     By:      /s/ Ronald J. Polito
                                                    ---------------------
                                                    Ronald J. Polito, 
                                                    Secretary and Director

Date: January 22, 1999                     By:      /s/ Steven J. Polito
                                                    --------------------
                                                    Steven J. Polito,
                                                    Treasurer and Director

Date: January 22, 1999                     By:      /s/Marvin Weinstein
                                                    -------------------
                                                    Marvin Weinstein, Director

Date: January 22, 1999                     By:      /s/Ronald Murphy
                                                    ----------------
                                                    Ronald Murphy, Director


<PAGE>

























                      USA BRIDGE CONSTRUCTION OF N.Y., INC.

                              FINANCIAL STATEMENTS

                   FOR THE YEARS ENDED JUNE 30, 1998 AND 1997




<PAGE>


                      USA BRIDGE CONSTRUCTION OF N.Y., INC.
                          INDEX TO FINANCIAL STATEMENTS
                   FOR THE YEARS ENDED JUNE 30, 1998 AND 1997



                                                                     Page
                                                                    Number
                                                                    ------

Independent auditors' report                                          F-1

Balance sheet as of June 30, 1998                                     F-2

Statements of operations for the years ended
 June 30, 1998 and 1997                                               F-3

Statement of stockholders' equity for the years ended
 June 30, 1998 and 1997                                               F-4

Statements of cash flows for the years ended
 June 30, 1998 and 1997                                            F-5 - F-6

Notes to financial statements                                     F-7 - F-24


<PAGE>
                          INDEPENDENT AUDITORS' REPORT


To the Board of Directors and  Stockholders of USA Bridge  Construction of N.Y.,
Inc.

We have audited the  accompanying  balance sheet of USA Bridge  Construction  of
N.Y.,  Inc., (the  "Company") as of June 30, 1998 and the related  statements of
operations,  stockholders'  equity and cash  flows for the years  ended June 30,
1998  and  1997.  These  financial  statements  are  the  responsibility  of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
financial statements based on our audits.

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

As more fully  described in note 12H(iii),  the Company's books and records were
seized in connection  with a Grand Jury subpoena from the United States District
Court. Grand Jury investigations can result in a range of actions from a finding
of a no true bill to  indictments  and  prosecutions  for any  number of federal
offenses.  Criminal  prosecutions  can  result  in a wide  range  of  penalties,
including probation,  imprisonment,  fines, restitution and forfeiture of assets
depending upon the specific type and severity of the offense. The reason for the
inquiry  and the  outcome  thereof  cannot be  determined  as of the date of our
opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all  material  respects,  the  financial  position of the Company as of June 30,
1998,  and the results of its operations and cash flows for the years ended June
30, 1998 and 1997, in conformity with generally accepted accounting principles.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in  Note 2 to the
financial  statements,  the Company,  as of June 30, 1998 has a working  capital
deficiency  of  $3,207,294,  a backlog  balance of $877,410,  and payroll  taxes
payable amounting to $2,154,856.  Lastly,  for the year ended June 30, 1998, the
Company  reported  a net loss  amounting  to  $2,093,969.  These  factors  raise
substantial  doubt about the Company's  ability to continue as a going  concern.
Management's  plans in  regard to these  matters  are  described  in Note 2. The
financial  statements do not include any adjustments  that might result from the
outcome of these uncertainties.





/s/Massella, Tomaro & Co., LLP
------------------------------
Massella, Tomaro & Co., LLP
Jericho, New York
December 18, 1998
<PAGE>
<TABLE>
<CAPTION>
                      USA BRIDGE CONSTRUCTION OF N.Y., INC.
                                  BALANCE SHEET
                                  JUNE 30, 1998



                               ASSETS
<S>                                                                 <C>         
Current assets:
    Cash                                                            $     20,822
    Contracts and retainage receivable, net                            2,144,262
    Costs and estimated earnings in excess of billings
     on uncompleted contracts                                            139,440
    Due from Parent Company                                              405,458
    Due from affiliates                                                  126,489
    Other current assets                                                  18,454
                                                                    ------------
         Total current assets                                          2,854,925

Long term portion of contracts and retainage receivable, 
  net,                                                                 8,431,939
Office equipment and fixtures, net                                        23,767
Other assets                                                              10,366
                                                                    ------------

Total assets                                                        $ 11,320,997
                                                                    ============

         LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
    Accounts payable, including cash overdraft  of $36,415          $  1,239,097
    Accrued expenses                                                   1,822,670
    Payroll taxes payable                                              2,154,856
    Note payable                                                         300,000
    Due to officer and affiliates                                        386,457
    Income taxes payable                                                 148,889
    Billings in excess of costs and estimated earnings
     on uncompleted contracts                                             10,250

         Total current liabilities                                     6,062,219

Long term portion of note payable                                      1,275,000
                                                                    ------------

         Total Liabilities                                             7,337,219

Commitments and contingencies (Note 12)                                     --
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                      USA BRIDGE CONSTRUCTION OF N.Y., INC.
                                  BALANCE SHEET
                                  JUNE 30, 1998
                                  (continued)



                                 
<S>                                                                 <C>         
Stockholders' equity:
    Preferred stock $.01 par value, authorized 500,000 shares,
     issued and outstanding -0-                                             --
    Common stock $.001 par value, authorized 10,000,000 shares,
     issued and outstanding 2,749,182                                    504,494
    Additional paid in capital                                         5,402,209
    Accumulated deficit                                               (1,635,140)
                                                                    ------------
         Sub-total stockholders' equity                                4,271,563

         Less: stockholders' deductions                                 (287,785)
                                                                    ------------
         Total stockholders' equity                                    3,983,778

Total liabilities and stockholders' equity                          $ 11,320,997
                                                                    ============
</TABLE>
                 See accompanying notes to financial statements.

                                                F-2
<PAGE>
<TABLE>
<CAPTION>
                                USA BRIDGE CONSTRUCTION OF N.Y., INC.
                                      STATEMENTS OF OPERATIONS
                                    FOR THE YEARS ENDED JUNE 30,

                                                                             1998              1997
                                                                        ------------      ------------
<S>                                                                     <C>               <C>         
Contract revenue                                                        $ 16,544,354      $ 15,455,699

Cost of contract revenue                                                  12,985,578        11,167,130
                                                                        ------------      ------------

Gross profit                                                               3,558,776         4,288,569

Expenses:
   General and administrative                                              2,839,425         2,336,064
   Bad debt expense                                                        2,376,187         1,287,000
                                                                        ------------      ------------

       Total expenses                                                      5,215,612         3,623,064
                                                                        ------------      ------------

(Loss) income from operations before other income
 (expense) and (benefit) provision for income taxes                       (1,656,836)          665,505

Other income (expenses):
   Interest expense                                                         (263,661)          (43,341)
   Non-recurring charge (Note 12H(i))                                       (300,000)             --
   Interest income                                                             8,886            10,425
                                                                        ------------      ------------
       Total other (expenses)                                               (554,775)          (32,916)
                                                                        ------------      ------------

(Loss) Income before (benefit) provision
 for income taxes                                                         (2,211,611)          632,589

(Benefit) provision for income taxes                                        (117,642)          273,874
                                                                        ------------      ------------

Net (loss) income                                                       $ (2,093,969)     $    358,715
                                                                        ============      ============

Earnings per common share:
    Basic:
         Net (loss) income                                              $       (.83)     $        .18 
                                                                        ============      ============
    Diluted:
         Net (loss) income                                                      (.83)              .18  
                                                                        ============      ============

Weighted average number of shares outstanding for basic and diluted        2,508,071         1,982,098
                                                                        ============      ============
</TABLE>
                           See accompanying notes to financial statements

                                                F-3
<PAGE>
<TABLE>
<CAPTION>
                                                USA BRIDGE CONSTRUCTION OF N.Y., INC.
                                                  STATEMENT OF STOCKHOLDERS' EQUITY
                                             FOR THE YEARS ENDED JUNE 30, 1998 AND 1997

                                               Common
                                                stock
                                      ---------------------------       Additional      Retained        Other              Total
                                                                         paid-in        earnings     stockholders'     stockholders'
                                          Shares          Amount         capital       (deficit)      deductions           equity
                                      -----------     -----------     -----------     -----------      -------          -----------
<S>                                   <C>             <C>             <C>             <C>              <C>              <C>        
Balances at July 1, 1996                1,907,515     $   503,652     $ 4,086,551     $   100,114      $      --        $ 4,690,317

Issuance of common shares
 in connection with the exercise
 of options                               125,000             125         137,375            --               --            137,500

Issuance of common stock to related
 party in connection with settlement
 of accounts payable                      270,000             270         479,730            --               --            480,000

Net income for the year
 ended June 30, 1997                         --              --              --           358,715             --            358,715
                                      -----------     -----------     -----------     -----------      -------          -----------


Balances at June 30, 1997               2,302,515         504,047       4,703,656         458,829             --          5,666,532

Issuance of common stock in
 lieu of prepaid rent                     106,667             107         239,893            --           (240,000)            --

Issuance of common stock in
 connection with senior management
 incentive plan                           340,000             340         458,660            --           (459,000)            --

Amortization of prepaid rent and
 deferred compensation                       --              --              --              --            411,215          411,215

Net loss for the year ended
 June 30, 1998                               --              --              --        (2,093,969)            --         (2,093,969)
                                      -----------     -----------     -----------     -----------      -----------      -----------

Balances at June 30, 1998               2,749,182     $   504,494     $ 5,402,209     $(1,635,140)     $  (287,785)     $ 3,983,778
                                      ===========     ===========     ===========     ===========      ===========      ===========
</TABLE>
                           See accompanying notes to financial statements.

                                                F-4

<PAGE>
<TABLE>
<CAPTION>
                         USA BRIDGE CONSTRUCTION OF N.Y., INC.
                               STATEMENTS OF CASH FLOWS
                             FOR THE YEARS ENDED JUNE 30,


                                                             1998             1997
                                                         -----------      -----------
<S>                                                      <C>              <C>        
Cash flows from operating activities:
   Net (loss) income                                     $(2,093,969)     $   358,715

   Adjustments to reconcile net (loss) income to net
    cash used for operating activities:
       Depreciation                                            6,733            4,902   
       Amortization of prepaid rent and deferred
          compensation                                       411,215             --                          
       Bad debt expense                                    2,376,187        1,287,000
       Deferred income tax provision (benefit)               239,750         (239,750)
       Non-recurring charge                                  300,000             --
       Decrease (increase) in:
          Contracts and retainage receivable              (4,010,986)      (6,789,756)
          Costs and estimated earnings in excess of
            billings on uncompleted contracts              2,086,283          207,801
          Other current assets                                33,161          (25,317)
       Increase (decrease) in:
          Accounts payable                                  (578,220)       2,946,778
          Accrued expenses                                 1,072,822          629,622
          Payroll taxes payable                              640,008        1,061,559
          Income taxes payable                              (358,490)         507,379
          Billings in excess of costs and estimated
           earnings on uncompleted contracts                (116,205)         109,888
                                                         -----------      -----------

Net cash provided by operating activities                      8,289           58,821
                                                         -----------      -----------

Investing Activities:
   Acquisition of office equipment                           (10,155)            --
                                                         -----------      ----------- 
Cash flows from financing activities:
   Financing costs incurred                                                   (35,000)
   Principal payments of long term debt                     (175,000)            --
   (Repayments to) proceeds from related parties 
      and affiliates                                        (185,180)         520,416
   Advances to parent company                               (386,892)            --
   Other Assets                                                1,734             --
                                                         -----------      -----------

Net cash(used for) provided by financing activities         (745,338)         485,416
                                                         -----------      -----------

Net (decrease) increase in cash                             (747,204)         544,237

Cash, beginning                                              768,026          223,789
                                                         -----------      -----------

Cash, ending                                             $    20,822      $   768,026
                                                         ===========      ===========

</TABLE>
                                       F-5

<PAGE>
<TABLE>
<CAPTION>
                         USA BRIDGE CONSTRUCTION OF N.Y., INC.
                               STATEMENTS OF CASH FLOWS
                             FOR THE YEARS ENDED JUNE 30,



                                                                     1998           1997
                                                                  ----------     ----------
<S>                                                               <C>            <C>       
Supplemental disclosure of cash flow information:

   Cash paid during the year for:
       Interest                                                   $    7,599     $   21,612
                                                                  ==========     ==========
       Taxes                                                      $     --       $      678
                                                                  ==========     ==========

Supplemental disclosure of non-cash operating activities:

   In connection with issuance of common stock, 340,000
   shares were issued as consideration for compensation           $  459,000     $     --
                                                                  ==========     ==========

   In connection with the prepayment of rent, $106,667
   Shares of common stock were issued                             $  240,000     $     --
                                                                  ==========     ==========

   In connection with settlement of accounts payable,
   270,000 shares of common stock                                 $     --       $  480,000
                                                                  ==========     ==========

Supplemental disclosure of non-cash financing activities:

Issuance of long term debt fair settlement of
   amounts payable                                                $1,750,000     $     --
                                                                  ==========     ==========

</TABLE>
                 See accompanying notes to financial statements.

                                      F-6
<PAGE>
                         USA BRIDGE CONSTRUCTION OF N.Y., INC.
                             NOTES TO FINANCIAL STATEMENTS
                      FOR THE YEARS ENDED JUNE 30, 1998 AND 1997


NOTE 1       -    ORGANIZATION

                  USA Bridge Construction of N.Y., Inc. ("the Company") is a New
                  York  corporation  which provides steel erection for building,
                  roadway and bridge repair  projects for  contractors  who have
                  been engaged by private and municipal/governmental clients. In
                  January  1998,  the  Company  effected a name change from U.S.
                  Bridge of N.Y., Inc. to USA Bridge  Construction of N.Y., Inc.
                  The Company was  incorporated  on  September  4, 1990 and is a
                  majority owned subsidiary of USABG Corp.  ("Bridge Corp.") via
                  a 48.5% direct ownership and an indirect  ownership of 7.5% by
                  the Company's  President.  The Company's President is also the
                  majority stockholder of Bridge Corp. and may be considered the
                  beneficial owner of the Company.

NOTE 2       -    GOING CONCERN

                  The  accompanying  financial  statements  have  been  prepared
                  assuming  that the Company will  continue as a going  concern.
                  For the year ended June 30, 1998, the Company  generated a net
                  loss amounting to $2,093,969.

                  As of  June  30,  1998,  the  Company  has a  working  capital
                  deficiency  amounting to $3,207,294 as a result of classifying
                  certain  contracts and  retainages  receivable as  non-current
                  since the timing of their collectibility  cannot be determined
                  due to related pending litigations.

                  As of  June  30,  1998,  the  Company's  backlog  amounted  to
                  $877,410. Backlog represents the amount of revenue the Company
                  expects to realize from work to be  performed  on  uncompleted
                  contracts and from contracts on which work has not yet begun.

                  Lastly,  as of June 30,  1998 the Company  owes  approximately
                  $2,154,856  of  payroll   taxes  and  related   penalties  and
                  interest.  Certain taxing authorities have filed liens against
                  the Company as a result of the unpaid  payroll  taxes.  Should
                  the taxing authorities take further actions, the results could
                  be detrimental to the Company's ability to operate.

                  The Company is  aggressively  attempting to obtain  additional
                  contracts in order to mitigate its low backlog and  vigorously
                  attempting to settle  disputes in connection  with  mechanic's
                  lien placed on certain completed  projects in order to collect
                  its non-current  receivables and pay its unpaid payroll taxes,
                  however,  there  can be no  assurance  that it will be able to
                  obtain additional contracts,  settle its disputes, and pay its
                  payroll taxes.

                  These  factors  raise  substantial  doubt about the  Company's
                  ability  to  continue  as  a  going  concern.   The  financial
                  statements  do  not  include   adjustments   relating  to  the
                  recoverability and realization of assets and classification of
                  liabilities  that might be  necessary  should  the  Company be
                  unable to continue in operation.
<PAGE>
                         USA BRIDGE CONSTRUCTION OF N.Y., INC.
                             NOTES TO FINANCIAL STATEMENTS
                      FOR THE YEARS ENDED JUNE 30, 1998 AND 1997

NOTE 3       -    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

            a)    Cash and cash equivalents

                  For  purposes of the  statements  of cash  flows,  the Company
                  considers  all highly  liquid  investments  purchased  with an
                  original   maturity  of  three  months  or  less  to  be  cash
                  equivalents.

            b)    Use of estimates

                  The preparation of the 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 revenue and  expenses  during the
                  reporting period.  The most significant  estimates with regard
                  to these  financial  statements  relate to the  estimating  of
                  final   construction   contract  profits  in  accordance  with
                  accounting for long-term  contracts,  estimating the potential
                  liabilities  in  conjunction  with  certain   commitments  and
                  contingencies   and  estimating  the  allowance  for  doubtful
                  accounts  for  contracts  and  retainage  receivables.  Actual
                  results could differ from these estimates.

            c)     Balance sheet classifications

                  In  accordance  with  normal  practice  in  the   construction
                  industry,  the Company  included in current assets and current
                  liabilities   amounts   related   to   construction   contract
                  receivables  and payables over a period in excess of one year.
                  In general,  contract  related  receivables and payables other
                  than  retainage  receivables  are expected to be collected and
                  paid within one year unless surrounding  circumstances support
                  otherwise.  As of June 30,  1998,  the Company  classified  as
                  non-current   assets,   certain  contract   receivables  which
                  mechanic  liens have been  placed and for which the Company is
                  in dispute  with the  general  contractor  or  customer of the
                  projects.

             d)   Contracts and retainage receivables

                  Contracts and retainage  receivables  represent amounts billed
                  but  uncollected  on  completed   construction  contracts  and
                  construction  contracts in progress and unbilled  retainage on
                  construction contracts completed and in progress.

                  The Company  utilizes the allowance method for recognizing the
                  collectibility  of its  contracts  receivable.  The  allowance
                  method  recognizes  bad debt expense  based on a review of the
                  individual accounts outstanding based on the surrounding facts
                  and estimates made by management.
<PAGE>
                         USA BRIDGE CONSTRUCTION OF N.Y., INC.
                             NOTES TO FINANCIAL STATEMENTS
                      FOR THE YEARS ENDED JUNE 30, 1998 AND 1997

             e)   Office equipment and fixtures

                  Office  equipment  and  fixtures  are  reported  at cost  less
                  accumulated  depreciation  which is provided  on the  straight
                  line method  over the  estimated  useful  lives of the assets.
                  Expenditure  for  maintenance  and  repairs  are  expensed  as
                  incurred.

             f)   Deferred compensation

                  Deferred  compensation  consists of the Company's common stock
                  issued to its officers. Deferred compensation has been charged
                  to general and administrative expenses over the vesting period
                  of the stock issued.

             g)   Income taxes

                  The  Company  accounts  for income  taxes in  accordance  with
                  Statement of Financial  Accounting Standards No. ("SFAS") 109,
                  "Accounting  for Income  Taxes" which  requires the use of the
                  "liability   method"   of   accounting   for   income   taxes.
                  Accordingly,   deferred   tax  assets  and   liabilities   are
                  determined  based  on the  difference  between  the  financial
                  statement  and tax  bases of  assets  and  liabilities,  using
                  enacted  tax  rates  in  effect  for  the  year in  which  the
                  differences are expected to reverse.  In addition,  future tax
                  benefits,  such  as  net  operating  loss  carryforwards,  are
                  recognized  currently  to the extent  such  benefits  are more
                  likely than not to be  realized as an economic  benefit in the
                  form of a reduction of income taxes in future  years.  Current
                  income  taxes are  based on the  respective  periods'  taxable
                  income for  federal,  state,  and city  income  tax  reporting
                  purposes.  For  income  tax  purposes,  the  Company  and  its
                  subsidiaries report using a December 31st year end.

             h)   Revenue recognition

                  The Company  recognizes  revenue  and costs for all  contracts
                  under the  percentage  of completion  method,  measured by the
                  percentage of costs incurred to date to estimated  total costs
                  for each  contract.  Cost of  contract  revenues  include  all
                  direct  material  and labor  costs and  those  indirect  costs
                  related to contract  performance.  General and  administrative
                  expenses are accounted for as period costs and are, therefore,
                  not included in the  calculation  of the estimates to complete
                  construction  contracts in progress.  Material  project losses
                  are provided for in their  entirety  without  reference to the
                  percentage of completion.  As contracts can extend over one or
                  more  accounting  periods,  revision  in  costs  and  earnings
                  estimated  during the course of the work are reflected  during
                  the  accounting  period in which the facts  become  known.  An
                  amount equal to the costs  attributable  to unapproved  change
                  orders and claims is included in the total  estimated  revenue
                  when  realization is probable and the amount can be reasonably
                  estimated.   The  Company  generally   determines  a  contract
                  complete   pursuant  to  a   substantial   completion   clause
                  stipulated in each contract.
<PAGE>
                         USA BRIDGE CONSTRUCTION OF N.Y., INC.
                             NOTES TO FINANCIAL STATEMENTS
                      FOR THE YEARS ENDED JUNE 30, 1998 AND 1997

                  The current asset,  "costs and estimated earnings in excess of
                  billings  on  uncompleted   contracts",   represents  revenues
                  recognized  in  excess  of  amounts   billed  on   uncompleted
                  contracts at the end of each period.

                  The  current  liability,  "billings  in  excess  of costs  and
                  estimated  earnings  on  uncompleted   contracts,"  represents
                  billings  which  exceed   revenue   recognized  on  respective
                  uncompleted contracts at the end of each period.
            i)    Earnings per share

                  During 1997, the Financial  Accounting  Standards Board issued
                  SFAS No. 128,  "Earnings Per Share." SFAS No. 128 replaced the
                  previously  required  reporting  of primary and fully  diluted
                  earnings per share with basic and diluted  earnings per share,
                  respectively.  Unlike the previously reported primary earnings
                  per share,  basic  earnings  per share  excludes  the dilutive
                  effects  of  stock  options.  Diluted  earnings  per  share is
                  similar to the previously  reported fully diluted earnings per
                  share.  Earnings per share  amounts for all periods  presented
                  have been  calculated in accordance  with the  requirements of
                  SFAS No. 128.

            j)    Impact of recently issued accounting standards

                  The  Company  does  not  believe  that  any  recently   issued
                  accounting  standards,  not yet adopted by the  Company,  will
                  have a material  impact on its financial  position and results
                  of operations when adopted.

            k)    Stock-based compensation

                  The Company continues to account for stock-based  compensation
                  using the  intrinsic  value method  prescribed  in  Accounting
                  Principles Board Opinion No. 25,  "Accounting for Stock Issued
                  to  Employees"for  options  issued  under the  Company's  1994
                  Senior   Management   Incentive   Plan   ("Incentive   Plan").
                  Compensation  cost for stock  options,  if any, is measured as
                  the excess of the quoted market price of the  Company's  stock
                  at the date of grant less the amount an  employee  must pay to
                  acquire the stock.

                  SFAS  No.  123,  "Accounting  for  Stock-Based  Compensation,"
                  established  accounting  and disclosure  requirements  using a
                  fair-value-based method of accounting for stock based employee
                  compensation  plans.  The Company has elected to remain on its
                  current  method of  accounting  as  described  above,  and has
                  adopted and is in compliance with the disclosure  requirements
                  of SFAS No. 123.
<PAGE>
                         USA BRIDGE CONSTRUCTION OF N.Y., INC.
                             NOTES TO FINANCIAL STATEMENTS
                      FOR THE YEARS ENDED JUNE 30, 1998 AND 1997

            l)    Fair value disclosure as of June 30, 1998

                  The  carrying  value of cash,  accounts  receivable,  accounts
                  payable  and  accrued  expenses  and  short-term  debt  are  a
                  reasonable estimate of their fair value. The carrying value of
                  the  long-term  debt   approximates  fair  value  because  the
                  interest  factors  for the debt are based  upon the prime rate
                  which reflects market value.
 
           m)      Reclassifications

                  Certain  reclassifications have been made to the June 30, 1997
                  consolidated  financial  statements in order to conform to the
                  June 30,  1998  presentation.  As a result,  cost of  contract
                  revenues and general and administrative expenses for the prior
                  year have been restated to reflect these new classifications.

NOTE 4       -    CONTRACT AND RETAINAGE RECEIVABLE

                  At June 30, 1998,  contracts and retainage receivable consists
                  of the following:
<TABLE>
<CAPTION>
                                               Total         Current       Non-Current
                                           -----------     -----------     -----------
<S>                                        <C>             <C>             <C>                   
Contracts in progress                      $ 1,619,262     $ 1,619,262     $      --

Completed contracts                         13,371,454       2,495,346      10,876,108
Retainage                                      250,417         250,417            --
                                           -----------     -----------     -----------
                                            15,241,133       4,365,025      10,876,108

Less:  allowance for doubtful accounts       4,664,932       2,220,763       2,444,169
                                           -----------     -----------     -----------

                                           $10,576,201     $ 2,144,262     $ 8,431,939
                                           ===========     ===========     ===========
</TABLE>
                  The   allowance   for  doubtful   accounts  was  increased  to
                  $4,664,932  at June 30,  1998 from  $2,287,000  as of June 30,
                  1997 to reflect the filing of mechanic's liens on certain jobs
                  as well as a review  of the aging of the  accounts  receivable
                  and  the  settlement  of  certain   receivables.   No  further
                  adjustments  to the  allowance  has been deemed  necessary  by
                  management  as of June  30,  1998.  As of June 30,  1998,  the
                  Company  classified a portion of its contracts  receivables as
                  non current  since it cannot  reasonably  estimate  the timing
                  that such receivables will be collected.  Lastly,  the Company
                  has pledged  approximately  $1,702,584  of its  contracts  and
                  retainage receivables in connection with unpaid union dues and
                  professional fees (see Note 10).
<PAGE>
                         USA BRIDGE CONSTRUCTION OF N.Y., INC.
                             NOTES TO FINANCIAL STATEMENTS
                      FOR THE YEARS ENDED JUNE 30, 1998 AND 1997

NOTE 5       -    CONTRACTS IN PROGRESS

                  At June 30, 1998,  costs and  estimated  earnings in excess of
                  billings  and  billings  in  excess  of  costs  and  estimated
                  earnings on uncompleted contracts consist of the following:


               Costs incurred on uncompleted contracts             $ 8,208.574  
               Profits earned to date                                2,504,660 
                                                                   ----------- 
                                                                    10,713,234 
                                                                               
               Less: billings to date                               10,584,044 
                                                                   ----------- 
                                                                   $   129,190 
                                                                   =========== 
                                                                   
                  Included in the accompanying balance sheet under the following
                  captions at June 30, 1998:

                  Costs and estimated earnings in excess of
                   billings on uncompleted contracts               $    139,440
                  Billings in excess of costs and estimated
                   earnings on uncompleted contracts                    (10,250)
                                                                   ------------
                                                                   $    129,190
                                                                   ============
NOTE 6       -    BACKLOG

                  The  following  schedule  summarizes  changes  in  backlog  on
                  contracts  during  the  year  ended  June  30,  1998.  Backlog
                  represents  the  amount of  revenue  the  Company  expects  to
                  realize from work to be performed on uncompleted  contracts in
                  progress at year end and from contractual  agreements on which
                  work has not yet begun.
<TABLE>
<CAPTION>
<S>                                                                     <C>        
  Backlog balance at July 1, 1997                                       $ 6,088,048
  Change orders to contracts in progress at July 1, 1997                 11,219,030
  New contracts during the year ended June 30, 1998                         114,686
                                                                        -----------
                                                                         17,421,764
  Less: contract revenue earned during the year ended June 30, 1998      16,544,354
                                                                        -----------

  Backlog balance at June 30, 1998                                      $   877,410
                                                                        ===========
</TABLE>
<PAGE>
                         USA BRIDGE CONSTRUCTION OF N.Y., INC.
                             NOTES TO FINANCIAL STATEMENTS
                      FOR THE YEARS ENDED JUNE 30, 1998 AND 1997

NOTE 7       -    OFFICE EQUIPMENT AND FURNITURE

                  Office  equipment and furniture are comprised of the following
                  at June 30, 1998:

                       Office equipment                             $   20,431
                       Furniture & fixtures                             18,311
                                                                    ----------
                                                                        38,742

                       Less: accumulated  depreciation                  14,975
                                                                    ----------
                                                                    $   23,767
                                                                    ==========


                  Depreciation  expense  for the years  ended June 30,  1998 and
                  1997 amounted to $6,733 and $4,902 respectively.

NOTE 8       -    ACCRUED EXPENSES

                  Accrued expenses consisted of the following at June 30, 1998:

                           Wages and related union benefits         $    109,351
                           Professional fees                             115,000
                           Insurance                                   1,452,915
                           Interest                                       77,584
                           Other                                          67,820
                                                                    ------------
                                                                    $  1,822,670
                                                                    ============

NOTE 9       -    INCOME TAXES

                  The Company has adopted SFAS No. 109,  "Accounting  for Income
                  Taxes".  Income  taxes are  provided  for the tax  effects  of
                  transactions  reported in the financial statements and consist
                  of taxes  currently due plus deferred taxes related  primarily
                  to differences between the financial  statements and tax bases
                  of  assets  and  liabilities.  The  deferred  tax  assets  and
                  liabilities  represent the future tax return  consequences  of
                  these temporary  differences,  which will either be taxable or
                  deductible  when the assets and  liabilities  are recovered or
                  settled.

                  For income tax purposes,  the Company reports using a year end
                  of  December  31. The Company  and its  subsidiaries  file tax
                  returns separately for federal and state purposes.
<PAGE>
                        USA BRIDGE CONSTRUCTION OF N.Y., INC.
                             NOTES TO FINANCIAL STATEMENTS
                      FOR THE YEARS ENDED JUNE 30, 1998 AND 1997

                  The  reconciliation  of income  tax  computed  at the  federal
                  statutory  tax  rate  to  income  tax(benefit)  expense  is as
                  follows for the years ended June 30:
 
                                                        1998           1997
                                                     ---------      ---------
 Tax computed at the federal statutory income 
     tax rate                                         $    --        $ 199,339
 Increase (reductions) resulting from:
 State and local taxes, net of federal benefit             --           74,535
 Change in income tax accrual                          (357,392)          --
 Change in deferred tax asset valuation allowance       239,750           --
                                                      ---------      ---------

 Income tax (benefit) expense                         $(117,642)     $ 273,874
                                                      =========      =========

                  The  reconciliation  of income  taxes  computed at the federal
                  statutory tax rate to income taxes at the effective income tax
                  rate in the statements of operations are as follows:

                                                                Year Ended
                                                                 June 30,
                                                              1998      1997
                                                             -----      ----
  Federal statutory income tax rate                            34%       34%
  State and local income taxes, net
      of federal benefit                                       11%       11%
  (Benefit) of graduated tax rates                            (10%)     (10%)
  (Benefit) provision resulting from change in income tax
      accrual and valuation allowance                         (36%)       8%
                                                              ---       ---

  Effective income tax (benefit) provision rate                (1%)      43%
                                                              ===       ===

                  The tax effects of significant  items comprising the Company's
                  net  current  deferred  tax assets as of June 30,  1998 are as
                  follows:

                      Allowance for doubtful accounts            $  784,000
                      Section 144 stock (IRC Section 83)             72,000
                                                                  ---------
                                                                    856,000

                      Less: valuation allowance                    (856,000)
                                                                 ----------
                      Deferred current tax asset                 $        -
                                                                 ==========
<PAGE>
                        USA BRIDGE CONSTRUCTION OF N.Y., INC.
                             NOTES TO FINANCIAL STATEMENTS
                      FOR THE YEARS ENDED JUNE 30, 1998 AND 1997

                  The tax effects of significant  items comprising the Company's
                  net non-current deferred tax assets as of June 30, 1998 are as
                  follows:

                      Allowance for doubtful accounts               $   855,000
                                                                    -----------
                                                                        855,000
                      Less valuation allowance                         (855,000)
                                                                    -----------
                      Deferred non-current tax asset                $         -
                                                                    =========== 

                  The  Company  has  recorded  a  deferred  tax  asset  with  an
                  estimated  valuation  allowance  of 100% as of June  30,  1998
                  since the Company  cannot  determine  that it is "more  likely
                  than not" that such asset will be realized.

                  At June 30, 1998, the Company had an immaterial  amount of net
                  operating loss carryforwards.


NOTE 10      -    LONG TERM DEBT

            a)    Union dues payable

                  During  December 1997,  the Company  entered into an agreement
                  with the Iron  Workers  Local 40,  361 and 417 Joint  Security
                  Funds (the  "Union") in order to settle  $1,750,000  of unpaid
                  union  dues  previously  recorded  as  accounts  payable.  The
                  Company  agreed to pay  $75,000 by  January  1998 and at least
                  $25,000 monthly commencing March 1, 1998 with interest at 9.5%
                  per annum. As collateral,  the Company  assigned its retainage
                  receivable from a project as well as $1,750,000 of its related
                  mechanic's lien on the project.  Upon any funds being released
                  or paid  under  such  mechanic's  lien,  the  Union  will have
                  priority  and receive all funds until the debt is paid in full
                  before the Company may  receive  any funds.  The Company  will
                  then  receive  credit for any  payment  received  by the Union
                  related  to  the  assigned  portion  of  the  mechanic's  lien
                  received.   The  amount   outstanding  at  June  30,  1998  is
                  $1,575,000. In connection with such liability, the Company has
                  accrued $77,584 of interest as of June 30, 1998.
<PAGE>
                        USA BRIDGE CONSTRUCTION OF N.Y., INC.
                             NOTES TO FINANCIAL STATEMENTS
                      FOR THE YEARS ENDED JUNE 30, 1998 AND 1997


                  As of June 30, 1998, union dues payable mature as follows:

                      Year ending
                         June 30,

                         1999                                     $   300,000
                         2000                                         300,000
                         2001                                         300,000
                         2002                                         300,000
                         2003                                         300,000
                         Thereafter                                    75,000
                                                                  ----------- 

                                                                  $ 1,575,000
                                                                  ===========

NOTE 11      -    STOCKHOLDERS' EQUITY

            a)    1994 Senior Management Incentive Plan

                  During  December  1994,  the board of  directors  adopted  the
                  Incentive  Plan as amended  during  December  1996,  which was
                  adopted by  shareholder  consent.  The Incentive Plan provides
                  for the issuance of up to 1,000,000 shares (as amended) of the
                  Company's  Common  Stock in  connection  with the  issuance of
                  stock  options and other stock  purchase  rights to  executive
                  offices and other key employees.

            b)    Issuance of Common Shares

                  (i)      During   February  1997,   pursuant  to  a  Form  S-8
                           Registration  Statement filed with the Securities and
                           Exchange  Commission,  the Company registered 125,000
                           common  shares  underlying  options of its  President
                           pursuant to the Company's Incentive Plan. The options
                           were granted December 2, 1996 and were exercisable at
                           $1.10 per  share  (110% of the bid price of $1.00 per
                           share on  November  27,  1996) and expire on November
                           27, 2001.  These options were  exercised on March 25,
                           1997 resulting in the Company  issuing 125,000 shares
                           of common stock.

                  (ii)     During  June  1997,  pursuant  to an  agreement  with
                           R.S.J.J.  Realty  Corp.  ("RSJJ"),  a Company  wholly
                           owned by the Company's  President to settle  $480,000
                           in accrued rent, the Company issued 270,000 shares of
                           its common stock to Bridge Corp for the  cancellation
                           of the debt  owed to  RSJJ.  Bridge  Corp.,  in turn,
                           issued  50,000  shares  of its  common  stock  to its
                           President  and 37,500 shares of common stock to RSJJ.
                           RSJJ then  transferred  all such common shares to its
                           mortgagor,  which  agreed  to accept  said  shares as
                           payment of RSJJ's outstanding mortgage.  These shares
                           have been valued at  $480,000  which  represents  the
                           amount of unpaid rent as of December 31, 1997.
<PAGE>
                        USA BRIDGE CONSTRUCTION OF N.Y., INC.
                             NOTES TO FINANCIAL STATEMENTS
                      FOR THE YEARS ENDED JUNE 30, 1998 AND 1997

                  (iii)    During  December  1997,  the Company  authorized  the
                           issuance,  in its third quarter, of 290,000 shares of
                           Common Stock,  pursuant to its Incentive Plan. Of the
                           290,000  shares  issued in March 1998 to  management,
                           150,000  were  issued  to  the  Company's  President,
                           70,000 were issued to the  Company's  Secretary,  and
                           70,000 were issued to the Company's  Treasurer.  Half
                           of these shares vested on June 1, 1998, and half vest
                           on January 1, 1999.  The Company also  authorized the
                           filing of a Post-Effective  Amendment to the Form S-8
                           Registration  Statement  initially  filed in February
                           1997 to register for resale the 290,000 common shares
                           issued  pursuant to the Company's  Incentive Plan. In
                           addition  to  the   foregoing,   the   Company   also
                           authorized  the issuance of 50,000  common  shares to
                           certain  of  its   employees  and   consultants.   In
                           connection with these issuances, the Company recorded
                           deferred   compensation   and   consulting   expenses
                           amounting to approximately $459,000 which is based on
                           the average  closing bid price of $1.50 per share for
                           the month of March 1998, with a 10% discount in order
                           to  reflect  their  fair  value as a result  of their
                           restrictions  at time of issuance.  The above shares,
                           which do not vest  immediately  and were  recorded as
                           deferred  compensation,  are being amortized over the
                           vesting  period.  For the year ended  June 30,  1998,
                           compensation  and  consulting   expense  amounted  to
                           $291,215.

                  (iv)     During  February  1998,  the Company  issued  106,667
                           shares  of its  common  stock  to  Bridge  Corp.,  as
                           consideration  to Bridge  Corp.,  for issuing  48,000
                           shares   of  its  own   common   stock   to  RSJJ  in
                           consideration  for payment in full of the rent due by
                           the  Company to RSJJ for the period  from  January 1,
                           1998  through  December  31,  1998.  The value of the
                           shares issued by the Company is recorded at the value
                           of the rent  otherwise  due  under  the  lease  which
                           amounted to $240,000 .

NOTE 12      -    COMMITMENT AND CONTINGENCIES

            a)    Disclosure of significant estimates - revenue recognition

                  As outlined in Note 3 the  Company's  construction  revenue is
                  recognized   on   the   percentage   of   completion    basis.
                  Consequently,  construction  revenue and gross margin for each
                  reporting period is determined on a contract by contract basis
                  by  reference to estimates  by the  Company's  management  and
                  engineers  of expected  costs to be incurred to complete  each
                  project.  These  estimates  include  provisions  for known and
                  anticipated  cost  overruns,  if any exist or are  expected to
                  occur.  These  estimates  may be  subject to  revision  in the
                  normal course of business.
<PAGE>
                        USA BRIDGE CONSTRUCTION OF N.Y., INC.
                             NOTES TO FINANCIAL STATEMENTS
                      FOR THE YEARS ENDED JUNE 30, 1998 AND 1997

            b)    Leases

                  The Company leases its  administrative  offices  pursuant to a
                  signed lease  agreement with RSJJ, an entity  wholly-owned  by
                  the Company's President.  Such lease requires monthly payments
                  of $20,000 and expires on December  31,  1998.  As of June 30,
                  1998, under such lease  agreement,  the Company is required to
                  make  future  minimum  lease  payments  amounting  to $120,000
                  through  December  31,  1998,  however,  as a  result  of  the
                  transaction described in Note 11b(iv), the Company has prepaid
                  its rent in full  through  December 31,  1998.  Subsequent  to
                  December 31, 1998,  the Company plans on leasing such facility
                  on a month to month  basis  from  RSJJ for a  reduced  monthly
                  amount to be negotiated.

                  The Company also leased  storage space  pursuant to a month to
                  month  agreement   requiring   monthly   payments  of  $3,500.
                  Subsequent to June 30, 1998,  the Company  settled unpaid rent
                  for $10,000 and vacated such premises.

                  Included  in  general  and  administrative  expenses  is  rent
                  expense which  amounted to $240,000 and $240,000 for the years
                  ended  June  30,  1998  and  1997,   respectively.   The  rent
                  associated   with  the  storage   space,   which  amounted  to
                  approximately  $31,000 and $42,000  respectively for the years
                  ended June 30,  1998 and 1997,  has been  included  in cost of
                  contract revenue.

            c)    Significant customers and vendors

                  For the years  ended June 30,  1998 and 1997,  the Company had
                  three unrelated  customers  respectively,  which accounted for
                  approximately 61%, 17%, 14%, and 53%, 15%, 19%,  respectively,
                  of contract  revenue.  As of June 30, 1998 the Company had two
                  unrelated  customers which accounted for approximately 65% and
                  11% of total net contracts and retainage receivable.

            d)    Seasonality

                  The Company  operates in an  industry  which may be  seasonal,
                  generally due to inclement weather occurring during the winter
                  months.  Accordingly,  the Company may  experience  a seasonal
                  pattern in its  operating  results  with lower  revenue in the
                  third quarter of each fiscal year.  Quarterly results may also
                  be affected by the timing of bid solicitations by governmental
                  authorities or the stage of completion of major projects.

            e)    Bonding requirements

                  The  Company is  required  to provide  bid and/or  performance
                  bonds in connection with governmental  construction  projects.
                  There can be no  assurance  that the  Company  will be able to
                  obtain future bonding as a result of its financial condition.
<PAGE>
                        USA BRIDGE CONSTRUCTION OF N.Y., INC.
                             NOTES TO FINANCIAL STATEMENTS
                      FOR THE YEARS ENDED JUNE 30, 1998 AND 1997

            f)    Mechanic's liens

                  As of  June  30,  1998,  various  actions  to  foreclose  upon
                  mechanic's  liens filed  during the last two fiscal years were
                  commenced. Such actions amounted to approximately $15,544,324.
                  The  mechanic's  liens  have been  filed in  relation  to work
                  completed  and billed.  The liens filed also  include  claims,
                  interest, and other costs not included in revenue or contracts
                  and retainage receivable. The Company elected not to recognize
                  any portion of the  additional  revenue  associated  which any
                  contract claims until the amounts  recovered can be accurately
                  estimated.  Based  upon  the  assessment  of  management,  the
                  Company has  recorded an allowance  for  doubtful  accounts to
                  adjust its receivable to their estimated realizable amount.

            g)    Payroll taxes

                  As of June 30, 1998, the Company owes approximately $2,154,856
                  of payroll taxes and related estimated penalties and interest.
                  As of June 30, 1998 and subsequent  thereto,  certain  federal
                  and state tax liens have been  filed  against  the  Company in
                  connection with unpaid payroll taxes. Although, as of June 30,
                  1998,  the Company has not entered  into any formal  repayment
                  agreements  with the respective tax  authorities,  it has been
                  attempting to make monthly payments as funds become available.

            h)    Legal proceedings

                  i)    The  Company is a  defendant  in a  proposed  settlement
                        regarding the State  Insurance Fund for unpaid  workers'
                        compensation  insurance  for the  period  from April 29,
                        1993 to  December  31,  1994.  As of  December  4, 1998,
                        negotiations  for a final  settlement are in their final
                        stages.  The  Company as of June 30,  1998,  has accrued
                        approximately  $300,000 based on the expected settlement
                        amount, which has been included in accrued expenses.

                  ii)      In connection  with various mechanic's liens filed as
                           discussed  in  note  12(f),   certain   actions  were
                           commenced  against the Company during the fiscal year
                           ended June 30, 1998 as follows:

                         a)  A customer of the Company is seeking  judgement  in
                             the  amount  of   $500,000,000   for  violation  of
                             contract,  interference  of contract  and  punitive
                             damages.  The Company has filed a  mechanic's  lien
                             for  $13,640,747  relating to work performed at the
                             project.  The Company is in the process of pretrial
                             discovery  which is  scheduled  to be  completed by
                             June 1999. The Company intends to vigorously defend
                             against any claims as well as vigorously  prosecute
                             its claims against the owner of the project.
<PAGE>
                        USA BRIDGE CONSTRUCTION OF N.Y., INC.
                             NOTES TO FINANCIAL STATEMENTS
                      FOR THE YEARS ENDED JUNE 30, 1998 AND 1997

                         b)  A general contractor commenced an action to recover
                             a total  of  $6,326,000  which  includes  costs  to
                             complete  the job,  delay  and other  damages.  The
                             Company  has  commenced  an action  for  extras and
                             retainage  due  and  filed a  mechanic  lien in the
                             amount of $1,488,775.  In addition,  the Company is
                             attempting   to  recover   $759,500   for  contract
                             interference.  The  Company  intends to  vigorously
                             defend  against  any  claims as well as  vigorously
                             prosecute   its   claims    against   the   general
                             contractor.

                  iii)     During August 1998, a majority of the  Company's,  as
                           well  as its  President's,  affiliated  entities  and
                           Bridge  Corp.'s,  books and  records  were  seized in
                           connection with a Grand Jury Subpoena from the United
                           States District Court for the Eastern District of New
                           York. Grand Jury investigations can result in a range
                           of  actions  from  a  finding  of  no  true  bill  to
                           indictments  and   prosecutions  for  any  number  of
                           federal offenses. Criminal prosecutions can result in
                           a  wide  range  of  penalties,  including  probation,
                           imprisonment,  fines,  restitution  and forfeiture of
                           assets  depending upon the specific type and severity
                           of the  offense.  As Grand  Jury  investigations  are
                           secret,  legal  counsel  is not at liberty to comment
                           upon  the  investigation.   Additionally,  since  the
                           investigation is in its initial stages, legal counsel
                           cannot  comment  regarding any possible  liability of
                           the Company.  Accordingly,  as of June 30,  1998,  no
                           accrual for any potential loss  contingency  has been
                           made.

                  iv)      The  Company is a party to  various  claims and legal
                           proceedings    incidental   to   its   business.   In
                           management's opinion, the outcome of these claims and
                           proceedings  will not have a material  adverse effect
                           on the financial statements of the Company taken as a
                           whole.

                          While the ultimate  outcome of these matters cannot be
                          determined presently with certainty,  management is of
                          the opinion  that the outcome will not have a material
                          adverse effect on the Company's consolidated financial
                          position.

            i)    Claims

                         The Company elected not to recognize any portion of the
                         revenue  associated  with any contract claims until the
                         amounts recoverable can be accurately estimated. Claims
                         are  amounts  in excess of the  agreed  contract  price
                         which the Company seeks to collect for customer  caused
                         delays, errors in specifications and designs,  contract
                         terminations,   and   change   orders  in   dispute  or
                         unapproved.
<PAGE>
                        USA BRIDGE CONSTRUCTION OF N.Y., INC.
                             NOTES TO FINANCIAL STATEMENTS
                      FOR THE YEARS ENDED JUNE 30, 1998 AND 1997


            j)    Year 2000 Compliance

                  The Company has reviewed  its computer  software for Year 2000
                  compliance and does not anticipate any adverse  effects on its
                  financial condition, liquidity or results of operations.

            k)     Environmental

                  The Company is subject to rules and  regulations  from federal
                  and  state  agencies  in  connection  with  safety  rules  and
                  environmental  safety.  The  failure to comply with such rules
                  and  regulations  may have an adverse  effect on the Company's
                  operations.  The Company  believes  that it is in  substantial
                  compliance with all applicable rules and regulations.

NOTE 13      -    RELATED PARTY TRANSACTIONS

            a)    Due from related parties

                  As of June 30, 1998, the Company has advanced funds to various
                  affiliates.  These advances are  non-interest  bearing and are
                  due on demand.  As of June 30, 1998 such advances  amounted to
                  $126,489.

             b)   Due from parent company

                  As of June 30, 1998, the Company has advanced  $405,458 to its
                  parent,  Bridge Corp.  Such  advances bear no interest and are
                  due on demand.

            c)    Due to officer and affiliates

                  As of June 30, 1998, the total due to officers and affiliates,
                  amounting  to  $386,457,   represents  advances  made  by  the
                  President of the Company and affiliated entities which bear no
                  interest and are due on demand.

            d)    Rent expense

                  Included  in  general  and  administrative  expenses  is  rent
                  expense  paid in cash and stock by the  Company  pursuant to a
                  signed  lease  agreement  with  RSJJ,  a company  owned by the
                  Company's President. The lease expires December 31, 1998. Rent
                  expense for both years  ended June 30, 1998 and 1997  amounted
                  to $240,000.

            e)    Purchase of material and labor

                  For the years ended June 30, 1998 and 1997 the Company paid to
                  Crown  Crane,  Inc.   approximately   $154,856  and  $214,000,
                  respectively,   for  rental  of  machinery  and  equipment  in
                  connection with its steel erection services. Crown Crane, Inc.
                  is an entity which is 50% owned by the Company's President. As
                  of June 30, 1998,  $107,911 is owed to Crown Crane, Inc. which
                  has been included in due to officer and affiliates.
<PAGE>
                        USA BRIDGE CONSTRUCTION OF N.Y., INC.
                             NOTES TO FINANCIAL STATEMENTS
                      FOR THE YEARS ENDED JUNE 30, 1998 AND 1997

                  During the year ended June 30, 1998 and 1997, the Company paid
                  $44,000 and  $35,000  respectively  to Atlas Gem Leasing  Inc.
                  ("AGLI")  for certain  machinery  and  equipment  necessary to
                  perform steel  erection  services.  AGLI is an entity which is
                  wholly owned by the Company's President.

            f)    Employment agreement

                  On  April 4,  1995  the  Company  entered  into an  employment
                  agreement with its President for a term of approximately three
                  (3)  years  which  expired  on June 30,  1998.  The  Company's
                  President  formally  elected  to extend the  agreement  for an
                  additional  three  years  until  June 30,  2001 under the same
                  terms. The employment  agreement provides for an annual salary
                  of $300,000 with a 10% annual escalation subject to adjustment
                  by the Board of  Directors.  In addition,  the  President  was
                  granted  options to  purchase  6,250  shares of the  Company's
                  common stock, all of which options vested  immediately and are
                  due to expire in April 2000. The exercise price of the options
                  is equal to 110% of the  stock  price  in the  initial  public
                  offering.  The  foregoing  options are  intended to qualify as
                  incentive stock options.  In addition,  the President receives
                  an annual non-accountable expense allowance of $50,000 and the
                  Company  shall pay  premiums on a  $3,500,000  life  insurance
                  policy  for  the  benefit  of  individuals  designated  by the
                  President, with an estimated annual premium of $80,000.

NOTE 14      -    EARNINGS PER SHARE

                  As of June  30,  1998,  the  Company  adopted  SFAS  No.  128,
                  "Earnings per Share". Accordingly, diluted earnings per common
                  share for all prior periods have been restated. Basic earnings
                  per common share are based on the weighted  average  number of
                  common  shares  outstanding  in each year and after  preferred
                  stock dividend requirements. Diluted earnings per common share
                  assume   that  any   dilutive   convertible   debentures   and
                  convertible  preferred shares  outstanding at the beginning of
                  each  year  were  converted  at  those  dates,   with  related
                  interest,    preferred   stock   dividend   requirements   and
                  outstanding  common  shares  adjusted  accordingly.   It  also
                  assumes  that  outstanding  common  shares were  increased  by
                  shares issuable upon exercise of those stock options for which
                  market price exceeds  exercise price,  less shares which could
                  have been purchased by the Company with related proceeds.
<PAGE>
                       USA BRIDGE CONSTRUCTION OF N.Y., INC.
                             NOTES TO FINANCIAL STATEMENTS
                      FOR THE YEARS ENDED JUNE 30, 1998 AND 1997

                  The computation of basic and diluted earnings per common share
                  is as follows:

<TABLE>
<CAPTION>
                                                                       For the year
                                                                      ended June 30,
                                                                  1998             1997
                                                              -----------      -------------
<S>                                                           <C>              <C>          
Net (loss) income                                             $(2,093,969)     $     358,715

Denominator:
Computation of basic earning per share ("EPS"):
Weighted average common shares outstanding                      2,508,071          1,982,098
                                                              -----------      -------------

Basic EPS                                                     $      (.83)     $         .18
                                                              ===========      =============

Computation of diluted EPS:
Weighted average common share outstanding                       2,508,071          1,982,098

Potentially dilutive shares:
Weighted average shares issuable under warrants                      a, b            436,124
Weighted average shares issuable under options                       a, b             18,664
                                                              -----------      -------------

Weighted average shares outstanding & available                 2,508,071          2,436,886
                                                              -----------      -------------

Diluted EPS                                                   $      (.83)     $         .15
                                                              ===========      =============
</TABLE>

                  (a)    Shares  issuable  under options and warrants,  were not
                         included  in the  computation  of diluted EPS since the
                         options'  and  warrants'  exercise  prices were greater
                         than the average market price of the common shares.

                  (b)    In accordance  with the  provisions of SFAS No. 128, no
                         potential  dilutive  shares  have been  included in the
                         computation  of diluted  EPS as the  Company has a loss
                         from continuing operations.

NOTE 15      -    STOCK COMPENSATION PLANS

                The Company's Incentive Plan was adopted in order to attract and
                retain  qualified  personnel,  whose  performance is expected to
                have a substantial  impact on the Company's long term profit and
                growth potential.  The Company's  Incentive Plan provides for an
                issuance of up to 1,000,000 shares of its common stock.
<PAGE>
                       USA BRIDGE CONSTRUCTION OF N.Y., INC.
                             NOTES TO FINANCIAL STATEMENTS
                      FOR THE YEARS ENDED JUNE 30, 1998 AND 1997

                  The status of the Company's Incentive Plan is summarized below
                  for the years ended June 30, 1998 and 1997:


                                               Number of           Exercise
                                                options              price
                                              ---------           --------  

             Outstanding at June 30, 1996      $  25,000           $   5.50  
               Granted                         $ 125,000               1.10  
               Exercised                        (125,000)              1.10  
               Cancelled                            --                 --    
                                               ---------           --------  
             Outstanding at June 30, 1997         25,000               5.50  
               Granted                              --                 --    
               Exercised                            --                       
                Cancelled       
                                               ---------           --------  
               Outstanding at June 30, 1998    $  25,000           $   5.50  
                                               =========           ========  
                                                                   

                For companies that choose to continue  applying APB No. 25, SFAS
                No. 123 requires  certain  proforma  disclosures  as if the fair
                value method had been utilized.  Had  compensation  cost for the
                Company's stock-based compensation plan been determined based on
                the fair  value on the  grant  dates  for  award  under the plan
                consistent  with the method of SFAS No. 123, the  Company's  net
                loss per share would have been reduced to the pro forma  amounts
                indicated below utilizing the Black-Scholes  stock option model,
                a discount  rate of 8.5%,  a  volatility  of 100%,  no  expected
                dividend yield and an expected remaining life of three years.


                                                         For the year
                                                         ended June 30,
                                                     1998               1997
                                                -------------    --------------

                  Net loss    -  as reported    $ (2,093,969)    $      358,715
                                                =============    ===============
                              -  pro-forma      $ (2,093,969)    $      358,715)
                                                ============     ==============


                  Basic EPS   -  as reported    $       (.83)    $          .18
                                                =============    ===============
                              -  pro-forma      $       (.83)    $          .18
                                                =============    ===============

<PAGE>
                       USA BRIDGE CONSTRUCTION OF N.Y., INC.
                             NOTES TO FINANCIAL STATEMENTS
                      FOR THE YEARS ENDED JUNE 30, 1998 AND 1997

                  The Black-Scholes  Stock option model was developed for use in
                  estimating  the fair value of traded  options that do not have
                  vesting restrictions and are fully transferable.  In addition,
                  option valuation models require the input of highly subjective
                  assumptions  including  the expected  stock price  volatility.
                  Because  the  Company's  stock  options  have  characteristics
                  significantly  different  from  those of  traded  options  and
                  because  changes  in  the  subjective  input  assumptions  can
                  materially  affect the value of an estimate,  in  management's
                  opinion,  the  existing  models do not  necessarily  provide a
                  reliable  single  measure  of the  fair  value  of  its  stock
                  options.