KINETICS GROUP INC, S-1/A, 1997-02-18

KINETICS GROUP INC
S-1/A, 1997-02-18
SEMICONDUCTORS & RELATED DEVICES

Previous: INTERNATIONAL KNIFE & SAW INC, 424B3, 1997-02-18

Next: SPECIAL METALS CORP, S-1/A, 1997-02-18

<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 18, 1997.

REGISTRATION NO. 333-17777

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION

AMENDMENT NO. 3
TO
FORM S-1

REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933

------------
THE KINETICS GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

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

DELAWARE 1623 77-0423998
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL CODE NUMBER) IDENTIFICATION NO.)
INCORPORATION OR
ORGANIZATION)

3080 RAYMOND STREET
SANTA CLARA, CALIFORNIA 95054
(408) 727-7740
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

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

WILLIAM A. BIANCO, JR.
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
THE KINETICS GROUP, INC.
3080 RAYMOND STREET
SANTA CLARA, CALIFORNIA 95054
(408) 727-7740
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)

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

COPIES TO:
ERIC J. LAPP JONATHAN K. LAYNE
CHERYL K. HOUSE SCOTT J. CALFAS
WILLIAM R. SCHREIBER TIMOTHY D. BLANTON
GRAY CARY WARE & FREIDENRICH GIBSON, DUNN & CRUTCHER LLP
A PROFESSIONAL CORPORATION 333 S. GRAND AVENUE
400 HAMILTON AVENUE LOS ANGELES, CALIFORNIA 90071
PALO ALTO, CALIFORNIA 94301 (213) 229-7000
(415) 328-6561

APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable
after this Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box: [_]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE
COMMISSION (THE "COMMISSION"), ACTING PURSUANT TO SAID SECTION 8(A), MAY
DETERMINE.

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ +
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

SUBJECT TO COMPLETION, DATED FEBRUARY 18, 1997

PROSPECTUS
3,700,000 SHARES
LOGO
[LOGO OF KINETICS, INC.]
COMMON STOCK

--------

Of the 3,700,000 shares of Common Stock offered hereby (the "Offering"),
3,050,000 shares are being sold by The Kinetics Group, Inc. (the "Company" or
"Kinetics") and 650,000 shares are being sold by certain stockholders (the
"Selling Stockholders"). See "Principal and Selling Stockholders." The Company
will not receive any of the proceeds from the sale of shares by the Selling
Stockholders.

Prior to the Offering, there has not been a public market for the Common
Stock of the Company. It is currently estimated that the initial public
offering price will be between $14.00 and $16.00 per share. See "Underwriting"
for information relating to the factors to be considered in determining the
initial public offering price. The Common Stock has been approved for quotation
on the Nasdaq National Market under the symbol "KNTX," subject to official
notice of issuance.

SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.

--------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2)(3) STOCKHOLDERS(3)
- -----------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share $ $ $ $
- -----------------------------------------------------------------
Total(3) $ $ $ $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) For information regarding indemnification of the Underwriters, see
"Underwriting."
(2) Before deducting expenses estimated at $750,000, which are payable by the
Company.
(3) The Company and certain of the Selling Stockholders have granted the
Underwriters a 30-day option to purchase up to 255,179 and 299,821
additional shares of Common Stock, respectively, solely to cover over-
allotments, if any. See "Underwriting." If such option is exercised in
full, the total Price to Public, Underwriting Discounts and Commissions,
Proceeds to Company and Proceeds to Selling Stockholders will be $ ,
$ , $ and $ , respectively.

--------

The shares of Common Stock are being offered by the several Underwriters
named herein, subject to prior sale, when, as and if accepted by them and
subject to certain conditions. It is expected that certificates for the shares
of Common Stock offered hereby will be available for delivery on or about
, 1997, at the office of Smith Barney Inc., 333 West 34th Street, New York,
New York 10001.

--------

SMITH BARNEY INC.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
OPPENHEIMER & CO., INC.
, 1997
<PAGE>

[THREE DIMENSIONAL COMPUTER-AIDED DESIGN MODEL
OF MODULAR BIOTECHNOLOGY PROCESS SKID.]

KINETICS: "THE MECHANISM BY WHICH A PHYSICAL OR CHEMICAL CHANGE IS EFFECTED"

KSI is a registered trademark of the Company, and Kinetics, bioKINETICS,
Quality Assurance Management and QAM are trademarks of the Company. All other
trade names, trademarks and service marks are trade names, trademarks or
service marks of the respective companies that utilize them.

The Company intends to furnish to its stockholders annual reports containing
consolidated financial statements audited by an independent public accounting
firm and quarterly reports for the first three quarters of each fiscal year
containing unaudited consolidated financial information.

IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN
THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY
BE DISCONTINUED AT ANY TIME.
<PAGE>

INTERNAL

semiconductor

HIGH-PURITY CRAFTSMAN UTILIZ- ING
INFRARED PLASTIC FUSION TECHNOLOGY
FOR AN ULTRA PURE DE-IONIZED WATER
SYSTEM.

INSTALLATION OF SEMICONDUCTOR
PROCESS EQUIPMENT.

INSTALLED HIGH-PURITY
SPECIALTY GAS
SYSTEMS.

HELIUM LEAK DETECTION ENSURES THE INTEGRITY OF A HIGH-PURITY GAS SYSTEM.

SUPPORT SYSTEMS FOR
SEMICONDUCTOR PROCESS EQUIPMENT.

KINETICS

[Five photographs of the Company's high-purity semiconductor process systems.]
<PAGE>

GATEFOLD

biotechnology and pharmaceutical

WATER FOR INJECTION, PURIFIED WATER
AND CLEAN STEAM FOR BIOTECHNOLOGY
AND PHARMACEUTICAL MANUFACTURING.

[LOGO] KINETICS

MEDIA TANKS PREPARE THE
NUTRIENTS USED FOR CELL GROWTH
IN A BIOTECHNOLOGY MANUFACTURING
FACILITY.

THE DESIGN AND INSTALLATION
OF A WATER FOR INJECTION
SYSTEM IS AMONG THE MOST
EVALUATED AREAS DURING A
FOOD AND DRUG ADMINISTRA-
TION INSPECTION.

VALIDATED SYSTEMS IN A BIOTECHNOLOGY
FACILITY.

[Four photographs of the Company's biotechnology and pharmaceutical process
systems.]
<PAGE>

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements, including the notes thereto,
appearing elsewhere in this Prospectus. Prospective investors should carefully
consider the information set forth under "Risk Factors." Unless otherwise
indicated, all information in this Prospectus, including financial information,
shares and per share data: (i) gives effect to a three-for-four reverse stock
split to be effected upon closing of the Offering, (ii) reflects the conversion
of all outstanding shares of Preferred Stock into an aggregate of 1,793,693
shares of Common Stock, which will occur automatically upon closing of the
Offering, (iii) reflects the conversion and reconstitution of all outstanding
shares of Class A Common Stock and Class B Common Stock into an aggregate of
7,567,500 shares of Common Stock, which will occur upon closing of the
Offering, (iv) reflects the net exercise of all outstanding warrants into an
aggregate of 189,312 shares of Common Stock and (v) assumes the Underwriters'
over-allotment option is not exercised. References herein to "Kinetics" and the
"Company" include certain predecessors and subsidiaries, unless the context
otherwise requires. References in this Prospectus to a specific fiscal year of
the Company refer to the 12 months ended September 30 of the designated year.

THE COMPANY

Kinetics is the leading domestic provider of sophisticated high-purity
process piping systems, based on revenues. These systems are used primarily in
the semiconductor, pharmaceutical and biotechnology industries. Kinetics offers
its customers turnkey solutions by providing, as a complement to its specialty
high-purity contracting business, comprehensive and technically advanced
engineering and design services, quality assurance and control services,
program management services, and manufacturing of specialty components.
Operations and sales efforts are conducted from its strategically located
facilities throughout the United States and at several international sites.

Within the semiconductor industry, the Company provides its services
primarily to industry-leading manufacturers of integrated circuits and
semiconductor original equipment manufacturers. Generally, high-purity process
piping systems in semiconductor manufacturing facilities ("fabs") distribute
gases, water and chemicals from generating equipment or storage tanks to the
process manufacturing equipment. In pharmaceutical and biotechnology
facilities, high-purity process piping systems are used both to transfer
product through various stages of manufacturing and to distribute gases, water
and chemicals that support manufacturing.

The Company prides itself on its ability to secure repeat business with its
customers on both new construction and retrofit projects. In fiscal 1996, 87%
of revenues was derived from repeat customers. The Company's semiconductor
customers currently include AMD, DEC, Hyundai, Intel, LAM Research, LSI Logic,
Lucent Technologies, Motorola, Rockwell, SGS Thomson Semiconductor and Texas
Instruments. The Company's pharmaceutical and biotechnology customers currently
include Alcon, Bayer, Chiron, Genentech, Genetics Institute, IDEC, Merck, Ortho
Diagnostics and Warner Lambert. Of the aforementioned customers, only AMD and
Rockwell accounted for more than 10% of the Company's revenues in fiscal 1996.

The Company was founded in 1971 by William A. Bianco, Jr., its current
chairman and chief executive officer. The Company initially provided high-
purity process piping services to the early Silicon Valley semiconductor
companies and focused primarily on this regional market until 1990. Recognizing
the growth opportunity in the semiconductor industry and the opportunity to
apply high-purity process piping technology to other rapidly growing and
capital intensive industries, the Company began expanding its operations into
the pharmaceutical and biotechnology markets in the United States. The Company
has also expanded geographically throughout the United States as well as at
selected international locations. Concurrent with its expansion, the Company
developed high-end value-added services such as engineering and quality
assurance to respond to the changing construction and manufacturing strategies
of its customers. Through these actions, the Company has acquired the capital
equipment, fabrication facilities, engineering database and highly trained
personnel to serve these rapidly growing industries and has developed the
capability to perform turnkey high-purity process piping system projects.

3
<PAGE>

The Company has increased its revenues to $278.4 million for fiscal 1996 from
$145.5 million for fiscal 1994, and income from operations to $16.0 million
from $6.4 million during that period, representing compound annual growth rates
of 38.3% and 58.6%, respectively, while growing its business solely through
internal expansion. With its experience in the design, fabrication and
installation of high-purity process piping systems in sophisticated
manufacturing facilities, its accumulated resources, its financial
accomplishments and its presence in numerous local markets, Kinetics believes
that it has a strong competitive advantage and is well positioned as a key
supplier to meet the technological challenges and growth of the semiconductor,
pharmaceutical and biotechnology industries.

The Company is committed to strengthening its position as a high-quality
provider of sophisticated high-purity process piping systems, as well as
expanding into the broader process systems market, for the semiconductor,
pharmaceutical and biotechnology industries while increasing its revenues and
profitability. To achieve these objectives, the Company has adopted a strategy
consisting of the following key elements:

. Increase Market Share. The Company intends to further increase its
market share by opening and expanding branch offices, leveraging
existing customer relationships, investing in fabrication and cleanroom
facilities, acquiring capital equipment, and continuing to hire and
train personnel. The Company also plans to broaden its customer base by
increasing its direct sales force and by pursuing strategic alliances
with specialty gas and high-purity water providers.

. Leverage Its Investment in Quality Leadership. The Company intends to
continue to develop, refine and market its proprietary standard
operating procedures ("SOPs"). These SOPs allow the Company to
effectively compete for projects requiring fast-track schedules, custom
design, extensive documentation and contamination-free installation
procedures, and to consistently perform its work anywhere in the world.
The Company has an extensive knowledge base regarding the requirements
and expectations of various regulatory bodies, including the FDA. The
Company is committed to continuing to understand and interpret the
evolving requirements of these regulatory bodies and is in the process
of applying for ISO 9000 certification to aid the Company's
international expansion efforts.

. Reduce Operating Costs and Increase Operating Efficiencies. The Company
has identified and will continue to seek additional "best practice"
techniques and is committed to implementing them throughout its entire
organization. Such techniques include the increased use of its
proprietary management software, consolidation of key suppliers in an
effort to increase purchasing power, and consolidation of fabrication
and administration into selected regional centers in order to reduce
costs and increase operating efficiencies.

. Develop Specialty Products. The Company has successfully introduced
several product lines over the past two years, including semiconductor
valve assemblies and portable high-purity gas and liquid analysis carts.
The Company plans to grow these product lines and to introduce new
products to meet the needs of its existing customer base.

4
<PAGE>

THE OFFERING

<TABLE>
<C> <S>
Common Stock Offered Hereby:
The Company..................................... 3,050,000 shares
The Selling Stockholders........................ 650,000 shares
Common Stock to be outstanding after the Offering.. 12,600,505 shares(1)
Use of Proceeds.................................... To fund domestic and
international expansion,
including operations,
facilities and equipment,
as well as potential
acquisitions; repayment of
debt; working capital; and
general corporate
purposes. See "Use of
Proceeds."
Nasdaq National Market Symbol...................... "KNTX"
</TABLE>
- --------

(1) Excludes (i) 1,016,249 shares of Common Stock issuable upon exercise of
options outstanding as of December 31, 1996 with a weighted average
exercise price of $6.71 per share, (ii) 350,000 shares of Common Stock
reserved for issuance upon exercise of options that may be granted in the
future under the Company's 1997 Stock Option Plan (the "Option Plan"), and
(iii) 250,000 shares of Common Stock reserved for issuance under the
Company's 1996 Employee Stock Purchase Plan (the "Purchase Plan"). See
"Capitalization," "Management--Benefit Plans" and Note 6 of Notes to the
Company's Consolidated Financial Statements.

RISK FACTORS

The risks associated with an investment in the Company include, but are not
limited to: the Company's dependence on the semiconductor, pharmaceutical and
biotechnology markets; the risk that the Company's revenues and gross profits
may be improperly recognized because of the Company's use of estimates in
recognizing revenues and gross profit and its use of the percentage-of-
completion method of accounting; the risk that the Company may experience
significant quarterly fluctuations in its operating results; the risk that the
Company will not be able to maintain the substantial growth of the past few
years; the Company's dependence on a small number of key customers; and the
risk that the Company's use of fixed-price and guaranteed maximum price
contracts will result in losses to the Company. For a full discussion of the
risks associated with an investment in the Company, see "Risk Factors."

5
<PAGE>

SUMMARY CONSOLIDATED FINANCIAL DATA

<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL YEAR ENDED SEPTEMBER 30, DECEMBER 31,
---------------------------------------------- --------------------
1992 1993 1994 1995 1996 1995 1996
------- ------- -------- -------- -------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues............... $66,691 $94,897 $145,473 $229,933 $278,423 $59,155 $72,195
Costs of revenues...... 57,256 82,611 125,307 194,875 230,748 50,032 59,641
------- ------- -------- -------- -------- --------- ---------
Gross profit........... 9,435 12,286 20,166 35,058 47,675 9,123 12,554
Selling, general and
administrative
expenses.............. 8,701 10,928 13,807 22,384 31,673 5,807 9,213
------- ------- -------- -------- -------- --------- ---------
Income from
operations............ 734 1,358 6,359 12,674 16,002 3,316 3,341
Other income (expense):
Other income, net..... 396 1,376 115 331 944 357 147
Interest expense...... (575) (583) (1,084) (749) (1,068) (131) (426)
------- ------- -------- -------- -------- --------- ---------
Other income
(expense), net....... (179) 793 (969) (418) (124) 226 (279)
------- ------- -------- -------- -------- --------- ---------
Income before income
taxes................. 555 2,151 5,390 12,256 15,878 3,542 3,062
Provision for income
taxes(1).............. 249 968 2,426 5,517 7,147 1,623 1,378
------- ------- -------- -------- -------- --------- ---------
Net income(1).......... $ 306 $ 1,183 $ 2,964 $ 6,739 $ 8,731 $ 1,919 $ 1,684
======= ======= ======== ======== ======== ========= =========
Pro forma net income
per common share(2)... $ 0.87 $ 0.17
======== =========
Shares used in
computing pro forma
net income per common
share(2).............. 10,043 10,049
Supplemental pro forma
net income per common
share(3).............. $ 0.83 $ 0.16
======== =========
Shares used in
computing supplemental
pro forma net income
per common share(3)... 11,011 11,581
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------------
ACTUAL AS ADJUSTED(4)
BALANCE SHEET DATA: -------- --------------
<S> <C> <C>
Cash and cash equivalents............................. $ 6,036 $ 26,452
Total assets.......................................... 102,659 123,075
Long-term debt and capital lease obligations, net of
current maturities................................... 18,913 --
Stockholders' equity.................................. 20,190 71,351
</TABLE>
- --------

(1) Prior to May 31, 1995 the Company had elected to be taxed under Subchapter
S of the Internal Revenue Code under which federal income taxes on the
Company's earnings accrued directly to its stockholders. The Company
terminated its S Corporation status on that date and became taxable as a
corporation under Subchapter C of the Internal Revenue Code. The provision
for income taxes for fiscal 1992, 1993, 1994 and 1995 are presented on a
pro forma basis as if the Company had been taxed as a C Corporation for
each year presented. The provision for income taxes for fiscal 1996, during
which the Company was taxed as a C Corporation for the entire year, is
presented on a historical basis. The Company's historical provision for
income taxes in fiscal 1992, 1993, 1994 and 1995 and historical net income
for fiscal 1992, 1993, 1994 and 1995 were $23,000, $56,000, $535,000 and
$2,902,000, respectively, and $532,000, $2,095,000, $4,855,000 and
$9,354,000, respectively.

(2) Pro forma net income per common share for the year ended September 30, 1996
and the three months ended December 31, 1996 is computed using the weighted
average number of shares of Common Stock outstanding, including dilutive
common equivalent shares from stock options and warrants (using the
treasury stock method) and also gives effect to the assumed conversion of
all outstanding shares of redeemable convertible Preferred Stock into
Common Stock upon the closing of the Offering (using the as-if-converted
method) and the termination of certain repurchase obligations under a
stockholder agreement. See Note 1 of Notes to Consolidated Financial
Statements.

(3) Supplemental pro forma net income per common share and shares used in
computing supplemental pro forma net income per common share give effect to
the intended use of the net proceeds of the Offering to retire indebtedness
($13.5 million of indebtedness outstanding at September 30, 1996, and $21.4
million at December 31, 1996) as if such repayment had occurred at the
beginning of each period. The Company intends to use approximately $27.5
million to repay indebtedness outstanding at the closing of the Offering
(of which approximately $13.5 million was outstanding at September 30, 1996
and $21.4 million at December 31, 1996).
(4) Gives effect to the receipt and application of the net proceeds from the
sale of 3,050,000 shares of Common Stock offered by the Company hereby (at
an assumed Offering price of $15.00 per share) and also gives effect to the
assumed conversion of all outstanding shares of redeemable convertible
Preferred Stock into Common Stock upon the closing the Offering. See "Use
of Proceeds" and "Capitalization."

6
<PAGE>

RISK FACTORS

Except for the historical information contained herein, the discussion in
this Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
discussed here. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed below, as well as those
discussed elsewhere in this Prospectus. In addition to the other information
in this Prospectus, the following factors should be considered carefully in
evaluating an investment in the Common Stock offered by this Prospectus.

DEPENDENCE ON SEMICONDUCTOR, PHARMACEUTICAL AND BIOTECHNOLOGY MARKETS

The Company has derived substantially all of its revenues to date from sales
to companies in the semiconductor and, to a lesser extent, pharmaceutical and
biotechnology industries, and its future growth is critically dependent on
sales within these industries. The success of the Company's customers and
potential customers is linked to economic conditions in these respective
industries, which in turn are each subject to intense competitive pressures
and are affected by overall economic conditions. The semiconductor industry in
particular has historically been, and will likely continue to be, cyclical in
nature and vulnerable to general downturns in the economy. In addition,
because the Company's process piping systems and services generally are
incorporated into major manufacturing facilities of its customers, any
instability or downturns in these industries, which may cause customers to
delay, cancel or reduce any planned expenditures for such systems and services
or exit the industry, may adversely affect the Company. There can be no
assurance that the Company will be able to continue its revenue growth or
sustain its profitability on a quarterly or annual basis or that its results
of operations will not be adversely affected by downturns in the
semiconductor, pharmaceutical or biotechnology industries.

USE OF ESTIMATES IN RECOGNIZING REVENUES AND GROSS PROFIT; PERCENTAGE-OF-
COMPLETION METHOD OF ACCOUNTING

The Company performs its services under either a fixed-price contract, cost-
type contract, or time-and- materials contract. Revenues and gross profit from
contracts are recognized using the percentage-of-completion method. For each
contract, the ratio of costs incurred to the Company's estimates of total
anticipated project cost is used to determine revenues and gross profit.
Revisions in cost and profit estimates made during the course of the project
are reflected in the accounting period in which the information that requires
revision becomes known. A provision is made for the entire amount of any
estimated future losses on contracts at the time the loss becomes known.
Actual gross profit on contracts may differ from estimates used by the Company
in recording gross profit on contracts in progress, and such differences could
have a material adverse effect on the Company's business, operating results
and financial condition. The Company includes in revenues an amount equal to
costs incurred attributable to contract claims only when realization of such
revenues is probable and the amount is determinable. The Company applies its
best efforts in preparing the estimates that are used to recognize gross
profit. If incorrect estimates are used, the Company may improperly recognize
gross profit over the course of performing the project. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS

7
<PAGE>

cost-type contracts or time-and-materials contracts and revenues from its
subsidiaries, Quality Assurance Management, Inc. ("QAM") and bioKINETICS, Inc.
("bioKINETICS"), generally have higher gross profit margins and related
selling, general and administrative expenses than other revenues. In addition,
the Company has historically operated with a moderate order backlog. As a
result, quarterly sales and operating results depend in part on the volume,
type and timing of contracts received and performed within the quarter, which
are difficult to forecast. A significant portion of the Company's revenue in
any quarter is typically derived from significant sales to a limited number of
customers. Any significant deferral or cancellation of purchases of the
Company's systems and services could have a material adverse effect on the
Company's business, operating results and financial condition in any
particular quarter, and to the extent that significant contracts are performed
earlier or later than expected, operating results for subsequent quarters may
be adversely affected. In addition, a significant portion of the Company's
expenses are relatively fixed in advance based in large part on the Company's
forecast of future sales. If revenues are below expectations in any given
quarter, the adverse impact of the shortfall on the Company's operating
results may be magnified by the Company's inability to adjust spending to
compensate for the shortfall. The Company may also reduce prices or increase
spending in response to competition or elect to pursue new market
opportunities. Because of these factors, the Company believes that period-to-
period comparisons of its operating results are not necessarily meaningful and
that such comparisons should not be relied upon as indications of future
performance. As a result of the foregoing factors, the Company's operating
results and stock price may be subject to significant volatility, particularly
on a quarterly basis. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

RISKS RELATED TO CONTINUED GROWTH

In the past few years, the Company has experienced substantial growth
through internal expansion and the Company plans to continue to grow in this
manner. A significant portion of this growth has been as a result of the
growth of the semiconductor industry, supplemented recently by the Company's
expansion in servicing the pharmaceutical and biotechnology industries. The
Company has also recently expanded its focus to include design and
design/build capabilities. Furthermore, the Company may use a portion of the
net proceeds of the Offering for potential acquisitions. The Company's growth,
and the resulting need to integrate new operations economically and
efficiently, has required, and will continue to require, significant
management, production, technical, financial and other resources. The
Company's ability to manage its growth successfully will also require the
Company to continue to expand and improve its operations, management and
financial control systems on a timely basis. There can be no assurance that
the Company will be able to expand into additional industry sectors, to manage
its growth effectively or to integrate new operations into the Company, and
any failure to do so could have a material adverse effect on the Company's
business, operating results and financial condition. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

DEPENDENCE ON KEY CUSTOMERS

A significant portion of the Company's revenues is derived from a small
number of customers, which consist of both facility owners and general
contractors. Revenues derived from the Company's services to its five largest
facility owners in each year accounted for approximately 58%, 45%, and 41% of
the Company's revenues during fiscal 1994, 1995 and 1996, respectively. In
fiscal 1996, AMD and Rockwell accounted for 12.6% and 10.5% of total revenues,
respectively. Sales to its five largest general contractor customers accounted
for 25.8% of the Company's revenues during fiscal 1996. In addition, 22.1% of
the Company's backlog at September 30, 1996 was comprised of orders from the
Company's five largest facility owner customers. The Company's projects are
typically completed within a six to fifteen month period from when the
contract is initially executed. As these projects are completed, business from
these customers will decline substantially unless they undertake additional
projects incorporating the Company's services. Furthermore, in fiscal 1996,
87% of the Company's revenues was derived from repeat customers. If additional
projects are not initiated by existing customers, the performance of the
Company will depend to a greater extent on securing business from new
customers. There can be no assurance that the Company will be successful in
its sales and marketing efforts, and any significant weakening in customer
demand would have a material adverse effect on the Company. See "Business--
Customers and Marketing" and "Business--Backlog."

8
<PAGE>

FIXED-PRICE CONTRACTS AND GUARANTEED MAXIMUM PRICE CONTRACTS

The Company's strategy is to negotiate primarily either fixed-price or
guaranteed maximum price contracts. The pricing of fixed-price contracts
requires accurate cost estimation in order to be profitable and therefore
involves more risk than time-and-materials contracts, as unanticipated costs
may result in reduced profit or even a loss for the Company if the cost of the
project exceeds the fee. Guaranteed maximum price contracts are performed on a
cost basis, but the final fee cannot exceed the guaranteed price negotiated
with the customer. If the total actual cost of the contract exceeds the
guaranteed maximum price, then the Company will bear all or a portion of the
excess cost. In those cases where the total actual cost and fee are less than
the guaranteed price, the Company may share the savings on a predetermined
basis with the customer. There can be no assurance that the Company's pricing
methods will not result in losses to the Company. See "Business--Contracts and
Pricing."

DEPENDENCE ON KEY PERSONNEL

The Company's operations are dependent to a significant degree on the
continued efforts of senior management, including, in particular, Messrs.
Bianco and Shimmon. Accordingly, the Company believes that the loss of the
services of either Mr. Bianco or Mr. Shimmon would have a material adverse
effect on the Company's business, operating results and financial condition.

In addition, the Company's success depends to a significant degree upon the
continuing contributions of its engineering, technical, management, sales and
marketing personnel. The Company has few employment contracts with its key
personnel. The Company believes that its future success will depend in large
part upon whether the Company can attract and retain highly-skilled
engineering, technical, management, sales and marketing personnel. However,
there can be no assurance that the Company can attract, hire or retain these
personnel. Failure to recruit, hire, train and retain key management and
technical personnel could have a material adverse effect on the Company's
business, operating results and financial condition. See "Management."

POTENTIAL FOR PRODUCT LIABILITY

Certain of the Company's high-purity process piping systems are used in
potentially hazardous manufacturing environments, including, without
limitation, semiconductor, pharmaceutical and biotechnology facilities. Any
catastrophic occurrences in excess of insurance limits at locations where the
Company's systems are used could result in significant product liability
claims against the Company.

POTENTIAL FOR WARRANTY CLAIMS

The Company under certain contracts with its customers must use new
materials or processes for pipe system fabrication. The failure of any such
materials or processes could result in significant replacement or reworking
costs on a project. Warranty claims against the Company could in the future
result in significant reworkings which may have a material adverse effect on
the Company's business, operating results and financial condition.

RISKS ASSOCIATED WITH COMPETITION

The high-purity process piping systems industry is fragmented and highly
competitive on a regional basis. The Company's competition in the design and
fabrication of high-purity process piping systems generally consists of a
number of domestic piping systems installation and fabrication companies and
divisions of large industrial firms in the international sector. In the future
the Company's competition may include specialty gas providers, water system
providers and engineering and construction firms. The Company's primary
domestic competitors are Dynamic Systems, Inc., Fullman Company and Therma
Corporation. Its primary international competitors are Mannesman AG, Mercury
and Jordan Lang. The Company believes that the majority of its business is
awarded based on reputation, previous project experience, the ability to meet
system specifications and project deadlines, and price. Some of the Company's
current and potential competitors, especially in the international sector,
have greater financial, technical, marketing and other resources than the
Company. See "Business--Competition."

9
<PAGE>

INTERNATIONAL CONTRACTS, OPERATIONS AND EXPANSION; FOREIGN EXCHANGE RISK

To date, a small portion of the Company's revenues and earnings have been
attributable to its operations in international markets, and the Company
expects international revenues and operations to increase and substantially
contribute to the Company's growth and earnings in the future. The success of
the Company's sales to, operations in and expansion into international markets
depends on numerous factors, many of which are beyond its control. Such
factors include, but are not limited to, economic conditions in the foreign
countries in which the Company operates and to which it sells its systems and
services and the lack of well-developed legal systems in certain of such
countries. In addition, international contracts, operations and expansion may
increase the Company's exposure to certain risks inherent in doing business
outside the United States, including slower payment cycles, unexpected changes
in regulatory requirements and tariffs, potentially adverse tax consequences,
currency fluctuations, restrictions on the repatriation of profits and assets,
compliance with foreign laws and standards and political risks. The Company
from time to time enters into contracts denominated in a foreign currency
without escalation provisions, thereby subjecting itself to foreign exchange
risks. The Company may hedge such contracts denominated in particularly
volatile currencies. Furthermore, the Company's ability to obtain
international contracts is impacted by the relative strength or weakness of
the United States dollar relative to foreign currencies.

POSSIBLE WORK STOPPAGE

Certain of the Company's employees in the United States are represented by
the United Association of Journeymen and Apprentices of the Plumbing and
Pipefitting Industry of the United States and Canada (the "Union"). See
"Business--Employees." The Company's contract with the Union has a one year
term and renews automatically for additional one year terms unless either
party provides written notice of termination. The Company also has entered
into approximately 21 contracts with Union locals expiring at various dates
from 1997 through 2001. A lengthy strike or work stoppage at any of the
Company's facilities could have a material adverse effect on the Company's
business, operating results and financial condition.

CONTROL BY MANAGEMENT

Immediately after the Offering, the officers and directors of the Company
beneficially will, in the aggregate, own approximately 69% of the outstanding
shares of Common Stock. In addition, after the Offering William A. Bianco,
Jr., Chairman of the Board and Chief Executive Officer of the Company, will
have the power to vote approximately 58% of the outstanding shares of Common
Stock, subject to certain conditions, including that he is still an employee
of the Company. See "Management--Change of Control Arrangements."
Consequently, these persons will be able to exercise effective control over
corporate actions and the outcomes of matters requiring a stockholder vote,
including the election of directors. See "Principal and Selling Stockholders."

CERTAIN CHARTER, BYLAW AND OTHER PROVISIONS

The Company's Bylaws and indemnity agreements provide that the Company will
indemnify officers and directors against losses they may incur in legal
proceedings resulting from their service to the Company. Certain provisions of
the Company's Certificate of Incorporation and Bylaws and certain other
contractual provisions could have the effect of making it more difficult for a
third party to acquire, or of discouraging a third party from attempting to
acquire, control of the Company. Such provisions could limit the price that
certain investors might be willing to pay in the future for shares of the
Company's Common Stock. Certain of these provisions allow the Company to issue
Preferred Stock with rights senior to those of the Common Stock without any
further vote or action by the stockholders, eliminate the right of
stockholders to act by written consent, eliminate cumulative voting and impose
various procedural and other requirements which could make it more difficult
for stockholders to effect certain corporate actions. These provisions could
also have the effect of delaying or preventing a change in control of the
Company. See "Description of Capital Stock--Preferred Stock" and "Description
of Capital Stock--Delaware Law and Charter Provisions."

POTENTIAL BLANK CHECK ISSUANCES OF PREFERRED STOCK

Upon the closing of the Offering, the Board of Directors will be authorized
to issue, without stockholder approval, up to 2,000,000 shares of Preferred
Stock. Such Preferred Stock may have rights senior to the Common Stock. The
issuance of Preferred Stock may have the effect of delaying or preventing a
change in control, may

10
<PAGE>

decrease the amount of earnings and assets available for distribution to the
holders of the Common Stock or may adversely affect the rights and powers,
including voting rights, of the holders of Common Stock. In certain
circumstances, such issuance could have the effect of decreasing the market
price of the Common Stock. See "Description of Capital Stock--Preferred
Stock."

POTENTIAL ANTI-TAKEOVER EFFECT OF APPLICABLE DELAWARE LAW

The Company is subject to Section 203 of the Delaware General Corporation
Law ("Section 203"), which could have the effect of making it more difficult
for the Company to engage in business combinations. Section 203, subject to
certain exceptions, prohibits a Delaware corporation from engaging in any
business combinations, such as a merger or consolidation, involving such
corporation and an interested stockholder for a period of three years
following the date that such stockholder became an interested stockholder,
unless (i) prior board of director approval was granted for the business
combination or transaction resulting in the stockholder becoming an interested
stockholder, (ii) upon consummation of the transaction resulting in the
stockholder becoming an interested stockholder, the interested stockholder
owned at least 85% of the voting stock of such corporation outstanding at the
time the transaction commenced, or (iii) on or subsequent to such date, the
business combination is approved by the board of directors and authorized at
an annual or special meeting of stockholders, and not by written consent, by
the affirmative vote of at least 66 2/3% of the outstanding voting stock that
is not owned by the interested stockholder. See "Description of Capital
Stock--Delaware Law and Charter Provisions."

ABSENCE OF PUBLIC MARKET AND POTENTIAL VOLATILITY OF STOCK PRICE

Prior to the Offering, there has not been a public market for the Common
Stock, and there can be no assurance that an active trading market will
develop or be sustained. The initial public offering price for the Common
Stock offered hereby will be determined through negotiations among the Company
and the Representatives of the Underwriters, and may not be indicative of the
market price for the Common Stock after the Offering. The market price for
shares of the Common Stock may be highly volatile and may be significantly
affected by factors such as actual or anticipated fluctuations in the
Company's operating results, announcements of technological innovations, new
products or new contracts by the Company or its competitors, conditions and
trends in the semiconductor, pharmaceutical, biotechnology, process piping and
other industries, changes in financial estimates by securities analysts,
general market conditions and other factors. Any shortfall in revenues or net
income from levels expected by securities analysts could have an immediate and
significant adverse effect on the trading price of the Company's Common Stock.
See "Underwriting."

SHARES ELIGIBLE FOR FUTURE SALE; ADVERSE IMPACT ON MARKET PRICE OF SUCH SALES

Sales of substantial amounts of the Company's Common Stock in the public
market after the Offering could adversely affect prevailing market prices for
the Common Stock. The 3,700,000 shares of Common Stock offered hereby will be
freely tradeable without restriction in the public market. Taking into account
restrictions imposed by the Securities Act of 1933, as amended (the
"Securities Act"), rules promulgated by the Securities and Exchange Commission
thereunder and lock-up agreements between each of the stockholders and Smith
Barney Inc., all of the remaining 8,900,505 shares will be eligible for sale
beginning 180 days after the date of this Prospectus, subject, in some cases,
to volume and other restrictions of Rule 144 and Rule 701 under the Securities
Act. Smith Barney Inc. may, in its sole discretion and at any time without
notice, release all or any portion of the shares subject to such lock-up
agreements. Upon the closing of the Offering, holders of 8,845,505 shares of
Common Stock are entitled to certain rights with respect to the registration
of such shares under the Securities Act. In addition, the Company intends to
file a registration statement on Form S-8 under the Securities Act
approximately 180 days after the date of this Prospectus to register an
aggregate of 1,616,249 shares of Common Stock issued or reserved for issuance
under its 1997 Stock Option Plan, its 1997 Employee Stock Purchase Plan, its
1996 Key Employee Stock Option Plan and certain other outstanding options. As
of December 31, 1996, options were outstanding to purchase 1,016,249 shares at
a weighted average exercise price per share of $6.71. See "Description of
Capital Stock--Registration Rights" and "Shares Eligible for Future Sale."

11
<PAGE>

IMMEDIATE AND SUBSTANTIAL DILUTION TO NEW INVESTORS

Purchasers of the Common Stock offered hereby will suffer immediate and
substantial dilution of $9.33 per share in the net tangible book value of the
Common Stock from the initial public offering price. To the extent outstanding
options to purchase the Company's Common Stock are later exercised, there will
be further dilution. See "Dilution."

PROHIBITION AGAINST DIVIDENDS

To date, the Company has not paid any cash dividends on its Common Stock or
Preferred Stock and does not expect to declare or pay dividends on the Common
Stock in the foreseeable future. In addition, the Company is prohibited from
paying cash dividends on its Common Stock under the terms of existing credit
facilities. See "Dividend Policy."

12
<PAGE>

THE COMPANY

On February 23, 1996, The Kinetics Group, Inc. was incorporated under the
laws of the state of Delaware for the purpose of holding the stock of Kinetic
Systems, Inc. ("KSI") and its affiliated entities and entered into a
reorganization agreement to that effect in March 1996. KSI was originally
founded as a partnership in California in 1971, and was incorporated in
California in 1973. The Company currently owns, either directly or through
another wholly owned subsidiary, 16 subsidiaries, including the following:
KSI; Quality Assurance Management, Inc., a California corporation;
bioKINETICS, Inc., a Delaware corporation; and microKINETICS, Inc., a
California corporation. The Company's principal executive offices are located
at 3080 Raymond Street, Santa Clara, California 95054 and its telephone number
at that location is (408) 727-7740.

USE OF PROCEEDS

The net proceeds to be received by the Company from the sale of 3,050,000
shares of Common Stock offered by the Company hereby are estimated to be $41.8
million after deducting underwriting discounts and commissions and other
expenses payable by the Company and assuming an initial public offering price
per share of $15.00. The Company will not receive any of the proceeds from the
sale of the shares of Common Stock offered by the Selling Stockholders. The
Company intends to use approximately $27.5 million of the net proceeds to
repay indebtedness. Although the Company has not designated precise amounts of
the remaining net proceeds for specific purposes and expects that the funds
generated from operations, if any, will contribute to meeting the Company's
capital needs, the Company believes that it may use between $11 million and
$13 million to fund domestic and international expansion, including
operations, facilities and equipment and between $2 million and $4.5 million
for working capital and other general corporate purposes. The Company also
expects to use a portion of the net proceeds to fund potential acquisitions of
technologies, products or businesses compatible with or complementary to the
Company's business, for which there are currently no agreements pending. The
amounts and timing of expenditures for each purpose may vary significantly
depending upon a number of factors, including changes in the focus and
direction of the Company's research and development programs, competitive and
technological advances and other factors. Pending such uses, the Company
intends to invest the net proceeds from the Offering in investment grade,
interest-bearing instruments.

Of the indebtedness to be repaid, (i) approximately $21.0 million represents
advances under a $22.5 million line of credit which the Company entered into
with a bank on April 12, 1996, which bears interest at 1.75% above LIBOR
(8.25% as of December 31, 1996) and expires on April 15, 1998, (ii)
approximately $5.0 million represents advances under a $5.0 million note
payable from a bank, which bears interest at 0.5% above a bank index rate
which approximates the prime rate (8.75% as of December 31, 1996) and expires
on March 1, 2001 and (iii) several capital lease obligations which have
aggregate borrowings of $1.5 million, bear interest at rates ranging from 8%
to 11% and expire from 1997 to 2001. Borrowings under the bank line of credit
were used for working capital and the note payable and capital lease
indebtedness were used for capital equipment acquisitions. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources."

DIVIDEND POLICY

The Company has not paid any cash dividends on the Common Stock and
currently anticipates that, for the foreseeable future, any earnings will be
retained for the development of the Company's business. In addition, the
Company is prohibited from paying cash dividends on its Common Stock under the
terms of existing credit facilities.

13
<PAGE>

CAPITALIZATION

The following table sets forth the Company's short-term indebtedness and
capitalization as of December 31, 1996, and as adjusted to give effect to the
Offering (after deducting underwriting discounts and commissions and estimated
offering expenses) and application of the estimated net proceeds therefrom and
gives effect to the assumed conversion of all outstanding shares of redeemable
convertible Preferred Stock into Common Stock upon the closing of the
Offering. See "Use of Proceeds."

<TABLE>
<CAPTION>
DECEMBER 31, 1996
-------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Current maturities of long-term debt(1).................... $ 2,469 $ --
Long-term debt, less current maturities(1)................. 18,913 --
Redeemable capital stock:
Convertible preferred stock, $0.001 par value, 4,000,000
shares authorized, 2,533,865 shares issued and
outstanding actual; no shares issued or outstanding as
adjusted................................................ 9,363 --
Stockholders' equity:
Preferred Stock, $0.001 par value; 2,000,000 shares
authorized; no shares issued or outstanding actual or as
adjusted................................................ -- --
Common Stock, $0.001 par value; 30,000,000 shares
authorized; 7,567,500 shares issued and outstanding
actual; 40,000,000 shares authorized as adjusted;
12,600,505 shares issued and outstanding as
adjusted(2)............................................. 8 13
Additional paid-in capital............................... 10,892 62,048
Retained earnings........................................ 9,290 9,290
------- -------
Total stockholders' equity............................. 20,190 71,351
------- -------
Total capitalization................................. $50,935 $71,351
======= =======
</TABLE>
- --------
(1) Includes borrowings under bank line of credit, note payable to bank, and
obligations under capital leases.

(2) Excludes (i) 1,016,249 shares of Common Stock issuable upon exercise of
options outstanding as of December 31, 1996 with a weighted average
exercise price of $6.71 per share, (ii) 350,000 shares of Common Stock
reserved for issuance upon exercise of options that may be granted in the
future under the Option Plan and (iii) 250,000 shares of Common Stock
reserved for issuance under the Purchase Plan. Includes 189,312 shares of
Common Stock which will be issued upon the net exercise of outstanding
warrants at or prior to the closing date of the Offering. See
"Management--Stock Plans and Agreements" and Note 6 of Notes to
Consolidated Financial Statements.

14
<PAGE>

DILUTION

As of December 31, 1996, the Company's pro forma net tangible book value was
approximately $29.6 million, or $3.09 per share of Common Stock. Pro forma net
tangible book value per share represents the Company's total assets less
intangible assets and total liabilities divided by the number of shares of
Common Stock outstanding. Without taking into account any other changes in net
tangible book value after December 31, 1996, other than to give effect to the
Offering at an assumed initial public offering price of $15.00 per share and
the receipt by the Company of the estimated net proceeds therefrom, the pro
forma net tangible book value of the Company as of December 31, 1996 would
have been approximately $71.4 million, or $5.67 per share. This represents an
immediate increase in net tangible book value of $2.58 per share to existing
stockholders and an immediate dilution of $9.33 per share to purchasers of
shares of Common Stock in the Offering, as illustrated by the following:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............... $15.00
Pro forma net tangible book value per share as of Decem-
ber 31, 1996............................................... $3.09
Increase per share attributable to new investors............ 2.58
-----
Pro forma net tangible book value per share after the Offer-
ing.......................................................... 5.67
------
Dilution per share to new investors........................... $9.33
======
</TABLE>

The following table summarizes as of December 31, 1996, after giving effect
to the Offering, the differences between existing stockholders and purchasers
of shares of Common Stock in the Offering with respect to the number of shares
of Common Stock purchased from the Company, the total consideration paid and
the average price per share paid:

<TABLE>
<CAPTION>
SHARES TOTAL
PURCHASED(1)(2) CONSIDERATION
------------------ ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders...... 9,550,505 75.8% $ 9,090,000 16.6% $ 0.95
New investors.............. 3,050,000 24.2 45,750,000 83.4 $15.00
---------- ----- ----------- -----
Total.................... 12,600,505 100.0% $54,840,000 100.0%
========== ===== =========== =====
</TABLE>
- --------

(1) The foregoing tables assume no exercise of stock options after
December 31, 1996 and assume exercise of all outstanding warrants upon the
closing of the Offering. As of December 31, 1996, there were outstanding
options to purchase an aggregate of 1,016,249 shares of Common Stock at a
weighted average exercise price per share of $6.71. To the extent these
options are exercised, there will be further dilution to the new public
investors. See "Capitalization," "Management--Stock Plans and Agreements,"
"Description of Capital Stock--Warrants," and Note 6 of Notes to
Consolidated Financial Statements.

(2) The above table is based on ownership as of December 31, 1996, as adjusted
for assumed net exercise of all outstanding warrants upon closing of the
Offering. Sales by the Selling Stockholders in the Offering will reduce
the number of shares held by existing stockholders to 8,900,505 shares, or
70.6% (8,600,684 shares and 66.9% if the Underwriters' over-allotment
option is exercised in full) of the total number of shares of Common Stock
outstanding after the Offering, and will increase the number of shares
held by new investors to 3,700,000 shares, or 29.4% (4,255,000 shares and
33.1% if the Underwriters' over-allotment option is exercised in full) of
the total number of shares of Common Stock outstanding after the Offering.
See "Principal and Selling Stockholders."

15
<PAGE>

SELECTED CONSOLIDATED FINANCIAL DATA

The selected historical consolidated financial data as of September 30, 1996
and for each of the three fiscal years in the period ended September 30, 1996
presented below have been derived from, except as described herein, and are
qualified by reference to the Company's consolidated financial statements
which have been audited by Ernst & Young LLP, independent auditors and are
included elsewhere in this Prospectus. The selected historical financial data
for the fiscal year ended September 30, 1993 presented below have been derived
from, except as described herein, the Company's consolidated financial
statements, not included in this Prospectus, which have been audited by Ernst
& Young LLP, independent auditors. The selected historical combined financial
data for the fiscal year ended September 30, 1992 presented below have been
derived from financial statements, except as described herein, not included in
this Prospectus, which have been audited by other independent auditors. The
provisions for income taxes and net income for fiscal 1992, 1993, 1994 and
1995 are presented on a pro forma basis and have not been derived from the
audited consolidated financial statements for the respective years. The
selected consolidated financial data with respect to the consolidated
statements of operations for the three months ended December 31, 1995 and 1996
and with respect to the Company's consolidated balance sheet at December 31,
1996 are derived from unaudited consolidated financial statements of the
Company included elsewhere in this Prospectus. The unaudited consolidated
financial statements include all adjustments, consisting only of normal
recurring adjustments, that the Company considers necessary for a fair
presentation of the financial position and results of operations for these
periods. Operating results for the three months ended December 31, 1996 are
not necessarily indicative of the results that may be expected for any future
period. The data presented below should be read in conjunction with the
consolidated financial statements, related notes and other financial
information included herein. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL YEAR ENDED SEPTEMBER 30, DECEMBER 31,
---------------------------------------------- --------------------
1992 1993 1994 1995 1996 1995 1996
------- ------- -------- -------- -------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues............... $66,691 $94,897 $145,473 $229,933 $278,423 $59,155 $72,195
Costs of revenues...... 57,256 82,611 125,307 194,875 230,748 50,032 59,641
------- ------- -------- -------- -------- --------- ---------
Gross profit........... 9,435 12,286 20,166 35,058 47,675 9,123 12,554
Selling, general and
administrative
expenses.............. 8,701 10,928 13,807 22,384 31,673 5,807 9,213
------- ------- -------- -------- -------- --------- ---------
Income from
operations............ 734 1,358 6,359 12,674 16,002 3,316 3,341
Other income (expense):
Other income, net..... 396 1,376 115 331 944 357 147
Interest expense...... (575) (583) (1,084) (749) (1,068) (131) (426)
------- ------- -------- -------- -------- --------- ---------
Other income (expense),
net................... (179) 793 (969) (418) (124) 226 (279)
------- ------- -------- -------- -------- --------- ---------
Income before income
taxes................. 555 2,151 5,390 12,256 15,878 3,542 3,062
Provision for income
taxes(1).............. 249 968 2,426 5,517 7,147 1,623 1,378
------- ------- -------- -------- -------- --------- ---------
Net income(1).......... $ 306 $ 1,183 $ 2,964 $ 6,739 $ 8,731 1,919 1,684
======= ======= ======== ======== ======== ========= =========
Pro forma net income
per common share(2)... $ 0.87 $ 0.17
======== =========
Shares used in
computing pro forma
net income per common
share(2).............. 10,043 10,049
Supplemental pro forma
net income per common
share(3).............. $ 0.83 $ 0.16
======== =========
Shares used in
computing supplemental
pro forma net income
per common share(3)... 11,011 11,581
</TABLE>

16
<PAGE>

<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
--------------------------------------- -------------------
AS ADJUSTED
1992 1993 1994 1995 1996 1996 1996
------- ------- ------- ------- ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equiva-
lents................ $ 1,187 $ 199 $ 751 $ 8,438 $ 8,844 $ 6,036 $ 26,452
Total assets.......... 20,847 32,983 52,313 75,550 98,979 102,659 123,075
Long-term debt and
capital lease obliga-
tions, net of current
maturities........... -- 6,607 6,018 1,019 12,155 18,913 --
Redeemable capital
stock................ 255 525 1,035 10,827 18,914 -- --
Stockholders' equity.. 4,906 6,438 9,455 12,636 8,865 20,190 71,351
</TABLE>
- --------

(1) Prior to May 31, 1995 the Company had elected to be taxed under Subchapter
S of the Internal Revenue Code under which federal income taxes on the
Company's earnings accrued directly to its stockholders. The Company
terminated its S Corporation status on that date and became taxable as a
corporation under Subchapter C of the Internal Revenue Code. The provision
for income taxes for fiscal 1992, 1993, 1994 and 1995 are presented on a
pro forma basis as if the Company had been taxed as a C Corporation for
each year presented. The provision for income taxes for fiscal 1996,
during which the Company was taxed as a C Corporation for the entire year,
is presented on a historical basis. The Company's historical provision for
income taxes in fiscal 1992, 1993, 1994 and 1995 and historical net income
for fiscal 1992, 1993, 1994 and 1995 were $23,000, $56,000, $535,000,
respectively, and $2,902,000 and $532,000, $2,095,000, $4,855,000 and
$9,354,000, respectively.

(2) Pro forma net income per common share for the year ended September 30,
1996 and the three months ended December 31, 1996 is computed using the
weighted average number of shares of Common Stock outstanding during each
period, including dilutive common equivalent shares from stock options and
warrants (using the treasury stock method) and also gives effect to the
assumed conversion of all outstanding shares of redeemable convertible
Preferred Stock as of September 30, 1996 and December 31, 1996 into Common
Stock upon the closing of the Offering (using the as-if-converted method)
and the termination of certain repurchase obligations under a stockholder
agreement. See Note 1 of Notes to Consolidated Financial Statements.

(4) Gives effect to the receipt and application of the net proceeds from the
sale of 3,050,000 shares of Common Stock offered by the Company hereby (at
an assumed initial public offering price of $15.00 per share) and also
gives effect to the assumed conversion of all outstanding shares of
redeemable convertible Preferred Stock as of December 31, 1996 into Common
Stock upon the closing of the Offering. See "Use of Proceeds" and
"Capitalization."

17
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

An investment in the shares of Common Stock offered hereby is speculative in
nature and involves a high degree of risk. In addition to the other
information contained in the Prospectus, the factors set forth under "Risk
Factors" should be considered carefully in evaluating the Company and its
business before purchasing the shares of Common Stock offered hereby. This
Prospectus contains forward-looking statements. Discussions containing such
forward-looking statements may be found in the material set forth under "Risk
Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business" as well as in the Prospectus generally.
Actual events or results may differ materially from those discussed herein.
The following analysis of the financial condition and results of operations of
the Company should be read in conjunction with the Company's Consolidated
Financial Statements, including the notes thereto, included elsewhere in this
Prospectus.

OVERVIEW

Kinetics is the leading provider of sophisticated high-purity process piping
systems for the semiconductor, pharmaceutical and biotechnology industries.The
Company was founded in 1971 by William A. Bianco, Jr., its current chairman
and chief executive officer. The Company initially provided high-purity
process piping services to the early Silicon Valley semiconductor companies
and focused primarily on this regional market until 1990. Recognizing the
growth opportunity in the semiconductor industry and the opportunity to apply
high-purity process piping technology to other rapidly growing and capital
intensive industries, the Company expanded its operations into the
pharmaceutical and biotechnology markets in the United States. Concurrent with
its geographic expansion, the Company developed high-end value-added services
such as engineering and quality assurance to respond to the changing
construction and manufacturing strategies of its customers. Through these
actions, the Company has acquired the capital equipment, fabrication
facilities, engineering database and highly trained personnel to serve these
rapidly growing industries and has developed the capability to perform turnkey
high-purity process piping system projects. The Company recently began
establishing select international operations.

The Company intends to further expand its operations by building upon three
complementary capabilities:

.Increase turnkey or design-build projects

.Provide a wide range of quality control and quality assurance products and
services

.Further enhance the manufacturing of specialty components

The Company is further investing in critical support functions, such as
information technology, project estimation and human resource related
programs.

CONTRACT ACCOUNTING AND REVENUE RECOGNITION

The Company performs its services under fixed-price contracts, cost-type
contracts, and time-and-materials contracts: (i) A fixed-price contract
provides for a single price for the total amount of work to be performed on a
project. (ii) A cost-type contract provides for reimbursement of allowable or
otherwise defined costs incurred, plus a fee for the services. Cost-type
contracts take a variety of forms, including a maximum price of reimbursement
that is guaranteed by the Company for the services to be performed. These
contracts often contain terms specifying reimbursable costs, overhead recovery
percentages and fees. The fee may be fixed or based on a percentage of the
reimbursable costs. (iii) A time-and-materials contract generally provides for
reimbursement to the Company on the basis of direct labor hours at fixed
hourly rates, cost of materials and other specified costs. The fee may be
included in the hourly rates or may be based on a percentage of the
reimbursable costs. Each contract type may include a provision for retention.
Retention represents amounts withheld from contract progress billings until
satisfactory project completion and generally ranges from five to ten percent
of the total contract amount.

18
<PAGE>

Revenues and gross profit from contracts are recognized using the
percentage-of-completion method. For each contract, the ratio of cost incurred
to the Company's estimates of total anticipated project cost is used to
determine revenues and gross profit. Revisions in cost and profit estimates
made during the course of the project are reflected in the accounting period
in which the information that requires revision becomes known. A provision is
made for the entire amount of any estimated future losses on contracts at the
time the loss becomes known. Actual gross profit on contracts may differ from
estimates used by the Company in recording gross profit on contracts in
progress, and such differences could have a material adverse effect on the
Company's business, operating results and financial condition. The Company
includes in revenues an amount equal to costs incurred attributable to
contract claims only when realization of such revenue is probable and the
amount is determinable. See "Risk Factors--Use of Estimates in Recognizing
Revenues and Gross Profit; Percentage-of-Completion Method of Accounting."

The pricing of fixed-price contracts requires accurate cost estimation in
order to be profitable and therefore involves more risk than time-and-
materials contracts, as unanticipated costs may result in reduced profit or
even a loss for the Company if the cost of the project exceeds the expected
revenue. Guaranteed maximum price contracts are performed on a cost basis, but
the final fee cannot exceed the guaranteed price negotiated with the customer.
If the total actual cost of the contract exceeds the guaranteed maximum price,
then the Company will bear all or a portion of the excess cost. In those cases
where the total actual cost and fee are less than the guaranteed price, the
Company may share the savings on a predetermined basis with the customer.
There can be no assurance that the Company's pricing methods will not result
in losses to the Company. See "Risk Factors--Fixed-Price Contracts and
Guaranteed Maximum Price Contracts."

RESULTS OF OPERATIONS

The following table sets forth results of operations as a percentage of the
Company's revenues for the periods indicated:

<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL YEAR ENDED SEPTEMBER 30, DECEMBER 31,
---------------------------------- --------------------
1994 1995 1996 1995 1996
---------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
Revenues................ 100.0% 100.0% 100.0% 100.0% 100.0%
Costs of revenues....... 86.1 84.8 82.9 84.6 82.6
---------- ---------- ---------- --------- ---------
Gross profit............ 13.9 15.2 17.1 15.4 17.4
Selling, general and ad-
ministrative expenses.. 9.5 9.7 11.4 9.8 12.8
---------- ---------- ---------- --------- ---------
Income from operations.. 4.4 5.5 5.7 5.6 4.6
---------- ---------- ---------- --------- ---------
Income before income
taxes.................. 3.7 5.3 5.7 6.0 4.2
Provision for income
taxes(1)............... 0.4 1.2 2.6 2.8 1.9
---------- ---------- ---------- --------- ---------
Net income.............. 3.3% 4.1% 3.1% 3.2% 2.3%
========== ========== ========== ========= =========
</TABLE>
- --------
(1) Represents income taxes on a historical basis. Prior to May 31, 1995, the
Company had elected to be taxed under Subchapter S of the Internal Revenue
Code and the Company's earnings were not subject to federal income taxes.
The Company terminated its S Corporation status on that date and became
taxable as a corporation under Subchapter C of the Internal Revenue Code.
Accordingly, no provision for federal income taxes was made for fiscal
1994 and a portion of fiscal 1995. The income tax provisions for those
years do include state income taxes.

Three Months Ended December 31, 1996 Compared to Three Months Ended December
31, 1995

Revenues. For the three months ended December 31, 1996, revenues increased
to $72.2 million from $59.2 million for the comparable period in 1995, an
increase of 22.0%. The increase was attributable to an increase in the number
and size of domestic semiconductor projects, and to a lesser extent, increased
revenues from the Company's subsidiary, QAM.

19
<PAGE>

Gross Profit. Gross profit increased to $12.6 million for the three months
ended December 31, 1996 from $9.1 million for the comparable period in 1995,
an increase of 37.6%. The gross margin for the three months ended December 31,
1996 increased to 17.4% from 15.4% for the comparable period. The increase in
gross margin was due primarily to the realization of larger than expected
margins upon the completion of several projects, as well as the higher gross
margins that are produced by testing services and equipment sales generated by
QAM. The increase in gross margin was also attributable to improved pricing
opportunities on large domestic semiconductor projects.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $9.2 million for the three months ended
December 31, 1996 from $5.8 million for the comparable period in 1995. The
$3.4 million increase was due primarily to the rapid expansion of bioKINETICS
and QAM as well as the expansion of its core operations. In anticipation of
future revenues and growing demand for both bioKINETICS and QAM services, as
well as the Company's desire to offer more value added services such as
engineering and design, the Company hired an additional 60 engineers during
the quarter ended December 31, 1996. In addition, both bioKINETICS and QAM
require higher general and administrative expenses relative to installation
and fabrication. Accordingly, as the Company expands these operations, the
Company anticipates that this trend towards higher selling, general and
administrative expenses as a percentage of revenues will continue, but that
these expenses will be offset by a higher gross profit margin. Selling,
general and administrative expenses increased to 12.8% of revenues for the
three months ended December 31, 1996 from 9.8% for the comparable period in
1995.

Interest Expense. Interest expense increased to $0.4 million for the three
months ended December 31, 1996 from $0.1 million for the comparable period in
1995, due to increased borrowing on the Company's revolving credit facility to
support the Company's business expansion and increased term debt to acquire
capital equipment.

Provision for Income Taxes. The Company's effective tax rate was 45% and 46%
for the quarters ended December 31, 1996 and 1995, respectively.

Fiscal Year Ended September 30, 1996 Compared to Fiscal Year Ended September
30, 1995

Revenues. For fiscal 1996, revenues increased to $278.4 million from $229.9
million for fiscal 1995, an increase of 21.1%. The increase was primarily due
to an increase in the number of domestic semiconductor projects in fiscal 1996
in existing regions as well as expansion into new regions such as Texas,
Oregon and the southeast United States and, to a lesser extent, increased
revenues from the Company's subsidiary, QAM. Revenues derived from
pharmaceutical and biotechnology projects as a percentage of total revenues
during fiscal 1996 declined from fiscal 1995 due to the Company's allocation
of resources to semiconductor projects.

Gross profit. Gross profit increased to $47.7 million for fiscal 1996 from
$35.1 million for fiscal 1995, an increase of $12.6 million. The gross margin
for fiscal 1996 increased to 17.1% from 15.2% for fiscal 1995. The increase in
gross margin was attributable primarily to improved performance on domestic
semiconductor projects which resulted from the Company's greater ability to
leverage its increasing size to obtain a greater number of fixed-price
contracts rather than cost-type or time-and-materials contracts and to obtain
more favorable pricing from suppliers. To a lesser extent the increase was due
to an increase in revenues from QAM. Fixed-price contracts and revenues from
QAM generally have higher gross profit margins than other revenues. These
improvements in gross profit margins for fiscal 1996 were partially offset by
losses of $3.2 million from the Company's four projects that had the largest
losses in fiscal 1996 compared to losses of $2.0 million from the four
projects that had the largest losses in fiscal 1995. In each case, the losses
in these fixed-price contracts resulted from either scope of work definition
or lack of performance by subcontractors or both.

Selling, general and administrative expenses. Selling, general and
administrative expenses increased to $31.7 million for fiscal 1996 from $22.4
million for fiscal 1995. The $9.3 million increase was due primarily to the
expansion of international operations in Western Europe, Israel, China,
Singapore and Mexico; opening of

20
<PAGE>

new offices and facilities in Portland, Oregon and Colorado Springs, Colorado;
significant expansion of facilities in Texas and the New England region; and
the opening and start-up of bioKINETICS, Inc., the pharmaceutical and
biotechnology design/build subsidiary of the Company. Selling, general and
administrative expenses increased to 11.4% of revenues for fiscal 1996 from
9.7% for fiscal 1995 as the Company expanded in anticipation of possible
future growth.

Interest expense. Interest expense increased to $1.1 million for fiscal 1996
from $0.7 million for fiscal 1995, primarily due to increased borrowing on the
Company's revolving credit facility to support the Company's business
expansion and increased term debt to acquire capital equipment.

Provision for income taxes. The Company's effective tax rate increased to
45.0% for fiscal 1996 from 23.7% for fiscal 1995. Effective May 31, 1995, the
Company terminated its S Corporation election and became taxable as a C
Corporation. The federal income tax on the Company's operations was an
obligation of the individual stockholders and was not included in the
Company's results of operations for the first eight months of fiscal 1995.

Fiscal Year ended September 30, 1995 Compared to Fiscal Year Ended September
30, 1994

Revenues. For fiscal 1995, revenues increased to $229.9 million from $145.5
million for fiscal 1994, an increase of 58.0%. The increase was primarily due
to an increase in the number of domestic semiconductor projects and an
increase in the size of certain of these projects. Revenues derived from
pharmaceutical and biotechnology projects as a percentage of total revenues
during fiscal 1995 did not significantly change from fiscal 1994.

Gross profit. Gross profit increased to $35.1 million for fiscal 1995 from
$20.2 million for fiscal 1994, an increase of $14.9 million. The gross margin
for fiscal 1995 increased to 15.2% from 13.9% for fiscal 1994. The increase in
gross margin was due to improved pricing opportunities on contracts with
domestic semiconductor customers, which resulted from the Company's greater
ability to leverage its increasing size to obtain a greater number of fixed-
price contracts rather than cost-type or time-and-materials contracts and to
obtain more favorable pricing from suppliers. To a lesser extent, the increase
was due to reductions in insurance costs.

Selling, general and administrative expenses. Selling, general and
administrative expenses increased to $22.4 million for fiscal 1995 from $13.8
million for fiscal 1994. The $8.6 million increase was due primarily to the
expansion of offices and fabrication facilities in the domestic market,
international marketing and sales, and the expansion of corporate support
services, such as accounting, information technology and human resources.
Selling, general and administrative expenses increased to 9.7% of revenues for
fiscal 1995 from 9.5% for fiscal 1994 as the Company expanded in anticipation
of future growth.

Interest expense. Interest expense decreased to $0.7 million for fiscal 1995
from $1.1 million for fiscal 1994, primarily due to the pay down of certain
debt with the proceeds from the Company's $9.0 million Preferred Stock private
placement in June 1995.

Provision for income taxes. The Company's effective tax rate increased to
23.7% for fiscal 1995 from 9.9% for fiscal 1994. Prior to May 31, 1995, the
Company was treated as an S Corporation for tax reporting purposes.
Accordingly, the effective tax rate for fiscal 1995 of 23.7% reflects a
provision for taxes from June 1, 1995 through September 30, 1995, plus a small
provision for certain state statutory income taxes incurred by the Company
while it was an S Corporation. The statutory state income tax effective rate
in fiscal 1994 was 9.9%.

21
<PAGE>

QUARTERLY RESULTS OF OPERATIONS

The following tables set forth unaudited statement of operations data for
each of the Company's last eight fiscal quarters and the percentage of the
Company's revenues represented by each line item reflected therein. This
information has been prepared on the same basis as the audited financial
statements contained herein and, in management's opinion, reflects all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the information for the periods presented. The operating
results for any quarter are not necessarily indicative of results for any
future period.

<TABLE>
<CAPTION>
QUARTER ENDED:
------------------------------------------------------------------------------------
DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1994 1995 1995 1995 1995 1996 1996 1996 1996
-------- --------- -------- --------- -------- --------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues............... $62,550 $60,503 $51,131 $55,749 $59,155 $73,372 $70,867 $75,029 $72,195
Income from opera-
tions................. 4,226 3,483 3,037 1,928 3,316 4,382 3,767 4,537 3,341
Net income(1).......... 3,805 2,708 1,698 1,143 1,919 2,431 2,054 2,327 1,684
</TABLE>

<TABLE>
<CAPTION>
AS A PERCENTAGE OF REVENUES FOR THE QUARTER ENDED:
------------------------------------------------------------------------------------
DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1994 1995 1995 1995 1995 1996 1996 1996 1996
-------- --------- -------- --------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues............... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Income from opera-
tions................. 6.8 5.8 5.9 3.5 5.6 6.0 5.3 6.0 4.6
Net income(1).......... 6.1 4.5 3.3 2.1 3.2 3.3 2.9 3.1 2.3
</TABLE>
- --------
(1) Includes income taxes on a historical basis. Prior to May 31, 1995, the
Company had elected to be taxed under Subchapter S of the Internal Revenue
Code and the Company's earnings were not subject to federal income taxes.
The Company terminated its S Corporation status on that date and became
taxable as a corporation under Subchapter C of the Internal Revenue Code.
Accordingly, no provision for federal income taxes was made for the
quarters ended December 31, 1994, March 31, 1995 and a portion of June 30,
1995. The income tax provisions for those quarters do include state income
taxes.

The Company expects that its future operating results will fluctuate
significantly as a result of numerous factors, including the Company's success
in obtaining and performing new contracts, the timing of new contracts, market
acceptance of the Company's high-purity process piping systems, the emergence
of new industry standards, customer cancellations, the mix of contract types,
competition, the evolving and unpredictable nature of the markets for the
Company's high-purity process piping systems, and general economic conditions.
In particular, the billing terms, collection terms and project schedules can
vary widely among contracts. The existence of such variations, along with when
such contracts are initiated or completed, can result in significant
fluctuations in its future operating results, especially on a quarterly basis.
In addition, the Company has historically operated with a moderate order
backlog. As a result, quarterly sales and operating results depend in part on
the volume and timing of contracts received and performed within the quarter,
which are difficult to forecast. A significant portion of the Company's
revenue in any quarter is typically derived from significant sales to a
limited number of customers. Any significant deferral or cancellation of
purchases of the Company's systems and services could have a material adverse
effect on the Company's business, operating results and financial condition in
any particular quarter, and to the extent that significant contracts are
performed earlier or later than expected, operating results for subsequent
quarters may be adversely affected. In addition, a significant portion of the
Company's expenses are relatively fixed in advance based in large part on the
Company's forecast of future sales. If revenues are below expectations in any
given quarter, the adverse impact of the shortfall on the Company's operating
results may be magnified by the Company's inability to adjust spending to
compensate for the shortfall. The Company may also reduce prices or increase
spending in response to competition or elect to pursue new market
opportunities. Because of these factors, the Company believes that period-to-
period comparisons of its operating results are not necessarily meaningful and
that such comparisons should not be relied upon as indications of future
performance. As a result of the foregoing factors, the Company's operating
results and stock price may be subject to significant volatility, particularly
on a quarterly basis. See "Risk Factors--Potential Fluctuations in Quarterly
Operating Results."

22
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

The Company has financed its operations and met its capital expenditure
requirements primarily from cash from operations, borrowings and proceeds from
the private sale of Preferred Stock.

The Company's operating activities provided net cash of $10.0 million, $15.8
million and $4.9 million during fiscal 1994, fiscal 1995, and fiscal 1996,
respectively, and used cash of $7.5 million during the three months ended
December 31, 1996. The increase in net cash provided by operations in fiscal
1995 as compared to fiscal 1994 was primarily attributable to increases in net
income and billings in excess of costs and estimated earnings on contracts in
progress and smaller increases in receivables compared to the previous year.
The decrease in net cash provided by operations in fiscal 1996 as compared to
fiscal 1995 was primarily attributable to an increase in receivables, a
smaller increase in billings in excess of costs and estimated earnings on
contracts in progress compared to the previous year. The use of cash by
operations in the three months ended December 31, 1996 was primarily
attributable to net increases in costs and estimated earnings in excess of
billings on contracts in progress, net decreases in billings in excess of
costs and estimated earnings on contracts in progress and decreases in
accounts payable, trade and subcontractors. The net increases in costs and
estimated earnings in excess of billings on contracts in progress were
primarily due to the Company initiating certain significant contracts during
the later part of the three months ended December 31, 1996. The net decreases
in billings in excess of costs and estimated earnings on contracts in progress
were primarily due to the completion of certain significant contracts during
the three months ended December 31, 1996. The decreases in accounts payable,
trade and subcontractors were primarily due to the Company initiating several
policies to reduce the accounts payable cycle in order to avail itself to
advantageous payment terms. The Company expects that this emphasis will
continue in the future.

The Company's investing activities used net cash of $2.8 million, $6.4
million, $8.5 million and $2.3 million during fiscal 1994, fiscal 1995, fiscal
1996 and the three months ended December 31, 1996, respectively. The increases
in net cash used by investing activities during fiscal 1994, 1995 and 1996
were primarily attributable to increases in acquisition of capital equipment
and the expansion of fabrication capabilities in leased facilities. The
increase in net cash used by investing activities during the three months
ended December 31, 1996 was primarily attributable to the Company's investment
in international operations in Israel.

The Company's financing activities used $6.6 million and $1.7 million in
fiscal 1994 and fiscal 1995, respectively, and provided $4.0 million and $7.0
million in fiscal 1996 and the three months ended December 31, 1996,
respectively. The decrease in net cash used by financing activities in fiscal
1995 as compared to fiscal 1994 was primarily attributable to the proceeds
from the issuance of Preferred Stock in fiscal 1995 partially offset by
increases in distributions to stockholders. The Preferred Stock was issued to
provide working capital to fund expansion of the Company's operations. The
increase in net cash provided by financing activities in fiscal 1996 and the
three months ended December 31, 1996 as compared to fiscal 1995 was primarily
attributable to net borrowings under a revolving credit line. The Company
believes the levels of such net borrowings will decrease in the future.

At December 31, 1996, the Company had $15.0 million in borrowings under the
$22.5 million revolving line of credit with a bank. The line-of-credit
agreement expires April 15, 1998. The Company renegotiated a new line of
credit with such bank and has received a commitment letter to increase the
line of credit to $35 million upon the closing of the Offering. The Company
was not in compliance as of June 30, 1996 with certain financial covenants of
the loan agreement related to a total liabilities to tangible net worth ratio
and a cash flow coverage ratio. The Company was in compliance with those
financial covenants, as amended, at December 31, 1996. The Company believes
that it will be in compliance with these covenants during the remainder of the
loan agreement term. However, failure to meet these covenants would constitute
an event of default which, without the bank's forbearance, could have a
material adverse impact on the Company's business, financial position and
results of operations.

23
<PAGE>

The Company has budgeted additions to equipment and improvements of
approximately $16 million in fiscal 1997. The Company anticipates that funds
for these additions will be provided by a combination of operations,
borrowings under existing credit facilities and the net proceeds of the
Offering.

The Company believes that net proceeds from the sale of the Common Stock
offered hereby, together with cash generated from operations, if any, and the
Company's revolving credit facility will be sufficient to meet its working
capital and other cash requirements for at least the next twelve months.

NEW ACCOUNTING PRONOUNCEMENTS

In March 1995, the Financial Accounting Standards Board issued Statement No.
121 (FAS 121), "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of," which requires impairment losses to be
recorded on long-lived assets used in operations, such as equipment and
improvements and intangible assets, when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the carrying amount of the assets. The Company will adopt FAS 121 in
the first quarter of fiscal 1997. Based on current circumstances, management
does not believe the effect of such adoption will be material.

In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123 (FAS 123), "Accounting for Stock-
Based Compensation," which established a fair-value-based method of accounting
for stock-based compensation plans and requires additional disclosures for
those companies who elect not to adopt the new method of accounting. The
Company will be required to adopt FAS 123 in fiscal year 1997. The Company's
intention is to continue to account for employee stock awards in accordance
with APB Opinion No.25 and to adopt the disclosure-only alternative described
in FAS 123.

24
<PAGE>

INDUSTRY OVERVIEW

INTRODUCTION

The Company estimates that the market for high-purity process systems for
calendar 1995 was approximately $5.4 billion, of which approximately $2.1
billion was related to high-purity process piping. These markets are driven
primarily by three technologically sophisticated manufacturing industries:
semiconductor, pharmaceutical and biotechnology, each of which requires the
highest levels of technological complexity and manufacturing cleanliness. Each
of these industries has unique system performance requirements, but a critical
common element is that manufacturing success is dependent upon the ability to
control the level of contaminants that come into contact with the product
during the course of manufacturing within very narrow, specified tolerances.

The systems installed by the Company are critical to the manufacturing
operation, transporting and controlling material consumed and produced during
the manufacturing process. Generally, high-purity process piping systems in a
semiconductor manufacturing facility ("fab") distribute gases, water and
chemicals from generating equipment or storage tanks to the process
manufacturing equipment. In pharmaceutical and biotechnology facilities, high-
purity process piping systems are used both to transfer product through
various stages of manufacturing and to distribute gases, water and chemicals
that support the manufacturing process.

SEMICONDUCTOR INDUSTRY

Semiconductors are the basic building blocks used to create an increasing
variety of electronic products and systems. As semiconductor product
performance has improved and size and cost have decreased, semiconductor
products have expanded beyond their original primary applications in computer
systems to applications such as telecommunications systems, automotive
products, consumer goods and industrial automation and control systems.
Semiconductors are often classified as either discrete devices (such as
individual diodes or transistors) or integrated circuits (in which thousands
of functions are combined on a single chip of silicon to form a more complex
circuit). Integrated circuits are generally further broken down between logic
and memory chips. The geometry on these chips has become smaller and
increasingly more complex as more and more circuits are compressed onto a
single chip. Current semiconductor manufacturing geometries of less than 0.5
microns (2/100,000 inches) are not uncommon. Contaminant particles even a
fraction of this size can disrupt both the manufacturing process and the
eventual operation of the circuit, rendering the chip useless. As a result,
ultra-high levels of purity are required of the gases, chemicals and fluids
that come into contact with the computer chip during manufacturing. To ensure
this high level of purity, the high-purity process piping systems are
generally first pre-fabricated in cleanrooms and subsequently installed into
the facility under strict protocols. Protocol standards are established to
optimize control of contamination. The systems are typically made from high
quality stainless steel and plastics which are joined using automatic welding
equipment designed to reduce particle generation.

A typical semiconductor fab generally contains 60,000 to 80,000 square feet
of cleanroom manufacturing space. It is composed of three primary elements:
the building infrastructure and basic services; the semiconductor and
analytical equipment ("tools"); and the generation and distribution of the
chemicals, gases and water used by the tools. The life cycle of a fab
typically conforms to the following sequence: (i) base, which consists of
building shell and basic utility and electrical services ("Phase I"); (ii)
pilot hook-up, which includes the first set of tools and their process
qualification ("Phase II"); (iii) ramp hook-up, during which additional tools
are connected and qualified to meet production targets ("Phase III"); (iv)
sustaining hook-up to meet production requirements ("Phase IV"); and (v)
ongoing retrofit of the facility to accommodate a different product or a new
generation of manufacturing technology ("Phase V").

Due to the large capacity and stringent manufacturing requirements of
current semiconductor fabs, total capital investment for new construction and
capital equipment is often in excess of $1 billion per fab. Such a large
investment, coupled with rapid product obsolescence, typically accelerates
construction and start-up schedules. As time-to-market has become more
important and costs have escalated, semiconductor manufacturers have adopted
non-traditional project delivery approaches in an effort to become more
efficient. Prime examples

25
<PAGE>

of these approaches are design/build contracts and specialty gas, chemical and
water supplier "point-of-use" delivery guarantees. Representative contracts
over the life cycle of a facility often follow a similar sequence:

REPRESENTATIVE HIGH-PURITY PROCESS PIPING SYSTEMS
IN SEMICONDUCTOR FAB BUILD-OUT(1)

<TABLE>
<CAPTION>
CONSTRUCTION
PHASE I II III IV V
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SCOPE Base Pilot Hook-Up Ramp Hook-Up Sustaining Hook-Up Retrofit
- ----------------------------------------------------------------------------------------
CLIENT Construction Construction Owner Owner Owner or
Manager or Manager or Construction
Specialty Specialty Manager(3)
Supplier Supplier
- ----------------------------------------------------------------------------------------
PERCENT OF
BUILD-OUT
REVENUE (2) 30% 10% 40% 20% N/A(3)
- ----------------------------------------------------------------------------------------
DURATION 6 months 6 months 1 year 1 year 6 months
</TABLE>
(1) The time periods for each contract and the amount of investment vary
depending upon the specific requirements of the project.
(2) Represents approximate percentage of total high-purity process piping
system costs incurred in such Phase on representative semiconductor
project build-out.
(3) Depending upon their extent, Phase V facility retrofits could be
contracted with a construction manager or directly with the owner and
could range from several hundred thousand dollars to tens of millions of
dollars per project.

PHARMACEUTICAL INDUSTRY

The manufacture of human pharmaceuticals is closely regulated by the U.S.
Food and Drug Administration (the "FDA"), which is responsible for protecting
the public against false therapeutic claims or adulterated drug products. In
order to meet the stringent requirements of the FDA regarding drug purity and
safety, manufacturers of finished pharmaceuticals employ many of the same
sophisticated installation methods and materials as the semiconductor
industry. Specifically, in both industries high quality stainless steel or
plastic piping is joined using automatic welding equipment designed to reduce
contamination. Pharmaceutical manufacturers are particularly concerned with
microbial contamination of their drug products. Due to the relatively
unpredictable nature of microbial entry and growth in pharmaceutical
manufacturing systems, there are many subtle design and installation
requirements that must be incorporated into high-purity process piping
systems. These and other requirements fall under a set of federal regulations
known as current Good Manufacturing Practices ("cGMP") and require extensive
documentation and system testing known as "validation."

Pharmaceutical manufacturing operations for which high-purity process piping
system installation is critical are generally found in those traditional
pharmaceutical products that use biological products in their formulation
(such as vaccines and blood-derived therapeutics) and in the final product
processing steps of injectable products. For these operations, product
processing generally takes place in tanks and equipment which must remain free
of contamination. High-purity process piping in these facilities is used
primarily for the product distribution systems and for the high-purity water,
steam and gas generation and distribution networks which support the
manufacturing process.

Pharmaceutical companies are introducing new products as well as building
and upgrading existing manufacturing facilities to meet increasing product
demand and to comply with rigorous regulatory standards. The recent
consolidations in the pharmaceutical industry and the subsequent transfers and
spin-offs of product lines have also created opportunity for high-purity
process piping system providers and designers. A typical pharmaceutical
facility contract is implemented over approximately nine months.

26
<PAGE>

BIOTECHNOLOGY INDUSTRY

Biotechnology has created new markets with significant growth potential
through the development and advancement of genetic engineering. The
biotechnology industry includes human therapeutics and diagnostics,
agricultural products, industrial chemicals and non-medical diagnostics. As a
result of its stringent purity, installation and manufacturing requirements,
the biotechnology sector involved with human therapeutics
("biopharmaceuticals") has generated significant demand for high-purity
process piping systems. Biopharmaceuticals are anticipated to produce the
highest portion of biotechnology revenues over the next decade.
Biopharmaceutical producers are subject to the same FDA requirements as
pharmaceutical manufacturers for demonstrating the safety, purity and efficacy
of their products through documentation, process validation and clinical
trials. Approximately 16 biopharmaceutical products have been approved by the
FDA and are currently being marketed in the United States and approximately
200 are currently in clinical trials.

Biopharmaceutical products are primarily manufactured through mammalian cell
culture or bacterial or yeast fermentation, followed by sophisticated
separation and purification processes. These processes are performed by
complex high-purity process piping systems which are either built-in-place or
contained on portable frames ("skids") to allow for manufacturing flexibility.
Similar to pharmaceutical manufacturing facilities, high-purity process piping
systems in biotechnology facilities are also used for the product distribution
systems and for the high-purity water, steam and gas generation and
distribution networks which support the manufacturing process.

Biopharmaceutical manufacturing operations take place in controlled
environments where the physical space within the plant is often limited and
congested with equipment. The coordination challenges associated with this
congestion, together with the complexity of the installation, quality
assurance and validation documents, and fast track schedule, have caused
biopharmaceutical manufacturers to pursue non-traditional project delivery
approaches. The main alternative approach is to assign single source
accountability to the high-purity process piping specialty contractor for all
aspects of design, installation and documentation. A typical biopharmaceutical
facility contract is implemented over approximately 12 months.

Pharmaceutical and biopharmaceutical manufacturing facilities do not tend to
follow the same phased installation approach as semiconductor facilities. They
are typically designed and constructed as one integrated manufacturing
operation in the following sequence: conceptual design, preliminary
engineering, detailed design, fabrication, installation, and systems start-up,
commissioning and validation.

INTERNATIONAL MARKETS

Trade regulations and the growth of the international marketplace are
resulting in increased foreign manufacturing of semiconductor, pharmaceutical
and biopharmaceutical products. To meet product specifications, regulatory
requirements, and international manufacturing standards, as well as to permit
worldwide product distribution, international facilities are increasingly
subject to comparable quality and performance requirements as in the United
States.

CAPITAL SPENDING PATTERNS

Demand for high-purity process piping systems tracks the capital spending
patterns of the semiconductor, pharmaceutical and biotechnology industries.
Capital spending is driven by rising demand for industry products, as well as
by regulatory and technological change, which requires replacement and
manufacturing upgrades. DataQuest and Genetic Engineering News each
respectively estimates annual revenue growth over the next decade for the
semiconductor and biopharmaceutical industries at 15% and 12%, respectively.

For its internal planning purposes, the Company estimates the size of the
market for high-purity process piping systems based upon the percentage of
overall capital spending typically allocated to these systems. For the
semiconductor industry, the Company estimates that approximately 20% of
capital spending on facilities is

27
<PAGE>

for high-purity process piping systems. For the pharmaceutical industry, the
Company estimates that 50% of total capital spending is for blood product,
vaccine and pharmaceutical finishing facilities where purity levels are
critical, and high-purity process piping systems represent an average of 33%
of the cost of these facilities. For the biopharmaceutical industry, the
Company estimates that 70% of capital spending is directed at pilot and
commercial manufacturing facilities, and high-purity process piping systems
represent an average of 33% of the cost of these facilities. The Company
estimates that the market for high-purity process systems for calendar 1995
was approximately $5.4 billion, of which approximately $2.1 billion was
related to high-purity process piping.

28
<PAGE>

BUSINESS

COMPANY OVERVIEW

Kinetics is the leading domestic provider of sophisticated high-purity
process piping systems based on revenues. These systems are used primarily in
the semiconductor, pharmaceutical and biotechnology industries. Kinetics
offers its customers turnkey solutions by providing, as a complement to its
specialty high-purity contracting business, comprehensive and technically
advanced engineering and design services, quality assurance and control
services, program management services, and manufacturing of specialty
components. Operations and sales efforts are conducted from its strategically
located facilities throughout the United States and at several international
sites. The Company has used its commitment to quality, innovation and agility
to become the largest specialty contractor of high-purity process piping
systems in the United States.

Within the semiconductor industry, the Company provides its services
primarily to industry leading manufacturers of integrated circuits and
semiconductor original equipment manufacturers. Generally, high-purity process
piping systems in semiconductor fabs distribute gases, water and chemicals
from generating equipment or storage tanks to the process manufacturing
equipment. In pharmaceutical and biotechnology facilities, high-purity process
piping systems are used both to transfer product through various stages of
manufacturing and to distribute gases, water and chemicals that support
manufacturing.

The Company prides itself on its ability to secure repeat business with
these and other customers on both new construction and retrofit projects. In
1996, 87% of revenues were derived from repeat customers. The Company's
semiconductor customers currently include AMD, DEC, Hyundai, Intel, LAM
Research, LSI Logic, Lucent Technologies, Motorola, Rockwell, SGS Thomson
Semiconductor and Texas Instruments. The Company's pharmaceutical and
biotechnology customers currently include Alcon, Bayer, Chiron, Genentech,
Genetics Institute, IDEC, Merck, Ortho Diagnostics and Warner Lambert. Of the
aforementioned customers, only AMD and Rockwell accounted for more than 10% of
the Company's revenues in fiscal 1996.

The Company was founded in 1971 by William A. Bianco, Jr., its current
chairman and chief executive officer. The Company initially provided high-
purity process piping services to the early Silicon Valley semiconductor
companies and focused primarily on this regional market until 1990.
Recognizing the growth opportunity in the semiconductor industry and the
opportunity to apply high-purity process piping technology to other rapidly
growing and capital intensive industries, the Company began expanding its
operations into the pharmaceutical and biotechnology markets in the United
States. The Company has also expanded geographically throughout the United
States as well as in selected international locations. Concurrent with its
geographic expansion, the Company developed high-end value-added services such
as engineering and quality assurance to respond to the changing construction
and manufacturing strategies of its customers. Through these actions, the
Company has acquired the capital equipment, fabrication facilities,
engineering database and highly trained personnel to serve these rapidly
growing industries and has developed the capability to perform turnkey high-
purity process piping system projects.

The Company has increased its revenues to $278.4 million for fiscal 1996
from $145.5 million for fiscal 1994, and income from operations to $16.0
million from $6.4 million during that period, representing compound annual
growth rates of 38.3% and 58.6%, respectively, while growing its business
solely through internal expansion. With its experience in the design,
fabrication and installation of high-purity process piping systems in
sophisticated manufacturing facilities, its accumulated resources, and its
financial accomplishments, Kinetics believes it has a strong competitive
advantage and is uniquely positioned as a key supplier to meet the
technological challenges and growth of the semiconductor, pharmaceutical and
biotechnology industries.

BUSINESS STRATEGY

The semiconductor, pharmaceutical and biotechnology industries are rapidly
changing and fast growing. Manufacturing facilities are becoming larger and
more technologically complex. Purity requirements and quality standards
established by the manufacturer for new and existing facilities are rising in
order to achieve both advanced product specifications and improved product
yield. A substantial portion of the Company's revenues is

29
<PAGE>

derived through contracts requiring work to be performed in cleanroom
environments. In addition, critical systems are being installed over shorter
schedules due to the large investments required and rapid product
obsolescence.

The Company is committed to strengthening its position as a high-quality
provider of sophisticated high-purity process piping, as well as expanding
into the broader process systems market, for the semiconductor, pharmaceutical
and biotechnology industries, while increasing its revenues and profitability.
To achieve these objectives, the Company has adopted a strategy consisting of
the following key elements.

. Increase Market Share. The Company intends to further increase its market
share by opening and expanding branch offices, leveraging existing
customer relationships, investing in fabrication and cleanroom
facilities, acquiring capital equipment, and continuing to hire and train
personnel. The Company also plans to broaden its customer base by
increasing its direct sales force and by pursuing strategic alliances
with specialty gas and high-purity water providers.

. Expand Its Turnkey and Design/Build Operations. The Company believes that
its turnkey and design/build operations will allow it to provide its
customers with higher quality systems within a shortened project cycle
time, while significantly expanding the range of services offered by the
Company beyond its traditional contractor services. The Company's turnkey
and design/build operations include such services as quality assurance
and quality control; conceptual and detailed design and engineering;
critical component manufacturing; systems start-up, commissioning and
validation; program management; and ongoing preventive maintenance. The
Company has recently formed two subsidiaries to focus on the development
of its turnkey and design/build operations: microKINETICS to focus on the
semiconductor industry and bioKINETICS to focus on the pharmaceutical and
biotechnology industries.

. Further Develop Its International Operations. The Company plans to
provide to international customers its complete range of value-added
services, make additional strategic investments in local fabrication
facilities, capital equipment and marketing resources, and hire and train
local personnel. As a result of its extensive domestic experience and its
relationships with major international manufacturers, the Company
believes it is well-positioned to execute its international expansion
plans. To date, the Company has opened fabrication facilities in Mexico,
France and Israel (through a partnering investment), and has begun
construction of cleanroom fabrication facilities in France, Israel and
the People's Republic of China.

. Leverage Its Investment in Quality Leadership. The Company has invested
significant time and capital in the development of proprietary SOPs. The
Company intends to continue to develop, refine and market these SOPs,
which allow the Company to effectively compete for projects requiring
fast-track schedules, custom design, extensive documentation and
contamination-free installation procedures, and to consistently perform
its work anywhere in the world. The Company has an extensive knowledge
base regarding the requirements and expectations of various regulatory
bodies, including the FDA. The Company is committed to continuing to
understand and interpret the evolving requirements of these regulatory
bodies and is in the process of applying for ISO 9000 certification to
aid the Company's international expansion efforts.

. Reduce Operating Costs and Increase Operating Efficiencies. The Company
has identified and will continue to seek additional "best practice"
techniques and is committed to implementing them throughout its entire
organization. Such techniques include the increased use of its
proprietary management software, consolidation of key suppliers in an
effort to increase purchasing power, and consolidation of fabrication and
administration into selected regional centers in order to reduce costs
and increase operating efficiencies.

. Develop Specialty Products. The Company has successfully introduced
several product lines over the past two years, including semiconductor
valve assemblies and portable high-purity gas and liquid analysis carts.
The Company plans to grow these product lines and introduce new products
to meet the needs of its existing customer base.

30
<PAGE>

SERVICES AND PRODUCTS

To meet the evolving needs of the high-purity process piping market, the
Company has developed a wide range of services and products. The Company's
orders and contracts range from several thousand to tens of millions of
dollars and vary from components and fabricated assemblies to entire
manufacturing systems.

.High-Purity Process Piping Systems
The Company's core business is the fabrication and installation of
sophisticated high-purity process piping systems. The Company procures
or manufactures highly polished stainless steel components and welds
them into assemblies, installs them into facilities and tests them
against acceptance standards which typically define levels of
contamination in the low parts per billion. The piping assemblies must
meet strict purity and documentation requirements and are typically
pre-fabricated at the Company's cleanroom and other fabricating
facilities or on construction sites in cleanrooms. In order to meet the
strict requirements for welding, the Company uses automatic orbital
welding machines which employ microprocessors to control all aspects of
the welding operation. The Company currently owns more than 250 welding
machines and associated equipment, representing a $22 million
investment, which the Company believes is more than any of its
competitors. The Company typically does not manufacture commodity pipes
or fittings.

For some of its customers, the Company provides installation services
based upon a "traditional" project delivery approach in which an
outside engineering firm provides the detailed installation documents
and procedures. However, for the majority of its customers, the Company
provides the detailed installation documents and procedures based upon
general design criteria provided by the customer's engineer (the
"design-assist" approach). This approach typically results in a
compressed project schedule and a reduction in technical issues
encountered during construction. Due to the rapid, technology-driven
changes in the semiconductor, pharmaceutical and biotechnology
industries, the design-assist approach has gained wide acceptance
because it takes advantage of the installer's field experience with the
latest construction techniques and materials, which are difficult to
reflect fully in contract plans and specifications. In the
pharmaceutical and biotechnology industries in particular, the
Company's knowledge of current FDA guidelines and expectations helps
owners avoid costly rework and delays. To meet the engineering
requirements of this approach, Kinetics has developed a large group of
high-purity process piping systems designers and engineers. The designs
are realized using sophisticated design software to create three
dimensional piping system models which are then used to generate
detailed fabrication and installation drawings. This automated design
approach reduces the fabrication lead time and project cycle time
through tighter material control.

.Turnkey and Design/Build
The Company also provides completely operational and commissioned
process piping systems based upon general performance requirements
obtained from the end-user. The Company has the ability to provide
either built-in-place systems or skids. The turnkey and design/build
approaches are becoming increasingly popular as owners are attempting
to decrease project costs and shorten the project schedule while at the
same time limiting their in-house project management and engineering
staffs. Under these project delivery approaches, the Company assumes
single source accountability. Successful execution of these projects
requires a tightly integrated program management system, as well as
experienced engineers, designers, installers and program managers. The
Company has recently expanded its engineering and program management
capabilities in the pharmaceutical and biotechnology markets through
the hiring of 20 additional highly qualified managers, engineers and
designers. The Company believes that turnkey and design/build will be
its fastest growing project delivery approaches in the next three
years, and as a result, has recently formed bioKINETICS, a wholly owned
Company subsidiary, to focus on these opportunities. At the same time,
the Company is continuing to develop design/build capabilities in the
semiconductor market through its microKINETICS subsidiary.

.Products and Other Services
Additional revenues are generated from sales to third-parties of
products and services related to the Company's core business. These
include quality assurance services provided by its QAM

31
<PAGE>

subsidiary, gas control assemblies and isolation boxes for
semiconductor manufacturing facilities, and polished stainless steel
fittings and tubing for each of the semiconductor, pharmaceutical and
biotechnology markets. In addition, the Company manufactures and sells
portable testing and analysis carts for on-line monitoring of purity
levels in critical process gases and liquids used in semiconductor and
pharmaceutical production.

MARKETS

The Company's principal markets are the semiconductor, pharmaceutical and
biotechnology industries, for which it performs new construction, retrofit and
expansion of high-purity process piping systems contained in highly
sophisticated manufacturing and testing facilities, both in the United States
and internationally. The Company estimates that its domestic market share for
fiscal 1996 in each of these three principal markets was 23%, 12% and 21%,
respectively.

The following table presents the Company's revenues by industry for the
fiscal years ended September 30, 1994, 1995 and 1996 (in millions):

<TABLE>
<CAPTION>
REVENUES FOR
YEAR ENDED SEPTEMBER 30,
--------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
INDUSTRY SECTOR
Semiconductor..................................... $ 104.9 $ 165.2 $ 204.5
Pharmaceutical.................................... 14.8 29.7 25.4
Biotechnology..................................... 17.9 26.6 27.2
Other(1).......................................... 7.9 8.4 21.2
-------- -------- --------
$ 145.5 $ 229.9 $ 278.3
======== ======== ========
</TABLE>
- --------
(1) Includes fiber-optics, HVAC and general manufacturing.

The Company's international revenues, which have increased from
insignificant levels in fiscal 1995 to $6.7 million in fiscal 1996, are
currently being derived from activities at its facilities in the United
States, Mexico and Israel. The Company believes that planned fabrication
facilities in strategic international locations are necessary to support sales
and marketing efforts as well as project execution and performance.
Accordingly, the Company has opened fabrication facilities in Mexico, France
and Israel (through a partnering investment) and is currently constructing
cleanroom fabrication facilities in France, Israel and the People's Republic
of China. Scheduled completion for all three locations is the first half of
calendar 1997. It is anticipated that additional international facilities will
be added in accordance with project opportunities and increasing global demand
for the Company's systems and services.

CONTRACTS AND PRICING

The Company obtains project awards on either a competitively bid or
negotiated basis. Contracts are typically awarded by semiconductor,
pharmaceutical and biotechnology companies; gas, water and chemical suppliers
to these industries; or construction and engineering firms. The awarding of
contracts is based on reputation, previous project experience, ability to meet
system specifications and project deadlines, and price. The Company performs
its services under either a fixed-price contract, cost-type contract, or time-
and-materials contract, which represented 62%, 12% and 26%, respectively, of
the Company's fiscal 1996 revenues.

Fixed-Price. A fixed-price contract provides for a single price for the
total amount of work to be performed on a project.

Cost-Type. A cost-type contract provides for reimbursement of allowable or
otherwise defined costs incurred, plus a fee for the services. Cost-type
contracts take a variety of forms, including a maximum price of reimbursement
that is guaranteed by the Company for the services to be performed. These
contracts often contain terms specifying reimbursable costs, overhead recovery
percentages and fees. The fee may be fixed or based on a percentage of the
reimbursable costs.

32
<PAGE>

Time-and-Materials. A time-and-materials contract generally provides for
reimbursement to the Company on the basis of direct labor hours at fixed
hourly rates, cost of materials, and other specified costs. The fee may be
included in the hourly rates or may be based on a percentage of the
reimbursable costs.

Each contract type may include a provision for retention. Retention
represents amounts withheld from contract progress billings until satisfactory
project completion and generally ranges from five to ten percent of the total
contract amount.

CUSTOMERS AND MARKETING

The Company's customers are principally semiconductor, pharmaceutical and
biotechnology companies; gas, water and chemical suppliers to these
industries; and construction and engineering firms.

Sales and marketing is principally conducted through the Company's direct
sales force, which consists of sales and estimating personnel who are located
at both the Company's headquarters and its 13 regional offices. International
sales are performed by the Company's direct international sales force
currently headquartered in the United States and by representatives of
partnering companies. The Company is in the process of hiring direct sales
personnel and engaging independent representatives located in strategic
international locations. The Company's direct sales force is currently
composed of 40 sales, marketing and estimating personnel. The Company's sales
force is paid a base salary plus an annual discretionary or performance-based
bonus. See "Risk Factors--Dependence on Key Customers" and "Business--
Backlog."

In fiscal 1996, the Company's top five customers accounted for 40.8% of
total revenues, of which AMD and Rockwell accounted for 12.6% and 10.5%,
respectively. The following is a list of the Company's top 25 facility owner
customers by revenues (representing approximately 79% of the Company's fiscal
1996 revenues, but of which only AMD and Rockwell accounted for more than
10%), each of which accounted for more than $2.5 million in revenues in fiscal
1996:

Air Liquide Genentech Motorola
Alcon Harris NEC
AMD Hexfet Ortho Diagnostics
AT&T IBM Rockwell
Bayer Intel SGS Thomson Semiconductor
Chiron Kurita Texas Instruments
DEC LAM Research Twinstar
Fujitsu LSI Logic
Genencor Micron

A significant portion of the Company's revenues is derived from a small
number of customers, which consist of both facility owners and general
contractors. Revenues derived from the Company's services to its five largest
facility owners in each year accounted for approximately 58%, 45%, and 41% of
the Company's revenues during the fiscal years ended September 30, 1994, 1995
and 1996, respectively. Sales to its five largest general contractor customers
accounted for 25.8% of the Company's revenues during the fiscal year ended
September 30, 1996. In addition, 19.5% of the Company's backlog at September
30, 1996 was comprised of orders from the Company's five largest facility
owner customers in backlog. The Company's projects are typically completed
within a six to fifteen month period from when the contract is initially
executed. As these projects are completed, business from these customers will
decline substantially unless they undertake additional projects incorporating
the Company's services. Furthermore, in fiscal 1996, 87% of the Company's
revenues was derived from repeat customers. If additional projects are not
initiated by existing customers, the performance of the Company will depend to
a greater extent on securing business from new customers. While the Company is
continually pursuing new customer opportunities, there can be no assurance
that the Company will be successful in its sales and marketing efforts, and
any significant weakening in customer demand would have a material adverse
effect on the Company. See "Risk Factors--Dependence on Key Customers."

33
<PAGE>

BACKLOG

The Company's projects generally require delivery of high-purity process
piping systems over a period of six to fifteen months. The Company includes in
its backlog only the unbilled portion of projects that are covered by a signed
contract. As a result, the full value of projects is often not included in the
Company's backlog upon project inception because written commitments are
generally received by the Company as certain phases of the project are finally
priced. Once the Company is awarded a project, it is not unusual for the
project scope to increase. This additional work is not included in backlog
until an executed change order or a new contract is received and approved by
the Company. Backlog is therefore not a useful indicator of the aggregate
revenues the Company expects to receive from any contract. Typically, the
Company completes virtually all of its backlog within one year; however, a
small portion of turnkey or design/build projects may remain in the Company's
backlog close to fifteen months because the Company is performing the
engineering and installation for the project.

On occasion, customers will cancel or delay projects for reasons beyond the
Company's control. Upon such notice, project values are decreased in the
Company's backlog to include only the estimated value of the work to be
completed in the immediate future. Historically, project cancellations or
delays have not had a significant effect on the Company's backlog. The
cancellation rate is generally low because the installation of high-purity
process piping systems generally occurs in the final phases in the
construction of a major manufacturing facility and are essential to the
operation of the facility. In fiscal 1996, however, two large contracts
totaling approximately $40 million were canceled. Of such amount, $34.5
million has been removed from backlog, and the Company anticipates that the
remaining $6 million will be removed in fiscal 1997.

The Company estimated its backlog at approximately $95.0 million at
September 30, 1996. This compares to approximately $127.0 million (including
$34.5 million that was subsequently canceled) and $99.3 million at September
30, 1995 and 1994, respectively. The Company estimates that 98% of its backlog
at September 30, 1996 will be completed in fiscal 1997. The Company does not
consider backlog to be a useful indicator of its future revenue performance in
any given year.

RAW MATERIALS AND SUPPLIERS

The Company's principal raw materials are stainless steel, plastic, copper
and carbon steel piping and specialty valves, fittings and components, which
it obtains from a number of domestic and foreign primary producers and
distributors. The Company believes that it is not generally dependent on any
one of its suppliers for raw materials, that the market is extremely
competitive and that its relationships with its suppliers are good. Because of
the large volumes of materials purchased, the Company is able to negotiate
advantageous purchase prices for stainless steel, plastic piping and specialty
valves and fittings. Certain items are kept in stock at each of the Company's
facilities and are transported between facilities and construction sites as
required. In contrast, more specialized materials are obtained from suppliers
when required for a project. To date, the Company has not experienced any
significant shortages or delays in obtaining materials.

Historically, the price for stainless steel materials has fluctuated. In
order to protect itself from such fluctuations, at the time of obtaining a
contract, the Company generally obtains fixed price commitments from its
suppliers for most of the stainless steel items necessary to perform the
project.

INDUSTRY CERTIFICATION

The Company has internal policies and procedures to assure a consistently
high level of system quality. In addition to its own SOPs, the Company must
operate under regulations and specifications set forth by various industry
associations and governmental bodies.

The American Society of Mechanical Engineers ("ASME") and the American
National Standards Institute ("ANSI") publish codes and standards that are
applicable to the Company's projects. The ASME Code B31.3 "Chemical Piping"
sets forth engineering requirements necessary for the safe design and
construction of piping installations typically found in semiconductor,
pharmaceutical and biotechnology plants. This code prescribes requirements for
materials and components, design, fabrication, assembly, erection,
examination, inspection, and

34
<PAGE>

testing of piping. Many referenced ANSI standards further define materials and
procedures for specific applications. The semiconductor industry has a set of
standards set by the Semiconductor Equipment Manufacturers Institute that
define in detail much of the installation requirements for piping and
equipment. The pharmaceutical and biotechnology industries also have industry
groups, such as the International Society for Pharmaceutical Engineers, which
provide design and installation guidelines.

The FDA administers and enforces the regulations of CFR 210 and 211
regarding cGMP, a set of federal regulations known as current Good
Manufacturing Practices, as applicable to the pharmaceutical industry. The
systems designed and installed by the Company must be able to repeatedly and
reliably produce a regulated product meeting the safety, identity, strength,
quality, and purity characteristics the drug product is represented to
possess. In order to retain its position as an industry leader, the Company
has begun the ISO 9000 certification process through its subsidiary, QAM, and
anticipates completing the process by mid-1997.

COMPETITION

The high-purity process piping systems industry is fragmented and highly
competitive on a regional basis. The Company's competition in the design and
fabrication of high-purity process piping systems generally consists of a
number of domestic piping systems installation and fabrication companies and
divisions of large industrial firms in the international sector. In the future
the Company's competition may include specialty gas providers, water system
providers and engineering and construction firms. The Company's primary
domestic competitors are Dynamic Systems, Inc., Fullman Company, and Therma
Corporation. Its primary international competitors are Mannesman AG, Mercury
and Jordan Lang. The Company believes that the majority of its business is
awarded based on reputation, previous project experience, the ability to meet
system specifications and project deadlines, and price. Some of the Company's
current and potential competitors, especially in the international sector,
have greater financial and other resources than the Company. See "Risk
Factors--Competition."

EMPLOYEES

At December 31, 1996, the Company employed 2,102 full-time employees, of
whom 1,457 were represented by the United Association of Journeymen and
Apprentices of the Plumbing and Pipefitting Industry of the United States and
Canada (the "Union") and 645 of whom were non-union. Of the 645 non-union
employees, 172 worked in project management, 201 worked in central
administration, 83 worked in engineering, 114 worked in quality assurance, 42
worked in accounting, finance and tax, and 33 worked in marketing and sales.

The Company believes that the current relationship with its employees and
the Union is generally good and is not aware of any circumstances that are
likely to result in a work stoppage at any of its facilities.

SAFETY

The Company performs most of its services on construction sites at its
customers' locations, many of which are operating facilities employing
hazardous chemicals and processes. In order to operate successfully in this
environment, the Company has developed and implemented effective policies and
procedures to protect the health and safety of its personnel. Its safety
department operates independently of its installation crews and reports
directly to senior management. Weekly safety meetings, periodic inspections,
surprise visits, and a safety incentive plan have contributed to incidence
rates for the Company which the Company believes are low for the construction
industry. In its history the Company has experienced one incident involving
the loss of life or serious injury. This incident, in which one of the
Company's employees died and another was seriously injured, occurred in
January 1997 at a facility of one of the Company's customers. The Company has
conducted a preliminary investigation and, based on the facts available as of
the date hereof, the Company believes that the accident will not have a
material adverse effect on the Company's financial condition or results of
operations.

PROPERTIES

All of the Company's properties are leased. Its corporate headquarters,
located in Santa Clara, California, is a building of approximately 34,000
square feet. The Company has 21 branch offices, one warehouse and four other
facilities located in 10 states, one U.S. territory, Mexico and Israel (a
partnering facility).

35
<PAGE>

MANAGEMENT

DIRECTORS, EXECUTIVE OFFICERS, AND KEY EMPLOYEES

The directors, executive officers and key employees of the Company, and
their ages as of December 31, 1996, are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Directors and Executive
Officers:
William A. Bianco, Jr. .... 57 Chairman of the Board, Chief Executive Officer
and Director
David J. Shimmon........... 38 President, Chief Operating Officer, Chief
Financial Officer and Director
Marie R. Bianco............ 56 Executive Vice President and Director
Martin M. Jelenko.......... 51 Director
Jeffrey L. Ott............. 34 Director
Key Employees:
Michael R. Cables.......... 44 Senior Vice President, Southwest Operations
Julien C. Frost............ 55 Senior Vice President, KSI International
John Gelles, III........... 43 Vice President, Texas Operations
Kurt P. Gilson............. 34 Senior Vice President, Corporate Planning and
Information Technology
Robert D. Hoover........... 39 President, Quality Assurance Management
Richard B. Hughes.......... 44 Senior Vice President, National Labor
Frank J. Knoll............. 48 President, bioKINETICS
J. Thomas Land............. 51 Senior Vice President, Northern California
Operations
Michael P. Lynch........... 50 Senior Vice President, Estimating and Sales
Ian W. MacLaren............ 39 Senior Vice President, Sales
Robert N. Mathisen......... 40 Senior Vice President, East Coast Operations
Steven P. Nickerson........ 34 Senior Vice President, Tax and Treasury
Daniel C. Rubin............ 33 Senior Vice President, Marketing and Sales
Carter E. Wicks............ 31 Senior Vice President, Accounting and Finance
</TABLE>

William A. Bianco, Jr., founder of the Company, has served as Chief
Executive Officer and as a Director of the Company since its incorporation in
1973. Mr. Bianco has been Chairman of the Board since 1980. Prior to founding
the Company, Mr. Bianco was Plant Manager of Air Products & Chemicals, Inc., a
specialty gas company. Mr. Bianco serves on the Board of Directors of the
Mechanical Contractors Association and the Joint Apprenticeship Training
Council.

David J. Shimmon has served as President of the Company since March 1996, as
Chief Operating Officer and as a Director of the Company since joining the
Company in October 1990, as Chief Financial Officer of the Company since 1991
and served as Executive Vice President of the Company from October 1990 to
March 1996. Prior to joining the Company, Mr. Shimmon practiced as a Certified
Public Accountant with Frank, Rimmerman & Company and Arthur Young & Company,
Certified Public Accountants, providing auditing, management consulting and
operations consulting services.

Marie R. Bianco has served as Executive Vice President and as a Director
since joining the Company in 1989. Mrs. Bianco has developed human resources
policies and procedures to meet the needs of the Company's growth, and is also
the Plan Administrator of The Kinetic Systems, Inc. 401(k) Plan. Prior to
joining the Company, Mrs. Bianco was a legal assistant with Hoge, Fenton,
Jones & Appel, Inc. and Ropers, Majeski et al. for fifteen years.

36
<PAGE>

Martin M. Jelenko has served as a Director of the Company since 1995. He has
served as a director with Houlihan, Lokey, Howard and Zukin, a specialty
investment banking firm, since February 1997. He served as a consultant to BT
Capital Partners, Inc., a private equity investment firm affiliated with
Bankers Trust Co. ("BT Capital"), from September 1996 to January 1997. From
January 1992 to August 1996, he was a Managing Director with BT Capital. From
1989 to January 1992, he served as Chief Executive Officer of Maiden Lane
Associates, a private equity investment firm. Mr. Jelenko has served as a
director of Strouds, a specialty softgoods retailer, from 1987 to 1992 and
from 1994 to the present. Mr. Jelenko also serves as a director of RXI
Holdings.

Jeffrey L. Ott has served as a Director of the Company since December 1996.
Mr. Ott has been a Managing Director with BT Investment Partners, Inc., a
private equity investment firm affiliated with BT Capital, since May 1996.
From August 1988 to 1996, Mr. Ott served in several capacities at BT
Securities, an investment banking firm affiliated with BT Capital, most
recently as a Managing Director, where he was responsible for the convertible
and equity-linked capital markets effort worldwide.

Michael R. Cables has served as Senior Vice President of Southwest
Operations since October 1996 and served as Vice President of Operations since
1994, as Southern California Operations Manager from 1988 to 1994 and as a
labor supervisor from 1986 to 1988. He is responsible for opening and
supervising branch offices in Arizona, Colorado and Mexico and for developing
apprenticeship training programs.

Julien Frost has served as Senior Vice President of KSI International since
October 1996, as Senior Vice President of Operations from August 1994 to
October 1996, and as Vice President of Operations from January 1989 to August
1994. Mr. Frost also sponsors the Company's Corporate Safety Program, and acts
as Project Director for large stand-alone projects throughout the world.

John Gelles has served as Vice President of Texas Operations since October
1996, as Assistant Branch Manager for Texas Operations from 1994 to October
1996 and as a Senior Project Manager from January 1989 to 1994.

Kurt P. Gilson has served as Senior Vice President of Corporate Planning and
Information Technology since October 1996, as Vice President of Technical
Services from August 1994 to October 1996, as Manager of Technical Services
from 1992 to August 1994 and as a project manager from 1988 to 1992.

Robert D. Hoover has served as Senior Vice President of Quality Assurance
Management since October 1996, as Vice President of Quality Assurance
Management from November 1994 to October 1996 and as Manager of Quality
Assurance from February 1989 to November 1994. Prior to joining the Company,
he authored the high-purity piping installation and testing procedures for the
Sematech consortium and has remained active in establishing industry
standards.

Richard B. Hughes has served as Senior Vice President of National Labor
since October 1996, as Vice President of National Labor from August 1994 to
October 1996 and as Labor Manager from October 1988 to August 1994.

Frank J. Knoll has served as President of bioKINETICS since August 1996.
From 1990 to August 1996 he held several positions at Life Sciences
International, an engineering and construction management company, most
recently serving as President. Mr. Knoll has over twenty-five years of
experience in the design and construction of high technology manufacturing
facilities with significant experience in the biotechnology and pharmaceutical
industries.

J. Thomas Land has served as Senior Vice President of Northern California
Operations since October 1996, as Vice President of Berkeley Operations from
1994 to October 1996, as Division Manager of the Berkeley Division August 1992
to 1994 and as a Senior Project Manager from October 1988 to August 1992.

Michael P. Lynch has served as Senior Vice President of Estimating and Sales
since October 1996, as Vice President of Sales from August 1994 to October
1996 and as Marketing Manager from October 1988 to August 1994.

37
<PAGE>

Ian W. MacLaren has served as Senior Vice President of Sales since October
1996, as Vice President of Sales from August 1994 to October 1996 and as the
Lead Bid Sponsor from October 1989 to August 1994. Mr. MacLaren is a
registered Professional Engineer and is an active national board member of the
International Society of Pharmaceutical Engineers.

Robert N. Mathisen has served as Senior Vice President of East Coast
Operations since October 1996, as Vice President of Operations from August
1994 to October 1996 and as New England branch manager from 1990 to August
1994.

Steven P. Nickerson has served as Senior Vice President of Tax and Treasury
since October 1996, as Vice President of Tax and Regulatory Affairs from 1994
to October 1996 and as Tax Manager from July 1991 to February 1993. From
February 1993 to 1994, he was Tax Manager of Maxtor Corporation, a disc drive
manufacturer. Mr. Nickerson is a member of the Tax Executive Institute, the
California Society of CPAs and the American Institute of Certified Public
Accountants.

Daniel C. Rubin has served as Senior Vice President of Marketing and Sales
since October 1996, as Vice President of Marketing from August 1994 to October
1996, and as Manager of East Coast Business Development from October 1989 to
August 1994. From 1986 to 1988 he was sales manager for Critical Components, a
manufacturer and distributor of high-purity components to the semiconductor
industry.

Carter E. Wicks has served as Senior Vice President of Accounting and
Finance since October 1996, as Vice President of Accounting and Information
Technology from August 1994 to October 1996, and as Manager of Accounting from
July 1990 to August 1994. Prior to joining the Company, he was at Frank,
Rimmerman and Company, most recently as an audit and information systems
manager. Mr. Wicks holds active memberships with several organizations,
including the Construction Financial Management Association, The American
Institute of Certified Public Accountants, The California Society of Certified
Public Accountants and The Association of Certified Fraud Examiners.

All directors hold office until the next annual meeting of stockholders and
until their successors have been duly elected and qualified. Officers are
elected by and serve at the discretion of the Board of directors. Mr. Bianco
and Ms. Bianco are married. There are no other family relationships among the
directors or officers of the Company.

BOARD COMMITTEES

The Board of Directors has a Compensation Committee, currently composed of
Mr. Jelenko and Mr. Ott, which makes recommendations to the Board concerning
salaries and incentive compensation for officers and employees of the Company.
The Board of Directors also has an Audit Committee, currently composed of
Mr. Jelenko and Mr. Ott, which reviews the results and scope of the audit and
other accounting related services.

DIRECTOR COMPENSATION

Directors do not receive any cash compensation for their services as members
of the Board of Directors, although non-employee directors are reimbursed for
their out-of-pocket expenses incurred in attending Board and committee
meetings.

38
<PAGE>

EXECUTIVE COMPENSATION

The following table sets forth information concerning the compensation
received for services rendered to the Company during the fiscal year ended
September 30, 1996, by the Chief Executive Officer of the Company and the
other most highly compensated executive officers whose total salary and bonus
for the fiscal year ended September 30, 1996 exceeded $100,000 (the "Named
Executive Officers"):

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL COMPENSATION
---------------------------------
OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION(1) COMPENSATION
--------------------------- -------- -------- --------------- ------------
<S> <C> <C> <C> <C>
William A. Bianco, Jr.......... $235,200 $200,000 $16,686 $167,291(2)
Chairman of the Board and
Chief Executive Officer
David J. Shimmon............... 196,000 200,000 8,250 9,440(3)
President, Chief Operating
Officer and
Chief Financial Officer
Marie R. Bianco................ 90,000 100,000 12,250 --
Executive Vice President
</TABLE>
- --------
(1) Represents lease payments on an automobile and related insurance premiums.
(2) Represents (i) $100,428 for life insurance premiums, (ii) $66,113 which
represents the cash surrender value of the insurance policy (as determined
in accordance with the rules of the Securities and Exchange Commission)
and (iii) $750 in matching 401(k) plan contributions by the Company.
(3) Represents (i) $8,690 for life insurance premiums and (ii) $750 in
matching 401(k) plan contributions by the Company.

None of the executive officers held or were granted options to purchase
shares of the Company's Common Stock in fiscal 1996.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Company did not have a Compensation Committee until December 1996, prior
to which all decisions concerning executive compensation were made by the
entire Board, of which Mr. Bianco, Mr. Shimmon and Ms. Bianco are members. The
Compensation Committee currently consists of Mr. Jelenko and Mr. Ott. The
Company has entered into certain transactions with Mr. Bianco and Mr. Shimmon.
See "Certain Transactions."

STOCK PLANS AND AGREEMENTS

1996 Key Employee Stock Option Plan.

The 1996 Key Employee Stock Option Plan of the Company (the "Key Employee
Option Plan") provides for the grant of stock options to officers and other
key employees of the Company and its subsidiaries. Options are nonstatutory
stock options and are not intended to satisfy the requirements of Section 422
of the Internal Revenue Code of 1986, as amended (the "Code"). All options
granted under the Key Employee Option Plan must be granted by August 16, 2006.

The Key Employee Option Plan is administered by the Board of Directors or a
committee thereof. Subject to the provisions of the Key Employee Option Plan,
the Board or committee has the authority to select the persons to whom options
are granted and determine the terms of each option, including (i) the number
of shares of Common Stock covered by the option, (ii) when the option becomes
exercisable, (iii) the option exercise price, which must be at least 100% of
the fair market value of a share of Common Stock as of the date of grant and
(iv) the duration of the option. Generally, options granted under the Key
Employee Option Plan are immediately exercisable but remain subject to
repurchase by the Company for all exercised unvested shares under a vesting
schedule established by the Board or committee. The options are generally
exercisable with 10% exercisable on the date of grant and one tenth of the
option on each anniversary from one to nine years. The Company's

39
<PAGE>

repurchase right will terminate upon certain changes in control of the Company
unless the outstanding options are assumed or replaced by the acquiring
corporation or if, following certain changes in control of the Company, the
option holder is terminated without cause or resigns following "constructive
termination" as defined in the Key Employee Option Plan. All options are
nontransferable other than by will or the laws of descent and distribution.
With the Company's consent, the stock options may be transferred to a
beneficiary or beneficiaries in the event of the optionee's death, to the
extent the option granted is exercisable.

As of December 31, 1996, 337,499 options to purchase shares of Common Stock
were outstanding and no shares remained available for future option grants
under the Key Employee Option Plan. The Company does not intend to issue any
future options under the Key Employee Option Plan.

1997 Stock Option Plan.

The 1997 Stock Option Plan of the Company (the "Option Plan") was adopted by
the Company's Board of Directors and approved by the Company's stockholders in
December 1996. The Option Plan provides for the grant of stock options to
employees (including officers), directors and consultants of the Company and
its subsidiaries. Options may be incentive stock options within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code") or
nonstatutory stock options, although incentive stock options may be granted
only to employees. All options granted under the Option Plan must be granted
by December 6, 2006.

The Option Plan is administered by the Board of Directors or a committee
thereof. Subject to the provisions of the Option Plan, the Board or committee
has the authority to select the persons to whom options are granted and
determine the terms of each option, including (i) the number of shares of
Common Stock covered by the option, (ii) when the option becomes exercisable,
(iii) the option exercise price, which, in the case of incentive stock
options, must be at least 100% of the fair market value of a share of Common
Stock as of the date of grant, and, in the case of nonstatutory stock options
must be at least 85% of the fair market value of a share of Common Stock as of
the date of grant, and (iv) the duration of the option (which, in the case of
incentive stock options, may not exceed ten years). Generally, options granted
under the Option Plan are immediately exercisable but remain subject to
repurchase by the Company for all exercised unvested shares under a vesting
schedule established by the Board or committee. The Company's repurchase right
will terminate upon certain changes in control of the Company unless the
outstanding options are assumed or replaced by the acquiring corporation or
if, following certain changes in control of the Company, the option holder is
terminated without cause or resigns following "constructive termination" as
defined in the Option Plan. All incentive stock options are nontransferable
other than by will or the laws of descent and distribution. With the Company's
consent, nonstatutory stock options may be transferred to an optionee's
immediate family, a trust for his or her benefit or a partnership in which
only the optionee and immediate family members are partners.

As of December 31, 1996, no options to purchase shares of Common Stock were
outstanding and 350,000 shares remained available for future option grants
under the Option Plan.

Stock Option Agreements

The Company has entered into non-qualified option agreements with
approximately 20 employees and one consultant, providing for the purchase of
an aggregate of 746,250 shares of Common Stock of the Company, of which
options to purchase 678,750 shares were outstanding as of December 31, 1996.
Such agreements provide for vesting periods of up to six years with an option
term of ten years. The per share exercise price of such options was at least
100% of the fair market value of a share of Common Stock as of the respective
dates of grant.

1997 Employee Stock Purchase Plan

The Company's 1997 Employee Stock Purchase Plan (the "Purchase Plan") was
adopted by the Company's Board of Directors and approved by the Company's
stockholders in December 1996. A total of 250,000 shares of Common Stock has
been reserved for issuance under the Purchase Plan. The Purchase Plan, which
is intended

40
<PAGE>

to qualify under Section 423 of the Code, is administered by the Board of
Directors or by a committee appointed by the Board. Employees (including
officers and employee directors of the Company) who have completed at least
one year of service with the Company or any subsidiary designated by the Board
for participation in the Purchase Plan are eligible to participate in the
Purchase Plan if they are customarily employed for more than 20 hours per week
and more than five months per year. The Purchase Plan will be implemented by
sequential twenty-four month offerings. The Company has not yet offered or
sold shares of Common Stock to employees pursuant to the Purchase Plan, but
intends to initiate the first offering under the Purchase Plan concurrent with
the Offering. The initial offering period will terminate on January 31, 1999.
Thereafter, offering periods will begin on August 1 and February 1 of each
year. The Purchase Plan permits eligible employees to purchase Common Stock
through payroll deductions, which may not exceed 10% of an employee's
compensation. The price at which stock may be purchased under the Purchase
Plan is equal to 85% of the lower of the fair market value of the Company's
Common Stock on the first day or the last day of each offering period.
Employees may end their participation in the offering at any time during the
offering period, and participation ends automatically on termination of
employment with the Company. In addition, participants generally may not
purchase more than 5,000 shares in an offering or stock having a value
(measured at the beginning of the offering) greater than $25,000 in any
calendar year.

CHANGE OF CONTROL ARRANGEMENTS

The Company has entered into a First Amended and Restated Voting Trust
Agreement Regarding Shares Issued to David J. Shimmon (the "Shimmon Voting
Trust Agreement") initially effective as of April 1, 1996 and amended by the
First Amendment thereto dated as of December 1, 1996 with William A. Bianco,
Jr., as the voting trustee, and David J. Shimmon. Pursuant to the Shimmon
Voting Trust Agreement, Mr. Shimmon has transferred his right to vote his
shares of Common Stock of the Company to Mr. Bianco. The Shimmon Voting Trust
Agreement shall terminate on the first to occur of: (i) the date Mr. Bianco
ceases to be employed by the Company, for any or no reason, (ii) the date 50%
or more of the voting securities of the Company are transferred to a third
party or parties pursuant to one transaction or a series of related
transactions or (iii) June 30, 1999. The Shimmon Voting Trust Agreement
provides that any transfer of Mr. Shimmon's shares of Common Stock of the
Company will require approval by both Mr. Shimmon and Mr. Bianco.

The Company has entered into a Second Amended and Restated Voting Trust
Agreement Regarding Shares Issued to the Bianco Family 1991 Trust (the "Bianco
Voting Trust Agreement") effective as of December 1, 1996 with David J.
Shimmon, William A. Bianco and the Bianco Family 1991 Trust dated February 1,
1991 (the "Bianco Family Trust"), pursuant to which Mr. Shimmon would have the
power to vote the shares held by the Bianco Family Trust at such time as Mr.
Bianco ceases to be employed by the Company if as of such date Mr. Shimmon (i)
is employed by the Company and (ii) is a stockholder of the Company. The
Bianco Voting Trust Agreement shall terminate on the first to occur of: (i)
the date Mr. Shimmon is no longer employed by the Company, for any or no
reason, (ii) the date 50% or more of the voting securities of the Company are
transferred to a third party or parties pursuant to one transaction or a
series of related transactions or (iii) April 1, 2006. The Bianco Voting Trust
Agreement provides that any transfer of the Bianco Family Trust's shares of
Common Stock of the Company will require approval of both Mr. Bianco and Mr.
Shimmon.

41
<PAGE>

CERTAIN TRANSACTIONS

On June 26, 1995 the Company sold an aggregate of 2,250,000 shares of Series
A Preferred Stock (without giving effect to the conversion of the Preferred
Stock or the three-for-four reverse stock split) at a price of $4.00 per share
to BT Capital Partners, Inc. ("BT Capital"). Pursuant to the Company's
Certificate of Incorporation, as of December 31, 1996, the Company had issued
to BT Capital Series B Preferred Stock dividends of 283,865 shares (without
giving effect to the conversion of the Preferred Stock or the three-for-four
reverse stock split). Upon the consummation of the Offering, the shares of
Series A Preferred Stock and Series B Preferred Stock will convert into
1,687,500 and 106,193 shares of Common Stock, respectively.

During the three years ended September 30, 1996, the Company made a series
of loans and advances to William A. Bianco, Jr. in the aggregate amounts of
$495,172 and $417,446, respectively. Such loans had been repaid, with interest
at 8%, as of September 30, 1996, and all advances had been repaid as of
October 31, 1996. Mr. Bianco currently has no outstanding indebtedness to the
Company.

During the three years ended September 30, 1996, the Company made a series
of loans and advances to David J. Shimmon in the aggregate amounts of $262,395
and $295,042, respectively. Such loans had been repaid, with interest at 8%,
as of September 30, 1996, and all advances had been repaid as of October 31,
1996. Mr. Shimmon currently has no outstanding indebtedness to the Company.

All transactions between the Company and its officers, directors, principal
stockholders and other affiliates have been and will be on terms no less
favorable to the Company than could be obtained from unaffiliated parties. The
Company has no outstanding loans to officers, directors, principal
stockholders or other affiliates other than advances of reimbursable expenses.
All such future transactions will be approved by a majority of the Company's
independent and disinterested directors.

The Company has entered employment agreements with William A. Bianco, Jr.,
Marie R. Bianco, and David J. Shimmon effective as of July 31, 1994 which
expire on October 31, 1999. The agreements provide for employment at-will,
with severance pay if the employee is terminated without cause. The severance
pay equals six months of the employee's then-current annual salary, and is
payable in twelve equal monthly installments. The agreements also provide for
an annual cost-of-living increase equal to the greater of 2% or the percent
increase in the Consumer Price Index.

The Company's Certificate of Incorporation limits the liability of its
directors for monetary damages arising from a breach of their fiduciary duty
as directors, except to the extent otherwise required by the Delaware General
Corporation Law. Such limitation of liability does not affect the availability
of equitable remedies such as injunctive relief or rescission.

The Company's Bylaws provide that the Company shall indemnify its directors
and officers to the fullest extent permitted by Delaware law, including in
circumstances in which indemnification is otherwise discretionary under
Delaware law. The Company has also entered into indemnification agreements
with its officers and directors containing provisions that may require the
Company, among other things, to indemnify such officers and directors against
certain liabilities that may arise by reason of their status or service as
directors or officers (other than liabilities arising from willful misconduct
of a culpable nature), to advance their expenses incurred as a result of any
proceeding against them as to which they could be indemnified, and to obtain
directors; and officers' insurance if available on reasonable terms.

For a description of the compensation of officers of the Company and the
eligibility of officers and directors of the Company to participate in the
Company's employee benefit plans, see "Management--Executive Compensation" and
"--Stock Plans."

42
<PAGE>

PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth certain information regarding the ownership
of the Common Stock at December 31, 1996 (except as otherwise noted) with
respect to (i) each person known by the Company to own beneficially more than
5% of the outstanding shares of Common Stock, (ii) each Named Executive
Officer and director of the Company, (iii) all executive officers and
directors as a group and (iv) all Selling Stockholders. Each of the following
stockholders has sole voting and investment power with respect to shares
beneficially owned by such stockholder, except to the extent that authority is
shared by spouses under applicable law or as otherwise noted.

<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO THE OFFERING AFTER THE OFFERING
----------------------- SHARES TO --------------------------
NAME AND ADDRESS(1) SHARES PERCENTAGE(3) BE OFFERED SHARES PERCENTAGE(2)(3)
------------------- --------- ------------- ---------- --------- ----------------
<S> <C> <C> <C> <C> <C>
William A. Bianco,
Jr.(4)................. 7,500,000 78.5% 170,000 7,330,000 58.2%
Marie R. Bianco(4)...... 7,500,000 78.5 170,000 7,330,000 58.2
David J. Shimmon(5)..... 1,500,000 15.7 -- 1,500,000 11.9
Jeffrey L. Ott(6)....... 1,793,693 18.8 393,326 1,400,367 11.1
Martin M. Jelenko....... -- -- -- -- --
All executive officers
and directors as
a group (5 persons)(4)-
(6).................... 9,293,693 97.3 563,326 8,730,367 69.3
BT Capital Partners,
Inc.(6)
130 Liberty Street
New York, NY 10006..... 1,793,693 18.8 393,326 1,400,367 11.1
L.H. Friend, Weinress,
Frankson
& Presson, Inc.(7)
3333 Michelson Drive,
Suite 650
Irvine, CA 92716...... 99,878 1.0 41,884 57,994 *
Gregory E. Presson(7)
25 Bridgeport
Newport Coast,
CA 92657............... 99,878 1.0 41,884 57,994 *
D & S Partners(8)
A California General
Partnership
c/o George M. Sundheim
420 Florence Street,
Suite 200
Palo Alto, California
94301................. 67,500 * 12,500 55,000 *
Silicon Valley
Bancshares(9)
3003 Tasman Drive
Santa Clara, CA 95054.. 60,437 * 24,790 35,647 *
Christopher P.
Halloran(10)
1 Spring Buck
Irvine, CA 92614....... 28,997 * 7,500 21,497 *
</TABLE>
- --------
* Represents less than 1%.
(1) Unless otherwise indicated, the address of each of the individuals named
in the table is: c/o The Kinetics Group, Inc., 3080 Raymond Street, Santa
Clara, CA 95054.
(2) Assumes no exercise of the Underwriters' over-allotment option.
(3) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that
person, shares of Common Stock subject to options or warrants from the
Company held by that person that are currently exercisable, or become
exercisable within 60 days following December 31, 1996, are deemed
outstanding. However, such shares are not deemed outstanding for purposes
of computing the percentage ownership of any other person.

43
<PAGE>

(4) Represents shares owned by the Bianco Family 1991 Trust. Mr. Bianco and
Ms. Bianco are trustees of the Bianco Family 1991 Trust and, therefore,
may be deemed to be beneficial owners of such shares. All of such shares
are subject to the Bianco Voting Trust Agreement. Includes 1,125,000
shares of Common Stock which are subject to an option which has been
granted to David J. Shimmon which is exercisable at $1.11 per share and
expires on June 30, 2001. See Note 5 below. Also includes 1,500,000 shares
beneficially owned by David J. Shimmon and held by William A. Bianco, Jr.,
Voting Trustee under the Shimmon Voting Trust Agreement; Mr. Bianco and
Ms. Bianco disclaim beneficial ownership of all such shares. See
"Management--Change of Control Arrangements." If the Underwriters' over-
allotment option is exercised in full, an additional 50,000 shares would
be offered for sale in the Offering.
(5) Mr. Shimmon's shares are held of record by William A. Bianco, Jr., Voting
Trustee under the Shimmon Voting Trust Agreement. Excludes 6,000,000
shares held in the Bianco Family 1991 Trust, which are subject to the
Bianco Voting Trust Agreement. See "Management--Change of Control
Arrangements." Excludes 1,125,000 shares of Common Stock which are subject
to an option from the Bianco Family 1991 Trust which is exercisable at
$1.11 per share and expires on June 30, 2001. See Note 4 above.
(6) Represents 1,793,693 shares held by BT Capital Partners, Inc. ("BT
Capital"). Mr. Ott is a Managing Director of BT Investment Partners, Inc.,
an affiliate of BT Capital and disclaims beneficial ownership of such
shares. If the Underwriters' over-allotment option is exercised in full,
an additional 206,674 shares would be offered for sale in the Offering.
(7) Includes 57,994 shares held by L. H. Friend, Weinress, Frankson & Presson
("L.H. Friend") and 41,884 shares held by Gregory E. Presson, who is a
general partner at L.H. Friend, of which 30,000 shares are being offered
for sale by L.H. Friend and 11,884 shares are being offered by Mr.
Presson. Represents shares issuable upon the exercise of outstanding
warrants at the assumed initial public offering price of $15.00 per share.
(8) If the Underwriters' over-allotment option is exercised in full, an
additional 7,500 shares would be offered for sale in the Offering.
(9) Represents shares issuable upon the net exercise of outstanding warrants
at an assumed initial public offering price of $15.00 per share. If the
Underwriters' over-allotment option is exercised in full, an additional
35,647 shares would be offered for sale in the Offering.
(10) Represents shares issuable upon the net exercise of outstanding warrants
at an assumed public offering price of $15.00 per share.

44
<PAGE>

DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of the Company consists of 40,000,000 shares of
Common Stock, $0.001 par value and 2,000,000 shares of Preferred Stock, $0.001
par value.

COMMON STOCK

Excluding the shares of Common Stock to be issued upon the conversion of all
outstanding Preferred Stock prior to the Offering and 189,312 shares of Common
Stock to be issued upon the net exercise of certain outstanding warrants prior
to the closing of the Offering, there were 7,567,500 shares of Common Stock
outstanding held of record by three stockholders at December 31, 1996.

Holders of Common Stock are entitled to receive ratably such dividends, if
any, as may be declared by the Board of Directors out of funds legally
available therefore, subject to any preferential dividend rights of
outstanding Preferred Stock. Upon the liquidation, dissolution, or winding up
of the Company, the holders of Common Stock are entitled to share ratably in
all assets remaining after payment of liabilities, subject to the prior
liquidation rights of any outstanding Preferred Stock. Upon the closing of the
Offering, the Common Stock will have no preemptive, subscription, redemption
or conversion rights. The outstanding shares of Common Stock are, and the
shares offered by the Company in this Offering will be, when issued and paid
for, fully paid and nonassessable. The rights, preferences and privileges of
holders of Common Stock are subject to, and may be adversely affected by, the
rights of the holders of shares of any series of Preferred Stock which the
Company may designate and issue in the future.

PREFERRED STOCK

Upon the closing of the Offering, all outstanding shares of Preferred Stock
will be converted into 1,793,693 shares of Common Stock and automatically
retired. Thereafter, the Board of Directors will be authorized, without
further stockholder approval, to issue up to 2,000,000 shares of Preferred
Stock in one or more series. Each series of Preferred Stock shall have such
rights, preferences, privileges and restrictions, including voting rights,
dividend rights, conversion rights, redemption privileges and liquidation
preferences, as shall be determined by the Board of Directors.

The issuance of Preferred Stock may have the effect of delaying or
preventing a change in control of the Company. The issuance of Preferred Stock
could decrease the amount of earnings and assets available for distribution to
the holders of the Common Stock or could adversely affect the rights and
powers, including voting rights, of the holders of the Common Stock. In
certain circumstances, such issuance could have the effect of decreasing the
market price of the Common Stock. As of the closing of the Offering, no shares
of Preferred Stock will be outstanding and the Company currently has no plans
to issue any shares of Preferred Stock. See "Principal and Selling
Stockholders."

WARRANTS

In connection with a loan to the Company, in June 1995 the Company issued to
Silicon Valley Bank a warrant for the purchase of shares of Series B Preferred
Stock. The warrant expires on June 25, 2000, is currently exercisable for
93,750 shares of the Company's Common Stock at an exercise price of $5.33 per
share and contains a net exercise provision. See "Principal and Selling
Stockholders."

In connection with services provided to the Company during its private
placement in June 1995, the Company issued to L.H. Friend, Weinress, Frankson
& Presson ("L.H. Friend") a warrant for the purchase of shares of Series B
Preferred Stock. The warrant expires on June 25, 2000, was originally
exercisable for 199,912 shares of the Company's Common Stock at an exercise
price of $5.33 per share and contains a net exercise provision. L.H. Friend
transferred 109,952 warrant shares to certain affiliates of L.H. Friend. See
"Principal and Selling Stockholders."

45
<PAGE>

REGISTRATION RIGHTS

Following the sale of the shares of Common Stock offered hereby, the holders
of approximately 8,730,367 shares issuable upon conversion of the outstanding
shares of Preferred Stock and shares held by founders of the Company and their
transferees will have certain rights to register those shares under the
Securities Act of 1933, as amended. If the Company registers any of its Common
Stock either for its own account or for the account of other securityholders,
the holders of such shares are entitled to include their shares of Common
Stock in the registration, subject to certain marketing and other limitations.
Beginning six months after the closing of the Offering, the holders of at
least 51% of such shares may request on one occasion that the Company use its
best efforts to register such shares for public resale subject to certain
conditions and limitations. For example, the Company may, in certain
circumstances, defer such registration, and the underwriters involved in such
registrations have the right, subject to certain limitations, to limit the
number of shares included in such registrations. The holders of such shares,
may also require the Company to register all or a portion of their registrable
securities on Form S-3 when use of such form becomes available to the Company,
provided such registered shares represent at least 1% of the Company's Common
Stock then outstanding. The costs and expenses of such registrations (other
than underwriting discounts and commissions) will be borne by the Company.

The holders of approximately 115,138 shares issuable upon the exercise of
the outstanding warrants will also have certain rights to register those
shares under the Securities Act of 1933, as amended. If the Company registers
any of its Common Stock either for its own account or for the account of other
securityholders, the holders of such shares are entitled to include their
shares of Common Stock in the registration, subject to certain conditions and
limitations; for example, the Company need not register such shares if (i) it
would result in the reduction of the number of shares to be sold by other
holders of rights to register shares of the Company or (ii) such shares are
saleable pursuant to Rule 144 or other rules or regulations promulgated by the
Securities and Exchange Commission. All fees, costs and expenses of such
registrations (other than underwriting discounts and commissions) will be
borne by the Company.

The holders of options to purchase 337,499 shares have the right to require
the Company to register their securities on a Registration Statement on Form
S-8. Approximately 180 days after the date of this Prospectus, the Company
intends to file a registration statement on Form S-8 to register these and
other securities.

DELAWARE LAW AND CHARTER PROVISIONS

The Company is subject to Section 203 of the Delaware General Corporation
Law ("Section 203"), which, subject to certain exceptions, prohibits a
Delaware corporation from engaging in any business combination with any
interested stockholder for a period of three years following the date that
such stockholder became an interested stockholder, unless: (i) prior to such
date, the board of directors of the corporation approved either the business
combination or the transaction that resulted in the stockholder becoming an
interested stockholder; (ii) upon consummation of the transaction that
resulted in the stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced, excluding for purposes of
determining the number of shares outstanding those shares owned (x) by persons
who are directors and also officers and (y) by employee stock plans in which
employee participants do not have the right to determine confidentiality
whether shares held subject to the plan will be tendered in a tender or
exchange offer; or (iii) on or subsequent to such date, the business
combination is approved by the board of directors and authorized at an annual
or special meeting of stockholders, and not by written consent, by the
affirmative vote of at least 66 2/3% of the outstanding voting stock that is
not owned by the interested stockholder.

Section 203 defines business combination to include: (i) any merger or
consolidation involving the corporation and the interested stockholder; (ii)
any sale, transfer, pledge or other disposition of 10% or more of the assets
of the corporation involving the interested stockholder; (iii) subject to
certain exceptions, any transaction that results in the issuance or transfer
by the corporation of any stock of the corporation to the

46
<PAGE>

interested stockholder; (iv) any transaction involving the corporation that
has the effect of increasing the proportionate share of the stock of any class
or series of the corporation beneficially owned by the interested stockholder;
or (v) the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation. In general, Section 203 defines an interested
stockholder as any entity or person beneficially owning 15% or more of the
outstanding voting stock of the corporation and any entity or person
affiliated with or controlling or controlled by such entity or person.

The Company's Second Amended and Restated Certificate of Incorporation (the
"Restated Certificate of Incorporation"), which will become effective upon
consummation of the Offering, will require that any action required or
permitted to be taken by stockholders of the Company must be effected at a
duly called annual or special meeting of the stockholders and may not be
effected by a consent in writing. In addition, special meetings of the
stockholders of the Company may be called only by the Board of Directors or by
the holders of not less than ten percent of all the shares entitled to cast
votes at the meeting. The Restated Certificate of Incorporation provides that
a director may be removed from the Board of Directors with or without cause,
but only by the affirmative vote of the holders of at least a majority of the
voting power of all of the then-outstanding shares of capital stock of the
corporation entitled to vote generally in the election of directors, voting
together as a single class, and that certain amendments of the Restated
Certificate of Incorporation, and all amendments by the stockholders of the
Company's Amended and Restated Bylaws, require the approval of holders of at
least 66 2/3% of the voting power of all outstanding shares. These provisions
may have the effect of deferring hostile takeovers or delaying changes in
control or management of the Company. The Restated Certificate of
Incorporation also increases the Company's authorized Common Stock from
30,000,000 to 40,000,000 shares.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Common Stock is American Securities
Transfer and Trust. Its telephone number is (303) 298-5370.

47
<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

Prior to this Offering, there has not been any public market for the Common
Stock and there can be no assurance that a significant public market for the
Common Stock will be developed or be sustained after the Offering. Sales of
substantial amounts of Common Stock in the public market after the Offering,
or the possibility of such sales occurring, could adversely affect prevailing
market prices for the Common Stock or the future ability of the Company to
raise capital through an offering of equity securities.

After the Offering, the Company will have outstanding 12,600,505 shares of
Common Stock (12,855,944 shares if the Underwriters' over-allotment option is
exercised in full). Of these shares, the 3,700,000 shares offered hereby
(4,255,000 shares if the Underwriters' over-allotment option is exercised in
full) will be freely tradeable in the public market without restriction under
the Securities Act, unless such shares are held by "affiliates" of the
Company, as that term is defined in Rule 144 under the Securities Act.

The remaining 8,900,505 shares of Common Stock outstanding upon completion
of the Offering will be "restricted securities" as that term is defined in
Rule 144 ("Restricted Shares"). The Restricted Shares were issued and sold by
the Company in private transactions in reliance upon exemptions from
registration under the Securities Act. Restricted Shares may be sold in the
public market only if they are registered or if any qualify for an exemption
from registration under Rules 144 or 701 under the Securities Act, which are
summarized below.

Pursuant to certain "lock-up" agreements, all of the executive officers,
directors, stockholders and certain employees of the Company have agreed not
to offer, sell, pledge, contract to sell, grant any option to purchase or
otherwise dispose of any such shares for a period of 180 days from the date of
this Prospectus. The Company has also entered into an agreement with the
representatives of the Underwriters that it will not offer, sell or otherwise
dispose of Common Stock for a period of 180 days from the date of this
Prospectus, other than pursuant to existing stock option plans. As a result of
such lock-up agreements, 8,845,505 and 55,000 of the Restricted Shares will be
eligible for immediate sale beginning 181 days after the date of this
Prospectus subject to certain volume, manner of sale and other limitations
under Rule 144 and Rule 701, respectively.

Following the expiration of such lock-up periods, certain shares issued upon
exercise of options granted by the Company prior to the date of this
Prospectus will also be available for sale in the public market pursuant to
Rule 701 under the Securities Act. Rule 701 permits resales of such shares in
reliance upon Rule 144 but without compliance with certain restrictions,
including the holding period requirement imposed under Rule 144. In general,
under Rule 144 as currently in effect, beginning on , 1997 (90 days after
the date of this Prospectus), a person (or persons whose shares of the Company
are aggregated) who has beneficially owned Restricted Shares for at least two
years (including the holding period of any prior owner who is not an affiliate
of the Company) would be entitled to sell within any three-month period a
number of shares that does not exceed the greater of (i) one percent of the
then outstanding shares of Common Stock (approximately 126,000 shares
immediately after the Offering), or (ii) the average weekly trading volume of
the Common Stock during the four calendar weeks preceding the filing of a Form
144 with respect to such sale. Sales under Rule 144 are also subject to
certain manner of sale and notice requirements and to the availability of
current public information about the Company. Under Rule 144(k), a person who
is not deemed to have been an affiliate of the Company at any time during the
90 days preceding a sale and who has beneficially owned the shares proposed to
be sold for at least three years (including the holding period of any prior
owner who is not an affiliate of the Company) is entitled to sell such shares
without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144.

As of December 31, 1996, options to purchase a total of 1,016,249 shares of
Common Stock were outstanding. All of such shares are subject to lock-up
agreements for a period of 180 days from the date of this Prospectus. As of
December 31, 1996, 350,000 shares were available for future option grants
under the Option Plan and 350,000 shares were reserved for issuance under the
Purchase Plan.

48
<PAGE>

The Company intends to file after the effective date of the Offering a
Registration Statement on Form S-8 to register an aggregate of 1,616,249
shares of Common Stock reserved for issuance under its Key Employee Option
Plan, Option Plan and Purchase Plan and under certain other option agreements.
Such Registration Statement will become effective automatically upon filing.
Shares issued under the foregoing plans, after the filing of Registration
Statement on Form S-8, may be sold in the open market, subject, in the case of
certain holders, to the Rule 144 limitations applicable to affiliates, the
above-referenced lock-up agreements and vesting restrictions imposed by the
Company. In addition, after the Offering, holders of approximately 8,845,505
shares of Common Stock and options to purchase approximately 337,499 shares of
Common Stock will be entitled to certain rights to cause the Company to
register the sale of such shares under the Securities Act. See "Description of
Capital Stock--Registration Rights."

49
<PAGE>

UNDERWRITING

Upon the terms and subject to the conditions contained in the Underwriting
Agreement dated the date hereof, each Underwriter named below has severally
agreed to purchase, and the Company and the Selling Stockholders have agreed
to sell to such Underwriter, the number of shares of Common Stock set forth
opposite the name of such Underwriter.

<TABLE>
<CAPTION>
NAME NUMBER OF SHARES
- ---- ----------------
<S> <C>
Smith Barney Inc. .............................................
Donaldson, Lufkin & Jenrette Securities Corporation............
Oppenheimer & Co., Inc. .......................................
---------
Total........................................................ 3,700,000
=========
</TABLE>

The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the Shares are subject to
approval of certain legal matters by counsel and to certain other conditions.
The Underwriters are obligated to take and pay for all shares of Common Stock
offered hereby (other than those covered by the over-allotment option
described below) if any such shares are taken.

The Underwriters, for whom Smith Barney Inc., Donaldson, Lufkin & Jenrette
Securities Corporation and Oppenheimer & Co., Inc. are acting as the
Representatives, propose to offer part of the shares directly to the public at
the initial public offering price set forth on the cover page of this
Prospectus and part of the shares to certain dealers at a price which
represents a concession not in excess of $ per share under the initial
public offering price. The Underwriters may allow, and such dealers may
reallow, a concession not in excess of $ per share to certain other
dealers. After the initial offering of the shares to the public, the public
offering price and such concessions may be changed by the Representatives. The
Representatives of the Underwriters have advised the Company that the
Underwriters do not intend to confirm any sales to any accounts over which
they exercise discretionary authority.

The Company and certain of the Selling Stockholders have granted to the
Underwriters an option, exercisable for 30 days from the date of this
Prospectus, to purchase up to 255,179 and 299,821, respectively, additional
shares of Common Stock, at the initial public offering price set forth on the
cover page of this Prospectus, minus the underwriting discounts and
commissions. The Underwriters may exercise such option solely for the purpose
of covering over-allotments, if any, in connection with the Offering. To the
extent such option is exercised, each Underwriter will be obligated, subject
to certain conditions, to purchase approximately the same percentage of such
additional shares as the number of shares set forth opposite each
Underwriter's name in the preceding table bears to the total number of shares
listed in such table.

At the request of the Company, the Underwriters have reserved up to 5% of
the shares of Common Stock offered hereby for sale at the initial public
offering price set forth on the cover page of this Prospectus to employees of
the Company and certain business affiliates and related parties who have
expressed an interest in purchasing Common Stock. The number of shares of
Common Stock available to the general public will be reduced to the extent
these persons purchase the reserved shares of Common Stock. Any reserved
shares of Common Stock that are not so purchased by such persons at the
closing of the Offering will be offered by the Underwriters to the general
public on the same terms as the other shares of Common Stock offered hereby.

The Company, its officers and directors, the Selling Stockholders and all
other stockholders of the Company have agreed that, for a period of 180 days
from the date of this Prospectus, they will not, without the prior written
consent of Smith Barney Inc., offer, sell, contract to sell, or otherwise
dispose of, any shares of Common Stock of the Company or any securities
convertible into, or exercisable or exchangeable for, Common Stock of the
Company.

50
<PAGE>

Prior to this Offering, there has not been a public market for the Common
Stock of the Company. Consequently, the initial public offering price for the
shares included in the Offering has been determined by negotiations between
the Company, the Selling Stockholders, and the Representatives. The factors
considered in determining such price were the history of and prospects for the
Company's business and the industry in which the Company competes, an
assessment of the Company's management and the present state of the Company's
development, the past and present revenues and earnings of the Company, the
prospects for growth of the Company's revenues and earnings, the current state
of the economy in the United States and the current level of economic activity
in the industry in which the Company competes and in related or comparable
industries, and currently prevailing conditions in the securities markets,
including current market valuations of publicly traded companies which are
comparable to the Company.

The Company, the Selling Stockholders and the Underwriters have agreed to
indemnify each other against certain liabilities, including liabilities under
the Securities Act of 1933.

Under the Rules of the National Association of Securities Dealers, Inc.
("NASD"), when an NASD member such as BT Securities Corporation ("BT
Securities") participates in the distribution of equity securities of a
company with which an affiliate of the member has a conflict of interest, the
public offering price can be no higher than that recommended by a "qualified
independent underwriter" (as defined in NASD Rule 2720)(a "QIU") meeting
certain standards. BT Capital Partners, Inc. ("BT Capital"), an affiliate of
BT Securities, owns 10% or more of the preferred equity of the Company and
following completion of the Offering will own in excess of 10% of the Common
Stock of the Company, and based thereon, has a conflict of interest with
respect to the distribution of the equity securities of the Company within the
meaning of the Rules of the NASD. Jeffrey L. Ott, a director of the Company,
is a Managing Director of BT Investment Partners, Inc., an affiliate of BT
Capital. Accordingly, Smith Barney Inc. has agreed to serve as QIU in this
Offering and to recommend a price in compliance with the Rule 2720 of the
NASD. BT Securities has advised the Company that it does not presently intend
to make a market with respect to the Common Stock of the Company after the
Offering.

LEGAL MATTERS

The validity of the issuance of the Common Stock will be passed upon for the
Company and the Selling Stockholders by Gray Cary Ware & Freidenrich, a
Professional Corporation, Palo Alto, California. Gibson, Dunn & Crutcher LLP,
Los Angeles, California, is acting as counsel for the Underwriters in
connection with certain legal matters relating to the Common Stock offered
hereby.

EXPERTS

The consolidated financial statements of The Kinetics Group, Inc. as of
September 30, 1996, and 1995, and for each of the three years in the period
ended September 30, 1996, appearing in this Prospectus and Registration
Statement have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon appearing elsewhere herein, and are included in
reliance upon such report given upon the authority of such firm as experts in
auditing and accounting.

51
<PAGE>

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission a
Registration Statement (which term shall include any amendments thereto) on
Form S-1 under the Securities Act with respect to the 3,700,000 shares of
Common Stock offered hereby. This Prospectus, which constitutes a part of the
Registration Statement, does not contain all of the information set forth in
the Registration Statement, certain items of which are contained in exhibits
to the Registration Statement as permitted by the rules and regulations of the
Commission. For further information with respect to the Company and the Common
Stock offered hereby, reference is made to the Registration Statement,
including the exhibits thereto, and the financial statements and notes filed
as a part thereof. Statements made in this Prospectus concerning the contents
of any document referred to herein are not necessarily complete; however, all
material elements of all such documents are described in the Prospectus. With
respect to each such document filed with the Commission as an exhibit to the
Registration Statement, reference is made to the exhibit for a more complete
description of the matter involved. The Registration Statement, including the
exhibits thereto and the financial statements and notes filed as a part
thereof, as well as such reports and other information filed with the
Commission, may be inspected without charge at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549
and at the regional offices of the Commission located at Seven World Trade
Center, 13th Floor, New York, New York 10048 and Northwestern Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of all or
any part thereof may be obtained from the Commission upon the payment of
certain fees prescribed by the Commission. Such reports and other information
may also be inspected without charge at a Web site maintained by the
Commission. The address of such site is http://www.sec.gov.

52
<PAGE>

THE KINETICS GROUP, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors........................................... F-2
Audited Financial Statements
Consolidated Balance Sheets.............................................. F-3
Consolidated Statements of Income........................................ F-4
Consolidated Statements of Stockholders' Equity.......................... F-5
Consolidated Statements of Cash Flows.................................... F-6
Notes to Consolidated Financial Statements............................... F-7
</TABLE>

F-1
<PAGE>

REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders
The Kinetics Group, Inc.

We have audited the accompanying consolidated balance sheets of The Kinetics
Group, Inc. as of September 30, 1995 and 1996, and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the
three years in the period ended September 30, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of The Kinetics
Group, Inc. at September 30, 1995 and 1996, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended September 30, 1996 in conformity with generally accepted accounting
principles.

Ernst & Young LLP

San Francisco, California
December 12, 1996, except for Note 9, as to which the date is
December 20, 1996

F-2
<PAGE>

THE KINETICS GROUP, INC.

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
SEPTEMBER 30, EQUITY
--------------- DECEMBER 31, DECEMBER 31,
1995 1996 1996 1996
------- ------- ------------ -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......... $ 8,438 $ 8,844 $ 6,036
Receivables:
Currently due, less allowance for
doubtful accounts of $600,
$1,200 and $1,200 at September
30, 1995 and 1996 and December
31, 1996, respectively ......... 35,932 46,841 47,432
Retention, due upon completion of
contracts....................... 4,640 7,191 7,503
Other............................ 483 259 379
Costs and estimated earnings in
excess of billings on contracts
in progress....................... 6,670 10,542 14,554
Inventories........................ 2,380 2,490 2,621
Deferred income taxes.............. 657 1,369 1,369
Restricted deposits................ -- 1,031 1,031
Prepaid expenses and other current
assets............................ 112 297 505
------- ------- --------
Total current assets................ 59,312 78,864 81,430
Equipment and improvements, net..... 12,501 18,050 18,950
Receivables from stockholders....... 1,367 260 117
Other assets........................ 2,370 1,805 2,162
------- ------- --------
Total assets........................ $75,550 $98,979 $102,659
======= ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................... $23,449 $24,754 $ 22,941
Accrued expenses................... 7,109 8,679 11,831
Accrued taxes on income............ 2,846 6,003 3,404
Billings in excess of costs and
estimated earnings on contracts
in progress....................... 14,989 16,975 12,871
Current portion of note payable to
bank.............................. -- 647 1,190
Current portion of capital lease
obligations....................... 2,257 1,310 1,279
------- ------- --------
Total current liabilities........... 50,650 58,368 53,516
Borrowings under bank line of
credit............................. -- 8,000 15,000
Note payable to bank, less current
portion............................ -- 3,861 3,810
Capital lease obligations, less
current portion.................... 1,019 294 103
Deferred income taxes............... 418 677 677
Commitments and contingent
liabilities
Redeemable capital stock:
Convertible preferred stock, $.001
par value; 4,000 shares
authorized, 2,295 and 2,484
shares issued and outstanding at
September 30, 1995 and 1996,
respectively, 2,534 shares at
December 31, 1996 (unaudited)
(redemption and liquidation
preference--$9,936 at September
30, 1996, $10,136 at December 31,
1996 (unaudited)) (pro forma--
none issued or outstanding)....... 8,232 9,164 9,363 $ --
Common stock, 1,500 shares issued
and outstanding at September 30,
1995 and 1996; none issued or
outstanding at December 31, 1996
(unaudited) (pro forma--none
issued or outstanding)............ 2,595 9,750 -- --
Stockholders' equity:
Common stock, $.001 par value;
30,000 shares authorized; 6,000
shares issued and outstanding at
September 30, 1995 and 1996,
excluding 1,500 shares classified
as redeemable common stock, 7,568
issued and outstanding at
December 31, 1996 (unaudited)
(pro forma--9,362 shares issued
and outstanding).................. 8 8 8 9
Additional paid-in capital......... 10,714 8,857 10,892 20,254
Retained earnings.................. 1,914 -- 9,290 9,290
------- ------- -------- -------
Total stockholders' equity.......... 12,636 8,865 $ 20,190 $29,553
------- ------- -------- =======
Total liabilities and stockholders'
equity............................. $75,550 $98,979 $102,659
======= ======= ========
</TABLE>
See accompanying notes.

F-3
<PAGE>

THE KINETICS GROUP, INC.

CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
THREE MONTHS
ENDED DECEMBER
YEAR ENDED SEPTEMBER 30 31,
---------------------------- ----------------
1994 1995 1996 1995 1996
-------- -------- -------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues...................... $145,473 $229,933 $278,423 $59,155 $72,195
Cost of revenues.............. 125,307 194,875 230,748 50,032 59,641
-------- -------- -------- ------- -------
Gross profit.................. 20,166 35,058 47,675 9,123 12,554
Selling, general and
administrative expenses...... 13,807 22,384 31,673 5,807 9,213
-------- -------- -------- ------- -------
Income from operations........ 6,359 12,674 16,002 3,316 3,341
Other income (expense):
Other income, net........... 115 331 944 357 147
Interest expense............ (1,084) (749) (1,068) (131) (426)
-------- -------- -------- ------- -------
Income before income taxes.... 5,390 12,256 15,878 3,542 3,062
Provision for income taxes.... 535 2,902 7,147 1,623 1,378
-------- -------- -------- ------- -------
Net income.................... 4,855 9,354 8,731 1,919 1,684
Dividends and accretion on
redeemable capital stock..... (510) (1,775) (8,087) (2,017) (199)
-------- -------- -------- ------- -------
Net income (loss) applicable
to common stockholders....... $ 4,345 $ 7,579 $ 644 (98) $ 1,485
======== ======== ======== ======= =======
Pro forma net income per
common share................. $ 0.87 $ 0.17
======== =======
Shares used in computing pro
forma net income per common
share........................ 10,043 10,049
======== =======
</TABLE>

See accompanying notes.

F-4
<PAGE>

THE KINETICS GROUP, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)

<TABLE>
<CAPTION>
COMMON ADDITIONAL TOTAL
------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------ ------ ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balances at September 30,
1993......................... 6,000 $ 8 $ 349 $ 6,081 $ 6,438
Combination and acquisition
of affiliated companies.... -- -- 30 (160) (130)
Distributions of Subchapter
S corporation earnings to
common stockholders........ -- -- -- (1,198) (1,198)
Accretion of redeemable
capital stock.............. -- -- -- (510) (510)
Net income.................. -- -- -- 4,855 4,855
----- --- ------- -------- -------
Balances at September 30,
1994......................... 6,000 8 379 9,068 9,455
Combination and acquisition
of affiliated companies.... -- -- 35 142 177
Distributions of Subchapter
S corporation earnings to
common stockholders........ -- -- -- (4,575) (4,575)
Reclassification of retained
earnings upon conversion
from Subchapter S to C
Corporation status......... -- -- 10,300 (10,300) --
Issuance of Series B
redeemable convertible
preferred stock as in-kind
dividends.................. -- -- -- (180) (180)
Accretion of redeemable
capital stock.............. -- -- -- (1,595) (1,595)
Net income.................. -- -- -- 9,354 9,354
----- --- ------- -------- -------
Balances at September 30,
1995......................... 6,000 8 10,714 1,914 12,636
Distributions of Subchapter
S corporation earnings to
common stockholders........ -- -- -- (4,415) (4,415)
Issuance of Series B
redeemable convertible
preferred stock as in-kind
dividends.................. -- -- -- (757) (757)
Accretion of redeemable
capital stock.............. -- -- (1,857) (5,473) (7,330)
Net income.................. -- -- -- 8,731 8,731
----- --- ------- -------- -------
Balances at September 30,
1996......................... 6,000 8 8,857 -- 8,865
Issuance of common stock upon
exercise of stock options
(unaudited).................. 68 -- 90 -- 90
Issuance of Series B
redeemable convertible
preferred stock as in-kind
dividends (unaudited)........ -- -- -- (199) (199)
Termination of repurchase
rights under a stockholder
agreement (unaudited)........ 1,500 -- 1,945 7,805 9,750
Net income (unaudited)........ -- -- -- 1,684 1,684
----- --- ------- -------- -------
Balances at December 31, 1996
(unaudited).................. 7,568 $ 8 $10,892 $ 9,290 $20,190
===== === ======= ======== =======
</TABLE>

See accompanying notes.

F-5
<PAGE>

THE KINETICS GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED SEPTEMBER 30 DECEMBER 31,
-------------------------- ---------------
1994 1995 1996 1995 1996
------- ------- -------- ------- ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income....................... $ 4,855 $ 9,354 $ 8,731 $ 1,919 $1,684
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization... 1,558 3,373 4,948 1,033 1,432
Deferred income taxes........... -- (239) (453) -- --
Other........................... (9) 112 -- -- --
Changes in operating assets and
liabilities, net of effect of
combined and acquired
companies:
Receivables................... (9,241) (7,338) (13,236) (9,016) (1,023)
Costs and estimated earnings
in excess of billings on
contracts in progress........ (1,701) (3,162) (3,872) (6,791) (4,012)
Inventories................... (119) (913) (110) (56) (131)
Prepaid expenses and other
current assets............... (89) 349 (185) (7) (208)
Other noncurrent receivables.. (93) -- 794 267 105
Accounts payable, trade and
subcontractors............... 6,104 3,182 1,305 4,986 (1,813)
Billings in excess of costs
and estimated earnings on
contracts in progress........ 5,883 7,159 1,986 6,619 (4,104)
Accrued expenses.............. 2,851 3,923 4,977 2,101 553
------- ------- -------- ------- ------
Net cash provided by (used in)
operating activities............ 9,999 15,800 4,885 1,055 (7,517)
INVESTING ACTIVITIES
Purchase of equipment and
improvements.................... (3,145) (5,660) (8,099) (2,067) (1,954)
Investment in foreign entity..... -- (500) (336) (111) (300)
Combination and acquisition of
affiliated companies............ (139) (75) -- -- --
Increases in receivables from
stockholders.................... 223 50 1,515 42 143
Repayments of receivables from
stockholders.................... (242) (800) (408) -- --
Increases in other assets........ (927) (1,258) (303) (99) (162)
Decreases in other assets........ 1,431 1,813 160 -- --
Restricted deposits.............. -- -- (1,031) -- --
------- ------- -------- ------- ------
Net cash used in investing
activities...................... (2,799) (6,430) (8,502) (2,235) (2,273)
FINANCING ACTIVITIES
Proceeds from issuance of common
stock........................... -- -- -- -- 90
Issuance of redeemable
convertible preferred stock, net
of issuance costs............... -- 8,018 -- -- --
Outstanding checks in excess of
bank balances................... (301) -- -- -- --
Borrowings under bank line of
credit.......................... 5,331 13,500 15,350 11,250 7,000
Repayments of borrowings under
bank line of credit............. (8,248) (16,950) (7,350) (6,250) --
Borrowings under note payable to
bank............................ -- -- 4,549 -- 492
Repayments of note payable to
bank and capital lease
obligations..................... (2,232) (1,677) (4,111) (732) (600)
Distributions to stockholders.... (1,198) (4,574) (4,415) (825) --
------- ------- -------- ------- ------
Net cash (used in) provided by
financing activities............ (6,648) (1,683) 4,023 3,443 6,982
------- ------- -------- ------- ------
Increase (decrease) in cash and
cash equivalents................ 552 7,687 406 2,263 (2,808)
Cash and cash equivalents at
beginning of period............. 199 751 8,438 8,438 8,844
------- ------- -------- ------- ------
Cash and cash equivalents at end
of period....................... $ 751 $ 8,438 $ 8,844 $10,701 $6,036
======= ======= ======== ======= ======
SUPPLEMENTAL INFORMATION
Cash paid during the year for:
Interest........................ $ 1,126 $ 754 $ 1,068 $ 749 $ 426
======= ======= ======== ======= ======
Income taxes.................... $ 46 $ 832 $ 4,468 $ 20 $4,020
======= ======= ======== ======= ======
Supplemental disclosures of
noncash investing and financing
activities:
Capital lease obligations
incurred....................... $ 1,780 $ 863 $ 2,398 $ 1,349 $ 378
======= ======= ======== ======= ======
Series B redeemable convertible
preferred stock issued as in-
kind dividends................. $ -- $ 180 $ 757 $ 184 $ 199
======= ======= ======== ======= ======
</TABLE>

See accompanying notes.

F-6
<PAGE>

THE KINETICS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(INFORMATION FOR THE THREE MONTHS ENDED DECEMBER 31, 1995 AND 1996 IS
UNAUDITED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The Kinetics Group, Inc. provides high purity process piping systems for the
semi-conductor, pharmaceutical, and biotechnology industries. The Company
offers its clients turnkey solutions by providing, as a complement to its
specialty high-purity contracting business, engineering and design services,
quality assurance and control services, program management services and
manufacturing of specialty components.

The Kinetics Group, Inc. was incorporated on February 23, 1996. On March 31,
1996, The Kinetics Group, Inc. acquired all of the capital stock of Kinetic
Systems, Inc. (predecessor business), which became a wholly owned subsidiary
of The Kinetics Group, Inc. in a recapitalization transaction. The Kinetics
Group, Inc. had no assets, liabilities or operations prior to March 31, 1996.
Common and preferred stockholders and stock option and warrant holders of
Kinetic Systems, Inc. received identical equity securities of The Kinetics
Group, Inc. and also retained identical ownership and voting percentages in
the recapitalization transaction. The recapitalization was accounted for on a
historical cost basis and is reflected in the consolidated financial
statements as if it occurred at the beginning of the year ended September 30,
1994. The Kinetics Group, Inc. and Kinetic Systems, Inc. (for periods prior to
March 31, 1996) are referred to as the "Company" in the consolidated financial
statements and accompanying notes.

The consolidated financial statements include the financial position and
results of operations of the Company and its wholly owned subsidiaries. All
intercompany accounts and transactions have been eliminated in the
consolidated financial statements.

INTERIM FINANCIAL INFORMATION

The consolidated financial statements for the three months ended December
31, 1995 and 1996 are unaudited but include all adjustments (consisting only
of normal recurring adjustments) that the Company considers necessary for a
fair presentation of financial position and results of operations. Operating
results for the three months ended December 31, 1996 are not necessarily
indicative of the results that may be expected for any future periods.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.

CONTRACT OPERATIONS

The Company performs its services under fixed-price, cost-type and time-and-
materials contracts. The Company invoices its customers in accordance with the
terms of its contracts which for fixed-price contracts is generally monthly on
the basis of percentage completion on the contract and for cost-type and time-
and-materials contracts is generally on a monthly basis as costs are incurred.
Each contract type may include a provision for retention, which represents
amounts withheld from contract progress billings until satisfactory project
completion. Retention generally ranges from five to ten percent of the total
contract amount.

Revenues and gross profit from contracts are recognized under the
percentage-of-completion method, under which an estimated percentage of each
contract, based on the ratio of costs incurred to the Company's estimates

F-7
<PAGE>

THE KINETICS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(INFORMATION FOR THE THREE MONTHS ENDED DECEMBER 31, 1995 AND 1996 IS
UNAUDITED)

of total anticipated costs, is applied to the total estimated project gross
profit. Revisions in cost and profit estimates made during the course of the
work are reflected in the accounting period in which the facts that require
the revision become known. A provision is made currently for the entire amount
of any estimated future losses on contracts. Actual gross profit on contracts
may differ from estimates used by the Company in recording gross profit on
contracts in progress and such differences could be material to the financial
statements. The Company includes in contract revenues an amount equal to costs
incurred attributable to contract claims, when realization of such revenue is
probable and the amount is determinable. No unsettled contract claims were
included in contract revenues for the fiscal years ended September 30, 1994,
1995 and 1996.

The classification of current assets and current liabilities is determined
based on the Company's contract cycle. The length of the Company's contracts
generally varies from six to fifteen months with the majority being completed
within one year. Accordingly, current assets and current liabilities include
amounts related to construction contracts in progress which may not be
received or paid within one year. Management estimates that of the $7,191,000
in retentions included in receivables at September 30, 1996, $4,811,000 will
become due in fiscal year 1997 and $2,380,000 in fiscal year 1998.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents consist of demand deposit accounts with two banks.

CONCENTRATION OF CREDIT RISK

The Company's contracts are primarily with large multinational companies in
the semiconductor, pharmaceutical and biotechnology industries. Substantially
all of the Company's revenues and earnings are derived from contracts within
the United States. Foreign and export revenues were less than 10% of total
revenues in each of fiscal 1994, 1995 and 1996.

One customer accounted for 11%, 12% and 13% and other individual customers
accounted for 25%, 10% and 10% of the Company's revenues in fiscal 1994, 1995
and 1996, respectively. Accounts receivable, including retentions, from two
customers represented 11% and 10% of total contract receivables at September
30, 1996 (12% and 11% from two different customers at September 30, 1995).

The Company extends credit based on evaluation of the customer's financial
condition and, generally, does not require collateral. However, the Company
has certain lien rights with respect to the related projects. The Company
maintains reserves for estimated collection losses on its accounts receivable.
Actual collection losses may differ from management's estimates, and such
differences could be material to the financial statements.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts reported in the consolidated balance sheets for cash
and cash equivalents, borrowings under the bank line of credit, note payable
to bank and capital lease obligations approximate fair value. Fair value of
the Company's debt instruments is estimated based on the Company's current
incremental borrowing rate for similar types of borrowing arrangements.

INVENTORIES

Inventories, which consist of construction materials and supplies which have
not been charged to specific contracts, are stated at the lower of cost
(first-in, first-out method) or fair value.

F-8
<PAGE>

THE KINETICS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(INFORMATION FOR THE THREE MONTHS ENDED DECEMBER 31, 1995 AND 1996 IS
UNAUDITED)

DEPRECIATION AND AMORTIZATION

Construction equipment, clean room manufacturing facilities, vehicles, and
office furniture and fixtures are depreciated over their estimated useful
lives, which range from three to seven years, using the straight-line method.
Amortization on capitalized leased equipment is included in depreciation and
amortization in the financial statements.

Leasehold improvements are amortized over the shorter of the lease term or
their estimated useful life.

LONG-LIVED ASSETS

In March 1995, the Financial Accounting Standards Board issued Statement No.
121, ("FAS 121"), "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of," which requires impairment losses to be
recorded on long-lived assets used in operations, such as equipment and
improvements and intangible assets, when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the carrying amount of the assets. The Company will adopt FAS 121 in
the first quarter of fiscal 1997. Based on current circumstances, management
does not believe the effect of such adoption will be material.

STOCK-BASED COMPENSATION

In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123 ("FAS 123"), "Accounting for Stock-
Based Compensation," which established a fair-value-based method of accounting
for stock-based compensation plans and requires additional disclosures for
those companies who elect not to adopt the new method of accounting. The
Company will be required to adopt FAS 123 in fiscal 1997. The Company's
intention is to continue to account for employee stock awards in accordance
with APB Opinion No. 25 and to adopt the disclosure only alternative described
in FAS 123.

PRO FORMA NET INCOME PER SHARE

Except as noted below, pro forma net income per share for the year ended
September 30, 1996 and the three months ended December 31, 1996 is computed
using the weighted average number of shares of common stock outstanding during
each period, including dilutive common equivalent shares from stock options
and warrants (using the treasury stock method) and also gives effect to the
assumed conversion of all outstanding shares of redeemable convertible
preferred stock into common stock upon the closing of the Company's initial
public offering (using the as-if-converted method) and the termination of
certain repurchase obligations under a stockholder agreement (Note 5).
Pursuant to the Securities and Exchange Commission Staff Accounting Bulletins,
common and common equivalent shares issued by the Company at prices below the
initial public offering price during the twelve-month period prior to the
initial public offering have been included in the calculation as if they were
outstanding for the full fiscal year (using the treasury stock method).

Historical earnings per share is not presented since such amounts are not
deemed meaningful as a result of the Company's status as a Subchapter S
corporation prior to May 31, 1995 (Note 4) and the significant change in the
Company's capital structure (Note 6) that will occur in connection with the
initial public offering of its common stock.

F-9
<PAGE>

THE KINETICS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(INFORMATION FOR THE THREE MONTHS ENDED DECEMBER 31, 1995 AND 1996 IS
UNAUDITED)

2. FINANCIAL STATEMENT INFORMATION

CONTRACTS IN PROGRESS

<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------
1995 1996
-------- --------
<S> <C> <C>
Costs incurred on contracts in progress................. $253,288 $234,498
Estimated earnings...................................... 29,340 24,346
-------- --------
282,628 258,844
Less progress billings.................................. 290,947 265,277
-------- --------
$ (8,319) $ (6,433)
======== ========
Included in the accompanying consolidated balance sheets
under the following captions:
Costs and estimated earnings in excess of billings on
contracts in progress................................ $ 6,670 $ 10,542
Billings in excess of costs and estimated earnings on
contracts in progress................................ (14,989) (16,975)
-------- --------
$ (8,319) $ (6,433)
======== ========
</TABLE>
EQUIPMENT AND IMPROVEMENTS

Equipment and improvements, at cost, consist of the following (in thousands):

<TABLE>
<CAPTION>
SEPTEMBER 30
----------------
1995 1996
------- -------
<S> <C> <C>
Construction equipment..................................... $13,466 $19,042
Clean room manufacturing facilities........................ 1,958 2,669
Vehicles................................................... 1,169 1,232
Office furniture and fixtures.............................. 2,836 5,429
Improvements............................................... 1,807 3,361
------- -------
21,236 31,733
Less accumulated depreciation and amortization............. (8,735) (13,683)
------- -------
$12,501 $18,050
======= =======
</TABLE>

RECEIVABLES FROM STOCKHOLDERS

Receivables from stockholders consist of the following (in thousands):

<TABLE>
<CAPTION>
SEPTEMBER 30
------------
1995 1996
------ -----
<S> <C> <C>
Unsecured notes receivable, interest at 8%, payable on
demand...................................................... $ 852 $ --
Advances..................................................... 465 260
Accrued interest............................................. 50 --
------ -----
Total........................................................ $1,367 $ 260
====== =====
</TABLE>

Amounts receivable from stockholders at September 30, 1996 were repaid in
October 1996.

F-10
<PAGE>

THE KINETICS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(INFORMATION FOR THE THREE MONTHS ENDED DECEMBER 31, 1995 AND 1996 IS
UNAUDITED)

OTHER ASSETS

Other assets consist of the following (in thousands):

<TABLE>
<CAPTION>
SEPTEMBER 30
-------------
1995 1996
------ ------
<S> <C> <C>
Noncurrent receivables........................................ $1,091 $ 297
Investment in foreign company................................. 750 836
Cash surrender value of life insurance........................ 292 358
Other......................................................... 237 314
------ ------
Total......................................................... $2,370 $1,805
====== ======
</TABLE>

During fiscal years 1995 and 1996, the Company purchased approximately 10%
of the outstanding capital stock of a privately held foreign company which
manufactures specialty pipe fittings for $836,000 in cash. The investment has
been recorded at cost.

ACCOUNTS PAYABLE

Accounts payable consists of the following (in thousands):

<TABLE>
<CAPTION>
SEPTEMBER 30
---------------
1995 1996
------- -------
<S> <C> <C>
Trade........................................................ $19,416 $21,373
Subcontractors............................................... 4,033 3,381
------- -------
$23,449 $24,754
======= =======
</TABLE>

ACCRUED EXPENSES

Accrued expenses consist of the following (in thousands):

<TABLE>
<CAPTION>
SEPTEMBER 30
-------------
1995 1996
------ ------
<S> <C> <C>
Compensation and related benefits............................. $5,782 $7,802
Other accrued expenses........................................ 1,327 877
------ ------
$7,109 $8,679
====== ======
</TABLE>

3. BANK CREDIT FACILITIES

In April 1996, the Company entered into a loan agreement with a bank which
provides a revolving line of credit under which the Company may borrow up to a
maximum of $22,500,000 with interest at the bank's reference rate (8.25% at
September 30, 1996) or other interest rate options which the Company may
select. The line of credit may also be used to finance letters of credit up to
a maximum of $5,000,000. At September 30, 1996, the Company had $8,000,000 in
outstanding borrowings and no outstanding letters of credit under the
agreement. Borrowings under the line of credit are secured by the Company's
receivables, inventories, equipment and improvements. The agreement expires on
April 15, 1998. Under the provisions of the agreement, the Company is required
to meet certain financial and nonfinancial covenants. The Company was not in
compliance with certain financial covenants as of June 30, 1996, for which it
obtained a waiver of noncompliance from the bank. The Company was in
compliance with those financial covenants, as amended, as of September 30,
1996. The agreement also restricts the payment of dividends.

F-11
<PAGE>

THE KINETICS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(INFORMATION FOR THE THREE MONTHS ENDED DECEMBER 31, 1995 AND 1996 IS
UNAUDITED)

The Company also has a term note facility with another bank which provides
for maximum borrowings of $5,000,000 to finance equipment purchases.
Borrowings under the facility bear interest at 0.5% over the bank's prime rate
(8.25% at September 30, 1996) and are payable in equal monthly installments
from February 1997 through February 2000. Borrowings as of September 30, 1996,
which amounted to $4,508,000 are repayable as follows: fiscal year 1997
$647,000; fiscal year 1998 $1,127,000; fiscal year 1999 $1,127,000; fiscal
year 2000 $1,127,000; and fiscal year 2001 $480,000. Prior to April 1996, the
Company's revolving credit facility was maintained with this bank. At
September 30, 1996, the Company had $1,031,000 in outstanding letters of
credit expiring in March 1997 which were not assumed under the new credit
facility. The Company maintains $1,031,000 as a restricted deposit with this
bank to secure the outstanding letters of credit. The agreement covering the
term note facility requires the Company to comply with certain financial and
nonfinancial covenants. The agreement also restricts the payment of dividends.

4. INCOME TAXES

The Company has adopted Statement of Financial Accounting Standards No. 109
("SFAS 109"), "Accounting for Income Taxes," under which the liability method
is used in accounting for income taxes. Deferred tax assets and liabilities
are determined based on the differences between financial reporting and the
tax basis of assets and liabilities and are measured using the enacted tax
rates and laws that will be in effect when the differences are expected to
reverse.

Prior to June 1, 1995, the Company elected to be taxed as an S Corporation
for federal income tax purposes, whereby the income tax effects of the
Company's activities accrued directly to its shareholders. Adoption of SFAS
109 in fiscal 1994 did not require establishment of deferred income taxes
since no material differences between financial reporting and the tax basis of
assets and liabilities existed at that time. On May 31, 1995, the Company
terminated its S Corporation election and deferred income taxes under the
provisions of SFAS 109 were established at that date.

The provision for income taxes for fiscal 1994 consists principally of state
income taxes imposed on the Company as an S Corporation. For fiscal 1995, the
Company was treated as an S Corporation for a portion of the year and taxed as
a C Corporation for the remainder of the year.

The provision for income taxes consists of the following (in thousands):

<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
-------------------------
1994 1995 1996
--------------- --------
<S> <C> <C> <C>
Current:
Federal......................................... $ -- $ 1,812 $ 6,085
State........................................... 535 1,329 1,515
------ -------- --------
535 3,141 7,600
Deferred:
Federal......................................... -- (187) (415)
State........................................... -- (52) (38)
------ -------- --------
-- (239) (453)
------ -------- --------
$ 535 $ 2,902 $ 7,147
====== ======== ========
</TABLE>

F-12
<PAGE>

THE KINETICS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(INFORMATION FOR THE THREE MONTHS ENDED DECEMBER 31, 1995 AND 1996 IS
UNAUDITED)

The provision for income taxes differs from the amount of income tax
determined by applying the applicable U.S. statutory federal income tax rate
as a result of the following differences (in thousands):

<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
-------------------------
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Income tax at the federal statutory rate......... $ 1,923 $ 4,167 $ 5,399
Effect of Subchapter S election.................. (1,923) (2,424) --
State income taxes (net of federal benefit, if
any)............................................ 535 1,121 975
Other, net....................................... -- 38 773
------- ------- -------
$ 535 $ 2,902 $ 7,147
======= ======= =======
</TABLE>

Significant components of the Company's deferred income tax assets are as
follows (in thousands):

<TABLE>
<CAPTION>
SEPTEMBER
30
----------
1995 1996
---- -----
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts................................ $222 $ 444
Accrued expenses............................................... 395 650
State income taxes............................................. 40 275
Other, net..................................................... 41 35
---- -----
698 1,404
Deferred tax liabilities:
Depreciation................................................... 459 712
---- -----
Net deferred tax assets.......................................... $239 $ 692
==== =====
</TABLE>

For interim periods, the provision for income taxes is based upon the
estimated effective income tax rate for the full fiscal year.

5. REDEEMABLE CAPITAL STOCK

CONVERTIBLE PREFERRED STOCK

In June 1995, the Company issued 2,250,000 shares of Series A preferred
stock for $9,000,000 in cash less issuance costs of $982,000. The redeemable
preferred stock was initially recorded at fair value. The excess of the
redemption value over the carrying value is being accreted by periodic charges
to retained earnings through June 30, 2002.

The holders of the Series A preferred stock are entitled to receive
cumulative dividends at the rate of 8% per annum. Dividends are payable each
quarter beginning on September 30, 1995 and must be paid prior to any common
stock dividends. Dividends are being paid in shares of Series B preferred
stock through June 1997 and are to be paid in cash thereafter. As a result of
such dividends, 45,000 and 234,181 shares of Series B preferred stock were
outstanding as of September 30, 1995 and 1996, respectively. Beginning July 1,
2002, the dividend rate will increase annually by one-tenth of the previous
year rate. Prior to any redemption, any unpaid dividends must be paid in full.
Upon any mandatory redemption, all accrued but unpaid dividends must be paid.

Each share of Series A and Series B preferred stock is convertible at any
time into common stock at the option of the holder. The number of common
shares into which each share of Series A preferred stock is convertible is
0.75, subject to adjustment based on antidilution provisions. The number of
common shares into which each share of Series B preferred stock is convertible
is 0.3741, subject to adjustment and antidilution provisions. At September 30,
1996, the outstanding shares of Series A and B preferred stock were
convertible into 1,775,107 shares of common stock. The Series A preferred
stock is mandatorily convertible upon the closing of a qualified public
offering under the Securities Act of 1933.

F-13
<PAGE>

THE KINETICS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(INFORMATION FOR THE THREE MONTHS ENDED DECEMBER 31, 1995 AND 1996 IS
UNAUDITED)

During the three months ended December 31, 1996 an additional 49,684 shares
of Series B preferred stock, convertible into 18,586 shares of common stock,
were issued as dividends to the holders of Series A preferred stock.

The Company must redeem all shares of Series A and Series B preferred stock
at a price of $4.00 per share upon the sale or other disposition of all or
substantially all of the Company's assets or any transaction of merger or
consolidation which includes the Company or any sale of equity securities
where the current stockholders would own less than 50% of the Company.
Beginning July 1, 2002, the Company may redeem all or any portion of the
shares of Series A and Series B preferred stock outstanding at a price of
$4.00 per share plus unpaid cumulative dividends.

The holders of Series A and Series B preferred stock have restricted voting
rights. However, in the event of any default under the terms of the preferred
stock purchase agreement by the Company without remedy, the Series A and
Series B preferred stockholders may elect a majority to the Board of Directors
and assume voting rights. Also in the event of any such default, the Series A
and Series B preferred stock is redeemable at a price of $4.00 per share plus
unpaid cumulative dividends.

The holders of Series A and Series B preferred stock have liquidation
preferences of $4.00 per share plus any dividends in arrears with respect to
such stock upon the winding up or dissolution of the Company.

COMMON STOCK

Pursuant to a stockholder agreement that terminated upon a qualified initial
public offering of the Company's common stock, the Company could have been
obligated to repurchase the common shares of one stockholder at fair value
upon death, disability or termination of employment for other than cause. At
September 30, 1996, this stockholder owned 1,500,000 shares of the Company's
common stock. These shares have been recorded as redeemable common stock at
estimated fair value in the consolidated balance sheets. The agreement has
been terminated effective December 18, 1996. Accordingly, the shares covered
by the agreement and the related estimated redemption amount have been
reclassified to stockholders' equity as of that date.

6. STOCKHOLDERS' EQUITY

COMMON STOCK

Under the terms of a stockholder agreement that terminates upon a qualified
initial public offering of the Company's common stock, the Company may have
the right under certain circumstances to repurchase the capital stock of
certain stockholders upon their death, termination or notification of
intention to sell their shares, subject to the priority rights of other
stockholders to acquire such shares.

DIVIDENDS

Under the terms of the Company's bank credit facilities (Note 3), the
Company is prohibited from paying cash dividends on its common stock. The
credit agreements provide for the payment of required dividends on the
Company's redeemable convertible preferred stock.

COMMON STOCK WARRANTS

In connection with the issuance of preferred stock and a loan, the Company
issued warrants to its financial advisors and a bank to purchase 293,662
shares of common stock at a purchase price of $5.33 per share. These warrants
are exercisable over a five-year period ending June 25, 2000.

F-14
<PAGE>

THE KINETICS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(INFORMATION FOR THE THREE MONTHS ENDED DECEMBER 31, 1995 AND 1996 IS
UNAUDITED)

STOCK OPTIONS

The Company's 1996 Key Employee Stock Option Plan provided for the issuance
of options to employees (including officers), directors and consultants to
purchase up to 337,499 shares of common stock.

The Plan is administered by the Board of Directors or a committee thereof.
Subject to the provisions of the Plans, the Board or committee has the
authority to select the persons to whom options are granted and determine the
terms of each option, including the number of shares of common stock covered
by the option, when the option becomes exercisable, the option exercise price,
which, in the case of incentive stock options, must be at least 100% of the
fair market value of a share of common stock as of the date of grant, and, in
the case of nonstatutory stock options must be at least 85% of the fair market
value of a share of common stock as of the date of grant, and the duration of
the option (which, in the case of incentive stock options, may not exceed ten
years). Generally, options granted under the Plan are immediately exercisable
but remain subject to repurchase by the company for all exercised unvested
shares under a vesting schedule established by the Board or committee. The
Company's repurchase right terminates upon certain changes in control.

The Company has also entered into non-qualified option agreements with
certain employees and one consultant which provide for the purchase of an
aggregate of 746,250 shares of common stock. Such agreements provide for
vesting periods of up to six years with an option term of ten years.

Activity under the 1996 Key Employee Stock Option Plan and the non qualified
option agreements is summarized as follows:

<TABLE>
<CAPTION>
NUMBER OF EXERCISE PRICE
COMMON SHARES PER SHARE
------------- --------------
<S> <C> <C>
Options outstanding at September 30, 1994 -- $ --
Options granted.............................. 615,000 1.33
--------- --------------
Options outstanding at September 30, 1995...... 615,000 1.33
Options granted.............................. 468,749 10.00 - 19.33
--------- --------------
Options outstanding at September 30, 1996...... 1,083,749 1.33 - 19.33
Options exercised.............................. 67,500 1.33
--------- --------------
Options outstanding at December 31, 1996....... 1,016,249 $ 1.33 - 19.33
========= ==============
</TABLE>

At September 30, 1996, options under the non-qualified option agreements to
purchase 183,500 common shares were vested and unexercised. All options under
the 1996 Key Employee Option Plan are exercisable but all exercised unvested
shares under the vesting schedule remain subject to repurchase by the Company
(none exercised as of September 30, 1996). No further shares were available
for grant under the Plan.

7. EMPLOYEE BENEFIT PLANS

The Company provides pension and health and welfare benefits to employees
who are members of the United Association of Journeyman and Apprentices of the
Plumbing and Pipefitting Industry of the United States and Canada under
multiemployer defined benefit plans. Approximately 67% of the Company's full-
time workforce is represented by the union. Contributions were $2,809,000,
$4,926,000 and $5,259,000 to the union pension plans and $3,321,000,
$5,802,000 and $6,478,000 to the health and welfare plans for fiscal 1994,
1995 and 1996, respectively.

F-15
<PAGE>

THE KINETICS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(INFORMATION FOR THE THREE MONTHS ENDED DECEMBER 31, 1995 AND 1996 IS
UNAUDITED)

The Company maintains a retirement plan under Section 401(k) of the Internal
Revenue Code, which covers nonunion employees who meet certain eligibility
requirements. Contributions by the Company, which are made at the discretion
of the Board of Directors, are funded and charged against operations as
accrued. Benefits under the plan vest in varying annual percentages depending
on the employee's hire date, with the employee becoming fully vested after the
fifth year of service. Employee contributions are fully vested at all times.
The Company contributed $122,000 to the Plan during fiscal 1996, $100,000
during fiscal 1995 and made no contribution in fiscal 1994.

8. COMMITMENTS AND CONTINGENCIES

The Company leases certain of its facilities and equipment under
noncancelable operating leases and certain construction equipment under
capital leases. Future minimum payments under noncancelable operating leases
with terms greater than one year and capital leases at September 30, 1996 are
as follows (in thousands):

<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
--------- -------
<S> <C> <C>
Fiscal year:
1997................................................... $1,852 $1,384
1998................................................... 1,580 300
1999................................................... 1,046 11
2000................................................... 484 7
2001................................................... 293 4
and thereafter......................................... 559 --
------ ------
Total minimum lease payments............................. $5,814 1,706
======
Less amounts representing interest....................... 102
------
Present value of minimum lease payments (including $1,310
recorded as a current liability)........................ $1,604
======
</TABLE>

Rent expense was approximately $1,475,000, $1,173,000 and $1,460,000 for
fiscal years 1994, 1995 and 1996, respectively.

The Company is a party to various claims and legal proceedings arising out
of the normal course of business, including claims made by project owners,
general contractors and subcontractors. Management believes that resolution of
these matters will not have a material adverse effect on the financial
position of the Company. However, if not resolved favorably, these matters
could have a significant financial impact on the Company in the period or
periods in which they are resolved.

In January 1997, the Company experienced an incident in which one of the
Company's employees died and another was seriously injured at a facility of
one of the Company's customers. The Company has conducted a preliminary
investigation and based upon the facts currently available, the Company
believes that the incident will not have a material adverse effect on the
Company's financial position or results of operations.

9. SUBSEQUENT EVENTS

PROPOSED PUBLIC OFFERING OF COMMON STOCK

On December 6, 1996, the Board of Directors authorized management of the
Company to file a Registration Statement with the Securities and Exchange
Commission permitting the Company to sell shares of its common

F-16
<PAGE>

THE KINETICS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(INFORMATION FOR THE THREE MONTHS ENDED DECEMBER 31, 1995 AND 1996 IS
UNAUDITED)

stock in an initial public offering. If the offering is consummated as
presently anticipated, 2,533,865 shares of redeemable convertible preferred
stock, Series A and B, will automatically convert into 1,793,693 shares of
common stock, based upon the shares of redeemable convertible preferred stock
outstanding at December 31, 1996. Unaudited pro forma stockholders' equity, as
adjusted for the assumed conversion of the redeemable convertible preferred
stock and termination of certain repurchase obligations under a stockholder
agreement (Note 5), is disclosed in the accompanying consolidated balance
sheet.

STOCK SPLIT

On December 20, 1996, the stockholders approved a three-for-four reverse
stock split of issued and outstanding common stock. All common shares in the
accompanying consolidated financial statements have been retroactively
adjusted to reflect the stock split.

CAPITAL STOCK

On December 20, 1996, the stockholders approved amendments to the Company's
Certificate of Incorporation under which the number of shares of authorized
common stock will be increased to 40,000,000 shares and the Board of Directors
will be authorized, without further stockholder approval, to issue up to
2,000,000 shares of Preferred Stock in one or more series. Each series of
Preferred Stock shall have such rights, preferences, privileges and
restrictions, including voting rights, dividend rights, conversion rights,
redemption privileges and liquidation preferences, as shall be determined by
the Board of Directors.

1997 STOCK OPTION PLAN

On December 20, 1996, the 1997 Stock Option Plan was approved by the
stockholders. The Plan provides for the grant of incentive stock options,
nonqualifying stock options and stock purchase rights. A total of 350,000
shares of common stock have been reserved for issuance under the plan.

EMPLOYEE STOCK PURCHASE PLAN

On December 20, 1996, the 1997 Employee Stock Purchase Plan was approved by
the stockholders. Under the Plan, 250,000 shares of common stock have been
reserved for issuance. The Plan allows for eligible employees to purchase
stock at 85% of the lower of the fair market value of the Company's common
stock as of the first day of each six-month offering period or the fair market
value of the stock at the end of the offering period. The Plan will be
implemented by sequential 24-month offerings, with each offering period
divided into four consecutive six-month purchase periods. The initial offering
period will commence concurrent with its initial public offering of common
stock.

F-17
<PAGE>

QAM

Quality Assurance Management

Data analysis of high-purity systems utilizing QAM's high-purity analytical
test cart.

Inspection of materials for use in high-purity gas systems.

A QAM technician evaluating the quality of a pharmaceutical weld utilizing a
video borescope.

QUALITY ASSURANCE MANAGEMENT, INC. (QAM), A WHOLLY OWNED SUBSIDIARY OF
KINETICS, IS A PROVIDER OF QUALITY ASSURANCE/QUALITY CONTROL SERVICES TO THE
SEMICONDUCTOR, BIOTECH- NOLOGY AND PHARMACEUTICAL INDUSTRIES.

QAM's high-purity water analytical test cart.

[Four Photographs depicting aspects of work performed by the Company's QAM
subsidiary as described above.]
<PAGE>

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

NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED HEREIN, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY, ANY OF THE SELLING STOCKHOLDERS OR ANY OF THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES
OTHER THAN THOSE TO WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF
AN OFFER TO BUY, THOSE TO WHICH IT RELATES IN ANY STATE TO ANY PERSON TO WHOM
IT IS NOT LAWFUL TO MAKE SUCH OFFER IN SUCH STATE. THE DELIVERY OF THIS
PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT THE INFORMATION HEREIN IS CORRECT AS
OF ANY TIME SUBSEQUENT TO ITS DATE.

-----------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 7
The Company.............................................................. 13
Use of Proceeds.......................................................... 13
Dividend Policy.......................................................... 13
Capitalization........................................................... 14
Dilution................................................................. 15
Selected Consolidated Financial Data..................................... 16
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 18
Industry Overview........................................................ 25
Business................................................................. 29
Management............................................................... 36
Certain Transactions..................................................... 42
Principal and Selling Stockholders....................................... 43
Description of Capital Stock............................................. 45
Shares Eligible for Future Sale.......................................... 48
Underwriting............................................................. 50
Legal Matters............................................................ 51
Experts.................................................................. 51
Additional Information................................................... 52
Index to Consolidated Financial Statements............................... F-1
</TABLE>

-----------

UNTIL , 1997 (25 DAYS AFTER THE DATE OF THE OFFERING), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION
TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

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

3,700,000 SHARES

LOGO
[LOGO OF KINETICS, INC.]

COMMON STOCK

-------

PROSPECTUS

, 1997

-------

SMITH BARNEY INC.

DONALDSON LUFKIN & JENRETTE

SECURITIES CORPORATION
OPPENHEIMER & CO., INC.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth all expenses, other than the underwriting
discounts and commissions, payable by the Registrant in connection with the
sale of the Common Stock being registered. All amounts shown are estimates
except for the registration fee, the NASD filing fee and the Nasdaq National
Market fee.

<TABLE>
<CAPTION>
TO BE PAID
BY REGISTRANT
-------------
<S> <C>
Registration fee............................................ $ 20,631
NASD filing fee............................................. 7,308
Nasdaq National Market fee.................................. 48,787
Blue sky qualification fees and expenses.................... 15,000
Printing and engraving expenses............................. 61,000
Legal fees and expenses other than blue sky................. 230,000
Accounting fees and expenses................................ 300,000
Transfer agent and registrar fees........................... 15,000
Miscellaneous............................................... 52,274
--------
Total..................................................... $750,000
========
</TABLE>

ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.

Section 145 of the Delaware General Corporation Law permits indemnification
of officers, directors, and other corporate agents under certain circumstances
and subject to certain limitations. The Company's Certificate of
Incorporation, as amended, and Bylaws provide that the Company shall indemnify
its directors, officers, employees and agents to the full extent permitted by
Delaware General Corporation Law, including in circumstances in which
indemnification is otherwise discretionary under Delaware law. In addition,
the Company intends to enter into separate indemnification agreements with its
directors, officers and certain employees which would require the Company,
among other things, to indemnify them against certain liabilities which may
arise by reason of their status or service (other than liabilities arising
from willful misconduct of a culpable nature) and to maintain directors' and
officers' liability insurance, if available on reasonable terms.

These indemnification provisions and the indemnification agreement to be
entered into between the Company and its officers and directors may be
sufficiently broad to permit indemnification of the Company's officers and
directors for liabilities (including reimbursement of expenses incurred)
arising under the Securities Act.

The Underwriting Agreement filed as Exhibit 1.1 to this Registration
Statement provides for indemnification by the Underwriters of the Company and
its officers and directors for certain liabilities arising under the
Securities Act, or otherwise.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

(a) Within the past three years, the Company has sold and issued the
following unregistered securities:

(1) On June 26, 1995, Registrant issued 2,250,000 shares of Series A
Preferred Stock (without giving effect to the conversion of the Preferred
Stock or the three-for-four reverse stock split) to one stockholder for
$4.00 per share, or an aggregate of $9,000,000.

(2) On June 26, 1995, Registrant issued four warrants for the right to
purchase up to an aggregate of 293,662 shares of Series B Common Stock
(without giving effect to the conversion of the Preferred Stock or the
three-for-four reverse stock split), which have an exercise price of $5.33
per share.

II-1
<PAGE>

(3) From June 1995 to October 1996, Registrant issued options to purchase
an aggregate of 1,083,749 shares of Common Stock; of this total no shares
have been exercised.

(b) The issuances of securities described in Item 15(a)(1) and (2) were
deemed to be exempt from registration under the Securities Act in reliance on
Section 4(2) of the Securities Act as transactions by an issuer not involving
any public offering. The issuances of securities described in Item 15(a)(3)
were deemed to be exempt from registration under the Securities Act in
reliance on Rule 701 promulgated thereunder as transactions pursuant to a
compensatory benefit plan or a written contract relating to compensation.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) Exhibits

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
1.1* Form of Underwriting Agreement (draft dated December 12, 1996)
3.1* Certificate of Incorporation
3.2* By-Laws
3.3* Form of Second Amended and Restated Certificate of Incorporation
3.4* Form of Amended and Restated Bylaws
4.1* Specimen of Stock Certificate
5.1* Opinion of Gray Cary Ware & Freidenrich, A Professional Corporation
10.1@* 1997 Stock Option Plan and forms of stock option agreements used
thereunder
10.2@* 1997 Employees Stock Purchase Plan and form of subscription agreement
used thereunder
10.3* 1996 Key Employees Stock Option Plan
10.4* First Amended and Restated Registration Rights Agreement between the
Company and BT Capital Partners, Inc. dated April 1, 1996
10.5* Second Amended and Restated Voting Trust Agreement Regarding Shares
Issued to The Bianco Family 1991 Trust among David J. Shimmon, the
Bianco Trust, William A. Bianco, Jr., the Company and Doty & Sundheim
dated December 1, 1996
10.6* First Amended and Restated Voting Trust Agreement Regarding Shares
Issued to David J. Shimmon among William A. Bianco, Jr., David J.
Shimmon, the Company and Doty & Sundheim dated April 1, 1996, as
amended by First Amendment dated December 1, 1996
10.7* Lease between the Company and Newpark Leasing Company, a California
partnership, dated July 31, 1989 and amended February 26, 1993
10.8* Lease between the Company and Potpourri Shopper Inc. dated July 11,
1996
10.9@* Form of Indemnity Agreement
10.10* Business Loan Agreement among Bank of America National Trust and
Savings Association, the Company, KSI Mfg. & Services, Inc., and
Kinetic Systems International, Inc. dated April 12, 1996
10.11@* Employment Agreement between the Company and William A. Bianco dated
July 31, 1994, as amended.
10.12@* Employment Agreement between the Company and Marie R. Bianco dated
July 31, 1994, as amended.
10.13@* Employment Agreement between the Company and David J. Shimmon dated
July 31, 1994, as amended.
11.1 Statement re Computation of Per Share Earnings
21.1* Subsidiaries of the Company
23.1 Consent of Ernst & Young LLP, Independent Auditors
23.2* Consent of Gray Cary Ware & Freidenrich, A Professional Corporation
(included in Exhibit 5.1)
24.1* Power of Attorney (included on page II-4 hereof)
27 Financial Data Schedule (available in EDGAR format only)
</TABLE>
- --------
*Previously filed.
@Represents a management compensatory plan or arrangement.

II-2
<PAGE>

(b) Financial Statement Schedules.

Schedule II--Valuation and Qualifying Accounts

All other schedules are omitted because they are inapplicable or the
requested information is shown in the consolidated financial statements or
related notes.

ITEM 17. UNDERTAKINGS

The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.

Insofar as indemnification by the Registrant for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions referenced in Item 14 of
this Registration Statement or otherwise, the Registrant has been advised that
in the opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Securities Act, and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer, or controlling person of the
Registrant 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 hereunder, the Registrant 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 Securities
Act and will be governed by the final adjudication of such issue.

The undersigned registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective; and

(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and this Offering of such securities at the time shall be
deemed to be the initial bona fide offering thereof.

II-3
<PAGE>

SIGNATURES

In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements of filing on Amendment No. 3 to Form S-1 and
authorized this Registration Statement to be signed on its behalf by the
undersigned, in the City of Palo Alto, County of Santa Clara, State of
California, on the 18th day of February, 1997.

The Kinetics Group, Inc.

By: /s/ David J. Shimmon
___________________________________
DAVID J. SHIMMON
PRESIDENT, CHIEF OPERATING OFFICER
AND CHIEF FINANCIAL OFFICER

Pursuant to the requirements of the Securities Act, this Amendment No. 3 to
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:

SIGNATURE TITLE DATE

*William A. Bianco, Jr. Chairman of the
- ------------------------------------- Board, Chief February 18,
WILLIAM A. BIANCO, JR. Executive Officer 1997
and Director
(Principal
Executive Officer)

/s/ David J. Shimmon President, Chief
- ------------------------------------- Operating Officer, February 18,
DAVID J. SHIMMON Chief Financial 1997
Officer and
Director (Principal
Financial and
Accounting Officer)

*Marie R. Bianco Executive Vice
- ------------------------------------- President and February 18,
MARIE R. BIANCO Director 1997

*Martin M. Jelenko Director
- ------------------------------------- February 18,
MARTIN M. JELENKO 1997

*Jeffrey L. Ott Director
- ------------------------------------- February 18,
JEFFREY L. OTT 1997

*By: /s/ David J. Shimmon

---------------------------------- February 18,
DAVID J. SHIMMON, ATTORNEY-IN-FACT 1997

II-4
<PAGE>

SCHEDULE II

THE KINETICS GROUP, INC.

VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
BALANCE AS OF BALANCE
BEGINNING CHARGES TO CHARGES TO AS OF END
OF PERIOD COST AND EXPENSES OTHER ACCOUNTS DEDUCTIONS OF PERIOD
------------- ----------------- -------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
DESCRIPTION
Year ended September 30,
1994
Allowance for doubtful
accounts............... $150,000 $ 97,833 -- $ (97,833) $ 150,000
Year ended September 30,
1995
Allowance for doubtful
accounts............... 150,000 848,318 -- (398,318) 600,000
Year ended September 30,
1996
Allowance for doubtful
accounts............... 600,000 675,000 -- (75,000) 1,200,000
</TABLE>
<PAGE>

EXHIBIT INDEX

(a) Exhibits

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
1.1* Form of Underwriting Agreement (draft dated December 12, 1996)
3.1* Certificate of Incorporation
3.2* By-Laws
3.3* Form of Second Amended and Restated Certificate of Incorporation
3.4* Form of Amended and Restated Bylaws
4.1* Specimen of Stock Certificate
5.1* Opinion of Gray Cary Ware & Freidenrich, A Professional Corporation
10.1@* 1997 Stock Option Plan and forms of stock option agreements used
thereunder
10.2@* 1997 Employee Stock Purchase Plan and form of subscription agreement
used thereunder
10.3* 1996 Key Employees Stock Option Plan
10.4* First Amended and Restated Registration Rights Agreement between the
Company and BT Capital Partners, Inc. dated April 1, 1996
10.5* Second Amended and Restated Voting Trust Agreement Regarding Shares
Issued to The Bianco Family 1991 Trust among David J. Shimmon, the
Bianco Trust, William A. Bianco, Jr., the Company and Doty & Sundheim
dated December 1, 1996
10.6* First Amended and Restated Voting Trust Agreement Regarding Shares
Issued to David J. Shimmon among William A. Bianco, Jr., David J.
Shimmon, the Company and Doty & Sundheim dated April 1, 1996, as
amended by First Amendment dated December 1, 1996
10.7* Lease between the Company and Newpark Leasing Company, a California
partnership, dated July 31, 1989 and amended February 26, 1993
10.8* Lease between the Company and Potpourri Shopper Inc. dated July 11,
1996
10.9@* Form of Indemnity Agreement
10.10* Business Loan Agreement among Bank of America National Trust and
Savings Association, the Company, KSI Mfg. & Services, Inc., and
Kinetic Systems International, Inc. dated April 12, 1996
10.11@* Employment Agreement between the Company and William A. Bianco dated
July 31, 1994, as amended.
10.12@* Employment Agreement between the Company and Marie R. Bianco dated
July 31, 1994, as amended.
10.13@* Employment Agreement between the Company and David J. Shimmon dated
July 31, 1994, as amended.
11.1 Statement re Computation of Per Share Earnings
21.1* Subsidiaries of the Company
23.1 Consent of Ernst & Young LLP
23.2* Consent of Gray Cary Ware & Freidenrich, A Professional Corporation
(included in Exhibit 5.1)
24.1* Power of Attorney (included on page II-4 hereof)
27 Financial Data Schedule (available in EDGAR format only)
</TABLE>
- --------
*Previously filed.
@Represents a management compensatory plan or arrangement.

<PAGE>

EXHIBIT 11.1

THE KINETICS GROUP, INC.

STATEMENT RE COMPUTATION OF PER SHARE EARNINGS

<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
SEPTEMBER 30, DECEMBER 31,
1996 1996
------------- ------------
<S> <C> <C>
Shares used in calculation of pro forma net income
per common share:
Weighted average common shares outstanding........ 7,500,000 7,522,500
Redeemable convertible preferred stock, if
converted........................................ 1,730,432 1,775,107
Shares related to SAB Nos. 55, 64 and 83.......... 812,500 750,992
----------- -----------
Total........................................... 10,042,932 10,048,599
=========== ===========
Net income applicable to common stockholders........ $ 644,000 $ 1,485,000
Add back: dividends and accretion on redeemable
convertible capital stock.......................... 8,087,000 199,000
----------- -----------
Total........................................... $ 8,731,000 $ 1,684,000
=========== ===========
Pro forma net income per common share........... $ 0.87 $ 0.17
=========== ===========
Shares used in calculation of supplemental pro forma
net income per common share:
Weighted average common shares outstanding, as
computed above................................... 10,042,932 10,048,599
Shares of common stock for which proceeds are
assumed to be used to retire existing
indebtedness..................................... 967,742 1,532,760
----------- -----------
Total........................................... 11,010,674 11,581,359
=========== ===========
Net income applicable to common stockholders, as
computed above..................................... $ 8,731,000 $ 1,684,000
Add back: Interest on indebtedness assumed to be re-
tired.............................................. 416,000 219,000
----------- -----------
Total........................................... $ 9,147,000 $ 1,903,000
=========== ===========
Supplemental pro forma net income per common
share.......................................... $ 0.83 $ 0.16
=========== ===========
</TABLE>

<PAGE>

EXHIBIT 23.1

CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

We consent to the reference of our firm under the caption "Experts" and to
the use of our report dated December 12, 1996 except for Note 9 as to which
the date is December 20, 1996, in the Registration Statement (Amendment No. 3
to Form S-1) and related Prospectus of The Kinetics Group, Inc. for the
registration of 4,255,000 shares of its common stock.

Our audit also included the financial statement schedule of The Kinetics
Group, Inc. listed in Item 16 of this Registration Statement. This schedule is
the responsibility of the Company's management. Our responsibility is to
express an opinion based on our audit. In our opinion, the financial statement
schedule referred to above, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.

Ernst & Young LLP

San Francisco, California

February 14, 1997

<PAGE>

<ARTICLE> 5

<S> <C> <C> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS 12-MOS 3-MOS 3-MOS
<FISCAL-YEAR-END> SEP-30-1994 SEP-30-1995 SEP-30-1996 SEP-30-1996 SEP-30-1997
<PERIOD-START> OCT-01-1993 OCT-01-1994 OCT-01-1995 OCT-01-1995 OCT-01-1996
<PERIOD-END> SEP-30-1994 SEP-30-1995 SEP-30-1996 DEC-31-1995 DEC-31-1996
<CASH> 0 8,438 8,844 0 6,036
<SECURITIES> 0 0 0 0 0
<RECEIVABLES> 0 48,325 66,033 0 71,068
<ALLOWANCES> 0 600 1,200 0 1,200
<INVENTORY> 0 2,380 2,490 0 2,621
<CURRENT-ASSETS> 0 59,312 78,864 0 81,430
<PP&E> 0 21,236 31,733 0 34,064
<DEPRECIATION> 0 8,735 13,683 0 15,114
<TOTAL-ASSETS> 0 75,550 98,979 0 102,659
<CURRENT-LIABILITIES> 0 50,650 58,368 0 53,516
<BONDS> 0 0 0 0 0
0 8,232 9,164 0 9,363
0 0 0 0 0
<COMMON> 0 8 8 0 8
<OTHER-SE> 0 12,628 8,857 0 20,182
<TOTAL-LIABILITY-AND-EQUITY> 0 75,550 98,979 0 102,659
<SALES> 0 0 0 0 0
<TOTAL-REVENUES> 145,473 229,933 278,423 59,155 72,195
<CGS> 0 0 0 0 0
<TOTAL-COSTS> 125,307 194,875 230,748 50,032 59,641
<OTHER-EXPENSES> 13,807 22,384 31,673 5,807 9,213
<LOSS-PROVISION> 0 0 0 0 0
<INTEREST-EXPENSE> 1,084 749 1,068 131 426
<INCOME-PRETAX> 5,390 12,256 15,878 3,542 3,062
<INCOME-TAX> 535 2,902 7,147 1,623 1,378
<INCOME-CONTINUING> 4,855 9,354 8,731 1,919 1,684
<DISCONTINUED> 0 0 0 0 0
<EXTRAORDINARY> 0 0 0 0 0
<CHANGES> 0 0 0 0 0
<NET-INCOME> 4,855 9,354 8,731 1,919 1,684
<EPS-PRIMARY> 0 0 0.87 0 0.17
<EPS-DILUTED> 0 0 0 0 0

</TABLE>