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

                                   USABG CORP.
                                   -----------
             (Exact name of registrant as specified in its charter)

           Delaware                                           11-2974406
--------------------------------------------------------------------------------
(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 [  ] No [ X ].

         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
$17,062,873.
<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 $36,093  based upon the average  closing bid price for such Common  Stock on
said date  $.0625,  as  reported  by a market  maker.  On such date,  there were
1,961,037 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):
1,961,037.
<PAGE>

                                     PART I


ITEM 1.           DESCRIPTION OF BUSINESS

History

         USABG Corp.  ("the Company") was incorporated on September 12, 1988, in
the State of Delaware,  as Colonial Capital Corp., and changed its name to USABG
Corp. in January 1998. The Company is the parent of USA Bridge  Construction  of
N.Y.,  Inc.  ("NY") and owns 100% of the  outstanding  shares of common stock of
Royal Steel Services, Inc. and 100% of the outstanding shares of common stock of
Worldwide Construction Limited  ("Worldwide").  These three subsidiaries are the
only ones  through  which the  Company  operates.  Two  additional  wholly-owned
subsidiaries  of  the  Company  - One  Carnegie  Court  Associates,  Inc.  ("One
Carnegie")  and  USA  Bridge  Construction  Corp.  (Maryland)  ("MD")  -  ceased
operations  in August  1997 and  November  1996,  respectively,  though  neither
company has been formally dissolved.  Unless the context requires otherwise, all
references to the Company include its subsidiaries.

         Until  its  acquisitions  ("the  Acquisitions")  of  both  NY  and  One
Carnegie,  consummated  on April 25, 1994,  the Company was a development  stage
company.   Its  only  operations   involved   searching  for  possible  business
acquisitions.  Pursuant to the Acquisitions,  the Company issued an aggregate of
3,540,000  shares of its Common  Stock,  par value $.001 per share ("the  Common
Stock"),  to the  stockholders  of NY  and  One  Carnegie  -  (2,820,000  to the
stockholders  of NY and  720,000  to the  stockholders  of  One  Carnegie)  - in
exchange for all of said  stockholders'  issued and outstanding  shares.  Joseph
Polito,  the  principal  stockholder  of NY  and  the  sole  stockholder  of One
Carnegie,  received,  in exchange for his shares of NY and One  Carnegie  common
stock,  2,380,000 and 720,000  shares,  respectively,  of the  Company's  Common
Stock. The Acquisitions were accounted for as "recapitalizations."  Accordingly,
both NY and One Carnegie became subsidiaries of the Company.

         In  connection   with  the   Acquisitions,   the  Company  amended  its
Certificate of  Incorporation  to (i) increase its  authorized  shares of Common
Stock from 10,000,000 to 50,000,000  shares;  (ii) increase the par value of the
Common  Stock from $.0001 to $.001;  and (iii)  authorize  10,000,000  shares of
Preferred Stock,  which shares may be issued in classes and series,  pursuant to
the  rights,  designations,  and  preferences  as  determined  by the  Board  of
Directors. To date, the Company has not issued any Preferred Stock.

         On August 3, 1998, after shareholder approval obtained at the Company's
special  meeting of July 29, 1998, the Company  effected a one-for-four  reverse
split (1 for 4) of its outstanding shares of Common Stock.


                                        2
<PAGE>
Business of USA Bridge Construction of N.Y., Inc.

         The Company commenced operations through NY, a 56% owned subsidiary, on
or about June 1993. NY 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.  To date, NY 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,  NY  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 NY 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,  NY 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  $2,343,482  and $875,238 for
the fiscal year ended June 30, 1998 and 1997,  respectively,  a working  capital
deficiency of $4,327,344 and backlog  balance of $1,051,119 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  $2,616,742  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, NY 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.

         In July 1996,  NY 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

                                        3
<PAGE>
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,  NY'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.  NY 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,  NY 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 is still postponed and no commencement date has been determined.

African Operations

         Worldwide was formed in December 1997 in the British  Virgin Islands as
a holding  company  which owns 80% of each of Falcon TChad S.A.  ("Falcon")  and
Portshop S.A. ("Portshop"), both of which companies were incorporated in Chad, a
country located in North Central Africa. Chad is a country with abundant natural
resources such as cattle, cotton,  limestone and crude oil. The remaining 20% of
each of Falcon and  Portshop  is owned by  Diversified  Investments  Africa S.A.
("DIA"), a Luxembourg company unaffiliated with the Company. Falcon and Portshop
were jointly formed by Worldwide and DIA, both of which received their shares in
the  companies  as founders  thereof and as  facilitators  of the  relationships
between  Falcon and  Portshop  and the  entities  with which Falcon and Portshop
intend to do business in Chad;  accordingly,  no cash  consideration was paid to
either  of  Falcon  or  Portshop  by  Worldwide  or  DIA.  DIA  facilitated  the
commencement of the Chadian  operation for both companies by acting as a liaison
with the Chadian  government and by developing  business contacts and operations
in Chad.  Falcon  will  operate as a full  service  transportation,  forwarding,
customs  clearance and  warehousing  company in the city of N'Djamena.  Portshop
shall stock and operate a duty free store in Chad's sole international  airport.
Worldwide  shall  operate  as the  liaison  between  Portshop,  Falcon  and  the
governmental or private  entities with which these companies  intend to contract
in Chad.

         In  January  1998,  Falcon  purchased  16  transport   vehicles  and  a
communications   system.   It  is  engaged  in  discussions   with  the  Chadian
governmental  authorities  regarding the transportation of cotton, the country's
main export,  though no agreement  with  respect to same has been  executed.  In
addition,   Falcon  has  commenced   discussions   with  several  large  foreign
corporations in order to provide their trucking needs.

         During May 1998,  Falcon executed a contract with ELF Oil TChad S.A., a
French oil  company  for whom  Falcon has agreed to  transport  diesel  fuel and
gasoline  for a period of three  years.  Trucks  and  ancillary  equipment  were
cleared  from the port in Cameroon  and arrived at the  frontier in Chad in late
September  1998.  After  customs and duty  procedures,  the  vehicles  commenced
hauling contracts with Coca Cola Chad and other commercial and industrial

                                        4
<PAGE>
enterprises.  Due to the extended  rainy season,  passage into Cameroon and Chad
has been delayed.

         In June 1998,  Falcon and Total Chad, a French  company  registered  in
Chad,  executed a letter of intent for the  transportation  of fuel from  Limbe,
Cameroon to N'Djamena,  Chad.  The contract is expected to commence in the first
quarter of 1999. Efforts are underway to sign contracts with operators of Chad's
sugar industry and Nestle for the movement of products and with other  importers
in Chad and Cameroon.  A third oil company has approached Falcon Tchad regarding
transport  of oil  products  to depots in Chad.  The  Company is  reviewing  its
equipment  requirements  in order to expand  capabilities  for the  movement  of
petroleum products as well as other freight items.

Other Subsidiaries

         Royal Steel  Services,  Inc. was formed by the Company in November 1997
to undertake steel erection  projects which carry a considerably  smaller dollar
value than those which NY undertakes.

         The following  table lists,  as of June 30, 1998,  (i) all companies in
which Joseph Polito is either an Officer,  Director,  or principal  shareholder;
and (ii) the activities  engaged in by such companies with the Company or any of
its subsidiaries:


                                        5

<PAGE>
<TABLE>
<CAPTION>
                        Year                         J. Polito's       Activities with the             Place of
Name (1)                of Inc.     Title            Ownership (%)     Company and NY                  Business
--------                -------     -----            -------------     --------------                  --------
<S>                     <C>         <C>                 <C>            <C>                             <C>                   
USABG Corp. (2)         1988        Pres./Director      66.3%          Parent company                  Queens, NY

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

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

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

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

Royal Steel Services,   1997             --              100%          Formed to provide steel         Queens, NY
Inc. (5)                                                               erection for projects smaller
                                                                       than NY's projects
Worldwide               1997             --              100%          Parent company of Falcon        Chad, Africa
Construction                                                           TChad S.A. and Portshop S.A.
Limited (6)
</TABLE>
------------------

(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 the Company's  Common  Stock,  may be deemed the
         beneficial owner of the shares of NY common stock owned by the Company.
(5)      Incorporated  in the State of New York.  Joseph M. Polito,  through his
         ownership  of  approximately  66.3% of the  outstanding  shares  of the
         Company's Common Stock, may be

                                        6
<PAGE>
         deemed the  beneficial  owner of the shares of Royal Steel common stock
         owned by the Company.
(6)      Incorporated in the British Virgin Islands in December 1997.  Worldwide
         is a  wholly-owned  subsidiary of the Company and the parent company of
         Falcon and Portshop,  two companies  registered  under the laws of Chad
         and authorized to operate  therein in November 1997.  Joseph M. Polito,
         through his ownership of approximately  66.3% of the outstanding shares
         of the Company's  Common Stock,  may be deemed the beneficial  owner of
         the shares of Worldwide common stock owned by the Company.

         Prior to leasing  equipment from Crown Crane,  Ltd.  ("Crown") or Atlas
Gem Leasing,  Inc.  ("AGLI"),  NY compares  the costs  thereof to those costs it
might otherwise incur from like companies.  NY 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
NY'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 NY and the Company, 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

         NY obtains its projects  primarily  through the process of  competitive
bidding.  In order to be fully apprised of bid solicitations,  NY (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,  NY 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.

         NY submits its bids after management  performs a detailed review of the
project  specifications,  an internal review of NY's  capabilities and equipment
availability,  and an  assessment  of  whether  the  project is likely to attain
targeted profit margins. In bidding on

                                        7
<PAGE>
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  NY to  complete  the project at a fixed
price.  With a  lump-sum  bid,  the risk of  estimating  the  quantity  of units
required for a particular  project is on NY, while with a unit cost bid, NY must
estimate the per unit cost, not the number of units needed. Any increase in NY'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 NY 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 NY 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, NY is generally  entitled
to receive a small  cancellation fee. Many of NY'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,  NY will be responsible  for the performance of
the entire contract, including work assigned to subcontractors.  Accordingly, NY
is subject to liability associated with the failure of subcontractors to perform
as required  under the  contract;  thus,  NY may require its  subcontractors  to
furnish Performance Bonds.

         Affirmative action regulations  require that NY 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

         NY  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.  NY
carries  liability  insurance of  $1,000,000  per  occurrence  which  management
believes is adequate for its current operations.

                                        8
<PAGE>
         Although NY  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.

         NY 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
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,  NY is
generally  entitled to receive a small  cancellation  fee.  Both of NY's current
contracts are also subject to completion  requirements  with liquidated  damages
assessed against NY if schedules are not met.

         NY'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 NY is  engaged,  the  greater  the
bonding,  net worth, and liquid working capital  requirements.  Surety companies
consider  such  factors  in  light  of the  amount  of NY's  surety  bonds  then
outstanding and the surety  companies'  current  underwriting  standards,  which
standards  may change  periodically.  Therefore,  NY 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  NY'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 and NY's current financial condition,  the
Company  and NY may be unable to  obtain  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.  NY 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,  NY 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 NY's billing to its clients.

                                        9
<PAGE>
         In December  1996,  NY 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  NY 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,  NY 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 general
contractors  prefer that a  subcontractor  be  licensed  by a New York  licensed
bonding company, they will waive the requirement when necessary. In addition, NY
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.  NY 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 NY is currently engaged:
<TABLE>
<CAPTION>
                                                                                     (2) Costs                          
                                  Contract                                            & Est.                         
                                  Date/                     Costs    (1)              Profit in                  BAcklog  
Contract Party/     Contract      Est.          Type of     incurred to  % of Job     Excess of    Gross         Amount at
Project Name        Amount        Completion    Contract    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(4)

</TABLE>

                                       10
<PAGE>
         (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) NY is prime  contractor  (similar  to general  contractor)  on this
project.

         (4)  Does  not  include  backlog  balance  amounting  to  $174,000  for
miscellaneous smaller base contracts of Royal Steel.

         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.

Seasonality

         Though NY 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, NY's costs are increased.

Suppliers; Subcontractors; Unions

         NY  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.
NY 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. NY believes that there are a sufficient number of
vendors,  so that in the event any  individual or group of vendors can no longer
service NY's needs, NY will be able to find other vendors at competitive prices.

         As is standard practice in the construction  industry,  NY'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.  NY 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. NY must comply
with its agreements with the unions,  which  agreements  regulate all employment
issues including pay, overtime,  working conditions,  vacations,  benefits, etc.
between NY and the union employees. These agreements expire on June 30, 1999.


                                       11
<PAGE>
         NY believes that it has a good  relationship  with the unions and is in
compliance  with all union  agreements.  No assurance  can be given that NY will
continue  to  be  in  compliance  with  the  Unions  or  successfully  negotiate
extensions  to NY'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 NY's operations.

         NY'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. NY will be responsible for performance of the entire  contract,  including
the work done by subcontractors.  Accordingly,  NY may be subject to substantial
liability if a subcontractor fails to perform as required.

Competition

         NY is one of the many subcontractors  which erect and furnish steel for
projects.  All aspects of NY's  business  are, and will  continue to be,  highly
competitive.  NY 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.  NY'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.

         The driving  force  behind NY'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 NY's prior  performance.  In
addition,  regarding prior  performance,  while NY 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 NY purchased its assets in 1993.

Government Regulation

         NY 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,  NY 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
NY's  operations.  NY believes  that it is in  substantial  compliance  with all
applicable laws and regulations.


                                       12
<PAGE>
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 NY 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. NY's  contracts  with these  unions,  which  contracts
regulate all employment  issues  between NY and the union  employees - including
pay, overtime,  working conditions,  vacations,  benefits, etc. - expire on June
30, 1999. NY considers its relationships with the unions and its employees to be
good.

ITEM 2.           DESCRIPTION OF PROPERTY

         The Company  shares office space with NY (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 the
Company's majority stockholder and President, Joseph Polito. The lease, pursuant
to which NY 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. NY 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,  NY 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.

         In February 1998, NY agreed to issue 106,667 shares of its common stock
to the Company as consideration  for the Company's  issuance of 48,000 shares of
Common Stock to RSJJ in consideration  for payment in full of the rent due by NY
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, NY 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:  NY  issued  270,000  shares of common  stock to the  Company,  for the
cancellation  of the debt owed to RSJJ.  The  Company,  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.

                                       13
<PAGE>
         The Company  also,  through One  Carnegie,  formerly  owned 13 acres of
property in St. Charles Business Park, Waldorf,  Maryland,  inclusive of a 4 1/2
acre (170,000 square foot)  building.  In connection with the acquisition of the
property and equipment,  One Carnegie entered into a $3,000,000 installment loan
agreement with Trinity Industries ("Trinity"),  which loan was collateralized by
all  of  the  property  and  equipment  owned  by One  Carnegie  and  personally
guaranteed by Joseph Polito and Atlas Gem.

         By  agreement  executed  March 10, 1997,  One Carnegie  entered into an
agreement for Deed in Lieu of Foreclosure  ("the  Agreement") with Trinity.  The
transaction,  which was not deemed complete and closed until August 1, 1997, was
necessitated by One Carnegie's  having  defaulted on (i) the $3,000,000 Note (of
which Trinity was the holder); and (ii) the Deed of Trust and Security Agreement
which secured said Note.

         Pursuant  to the  Agreement,  in lieu of  foreclosing  upon the Charles
County, Maryland property owned by One Carnegie, Trinity, through its affiliate,
WPI,  accepted  the  deed to such  property.  As  additional  consideration  for
Trinity's entering the Agreement, One Carnegie executed a promissory note in the
amount of $150,000 naming Trinity as payee. The promissory note is guaranteed by
Joseph  Polito  and  AGLI.  A Bill of Sale  and  Assignment,  providing  for the
conveyance  of certain One  Carnegie  personal  property in exchange for $25,000
from WPI, comprised an additional component of the Agreement.  A final component
of the Agreement is a Mutual  Release which  releases One Carnegie,  Mr. Polito,
AGLI,  and Trinity (and all their  successors and assigns) from any claims which
arose prior to execution of the Agreement.

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 NY, 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.  NY'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 the Company agreed to release and
discharge in full its claims against Perini for 20% of the net

                                       14
<PAGE>
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 NY for
work it performed at the Robert Moses  Causeway  Project.  NY 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.  NY 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 NY and
Metro Steel  Structures,  Ltd. in New York State  Supreme  Court,  Kings County.
Perini's  claims against NY 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. NY 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 NY 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  NY'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,  NY 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 NY and seeking punitive damages. NY'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.  NY intends to
vigorously defend against  EklecCo's claims as well as vigorously  prosecute its
claims against EklecCo.


                                       15
<PAGE>
Humphreys & Harding, Inc. Claim against NY

         NY 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 NY 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. NY 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,  NY, Metro Steel  Structures,  Ltd. (now
known as NY), 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 NY,  amounting  to  approximately  $3,000,000,  are limited to a
policy  covering the period April 29, 1993 through  December  1994.  NY, 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
documents.  NY 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 Securities and

                                       16
<PAGE>
Exchange  Commission  ("SEC")  relating to such underwriter and three companies,
including  the  Company,  in  which  the  underwriter  had  acted  as  principal
underwriter  and in  which  NY was  subpoenaed  by the  SEC to  produce  certain
records.  The company and its officers and directors have fully  cooperated with
the SEC and  there  have  been no  additional  inquiries  from the SEC.  At this
juncture,  the inquiry is too  preliminary  to form any judgments or assessments
regarding any possible liability of the Company or of NY.

         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 NY and the Company 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 the Company and NY.

Debenture Litigation

         Black Sea Investments, Inc., the holder of a debenture in the principal
amount of $250,000  purchased in February  1998,  commenced a single count claim
upon the debenture on September 10, 1998 in the United  States  District  Court,
Northern  District of Texas. The Company filed a motion to dismiss on grounds of
improper venue and forum  non-conveniens.  The Plaintiff has opposed the motion;
however,  no  hearing  date has yet been  set.  The  outcome  of the  motion  is
uncertain.  The  Company  has not yet been  required  to file an  answer  to the
primary  claim  at  issue  and the  Company  has not  yet  conducted  sufficient
investigation or discovery to determine whether there are any defenses which are
likely to defeat the action.

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

         On August 3, 1998, after shareholder approval obtained at the Company's
special meeting of July 29, 1998, the Company effected a reverse split (1 for 4)
of its outstanding shares of Common Stock.





                                       17

<PAGE>

                                     PART II

ITEM 5.           MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
                  MATTERS

         The Company's  Common Stock began trading on the Nasdaq  SmallCap Stock
Market on July 25, 1996.  Prior to that,  from August 25, 1994 to July 24, 1996,
the Company's Common Stock, $.001 par value per share,  traded  sporadically and
on a limited basis in the over-the-counter market on the OTC Bulletin Board. The
following  table sets forth  representative  high and low closing bid prices for
the period the stock traded on the OTC Bulletin Board and the high and low sales
prices for the period the stock traded on the Nasdaq  SmallCap Stock Market,  by
calendar quarters, as reported by a market maker during the periods provided for
herein. The bid quotations reflect inter-dealer prices,  without retail mark-up,
mark-down,  or  commission,  and may not represent  actual  transactions.  Sales
quotations  represent  prices between  dealers,  do not include resale mark-ups,
mark-downs,  or other  fees or  commissions,  and do not  necessarily  represent
actual  transactions.  Prior to August 25, 1994, there was no trading market for
the Company's Common Stock.

         Calendar Quarter                                Prices
               Ended                        Low                        High
               -----                        ---                        ----

                1997

         01/01/97 - 03/31/97                  1                         2 3/8
         04/01/97 - 06/30/97                  1                         2 1/8
         07/01/97 - 09/30/97                 15/16                      1 7/16
         10/01/97 - 12/31/97                  7/8                       1 1/2

                1998

         01/01/98 - 03/31/98                  5/8                       1 1/4
         04/01/98 - 06/30/98                15/16                       1
         07/01/98 - 09/30/98                 1/16                         7/16
         10/01/98 - 11/30/98                 1/16                         1/16



         As of December 15, 1998, there were 135 registered holders of record of
the Company's  Common Stock,  $.001 par value,  which number,  determined by the
Company's  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.


                                       18

<PAGE>
         Effective  November 30, 1998,  the Company's  Common Stock was delisted
for failure to meet the maintenance criteria and trading ceased in the Company's
Common  Stock.  The Nasdaq  delisting  panel was of the opinion that the Company
failed to present a plan  which  would  enable it to 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 resume  trading of its
Common Stock and to reapply to the OTC Bulletin  Board for listing  after filing
its 10-KSB for the year ended June 30, 1998  ("Fiscal  1998") and 10-QSB 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.


ITEM 6.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                  CONDITION AND RESULTS OF OPERATIONS (UPDATE)

Safe Harbor  Statement  Under the Private  Securities  Litigation  Reform Act of
1995.

         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 and acceptance of
the Company's products.

General

         The  Company was  incorporated  on  September  12, 1988 in the State of
Delaware,  as Colonial  Capital Corp. The Company changed to its current name in
January 1998.  The Company is the parent of NY and owns 100% of the  outstanding
shares of common  stock of each of  Worldwide  and Royal  Steel  Services,  Inc.
("Royal  Steel").  These three  subsidiaries are the only ones through which the
Company  currently  operates.  Two additional  subsidiaries of the Company (each
wholly-owned), One Carnegie Court Associates, Inc. and USA Bridge

                                       19

<PAGE>
Construction  Corp.  (Maryland),  ceased  operations in August 1997 and November
1996 respectively.

         Royal  Steel was formed in  November  1997 in order for the  Company to
conduct work on its smaller  base  contracts.  Worldwide  was formed in December
1997 and is a British  Virgin  Islands  corporation.  It was formed as a holding
company  intended to own 80% of each of Falcon TCHAD SA ("Falcon")  and Portshop
S.A.  ("Portshop"),  both of which  companies are  registered in Chad, a country
located  in  Central  North  Africa.  The  remaining  20% of each of Falcon  and
Portshop is owned by Diversified  Investments  Africa S.A. ("DIA"), a Luxembourg
company  unaffiliated  with the  Company.  Falcon will operate as a full service
transportation,  forwarding,  and warehousing  company in the city of N'Djamena.
Portshop shall stock and operate a duty free store in Chad's sole  international
airport.  Worldwide shall operate as the liaison between Portshop and Falcon and
the  governmental  or private  entities with which Falcon and Portshop intend to
contract in Chad. As of June 30, 1998, the only activity  commenced in Worldwide
was the purchase of trucks by Falcon and certain  consulting and travel expenses
incurred by Worldwide in order to establish operations in Chad.

         The following management's  discussion and analysis for the years ended
June 30, 1998 and 1997 is that of the Company's  subsidiaries  since the Company
itself did not have any operations of its own except for primarily stock related
transactions,  interest expense and certain general corporate  overhead expenses
which totaled approximately $815,000 and $652,000,  respectively,  for the years
ended June 30, 1998 and 1997.

         NY's operations are substantially  controlled by Joseph M. Polito,  its
President,  since he owns  approximately  66.3% of the outstanding shares of the
Company and may be considered the  beneficial  owner of NY. Mr. Polito is also a
100% shareholder of RSJJ. RSJJ leases the administrative office space to NY 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 NY for the years  ended June 30, 1998 and
1997.

         NY 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, NY has operated primarily as a
subcontractor and as a prime contractor on two projects. As of June 30, 1998, NY
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.  NY 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 $877,000. Such contracts are expected to
be completed during January and February 1999.


                                       20
<PAGE>
         In December  1996,  NY 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  NY 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,  NY has been unable to bid as a general  contractor on projects
for New York State and New York City  agencies.  NY 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.

         Though NY 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, NY 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,  NY and Royal  obtained  new  contracts
valued at approximately $806,914 and $1,113,000, respectively. NY 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 along with
the loss of its bonding  ability.  NY 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                            806,914
                                                                               --------------
                                                                                   18,113,992
         Less: contract revenue earned during the year ended June 30, 1998         17,062,873
                                                                               --------------

         Backlog balance at June 30, 1998                                      $    1,051,119
                                                                               --------------
</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, NY 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 NY. 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
NY. NY intends to seek legal redress from

                                       21

<PAGE>
the steel  fabricator and from the general  contractor.  The Company  expects to
complete the Grand Central and Louis Vuitton  projects by February  1999.  After
such  completion,  the Company's only project will be the smaller based projects
from Royal Steel which may be deemed immaterial.

         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 the Company's operating needs.

         NY 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 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.  NY 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 NY 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 $17,062,873  and  $15,494,447,  respectively.  This represents an increase of
$1,568,426  (or  approximately  10%).  During the year ended June 30,  1998,  NY
obtained  new  contracts  and change  orders to  previous  contracts  aggregated
approximately $12,025,944 which have been substantially completed as of June 30,
1998.


                                       22
<PAGE>
         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                   2,397,082              17,433,663  
                                                                                                     
Collections for the                                                                                  
year ended                          (15,728,515)                       --               (15,728,515) 
                                   ------------                ------------            ------------  
                                                                                                     
Balances at                                                                                          
June 30, 1998                        15,351,527                   4,684,082              10,667,445  
                                                                                                     
                                                                                                     
Less: Non-current                                                                                    
Current Portion                      10,884,755                   2,444,174               8,400,581  
                                   ------------                ------------            ------------  
                                                                                                     
Current Portion                    $  4,506,772                $  2,239,908            $  2,266,864  
                                   ============                ============            ============  
</TABLE>

         As  of  June  30,  1998,  the  Company   increased  its  allowance  for
uncollectibles up to $4,684,082 to reserve for the potential uncollectibility of
certain receivables for which mechanic's liens were filed and for the settlement
of certain  mechanic's  liens on a certain job  subsequent to year end.  Through
December 31,1998, NY collected approximately  $1,600,000 which includes $525,000
pertaining to a mechanic's  lien  previously  filed  (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 21% and 29%, 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 $481,994 (or 15%)
to $3,718,482  for the year ended June 30, 1998,  from  $3,236,486  for the year
ended June 30,  1997.  The  increase in general  administration  costs is mainly
attributable  to the general and  administrative  expenses  of  Worldwide  which
amounted  to  approximately  $280,000  and is  primarily  composed of travel and
consulting associated with establishing the Chadian operations. The remainder of

                                       23

<PAGE>
the increase amounting to approximately  $201,000 is mainly  attributable to the
general  corporate  expenses in connection with stock issued for services by the
Company.

         The  Company's  bad debt expense  amounted to  $2,403,815  for the year
ended June 30, 1998 as compared to $1,287,362  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's  liens filed,  and the
settlement of previously fixed mechanic's  liens.  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  litigations,  and the time associated with the
legal process in settling such disputes.

         The Company's interest expense increased to $514,874 for the year ended
June 30, 1998 as a result of the imputed  interest  expense  associated with its
convertible debentures and additional interest accrued on its newly issued notes
payable in connection with unpaid union dues.

         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  consolidated  financial  statement have been prepared
assuming that the Company will continue as a going concern.  For the years ended
June 30, 1998 and 1997, the Company generated a net loss amounting to $2,343,482
and $875,238 respectively.  The loss for the year ended June 30, 1998 includes a
non-recurring  charge of $300,000 for a potential settlement of unpaid insurance
resulting from an ongoing lawsuit from the State Insurance Fund.

         Additionally,  as of June 30, 1998,  the Company has a working  capital
deficiency  amounting  to  approximately  $4,327,344.  The Company has  recorded
certain  contracts and  retainages  receivables  as  non-current  as a result of
pending  litigations in connection with claims and pending change orders.  As of
June 30, 1998, the Company's backlog amounted to $1,051,119.  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  $2,616,742  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 mechanic's 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 and settle
its

                                       24
<PAGE>
disputes in a favorable and timely manner. 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 $8,400,581,  which represents the
noncurrent amount of receivables (net of allowances)  associated with mechanic's
liens  placed  by NY on  certain  jobs,  cannot be  determined  by NY 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 $4,684,082 during
the year ended 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 of June 30, 1998,  the Company  classified a
portion of contracts receivables which are in dispute as non-current.

         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
its contacts 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 NY with NY issuing stock to its landlord,  RSJJ. As of June 30, 1998,
the Company owes approximately $2,616,742 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 available funds.

         In December  1997,  NY 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.  NY 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,
NY  assigned  its  retainage  receivable  from the  EklecCo  project  as well as
$1,750,000  of  NY'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 NY shall  receive the  remainder  thereof.  NY 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:

                                       25
<PAGE>
         (i) On June 16, 1995, pursuant to Form S-8 Registration Statement,  the
Company registered and issued 125,000 shares to a broker-dealer as consideration
for a two year consulting agreement.  During August 1996, the Board of Directors
amended the consulting  agreement and issued an additional 62,500 shares to such
broker-dealer. Such shares were valued based on the average closing bid price on
the date of issue with a 10%  discount to market in order to reflect  their fair
value as a result of their restrictions.

         (ii) On August 15, 1995,  the Company  issued  37,500  shares of common
stock to its President  pursuant to the terms of the Company's  Incentive  Plan.
Such shares were issued as  compensation  for the  President's  efforts with the
Company and NY in the consummation of NY's initial public offering on August 14,
1995.  Of the  total  37,500  shares  issued  to the  President,  12,500  shares
immediately  vested without  restrictions and the remaining 25,000 shares vested
pursuant to the restricted periods,  whereby 12,500 shares vested on each August
15, 1996 and 1997.  Such shares  were  valued  based on the average  closing bid
price on the date of issue with a 10%  discount  in order to reflect  their fair
value as a result of their restrictions.

         (iii)  On May  13,  1996,  an  unrelated  party  loaned  the  Company's
President  $300,000  pursuant to a memorandum  of  understanding.  The loan bore
interest  at 1% above  prime,  and it was due 90 days  from  receipt  of  funds.
Simultaneously  therewith,  the  Company's  President  loaned  the  Company  the
$300,000.  Upon the Company being listed on NASDAQ (July 25, 1996),  the Company
liquidated  such loan by issuing 100,000 shares to such unrelated party pursuant
to Regulation S under the  Securities  Act of 1933, as amended (the "Act").  The
shares issued as consideration for the repayment of such loan were valued at the
average   closing  bid  price  on  the  date  the   transaction  was  commenced.
Accordingly,  the Company  recorded a financing  expense  amounting  to $100,000
resulting in an effective interest rate of approximately 100%.

         (iv) During  December  1996,  the Company issued an aggregate of 28,654
shares to its employees pursuant to its Incentive Plan. In connection therewith,
the Company recorded  compensation  expense amounting to $193,415 which is based
on the  average  closing  bid price of $7.50 per share for the month of December
1996 with a 10%  discount  in order to  reflect  their fair value as a result of
their restrictions.

         (v) During February 1997, pursuant to a Form S-8 Registration Statement
filed with the  Securities  and Exchange  Commission,  the Company  registered a
total of 172,404  common  shares,  of which,  143,750  shares  underlie  options
pursuant to the Company's Incentive Plan. The options are exercisable at various
prices ranging from $7.00 each to $7.70 each. As of June 30, 1998, the Company's
president has exercised the option to purchase  31,250 shares at $7.70 each. The
Company  received a promissory  note in the amount of $240,625 as  consideration
for  such  shares  which  has  been  properly   classified  as  a  reduction  of
stockholder's equity.


                                       26
<PAGE>
         (vi) During June 1997, in conjunction with NY's  capitalization  of its
accounts payable amounting to $480,000 which represented unpaid rent to R.S.J.J.
Realty Corp.  ("RSJJ") an entity  wholly owned by the Company's  president,  the
Company issued 87,500 shares of common stock to RSJJ in exchange for the 270,000
shares of NY common stock issued to RSJJ in forgiveness of NY's accounts payable
to RSJJ.  The shares  issued to RSJJ in exchange of NY's shares have been valued
at the balance of the accounts payable of $480,000.

         (vii) During  December  1997,  the Company  authorized  the issuance of
62,500  shares of its common stock  during the third  quarter of its fiscal year
pursuant to the Incentive  Plan. Of the 62,500 shares,  all of which were issued
in March 1998, 37,500 were issued to the Company's  President,  and 6,250 shares
each were issued to each of the Company's Secretary and Treasurer. Half of these
shares  vested on June 1, 1998 and half vest on January 1, 1999.  The  remaining
12,500 shares were issued to consultants of the Company. In connection with such
issuance,  the Company recorded compensation and consulting expense amounting to
$207,000 which is based on the average  closing bid price of $3.68 per share for
the third quarter of the Company's  fiscal year, with a 10% discount in order to
reflect their fair value as a result of their  restrictions  upon issuance.  The
above  shares  which do not vest  immediately  have been  recorded  as  deferred
compensation and are being amortized over the vesting period.

         (viii) During  February  1998, NY agreed to issue 106,667 shares of its
common stock to the Company as  consideration  to the Company for issuing 48,000
shares of its own common stock to RSJJ in  consideration  for payment in full of
the rent due by NY 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.

         The Company used cash for  operating  activities  amounting to $462,078
for the year ended June 30, 1998, whereas it provided cash amounting to $578,782
for the year ended June 30, 1997.

         The Company used $193,472 of cash for investing activities for the year
ended June 30, 1998 as a result of acquiring trucks for its Chadian operations.

         In  February  1998,  the  Company  raised  a net of  $393,000  from two
investors in connection with a private placement to fund the Chadian  operation,
from the sale of $450,000 of convertible  debentures and warrants.  The proceeds
were loaned to Worldwide to fund its  operations in Chad. The debentures are due
January  30,  2000  with  interest  accruing  at 8% per  annum.  Holders  of the
debentures  are  entitled  to convert  the entire  face of the  debentures  plus
accrued  interest,  at the lesser of (a) a 100% of the 5-day average closing bid
price,  for the 5 trading  days  immediately  preceding  the closing date of the
offering  (February 3, 1998);  or (b) 75% of the 5-day average closing bid price
for the 5  trading  days  immediately  preceding  the  date of  conversion.  The
warrants are for 25,000  shares of common  stock,  12,500  shares at an exercise
price of $4.50 per share and  12,500  shares  at $5.64 per  share.  The  Company
agreed to file a registration statement

                                       27
<PAGE>
covering  the  shares  of  common  stock to be  issued  upon  conversion  of the
debentures,  and if not declared  effective within 90 days following the closing
of the offering, then there shall be a decrease of the conversion ratios by 2.5%
per 30 day period or portion thereof pro rata, until the registration  statement
has been declared effective.  The registration statement was not effective as of
January 1, 1999 and the Company  intends to file a  post-effective  amendment to
cause the registration statement to become effective. One investor has commenced
an action to recover his investment and  additional  damages.  Conversion of the
debentures  at about the  current  market  price  would  result  in  substantial
dilution to existing  shareholders and make it more difficult for the Company to
raise additional financing.

         Litigation

         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 St. Bridge

         This  action was filed on February  26, 1997 in New York State  Supreme
Court,  Queens  County.  It names NY, 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.  NY'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 the Company 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 NY for
work it performed at the Robert Moses  Causeway  Project.  NY 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

                                       28
<PAGE>
Company.  Currently,  the  Company  is in the  process of  completing  pre-trial
discovery.  NY 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 NY and
Metro Steel  Structures,  Ltd. in New York State  Supreme  Court,  Kings County.
Perini's  claims against NY 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. NY 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 NY 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  NY'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,  NY 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 NY and seeking punitive damages. NY'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.  NY intends to
vigorously defend against  EklecCo's claims as well as vigorously  prosecute its
claims against EklecCo.

         Humphreys & Harding, Inc. Claim against NY

         NY 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 NY 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. NY 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

                                       29
<PAGE>
         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,  NY, Metro Steel  Structures,  Ltd. (now
known as NY), 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 NY,  amounting  to  approximately  $3 million,  are limited to a
policy  covering the period April 29, 1993 through  December  1994.  NY, 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
documents.  NY 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 NY 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 or of NY.

         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 NY and the Company 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

                                       30
<PAGE>
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 the Company and NY.

         Debenture Litigation

         Black Sea Investments, Inc., the holder of a debenture in the principal
amount of $250,000  purchased in February  1998,  commenced a single count claim
upon the debenture on September 10, 1998 in the United  States  District  Court,
Northern  District of Texas. The Company filed a motion to dismiss on grounds of
improper venue and forum  non-conveniens.  The Plaintiff has opposed the motion;
however,  no  hearing  date has yet been  set.  The  outcome  of the  motion  is
uncertain.  The  Company  has not yet been  required  to file an  answer  to the
primary claim at issue and has not yet  conducted  sufficient  investigation  or
discovery to determine whether there are any defenses which are likely to defeat
the action.

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.


                                       31

<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  Director of the Company
since  April  1994.  He has been the  president  and a Director  of NY since its
inception in 1990, and prior to the  Acquisitions in April 1994, he was the sole
shareholder of NY. Mr. Polito  oversees all of the Company's  operations.  Since
its inception in 1994, Mr. Polito has been the president and a Director of MD, a
wholly-owned subsidiary of the Company. Since December 1990, Mr. Polito has been
the  president  and  sole  Director  and  shareholder  of One  Carnegie,  also a
wholly-owned  subsidiary of the Company.  Since 1988,  Mr. Polito has been a 50%
shareholder of Crown, a company which leases cranes for  construction  projects.
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.  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 NY. Since 1983,  Mr. Polito has been
the  president  and 100%  shareholder  of Royal Steel,  a company which owns and
leases real property.


                                       32
<PAGE>
         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.

         Ronald J. Polito has been the  Secretary  and a Director of the Company
since April 1994.  Mr.  Polito has been the secretary and a Director of NY since
its inception in 1990.  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 NY. 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 has been Treasurer of the Company since March 1995 and
a Director of the Company since April 1994. Mr. Polito was elected  treasurer of
NY in March 1995.  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 NY 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 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 NY nor the Company
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.


                                       33

<PAGE>
Significant Employees of the Company

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

Significant Employees of NY

         Thomas  J.  Hayes has been a chief  estimator,  project  manager,  vice
president in the structural steel industry  (fabrication and erection) for forty
years. He began working for an affiliate of the Company, Gem Steel Erectors,  in
1976 and has been employed by the Company or an affiliate since then.

         As permitted under  Delaware's  General  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 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 jurisdiction of
such issue by such court.




                                       34

<PAGE>
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 NY, the Company's  subsidiary,  during the years ended
June 30, 1998, 1997, and 1996.
<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(3)       125,000(3)
Director          1996      300,000              -                    111,911(2)          ---           93,750(4)

Ronald Polito     1998     $107,800              -                   $ 21,407(5)          ---              ---
Secretary and     1997      118,800              -                     26,631(5)    $   4,375(6)        25,000
Director          1996      125,000              -                     13,071(5)          ---              ---

Steven Polito     1998     $ 84,915              -                   $  4,768(7)          ---              ---
Treasurer and     1997       86,580              -                   $  8,572(7)    $   4,375(6)        18,750
Director          1996       94,000              -                      8,275(7)          ---              ---

</TABLE>
-------------
(1)      At the end of the fiscal year,  Joseph M. Polito held 1,026,039  shares
         of  Restricted  Stock valued at  $1,005,518.  Ronald  Polito and Steven
         Polito held 19,375 and 19,375, respectively, of Restricted Stock valued
         at $18,988  respectively.  Valuations are based on the average  closing
         bid price of Common Stock ($.98) 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."
(3)      Represents  (i)  25,000  shares  of Common  Stock  issued as a bonus in
         December  1996 under the  Company's  1994 Senior  Management  Incentive
         Plan; (ii) an option to purchase 100,000 shares of Company Common Stock
         under the Company's  Stock Option Plan,  exercisable at $7.70 per share
         (which is 110% of the market  price of same on December  2, 1996);  and
         (iii) an option to  purchase  125,000  shares of common  stock of NY at
         $1.10 per share, all of which option has been exercised  (60,000 shares
         exercised  have been  resold and 10,000  shares were  transferred  in a
         private  transaction).  See "-1994 Senior  Management  Incentive Plan."
         Valuation on the 25,000  restricted  shares is based on the closing bid
         price of Common  Stock  ($7.00) on December  2, 1996,  as reported by a
         market maker.
<PAGE>
(4)      Based on the  closing bid price of Common  Stock  ($2.50) on August 15,
         1995, as reported by a market maker. As a bonus upon completion of NY's
         initial public offering,  Mr. Polito was issued 37,500 shares of Common
         Stock subject to a vesting  whereby 12,500 shares vested upon issuance;
         12,500 vested on August 15, 1996; and 12,500 vested on August 15, 1997.
         All of these shares have vested and have been issued.

                                       35

<PAGE>



                    (Footnotes continued from previous page)


(5)      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.

(6)      Reflects  the value of the  ownership  of 625 shares of Common Stock at
         $4.50, the market price on June 30, 1997.

(7)      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.


                                       36
<PAGE>
         The following table contains  information  with respect to employees of
the Company concerning options held as of June 30, 1998:
<TABLE>
<CAPTION>

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



      (a)                              (b)                    (c)                   (d)                     (e)
                                                                                                         Value of
                                                                                  Number of           Unexercised In-
                                                                                 Unexercised             The-Money
                                                                              Options/SAR's at        Options/SAR's at
                                                                                 FY-End (#)              FY-End($)
                                 Shares Acquired             Value              Exercisable/            Exercisable/
      Name                       on Exercise (#)        Realized($) (1)         Unexercisable          Unexercisable
                                 ---------------        ---------------         -------------          -------------
<S>                                   <C>                     <C>                 <C>                     <C>  
Joseph M. Polito                      31,250                  $ 0                 68,750/0                0/0 (2)
Ronald J. Polito                        0                      0                  25,000/0                0/0 (3)
Steven J. Polito                        0                      0                  18,750/0                0/0 (3)
</TABLE>
----------------

(1)      Based upon the  average bid and asked  prices for such Common  Stock on
         June 30, 1998 ($-0-).

(2)      Since the options are  exercisable at $7.70,  there is no value to such
         options as of June 30, 1998.

(3)      Since the  options  registered  to Ronald and Steven  Polito  under the
         February 1997 S-8 are  exercisable at $7.00,  there is no value to such
         options as of June 30, 1998.

Employment and Consulting Agreements

         Joseph Polito entered into an employment  agreement with NY dated April
4, 1995,  whereby Mr.  Polito  agreed to devote 80% of his business  time to the
affairs of NY. 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 NY'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 NY. NY shall pay to Mr.  Polito a monthly  draw of  $10,000
against the bonus. NY and the Company's  President extended the agreement for an
additional three years until June 30, 2001 under the same terms.


                                       37
<PAGE>
         Pursuant to the  agreement,  NY 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 NY 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 NY is  terminated  or  there is a  decrease  in
responsibilities  or duties  following a change in control of NY. 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 NY, 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 NY.

1994 Senior Management Incentive Plan

         In  December  1994,  the Board of  Directors  adopted  the 1994  Senior
Management  Incentive Plan (the "Management Plan") which was thereafter approved
by shareholder  consent.  The Management Plan provides for the issuance of up to
2,000,000  shares of the Company's  Common Stock in connection with the issuance
of stock  options and other stock  purchase  rights to  Executive  Officers  and
consultants.

         In December  1996,  the Company issued 143,750 stock options to Messrs.
Joseph,  Ronald, and Steven Polito as follows:  Mr. Polito received an option to
purchase  100,000  shares of Common Stock (he exercised the option and purchased
31,250 shares in March 1997 and shortly  thereafter sold 15,000 of said shares);
Steven Polito received an option to purchase 25,000 shares of Common Stock;  and
Ronald Polito  received an option to purchase  18,750 shares of Common Stock. In
March 1998,  pursuant to the  Management  plan,  the Company  issued  bonuses of
37,500  shares of Common  Stock and Joseph M. Polito and 6,250  shares of Common
Stock to each of Ronald Polito and Steven Polito.

         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,  key  employees,   and  consultants  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  executives,  key  employees,  and  consultants  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

                                       38
<PAGE>
that only those executive  management  employees  (generally the Chairman of the
Board,  Vice  Chairman,   Chief  Executive  Officer,  Chief  Operating  Officer,
President,  and Vice President of the Company),  key employees,  and consultants
who perform  services of special  importance  to the Company will be eligible to
receive  compensation  under the Management Plan. A total of 2,000,000 shares of
Common Stock are 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  "disinterested  persons" 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.

         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 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  five  types  of  awards:  stock  options,  incentive  stock  rights,  stock
appreciation  rights (including limited stock appreciation  rights),  restricted
stock purchase agreements, and restricted stock (as described below).


                                       39
<PAGE>
         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 the
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 from the date of grant; ISOs granted to 10%
stockholders  may be exercisable  for a period of up to five years from the date
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  $100,000.  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.

         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.

         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

                                       40
<PAGE>
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
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 than 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 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.


                                       41
<PAGE>
         Restricted  Stock.  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.

         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 will 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.

                                       42
<PAGE>
         A "Control  Purchase" is defined as  circumstances  in which any person
(as such term is defined in ss.ss.  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 a 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.

1994 Employee Stock Option Plan

         In  December  1994,  the Board of  Directors  adopted  the 1994  Senior
Employee  Incentive  Plan (the "Employee  Plan").  This plan was adopted also by
shareholder  consent.  The  Employee  Plan  provides  for the  issuance of up to
2,000,000  shares of the Company's  Common Stock in connection with the issuance
of stock options to key employees of the Company.

         The adoption of the Employee 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
key employees,  advisors,  and  independent  consultants  without  unnecessarily
depleting the Company's cash reserves.  The Employee Plan is designed to augment
the  Company's  existing  compensation  programs  and is  intended to enable the
Company to offer  employees  a personal  interest  in the  Company's  growth and
success  through  the grant of stock  options.  A total of  2,000,000  shares of
Common Stock are reserved for issuance under the Employee Plan.

         Under the Employee  Plan,  options to purchase an aggregate of not more
than  2,000,000  shares of Common  Stock may be granted from time to time to key
employees,   advisors  and  independent  consultants  to  the  Company  and  its
subsidiaries. It is anticipated that awards made under the Employee Plan will be
subject to vesting  periods,  although  the  vesting  periods are subject to the
discretion of the Board of Directors or Administrator of the plan. If approved,

                                       43
<PAGE>
awards  under  the  Employee  Plan may be made  until  January  1, 2004 when the
Employee Plan terminates.

         The  Employee  Plan is to be  administered  by the Board of  Directors.
Subject to the specific  provisions of the Employee Plan, the  Administrator  is
generally  empowered  to (i)  interpret  the  plan;  (ii)  prescribe  rules  and
regulations  pertaining  thereto;  (iii)  determine  the  terms  of  the  option
agreements;  (iv) amend them with the consent of the optionee; (v) determine the
employees to whom options are to be granted;  and (vi)  determine  the number of
shares subject to each option and the exercise price thereof.

         The per share exercise price for incentive stock options  ("ISOs") will
not be less than 100% of the fair market value of a share of the Common Stock on
the date the option is granted  (110% of fair market  value on the date of grant
of an ISO if the  optionee  owns  more  than  10%  of the  Common  Stock  of the
Company).

         Options will be  exercisable  for a term  determined by the Board which
will not be less than one year. Options may be exercised only while the original
grantee has a relationship with the Company or a subsidiary of the Company which
confers  eligibility  to be  granted  options  or up to ninety  (90) days  after
termination at the sole discretion of the Board. In the event of termination due
to retirement, the Optionee, with the consent of the Board, shall have the right
to exercise  his option at any time during the twelve  (12) month  period  after
such  retirement.  Options may be exercised up to twelve (12) months after death
or total and permanent disability.  In the event of certain basic changes in the
Company,  including  a change in  control  of the  Company  (as  defined  in the
Employee Plan) in the discretion of the Board,  each option may become fully and
immediately  exercisable.  ISOs are not  transferable  other than by will or the
laws of descent and  distribution.  Options may be exercised during the holder's
lifetime only by the holder or his or her guardian or legal representative.

         Options  granted  pursuant to the Employee  Plan may be  designated  as
ISOs, with the attendant tax benefits provided under Section 421 and 422A of the
Internal Revenue Code of 1986. Accordingly,  the Employee Plan provides that the
aggregate  fair market value  (determined  at the time an ISO is granted) of the
Common  Stock  subject to ISOs  exercisable  for the first  time by an  employee
during any calendar  year (under all plans of the Company and its  subsidiaries)
may not  exceed  $100,000.  The Board may  modify,  suspend,  or  terminate  the
Employee Plan, provided,  however, that certain material modifications affecting
the Plan must be approved by the  shareholders,  and any change in the  Employee
Plan that may adversely affect an optionee's  rights under an option  previously
granted under the Employee Plan requires the consent of the optionee.


                                       44

<PAGE>
ITEM 11.          SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                  MANAGEMENT

         The following table sets forth certain information as of June 30, 1998,
based upon information  obtained by the persons named below, with respect to the
beneficial  ownership  of shares of Common Stock by (i) each person known by the
Company to be the owner of 5% or more of the outstanding shares of Common Stock;
(ii) by each Officer and Director;  and (iii) by all Officers and Directors as a
group.
<TABLE>
<CAPTION>

                                                                                              Percent of
                                                                                                 Common
                                                              Number of                          Stock
         Name                                                 Shares                             Owned
         ----                                                 ------                             -----
<S>                                                           <C>                                <C>  
         Joseph Polito (1)                                    1,301,039                          66.3%
         c/o U.S. Bridge Corp.
         53-09 97th Place
         Corona, New York 11368

         Steven Polito (2)                                       38,125                             *
         c/o U.S. Bridge Corp.
         53-09 97th Place
         Corona, New York 11368

         Ronald Polito (3)                                      44, 375                             *
         c/o U.S. Bridge Corp.
         53-09 97th Place
         Corona, New York 11368

         Ronald Murphy                                             --                              --
         c/o USABG Corp.
         53-09 97th Place
         Corona, New York 11368

         Marvin Weinstein                                          --                              --
         c/o USABG Corp.
         53-09 97th Place
         Corona, New York 11368

         All Officers and Directors
         as a group (5 persons)(1)-(3)                        1,383,539                          70.5%

         *   Less than 2.5%

</TABLE>
                                       45

<PAGE>

(1)      Includes 68,750 shares issuable upon the exercise of an option which is
         presently  vested and  exercisable.  Does not include (i) 2,500  shares
         issuable to Joseph  Polito upon the  exercise of options not  presently
         vested; and (ii) an aggregate of 62,750 shares gifted by Joseph Polito,
         of which 20,250 shares were gifted to members of Joseph Polito's family
         (including  12,500 each to Ronald and Steven  Polito) and 17,500 shares
         were gifted to employees of the Company, as of January 23, 1995. Joseph
         Polito disclaims  beneficial ownership of all shares transferred to his
         family members.

(2)      Includes  18,750 shares  issuable to Steven Polito  pursuant to options
         which have vested.

(3)      Includes  25,000 shares  issuable to Ronald Polito  pursuant to options
         which have vested.


                                       46

<PAGE>



ITEM 12.          CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS


         During the years ended June 30,  1998 and 1997,  NY 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.

         During the years  ended June 30,  1998 and 1997,  NY 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 $103,050.

         As of  June  30,  1998,  the  total  due to  officers  and  affiliates,
amounting to $215,932,  represents advances made by the President of the Company
and affiliated entities which bear no interest and are due on demand.

         On February 10, 1998, NY agreed to remit its lease payments to RSJJ for
the period January 1998 through December 31, 1998 by issuing the Company 106,667
shares of its common  stock in exchange  for which the  Company  agreed to issue
48,000  shares of  Common  Stock to RSJJ.  Both the  Company  and NY issued  the
aforesaid stock in March 1998. The value of the Company's shares was recorded at
the value of the rent otherwise due under the lease ($240,000).

         In March 1998,  the Company  issued  bonuses of 37,500 shares of Common
Stock to Joseph M. Polito and 6,250  shares to each of Ronald  Polito and Steven
Polito  pursuant to the  Management  plan: 1/2 of these shares vested on June 1,
1998, and 1/2 vest on January 1, 1999.  See  "Executive  Compensation-Employment
and Consulting Agreements" for information regarding management's compensation.



                                       47

<PAGE>

                                     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
         Consolidated Balance Sheet                                 F-2
         Consolidated Statements of Operations                      F-3
         Consolidated Statement of Stockholders' Equity             F-4
         Consolidated Statements of Cash Flows                      F-5 - F-6
         Consolidated Notes to Financial Statements                 F-7 - F-27

(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, previously have been filed with the Commission in connection with such
documents as are incorporated by reference herein.

         2.1             Agreement and Plan of Reorganization dated effective as
                         of April 25, 1994  (incorporated by reference herein to
                         exhibit 2.1 of Form 10-K filed with the  Commission for
                         the fiscal year ended June 30, 1994).
         3.1             Certificate of  Incorporation of the Company filed June
                         15, 1994.
         3.2             By-Laws  of  the   Company   (incorporated   herein  by
                         reference to Form 5- 18, dated May 4, 1989).
         4.1             Form  of  Special  Warrant   (incorporated   herein  by
                         reference  to exhibit 4.1 of Form 10-KSB for the fiscal
                         year ended June 30, 1995).
         4.2             Form of  Restricted  Stock  agreement  issued to Joseph
                         Polito (incorporated herein by reference to exhibit 4.2
                         of Form  10-KSB  for the  fiscal  year  ended  June 30,
                         1995).
         4.3             Form of 8% Convertible Debenture issued in 1998 Private
                         Placement.
         4.4             Form of Common Stock  Purchase  Warrant  issued in 1998
                         Private Placement.
         10.1            Lease Agreement  between One Carnegie Court  Associates
                         and Waldorf Steel  Fabrications,  Inc., dated March 27,
                         1990 (incorporated  herein by reference to exhibit 10.1
                         of Form  10-KSB  for the  fiscal  year  ended  June 30,
                         1994).
         10.2            Promissory note from the Company to Trinity Industries,
                         Inc.  (incorporated herein by reference to exhibit 10.2
                         of Form  10-KSB  for the  fiscal  year  ended  June 30,
                         1994).
         10.3            Forbearance  Agreement  between the Company and Trinity
                         Industries,

                                       48

<PAGE>
                         Inc.,  dated October  14, 1993 (incorporated herein  by
                         reference to exhibit 10.3 of Form 10-KSB for the fiscal
                         year ended June 30, 1994).
         10.4            Lease Agreement  between R.S.J.J.  Realty Corp. and NY,
                         dated June 30, 1993  (incorporated  herein by reference
                         to exhibit  10.4 of Form  10-KSB  for the  fiscal  year
                         ended June 30, 1994).
         10.5            Employment  Agreement  of Joseph  Polito  (incorporated
                         herein by  reference to exhibit 10.5 of Form 10-KSB for
                         the fiscal year ended June 30, 1995).
         10.6            The  Company's   Senior   Management   Incentive   Plan
                         (incorporated   herein  by   reference   to  the  proxy
                         statement dated February 1995).
         10.7            The Company's  Employee Stock Option Plan (incorporated
                         herein  by  reference  to  the  proxy  statement  dated
                         February 1995).
         10.8            Agreement  between Iron  Workers  Local Union 40 and NY
                         (incorporated  herein by  reference  to exhibit 10.8 of
                         Form 10-KSB for the fiscal year ended June 30, 1995).
         10.9            Agreement  between  Local Union 14, 14B, 15, 15A,  15C,
                         15D,   International  Union  of  Operating   Engineers,
                         AFL-CIO and NY  (incorporated  herein by  reference  to
                         exhibit  10.9 of Form  10-KSB for the fiscal year ended
                         June 30, 1995).
         10.10           Agreement between Local 780 and NY (incorporated herein
                         by  reference  to exhibit  10.10 of Form 10-KSB for the
                         fiscal year ended June 30, 1995).
         10.11           Agreement   to   capitalize   the   $400,000   of  debt
                         (incorporated  herein by reference to exhibit  10.11 of
                         Form 10-KSB for the fiscal year ended June 30, 1995).
         10.12           Consulting   Agreement   with   Marlowe   and   Company
                         (incorporated  by reference  herein to exhibit 10.12 of
                         Form 10-KSB for the fiscal year ended June 30, 1995).
         10.13           Lease  surrender  agreement  between One  Carnegie  and
                         Waldorf  dated August 1, 1995  (incorporated  herein by
                         reference  to Form  10-KSB/A  for the fiscal year ended
                         June 30, 1995).
         10.14           Lease  Agreement  between One Carnegie and U.S.  Bridge
                         Corp.  (Maryland),  dated August 1, 1995  (incorporated
                         herein by  reference  to Form  10-KSB/A  for the fiscal
                         year ended June 30, 1995).
         10.15           Consulting   Agreement  dated  December  9,  1996  with
                         Bernard Tapie (incorporated herein by reference to Form
                         10-KSB/A for the fiscal year ended June 30, 1997).
         10.16           Memorandum  of  Understanding,   dated  May  13,  1996,
                         between the Company  and Lubov  Ulianova  (incorporated
                         herein by  reference  to Form  10-KSB/A  for the fiscal
                         year ended June 30, 1997).
         10.17           Form  of   Subscription   Agreement  for  1998  Private
                         Placement.
         10.18           Form of Registration  Rights Agreement for 1998 Private
                         Placement.
         21.1            List of Subsidiaries.
         27.1            Financial Data Schedule.


                                       49

<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 10th day of January, 1999.


                                             USABG CORP.



                                             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 13, 1999               By:       /s/ Ronald J. Polito
                                               -------------------- 
                                               Ronald J. Polito, Secretary 
                                               and Director

Date: January 13, 1999               By:       /s/ Steven J. Polito
                                               --------------------
                                               Steven J. Polito, Treasurer 
                                               and Director

Date: January 13, 1999               By:       /s/Marvin Weinstein
                                               -------------------
                                               Marvin Weinstein, Director

Date: January 13, 1999               By:       /s/Ronald Murphy
                                               ----------------
                                               Ronald Murphy, Director








                                       50

<PAGE>


                       U.S. BRIDGE CORP. AND SUBSIDIARIES
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE YEARS ENDED JUNE 30, 1998 AND 1997



                                                                    Page
                                                                    Number
                                                                    ------

Independent auditors' report                                        F-1

Consolidated balance sheet as of June 30, 1998                      F-2

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

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

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

Notes to consolidated financial statements                          F-7 - F-27


<PAGE>
                          USABG CORP. AND SUBSIDIARIES

                        CONSOLIDATED FINANCIAL STATEMENTS

                   FOR THE YEARS ENDED JUNE 30, 1998 AND 1997

































<PAGE>








                           USABG CORP AND SUBSIDIARIES
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE YEARS ENDED JUNE 30, 1998 AND 1997



                                                                       Page
                                                                      Number
                                                                      ------
    Independent auditors' report                                        F-1

    Consolidated balance sheet at June 30, 1998                         F-2

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

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

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

    Notes to consolidated financial statements                       F-7 - F-27



<PAGE>
                          INDEPENDENT AUDITORS' REPORT


To the Board of Directors and Stockholders of USABG Corp.

We have audited the accompanying  consolidated  balance sheet of USABG Corp. and
its  subsidiaries   (the  "Company")  as  of  June  30,  1998  and  the  related
consolidated  statements of operations,  stockholders' equity and cash flows for
the years ended June 30, 1998 and 1997. These consolidated  financial statements
are the  responsibility of the Company's  management.  Our  responsibility is to
express an  opinion  on these  consolidated  financial  statements  based on our
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  consolidated  financial  statements are
free of material  misstatement.  An audit includes  examining,  on a test basis,
evidence  supporting the amounts and disclosures in the  consolidated  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 14H(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 consolidated  financial statements referred to above present
fairly, in all material  respects,  the consolidated  financial  position of the
Company as of June 30, 1998, and the consolidated  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  consolidated  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  $4,327,344,  a backlog  balance of  $1,051,119  and payroll taxes
payable amounting to $2,616,742.  Lastly,  for the years ended June 30, 1998 and
1997 the Company  reported net losses  amounting  to  $2,343,482  and  $875,238,
respectively.  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

                                      F-1
<PAGE>
<TABLE>
<CAPTION>
                                  USABG CORP AND SUBSIDIARIES
                                   CONSOLIDATED BALANCE SHEET
                                         JUNE 30, 1998

                                   ASSETS
<S>                                                                                <C>         
Current assets:
    Cash                                                                           $    184,709
    Contracts and retainage receivable, net                                           2,266,864
    Costs and estimated earnings in excess of billings on uncompleted contracts         321,854
    Other current assets                                                                 84,721
    Due from related parties                                                            103,050
                                                                                   ------------
         Total current assets                                                         2,961,198

Contracts and retainage receivable, net - non-current portion                         8,400,581
Transportation and office equipment, net                                                207,084
Other assets                                                                              1,100
                                                                                   ------------

Total assets                                                                       $ 11,569,963
                                                                                   ============

                    LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
    Accounts payable, including cash overdrafts of $96,867                         $  1,430,990
    Accrued expenses                                                                  1,936,240
    Payroll taxes payable                                                             2,616,742
    Convertible debentures                                                              450,000
    Current portion of long-term debt                                                   300,000
    Billings in excess of costs and estimated
       earnings on uncompleted contracts                                                 21,922
    Due to related parties                                                              215,932
    Income taxes payable                                                                166,716
    Liabilities of discontinued operations                                              150,000
                                                                                   ------------

         Total current liabilities                                                    7,288,542
                                                                                   ------------

Long-term debt, net of current portion                                                1,275,000
                                                                                   ------------

         Total liabilities                                                            8,563,542
                                                                                   ------------

Minority interest                                                                     2,191,802
                                                                                   ------------

Commitments and contingencies (Note 14)                                                    --
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S>                                                                                <C>         
Stockholders' equity:
    Preferred stock, authorized 10,000,000, issued and outstanding -0- shares
    Common stock, $.001 par value, authorized 50,000,000 shares,
     issued and outstanding 1,961,037                                                     1,961
    Additional paid-in capital                                                        4,865,447
    Accumulated deficit                                                              (3,430,909)
                                                                                   ------------
         Sub-total stockholders' equity                                               1,436,499
         Less: stock subscription receivable and other stockholders' deductions        (621,880)
                                                                                   ------------
         Total stockholders' equity                                                     814,619
                                                                                   ------------

Total liabilities and stockholders' equity                                         $ 11,569,963
                                                                                   ============
</TABLE>


          See accompanying notes to consolidated financial statements.

                                              F-2
<PAGE>
<TABLE>
<CAPTION>
                                     USABG CORP AND SUBSIDIARIES
                                CONSOLIDATED STATEMENTS OF OPERATIONS
                                    FOR THE YEARS ENDED JUNE 30,

                                                                            1998             1997
                                                                       ------------     ------------
<S>                                                                    <C>              <C>         
Revenue:
    Contract revenue                                                   $ 17,062,873     $ 15,494,447
                                                                       ------------     ------------

Costs and expenses:
    Cost of contract revenues                                            13,436,430       11,021,609
    General and administrative expenses                                   3,718,482        3,236,488
    Bad debt expense                                                      2,403,815        1,287,362
                                                                       ------------     ------------

         Total costs and expenses                                        19,558,727       15,545,459
                                                                       ------------     ------------

Loss from continuing operations before other income (expense),
 minority interest and provision for income taxes                        (2,495,854)         (51,012)

Other income (expenses):
    Non-recurring charge (Note 14h(i))                                     (300,000)            --
    Interest expense and financing costs                                   (514,874)        (159,565)
    Interest income                                                           8,886           10,425
                                                                       ------------     ------------

         Total other (expenses) income                                     (805,988)        (149,140)
                                                                       ------------     ------------

Loss before minority interest and provision
 for income taxes                                                        (3,301,842)        (200,152)

Minority interest in net loss (income)                                      981,497         (167,772)
                                                                       ------------     ------------

Loss before provision for income taxes                                   (2,320,345)        (367,924)

Provision for income taxes                                                   23,137          142,875
                                                                       ------------     ------------

Loss before discontinued operations                                      (2,343,482)        (510,799)

Loss from discontinued operations                                              --            280,817
Loss on disposal of assets of discontinued operations                          --             83,622
                                                                       ------------     ------------

Net (loss)                                                             $ (2,343,482)    $   (875,238)
                                                                       ============     ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S>                                                                    <C>              <C>          
Earnings per common share:
    Basic:
         Loss before loss from discontinued operations                 $      (1.23)    $       (.30)
                                                                       ============     ============
         Loss from discontinued operations                             $       --       $       (.21)
                                                                       ============     ============
         Net loss                                                      $      (1.23)    $       (.51)
                                                                       ============     ============

    Diluted:
         Loss before loss from discontinued operations                 $      (1.23)    $       (.30)
                                                                       ============     ============
         Loss from discontinued operations                             $       --       $       (.21)
                                                                       ============     ============
         Net loss                                                      $      (1.23)    $       (.51)
                                                                       ============     ============

Weighted average number of shares outstanding for basic and diluted       1,906,995        1,726,619
                                                                       ============     ============
</TABLE>


          See accompanying notes to consolidated financial statements.

                                      F-3
<PAGE>
<TABLE>
<CAPTION>
                                                     USABG CORP AND SUBSIDIARIES
                                           CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                                             FOR THE YEARS ENDED JUNE 30, 1998 AND 1997

                                                                                                           Stock
                                                          Common                                        subscription
                                                           stock                                         receivable
                                                   -----------------------   Additional                   and other        Total
                                                                               paid-in     Accumulated   stockholders' stockholders'
                                                     Shares         Amount     capital       deficit      deductions       equity
                                                   ---------   -----------   -----------   -----------   -----------    -----------
<S>                                                <C>         <C>           <C>           <C>           <C>            <C>        
Balances at July 1, 1996                           1,540,633   $     1,541   $ 2,684,827   $  (212,189)  $  (312,183)   $ 2,161,996

Issuance of common stock as consideration
 for services provided to the Company                 62,500            62       269,938          --        (270,000)          --

Issuance of common stock in lieu of
 repayment of loan and related interest              100,000           100       399,900          --            --          400,000

Issuance of common stock pursuant to the 1994
 Senior Management Incentive Plan
 as consideration for services provided to
 the Company                                          28,654            29       193,386          --            --          193,415

Issuance of common stock in connection with
 the exercise of options                              31,250            31       240,594          --        (240,625)          --

Issuance of common stock in connection with
 settlement of subsidiary's related party debt        87,500            88       479,912          --            --          480,000

Amortization of deferred expense in connection
 with issuances of common stock                         --            --            --            --         419,733        419,733

Net loss for the year ended June 30, 1997               --            --            --        (875,238)         --         (875,238)
                                                   ---------   -----------   -----------   -----------   -----------    -----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S>                                                <C>         <C>           <C>           <C>           <C>            <C>    
Balances at June 30, 1997                          1,850,537         1,851     4,268,557    (1,087,427)     (403,075)     2,779,906

Issuance of common stock pursuant to the 1994
 Senior Management Incentive Plan as
 consideration for services provided to the
 Company                                              62,500            62       206,938          --        (165,600)        41,400

Amortization of prepaid rent                            --            --            --            --         120,000        120,000

Issuance of common stock to related party in
 connection with  prepayment of subsidiary's rent     48,000            48       239,952          --        (240,000)          --

Additional paid-in capital resulting from imputed
 interest related to convertible debentures             --            --         150,000          --            --          150,000

Deferred compensation in connection with issuance
 of subsidiary's common stock                           --            --            --            --        (391,500)      (391,500)

Amortization of deferred expenses in connection
 with issuances of common stock                         --            --            --            --         458,295        458,295

Net loss for the year ended June 30, 1998               --            --            --      (2,343,482)         --       (2,343,482)
                                                  ----------   -----------   -----------   -----------   -----------    -----------

Balances at June 30, 1998                          1,961,037   $     1,961   $ 4,865,447   $(3,430,909)  $  (621,880)   $   814,619
                                                  ==========   ===========   ===========   ===========   ===========    ===========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                      F-4
<PAGE>
<TABLE>
<CAPTION>
                                   USABG CORP AND SUBSIDIARIES
                              CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   FOR THE YEARS ENDED JUNE 30,

                                                                        1998             1997
                                                                    -----------      ----------- 
<S>                                                                 <C>              <C>          
Operating activities:
    Net (loss)                                                      $(2,343,482)     $  (875,238)
    Adjustments to reconcile net (loss) to net
     cash (used for) provided by operating activities:
         Depreciation and amortization                                  465,028          558,233
         Minority interest in net loss                                  981,497          167,772
         Bad debt expense                                             2,403,815        1,287,362
         Deferred income tax benefit                                   (378,800)        (273,162)
         Issuance of common stock for services                          240,000          193,415
         Loss on disposal of assets of discontinued operations             --             82,622
    Decrease (increase) in:
         Contracts and retainage receivable                          (4,102,230)      (6,752,882)
         Costs and estimated earnings in excess of
          billings on uncompleted contracts                           1,903,869          207,801
           Other current assets                                          34,440           (7,382)
    Increase (decrease) in:
         Accounts payable                                            (2,064,314)       3,519,175
         Accrued expenses                                             1,165,029          778,853
         Payroll taxes payable                                          981,940        1,060,660
         Billings in excess of costs and estimated
          earnings on uncompleted contracts                            (104,533)         109,888
         Income taxes payable                                           355,663          521,675
                                                                    -----------      -----------
           Net cash (used for) provided by operating activities        (462,078)         578,792
                                                                    -----------      -----------
Investing activities:
    Transportation and office equipment                                (193,472)          (8,156)
                                                                    -----------      -----------
           Net cash (used for) investing activities                    (193,472)          (8,156)
                                                                    -----------      -----------
Financing activities:
    Advances to related parties                                         (51,211)        (376,714)
    Financing costs incurred                                               --            (35,000)
    Principal payments of long term debt                               (175,000)            --
    Repayment of credit line                                           (145,358)            (479)
    Advances from officers and related parties                           49,392          211,341
    Proceeds from convertible debentures                                450,000             --
    Costs of issuance of convertible debentures                         (57,000)            --
                                                                    -----------      -----------
           Net cash provided by (used for) financing activities          70,823         (200,852)
                                                                    -----------      -----------

Net (decrease) increase in cash                                        (584,727)         369,784
Cash, beginning                                                         769,436          399,652
                                                                    -----------      -----------
Cash, ending                                                        $   184,709      $   769,436
                                                                    ===========      ===========
</TABLE>
          See accompanying notes to consolidated financial statements.

                                       F-5
<PAGE>
<TABLE>
<CAPTION>
                                             USABG CORP AND SUBSIDIARIES
                                        CONSOLIDATED 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      $     36,848
                                                                                      ============      ============
         Taxes                                                                        $          -      $          -
                                                                                      ============      ============
Supplemental disclosure of non-cash operating activities:

    In connection with the issuance of common stock, 28,654 shares
     were issued as consideration for employee compensation                           $          -      $    193,415
                                                                                      ============      ============

    In connection  with  issuance of common stock,  31,250 shares
    were issued in lieu of a promissory note issued by Company's
    President                                                                         $          -      $    240,625
                                                                                      ============      ============

    Issuance of long term debt for settlement of accounts payable                     $  1,750,000      $          -
                                                                                      ============      ============

    In connection  with the prepayment of  subsidiary's  rent,  48,000 
    shares of common stock were issued as consideration for
    106,667 shares of subsidiary's common stock                                       $    240,000      $          -
                                                                                      ============      ============

Supplemental disclosure of non-cash investing activities:

    Surrender of property, plant, and equipment in lieu of
    foreclosure on mortgage                                                           $  2,889,999      $         -
                                                                                      ============      ===========
Supplemental disclosure of non-cash financing activities:

    In connection with the conversion of a subsidiary's account payable, 
     87,500 shares of common stock of the Company were issued
     as consideration for 270,000 shares of the subsidiary's common stock             $          -      $    480,000
                                                                                      ============      ============
    In connection with issuance of common stock, 62,500 shares were
     issued as consideration for deferred compensation                                $          -      $    270,000
                                                                                      ============      ============
    In connection with repayment of loan and related interest 100,000
     shares of common stock were issued to the Company's President                    $          -      $    400,000
                                                                                      ============      ============
</TABLE>

                                       F-6
<PAGE>
                           USABG CORP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE YEARS ENDED JUNE 30, 1998 AND 1997


NOTE 1       -    ORGANIZATION

                  USABG Corp.  "the  Company" was  incorporated  in the State of
                  Delaware  on  September  12,  1988 under the name of  Colonial
                  Capital Corp.

                  In  January  1998,  the  Company  filed  an  amendment  to its
                  Certificate  of  Incorporation  and  changed its name to USABG
                  Corp.  The Company  owns 48.5% of USA Bridge  Construction  of
                  N.Y., Inc.  ("NY"),  100% of the outstanding  shares of common
                  stock of Worldwide  Construction  Limited  ("Worldwide"),  and
                  100% of the outstanding  shares of common stock of Royal Steel
                  Services,  Inc. ("Royal Steel").  The Company's  President and
                  Chairman of the Board owns 7.5% of the common  stock of NY. By
                  virtue of his ownership of 66.3% of the outstanding  shares of
                  common  stock of the  Company,  the  Company may be deemed the
                  beneficial  owner of those  shares of NY common  stock held by
                  its  president,  resulting in the Company  having a direct and
                  indirect  controlling  financial  interest  of 56 % of NY. NY,
                  Worldwide,  and Royal Steel are the only subsidiaries  through
                  which  the  Company  currently  operates.  NY  provides  steel
                  erection for building, roadway, and bridge repair projects for
                  general  contractors.  Royal Steel was formed in November 1997
                  in order for the  Company  to  perform  work on  smaller  base
                  contracts.  Two additional  subsidiaries  of the Company (each
                  wholly-owned),  One  Carnegie  Court  Associates,  Inc.  ("One
                  Carnegie")  a former  real  estate  holding  company,  and USA
                  Bridge  Construction  Corp.  (Maryland)  ("MD") which provided
                  steel fabrication  services,  ceased operations in August 1997
                  and November 1996, respectively.

                  Worldwide was formed by the Company during  December 1997, and
                  is a British  Virgin Islands  corporation.  It was formed as a
                  holding  company  to own  80% of  each of  Falcon  Tchad  S.A.
                  ("Falcon")  and  Portshop  S.A.  ("Portshop"),  both of  which
                  companies were formed in N'Djamena, Chad, a country located in
                  Central Northern Africa. Falcon was formed in November 1997 to
                  operate  as a full  service  transportation,  forwarding,  and
                  warehousing company in N'Djamena. Portshop was formed in March
                  1998 to operate a duty free store in Chad's sole international
                  airport.  Worldwide  shall  operate  as  the  liaison  between
                  Portshop, Falcon and the governmental or private entities with
                  which  Falcon and Portshop  intend to contract in Chad.  As of
                  June 30, 1998,  the only activity in Worldwide was  consulting
                  and travel expenses and the purchase of trucks by Falcon.

                  The  financial   statements  give  retroactive   effect  to  a
                  one-for-four  reverse stock split effected during August 1998.
                  Unless  noted,  reference to the Company  includes the Company
                  and its subsidiaries.
<PAGE>

NOTE 2       -    GOING CONCERN

                  The accompanying  consolidated  financial  statement have been
                  prepared  assuming  that the Company will  continue as a going
                  concern.  For the years  ended  June 30,  1998 and  1997,  the
                  Company  generated  net losses  amounting  to  $2,343,482  and
                  $875,238,  respectively,  after  recording  bad debt  expenses
                  amounting  to  $2,403,815  and  $1,287,362,  respectively,  in
                  connection with the settlement of certain contracts 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 1997.

                  As of  June  30,  1998,  the  Company  has a  working  capital
                  deficiency  amounting to 

                                      F-7
<PAGE>
                           USABG CORP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE YEARS ENDED JUNE 30, 1998 AND 1997

                  $4,327,344 as a result of  classifying  certain  contracts and
                  retainages receivable as non-current since the timing of their
                  collectibility cannot be determined due to the related pending
                  litigations.

                  As of  June  30,  1998,  the  Company's  backlog  amounted  to
                  $1,051,119.  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
                  $2,616,742  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  minimal  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.

NOTE 3       -    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

             a)   Consolidated statements

                  The consolidated  financial  statement include the accounts of
                  the  Company,  NY  (by  virtue  of  its  direct  and  indirect
                  controlling  financial  interest as outlined  above),  and its
                  wholly-owned  subsidiaries,   One  Carnegie,  Maryland,  Royal
                  Steel,  and Worldwide  after  elimination  of all  significant
                  inter-company transactions and accounts.

            b)    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.
<PAGE>
            c)    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

                                      F-8
<PAGE>
                           USABG CORP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE YEARS ENDED JUNE 30, 1998 AND 1997

                  doubtful  accounts for contracts  and  retainage  receivables.
                  Actual results could differ from these estimates.

            d)    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
                  receivable and payable 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.

             e)   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 and retainage 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.

             f)   Transportation, office equipment and furniture

                  Transportation, office equipment and furniture 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.

             g)   Deferred compensation and consulting

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

                  Deferred  consulting  costs consist of consulting  fees in the
                  form of common stock issued to a  broker-dealer.  The deferred
                  consulting costs have been amortized over a two year period.


                                      F-9
<PAGE>
                           USABG CORP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE YEARS ENDED JUNE 30, 1998 AND 1997

             h)   Income taxes

                  The  Company  accounts  for income  taxes in  accordance  with
                  Statement of Financial  Accounting  Standards  (SFAS) No. 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.

             i)   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.

                  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.


                                      F-10
<PAGE>
                           USABG CORP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE YEARS ENDED JUNE 30, 1998 AND 1997

            j)    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.

            k)    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.

             l)   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") and NY's
                  1994 Senior Management Incentive Plan ("NY's 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.

             m)   Fair value disclosure as of June 30, 1998

                  The  carrying   value  of  cash,   contracts   and   retainage
                  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 based upon the interest factors for the debt being based
                  upon the prime rate which reflects market value.
<PAGE>
             n)   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.

                                      F-11
<PAGE>
                           USABG CORP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE YEARS ENDED JUNE 30, 1998 AND 1997


NOTE 4       -    CONTRACT AND RETAINAGE RECEIVABLE

                  At June 30, 1998, contract and retainage receivable consist of
                  the following:
<TABLE>
<CAPTION>
                                              Total          Current       Non-Current
                                           -----------     -----------     -----------
<S>                                        <C>             <C>             <C>      
Contracts in progress                      $ 1,619,262     $ 1,619,262     $      --
Completed contracts                         13,481,848       2,637,093      10,844,755
Retainage                                      250,417         250,417            --
                                           -----------     -----------     -----------
                                            15,351,527       4,506,772      10,844,755

Less:  allowance for doubtful accounts       4,684,082       2,239,908       2,444,174
                                           -----------     -----------     -----------

                                           $10,667,445     $ 2,266,864     $ 8,400,581
                                           ===========     ===========     ===========
</TABLE>

                  The   allowance   for  doubtful   accounts  was  increased  to
                  $4,684,082  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  have 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  contract  and
                  retainage receivables in connection with unpaid union dues and
                  professional fees (see Note 11B).

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:

<TABLE>
<CAPTION>
<S>                                                              <C>           
                  Costs incurred on uncompleted contracts        $    8,222,784
                  Profits earned to date                              2,519,548
                                                                 --------------
                                                                     10,742,332

                  Less: billings to date                             10,442,400
                                                                 --------------
                                                                 $      299,932
                                                                 ==============
</TABLE>
<PAGE>
                  Included in the accompanying balance sheet under the following
                  captions at June 30, 1998:
<TABLE>
<CAPTION>
<S>                                                              <C>           
                  Costs and estimated earnings in excess of 
                   billings on uncompleted contracts             $      321,854
                  Billings in excess of costs and estimated
                   earnings on uncompleted contracts                    (21,922)
                                                                 --------------
                                                                 $      299,932
                                                                 ==============
</TABLE>

                                      F-12
<PAGE>
                           USABG CORP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE YEARS ENDED JUNE 30, 1998 AND 1997

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                                       806,914
                                                                                                   --------------
                                                                                                       18,113,992
                  Less: contract revenue earned during the year ended June 30, 1998                    17,062,873
                                                                                                   --------------

                  Backlog balance at June 30, 1998                                                 $    1,051,119
                                                                                                   ==============
</TABLE>
NOTE 7       -    TRANSPORTATION, OFFICE EQUIPMENT AND FURNITURE

                  Transportation, office equipment and furniture is comprised of
                  the following at June 30, 1998:


<TABLE>
<CAPTION>
<S>                                                               <C>           
                   Transportation equipment                       $      183,317
                   Office equipment                                       20,431
                   Furniture & fixtures                                   18,311
                                                                  --------------
                                                                         222,059

                   Less: accumulated  depreciation                        14,975
                                                                  --------------

                                                                  $      207,084
                                                                  ==============


</TABLE>
                  As of June 30, 1998,  trucks  amounting to $183,317  which are
                  located in Chad (see Note 1) have not been  depreciated  since
                  operations  in Chad  did not  commence  until  October,  1998.
                  Depreciation  expense  for the years  ended June 30,  1998 and
                  1997 amounted to $6,733 and $4,902 respectively.
<PAGE>
NOTE 8       -    ACCRUED EXPENSES

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

                           Wages and related union benefits    $      181,363
                           Professional fees                          125,000
                           Insurance                                1,500,254
                           Interest                                   109,544
                           Other                                       20,079
                                                               --------------
                                                               $    1,936,240
                                                               ==============
<PAGE>
NOTE 9       -    INCOME TAXES

                  The  Company  has  adopted  SFAS No.  109.  Income  taxes  are
                  provided for the tax effects of  transactions  reported in the
                  financial statements and consist of taxes currently due plus

                                      F-13
<PAGE>
                           USABG CORP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE YEARS ENDED JUNE 30, 1998 AND 1997

                  deferred taxes related  primarily to  differences  between the
                  financial  and  tax  basis  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.

                  The  reconciliation  of income  tax  computed  at the  federal
                  statutory tax rate to income tax expense is as follows for the
                  years ended June 30:
<TABLE>
<CAPTION>
                                                                                       1998               1997
                                                                                  --------------     -------------
<S>                                                                               <C>                <C>
                      Tax computed at the federal statutory income tax rate       $      --              $(11,379)
                      Increase (reductions) resulting from: 
                      state and local taxes, net of federal benefit                      --                (4,331)
                      Tax expense on subsidiary income, deferred income
                        tax benefit, and other miscellaneous permanent
                        differences                                                      --                158,585
                      Change in income tax accrual                                      (355,663)          --
                      Change in deferred tax asset valuation allowance                   378,800           --
                                                                                  --------------     -------------
                      Income tax expense                                          $       23,137     $     142,875
                                                                                  ==============     =============
</TABLE>

                  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:
<TABLE>
<CAPTION>

                                                                                         Year Ended June 30,
                                                                                      1998                1997
                                                                                  ------------       ------------
<S>                                                                               <C>                <C>
                      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 of change in income tax 
                        accrual and valuation allowance                                    (35%)               --  
                                                                                          ----                ---   
                      Effective income tax rate                                            NIL                 35%
                                                                                          ====                ===
</TABLE>
<PAGE>

                  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)               134,000
                                                                  ------------
                                                                       918,000
                      Less: Valuation allowance                       (918,000)
                                                                  ------------
                      Deferred current tax asset                  $          -
                                                                  =============

                  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
                      Net operating loss carryforwards                  750,000
                                                                  -------------
                                                                      1,605,000

                      Less valuation allowance                       (1,605,000)
                                                                  -------------
                      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 combined net operating loss
                  carryforwards  of  approximately  $2,142,000  which  expire at
                  various dates through 2013.

                  A portion of the combined net operating loss carryforwards are
                  subject to  provisions of the Internal  Revenue Code,  Section
                  382, which limits the use of net operating loss  carryforwards
                  when  changes  in  ownership  of more than 50% occur  during a
                  three year testing period.

 
NOTE 10      -    CONVERTIBLE DEBENTURES

                  In January 1998, the Company  raised a net of $393,000,  after
                  commission  and  expenses,   in  connection   with  a  Private
                  Placement  to fund  the  Chadian  operation,  from the sale of
                  $450,000 of  Convertible  Debentures  (the  "Debentures")  and
                  Warrants.  The Debentures and Warrants,  as well as the Common
                  Stock underlying  same, were issued in a private  transaction,
                  exempt from the  registration  requirements  of the Securities

<PAGE>

                  Act of 1933, as amended (the "Act").  Such  Debentures are due
                  January 30, 2000 with interest  accruing at 8% per annum.  The
                  Debentures,  plus interest  accrued  thereon,  are convertible
                  into shares of Common Stock at the lesser of (i) 100% of the 5
                  day average closing bid price,  as reported by Bloomberg,  LP,
                  for the 5 trading days immediately  preceding the closing date
                  (February  3, 1998) of the  private  placement  (the  "Private
                  Placement" or "Private  

                                      F-14
<PAGE>
                           USABG CORP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE YEARS ENDED JUNE 30, 1998 AND 1997

                  Placement  Offering") ($.80); or (ii) 75% of the 5-day average
                  closing bid price,  as reported  by  Bloomberg,  LP, for the 5
                  trading days  immediately  preceding the date(s) of conversion
                  of all or a portion of the Debentures.

                  Pursuant  to the terms of the Private  Placement,  the Company
                  must file a  Registration  Statement  covering  the  shares of
                  Common Stock to be issued upon  conversion of the  Debentures.
                  Such  conversion  cannot  occur  earlier than 60 days from the
                  closing  date. If the  Registration  Statement is not declared
                  effective  within 90 days following the closing of the Private
                  Placement,  then as liquidated damages, the discount set forth
                  in the Subscription  Agreement and Debentures will increase by
                  2.5% per 30 day period or portion  thereof  pro rata until the
                  Registration    Statement    is   declared    effective,    or
                  alternatively,  if the  Registration  Statement  has not  been
                  declared  effective  within  said 90-day  period,  then at the
                  purchaser's  sole  option,  which  option must be exercised by
                  written notice to the Company, the Debentures shall convert to
                  having been issued  pursuant to  Regulation  S for  qualifying
                  Investors,   with  immediate   availability   to  convert  the
                  Debentures.

                  In addition to Debentures, the investors received Warrants to
                  purchase an aggregate of 25,000 shares of the Company's Common
                  Stock: 12,500 shares exercisable at $4.50 per share and 12,500
                  shares  exercisable  at $5.64 per share.  The funds have being
                  loaned to Worldwide to fund the Chadian operation.

                  As a result of the beneficial  conversion feature, the Company
                  recorded  interest  of  approximately  $150,000  based  on the
                  difference  between  the value of the shares to be issued upon
                  conversion assuming the most beneficial conversion feature and
                  the value of the convertible debentures amounting to $450,000.
                  Such amount is amortized  over the period  between the date of
                  issuance and the first  eligible date of  conversion.  For the
                  year ended June 30, 1998, the Company recorded $150,000 of the
                  beneficial  conversion feature as interest expense as a result
                  of  the  Company's  inability  to  complete  the  filing  of a
                  registration  statement  covering  the  underlying  securities
                  prior to 90 days after the closing  date,  the first  possible
                  conversion  date.  The  recording  of  interest  results in an
                  effective   interest  rate  of  141%.   Lastly,   the  Company
                  classified the  convertible  debenture as current since it was
                  unable to file the  registration  statement within 90 days and
                  accordingly  such  debenture  became  convertible  into common
                  stock.
<PAGE>
NOTE 11      -    LONG TERM DEBT

            a)    Line of credit

                  During August 1994, the Company secured a $250,000 credit line
                  with a bank at an  interest  rate of one and one half  percent
                  (11/2%)  above the prime rate.  The  security  for the line of
                  credit was a certificate  of deposit in the amount of $200,000
                  provided by NY.  During April,  1998,  such line of credit was
                  repaid and accordingly  therewith,  the certificate of deposit
                  provided as collateral was released by the bank.

            b)    Union dues payable

                  During  December  1997, NY 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  

                                      F-15
<PAGE>
                           USABG CORP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE YEARS ENDED JUNE 30, 1998 AND 1997

                  union dues previously  recorded as accounts payable. NY 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,  NY  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 NY may receive
                  any  funds.  NY 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.

                  As of June 30, 1998, union dues payable matures 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 12      -    MINORITY INTEREST

                  As of June 30, 1998, the minority  interest balance  amounting
                  to  $2,191,802 is a result of the stock  transactions  and the
                  proportionate  share of income and losses  attributable to the
                  minority stockholders of NY.

NOTE 13      -    STOCKHOLDERS' EQUITY

             a)   Issuance of common shares

                  (i)    On June 16,  1995  pursuant  to Form  S-8  Registration
                         Statement filed with Securities and Exchange Commission
                         the Company  registered  and issued 125,000 shares to a
                         broker-dealer   as   consideration   for  a  two   year
                         consulting agreement.  During August 1996, the Board of
                         Directors  amended the consulting  agreement and issued
                         an additional 62,500 shares to such  broker-dealer upon
                         Nasdaq  listing.  Such shares were valued  based on the
                         average  closing  bid price on the date of issue with a
                         10% discount in order to reflect  their fair value as a
                         result of their restrictions.  For the years ended June
                         30,  1998 and 1997,  the  Company  recorded  consulting
                         expense   related   to   this   matter   amounting   to
                         $135,000 and $112,500, respectively.
<PAGE>

                  (ii)   On August 15, 1995, the Company issued 37,500 shares of
                         common stock to its President  pursuant to the terms of
                         the Company's  Incentive  Plan. Such shares were 

                                      F-16
<PAGE>
                           USABG CORP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE YEARS ENDED JUNE 30, 1998 AND 1997

                         issued as compensation for the President's efforts with
                         the Company and NY in the  consummation of NY's initial
                         public offering on August 14, 1995. Of the total 37,500
                         shares   issued  to  the   President,   12,500   shares
                         immediately   vested  without   restrictions   and  the
                         remaining   25,000  shares   vested   pursuant  to  the
                         restricted  periods,  whereby  12,500  shares vested on
                         each August 15, 1996 and 1997.  Such shares were valued
                         based on the  average  closing bid price on the date of
                         issue with a 10%  discount  in order to  reflect  their
                         fair value as a result of their  restrictions.  For the
                         years  ended  June  30,  1998  and  1997,  compensation
                         expense related to such issuance amounted to $4,950 and
                         $67,650, respectively.

                  (iii)  On  May  13,  1996,  an  unrelated   party  loaned  the
                         Company's  President  $300,000 pursuant to a memorandum
                         of understanding.  The loan beared interest at 1% above
                         prime,  and it was due 90 days from  receipt  of funds.
                         Simultaneously   therewith,   the  Company's  President
                         loaned the Company the $300,000. Upon the Company being
                         listed  on  NASDAQ   (July  25,   1996),   the  Company
                         liquidated  such loan by issuing 100,000 shares to such
                         unrelated  party  pursuant to regulation  "S" under the
                         Securities  Act of 1933,  as amended (the  "Act").  The
                         shares  issued as  consideration  for the  repayment of
                         such loan were valued at the average  closing bid price
                         on the date the transaction was commenced. Accordingly,
                         the Company recorded a financing  expense  amounting to
                         $100,000 for the year ended June 30, 1997  resulting in
                         a effective interest rate of approximately 100%.

                  (iv)   During  December  1996, the Company issued an aggregate
                         of 28,654 common shares to certain  employees  pursuant
                         to its Incentive  Plan. In  connection  therewith,  the
                         Company  recorded  compensation  expense  amounting  to
                         $193,415  which  is based on the  average  closing  bid
                         price of $7.50 per share for the month of December 1996
                         with a 10%  discount  in order to  reflect  their  fair
                         value as a result of their restrictions.

                  (v)    During   February   1997,   pursuant   to  a  Form  S-8
                         Registration  Statement  filed with the  Securities and
                         Exchange Commission,  the Company registered a total of
                         172,404  common  shares,   of  which,   143,750  shares
                         underlie  stock  options   pursuant  to  the  Company's
                         Incentive  Plan. The options are exercisable at various
                         prices  ranging  from $7.00 each to $7.70 each.  During
                         the year ended June 30, 1997,  the Company's  president
                         exercised  the option to purchase  31,250 common shares
                         at $7.70 each by issuing  to the  Company a  promissory
                         note in the amount of $240,625. As of June 30, 1998 and
                         1997,   the  note  has  not  been  paid  and  has  been
                         classified as a reduction of stockholder's equity.
<PAGE>
                  (vi)   During June 1997,  the Company  issued 87,500 shares of
                         common stock to R.S.J.J. Realty Corp., an entity wholly
                         owned  by the  Company's  president,  in  exchange  for
                         270,000 shares of NY common stock as consideration  for
                         forgiveness  of NY's rent  payable to RSJJ.  The shares
                         issued to RSJJ in  exchange  of NY's  shares  have been
                         valued  based upon the  balance of the rent  payable of
                         $480,000.

                  (vii)  During  December  1997,  the  Company   authorized  the
                         issuance of 62,500  shares of its common  stock  during
                         the third  quarter of its fiscal  year  pursuant to the
                         Incentive Plan. Of the 62,500 shares, all of which were
                         issued  in  March  1998,  37,500  were  issued  to  the
                         Company's President,  and 6,250 shares each were issued
                         to each of the 

                                      F-17
<PAGE>
                           USABG CORP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE YEARS ENDED JUNE 30, 1998 AND 1997

                         Company's Secretary and Treasurer. Half of these shares
                         vested on June 1,  1998,  and half vest on  January  1,
                         1999.  The  remaining  12,500  shares  were  issued  to
                         consultants of the Company. The Company also authorized
                         and filed a  Post-Effective  Amendment  to the Form S-8
                         Registration Statement initially filed in February 1997
                         to register the resale of the  aforesaid  shares and to
                         reflect the  increase (to  2,000,000)  in the number of
                         shares  which  may  be  issued   under  the  plan.   In
                         connection  with the  issuance  of common  shares,  the
                         Company recorded  deferred  compensation and consulting
                         expense  amounting  to  $207,000  which is based on the
                         average  closing  bid  price of $3.68 per share for the
                         third quarter of the Company's  fiscal year, with a 10%
                         discount  in order to  reflect  their  fair  value as a
                         result of their restrictions upon issuance. The expense
                         associated   with   the   shares   which  do  not  vest
                         immediately have been recorded as deferred compensation
                         and are being amortized over the vesting period.

                  (viii) During February 1998, NY agreed to issue 106,667 shares
                         of its common stock to the Company as  consideration to
                         the Company for issuing 48,000 shares of its own common
                         stock to RSJJ in  consideration  for payment in full of
                         the rent due by NY 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 fair
                         value of the rent  otherwise  due under the lease which
                         amounted to $240,000.

             b)   Issuance of Subsidiary Common Shares

                  (i)      During   February  1997,   pursuant  to  a  Form  S-8
                           Registration  Statement filed with the Securities and
                           Exchange  Commission,  NY registered  125,000  common
                           shares underlying  options of NY's President pursuant
                           to  NY's  Senior  Management  Incentive  Plan  ("NY'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 NY
                           issuing 125,000 shares of common stock.

                  (ii)     During June 1997,  pursuant to an agreement with RSJJ
                           to settle $480,000 in accrued rent, NY issued 270,000
                           shares of its common  stock to the  Company,  for the
                           cancellation  of the debt owed to RSJJ.  The Company,
                           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.
<PAGE>
                  (iii)    During December 1997, NY authorized the issuance,  in
                           its third quarter, of 290,000 shares of Common Stock,
                           pursuant  to  NY's  Incentive  Plan.  Of the  290,000
                           shares  issued in March 1998 to  management,  150,000
                           were issued to NY's President,  70,000 were issued to
                           NY's  Secretary,  and  70,000  were  issued  to  NY's
                           Treasurer.  Half of these  shares  vested  on June 1,
                           1998,  and half  vest on  January  1,  1999.  NY 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  NY's
                           Incentive Plan. In addition to 

                                      F-18
<PAGE>
                           USABG CORP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE YEARS ENDED JUNE 30, 1998 AND 1997

                           the  foregoing,  NY also  authorized  the issuance of
                           50,000  common shares to certain of its employees and
                           consultants.  In connection with these issuances,  NY
                           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, NY issued 106,667 shares of its
                           common stock to the Company as  consideration  to the
                           Company for issuing  48,000  shares of its own common
                           stock to RSJJ in consideration for payment in full of
                           the  rent  due by NY to  RSJJ  for  the  period  from
                           January 1, 1998 through  December 31, 1998. The value
                           of the shares  issued by NY is  recorded at the value
                           of the rent  otherwise  due  under  the  lease  which
                           amounted to $240,000.

NOTE 14      -    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  estimated  may be  subject to  revision  in the
                  normal course of business.

            b)    Leases

                  NY 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,  NY 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  13A(viii)  NY has  prepaid  its  rent  in  full  through
                  December 31, 1998.  Subsequent  to December 31, 1998, NY plans
                  on leasing  such  facility on a month to month basis from RSJJ
                  for a reduced monthly amount to be negotiated.
<PAGE>
                  NY also  leased  storage  space  pursuant  to a month to month
                  agreement requiring monthly payments of $3,500. As of June 30,
                  1998,  NY settled  unpaid rent for  $10,000  and vacated  such
                  premises.

                  Included in selling,  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
                  revenue.

                                      F-19
<PAGE>
                           USABG CORP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE YEARS ENDED JUNE 30, 1998 AND 1997


            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%, 14%, 17%, and 53%, 19%, 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.

            d)    Seasonality

                  NY operates in an industry  which may be  seasonal,  generally
                  due to inclement  weather  occurring during the winter months.
                  Accordingly,  NY, 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

                  NY is  required  to provide  bid and/or  performance  bonds in
                  connection with governmental  construction projects. There can
                  be no assurance  that NY will be able to obtain future bonding
                  as a result of its financial condition.

            f)    Mechanics' liens

                  As of  June  30,  1998,  various  actions  to  foreclose  upon
                  mechanics  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   receivables.   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 $2,616,742
                  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 as funds become available.


                                      F-20
<PAGE>
                           USABG CORP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE YEARS ENDED JUNE 30, 1998 AND 1997

            h)    Legal proceedings

                  i)    NY is a defendant in a proposed settlement regarding the
                        State  Insurance Fund for unpaid  worker's  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  liens filed as
                           discussed  in  note  14(f),   certain   actions  were
                           commenced  against the Company during the fiscal year
                           ended June 30, 1998 as follows:

                         a)  A customer of NY 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  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.

                         b)  General contractor commenced an action to recover a
                             total of $6,326,000 which includes cost to complete
                             the job, and 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  for damages  amounting  to
                             $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.

                         c)  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.

                  iii)     During August 1998, a majority of the  Company's,  it
                           subsidiaries',   as  well  as  its   President's  and
                           Chairman's affiliated entities 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
<PAGE>

                           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.

                                      F-21
<PAGE>
                           USABG CORP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE YEARS ENDED JUNE 30, 1998 AND 1997


                  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.

            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.

            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)     Foreign Assets

                  Worldwide's   operations,   as  well  as  its   transportation
                  equipment  amounting  to  $183,317,  are  located  in Chad,  a
                  country located in Northern Central Africa,  accordingly,  the
                  Company is subject to certain  risks  associated  with foreign
                  currency and political changes.

            l)     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 15      -    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
                  $103,050.

            b)    Due to related parties

                  As of June 30, 1998, the total due to officers and affiliates,
                  amounting  to  $215,932,   represents  advances  made  by  the
                  President of the Company and affiliated entities which bear no
                  interest and are due on demand.

                                      F-22
<PAGE>
                           USABG CORP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE YEARS ENDED JUNE 30, 1998 AND 1997


            c)    Rent expense

                  Included  in  general  and  administrative  expenses  is  rent
                  expense  paid in cash  and  stock by NY  pursuant  to a signed
                  lease  agreement  with RSJJ a company  owned by the  Company's
                  President.  The lease expires December 31, 1998. Rent expensed
                  for both  years  ended  June 30,  1998  and 1997  amounted  to
                  $240,000.
                  (See Note 14b for additional information)

            d)    Purchase of material and labor

                  For the years ended June 30, 1998 and 1997 NY  purchased  from
                  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 related parties.

                  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  wholly
                  owned by the Company's President.

            e)    Employment agreement

                  On April 4, 1995 NY entered into an employment  agreement with
                  its President and Director for a term of  approximately  three
                  (3) years which expired on June 30, 1998. NY and 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  and
                  Director was granted  options to purchase 6,250 shares of NY's
                  common  stock,  all of which  options are vested and expire in
                  April  2000.  The  exercise  price of the options are 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 NY 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 16      -    EARNINGS PER SHARE

                  As of June 30, 1998,  the Company  adopted FAS  Statement  No.
                  128, "Earnings per Share".  Accordingly,  diluted earnings per
                  common share for all prior periods have been restated.


                                      F-23
<PAGE>
                           USABG CORP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE YEARS ENDED JUNE 30, 1998 AND 1997


                  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.

                  For the years ended June 30, 1998 and 1997, earnings per share
                  under  SFAS  128  was  the  same  as if it  were  computed  in
                  accordance  with the prior rule. The  computation of basic and
                  diluted   earnings   per   common   share  for  "loss   before
                  discontinued operations" is as follows:
<TABLE>
<CAPTION>

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

<S>                                                 <C>              <C>         
Net (loss)                                          $(2,343,482)     $  (510,799)

Denominator:
Computation of basic earning per share ("EPS"):
Weighted average common shares outstanding            1,906,995        1,726,619
                                                    -----------      -----------

Basic EPS                                           $     (1.23)     $      (.30)
                                                    ===========      ===========

Computation of diluted EPS:
Weighted average common share outstanding             1,906,995        1,726,619

Potentially dilutive shares:
Weighted average shares issuable under options          (a) (b)          (a) (b)

Weighted average shares outstanding & available       1,906,995        1,726,619
                                                    -----------      -----------

Diluted EPS                                         $     (1.23)     $      (.30)
                                                    ===========      ===========
</TABLE>
<PAGE>

                  (a)    Shares issuable under options, were not included in the
                         computation of diluted EPS since the options'  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 17      -    STOCK COMPENSATION PLANS

                  i)     During December 1994, the Company adopted its Incentive
                         Plan.  The  Incentive  Plan  was  adopted  in  order to
                         attract   and   retain   qualified   personnel,   whose
                         performance 

                                      F-24
<PAGE>
                           USABG CORP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE YEARS ENDED JUNE 30, 1998 AND 1997

                         is  expected  to  have  a  substantial  impact  on  the
                         Company's  long term profit and growth  potential.  The
                         Incentive  Plan  provides  for  an  issuance  of  up to
                         2,000,000 shares of the Company's common stock.


                         The  status  of the  Company's  stock  option  plan  is
                         summarized for the years ended June 30. 1998 and 1997:
<TABLE>
<CAPTION>
                                                  Number of            Exercise
                                                   options              price
                                                  --------          ------------
<S>                                               <C>               <C>   
Outstanding at June 30, 1996                          --            $       --
    Granted                                        143,750             7 to 7.70
    Exercised                                      (31,250)                 7.70
    Cancelled                                         --                    --
                                                  --------          ------------
Outstanding at June 30, 1997                       112,500             7 to 7.70
    Granted                                           --                    --
    Exercised                                         --                    --
    Cancelled                                         --                    --
                                                  --------          ------------
Outstanding at June 30, 1998                       112,500             7 to 7.70
                                                  ========          ============
</TABLE>
                ii)      During  December  1994,  NY adopted the NY's  Incentive
                         Plan.  NY's  Incentive  Plan  was  adopted  in order to
                         attract   and   retain   qualified   personnel,   whose
                         performance is expected to have a substantial impact on
                         NY's  long  term  profit  and  growth  potential.  NY's
                         Incentive  Plan  provides  for  an  issuance  of  up to
                         1,000,000 shares of its common stock.

                         The  status of NY's  stock  option  plan is  summarized
                         below for the years ended June 30, 1998 and 1997:

<TABLE>
<CAPTION>
                                                      Number of            Exercise
                                                       options               price
<S>                                                   <C>                  <C> 
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
                                                      =========            ========
</TABLE>
<PAGE>
                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

                                      F-25
<PAGE>
                           USABG CORP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE YEARS ENDED JUNE 30, 1998 AND 1997

                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.
<TABLE>
<CAPTION>
                                                        For the year
                                                        ended June 30,
                                              ---------------------------------
                                                   1998                 1997
                                              -------------       -------------
<S>                                           <C>                 <C>           
Net loss              -      as reported      $  (2,343,482)      $    (875,238)
                                              =============       =============
                      -      pro-forma        $  (2,343,482)      $  (1,660,738)
                                              =============       =============


Basic EPS             -      as reported      $       (1.23)      $        (.51)
                                              =============       =============
                      -      pro-forma        $       (1.23)      $        (.96)
                                              =============       =============
</TABLE>
                  The Black-Scholes option valuation 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.

NOTE 18      -    DISCONTINUED OPERATIONS

            a)    Agreement for Deed in Lieu of Foreclosure

                  On March 10, 1997, One Carnegie executed an agreement with its
                  mortgage holder,  whereby the property secured by the mortgage
                  and  owned  by  One  Carnegie  and  rented  to  MD,  would  be
                  transferred   to   the   mortgage   holder.    As   additional
                  consideration,  One Carnegie executed a promissory note in the
                  amount of $150,000  naming the mortgage  holder as payee.  The
                  operations of One Carnegie  have not been reported  previously
                  as a separate  segment as all of One  Carnegie's  revenue  was
                  derived from MD; however, its assets, liabilities, and results
                  of  operations  are  clearly  distinguishable  from the  other
                  assets, liabilities, and results of operations of the Company,
                  and  as   such,   the   property   and   related   accumulated
                  depreciation, accrued interest, and mortgage payable have been

<PAGE>
                  recorded as assets and liabilities of discontinued  operations
                  during  its  June 30,  1997  year  end.  The  transaction  was
                  completed in August  1997,  resulting in a loss on disposal of
                  $83,622.  Expenses  of  One  Carnegie  included  depreciation,
                  interest,  and real estate taxes.  All income is eliminated in
                  consolidation,   resulting   in   losses   from   discontinued
                  operations prior to disposal.


                                      F-26
<PAGE>
                           USABG CORP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE YEARS ENDED JUNE 30, 1998 AND 1997

NOTE 19      -    SUBSEQUENT EVENTS

                  One May 12, 1998,  the Company  executed a letter of intent to
                  sell  all  of  its  stock  in  NY  to  Amalgamated   Resources
                  Management S.A. ("ARM") for an aggregate of $10,220,000.  This
                  sale was to occur  simultaneously  with  the  closing  of NY's
                  acquisition  of 51% of the common  stock of First  Anglo-Swiss
                  Holdings,  Inc. ("FAS") in exchange for 510,000 shares of NY's
                  common  stock.  The intent of such  transaction  was  mutually
                  terminated during August 1998.

                                      F-27