INTEGRATED ELECTRICAL SERVICES INC, 424B4, 1998-01-27

INTEGRATED ELECTRICAL SERVICES INC
424B4, 1998-01-27
ELECTRICAL WORK

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<PAGE> 1
Filed Pursuant to Rule 424(b)(4)
Registration No. 333-38715

PROSPECTUS
7,000,000 SHARES

[IES LOGO]
COMMON STOCK
------------------------

All of the shares of Common Stock, $.01 par value per share (the "Common
Stock"), offered hereby are being offered by Integrated Electrical Services,
Inc. ("IES" or the "Company").

Of the shares of Common Stock being offered hereby, 5,600,000 shares (the
"U.S. Shares") are being offered initially in the United States and Canada (the
"U.S. Offering") by the U.S. Underwriters and 1,400,000 shares (the
"International Shares") are being offered initially outside the United States
and Canada (the "International Offering" and, together with the U.S. Offering,
the "Offerings") by the International Managers. The price to public and
underwriting discount per share are identical for both Offerings and the
closings for both Offerings are conditioned upon each other. See "Underwriting."

Prior to the Offerings there has been no public market for the Common
Stock. See "Underwriting" for information relating to the factors considered in
determining the initial public offering price. Shares of Common Stock are being
reserved for sale to certain employees, directors and business associates of,
and certain other persons designated by, the Company, at the initial public
offering price. Such employees, directors, and other persons are expected to
purchase, in the aggregate, not more than 10% of the Common Stock offered in the
Offerings. See "Underwriting."

The Common Stock has been approved for listing upon notice of issuance on
The New York Stock Exchange ("NYSE") under the symbol "IEE."

SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR A DISCUSSION OF CERTAIN MATTERS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SECURITIES 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>
========================================================================================================================
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share......................................... $13.00 $.91 $12.09
- ------------------------------------------------------------------------------------------------------------------------
Total(3).......................................... $91,000,000 $6,370,000 $84,630,000
========================================================================================================================
</TABLE>

(1) The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"). See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $4,800,000.
(3) The Company has granted the U.S. Underwriters and International Managers
options, exercisable within 30 days after the date hereof, to purchase up to
840,000 and 210,000 additional shares of Common Stock, respectively, solely
to cover over-allotments, if any. If such options are exercised in full, the
total Price to Public, Underwriting Discount and Proceeds to Company will be
$104,650,000, $7,325,500 and $97,324,500, respectively. See "Underwriting."
------------------------

The shares of Common Stock offered hereby are offered by the several
Underwriters, subject to prior sale, when, as and if issued to and accepted by
the Underwriters against payment therefor, subject to certain conditions. The
Underwriters reserve the right to withdraw, cancel or modify such offer and to
reject orders in whole or in part. It is expected that delivery of the share
certificates representing the Common Stock will be made in New York, New York on
or about January 30, 1998.
------------------------
MERRILL LYNCH & CO.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
SUNTRUST EQUITABLE
SECURITIES
SANDERS MORRIS MUNDY
------------------------

The date of this Prospectus is January 26, 1998.
<PAGE> 2
[MAP OF LOCATIONS AND OTHER GRAPHICS]

[Map of the Continental United States depicting locations in which the Company
maintains offices. Map also denotes states in which the Company conducts
business.]

[Photograph of a two-story, glass residential structure]

[Photograph of modern office building.]

[Photograph of a contemporary home.]

[Photograph of an end of an exposed cable. A number of the individual strands
running through the cable are exposed and illuminated.]

[Photograph of a 2-story apartment facility.]

[Photograph of hotel. Photo shows the entrance side of the hotel.]

[Photograph of showroom of a car dealership.]

[Photograph of concession stand in movie theater.]

Certain persons participating in the Offerings may engage in transactions
that stabilize, maintain or otherwise affect the price of the Common Stock. Such
transactions may include stabilizing, the purchase of Common Stock to cover
syndicate short positions and the imposition of penalty bids. For a description
of these activities, see "Underwriting."
<PAGE> 3

PROSPECTUS SUMMARY

Concurrently with the closing of the Offerings, Integrated Electrical
Services, Inc. plans to acquire, in separate transactions (collectively, the
"Acquisitions"), for consideration including cash and shares of Common Stock
(the "Acquisitions Consideration"), the following 16 companies engaged in all
facets of electrical contracting and maintenance services: Houston-Stafford
Electric, Inc. and Stark Investments, Inc., a related electrical supply company
(such two companies, collectively, "Houston-Stafford"), Mills Electrical
Contractors, Inc. ("Mills"), BW Consolidated, Inc., including Bexar Electric
Company, Ltd., and Calhoun Electric Company, Ltd. (collectively,
"Bexar-Calhoun"), Pollock Electric Inc. ("Pollock"), Muth Electric, Inc.
("Muth"), Daniel Electrical Contractors, Inc. and Daniel Electrical of Treasure
Coast Inc. (collectively, "Daniel"), Amber Electric, Inc. ("Amber"), Charles P.
Bagby, Co., Inc. and General Partner, Inc. (collectively, "Haymaker"), Summit
Electric of Texas, Incorporated ("Summit"), Thurman & O'Connell Corporation
("Thurman & O'Connell"), Rodgers Electric Company, Inc. ("Rodgers"), Hatfield
Electric, Inc. ("Hatfield"), Ace Electric, Inc. ("Ace"), Reynolds Electric Corp.
("Reynolds") and Thomas Popp & Company ("Popp") (the foregoing companies
referred to herein as the "Founding Companies"). Unless otherwise indicated,
references herein to "IES" mean Integrated Electrical Services, Inc., and
references to the "Company" mean IES and the Founding Companies collectively.

The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information and financial
statements, including the notes thereto, appearing elsewhere in this Prospectus.
Unless otherwise indicated, the information, share and per share data in this
Prospectus (i) give effect to the Acquisitions, (ii) assume the Underwriters'
over-allotment options are not exercised and (iii) give effect to a
2,329.6-for-one stock split of the Common Stock effected in October 1997.

THE COMPANY

IES was founded in June 1997 to create a leading national provider of
electrical contracting and maintenance services to the commercial, industrial
and residential markets. Concurrently with and as a condition to the closing of
the Offerings, IES will acquire 15 electrical contracting and maintenance
service companies and a related supply company with pro forma combined revenues
of $312.7 million for the year ended September 30, 1997, making the Company one
of the largest providers of electrical contracting and maintenance services in
the United States. Of such pro forma revenues, approximately 63% was derived
from commercial and industrial contracting, approximately 25% was derived from
residential contracting and approximately 12% was derived from electrical
maintenance work. Combined revenues of the Founding Companies, which have been
in business an average of 18 years, increased at an average compound annual
growth rate of approximately 23% from fiscal 1994 through 1996.

The Company offers a broad range of electrical contracting services,
including design and installation for both new and renovation projects in the
commercial, industrial and residential markets. The Company also offers
long-term and per call maintenance services, which generally provide recurring
revenues that are relatively independent of levels of construction activity.
Typically, the Founding Companies specialize in either commercial and industrial
or residential work, although a few of the Founding Companies have both
commercial and industrial and residential operations.

In certain markets the Company offers design-and-build expertise and
specialized services, which typically require specific skills and equipment and
provide higher margins than general electrical contracting and maintenance
services. In a design-and-build project, the electrical contractor applies
in-house electrical engineering expertise to design the most cost-effective
electrical system for a given structure and purpose, taking into account local
code requirements. Specialized services offered by the Company include
installations of wiring or cabling for the following: data cabling for computer
networks; fiber optic cable systems; telecommunications systems; energy
management systems which control the amount of power used in facilities; fire
alarm and security systems; cellular phone transmission sites; "smart houses"
that integrate computer, energy management, security, safety, comfort and
telecommunication systems; lightning protection systems; clean rooms for
fabrication of microprocessors and similar devices; computer rooms; back-up
electrical systems and uninterruptible power supplies; high voltage distribution
and traffic signal systems.
1
<PAGE> 4

INDUSTRY OVERVIEW

General. Virtually all construction and renovation in the United States
generates demand for electrical contracting services. Depending upon the exact
scope of work, electrical work generally accounts for approximately 8% to 12% of
the total construction cost of the Company's commercial and industrial projects
and 5% to 10% of the total construction cost of the Company's residential
projects. In recent years, the Founding Companies have experienced a growing
demand for electrical contracting services per project due to increased
electrical code requirements, demand for additional electrical capacity,
including increased capacity for computer systems, additional data cabling
requirements and the construction of smart houses with integrated systems.

The overall electrical contracting industry, including commercial,
industrial and residential markets, was estimated by the U.S. Census to have
generated annual revenues in excess of $40 billion in 1992, the most recent
available U.S. Census data. These Census data indicate that the electrical
contracting industry is highly fragmented with more than 54,000 companies, most
of which are small, owner-operated businesses, performing various types of
electrical work. The Company believes there are significant opportunities for a
well-capitalized national company to provide comprehensive electrical
contracting and maintenance services and that the fragmented nature of the
electrical contracting industry will provide significant opportunities to
consolidate commercial and industrial and residential electrical contracting and
maintenance businesses.

Commercial and Industrial Market. Commercial and industrial consumers of
electrical contracting and maintenance services include general contractors;
developers; consulting engineers; architects; owners and managers of large
retail establishments, office buildings, high-rise apartments and condominiums;
theaters and restaurants; hotels and casinos; manufacturing and processing
facilities; arenas and convention centers; hospitals; school districts; military
and other government agencies; airports; prisons and car lots. The Company
provides electrical contracting and maintenance services to the full range of
commercial and industrial customers.

From fiscal 1994 through 1996, the Founding Companies' revenues from
electrical contracting for commercial and industrial customers have grown at an
average compound annual rate of approximately 23% per year. The Company believes
that growth in the commercial and industrial market reflects a number of
factors, including (i) levels of construction and renovation activity; (ii)
regulations imposed by electric codes, which establish minimum power and wiring
requirements; (iii) safety codes mandating additional installation of smoke
detectors and the use of ground fault circuit protection devices in more
locations; (iv) revised national energy standards that dictate the use of more
energy-efficient lighting fixtures and other equipment; (v) continuing demand to
build out lease spaces in office buildings and to reconfigure space for new
tenants; (vi) increases in use of electrical power, creating needs for increased
capacity and outlets, as well as data cabling and fiber optics and (vii)
requirements of building owners and developers to facilitate marketing their
properties to tenants and buyers by installing electrical capacity in excess of
minimum code requirements.

STRATEGY

The Company believes that its size, geographical diversity of operations,
industry relationships, expertise in specialized markets, number of licensed
electricians and access to design technology give the Company significant
competitive advantages in the electrical contracting and maintenance services
industry. Through
2
<PAGE> 5

increased size, the Company believes it will have greater ability to compete for
larger jobs that require greater technical expertise, personnel availability and
bonding capacity, to more effectively allocate and share resources in serving
customers in each of its markets, and to attract, train and retain qualified
electricians. The Company also believes that increased size will provide
increased efficiency in materials purchasing, computer system development,
employee benefits, bonding, insurance and financing. The Company believes that
the diversity of its operations will diminish the effects of regional and market
downturns, offer opportunities to pursue growth in its existing markets and
create a base of expertise to expand into new markets and serve new customers.

The Company plans to leverage its experienced management and extensive
relationships within the electrical contracting industry to increase its
revenues and reduce its cost infrastructure through internal growth as well as
the acquisition of additional electrical contracting businesses. The Company's
management includes a Chief Executive Officer and two Chief Operating Officers,
each with 25 years or more of experience in the electrical contracting industry.
The Company has extensive business relationships within the industry, in part
through Founding Companies that are members of the Independent Electrical
Contractors Association ("IEC"). The IEC is the second largest electrical trade
organization in the U.S. and has nearly 3,000 contracting firms as members. The
Company's Chief Executive Officer is a past president of the IEC, and two
founders are members of the executive committee of the IEC. The IEC sponsors
forum groups, which are discussion groups of members of the IEC that foster the
sharing of best business practices. The Founding Companies are members of the
IEC and other trade organizations, and the Company intends to expand the
practice of sharing best practices among the Founding Companies and with future
acquisitions.

The Company's goal is to become a leading national provider of electrical
services by improving its operations, expanding its business and markets through
internal growth and pursuing an aggressive acquisition strategy.

Operating Strategy. The Company believes there are significant
opportunities to increase revenues and profitability of the Founding Companies
and subsequently acquired businesses. The key elements of the Company's
operating strategy are:

Share Information, Technical Capabilities and Best Practices. The
Company believes it will be able to expand the services it offers in its
local markets by leveraging the specialized technical and marketing
strengths of individual Founding Companies. The Company will identify and
share best practices that can be successfully implemented throughout its
operations. The Company intends to use the computer-aided-design technology
and expertise of certain of the Founding Companies to bid for more
design-and-build projects and to assist customers in value engineering and
creating project documents. The Company believes that its increased size,
capital and workforce will permit it to pursue projects that require
greater design and performance capabilities and the ability to meet
accelerated timetables.

Expand Scope of Maintenance and Specialized Services. The Company
intends to further develop its long-term and per-call maintenance service
operations, which generally realize higher gross margins and provide
recurring revenues that are relatively independent of levels of
construction activity. The Company also believes that certain specialized
businesses currently offered by only a few of the Founding Companies can be
expanded throughout the Company and in some cases can provide higher
margins. Through sharing of expertise and specialized licenses and the
ability to demonstrate a safety record in specialized markets served by the
Founding Companies, the Company intends to expand its presence and
profitability in markets where it previously relied on subcontractors.

Establish National Market Coverage. The Company believes that the
growth of many of the Founding Companies has been restricted due to the
geographic limitations of existing operations and that the Company's broad
geographic coverage will increase internal growth opportunities. The
Company intends to leverage its geographic diversity to bid for additional
business from existing customers that operate on a regional and national
basis, such as developers, contractors, homebuilders and owners of national
chains. The Company believes that significant demand exists from such
companies to utilize the services of a single electrical contracting and
maintenance service provider and that existing local and regional
relationships can be expanded as the Company develops a nationwide network.
3
<PAGE> 6

Operate on Decentralized Basis. The Company believes that, while
maintaining strong operating and financial controls, a decentralized
operating structure will retain the entrepreneurial spirit present in each
of the Founding Companies. The Company also will be structured to allow it
to capitalize on the considerable local and regional market knowledge and
customer relationships possessed by each Founding Company, as well as
companies that may be acquired in the future. By maintaining a local and
regional focus in each of its markets, the Company believes it will be able
to build relationships with general contractors and other customers,
address design preferences and code requirements, respond quickly to
customer demands for higher-margin renovation and upgrade projects and
adjust to local conditions.

Attract and Retain Quality Employees. The Company believes that the
ability to attract and retain qualified electricians is a critical
competitive factor and that the Acquisitions and the Offerings will provide
competitive advantages in this regard. The Company intends to attract and
develop skilled employees by extending active recruiting and training
programs, offering stock-based compensation for key employees, and offering
expanded career paths and more stable income through the larger public
company. The Company believes that this ability will allow it to increase
efficiency and pursue additional customer relationships.

Achieve Operating Efficiencies. Certain administrative functions will
be centralized following the Offerings. In addition, by combining
overlapping operations of certain of the Founding Companies, the Company
expects to realize savings in overhead and other expenses. The Company
intends to use its increased purchasing power to gain volume discounts in
areas such as electrical materials, vehicles, advertising, bonding,
employee benefits and insurance. The Company will seek to realize cost
savings and other benefits by the sharing of purchasing, pricing, bidding
and other business practices and the sharing of licenses. The Company
intends to further develop and extend the use of computer systems to
facilitate communication among the Founding Companies. At some locations,
the larger combined workforce will provide additional staffing flexibility.

Acquisition Strategy. The Company believes that, due to the highly
fragmented nature of the electrical contracting and maintenance services
industry, it has significant opportunities to pursue its acquisition strategy.
The Company intends to focus on acquiring companies with management philosophies
based on an entrepreneurial attitude as well as a willingness to learn and share
improved business practices through open communications. The Company believes
that many electrical contracting and maintenance service businesses that lack
the capital necessary to expand operations will become acquisition candidates.
For these acquisition candidates, the Company will provide (i) information on
best practices, (ii) expertise to expand in specialized markets, (iii) the
opportunity to focus on customers rather than administration, (iv) national name
recognition, (v) increased liquidity and (vi) the opportunity for a continued
role in management. The Founding Companies participate in professional
associations such as the IEC and Associated Builders and Contractors, and the
Company intends to continue these relationships, in part to assist in
identifying attractive acquisition candidates. Other key elements of the
Company's acquisition strategy are:

Enter New Geographic Markets. The Company will pursue acquisitions
that are located in new geographic markets, are financially stable and have
the customer base necessary to integrate with or complement its existing
business. The Company also expects that increasing its geographic diversity
will allow it to better serve an increasingly nationwide base of customers
and further reduce the impact on the Company of local and regional economic
cycles, as well as weather-related or seasonal variations in business.

Expand Within Existing Markets. Once the Company has entered a market,
it will seek to acquire other well-established electrical contracting and
maintenance businesses operating within that region, including "tuck-in"
acquisitions of smaller companies. The Company believes that tuck-in
acquisitions afford the opportunity to improve its overall cost structure
through the integration of such acquisitions into existing operations as
well as to increase revenues through access to additional specialized
markets, such as heavy industrial markets. Despite the integration
opportunities afforded by such tuck-in acquisitions, the Company intends to
maintain existing business names and identities to retain goodwill for
marketing purposes.

4
<PAGE> 7

THE OFFERINGS

Common Stock offered:

U.S. Offering..................... 5,600,000

International Offering............ 1,400,000
---------

Total..................... 7,000,000
=========

Common Stock to be outstanding after
the Offerings(1).................... 23,365,336 shares

Use of proceeds..................... To pay the cash portion of the
Acquisitions Consideration, to repay
certain historical indebtedness of the
Founding Companies, to provide working
capital and to use for general
corporate purposes, which are expected
to include acquisitions. See "Use of
Proceeds."

NYSE trading symbol................. "IEE"
- ---------------

(1) Includes (i) 12,313,025 shares to be issued to the owners of the Founding
Companies, (ii) 7,000,000 shares to be sold in the Offerings, (iii)
1,396,602 shares issued to the management of IES and (iv) 2,655,709 shares
of restricted voting common stock, par value $0.01("Restricted Common
Stock"), issued to the founder and Chairman of the Board of IES and trusts
for the benefit of his children. Excludes options to purchase 300,000 shares
which are currently outstanding and options to purchase 2,343,600 shares
which are expected to be granted upon consummation of the Offerings. See
"Management -- 1997 Stock Plan," "Management -- 1997 Directors Stock Plan,"
"Certain Transactions" and "Description of Capital Stock."

5
<PAGE> 8

SUMMARY PRO FORMA COMBINED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

IES will acquire the Founding Companies simultaneously with and as a
condition to the consummation of the Offerings. For financial statement
presentation purposes, Houston-Stafford has been identified as the "accounting
acquirer." The following summary unaudited pro forma combined financial data
present certain data for the Company, as adjusted for (i) the effects of the
Acquisitions, (ii) the effects of certain other pro forma adjustments to the
historical financial statements and (iii) the consummation of the Offerings and
the application of the net proceeds therefrom. The unaudited pro forma combined
income statement data assume that the Acquisitions, the Offerings and related
transactions were closed on October 1, 1996 and are not necessarily indicative
of the results that the Company would have obtained had these events actually
occurred at that date or indicative of the Company's future results. During the
periods presented below, the Founding Companies were not under common control or
management and, therefore, the data presented may not be comparable to or
indicative of post-combination results to be achieved by the Company. The
unaudited pro forma combined income statement data are based on preliminary
estimates, available information and certain assumptions that Company management
deems appropriate. The unaudited pro forma combined financial data should be
read in conjunction with the other financial information included elsewhere in
this Prospectus. See "Selected Financial Data," the Unaudited Pro Forma Combined
Financial Statements and notes thereto, and the historical financial statements
for certain of the Founding Companies and the notes thereto, all included
elsewhere in this Prospectus.

<TABLE>
<CAPTION>
PRO FORMA
------------------
YEAR ENDED
SEPTEMBER 30, 1997
------------------
<S> <C>
INCOME STATEMENT DATA:
Revenues.................................................. $ 312,747
Cost of services (including depreciation)................. 247,772
-----------
Gross profit.............................................. 64,975
Selling, general and administrative expenses(a)........... 35,938
Goodwill amortization(b).................................. 3,780
-----------
Income from operations.................................... 25,257
Interest and other income (expense), net(c)............... 249
-----------
Income before income taxes................................ 25,506
Provision for income taxes................................ 11,161
-----------
Net income(d)............................................. $ 14,345
===========
Net income per share...................................... $ .65
===========
Shares used in computing pro forma net income per
share(e)............................................... 22,152,604
===========
</TABLE>

<TABLE>
<CAPTION>
PRO FORMA(F)(G)
--------------------------
AS OF SEPTEMBER 30, 1997
--------------------------
COMBINED AS ADJUSTED(H)
-------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital........................................... $(31,780)(i) $ 43,442
Total assets.............................................. 240,027 255,792
Long-term debt, net of current maturities................. 18,541 13,983
Total stockholders' equity................................ 112,413 192,193
</TABLE>

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

(a) The unaudited pro forma combined income statement data reflect an aggregate
of approximately $6.1 million in pro forma reductions in salary, bonus and
benefits of the owners of the Founding Companies to which they have agreed
prospectively, and the effect of revisions of certain lease agreements
between the Founding Companies and certain stockholders of the Founding
Companies. Additionally, excludes the $13.6 million non-recurring, non-cash
compensation charge recognized by IES related to the issuance of Common
Stock to management. See "Certain Transactions."

(b) Reflects amortization of the goodwill to be recorded as a result of the
Acquisitions over a 40-year period and computed on the basis described in
the notes to the Unaudited Pro Forma Combined Financial Statements.

6
<PAGE> 9

(c) Reflects the reduction for interest expense of $0.7 million attributable to
$8.1 million of historical debt which will be repaid with proceeds from the
Offerings or distributed prior to the Acquisitions, net of additional
interest expense of $1.0 million related to the debt discussed in (g) below.
Additionally, reflects a $316,000 reduction in minority interest expense.

(d) Assumes all pretax income before non-deductible goodwill and other permanent
items is subject to a 38% overall tax rate.

(e) Includes (i) 12,313,025 shares to be issued to the owners of the Founding
Companies, (ii) 1,396,602 shares issued to the management of IES, (iii)
2,655,709 shares of Restricted Common Stock issued to the founder and
Chairman of the Board of IES and trusts for the benefit of his children and
(iv) 5,667,268 of the 7,000,000 shares to be sold in the Offerings necessary
to pay the cash portion of the Acquisitions Consideration and the offering
expenses. Also, includes 120,000 shares computed under the treasury stock
method related to 300,000 options which are currently outstanding, but
excludes any effects from options to purchase 2,343,600 shares which are
expected to be granted at the initial public offering price upon
consummation of the Offerings. See "Description of Capital Stock."

(f) Reflects the Acquisitions and related transactions as if they had occurred
on September 30, 1997 as described in the notes to the Unaudited Pro Forma
Combined Financial Statements. The unaudited pro forma combined balance
sheet data are based upon preliminary estimates, available information and
certain assumptions that management deems appropriate and should be read in
conjunction with the other financial information and historical financial
statements, and notes thereto, included elsewhere in this Prospectus.

(g) Reflects $30.6 million of previously undistributed earnings and nonoperating
assets and liabilities that will be transferred in connection with the
Acquisitions to the owners of the Founding Companies. This amount will be
funded through the following (collectively, the "Owner Amounts"): (i)
transfers of approximately $5.7 million of nonoperating assets, net of
liabilities, (ii) transfers of approximately $11.6 million of cash
(including $2.7 million of proceeds from the Offerings) and (iii) the
issuance of approximately $13.3 million of notes payable to certain owners
of the Founding Companies which will be retired with new borrowings under
the proposed credit facility. See "Certain Transactions."

(h) Reflects the closing of the Offerings and the Company's application of the
net proceeds therefrom to fund the cash portion of the Acquisitions
Consideration and to repay certain indebtedness of the Founding Companies.
See "Use of Proceeds" and "Certain Transactions."

(i) Includes the estimated $53.4 million of notes payable to owners of the
Founding Companies, representing the cash portion of the Acquisitions
Consideration to be paid from a portion of the net proceeds from the
Offerings. See "Pro Forma -- As Adjusted" amounts.

7
<PAGE> 10

SUMMARY INDIVIDUAL FOUNDING COMPANY HISTORICAL FINANCIAL DATA
(IN THOUSANDS)

The following table presents certain summary historical income statement
data of the Founding Companies for each of their three most recent fiscal years
and the year ended September 30, 1997. The historical income statement data
below have not been adjusted for the pro forma adjustments related to
contractually agreed reductions in salaries and benefits, or any other pro forma
adjustments, reflected in the Unaudited Pro Forma Combined Financial Statements,
included elsewhere in this Prospectus. The income statement data presented below
have been audited for certain of the Founding Companies and for the periods as
reflected in the historical financial statements of such Founding Companies,
included elsewhere in this Prospectus. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."

<TABLE>
<CAPTION>
FISCAL YEARS(A)(B) YEAR ENDED
----------------------------- SEPTEMBER 30,
1994 1995 1996 1997(C)
------- ------- ------- -------------
<S> <C> <C> <C> <C>
HOUSTON-STAFFORD:
Revenues.................................................. $48,001 $54,082 $70,493 $81,575
Income from operations.................................... 519 1,343 5,021 5,270
MILLS:
Revenues.................................................. $25,544 $35,250 $65,439 $74,399
Income from operations.................................... 1,216 3,137 7,261 5,049
BEXAR-CALHOUN:
Revenues.................................................. $23,168 $27,730 $33,023 $32,165
Income from operations.................................... 2,110 3,129 4,320 3,423
POLLOCK:
Revenues.................................................. $11,847 $13,002 $15,816 $20,291
Income/(Loss) from operations............................. 455 251 (181) 726
MUTH:
Revenues.................................................. $13,466 $16,012 $16,830 $18,779
Income from operations.................................... 983 900 1,039 1,194
DANIEL:
Revenues.................................................. $12,198 $12,049 $12,585 $18,409
Income/(Loss) from operations............................. 219 (1,178) 988 2,575
AMBER:
Revenues.................................................. $ 8,735 $ 9,728 $13,878 $16,386
Income from operations.................................... 281 136 503 1,592
HAYMAKER:
Revenues.................................................. $ 5,736 $ 7,571 $ 7,634 $11,772
Income from operations.................................... 220 376 542 712
SUMMIT:
Revenues.................................................. $ 9,243 $ 9,233 $10,565 $10,995
Income from operations.................................... 166 159 68 78
THURMAN & O'CONNELL:
Revenues.................................................. $ 3,658 $ 4,729 $ 4,551 $ 4,049
Income from operations.................................... 502 908 989 1,365
RODGERS:
Revenues.................................................. $ 1,820 $ 1,582 $ 3,325 $ 3,325
Income from operations.................................... 154 43 466 466
ALL OTHER FOUNDING COMPANIES(B):
Revenues.................................................. $17,759 $20,418 $19,914 $20,602
Income from operations.................................... 996 1,391 840 519
</TABLE>

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(a) The fiscal years presented above are the years ended December 31, 1994,
1995 and 1996, except for Pollock for which the fiscal years presented are
the years ended October 31, 1994, 1995 and 1996; Summit for which the
fiscal years presented are the years ended March 31, 1995, 1996 and 1997;
and Rodgers for which the fiscal years presented are the years ended
September 30, 1995, 1996 and 1997.

(b) The other Founding Companies are Ace, Hatfield, Popp and Reynolds, and the
fiscal years presented for such other Founding Companies are for December
31, 1994, 1995 and 1996, in the case of Ace, Reynolds and Popp; and October
31, 1994, 1995 and 1996, in the case of Hatfield.

(c) Represents the year ended September 30, 1997 for all Founding Companies,
except that the amounts included for Ace, Hatfield, Popp and Reynolds are
for the year ended June 30, 1997.

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<PAGE> 11

RISK FACTORS

Prospective investors should carefully consider the following factors as
well as the other information contained in this Prospectus. This Prospectus
contains forward-looking statements. Actual results could differ materially from
those projected in the forward-looking statements as a result of a number of
factors, including the risk factors set forth below and elsewhere in this
Prospectus.

ABSENCE OF COMBINED OPERATING HISTORY

IES was founded in June 1997 but has conducted no operations and generated
no revenue to date. IES has entered into agreements to acquire the Founding
Companies simultaneously with the closing of the Offerings. The Founding
Companies have been operating and will continue to operate as separate
independent entities, and there can be no assurance that the Company will be
able to integrate these businesses on an economic basis. In addition, there can
be no assurance that the recently assembled management group will be able to
oversee the combined entity and effectively implement the Company's operating or
growth strategies. The pro forma combined financial results of the Founding
Companies cover periods during which the Founding Companies and IES were not
under common control or management and, therefore, may not be indicative of the
Company's future financial or operating results. The success of the Company will
depend on management's ability to integrate the Founding Companies and other
future acquisitions into one organization in a profitable manner. The inability
of the Company to successfully integrate the Founding Companies and to
coordinate and integrate certain administrative, banking, insurance and
accounting functions and computer systems would have a material adverse effect
on the Company's financial condition and results of operations and would make it
unlikely that the Company's acquisition program will be successful.

EXPOSURE TO DOWNTURNS IN COMMERCIAL CONSTRUCTION OR HOUSING STARTS

A substantial portion of the Company's business involves installation of
electrical systems in newly constructed and renovated commercial buildings,
plants and residences. The extent to which the Company is able to maintain or
increase revenues from new installation services will depend on the levels of
new construction starts from time to time in the geographic markets in which it
operates and likely will reflect the cyclical nature of the construction
industry. The level of new commercial installation services is affected by
fluctuations in the level of new construction of commercial buildings in the
markets in which the Company operates, due to local economic conditions, changes
in interest rates and other related factors. The housing industry is similarly
affected by changes in general and local economic conditions, such as employment
and income levels, the availability and cost of financing for home buyers
(including the continued deductibility of mortgage-linked interest expenses in
determining federal income tax), consumer confidence and housing demand.
Downturns in levels of commercial construction or housing starts would have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Seasonality and Quarterly Fluctuations."

RELIANCE ON ACQUISITIONS

One of the Company's principal growth strategies is to increase its
revenues, geographic diversity and the scope of services offered and to
diversify its business mix through the acquisition of electrical contracting
companies. There can be no assurance that the Company will be able to acquire
additional businesses or to integrate and manage such additional businesses
successfully. Acquisitions may involve a number of risks, including: adverse
short-term effects on the Company's reported operating results; diversion of
management's attention; dependence on retention, hiring and training of key
personnel; risks associated with unanticipated problems or legal liabilities and
amortization of acquired intangible assets. Some or all of these risks could
have a material adverse effect on the Company's financial condition or results
of operations. In addition, to the extent that consolidation becomes more
prevalent in the industry, the prices for attractive acquisition candidates may
increase and the number of attractive acquisition candidates may decrease. The
Company believes that the electrical contracting industry may experience
consolidation on both a national and a regional level by other companies that
have acquisition objectives similar to the Company's objectives. Other
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<PAGE> 12

consolidators may have greater financial resources than the Company to finance
acquisition and internal growth opportunities and might be willing to pay higher
prices than the Company for the same acquisition opportunities. If such
acquisitions can be made, there can be no assurance that the businesses acquired
will achieve sales and profitability that justify the investment therein. See
"Business -- Strategy."

MANAGEMENT OF GROWTH

The Company expects to grow internally and through acquisitions. Management
expects to expend significant time and effort in evaluating, completing and
integrating acquisitions and opening new facilities. There can be no assurance
that the Company's systems, procedures and controls will be adequate to support
the Company's operations as they expand. Any future growth also will impose
significant added responsibilities on members of senior management, including
the need to identify, recruit and integrate new senior level managers and
executives. There can be no assurance that such additional management will be
identified and retained by the Company. If the Company is unable to manage its
growth efficiently and effectively, or is unable to attract and retain
additional qualified management, there could be a material adverse effect on the
Company's financial condition and results of operations. See
"Business -- Strategy."

AVAILABILITY OF ELECTRICIANS

The Company's ability to provide high-quality electrical services on a
timely basis is dependent upon an adequate supply of skilled electricians.
Accordingly, the Company's ability to increase its productivity and
profitability will be limited by its ability to employ, train and retain skilled
electricians necessary to meet the Company's requirements. Many companies in the
electrical contracting and maintenance service industry are currently
experiencing shortages of qualified electricians, and there can be no assurance
that the Company will be able to maintain an adequate skilled labor force
necessary to operate efficiently, that the Company's labor expenses will not
increase as a result of a shortage in the supply of skilled technicians or that
the Company will not have to curtail its planned internal growth as a result of
labor shortages. See "Business -- Company Operations -- Employee Screening,
Training and Development."

COMPETITION

The electrical contracting industry is highly competitive and is served by
small, owner-operated private companies, public companies and several large
regional companies. Additionally, the Company could face competition in the
future from other competitors entering the market, including public utilities.
Certain of the Company's larger competitors offer a greater range of services,
such as mechanical construction, plumbing and heating, ventilation and air
conditioning services. In certain geographic regions, the Company may not be
eligible to compete for certain contracts because its employees are not subject
to collective bargaining arrangements. See "Business -- Industry Overview."
Competition in the electrical contracting industry depends on a number of
factors, including price. Certain of the Company's competitors may have lower
overhead cost structures and may, therefore, be able to provide their services
at lower rates than the Company. See "Business -- Competition."

ACQUISITION FINANCING

The Company intends to use its Common Stock for a portion of the
consideration for future acquisitions. If the Common Stock does not maintain a
sufficient valuation or potential acquisition candidates are unwilling to accept
Common Stock as part of the consideration for the sale of their businesses, the
Company may be required to utilize more of its cash resources, if available, in
order to pursue its acquisition program. If the Company does not have sufficient
cash resources, its growth could be limited unless it is able to obtain
additional capital through future debt or equity financings.

The Company has reached an agreement to obtain a bank line of credit for
$65 million for working capital, capital expenditures, other corporate purposes
and acquisitions. The line of credit will be subject to customary drawing
conditions and the execution of certain loan documentation. See "Management's

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<PAGE> 13

Discussion and Analysis of Financial Condition and Results of
Operations -- Combined Liquidity and Capital Resources."

SEASONALITY; FLUCTUATION OF QUARTERLY OPERATING RESULTS

The electrical contracting service business can be subject to seasonal
variations in operations and demand that affect the construction business,
particularly in residential construction, which is affected by weather
conditions. Quarterly results may also be materially affected by the timing of
acquisitions, the timing and magnitude of acquisition assimilation costs and
regional economic conditions. Accordingly, the Company's performance in any
particular quarter may not be indicative of the results which can be expected
for any other quarter or for the entire year. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Seasonality and
Quarterly Fluctuations."

CONTROL BY EXISTING MANAGEMENT AND STOCKHOLDERS

Following the completion of the Acquisitions and the Offerings, the
Company's executive officers, directors and affiliates will beneficially own
approximately 41% of the total outstanding shares of Common Stock and Restricted
Common Stock. These persons, if acting in concert, will be able to continue to
exercise control over the Company's affairs, to elect the entire Board of
Directors and to control the disposition of any matter submitted to a vote of
stockholders. See "Principal Stockholders."

PROCEEDS OF OFFERINGS AND BENEFITS TO AFFILIATES

Approximately $53.4 million, or approximately 67%, of the net proceeds of
the Offerings (net of estimated offering costs, including underwriting discounts
and commissions and costs to be incurred by the Company which have been or will
be funded by advances from Mr. Snyder), will be paid in cash to the owners of
the Founding Companies (who will generally become officers, directors or
employees of the Company). Approximately $2.7 million, or 3% of the net proceeds
of the Offerings, will be used to pay a portion of the cash transfers related to
the Owner Amounts of certain Founding Companies. In addition, approximately $6.4
million, or approximately 8% of the net proceeds of the Offerings, will be used
to repay the estimated outstanding indebtedness of the Founding Companies at the
closing of the Offerings. Net proceeds available for acquisitions, working
capital and general corporate purposes will be approximately $17.3 million, or
22% of the net proceeds of the Offerings. In connection with the Acquisitions,
the Company expects to incur approximately $13.3 million in indebtedness to fund
a portion of the Owner Amounts which will be retired with new borrowings under
the proposed credit facility. See "Use of Proceeds" and "Certain Transactions."

BENEFITS TO FOUNDER AND MANAGEMENT

In connection with services rendered, C. Byron Snyder, the founder of IES,
and management received in the aggregate 4,052,311 shares of Common Stock for
nominal consideration. These shares will represent, in the aggregate,
approximately 17.3% of the total outstanding Common Stock following the
consummation of the Offerings. Of these shares of Common Stock, the 2,655,709
shares held by Mr. Snyder and trusts for the benefit of his children were
exchanged for Restricted Common Stock, holders of which are entitled to elect
one member of the Company's Board of Directors and to one-half of one vote for
each share held on all other matters on which they are entitled to vote. Holders
of Restricted Common Stock are not entitled to vote on the election of any other
directors and will control in the aggregate 5.7% of the votes of all shares of
capital stock. See "Principal Stockholders." Mr. Snyder will also be reimbursed
for advances made to the Company to fund expenses of the Offerings estimated to
total approximately $4.8 million. Advances to the Company from Mr. Snyder
amounted to approximately $1.6 million as of September 30, 1997. The initial $1
million of such advances bears interest at a stated rate (8.5% as of the date of
this Prospectus), and additional advances bear interest at LIBOR plus 1.5%. See
"Use of Proceeds."

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<PAGE> 14

NO PRIOR MARKET, POSSIBLE VOLATILITY OF STOCK

Prior to the Offerings, no public market for the Common Stock has existed,
and the initial public offering price, which was determined by negotiations
between the Company and representatives of the Underwriters, may not be
indicative of the price at which the Common Stock will trade after the
Offerings. See "Underwriting" for the factors considered in determining the
initial public offering price. The Common Stock has been approved for listing
upon notice of issuance on the NYSE, but no assurance can be given that an
active trading market for the Common Stock will develop or, if developed,
continue after the Offerings. The market price of the Common Stock after the
Offerings may be subject to significant fluctuations from time to time in
response to numerous factors, including variations in the reported financial
results of the Company and changing conditions in the economy in general or in
the electrical contracting and maintenance service industry in particular. In
addition, the stock markets experience significant price and volume volatility
from time to time which may affect the market price of the Common Stock for
reasons unrelated to the Company's performance.

DEPENDENCE ON KEY PERSONNEL

The Company's operations are dependent on the continued efforts of its
executive officers and senior management of the Founding Companies. Furthermore,
the Company will be dependent on the senior management of companies that may be
acquired in the future. Although the Company will enter into an employment
agreement with each of the Company's executive officers, there can be no
assurance that any individual will continue in such capacity for any particular
period of time. The loss of key personnel, or the inability to hire and retain
qualified employees could have an adverse effect on the Company's business,
financial condition and results of operations. The Company does not maintain key
man life insurance. See "Management."

SHARES ELIGIBLE FOR FUTURE SALE

As of the date of this Prospectus, 1,396,602 shares of Common Stock and
2,655,709 shares of Restricted Common Stock were issued and outstanding.
Simultaneously with the closing of the Offerings, the owners of the Founding
Companies will receive, in the aggregate, 12,313,025 shares of Common Stock as a
portion of the Acquisitions Consideration. None of these 16,365,336 shares was
or will be issued in a transaction registered under the Securities Act, and,
accordingly, such shares may not be sold except in transactions registered under
the Securities Act or pursuant to an exemption from registration, including the
exemptions contained in Rules 144 and 701 under the Securities Act. In addition,
the current stockholders of the Company and the owners of the Founding Companies
have agreed with the Company not to sell, contract to sell or otherwise dispose
of any shares of Common Stock owned as of the consummation of the Acquisitions,
including shares received as consideration in the Acquisitions, for a period of
two years following receipt thereof without the Company's consent. When these
shares become saleable, the market price of the Common Stock could be adversely
affected by the sale of substantial amounts of the shares in the public market.
The current stockholders of the Company and the stockholders of the Founding
Companies have certain piggy-back registration rights with respect to their
shares of Common Stock, which may be exercised during the two-year period
referred to above.

As of the closing of the Offerings, the Company also will have outstanding
options to purchase up to a total of (i) approximately 2,628,600 shares of
Common Stock issued pursuant to the Company's 1997 Stock Plan, and (ii) 15,000
shares of Common Stock issued pursuant to the Company's 1997 Directors Stock
Plan. The greater of (i) 3,500,000 shares or (ii) 15% of the number of shares of
Common Stock outstanding on the date of grant will be issuable pursuant to the
1997 Stock Plan, and a total of 250,000 shares will be issuable pursuant to the
1997 Directors Stock Plan. The Company intends to file a registration statement
covering all such shares under the Securities Act. See "Management -- 1997 Stock
Plan."

The Company currently intends to file a registration statement covering up
to an additional 6,000,000 shares of Common Stock under the Securities Act for
its use in connection with future acquisitions. These shares generally will be
freely tradeable after their issuance by persons not affiliated with the Company
unless the Company contractually restricts their resale.

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<PAGE> 15

There can be no assurance that the resale or the availability for sale of
the shares of Common Stock eligible for future sale will not have an adverse
effect on the prevailing market price of the Common Stock.

CERTAIN ANTI-TAKEOVER PROVISIONS

The Company's Amended and Restated Certificate of Incorporation, Bylaws,
employment agreements and employee benefit plans contain provisions which may
have the effect of delaying, deferring or preventing a change in control of the
Company. For example, the Company's Amended and Restated Certificate of
Incorporation and Bylaws provide for, among other things, a classified Board of
Directors, the prohibition of stockholder action by written consent and the
affirmative vote of at least 66 2/3% of all outstanding shares of Common Stock
to approve the removal of directors from office. The Company's Board of
Directors has the authority to issue shares of preferred stock in one or more
series and to fix the rights and preferences of the shares of any such series
without stockholder approval. Any series of preferred stock is likely to be
senior to the Common Stock with respect to dividends, liquidation rights and,
possibly, voting. In addition, the Board of Directors may issue certain rights
pursuant to the rights plan authorized by the Amended and Restated Certificate
of Incorporation. The ability to issue preferred stock or rights could have the
effect of discouraging unsolicited acquisition proposals. The Company's 1997
Stock Plan contains provisions that allow for, among other things, the
acceleration of vesting or payment of awards granted under such plan in the
event of a "change of control," as defined in such plan. In addition, the
Company has entered into employment agreements with certain executive officers
and key employees allowing for cash payments under certain circumstances
following a change in control, which is generally defined to occur upon (i) the
acquisition by any person of 20% or more of the total voting power of the
outstanding securities of the Company, (ii) the first purchase pursuant to a
tender or exchange offer for Common Stock, (iii) the approval of certain
mergers, sale of substantially all the assets, or dissolution of the Company or
(iv) a change in a majority of the members of the Company's Board of Directors.

IMMEDIATE AND SUBSTANTIAL DILUTION

The purchasers of the shares of Common Stock offered hereby will experience
immediate dilution in the net tangible book value of their shares of $11.29 per
share. See "Dilution." In the event the Company issues additional shares of
Common Stock in the future, including shares which may be issued in connection
with acquisitions or other public or private financings, purchasers of Common
Stock in the Offerings may experience further dilution in the net tangible book
value per share of the Common Stock. See "Dilution."

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<PAGE> 16

THE COMPANY

IES was founded in June 1997 to create a leading national provider of
electrical contracting and maintenance services. Concurrently with and as a
condition to the closing of the Offerings, IES will acquire the 16 Founding
Companies. The Founding Companies, which have been in business for an average of
18 years, had pro forma combined year ended September 30, 1997 revenues of
approximately $312.7 million. The Acquisitions Consideration to be paid by the
Company consists of approximately $53.4 million in cash and 12,313,025 shares of
Common Stock. The Acquisitions Consideration was determined by negotiations
among the Company and representatives of the Founding Companies. See "Certain
Transactions." A brief description of each of the Founding Companies is set
forth below.

HOUSTON-STAFFORD. Houston-Stafford was founded in 1973 and is headquartered
in Stafford, Texas, near Houston. Houston-Stafford operates primarily in Texas,
with other significant operations in Georgia, Virginia, Tennessee and Maryland.
Houston-Stafford had revenues of approximately $81.6 million for the year ended
September 30, 1997, primarily from residential contracting and, to a lesser
extent, from commercial and industrial contracting. Because Houston-Stafford has
developed ongoing relationships with developers and homebuilders that have
regional and national operations, Houston-Stafford has experience in
establishing business operations in different locations to meet the demands of
its national clientele for electrical contracting in various regions.
Houston-Stafford has approximately 1,000 employees. In April 1997,
Houston-Stafford financed the acquisition of an electrical supply company
located in Houston. Ben Mueller, executive vice president of Houston-Stafford,
will become Senior Vice President and Chief Operating Officer -- Residential and
a director of the Company following consummation of the Offerings. Roy D. Brown,
president of Houston-Stafford, will sign a five-year employment agreement with
IES to continue in his position as president of Houston-Stafford following
consummation of the Offerings. John Wagner, who is vice president of
Houston-Stafford and president of the electrical supply company, will sign a
five-year employment agreement with IES to continue in his position as president
of the electrical supply company following consummation of the Offerings.

MILLS. Mills was founded in 1972 and conducts most of its business in the
greater Dallas-Fort Worth, Texas area. Mills had revenues of approximately $74.4
million for the year ended September 30, 1997, primarily from commercial and
industrial contracting and, to a lesser extent, from maintenance services. Mills
has specialized expertise in data cabling, fire alarm systems and
computer-aided-design for electrical contracting; and a significant portion of
its revenues for the year ended September 30, 1997 was attributable to
design-and-build projects. Mills has approximately 570 employees. Jerry Mills,
president and founder of Mills, will become Senior Vice President and Chief
Operating Officer -- Commercial and Industrial and a director of the Company
following consummation of the Offerings.

BEXAR-CALHOUN. The predecessor entity of Bexar was founded in 1962 and
operates primarily in the areas around the cities of San Antonio, New Braunfels
and Laredo, Texas. The predecessor entity of Calhoun was founded in 1958 and
operates in the counties around San Antonio. On a consolidated basis,
Bexar-Calhoun had revenues of approximately $32.2 million for the year ended
September 30, 1997, relatively balanced between commercial and industrial
contracting, residential contracting and maintenance services. Bexar-Calhoun has
approximately 450 employees. Bob Weik, president of BW Consolidated, Inc., will
sign a five-year employment agreement with IES to continue in his present
position with Bexar-Calhoun and will become a director of the Company following
consummation of the Offerings.

POLLOCK. Pollock was founded in 1983 and is headquartered in Houston,
Texas. Pollock had revenues of approximately $20.3 million for the year ended
September 30, 1997, primarily from commercial and industrial contracting. For
projects located outside of Houston, Pollock generally works with another
electrical service contractor based near the project. Pollock has specialized
design-and-build and computer-aided-design expertise, and, on certain projects,
Pollock prefabricates materials to reduce costs and time required at the work
site. Pollock has approximately 230 employees. Jon Pollock, founder and
president of Pollock and a former president of the IEC, will become President
and Chief Executive Officer and a director of the Company following consummation
of the Offerings.

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<PAGE> 17

MUTH. The predecessor entity of Muth was founded in 1970 and has seven
offices located in South Dakota, including its headquarters in Mitchell. Muth
also operates from time to time in Wyoming, Montana, Nebraska and Minnesota.
Muth had revenues of approximately $18.8 million for the year ended September
30, 1997, primarily from commercial and industrial contracting and, to a lesser
extent, from residential contracting and maintenance services. Muth has
expertise in design-and-build projects, computer-aided-design technology and
prefabrication of electrical components. Muth has approximately 180 employees.
Richard Muth, founder and president of Muth, will sign a five-year employment
agreement with IES to continue in his present position with Muth and will become
a director of the Company following consummation of the Offerings.

DANIEL. Daniel Electrical Contractors, Inc. was founded in 1986, is
headquartered in Miami, Florida and operates primarily in South Florida. Daniel
Electrical of Treasure Coast Inc. was founded in 1995 and is headquartered in
Vero Beach, Florida. Daniel had combined revenues of approximately $18.4 million
for the year ended September 30, 1997, primarily from commercial and industrial
contracting (including high-rise condominiums). Because developers generally
presell a certain percentage of condominiums prior to commencing construction,
Daniel has experience in meeting the accelerated contracting schedules that are
often required to meet mandated closing periods for condominium sales. Daniel
has approximately 240 employees. Thomas Daniel, founder and president of Daniel,
will sign a five-year employment agreement with IES to continue in his present
position with Daniel following consummation of the Offerings.

AMBER. Amber was founded in 1979 and operates from its base near Orlando,
Florida. Amber had revenues of approximately $16.4 million for the year ended
September 30, 1997, primarily from commercial and industrial contracting. Amber
has approximately 230 employees. Danniel J. Petro, founder and president of
Amber, will sign a five-year employment agreement with IES to continue in his
present position with Amber following consummation of the Offerings.

HAYMAKER. The predecessor entity of Haymaker was founded in 1978. Haymaker
is headquartered in Birmingham, Alabama, and operates in Alabama, northwest
Florida and North Carolina. Haymaker had revenues of approximately $11.8 million
for the year ended September 30, 1997, primarily from commercial and industrial
contracting. Haymaker has expertise in design-and-build projects, lightning
protection and fire alarms, and its largest existing contracts involve new
construction of high-rise office buildings. Haymaker has approximately 110
employees. Charles P. Bagby, founder and president of Charles P. Bagby, Co.,
Inc., will sign a five-year employment agreement with IES to continue in his
present position with Charles P. Bagby, Co., Inc. following consummation of the
Offerings.

SUMMIT. Summit was founded in 1987 and is located in Houston, Texas. Summit
had revenues of approximately $11.0 million for the year ended September 30,
1997, primarily from commercial and industrial contracting and, to a lesser
extent, from maintenance services. Summit has specialized expertise in data
cable design and installation and lighting design. Summit has approximately 150
employees. Steve Jackson, president of Summit, will sign a five-year employment
agreement with IES to continue his present position following consummation of
the Offerings.

THURMAN & O'CONNELL. Thurman & O'Connell was founded in 1988. It is
headquartered in Louisville, Kentucky, and operates primarily in Louisville and
the surrounding areas. Thurman & O'Connell had revenues of approximately $4.0
million for the year ended September 30, 1997, primarily from commercial and
industrial contracting. Thurman & O'Connell bids primarily on larger projects
and out-of-budget projects to which it can apply in-house value engineering,
lowering costs to its customers and typically increasing its margins. Thurman &
O'Connell has approximately 70 employees. James Thurman, president of Thurman &
O'Connell and a member of the executive committee of the IEC, will sign a
five-year employment agreement with IES to continue in his present position with
Thurman & O'Connell following consummation of the Offerings.

RODGERS. Rodgers was founded in 1977, is headquartered in Everett,
Washington and operates in Everett and the north Puget Sound area. Rodgers had
revenues of approximately $3.3 million for the year ended September 30, 1997,
primarily from electrical maintenance and service work and commercial and
industrial contracting. Rodgers has specialized expertise in
computer-aided-design technology and focuses on design-

15
<PAGE> 18

and-build projects undertaken on negotiated rather than bid terms. Rodgers has
approximately 32 employees. Terry Earnheart, president of Rodgers, will sign a
five-year employment agreement with IES to continue in his present position with
Rodgers following consummation of the Offerings.

HATFIELD. The predecessor entity of Hatfield was founded in 1984 and
operates in the greater Phoenix, Arizona area from its offices in Scottsdale,
Arizona. Hatfield had revenues of approximately $6.0 million for the year ended
September 30, 1997, primarily from commercial and industrial contracting and, to
a lesser extent, from commercial and industrial maintenance services. Hatfield
has specialized expertise in electrical contracting for cellular telephone sites
and maintains the necessary state licenses to perform such services in Arizona
and four adjacent states. Hatfield has approximately 80 employees. Harvey
Friedman, founder and president of Hatfield and a member of the executive
committee of the IEC, will sign a five-year employment agreement with IES to
continue in his present position with Hatfield following consummation of the
Offerings.

ACE. Ace was founded in 1975 in Valdosta, Georgia. Ace had revenues of
approximately $6.3 million for the year ended September 30, 1997, primarily from
commercial and industrial contracting and, to a lesser extent, from commercial
and industrial maintenance services. Ace has specialized expertise in
prefabrication of electrical components, which it uses to accelerate the
completion time for its construction projects. Ace has approximately 70
employees. Thomas Stalvey, founder and president of Ace, and Robert Stalvey,
vice president of Ace, will sign five-year employment agreements with IES to
continue in their present positions with Ace following consummation of the
Offerings. Robert Stalvey will also become a director of the Company following
consummation of the Offerings.

REYNOLDS. The predecessor entity of Reynolds was founded in 1973 in
Phoenix, Arizona. Reynolds had revenues of approximately $6.4 million for the
year ended September 30, 1997, primarily from commercial and industrial
contracting. Reynolds has specialized expertise in value engineering for
design-and-build projects. Reynolds has approximately 90 employees. Ernie
Reynolds, president of Reynolds, will sign a five-year employment agreement with
IES to continue in his present position with Reynolds following consummation of
the Offerings.

POPP. Popp was founded in 1984 in Cincinnati, Ohio, and operates in Ohio
and northern Kentucky. Popp had revenues of approximately $3.5 million for the
year ended September 30, 1997, primarily from commercial and industrial
contracting. Design-and-build projects accounted for a significant portion of
revenues for the year ended September 30, 1997. Popp uses computer-aided-design
technology and has also developed software enhancements for its design-and-build
projects. Popp has approximately 50 employees. Thomas Popp, co-founder and
president of Popp, and William Beischel, co-founder and vice president of Popp,
will sign five-year employment agreements with IES to continue in their present
positions with Popp following consummation of the Offerings.

Integrated Electrical Services, Inc. was incorporated in Delaware in June
1997. Its executive offices are located at 2301 Preston, Houston, Texas 77003,
and its telephone number is (713) 222-1875.

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<PAGE> 19

USE OF PROCEEDS

The net proceeds to the Company from the sale of the shares of Common Stock
offered hereby (after deducting estimated underwriting discounts and commissions
and estimated offering expenses payable by the Company which have been or will
be funded by advances from Mr. Snyder) will be approximately $79.8 million
(approximately $92.5 million if the Underwriters' over-allotment options are
exercised in full).

Of the $79.8 million net proceeds, the Company estimates that approximately
$53.4 million will be used to pay the cash portion of the Acquisitions
Consideration, all of which will be paid to former stockholders and other equity
owners of the Founding Companies. Approximately $2.7 million of the net proceeds
will be used to pay a portion of the cash transfers related to the Owner Amounts
of certain Founding Companies. In addition, approximately $6.4 million of the
net proceeds will be used to repay the estimated outstanding indebtedness of the
Founding Companies at the closing of the Offerings. The estimated outstanding
indebtedness to be repaid from the proceeds of the Offerings bears interest at a
weighted average interest rate of approximately 8.9% and matures at various
dates from December 1997 through October 2012. In connection with the
Acquisitions, the Company expects to issue approximately $13.3 million of notes
payable to fund a portion of the Owner Amounts. Following the consummation of
the Offerings, such notes payable to owners of the Founding Companies will be
repaid with borrowings under the proposed credit facility. The Company will use
a portion of the proceeds received from the Offerings to repay Mr. Snyder for
the $4.8 million estimated offering costs expected to be advanced by him to the
Company. Such advances amounted to approximately $1.6 million as of September
30, 1997. The initial $1 million of such advances bears interest at a stated
rate (8.5% as of the date of this Prospectus), and additional advances bear
interest at LIBOR plus 1.5%. See "Certain Transactions."

The approximately $17.3 million of remaining net proceeds ($30.0 million if
the Underwriters' over-allotment options are exercised in full) will be used for
working capital and for general corporate purposes, which are expected to
include future acquisitions. Pending such uses, the Company intends to invest
the net proceeds of the Offerings in short-term, investment-grade,
interest-bearing securities. While the Company is continuously considering
possible acquisition prospects as part of its growth strategy, the Company is
not presently engaged in active negotiations with respect to any particular
acquisition. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Combined Liquidity and Capital Resources."

DIVIDEND POLICY

The Company currently intends to retain its future earnings, if any, to
finance the growth, development and expansion of its business and, accordingly,
does not currently intend to declare or pay any dividends on the Common Stock
for the foreseeable future. The declaration, payment and amount of future
dividends, if any, will be at the discretion of the Company's Board of Directors
after taking into account various factors, including, among others, the
Company's financial condition, results of operations, cash flows from
operations, current and anticipated capital requirements and expansion plans,
the income tax laws then in effect and the requirements of Delaware law. In
addition, the terms of the Company's proposed credit facility will prohibit the
payment of dividends by the Company on the Common Stock. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Combined Liquidity and Capital Resources."

17
<PAGE> 20

CAPITALIZATION

The following table sets forth the current maturities of long-term debt and
the capitalization as of September 30, 1997 of (i) the Company on a pro forma
combined basis after giving effect to the Acquisitions and related transactions,
and (ii) the Company on a pro forma basis, as adjusted to give effect to the
Offerings and the application of the estimated net proceeds therefrom. See "Use
of Proceeds." This table should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Combined Liquidity and Capital Resources" and the Unaudited Pro
Forma Financial Statements of the Company and the notes thereto, included
elsewhere in this Prospectus.

<TABLE>
<CAPTION>
PRO FORMA
------------------------------
AS OF SEPTEMBER 30, 1997
------------------------------
COMBINED(A) AS ADJUSTED(B)
----------- --------------
(IN THOUSANDS)
<S> <C> <C>
Current maturities of long-term debt........................ $ 58,262(c) $ 365
======== ========
Long-term debt, net of current maturities(d)................ $ 18,541 $ 13,983
-------- --------
Stockholders' equity:
Preferred Stock: $0.01 par value, 10,000,000 shares
authorized; no shares issued and outstanding........... -- --
Common Stock: $0.01 par value, 100,000,000 shares
authorized; 13,709,627 issued and outstanding, pro
forma combined; and 20,709,627 shares issued and
outstanding, as adjusted(e)............................ 137 207
Restricted Common Stock: $0.01 par value, 2,655,709 shares
authorized, issued and outstanding(f).................. 26 26
Additional paid-in capital................................ 127,616 207,326
Retained deficit.......................................... (15,366) (15,366)
-------- --------
Total stockholders' equity........................ 112,413 192,193
-------- --------
Total capitalization.............................. $130,954 $206,176
======== ========
</TABLE>

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

(a) Combines the respective accounts of IES and the Founding Companies as
reflected in the Unaudited Pro Forma Combined Balance Sheet as of September
30, 1997 prior to the Offerings.

(b) Adjusted to reflect the sale of 7,000,000 shares of Common Stock offered
hereby and the application of the estimated net proceeds therefrom. See "Use
of Proceeds."

(c) Includes $53.4 million of notes payable to owners of the Founding Companies,
representing the cash portion of the Acquisitions Consideration to be paid
from a portion of the net proceeds of the Offerings.

(d) Includes $13.3 million in notes payable incurred to fund a portion of the
Owner Amounts to certain owners of the Founding Companies. Following the
consummation of the Offerings, such notes payable to owners of the Founding
Companies will be repaid with borrowings under the proposed credit facility.
See "Certain Transactions."

(e) Excludes 300,000 shares related to stock options which are currently
outstanding and shares related to approximately 2,343,600 stock options
which are expected to be granted upon consummation of the Offerings.

(f) All of such shares of Restricted Common Stock have been issued to the
founder and Chairman of the Board of IES and trusts for the benefit of his
children. See "Description of Common Stock."

18
<PAGE> 21

DILUTION

At September 30, 1997, after giving effect to the Acquisitions as if they
had occurred at such date, the deficit in pro forma combined net tangible book
value of the Company would have been $39.7 million, or approximately $2.43 per
share. The deficit in pro forma combined net tangible book value is equal to the
aggregate net tangible book value (tangible assets less total liabilities) of
the Company after giving effect to the Acquisitions. The number of shares used
for the per share calculation includes the 16,365,336 shares outstanding after
the Acquisitions but prior to the Offerings. After giving effect to the
Acquisitions and the sale by the Company of the 7,000,000 shares of Common Stock
offered hereby (after deducting underwriting discounts and commissions and
estimated offering expenses payable by the Company which have been or will be
funded by advances from Mr. Snyder), the pro forma combined net tangible book
value of the Company would have been $40.0 million, or $1.71 per share. This
represents an immediate increase in pro forma net tangible book value of $4.14
per share to existing stockholders and an immediate dilution in net tangible
book value of $11.29 per share to new investors purchasing the shares of Common
Stock in the Offerings. The following table illustrates this per share dilution:

<TABLE>
<S> <C> <C>
Initial public offering price per share..................... $13.00
Pro forma combined net tangible book value per share prior
to
the Offerings.......................................... $(2.43)
Increase in pro forma net tangible book value per share
attributable to new investors.......................... 4.14
------
Pro forma combined net tangible book value per share after
the Offerings............................................. 1.71
------
Dilution in net tangible book value per share to new
investors................................................. $11.29
======
</TABLE>

The following table sets forth on a pro forma basis, after giving effect to
the Acquisitions as of September 30, 1997, the number of shares of Common Stock
purchased from the Company, the total consideration to the Company and the
average price per share paid to the Company by (i) existing stockholders and
owners of the Founding Companies and (ii) the new investors purchasing Common
Stock from the Company in the Offerings (before deducting underwriting discounts
and commissions and estimated offering expenses):

<TABLE>
<CAPTION>
SHARES PURCHASED
---------------------- TOTAL AVERAGE PRICE
NUMBER PERCENT CONSIDERATION PER SHARE
----------- ------- ------------- -------------
<S> <C> <C> <C> <C>
Existing stockholders and owners of
Founding Companies(a)(b)................. 16,365,336 70.0% $(39,698,413) $(2.43)
New investors.............................. 7,000,000 30.0 91,000,000 13.00
----------- ----- ------------
Total.................................... 23,365,336 100.0% $ 51,301,587
=========== ===== ============
</TABLE>

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

(a) See "Certain Transactions" for a discussion of the issuance of Restricted
Common Stock and Common Stock to the founder and Chairman of the Board of
IES and trusts for the benefit of his children, and the owners of Founding
Companies and certain management of IES, respectively.

(b) Total consideration paid by Founding Company owners represents the combined
owners' equity of the Founding Companies before the Offerings, and has been
adjusted to reflect: (i) the payment of $53.4 million in cash to the owners
of the Founding Companies as part of the Acquisitions Consideration and (ii)
the transfer of the Owner Amounts. See "Certain Transactions."

19
<PAGE> 22

SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

IES will acquire the Founding Companies simultaneously with and as a
condition to the consummation of the Offerings. For financial statement
presentation purposes, however, Houston-Stafford has been designated as the
"accounting acquirer." The following selected historical financial data for
Houston-Stafford as of December 31, 1995 and 1996, and September 30, 1997, and
for the years ended December 31, 1994, 1995 and 1996, and the year ended
September 30, 1997, have been derived from audited financial statements of
Houston-Stafford included elsewhere in this Prospectus and reflect all
adjustments, consisting of normal recurring adjustments, necessary for a fair
presentation of such data. The selected historical financial data for the nine
months ended September 30, 1996 and 1997, and as of December 31, 1992, 1993 and
1994, and for the years ended December 31, 1992 and 1993, have been derived from
the unaudited financial statements of Houston-Stafford, which have been prepared
on the same basis as the audited financial statements and, in the opinion of
Company management, reflect all adjustments consisting of normal recurring
adjustments, necessary for a fair presentation of such data. The results of
operations for the nine months ended September 30, 1997 should not be regarded
as indicative of the results that may be expected for the full year.

The summary unaudited pro forma combined financial data below present
certain data for the Company, as adjusted for (i) the effects of the
Acquisitions, (ii) the effects of certain other pro forma adjustments to the
historical financial statements and (iii) the consummation of the Offerings and
the application of the net proceeds therefrom. The unaudited pro forma combined
income statement data assume that the Acquisitions, the Offerings and related
transactions were closed on October 1, 1996, and are not necessarily indicative
of the results that the Company would have obtained had these events actually
occurred at that date or indicative of the Company's future results. During the
periods presented below, the Founding Companies were not under common control or
management and, therefore, the data presented may not be comparable to or
indicative of post-combination results to be achieved by the Company. The
unaudited pro forma combined income statement data are based on preliminary
estimates, available information and certain assumptions that Company management
deems appropriate. The unaudited pro forma combined financial data should be
read in conjunction with the other financial information included elsewhere in
this Prospectus. See the Unaudited Pro Forma Combined Financial Statements and
the notes thereto, included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, YEAR ENDED SEPTEMBER 30,
----------------------------------------------- SEPTEMBER 30, -----------------
1992 1993 1994 1995 1996 1997 1996 1997
------- ------- ------- ------- ------- ------------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL INCOME STATEMENT
DATA (HOUSTON-STAFFORD):
Revenues............... $28,939 $32,363 $48,001 $54,082 $70,493 $81,575 $53,062 $64,144
Cost of services
(including
depreciation)........ 25,781 29,307 42,163 46,712 57,662 64,831 44,485 51,654
------- ------- ------- ------- ------- ------- ------- -------
Gross profit........... 3,158 3,056 5,838 7,370 12,831 16,744 8,577 12,490
Selling, general and
administrative
expenses............. 2,892 2,720 5,319 6,027 7,810 11,474 4,404 8,068
------- ------- ------- ------- ------- ------- ------- -------
Income from
operations........... 266 336 519 1,343 5,021 5,270 4,173 4,422
Interest and other
income (expense),
net.................. (66) (83) (71) (196) (40) 238 (41) 237
------- ------- ------- ------- ------- ------- ------- -------
Income before income
taxes................ 200 253 448 1,147 4,981 5,508 4,132 4,659
Provision for income
taxes................ 14 56 186 416 1,934 2,192 1,544 1,802
------- ------- ------- ------- ------- ------- ------- -------
Net income............. $ 186 $ 197 $ 262 $ 731 $ 3,047 $ 3,316 $ 2,588 $ 2,857
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>

20
<PAGE> 23

<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30, 1997
------------------
<S> <C>
PRO FORMA COMBINED:
Revenues.................................................. $ 312,747
Cost of services (including depreciation)................. 247,772
----------
Gross profit.............................................. 64,975
Selling, general and administrative expenses(a)........... 35,938
Goodwill amortization(b).................................. 3,780
----------
Income from operations.................................... 25,257
Interest and other income (expense), net(c)............... 249
----------
Income before income taxes................................ 25,506
Provision for income taxes................................ 11,161
----------
Net income(d)............................................. $ 14,345
==========
Net income per share...................................... $ .65
==========
Shares used in computing pro forma net income per
share(e)................................................ 22,152,604
==========
</TABLE>

<TABLE>
<CAPTION>
HISTORICAL(F) PRO FORMA
----------------------------------------------------------- -------------------------------
AS OF DECEMBER 31, AS OF AS OF SEPTEMBER 30, 1997(G)(H)
------------------------------------------- SEPTEMBER 30, -------------------------------
1992 1993 1994 1995 1996 1997 COMBINED AS ADJUSTED(I)
------ ------ ------ ------ ------- ------------- ----------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital...... $1,845 $2,001 $2,134 $2,675 $ 4,671 $ 5,414 $(31,780)(j) $ 43,442
Total assets......... 5,570 6,582 8,809 9,357 13,226 24,470 240,027 255,792
Long-term debt, net
of current
maturities......... 719 505 927 634 1,295 968 18,541 13,983
Total stockholders'
equity............. 2,224 2,325 1,952 3,104 5,351 8,208 112,413 192,193
</TABLE>

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

(c) Reflects the reduction for interest expense of $0.7 million attributable to
$8.1 million of historical debt which will be repaid with proceeds from the
Offerings or distributed prior to the Acquisitions, net of additional
interest expense of $1.0 million related to the debt discussed in (h) below.
Additionally, reflects a $316,000 reduction in minority interest expense.

(d) Assumes all pretax income before non-deductible goodwill and other permanent
items is subject to a 38% overall tax rate.

(e) Includes (i) 12,313,025 shares to be issued to the owners of the Founding
Companies, (ii) 1,396,602 shares issued to the management of IES, (iii)
2,655,709 shares of Restricted Common Stock issued to the founder and
Chairman of the Board of IES and trusts for the benefit of his children and
(iv) 5,667,268 of the 7,000,000 shares sold in the Offerings necessary to
pay the cash portion of the Acquisitions Consideration and offering
expenses. Also, includes 120,000 shares computed under the treasury stock
method related to 300,000 options which are currently outstanding, but
excludes any effects from options to purchase 2,343,600 shares which are
expected to be granted at the initial public offering price upon
consummation of the Offerings. See "Description of Capital Stock."

21
<PAGE> 24

(f) Historical balance sheet data are for Houston-Stafford as of the applicable
periods.

(g) Reflects the Acquisitions and related transactions as if they had occurred
on September 30, 1997 as described in the notes to the Unaudited Pro Forma
Combined Financial Statements. The unaudited pro forma combined balance
sheet data are based upon preliminary estimates, available information and
certain assumptions that management deems appropriate and should be read in
conjunction with the other financial information and historical financial
statements, and notes thereto, included elsewhere in this Prospectus.

(h) Reflects $30.6 million of Owner Amounts that will be transferred in
connection with the Acquisitions to the owners of the Founding Companies.
This amount will be funded through the following: (i) transfers of
approximately $5.7 million of nonoperating assets, net of liabilities, (ii)
transfers of approximately $11.6 million of cash (including $2.7 million of
proceeds from the Offerings) and (iii) the issuance of approximately $13.3
million of notes payable to certain owners of the Founding Companies which
will be retired with new borrowings under the proposed credit facility. See
"Certain Transactions."

(i) Reflects the closing of the Offerings and the Company's application of the
net proceeds therefrom to fund the cash portion of the Acquisitions
Consideration and to repay certain indebtedness of the Founding Companies.
See "Use of Proceeds" and "Certain Transactions."

(j) Includes the estimated $53.4 million in notes payable to owners of the
Founding Companies, representing the cash portion of the Acquisitions
Consideration to be paid from a portion of the net proceeds from the
Offerings. See "Pro Forma -- As Adjusted" amounts.

22
<PAGE> 25

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

INTRODUCTION

The following discussion should be read in conjunction with the Founding
Companies' Financial Statements, and related notes thereto, and "Selected
Financial Data" appearing elsewhere in this Prospectus.

The Company's revenues are derived primarily from electrical construction
and maintenance services provided to commercial, industrial and residential
customers. Of the Company's pro forma combined year ended September 30, 1997
revenues of $312.7 million, approximately 63% was derived from commercial and
industrial contracting, approximately 25% was derived from residential
contracting and approximately 12% was derived from electrical maintenance work.
Revenues from fixed-price construction and renovation contracts are generally
accounted for on a percentage-of-completion basis, using the cost-to-cost
method. The cost-to-cost method measures the percentage completion of a contract
based on total costs incurred to date compared to total estimated costs at
completion. Maintenance and other service revenues are recognized as the
services are performed.

Cost of services consists primarily of salaries and benefits of employees,
subcontracted services, materials, parts and supplies, depreciation, fuel and
other vehicle expenses and equipment rentals. The Company's gross margin, which
is gross profit expressed as a percentage of revenues, depends on the relative
proportions of costs related to labor and materials. On jobs in which a higher
percentage of the cost of services consists of labor costs, the Company
typically achieves higher gross margins than on jobs where materials represent
more of the cost of services. Materials costs can be calculated with relatively
greater accuracy than labor costs, and the Company seeks to maintain higher
margins on its labor-intensive projects to compensate for the potential
variability of labor costs for these projects. Selling, general and
administrative expenses consist primarily of compensation and related benefits
for owners, administrative salaries and benefits, advertising, office rent and
utilities, communications and professional fees. Certain owners and certain key
employees of the Founding Companies have agreed to reductions in their
compensation and related benefits totaling approximately $6.1 million in year
ended September 30, 1997 in connection with the Acquisitions. Such reductions in
salaries, bonuses and benefits have been reflected as a pro forma adjustment in
the Unaudited Pro Forma Combined Statement of Operations and are reflected in
the terms of employment agreements with the Company.

The Company believes that it will realize savings from (i) consolidation of
insurance and bonding programs; (ii) reduction in other general and
administrative expenses, such as training and advertising; (iii) the Company's
ability to borrow at lower interest rates than the Founding Companies; (iv)
consolidation of operations in certain locations and (v) greater volume
discounts from suppliers of materials, parts and supplies. Offsetting these
savings will be costs related to the Company's new corporate management, costs
of being a public company and costs of integrating the companies acquired in the
Acquisitions.

The Company has sold an aggregate of 1,396,602 shares of Common Stock to
its management and has recorded (for financial statement presentation purposes)
a non-recurring, non-cash compensation charge of $13.6 million relating to such
sale. This non-recurring compensation charge has been excluded from the total
pro forma combined amounts in the Unaudited Pro Forma Combined Financial
Statements.

As a result of the Acquisitions, the excess of the consideration paid over
the fair value of the net assets to be acquired, will be recorded as goodwill on
the Company's balance sheet. Goodwill will be amortized as a non-cash charge to
the income statement over a 40-year period. The pro forma impact of this
amortization expense, which is non-deductible for tax purposes, is $3.8 million
per year.

SUPPLEMENTAL UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION OF THE FOUNDING
COMPANIES

The following supplemental unaudited pro forma combined financial
information for the periods presented do not purport to present those of the
combined Founding Companies in accordance with generally

23
<PAGE> 26

accepted accounting principles, but represent merely a summation of the
revenues, cost of services (including depreciation), gross profit, selling,
general and administrative expenses and income from operations of the individual
Founding Companies on a historical basis and excludes the effects of the pro
forma adjustments that are included in the Unaudited Pro Forma Combined
Statements appearing elsewhere in this Prospectus. Selling, general and
administrative expenses for periods prior to the Acquisitions reflect the
effects of historical salary and bonus distributions to the owners of the
Founding Companies. The data will not be comparable to, and may not be
indicative of, the Company's post-combination results of operations because (i)
the Founding Companies were not under common control or management and certain
Founding Companies had different tax structures (generally, S corporations or
partnerships) during the periods presented, (ii) the Company will use the
purchase method to establish a new basis of accounting to record the
Acquisitions, (iii) the Company will incur incremental costs for its corporate
management and the costs of being a public company and (iv) the combined data do
not reflect the potential benefits and cost savings the Company expects to
realize when operating as a combined entity.

The following table sets forth certain supplemental unaudited pro forma
combined financial information for the periods indicated:

<TABLE>
<CAPTION>
FISCAL YEARS ENDED(A) YEAR ENDED
------------------------------------------------ SEPTEMBER 30,
1994 1995 1996 1997(B)
-------------- -------------- -------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues....................... $181,205 100% $211,626 100% $272,236 100% $312,747 100%
Cost of services............... 149,698 83 172,417 81 216,382 79 247,772 79
-------- --- -------- --- -------- --- -------- ---
Gross profit................. 31,507 17 39,209 19 55,854 21 64,975 21
Selling, general and
administrative expenses(c)... 23,752 13 28,506 13 34,528 13 42,006 13
-------- --- -------- --- -------- --- -------- ---
Income from operations....... $ 7,755 4% $ 10,703 6% $ 21,326 8% $ 22,969 8%
======== === ======== === ======== === ======== ===
</TABLE>

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

(a) The fiscal years ended 1994, 1995 and 1996 are the years ended December 31,
1994, 1995 and 1996 for all Founding Companies, except for Pollock and
Hatfield, for which the fiscal years presented are the years ended October
31, 1994, 1995 and 1996; Rodgers, for which the fiscal years presented are
the years ended September 30, 1995, 1996 and 1997; and Summit, for which the
fiscal years presented are the years ended March 31, 1995, 1996 and 1997.

(b) Represents the year ended September 30, 1997 for all Founding Companies,
except that the amounts included for Ace, Hatfield, Popp and Reynolds are
for the year ended June 30, 1997.

(c) The supplemental unaudited pro forma combined results for the year ended
September 30, 1997 exclude the $13.6 million non-recurring, non-cash
compensation charge recognized by IES in September 1997 related to the
issuance of Common Stock to management.

Pro Forma Combined Results for the year ended September 30, 1997 compared to
the fiscal year ended 1996

Revenues increased approximately $40.5 million, or 15%, from $272.2 million
for the fiscal year ended 1996 to $312.7 million for the year ended September
30, 1997. The increase in combined revenues occurred primarily at
Houston-Stafford, Mills, Daniel, Pollock and Haymaker. Houston-Stafford's
revenues increased $11.1 million, or 16%, from fiscal 1996 to the year ended
September 30, 1997, primarily due to an overall increase in market demand and
the consolidation of an electrical supply company partially offset by the
effects of unusually rainy weather in Texas. Mills' revenues increased $9.0
million, or 14%, from fiscal 1996 to the year ended September 30, 1997,
primarily due to a full year of revenues in 1997 from the acquisition of Fort
Worth Regional Electrical Systems, L.L.C. ("Regional Electric") in June 1996.
Daniel's revenues increased $5.8 million, or 46%, from fiscal 1996 to the year
ended September 30, 1997 primarily due to increased contract revenues on several
large high rise condominium projects in south Florida. Pollock's revenues
increased $4.5 million, or 28%, from fiscal 1996 to the year ended September 30,
1997, primarily due to an

24
<PAGE> 27

increase in large commercial contracts, increased data cabling work and higher
revenues for service work. Haymaker's revenues increased $4.2 million, or 54%,
from fiscal 1996 to the year ended September 30, 1997, primarily due to a large
hospital contract and an overall increase in construction activity in
Birmingham, Alabama. Of the remaining ten Founding Companies, five reported an
increase in revenues and five recorded a decline in revenues between fiscal 1996
and the year ended September 30, 1997. The most significant decline in revenue
of $0.8 million occurred at Bexar-Calhoun, primarily due to the completion in
fiscal 1996 of an unusually large electrical construction contract for a state
university in Laredo, Texas. The most significant increase in revenues among
these other Founding Companies of $2.5 million or 18% occurred at Amber,
primarily due to three large retail construction contracts in the year ended
September 30, 1997.

Gross profit increased $9.1 million, or 16%, from $55.9 million for fiscal
1996, to $65.0 million for the year ended September 30, 1997. The increase in
combined gross profit occurred primarily due to increases in gross profit of
$3.9 million or 30% at Houston-Stafford, $2.0 million or 70% at Daniel, $1.4
million or 59% at Pollock and $1.3 million or 79% at Amber. Houston-Stafford's
gross margin increased from 18% in fiscal 1996 to 20% in the year ended
September 30, 1997, Daniel's gross margin increased from 23% to 27%, Pollock's
gross margin increased from 14% to 18% and Amber's gross margin increased from
12% to 18%. The increases in Houston-Stafford's gross profit and gross margin
are primarily attributable to favorable pricing associated with increased demand
and higher discounts on certain long-term material purchase commitments.
Daniel's gross profit and gross margin increases are primarily due to increased
labor efficiencies and an increase in higher margin high-rise residential
contracts. Pollock's gross margin increases are due to lower than expected
margins and loss contracts in 1996 that did not recur in 1997. Amber's gross
profit increased as a result of an increase in overall demand as well as demand
for higher margin retail construction contracts.

Selling, general and administrative expenses increased $7.5 million from
$34.5 million in fiscal 1996 to $42.0 million in the year ended September 30,
1997. This increase occurred primarily due to an increase in selling, general
and administrative expenses of $3.7 million at Houston-Stafford and $1.2 million
at Mills. The increase in Houston-Stafford's selling, general and administrative
expenses was primarily attributable to increased bonuses for certain key
employees and to a lesser degree higher insurance costs. Mills' increase in
selling, general and administrative expenses was attributable to a full year of
general and administrative expenses relating to the June 1996 acquisition of
Regional Electric, and a $0.2 million severance payment to the former owner of
Regional Electric.

Pro Forma Combined Results for the fiscal year ended 1996 compared to the
fiscal year ended 1995

Revenues increased approximately $60.6 million, or 29%, from $211.6 million
for the fiscal year ended 1995 to $272.2 million for the fiscal year ended 1996.
The increase in combined revenues occurred primarily at Houston-Stafford, Mills
and Bexar-Calhoun. Houston-Stafford's revenues increased $16.4 million, or 30%
from 1995 to 1996, primarily due to an overall increase in market demand and new
contractual arrangements for Houston-Stafford to be the sole or primary provider
of electrical installation services for certain residential contractors. Mills'
revenues increased $30.1 million, or 86%, from 1995 to 1996, primarily due to
the acquisition of Regional Electric in June 1996 (which represents
approximately $5.2 million of 1996 revenues), an increase in market demand for
large industrial construction contracts for manufacturing and distribution
facilities in the greater Dallas area, and a 30% increase in maintenance and
service revenues. Bexar-Calhoun's revenues increased $5.3 million, or 19%, from
1995 to 1996, as certain personnel were reassigned to the growing markets around
Laredo and New Braunfels, Texas, resulting in a $3.6 million increase in
revenues in these two markets between 1995 and 1996. Of the remaining 12
Founding Companies, seven reported an increase in revenues, one reported
relatively constant revenues and four recorded a decline in revenues between
1995 and 1996. The most significant decline in revenue of $2.0 million occurred
at Ace, where an unusually high demand for design-and-build projects in
Valdosta, Georgia in 1995 did not recur in 1996. The most significant increase
in revenues among these other Founding Companies of $4.2 million or 43% occurred
at Amber due to an increase in large commercial projects on shopping malls and
grocery stores in central Florida.

Gross profit increased $16.6 million, or 42%, from $39.2 million for the
fiscal year ended 1995, to $55.9 million for the fiscal year ended 1996. Gross
margin increased to 21% in 1996 from 19% in 1995. The
25
<PAGE> 28

increase in combined gross profit occurred primarily due to increases in gross
profit of $5.4 million or 74% at Houston-Stafford, $7.0 million or 89% at Mills,
and $1.2 million or 18% at Bexar-Calhoun. Houston-Stafford's gross margin
increased from 14% in 1995 to 18% in 1996, Mills' gross margin increased from
22% in 1995 to 23% in 1996, and Bexar-Calhoun's gross margin remained constant
at 24% in 1995 and 1996. The increases in Houston-Stafford's gross profit and
gross margin are primarily attributable to favorable pricing associated with
increased demand and higher discounts on certain long-term material purchase
commitments. Mills' gross profit and gross margin increases are primarily
attributable to the acquisition of Regional Electric, increased demand for
complex industrial contracts, and an increase in higher margin maintenance
service revenues. Bexar-Calhoun's gross profit increased as a result of its
overall increase in business volume.

Selling, general and administrative expenses increased 21% from $28.5
million in 1995 to $34.5 million in 1996. This increase occurred primarily due
to increases in selling, general and administrative expenses of $1.8 million at
Houston-Stafford and $2.9 million at Mills. The increase in Houston-Stafford's
selling, general and administrative expenses was primarily attributable to the
addition of infrastructure associated with its growth. Mills' increase in
selling, general and administrative expenses was attributable to increased
business volume, including that related to the acquisition of Regional Electric,
and increases in discretionary bonus and savings plan distributions.

Pro Forma Combined Results for the fiscal year ended 1995 compared to the
fiscal year ended 1994

Revenues increased $30.4 million, or 17%, from $181.2 million for the
fiscal year ended 1994, to $211.6 million for the fiscal year ended 1995. The
increase in combined revenues occurred primarily at Houston-Stafford, Mills and
Bexar-Calhoun. Houston-Stafford's revenues increased $6.1 million, or 13%, from
1994 to 1995, primarily due to an overall increase in demand and a new contract
under which Houston-Stafford is the sole or primary provider of electrical
installation services for a multifamily residential contractor. Mills' revenues
increased $9.8 million, or 38%, from 1994 to 1995, primarily due to increased
demand for higher margin industrial contracting services and a 61% increase in
maintenance and service revenues. Bexar-Calhoun's revenues increased $4.5
million, or 20%, from 1994 to 1995, due to an increase in retail construction
activity in San Antonio.

Of the remaining 12 Founding Companies, seven reported an increase in
revenues, two reported relatively constant revenues and three reported a decline
in revenues between 1994 and 1995. The most significant decline in revenues of
$1.3 million occurred at Hatfield, where an unusually large $2.0 million
contract was completed in 1994 and no comparable contract was performed in 1995.
The most significant increase in revenue among these other Founding Companies of
$2.6 million occurred at Ace due to an unusually high demand for
design-and-build commercial projects in 1995 as compared to 1994.

Gross profit increased $7.7 million, or 24%, from $31.5 million for the
fiscal year ended 1994, to $39.2 million for the fiscal year ended 1995. Gross
margin increased to 19% in 1995 from 17% in 1994. The increase in combined gross
profit occurred primarily due to increases in gross profit of $1.6 million or
26% at Houston-Stafford, $3.3 million or 71% at Mills, and $1.6 million or 30%
at Bexar-Calhoun. Houston-Stafford's gross margin increased from 12% in 1994 to
14% in 1995, Mills' gross margin increased from 18% in 1994 to 22% in 1995, and
Bexar-Calhoun's gross margin increased from 22% in 1994 to 24% in 1995,
respectively. The increase in Houston-Stafford's gross profit and gross margin
are primarily attributable to favorable pricing related to increased demand.
Mills' gross profit and gross margin increases are primarily attributable to
increased market demand for complex industrial contracts, and an increase in
higher margin maintenance and service revenues. Bexar-Calhoun's gross profit and
gross margin increased as a result of higher margin retail construction
contracts in San Antonio, Texas.

Selling, general and administrative expenses increased 20% from $23.8
million in 1994 to $28.5 million in 1995. The increase in combined selling,
general and administrative expenses occurred primarily due to increases in
selling, general and administrative expenses of $0.7 million at
Houston-Stafford, $1.3 million at Mills and $0.5 million at Bexar-Calhoun. The
increase in Houston-Stafford's selling, general and administrative expenses was
attributable to the addition of administrative infrastructure associated with
its growth. Mills' increase in selling, general and administrative expenses was
attributable to increased business volume and

26
<PAGE> 29

increases in discretionary bonus and savings plan distributions. Bexar-Calhoun's
increase in selling, general and administrative expenses was attributable to the
addition of administrative infrastructure associated with Bexar-Calhoun's
growth.

Combined Liquidity and Capital Resources

Upon consummation of the Acquisitions and after applying the estimated net
proceeds of the Offerings as discussed under "Use of Proceeds," the Company
anticipates that it will have approximately $19.1 million of pro forma cash and
cash equivalents, $43.4 million of pro forma working capital and no outstanding
indebtedness other than debt relating to Owner Amounts and capital lease
obligations totaling $14.3 million. The Founding Companies' historical
indebtedness of $8.1 million is anticipated to be transferred to the owners of
the Founding Companies or otherwise repaid from the proceeds of the Offerings.

On a combined basis, the Founding Companies generated $12.4 million of cash
from operating activities during the year ended September 30, 1997. Net cash
used in investing activities was $5.7 million on a combined basis and was
primarily used for capital expenditures. Net cash used in financing activities
was $8.1 million on a combined basis and was primarily used for debt repayment
and capital distributions.

The Company has entered into an agreement with a commercial bank under
which it expects to enter into a credit facility effective following the closing
of the Offerings. According to the terms of the agreement, the credit facility
will be a three-year revolving credit facility of up to $65 million to be used
for working capital, capital expenditures, other corporate purposes and
acquisitions. The amounts borrowed under the proposed credit facility will bear
interest at an annual rate equal to either (a) the London interbank offered rate
("LIBOR") plus 1.0% to 2.0%, as determined by the ratio of the Company's total
funded debt to EBITDA (as defined in the credit facility), or (b) the higher of
(i) the bank's prime rate and (ii) the Federal Funds rate plus 0.5%, plus up to
an additional 0.5% as determined by the ratio of the Company's total funded debt
to EBITDA. Commitment fees of 0.25% to 0.375%, as determined by the ratio of the
Company's total funded debt to EBITDA, will be due on any unused borrowing
capacity under the credit facility. The Company's existing and future
subsidiaries will guarantee the repayment of all amounts due under the facility,
and the facility will be secured by the capital stock of the guarantors and the
accounts receivable of the Company and the guarantors. The credit facility will
require the consent of the lenders for acquisitions exceeding a certain level of
cash consideration, prohibit the payment of cash dividends on the Common Stock,
restrict the ability of the Company to incur other indebtedness and require the
Company to comply with certain financial covenants. Availability of the credit
facility will be subject to customary drawing conditions and execution of
certain loan documentation. Following the consummation of the Offerings,
approximately $13.3 million of notes payable to owners of the Founding Companies
issued in connection with the funding of a portion of the Owner Amounts will be
repaid with borrowings under the credit facility.

The Company anticipates that its cash flow from operations and proceeds
from the Offerings will provide sufficient cash to enable the Company to meet
its working capital needs, debt service requirements and planned capital
expenditures for property and equipment through 1998.

The Company intends to continue pursuing attractive acquisition
opportunities. The timing, size or success of any acquisition effort and the
associated potential capital commitments cannot be predicted. The Company
expects to fund future acquisitions primarily with a portion of the net proceeds
of the Offerings, working capital, cash flow from operations and borrowings,
including any unborrowed portion of the proposed credit facility, as well as
issuances of additional equity.

Due to the relatively low levels of inflation experienced in fiscal 1994,
1995 and 1996, inflation did not have a significant effect on the results of the
combined Founding Companies in those fiscal years, or any of the Founding
Companies individually.

27
<PAGE> 30

HOUSTON-STAFFORD RESULTS OF OPERATIONS

Houston-Stafford was founded in 1973 and is headquartered in Stafford,
Texas near Houston. It operates primarily in Texas, with other significant
operations in Georgia, Virginia, Tennessee and Maryland. In April 1997,
Houston-Stafford financed the acquisition of an electrical supply company from a
third party for $100,000 cash.

The following table sets forth selected statement of operations data as a
percentage of revenues for the periods indicated:

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, YEAR ENDED SEPTEMBER 30,
--------------------------------------------- SEPTEMBER 30, -----------------------------
1994 1995 1996 1997 1996 1997
------------- ------------- ------------- ------------- ------------- -------------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............. $48,001 100% $54,082 100% $70,493 100% $81,575 100% $53,062 100% $64,144 100%
Cost of services..... 42,163 88 46,712 86 57,662 82 64,831 80 44,485 84 51,654 81
------- --- ------- --- ------- --- ------- --- ------- --- ------- ---
Gross profit....... 5,838 12 7,370 14 12,831 18 16,744 20 8,577 16 12,490 19
Selling, general and
administrative
expenses........... 5,319 11 6,027 11 7,810 11 11,474 14 4,404 8 8,068 13
------- --- ------- --- ------- --- ------- --- ------- --- ------- ---
Income from
operations....... $ 519 1% $ 1,343 3% $ 5,021 7% $ 5,270 6% $ 4,173 8% $ 4,422 6%
======= === ======= === ======= === ======= === ======= === ======= ===
</TABLE>

Houston-Stafford results for the nine months ended September 30, 1997 compared
to nine months ended
September 30, 1996

Revenues increased $11.0 million, or 21%, from $53.1 million for the nine
months ended September 30, 1996 to $64.1 million for the nine months ended
September 30, 1997, primarily as a result of increased demand and the
consolidation of an electrical supply company, partially offset by the effects
of unusually rainy weather in Texas.

Gross profit increased $3.9 million, or 46%, during the first nine months
of 1997 to $12.5 million, and gross margin increased to 19% in 1997 from 16% in
1996 as a result of favorable pricing related to the increase in demand and
higher discounts on certain long-term material purchase commitments.

Selling, general and administrative expenses increased 83% from $4.4
million to $8.1 million. The increase was attributable to an increase in bonuses
for certain key employees and to a lesser degree higher insurance costs.

Houston-Stafford results for the year ended September 30, 1997 compared to the
year ended December 31, 1996.

Revenues increased $11.1 million, or 16%, from $70.5 million for the year
ended December 31, 1996 to $81.6 million for the year ended September 30, 1997
primarily as a result of increased demand and the consolidation of an electrical
supply company, partially offset by the effects of unusually rainy weather in
Texas.

Gross profit increased $3.9 million, or 30%, during the year ended
September 30, 1997 to $16.7 million, and gross margin increased to 20% during
the year ended September 30, 1997 from 18% during the year ended December 31,
1996 as a result of favorable pricing related to the increase in demand and
higher discounts on certain long-term material purchase commitments.

Selling, general and administrative expenses increased 47% from $7.8
million to $11.5 million. The increase was primarily attributable to an increase
in bonuses for certain key employees and to a lesser degree higher insurance
costs.

28
<PAGE> 31

Houston-Stafford results for the year ended December 31, 1996 compared to the
year ended
December 31, 1995

Revenues increased $16.4 million, or 30%, from $54.1 million for the year
ended December 31, 1995, to $70.5 million for the year ended December 31, 1996,
primarily due to an overall increase in demand and new contracts under which
Houston-Stafford is the sole or primary provider of electrical installation
services for certain significant residential contractors.

Gross profit increased $5.4 million, or 74%, from $7.4 million for the year
ended December 31, 1995 to $12.8 million for the year ended December 31, 1996.
Gross margin increased from 14% to 18% over these periods. The increase in gross
profit amounts and percentages is primarily attributable to favorable pricing
related to the increase in demand and higher discounts on certain long-term
material purchase commitments.

Selling, general and administrative expenses increased 30% from $6.0
million to $7.8 million. The increase was attributable to the addition of
administrative infrastructure necessary to support Houston-Stafford's growth and
the establishment of a new merit bonus system. Selling, general and
administrative expenses as a percentage of revenues remained constant during
1996 when compared to 1995.

Houston-Stafford results for the year ended December 31, 1995 compared to the
year ended
December 31, 1994

Revenues increased $6.1 million, or 13%, from $48.0 million for the year
ended December 31, 1994, to $54.1 million for the year ended December 31, 1995,
due to increased demand and a new contract where Houston-Stafford is the sole or
primary provider of electrical contracting services for a significant
multi-family residential contractor.

Gross profit increased $1.6 million, or 26%, from $5.8 million for the year
ended December 31, 1994 to $7.4 million for the year ended December 31, 1995.
Gross margin increased from 12% to 14% over these periods due to favorable
pricing partially offset by lower profits from government projects in 1995.

Selling, general and administrative expenses increased 13% in 1995 when
compared to 1994 as a result of the additional infrastructure necessary to
support Houston-Stafford's growth. Selling, general and administrative expenses
as a percentage of revenues remained constant during 1995 when compared to 1994.

HOUSTON-STAFFORD LIQUIDITY AND CAPITAL RESOURCES

Houston-Stafford generated $0.6 million of net cash from operating
activities for the nine months ended September 30, 1997, which declined compared
to fiscal 1996 as a result of an increase in accounts receivable and costs and
estimated earnings in excess of billings on contracts in progress, both of which
represented offsets to net income generated during the period. Net cash used in
investing activities was approximately $0.3 million, primarily for the purchase
of fixed assets. Net cash used in financing activities of $0.5 million resulted
from advances on Houston-Stafford's line of credit. Houston-Stafford had a $3.1
million line of credit as of September 30, 1997 that expires in July 1998. At
September 30, 1997, Houston-Stafford had $0.5 million outstanding under its line
of credit. Additionally, in April 1997, Houston-Stafford financed the
acquisition of an electrical supply company from a third party for $100,000
cash.

Houston-Stafford used $0.1 million of net cash from operating activities
for the year ended September 30, 1997, which represents a decline compared to
fiscal 1996 as a result of an increase in accounts receivable and costs and
estimated earnings in excess of billings on contracts in progress, both of which
represented offsets to net income generated during the period. Net cash used in
investing activities was approximately $0.5 million, primarily for additional
property and equipment. Net cash used in financing activities of $0.6 million
resulted from the net effect of borrowings and payments of long-term debt.

At September 30, 1997, Houston-Stafford had working capital of $5.4 million
and total debt of $1.7 million.

Days sales outstanding in accounts receivable increased from 35 days as of
December 31, 1996 to 43 days as of September 30, 1997 (both calculated based on
sales for the years then ended). Such change is attributable to the effects on
receivables outstanding at September 30, 1997 of increased levels of sales
during the second and third quarters of 1997 due to seasonality and the
additional electrical supply company revenues.
29
<PAGE> 32

Houston-Stafford generated $2.7 million in net cash from operating
activities for the year ended December 31, 1996, primarily due to an increase in
collections of accounts receivable and billings on contracts in progress. Net
cash used in investing activities was approximately $0.6 million for the
purchase of fixed assets. Net cash used in financing activities was $0.5 million
for the year ended December 31, 1996 primarily as a result of the repayment of
debt partially offset by additional borrowings.

At December 31, 1996 Houston-Stafford had working capital of $4.7 million
and total debt of $1.7 million.

MILLS RESULTS OF OPERATIONS

Mills, headquartered in Dallas, Texas was founded in 1972 and operates
primarily in the greater Dallas-Fort Worth area. Mills derives a significant
portion of its revenues from higher margin design-and-build services and from
data cabling and fire alarm systems.

The following table sets forth selected statement of operations data as a
percentage of revenues for the periods indicated:

<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
--------------------------------------------- ------------- -----------------------------
1994 1995 1996 1997 1996 1997
------------- ------------- ------------- ------------- ------------- -------------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues..................... $25,544 100% $35,250 100% $65,439 100% $74,399 100% $43,684 100% $52,644 100%
Cost of services............. 20,937 82 27,372 78 50,535 77 60,572 81 33,998 78 44,035 84
------- --- ------- --- ------- --- ------- --- ------- --- ------- ---
Gross profit............... 4,607 18 7,878 22 14,904 23 13,827 19 9,686 22 8,609 16
Selling, general and
administrative expenses.... 3,391 13 4,741 13 7,643 12 8,778 12 3,837 9 4,972 9
------- --- ------- --- ------- --- ------- --- ------- --- ------- ---
Income from operations..... $ 1,216 5% $ 3,137 9% $ 7,261 11% $ 5,049 7% $ 5,849 13% $ 3,637 7%
======= === ======= === ======= === ======= === ======= === ======= ===
</TABLE>

Mills results for the nine months ended September 30, 1997 compared to nine
months ended September 30, 1996

Revenues increased $8.9 million, or 21%, from $43.7 million for the nine
months ended September 30, 1996 to $52.6 million for the nine months ended
September 30, 1997, primarily as a result of the acquisition of Regional
Electric, which specializes in commercial and industrial electrical contracting
and fire alarm, data cabling and control system installation in the greater Fort
Worth area.

Gross profit decreased $1.1 million, or 11%, during the first nine months
of 1997 as compared to the nine months ended September 30, 1996. Gross margin
decreased from 22% to 16% due to a decrease in demand for higher margin, complex
industrial work offset by an increase in demand for lower margin commercial
work, as well as a planned increase in the operating infrastructure at Regional
Electric to support Mill's growth strategy in the Fort Worth market.

Selling, general and administrative expenses increased 30% from $3.8
million to $5.0 million. The increase was attributable to a full year of general
and administrative expenses relating to the June 1996 acquisition of Regional
Electric, and a $0.2 million severance payment to the former owner of Regional
Electric.

Mills results for the year ended September 30, 1997 compared to the year ended
December 31, 1996

Revenues increased $9.0 million, or 14%, from $65.4 million for the year
ended December 31, 1996, to $74.4 million for the year ended September 30, 1997,
primarily due to the acquisition of Regional Electric in June 1996 (which
represents approximately $13 million of 1997 and $5.2 million of 1996 revenues).

Gross profit decreased $1.1 million, or 7%, from $14.9 million for the year
ended December 31, 1996 to $13.8 million for the year ended September 30, 1997.
Gross margin decreased from 23% to 19% due to a decrease in demand for higher
margin, complex industrial work offset by an increase in demand for lower

30
<PAGE> 33

margin commercial work, as well as a planned increase in the operating
infrastructure at Regional Electric to support Mill's growth strategy in the
Fort Worth market.

Selling, general and administrative expenses increased 15% from $7.6
million to $8.8 million. The increase was attributable to a full year of general
and administrative expenses relating to the June 1996 acquisition of Regional
Electric, and a $0.2 million severance payment to the former owner of Regional
Electric.

Mills results for the year ended December 31, 1996 compared to the year ended
December 31, 1995

Revenues increased $30.1 million, or 86%, from $35.3 million for the year
ended December 31, 1995 to $65.4 million for the year ended December 31, 1996,
primarily due to the acquisition of Regional Electric in June 1996 (which
represents approximately $5.2 million of 1996 revenues), an increase in demand
for large and complex industrial construction contracts for manufacturing and
distribution facilities in the greater Dallas area for which only a select group
of electrical contractors have the resources and expertise to bid and a 30%
increase in maintenance and service revenues resulting from Mills' focus on
increasing its maintenance and service revenues.

Gross profit increased $7.0 million, or 89%, from $7.9 million for the year
ended December 31, 1995 to $14.9 million for the year ended December 31, 1996.
Gross margin increased to 23% from 22% during this period due to an increase in
higher margin maintenance and service work.

Selling, general and administrative expenses increased 61% from $4.7
million to $7.6 million. The increase was attributable to increased business
volume, including that related to the acquisition of operations of Regional
Electric and increases in discretionary bonus and savings plan distributions.

Mills results for the year ended December 31, 1995 compared to the year ended
December 31, 1994

Revenues increased $9.8 million, or 38%, from $25.5 million for the year
ended December 31, 1994 to $35.3 million for the year ended December 31, 1995,
primarily due to increased demand for higher margin new industrial contracting
services and a 61% increase in maintenance and service revenues.

Gross profit increased $3.3 million, or 71%, from $4.6 million for the year
ended December 31, 1994 to $7.9 million for the year ended December 31, 1995.
Gross margin increased to 22% from 18% due to the increases in higher margin
industrial contracting and maintenance service revenues.

Selling, general and administrative expenses increased 40% from $3.4
million to $4.7 million. The increase was attributable to increased business
volume and increases in discretionary bonus and savings plan distributions.

MILLS LIQUIDITY AND CAPITAL RESOURCES

Mills used approximately $2.9 million of net cash for operating activities
for the nine months ended September 30, 1997, primarily for working capital. Net
cash used in investing activities was approximately $1.2 million, primarily for
the purchase of tools and equipment. Net cash used in financing activities was
$0.3 million, primarily for stockholder distributions and long-term debt. At
September 30, 1997, Mills had a $2.0 million revolving line of credit available
that expires June 1, 1999. At September 30, 1997, there were outstanding draws
against this line of credit in the amount of $400,000, which are due and payable
within one year.

Mills generated $2.7 million of net cash from operating activities for the
year ended September 30, 1997. Net cash used in investing activities was
approximately $1.5 million, primarily for additions to property and equipment.
Net cash used in financing activities of $3.7 million primarily resulted from
distributions to stockholders.

At September 30, 1997, Mills had working capital of $7.8 million and total
debt obligations of $0.8 million that relate to the acquisition of Regional
Electric and certain capital leases.

31
<PAGE> 34

Mills generated $7.9 million in net cash from operating activities for the
year ended December 31, 1996, as a result of increased profitability. Net cash
used in investing activities was approximately $0.6 million, representing $0.9
million used for the purchase of property and equipment, partly offset by $0.3
million, net, in collection of loans. Net cash used in financing activities was
$3.9 million for the year ended December 31, 1996, primarily for distribution of
dividends to stockholders. At December 31, 1996, Mills had a $2.0 million
revolving line of credit that was originally scheduled to expire June 1, 1997
and was extended to June 1, 1999. At December 31, 1996, there were no
outstanding draws against this line of credit.

At December 31, 1996, Mills had working capital of $5.5 million and total
debt obligations of $0.6 million.

BEXAR-CALHOUN RESULTS OF OPERATIONS

Bexar was founded in 1966 and operates primarily in the areas around the
cities of San Antonio, New Braunfels and Laredo, Texas. Calhoun was founded in
1958 and operates in the counties around San Antonio.

The following table sets forth selected statement of operations data as a
percentage of revenues for the periods indicated:

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, YEAR ENDED SEPTEMBER 30,
--------------------------------------------- SEPTEMBER 30, -----------------------------
1994 1995 1996 1997 1996 1997
------------- ------------- ------------- ------------- ------------- -------------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues.................... $23,168 100% $27,730 100% $33,023 100% $32,165 100% $24,994 100% $24,136 100%
Cost of services............ 17,967 78 20,964 76 25,017 76 24,976 78 18,909 76 18,868 78
------- --- ------- --- ------- --- ------- --- ------- --- ------- ---
Gross profit.............. 5,201 22 6,766 24 8,006 24 7,189 22 6,085 24 5,268 22
Selling, general and
administrative expenses... 3,091 13 3,637 13 3,686 11 3,766 12 2,713 11 2,793 12
------- --- ------- --- ------- --- ------- --- ------- --- ------- ---
Income from operations.... $ 2,110 9% $ 3,129 11% $ 4,320 13% $ 3,423 10% $ 3,372 13% $ 2,475 10%
======= === ======= === ======= === ======= === ======= === ======= ===
</TABLE>

Bexar-Calhoun results for the nine months ended September 30, 1997 compared to
nine months ended September 30, 1996

Revenues decreased $0.9 million, or 3%, from $25.0 million in 1996 to $24.1
million in 1997, primarily due to an increase in overall growth offset by the
completion in 1996 of an unusually large electrical construction contract for a
state university in Laredo, Texas.

Gross profit decreased $0.8 million, or 13%, from $6.1 million in 1996 to
$5.3 million in 1997. Gross margin decreased from 24% in 1996 to 22% in 1997.
The decrease in gross profit related to completion of the large state university
contract in 1996 and gross margin declined due to a change in customer mix
associated with a decrease in higher margin retail construction in San Antonio.

Selling, general and administrative expenses remained relatively constant
from 1996 to 1997.

Bexar-Calhoun results of operations for the year ended September 30, 1997
compared to the year ended December 31, 1996

Revenues decreased $0.8 million, or 3%, from $33.0 million for the year
ended December 31, 1996, to $32.2 million for the year ended September 30, 1997,
primarily due to the completion in 1996 of an unusually large electrical
construction contract for a state university in Laredo, Texas.

Gross profit decreased $0.8 million, or 10%, from $8.0 million for the year
ended December 31, 1996, to $7.2 million for the year ended September 30, 1997.
Gross margins decreased to 22% from 24% over these periods. The decrease in
gross profit related to completion of the large state university contract in
1996 and gross margin declined due to a change in customer mix associated with a
decrease in higher margin retail construction in San Antonio.

Selling, general and administrative expenses remained relatively constant
in 1997 as compared to 1996.

32
<PAGE> 35

Bexar-Calhoun results for the year ended December 31, 1996 compared to the
year ended
December 31, 1995

Revenues increased $5.3 million, or 19%, from $27.7 million in 1995 to
$33.0 million in 1996, primarily due to reassignment of certain personnel to
Laredo and New Braunfels, Texas. Bexar-Calhoun realized a $3.6 million increase
in revenues in these two markets between 1995 and 1996, in part from an
unusually large electrical construction contract for a university in Laredo,
Texas.

Gross profit increased $1.2 million, or 18%, from $6.8 million in 1995 to
$8.0 million in 1996. Gross margin remained stable over these periods. The
increase in gross profit was attributable to higher revenues.

Selling, general and administrative expenses did not significantly change
from 1995 to 1996. Selling, general and administrative expenses declined as a
percentage of revenue from 13% in 1995 to 11% in 1996.

Bexar-Calhoun results for the year ended December 31, 1995 compared to the
year ended
December 31, 1994

Revenues increased $4.5 million, or 20%, from $23.2 million in 1994 to
$27.7 million in 1995, primarily due to a significant increase in the volume of
Bexar-Calhoun's retail construction business in the San Antonio, Texas market.

Gross profit increased $1.6 million, or 30%, from $5.2 million in 1994 to
$6.8 million in 1995. Gross margin increased from 22% in 1994 to 24% in 1995.
Gross profit increased due to the revenue increase, while gross margin increased
due to higher margin retail construction.

Selling, general and administrative expenses increased 18% from $3.1
million in 1994 to $3.6 million in 1995. The increase was attributable to the
addition of infrastructure associated with Bexar-Calhoun's growth.

BEXAR-CALHOUN LIQUIDITY AND CAPITAL RESOURCES

Bexar-Calhoun generated $3.1 million of net cash from operating activities
for the nine months ended September 30, 1997. Net cash used in investing
activities was approximately $0.9 million, primarily for additions to property
and equipment and loans to stockholders. Net cash used in financing activities
of $1.5 million resulted from stockholder distributions net of debt repayments.

Bexar-Calhoun generated $3.3 million of net cash from operating activities
for the year ended September 30, 1997. Net cash used in investing activities was
approximately $1.1 million, primarily for additions of property and equipment.
Net cash used in financing activities of $1.9 million primarily resulted from
stockholder distributions and repayments of debt.

At September 30, 1997, Bexar-Calhoun had working capital of $4.2 million
and total debt of $0.9 million.

Bexar-Calhoun generated $2.7 million in net cash from operating activities
for the year ended December 31, 1996, primarily from net income offset by growth
in working capital. Net cash used in investing activities was approximately $0.6
million for additions to property and equipment net of stockholder loan
repayments. Net cash used by financing activities was $2.8 million for the year
ended December 31, 1996 primarily as a result of stockholder distributions net
of debt repayments.

At December 31, 1996 Bexar-Calhoun had working capital of $3.7 million and
total debt of $1.0 million.

POLLOCK RESULTS OF OPERATIONS

Pollock was founded in 1983 and is headquartered in Houston, Texas. Pollock
has specialized expertise in design-and-build projects for commercial and
industrial customers.

33
<PAGE> 36

The following table sets forth selected statement of operations data as a
percentage of revenues for the periods indicated:

<TABLE>
<CAPTION>
ELEVEN MONTHS ENDED
YEARS ENDED OCTOBER 31, YEAR ENDED SEPTEMBER 30,
----------------------------- SEPTEMBER 30, -----------------------------
1995 1996 1997 1996 1997
------------- ------------- -------------- ------------- -------------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues..................... $13,002 100% $15,816 100% $20,291 100% $13,305 100% $17,780 100%
Cost of services............. 10,602 82 13,534 86 16,670 82 11,646 88 14,782 83
------- --- ------- --- ------- ---- ------- --- ------- ---
Gross profit............... 2,400 18 2,282 14 3,621 18 1,659 12 2,998 17
Selling, general and
administrative expenses.... 2,149 16 2,463 15 2,895 14 2,083 16 2,515 14
------- --- ------- --- ------- ---- ------- --- ------- ---
Income/(loss) from
operations............... $ 251 2% $ (181) (1)% $ 726 4% $ (424) (4)% $ 483 3%
======= === ======= === ======= ==== ======= === ======= ===
</TABLE>

Pollock results for the eleven months ended September 30, 1997 compared to
eleven months ended September 30, 1996

Revenues increased $4.5 million, or 34%, from $13.3 million for the eleven
months ended September 30, 1996 to $17.8 million for the eleven months ended
September 30, 1997, primarily due to an increase in large commercial contracts,
increased data cabling work and higher revenues for service and small project
work.

Gross profit increased $1.3 million, or 81%, from $1.7 million for the
eleven months ended September 30, 1996 to $3.0 million for the eleven months
ended September 30, 1997. Gross margin increased to 17% from 12% over these
periods. The gross profit and gross margin increases in 1997 when compared to
1996 are primarily attributable to specific low margin or loss contracts in 1996
that did not recur in 1997.

Selling, general and administrative expenses increased 21% from $2.1
million to $2.5 million due to the addition of certain strategic management
personnel. As a percentage of revenues, selling, general and administrative
expenses actually decreased in 1997 over 1996 by 2%.

Pollock results for the year ended September 30, 1997 compared to the year
ended October 31, 1996

Revenues increased $4.5 million, or 28%, from $15.8 million for the year
ended October 31, 1996 to $20.3 million for the year ended September 30, 1997,
primarily due to an increase in large commercial contracts, increased data
cabling work, and higher revenues from service work.

Gross profit increased $1.4 million, or 59%, from $2.2 million for the year
ended October 31, 1996 to $3.6 million for the year ended September 30, 1997.
Gross margin increased to 18% from 14% over these periods. The gross profit and
gross margin increases in 1997 when compared to 1996 are primarily attributable
to specific low margin or loss contracts in 1996 that did not recur in 1997.

Selling, general and administrative expenses increased 18% from $2.5
million to $2.9 million due to the addition of certain strategic management
personnel. As a percent of revenues, selling, general and administrative
expenses decreased in 1997 over 1996 by 1%.

Pollock results for the year ended October 31, 1996 compared to the year ended
October 31, 1995

Revenues increased $2.8 million, or 22%, from $13.0 million for the year
ended October 31, 1995, to $15.8 million for the year ended October 31, 1996,
primarily due to an increase in commercial construction and the addition of data
cabling services.

Gross profit decreased $0.1 million, or 5%, from $2.4 million for the year
ended October 31, 1995 to $2.3 million for the year ended October 31, 1996.
Gross margin decreased to 14% from 18% over these periods. These decreases were
due to specific low margin or loss contracts in 1996.

Selling, general and administrative expenses increased 15% from $2.1
million to $2.5 million. The increase was attributable to an increase in
management staff necessary to support Pollock's growth strategy, including the
addition of data cabling expertise.

34
<PAGE> 37

POLLOCK LIQUIDITY AND CAPITAL RESOURCES

Pollock used $0.1 million of net cash for operating activities during the
eleven months ended September 30, 1997. Net cash used in investing activities
was approximately $0.1 million, primarily for increases in the leasing of
capital assets. Net cash provided by financing activities of $0.3 million
resulted from additional short-term line of credit borrowings.

Net cash from operating activities for the year ended September 30, 1997
was not material in amount. Net cash used in investing activities was
approximately $0.2 million, primarily for increases in the leasing of capital
assets. Net cash provided by financing activities of $0.5 million resulted from
additional short-term line of credit borrowings.

At September 30, 1997, Pollock had working capital of $0.6 million and
total debt of $1.8 million.

Pollock used $0.7 million in net cash from operating activities for the
year ended October 31, 1996, primarily to fund working capital requirements. Net
cash used in investing activities was approximately $0.2 million for additions
to property and equipment. Net cash provided by financing activities was $0.7
million for the year ended October 31, 1996 primarily as a result of short-term
line of credit borrowings.

At October 31, 1996 Pollock had working capital of $0.5 million and total
debt of $1.5 million.

MUTH RESULTS OF OPERATIONS

Muth was founded in 1970 and has seven offices located in South Dakota,
including its headquarters in Mitchell. Muth also from time to time operates in
Wyoming, Montana, Nebraska and Minnesota.

The following table sets forth selected statement of operations data as a
percentage of revenues for the periods indicated:

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, YEAR ENDED SEPTEMBER 30,
--------------------------------------------- SEPTEMBER 30, -----------------------------
1994 1995 1996 1997 1996 1997
------------- ------------- ------------- ------------- ------------- -------------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............. $13,466 100% $16,012 100% $16,830 100% $18,779 100% $12,517 100% $14,466 100%
Cost of services..... 9,805 73 12,189 76 12,834 76 14,511 77 9,751 78 11,428 79
------- --- ------- --- ------- --- ------- --- ------- --- ------- ---
Gross profit....... 3,661 27 3,823 24 3,996 24 4,268 23 2,766 22 3,038 21
Selling, general and
administrative
expenses........... 2,678 20 2,923 18 2,957 18 3,074 16 2,147 17 2,264 16
------- --- ------- --- ------- --- ------- --- ------- --- ------- ---
Income from
operations....... $ 983 7% $ 900 6% $ 1,039 6% $ 1,194 7% $ 619 5% $ 774 5%
======= === ======= === ======= === ======= === ======= === ======= ===
</TABLE>

Muth results for the nine months ended September 30, 1997 compared to nine
months ended September 30, 1996

Revenues increased $2.0 million, or 16%, from $12.5 million for the nine
months ended September 30, 1996 to $14.5 million for the nine months ended
September 30, 1997, due to a significant increase in market demand that was
offset by work delays caused by the harsh winter, which lasted from November
1996 through early April 1997.

Gross profit increased $0.2 million, or 10%, from $2.8 million for the nine
months ended September 30, 1996 to $3.0 million for the nine months ended
September 30, 1997. Gross margin decreased to 21% from 22% over these periods.
The decreases in the gross margin are solely attributable to the harsh winter
and related work delays in early 1997.

Selling, general and administrative expenses increased 5% from $2.1 million
to $2.3 million. The increase was attributable to the increase in market demand
and related infrastructure costs.

35
<PAGE> 38

Muth results for the year ended September 30, 1997 compared to the year ended
December 31, 1996

Revenues increased $2.0 million, or 12%, from $16.8 million for the fiscal
period ended December 31, 1996 to $18.8 million for the fiscal year ended
September 30, 1997, due to a significant increase in market demand that was
offset by work delays caused by the harsh winter, which lasted from November
1996 through early April 1997.

Gross profit increased $0.3 million, or 7%, from $4.0 million for the
fiscal period ended December 31, 1996 to $4.3 million for the fiscal year ended
September 30, 1997. The increase in gross profit is attributable to increased
market demand that was offset by work delays caused by the harsh winter, which
lasted from November 1996 through early April 1997. Gross margin decreased to
23% from 24% over these periods.

Muth results for the year ended December 31, 1996 compared to the year ended
December 31, 1995

Revenues increased $0.8 million, or 5%, from $16.0 million for the year
ended December 31, 1995 to $16.8 million for the year ended December 31, 1996,
due to increased market demands for electrical contracting services, slightly
offset by delays caused by the harsh winter, which started in November 1996 and
continued through early April 1997.

Gross profit increased $0.2 million, or 5%, from $3.8 million for the year
ended December 31, 1995 to $4.0 million for the year ended December 31, 1996.
There was no significant change in gross margin. The gross profit and gross
margin increases in 1996 when compared to 1995 were attributable to increased
margins on service work in 1996 and increased revenues.

Selling, general and administrative expenses remained constant over these
periods.

Muth results for the year ended December 31, 1995 compared to the year ended
December 31, 1994

Revenues increased $2.5 million, or 19%, from $13.5 million for the year
ended December 31, 1994 to $16.0 million for the year ended December 31, 1995,
primarily due to increased overall demand.

Gross profit increased $0.1 million, or 4%, from $3.7 million for the year
ended December 31, 1994, to $3.8 million for the year ended December 31, 1995.
Gross margin decreased to 24% from 27% over these periods due to a lower and
more normal mix of higher margin design-and-build projects in 1995.

Selling, general and administrative expenses increased 9% from $2.7 million
to $2.9 million. The increase was due to an increase in administrative salaries
attributable to the additional infrastructure associated with Muth's growth.

MUTH LIQUIDITY AND CAPITAL RESOURCES

Muth generated $0.5 million of net cash from operating activities for the
nine months ended September 30, 1997. Net cash used in investing activities was
approximately $0.2 million, primarily for additions to property and equipment.
Net cash used in financing activities of $0.4 million primarily related to
distributions to stockholders.

Muth generated $0.5 million of net cash from operating activities for the
fiscal year ended September 30, 1997. Net cash used in investing activities was
approximately $0.2 million, primarily for additions to property and equipment.
Net cash used in financing activities of $0.3 million primarily relates to
payments of short-term debt.

At September 30, 1997, Muth had working capital of $2.3 million and total
debt of $0.5 million. Muth currently has no long-term debt. Cash requirements
increased for the fiscal year ended September 30, 1997 as a result of a higher
proportion of government contracts, which typically have payment periods of 45
to 60 days rather than the 20-day period typical for private contracts.

Muth generated $0.5 million in net cash from operating activities for the
year ended December 31, 1996, primarily from earnings net of investments in
working capital. Net cash used in investing activities was approximately $0.4
million for additions to property and equipment. Net cash used by financing
activities was

36
<PAGE> 39

$0.1 million for the year ended December 31, 1996 primarily as a result of
stockholder distributions in excess of borrowings.

At December 31, 1996, Muth had working capital of $1.9 million and total
debt of $0.5 million.

DANIEL RESULTS OF OPERATIONS

Daniel Electrical Contractors, Inc. was founded in 1986, is headquartered
in Miami, Florida, and operates primarily in South Florida. Daniel Electrical of
Treasure Coast Inc. was founded in 1995 and is headquartered in Vero Beach,
Florida. In addition to commercial and industrial contracting, Daniel services
high-end residential construction and repairs on a time-and-material basis, from
both its Miami and Vero Beach, Florida locations.

The following table sets forth selected statement of operations data and
such data as a percentage of revenues for the periods indicated:

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, YEAR ENDED SEPTEMBER 30,
----------------------------- SEPTEMBER 30, ----------------------------
1995 1996 1997 1996 1997
------------- ------------- ------------- ------------ -------------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues.......................... $12,049 100% $12,585 100% $18,409 100% $8,846 100% $14,670 100%
Cost of services.................. 11,725 97 9,713 77 13,518 73 6,675 75 10,480 71
------- --- ------- --- ------- --- ------ --- ------- ---
Gross profit.................... 324 3 2,872 23 4,891 27 2,171 25 4,190 29
Selling, general and
administrative expenses......... 1,502 13 1,884 15 2,316 13 1,360 15 1,792 12
------- --- ------- --- ------- --- ------ --- ------- ---
Income/(loss) from operations... $(1,178) (10)% $ 988 8% $ 2,575 14% $ 811 10% $ 2,398 17%
======= === ======= === ======= === ====== === ======= ===
</TABLE>

Daniel results for the nine months ended September 30, 1997 compared to nine
months ended September 30, 1996

Revenues increased $5.9 million, or 66%, from $8.8 million for the nine
months ended September 30, 1996 to $14.7 million for the nine months ended
September 30, 1997, primarily due to favorable pricing for negotiated contracts
in process during the nine months ended September 30, 1997.

Gross profit increased $2.0 million, or 93%, from $2.2 million for the nine
months ended September 30, 1996 to $4.2 million for the nine months ended
September 30, 1997. Gross margin increased from 25% to 29%, primarily due to
increased labor efficiencies and an increase in higher margin high-rise
residential contracts.

Selling, general and administrative expenses increased $0.4 million, or
32%, from $1.4 million for the nine months ended September 30, 1996 to $1.8
million for the nine months ended September 30, 1997, primarily due to increases
in office salaries associated with increased revenues. As a percentage of
revenues, selling, general and administrative expenses decreased from 15% to
12%.

Daniel results for the year ended September 30, 1997 compared to the year
ended December 31, 1996

Revenues increased $5.8 million, or 46%, from $12.6 million for the year
ended December 31, 1996 to $18.4 million for the year ended September 30, 1997,
primarily due to increased contract revenues on several large high-rise
condominium projects in South Florida during the year ended September 30, 1997.

Gross profit increased $2.0 million, or 70%, from $2.9 million for the year
ended December 31, 1996 to $4.9 million for the year ended September 30, 1997.
Gross margin increased from 23% to 27%, primarily due to increased labor
efficiencies and an increase in higher margin high-rise residential contracts.

Selling, general and administrative expenses increased $0.4 million, or
23%, from $1.9 million for the year ended December 31, 1996 to $2.3 million for
the year ended September 30, 1997, primarily due to increases in office salaries
associated with increased revenues. As a percentage of revenues, selling,
general and administrative expenses decreased from 15% to 13%.

37
<PAGE> 40

Daniel results for the year ended December 31, 1996 compared to the year ended
December 31, 1995

Revenues increased $0.6 million, or 4%, from $12.0 million for the year
ended December 31, 1995 to $12.6 million for the year ended December 31, 1996,
primarily due to increased revenues from negotiated contracts in process during
the year ended December 31, 1996.

Gross profit increased $2.6 million, or 786%, from $0.3 million for the
year ended December 31, 1995 to $2.9 million for the year ended December 31,
1996. Gross margin increased from 3% to 23%, as a result of cost overruns
incurred in 1995 on certain projects and an increase in labor efficiencies and
an increase in higher margin high-rise residential contracts.

Selling, general and administrative expenses increased $0.4 million, or
25%, from $1.5 million for the year ended December 31, 1995 to $1.9 million for
the year ended December 31, 1996, as a result of the increase in revenues.

DANIEL LIQUIDITY AND CAPITAL RESOURCES

Daniel generated $1.8 million in net cash from operating activities for the
nine months ended September 30, 1997, primarily due to an increase in accounts
receivable and accounts payable, both of which represented offsets to net income
generated during the period. Net cash used in investing activities was
approximately $0.9 million, principally for capital expenditures. Net cash used
in financing activities was approximately $0.3 million, principally for
shareholder distributions net of long-term borrowings.

Daniel generated $2.0 million in net cash from operating activities for the
year ended September 30, 1997, primarily due to an increase in accounts
receivable and accounts payable, both of which represented offsets to net income
generated during the period. Net cash used in investing activities was
approximately $1.3 million, principally for capital expenditures. Net cash used
in financing activities was approximately $0.4 million, principally for
shareholder distributions net of long-term borrowings.

Working capital as of September 30, 1997 was $4.5 million, and total debt
outstanding was $0.7 million, of which $0.6 million was owed to a shareholder.

Days sales outstanding in accounts receivable increased from 42 days as of
December 31, 1996, to 68 days as of September 30, 1997. Such increase is
attributable to an increase in sales during the second and third quarters of
1997.

Daniel generated $1.2 million in net cash from operating activities for the
year ended December 31, 1996, primarily due to an increase in collections of
deposits and billings on contracts in progress. Net cash used in investing
activities was approximately $0.5 million, principally for capital expenditures
and increases in mutual fund investments. Net cash used in financing activities
was approximately $0.4 million, principally for debt repayments.

Working capital as of December 31, 1996 was $2.4 million, and total debt
outstanding was $0.6 million, all of which was owed to a shareholder.

38
<PAGE> 41

AMBER RESULTS OF OPERATIONS

Amber was founded in 1979 and operates from its base near Orlando, Florida.
Amber's revenues in fiscal 1996 were primarily from commercial and industrial
contracting.

The following table sets forth selected statement of operations data as a
percentage of revenues for the periods indicated:

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, YEAR ENDED SEPTEMBER 30,
----------------------------- SEPTEMBER 30, ------------------------------
1995 1996 1997 1996 1997
------------ ------------- ------------- ------------- -------------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues........................ $9,728 100% $13,878 100% $16,386 100% $10,572 100% $13,080 100%
Cost of services................ 8,635 89 12,215 88 13,415 82 8,710 82 9,910 76
------ --- ------- --- ------- --- ------- --- ------- ---
Gross profit.................. 1,093 11 1,663 12 2,971 18 1,862 18 3,170 24
Selling, general and
administrative expenses....... 957 10 1,160 8 1,379 8 978 9 1,197 9
------ --- ------- --- ------- --- ------- --- ------- ---
Income from operations........ $ 136 1% $ 503 4% $ 1,592 10% $ 884 8% $ 1,973 15%
====== === ======= === ======= === ======= === ======= ===
</TABLE>

Amber results for the nine months ended September 30, 1997 compared to nine
months ended September 30, 1996

Revenues increased $2.5 million, or 24%, from $10.6 million for the nine
months ended September 30, 1996 to $13.1 million for the nine months ended
September 30, 1997, primarily from three large retail construction contracts in
1997.

Gross profit increased $1.3 million, or 70%, from $1.9 million in 1996 to
$3.2 million in 1997. Gross margin increased from 18% to 24% over these periods.
The improvement in gross margin was attributable to an increase in the number of
commercial contracts with higher gross margins recognized.

Selling, general and administrative expenses increased 22% from $1.0
million to $1.2 million for the nine months ended September 30, 1996 compared to
the nine months ended September 30, 1997.

Amber results of operations for the year ended September 30, 1997 compared to
the year ended December 31, 1996

Revenues increased $2.5 million, or 18%, from $13.9 million for the year
ended December 31, 1996 to $16.4 million for the year ended September 30, 1997,
primarily due to three large retail construction contracts in 1997.

Gross profit increased $1.3 million, or 79%, from $1.7 million for the year
ended December 31, 1996 to $3.0 million for the year ended September 30, 1997.
Gross margins increased to 18% from 12% over these periods. The gross profit and
gross margin increases in 1997 when compared to 1996 are attributable to an
increase in the overall demand, as well as demand for higher margin retail
construction contracts.

Selling, general and administrative expenses increased 19% from $1.2
million to $1.4 million. As a percentage of revenues, selling, general and
administrative expenses remained relatively constant in 1997 as compared to
1996.

Amber results for the year ended December 31, 1996 compared to the year ended
December 31, 1995

Revenues increased $4.2 million, or 43%, from $9.7 million in 1995 to $13.9
million in 1996, primarily due to increased commercial construction of shopping
malls and grocery stores in central Florida.

Gross profit increased $0.6 million, or 52%, from $1.1 million in 1995 to
$1.7 million in 1996. Gross margin remained stable over these periods.

Selling, general and administrative expenses increased 21% from $1.0
million in 1995 to $1.2 million in 1996. The increase was attributable to
increased management salaries associated with increased revenues.

39
<PAGE> 42

AMBER LIQUIDITY AND CAPITAL RESOURCES

Amber generated $0.7 million of net cash from operating activities for the
nine months ended September 30, 1997. Net cash used in investing activities was
approximately $0.3 million, primarily for additions to property and equipment.
Net cash used in financing activities was not material in amount for the nine
months ended September 30, 1997.

Amber generated $0.7 million of net cash from operating activities for the
year ended September 30, 1997. Net cash used in investing activities was
approximately $0.3 million, primarily for additions to property and equipment.
Net cash provided by financing activities was not material for the year ended
September 30, 1997.

At September 30, 1997, Amber had working capital of $1.8 million and total
debt of $0.7 million.

Amber generated $0.7 million in net cash from operating activities for the
year ended December 31, 1996, primarily for earnings and reductions in working
capital. Net cash used in investing activities was approximately $0.2 million
for additions of property and equipment. Net cash provided by financing
activities was not material for the year ended December 31, 1996.

At December 31, 1996, Amber had working capital of $0.6 million and total
debt of $0.7 million.

HAYMAKER RESULTS OF OPERATIONS

Haymaker was founded in 1981, is headquartered in Birmingham, Alabama, and
operates in Alabama, northwest Florida and North Carolina. Haymaker's revenues
in fiscal 1996 were primarily from commercial and industrial contracting
services.

The following table sets forth selected statement of operations data as a
percentage of revenues for the periods indicated:

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED YEAR ENDED SEPTEMBER 30,
DECEMBER 31, SEPTEMBER 30, ---------------------------
1996 1997 1996 1997
------------ -------------------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED)
Revenues................... $7,634 100% $11,772 100% $5,105 100% $9,243 100%
Cost of services........... 6,412 84 9,920 84 4,419 87 7,927 86
------ --- ------- --- ------ --- ------ ---
Gross profit............. 1,222 16 1,852 16 686 13 1,316 14
Selling, general and
administrative
expenses................. 680 9 1,140 10 364 7 824 9
------ --- ------- --- ------ --- ------ ---
Income from operations... $ 542 7% $ 712 6% $ 322 6% $ 492 5%
====== === ======= === ====== === ====== ===
</TABLE>

Haymaker results for the nine months ended September 30, 1997 compared to nine
months ended
September 30, 1996

Revenues increased $4.1 million, or 81%, from $5.1 million for the nine
months ended September 30, 1996, to $9.2 million for the nine months ended
September 30, 1997, primarily due to a large hospital contract and an overall
increase in construction activity in Birmingham, Alabama.

Gross profit increased $0.6 million, or 92%, from $0.7 million for the nine
months ended September 30, 1996 to $1.3 million for the same period in 1997.
Gross margin increased to 14% in 1997 from 13% in 1996 over these periods. The
increase in gross profit and gross margin was attributable to higher demand and
lower than expected costs and certain fixed price contracts.

Selling, general and administrative expenses increased 126% from $0.4
million for the nine months ended September 30, 1996, to $0.8 million for the
nine months ended September 30, 1997. The increase was attributable to higher
bonus distributions under Haymaker's incentive compensation plan.

40
<PAGE> 43

Haymaker results of operations for the year ended September 30, 1997
compared to the year ended December 31, 1996

Revenues increased $4.2 million, or 54%, from $7.6 million for the year
ended December 31, 1996 to $11.8 million for the year ended September 30, 1997,
primarily due to a large hospital contract and an overall increase in
construction activity in Birmingham, Alabama.

Gross profit increased $0.7 million, or 52%, from $1.2 million for the year
ended December 31, 1996 to $1.9 million for the year ended September 30, 1997.
Gross margins remained constant at 16%. The gross profit increase in 1997 when
compared to 1996 was attributable to higher demand.

Selling, general and administrative expenses increased 68% from $0.7
million to $1.1 million due to higher bonus distributions under Haymaker's
incentive compensation plan. As a percentage of revenues, selling, general and
administrative expenses increased in 1997 as compared to 1996 by 1%.

HAYMAKER LIQUIDITY AND CAPITAL RESOURCES

Haymaker generated $0.4 million of net cash for operating activities for
the nine months ended September 30, 1997. Net cash used in financing activities
of $0.1 million resulted from repayments of short-term borrowings.

Haymaker generated $0.7 million of net cash from operating activities for
the year ended September 30, 1997. Net cash used in investing activities was not
material in amount. Net cash used by financing activities of $0.5 million
resulted from distributions to owners of equity interests in consolidated
entities.

At September 30, 1997, Haymaker had working capital of $1.6 million and no
debt.

Haymaker used $0.1 million in net cash from operating activities for the
year ended December 31, 1996. Net cash used by financing activities was $0.4
million for the year ended December 31, 1996 primarily as a result of
distributions to owners of equity interests in consolidated entities.

At December 31, 1996 Haymaker had working capital of $1.3 million and no
debt.

SUMMIT RESULTS OF OPERATIONS

Summit was founded in 1987 and is located in Houston, Texas. Summit's
revenues in its fiscal year ended March 31, 1997 were primarily from commercial
and industrial contracting. Summit has specialized expertise in data cable
design and installation and lighting design.

The following table sets forth selected statement of operations data as a
percentage of revenues for the periods indicated:

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED SIX MONTHS ENDED SEPTEMBER 30,
MARCH 31, SEPTEMBER 30, --------------------------------
1997 1997 1996 1997
------------- ------------- -------------- --------------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues.................. $10,565 100% $10,995 100% $5,735 100% $6,165 100%
Cost of services.......... 9,157 87 9,454 86 4,946 86 5,243 85
------- --- ------- --- ------ --- ------ ---
Gross profit............ 1,408 13 1,541 14 789 14 922 15
Selling, general and
administrative
expenses................ 1,340 12 1,463 13 699 12 822 13
------- --- ------- --- ------ --- ------ ---
Income from
operations........... $ 68 1% $ 78 1% $ 90 2% $ 100 2%
======= === ======= === ====== === ====== ===
</TABLE>

Summit results for the six months ended September 30, 1997 compared to six
months ended September 30,
1996

Revenues increased $0.5 million, or 7%, from $5.7 million for the six
months ended September 30, 1996 to $6.2 million for the six months ended
September 30, 1997, primarily due to the addition of large contracts with short
construction periods.

41
<PAGE> 44

Gross profit increased $0.1 million, or 17%, from $0.8 million for the six
months ended September 30, 1996 to $0.9 million for the six months ended
September 30, 1997. Gross margin increased from 14% to 15% from 1996 to 1997.
The increase in gross profit was primarily attributable to high profitability on
certain jobs with tight deadlines, partially offset by the write-off of a
receivable from a contractor which went bankrupt.

Selling, general and administrative expenses increased 18% from $0.7
million to $0.8 million. The increase was attributable to management bonuses,
higher insurance and business promotional expenses.

Summit results of operations for the year ended September 30, 1997 compared to
the year ended March 31,
1997

Revenues increased $0.4 million, or 4%, from $10.6 million for the year
ended March 31, 1997, to $11.0 million for the year ended September 30, 1997,
primarily due to an increase in larger commercial contracts.

Gross profit increased $0.1 million, or 9%, from $1.4 million for the year
ended March 31, 1997, to $1.5 million for the year ended September 30, 1997.
Gross margins increased to 14% from 13% over these periods. The gross profit and
gross margin increases in 1997 when compared to 1996 are primarily attributable
to the increase in larger commercial contracts.

Selling, general and administrative expenses increased 9% from $1.3 million
to $1.5 million due to increases in management bonuses, higher insurance and
business promotional expenses. As a percentage of revenues, selling, general and
administrative expenses remained constant.

SUMMIT LIQUIDITY AND CAPITAL RESOURCES

Summit generated $0.1 million of net cash from operating activities for the
six months ended September 30, 1997. Net cash provided by investing activities
and net cash provided by financing activities were not material in amount for
the six months ended September 30, 1997.

Summit generated near break-even levels of net cash from operating
activities for the year ended September 30, 1997. Summit used $0.2 million of
net cash from investing activities for the year ended September 30, 1997
primarily for the purchase of service trucks. Net cash provided by financing
activities of $0.2 million resulted from borrowings of long-term debt.

At September 30, 1997, Summit had working capital of $0.6 million and total
debt of $0.9 million.

Summit generated near break-even levels of net cash from operating
activities for the year ended March 31, 1997. Net cash used in investing
activities was approximately $0.2 million primarily for the purchase of service
trucks. Net cash provided by financing activities was $0.2 million for the year
ended March 31, 1997 primarily as a result of long-term borrowings.

At March 31, 1997 Summit had working capital of $0.6 million and total debt
of $0.9 million.

THURMAN & O'CONNELL RESULTS OF OPERATIONS

Thurman & O'Connell was founded in 1988. It is headquartered in Louisville,
Kentucky, and operates primarily in Louisville and the surrounding areas.
Thurman & O'Connell's revenues in 1996 and 1997 were primarily from commercial
and industrial contracting, with an emphasis on institutional and commercial
properties.

42
<PAGE> 45

The following table sets forth selected statement of operations data as a
percentage of revenues for the periods indicated:

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, YEAR ENDED SEPTEMBER 30,
---------------------------- SEPTEMBER 30, ----------------------------
1995 1996 1997 1996 1997
------------ ------------ ------------------- ------------ ------------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues...................... $4,729 100% $4,551 100% $4,049 100% $3,741 100% $3,239 100%
Cost of services.............. 3,309 70 3,059 67 2,181 54 2,531 68 1,653 51
------ --- ------ --- ------ --- ------ --- ------ ---
Gross profit................ 1,420 30 1,492 33 1,868 46 1,210 32 1,586 49
Selling, general and
administrative expenses..... 512 11 503 11 503 12 397 10 397 12
------ --- ------ --- ------ --- ------ --- ------ ---
Income from operations...... $ 908 19% $ 989 22% $1,365 34% $ 813 22% $1,189 37%
====== === ====== === ====== === ====== === ====== ===
</TABLE>

Thurman & O'Connell results for the nine months ended September 30, 1997
compared to nine months ended September 30, 1996

Revenues decreased $0.5 million, or 13%, from $3.7 million in the nine
months ended September 30, 1996 to $3.2 million in the nine months ended
September 30, 1997, primarily due to the completion of a large multi-year
hospital project in 1996.

Gross profit increased $0.4 million, or 31%, from $1.2 million in the nine
months ended September 30, 1996 to $1.6 million in the nine months ended
September 30, 1997, primarily due to favorable pricing on certain overbudget
projects for which Thurman & O'Connell shares in the cost savings provided to
its customers. Gross margin increased from 32% in the nine months ended
September 30, 1996 to 49% in the nine months ended September 30, 1997 due to a
large multi-year lower profit margin hospital project that was completed in
1996.

Selling, general and administrative expenses did not change significantly
between the nine months ended September 30, 1997 and the nine months ended
September 30, 1996.

Thurman & O'Connell results of operations for the year ended September 30,
1997 compared to the year ended December 31, 1996

Revenues decreased $0.6 million, or 11%, from $4.6 million for the year
ended December 31, 1996, to $4.0 million for the year ended September 30 1997,
primarily due to the completion of a large multi-year hospital project in 1996.

Gross profit increased $0.4 million, or 25%, from $1.5 million for the year
ended December 31, 1996, to $1.9 million for the year ended September 30, 1997.
Gross margin increased to 46% from 33% over these periods. The gross profit and
gross margin increases in 1997 when compared to 1996 are attributable to
favorable pricing on certain overbudget projects for which Thurman & O'Connell
shared in the cost savings it provided to its customers.

Selling, general and administrative expenses did not change significantly
between the year ended September 30, 1997 and the year ended December 31, 1996.

Thurman & O'Connell results for the year ended December 31, 1996 compared to
the year ended December 31, 1995

Revenues decreased $0.1 million, or 4%, from $4.7 million in 1995 to $4.6
million in 1996, primarily due to the completion of a large multi-year hospital
project in 1996.

Gross profit increased $0.1 million, or 5%, from $1.4 million in 1995 to
$1.5 million in 1996. Gross margin increased 3% from 30% in 1995 to 33% in 1996.

Selling, general and administrative expenses remained relatively constant
between 1995 and 1996.

43
<PAGE> 46

THURMAN & O'CONNELL LIQUIDITY AND CAPITAL RESOURCES

Thurman & O'Connell generated $0.9 million of net cash for operating
activities for the nine months ended September 30, 1997. Net cash used in
investing activities was not material in amount. Net cash used by financing
activities of $1.2 million primarily resulted from distributions to
stockholders.

Thurman & O'Connell generated $0.9 million of net cash from operating
activities for the year ended September 30, 1997. Net cash provided and used in
investing activities was not material in amount. Net cash used in financing
activities was $1.2 million, primarily for distributions to stockholders.

At September 30, 1997, Thurman & O'Connell had working capital of $1.5
million and total debt of $0.1 million.

Thurman & O'Connell generated $1.3 million in net cash from operating
activities for the year ended December 31, 1996, primarily from earnings net of
investments in working capital. Net cash used by financing activities was $0.6
million for the year ended December 31, 1996 primarily as a result of
distributions to stockholders and payments on debt.

At December 31, 1996 Thurman & O'Connell had working capital of $1.3
million and total debt of $0.1 million.

SEASONALITY AND QUARTERLY FLUCTUATIONS

The Company's results of operations from residential construction are
seasonal, depending on weather trends, with typically higher revenues generated
during the spring and summer and lower revenues during the fall and winter. The
commercial and industrial aspect of the Company's business is less subject to
seasonal trends, as this work is performed inside structures protected from the
weather. The Company's service business is not affected by seasonality. In
addition, the construction industry has historically been highly cyclical. The
Company's volume of business may be adversely affected by declines in
construction projects resulting from adverse regional or national economic
conditions. Quarterly results may also be materially affected by the timing of
acquisitions and the timing and magnitude of acquisition assimilation costs.
Accordingly, operating results for any fiscal period are not necessarily
indicative of results that may be achieved for any subsequent fiscal period.

44
<PAGE> 47

BUSINESS

The Company offers a broad range of electrical contracting services,
including design and installation for both new and renovation projects in the
commercial, industrial and residential markets. The Company also offers
long-term and per-call maintenance services, which generally provide recurring
revenues that are relatively independent of levels of construction activity.
Typically, the Founding Companies specialize in either commercial and industrial
or residential work, although a few of the Founding Companies have both
commercial and industrial and residential operations.

INDUSTRY OVERVIEW

restaurants; hotels and casinos; manufacturing and processing facilities; arenas
and convention centers; hospitals; school districts; military and other
government agencies; airports; prisons and car lots. High-rise residential
projects are viewed as commercial rather than residential projects because the
electrical wiring methods and field skills require similar techniques.
Commercial and industrial electrical construction is most often performed by a
subcontractor for a general contractor, although an electrical contractor may
also perform services directly as a prime contractor. Generally, contracts are
obtained through a competitive bid process or on negotiated terms through
ongoing customer relationships.

Typically, electrical contracting services for the industrial and
commercial market involve wiring a structure to specifications set by the
customer, increasingly with design-and-build engineering expertise provided by
the electrical contractor. The normal commercial or industrial job is wired
through pipe or conduit, which is installed through metal or concrete
structures. Some commercial and industrial contractors prefabricate certain
components offsite, at the contractor's office or at the facilities of a
subcontractor or manufacturer, and these items are transported to the job site
ready to be installed.

Residential Market. Contracting work for the residential market consists
primarily of electrical installations in new single family and low-rise
multifamily residence construction for customers such as large homebuilders and
apartment developers. The Company also provides maintenance services to these
customers as well as to individual property owners in some locations. The
typical residential electrical wiring job is done with plastic-jacketed wiring
installed through wood studs. As in the commercial and industrial market, the
opportunities for design-and-build projects have grown recently for residential
contractors. The residential market, with its repetitive floor plans, lends
itself to prefabrication techniques. The use of prefabricated components
increases productivity by reducing construction time, labor costs and skill
requirements. The residential market is primarily dependent on the number of
single family and multifamily home starts, which are in turn affected by
interest rates, tax considerations and general economic conditions. Competitive
factors particularly important in the residential market include a contractor's
ability to build relationships with customers such as large homebuilders and
apartment developers by providing services in diverse geographic markets as
construction activity shifts to new locations. The Founding Companies'
residential electrical contracting revenues have grown at an average compound
annual rate of approximately 22% from fiscal 1994 through 1996.

Residential electrical contractors with specialized expertise and the
necessary licenses are in a position to meet market demand for increasingly
complex residential electrical systems. For example, some newly constructed
homes have been designed as smart houses with integrated computer-controlled
systems wired in during construction. In addition, more stringent building and
fire codes have resulted in more complex wiring requirements for smoke detectors
and alarms.

STRATEGY

46
<PAGE> 49

technical expertise, personnel availability and bonding capacity, to more
effectively allocate and share resources in serving customers in each of its
markets and to attract, train and retain qualified electricians. The Company
also believes that increased size will provide increased efficiency in materials
purchasing, computer system development, employee benefits, bonding, insurance
and financing. The Company believes that the diversity of its operations will
diminish the effects of regional and market downturns, offer opportunities to
pursue growth in its existing markets and create a base of expertise to expand
into new markets and serve new customers.

The Company plans to leverage its experienced management and extensive
relationships within the electrical contracting industry to increase its
revenues and reduce its cost infrastructure through internal growth as well as
the acquisition of additional electrical contracting businesses. The Company's
management includes a Chief Executive Officer and two Chief Operating Officers,
each with 25 years or more of experience in the electrical contracting industry.
The Company has extensive business relationships within the industry, in part
through Founding Companies that are members of the IEC. The IEC is the second
largest electrical trade organization in the U.S. and has nearly 3,000
contracting firms as members. The Company's Chief Executive Officer is a past
president of the IEC, and two founders are members of the executive committee of
the IEC. The IEC sponsors forum groups, which are discussion groups of members
of the IEC that foster the sharing of best business practices. The Founding
Companies are members of the IEC and other trade organizations, and the Company
intends to expand the practice of sharing best practices among the Founding
Companies and with future acquisitions.

Expand Scope of Maintenance and Specialized Services. The Company
intends to further develop its long-term and per call maintenance service
operations, which generally realize higher gross margins and provide
recurring revenues that are relatively independent of levels of
construction activity. The Company also believes that certain specialized
businesses currently offered by only a few of the Founding Companies can be
expanded throughout the Company and in some cases can provide higher
margins. Through sharing of expertise and specialized licenses and the
ability to demonstrate a safety record in specialized markets served by the
Founding Companies, the Company intends to expand its presence and
profitability in markets where it previously relied on subcontractors.

Establish National Market Coverage. The Company believes that the
growth of many of the Founding Companies has been restricted due to the
geographic limitations of existing operations and that the Company's broad
geographic coverage will increase internal growth opportunities. The
Company intends to leverage its geographic diversity to bid for additional
business from existing customers that operate on a regional and national
basis, such as developers, contractors, homebuilders and owners of national
chains. The Company believes that significant demand exists from such
companies to utilize the services of a single electrical contracting and
maintenance service provider and existing local and regional relationships
can be expanded as the Company develops a nationwide network.

47
<PAGE> 50

48
<PAGE> 51

acquisitions, the Company intends to maintain existing business names and
identities to retain goodwill for marketing purposes.

COMPANY OPERATIONS

The Company offers a broad range of electrical contracting services,
including installation and design, for both new and renovation projects in the
commercial, industrial and residential markets. The Company also offers
long-term and per call maintenance services, which generally provide recurring
revenues that are relatively independent of levels of construction activity.

In certain markets the Company offers design-and-build expertise and
specialized services, which typically require specific skills and equipment and
provide higher margins than general electrical contracting and maintenance
services. The Company also acts as a subcontractor for a variety of national,
regional and local builders in the installation of electrical and other systems.

Commercial and Industrial. New commercial and industrial work begins with
either a design request or engineer's plans from the owner or general
contractor. Initial meetings with the parties allow the contractor to prepare
preliminary and then more detailed design specifications, engineering drawings
and cost estimates. Once a project is awarded, it is conducted in scheduled
phases, and progress billings are rendered to the owner for payment, less a
retainage of 5% to 10% of the construction cost of the project. Actual field
work (ordering of equipment and materials, fabrication or assembly of certain
components, delivery of materials and components to the job site, scheduling of
work crews and inspection and quality control) is coordinated during these
phases. The Company generally provides the materials to be installed as a part
of these contracts, which vary significantly in size from a few hundred dollars
to several million dollars and vary in duration from less than a day to more
than a year.

Residential. New residential installations begin with a builder providing
architectural or mechanical drawings for the residences within the tract being
developed. The Company typically submits a bid or contract proposal for the
work. Company personnel analyze the plans and drawings and estimate the
equipment, materials and parts and the direct and supervisory labor required for
the project. The Company delivers a written bid or negotiates an arrangement for
the job. The installation work is coordinated by the Company's field supervisors
along with the builder's personnel. Payments for the project are generally
obtained within 30 days, at which time any mechanics' and materialmen's liens
securing such payments are released. Interim payments are often obtained to
cover labor and materials costs on larger projects.

Maintenance Services. The Company's maintenance services are supplied on a
long-term and per call basis. The Company's long-term maintenance services are
provided through service contracts that require the customer to pay an annual or
semiannual fee for periodic diagnostic services at a specific discount from
standard prices for repair and replacement services. The Company's per call
maintenance services are initiated when a customer requests emergency repair
service or the Company calls the client to schedule periodic maintenance work.
Service technicians are scheduled for the call or routed to the customer's
residence or business by the dispatcher. Service personnel work out of the
Company's service vehicles, which carry an inventory of equipment, tools, parts
and supplies needed to complete the typical variety of jobs. The technician
assigned to a service call travels to the residence or business, interviews the
customer, diagnoses the problem, prepares and discusses a price quotation,
performs the work and often collects payment from the customer. Most work is
warrantied for one year. During the year ended September 30, 1997, the Company
had $35.8 million in revenues for periodic maintenance services provided under
existing service contracts and for emergency or other routine service calls.

Major Customers. The Company has a diverse customer base, with no single
customer accounting for more than 5% of the Company's pro forma combined
revenues for the year ended September 30, 1997. As a result of emphasis on
quality and worker reliability, management and a dedicated sales and work force
at the Founding Companies have been responsible for developing and maintaining
successful relationships with key customers. Customers of the Founding Companies
generally include general contractors; developers; consulting engineers;
architects; owners and managers of large retail establishments, office
buildings, apartments and condominiums, theaters and restaurants; hotels and
casinos; manufacturing and processing facilities; arenas
49
<PAGE> 52

and convention centers; hospitals; school districts; military and other
government agencies; airports; prisons and car lots. The Company intends to
continue its emphasis on developing and maintaining relationships with its
customers by providing superior, high-quality service.

Employee Screening, Training and Development. The Company is committed to
providing the highest level of customer service through the development of a
highly trained workforce. Employees are encouraged to complete a progressive
training program to advance their technical competencies and to ensure that they
understand and follow the applicable codes, the Company's safety practices and
other internal policies. The Company supports and funds continuing education for
its employees, as well as apprenticeship training for its technicians under the
Bureau of Apprenticeship and Training of the Department of Labor and similar
state agencies. Employees who train as apprentices for four years may seek to
become journeymen electricians and, after additional years of experience, master
electricians. The Company pays progressive increases in compensation to
employees who acquire such additional training, and more highly trained
employees serve as foremen, estimators and project managers. The Company's
master electricians are licensed in one or more cities or other jurisdictions in
order to obtain the permits required in the Company's business, and certain
master electricians have also obtained specialized licenses in areas such as
security systems and fire alarm installation. In some areas, licensing boards
have set continuing education requirements for maintenance of licenses. Because
of the lengthy and difficult training and licensing process for electricians,
the Company believes that the number, skills and licenses of its employees
constitute a competitive strength in the industry.

The Company actively recruits and screens applicants for its technical
positions and has established programs in some locations to recruit apprentice
technicians directly from high schools and vocational-technical schools. Prior
to employment, the Company will make an assessment of the technical competence
level of all potential new employees, confirm background references, conduct
random drug testing and check criminal and driving records.

Purchasing. As a result of economies of scale derived through the
Acquisitions and the Company's in-house supply operations, the Company believes
it will be able to purchase equipment, parts and supplies at discounts to
historical levels. In addition, as a result of the Company's size, it believes
it will also lower its costs for (i) the purchase or lease and maintenance of
vehicles; (ii) bonding, casualty and liability insurance; (iii) health insurance
and related benefits; (iv) retirement benefits administration; (v) office and
computer equipment; (vi) marketing and advertising; (vii) long distance services
and (viii) a variety of accounting, financial management and legal services.

Substantially all the equipment and component parts the Company sells or
installs are purchased from manufacturers and other outside suppliers. The
Company is not materially dependent on any of these outside sources.

MANAGEMENT INFORMATION AND CONTROLS

The Company intends to centralize its consolidated accounting and financial
reporting activities at its operational headquarters in Houston, Texas, while
basic accounting activities will be conducted at the operating level. The
Company believes that its current information systems hardware and software are
adequate to meet current needs for financial reporting, internal management
control and other necessary information and the needs of newly acquired
corporations.

PROPERTY AND EQUIPMENT

The Company operates a fleet of approximately 850 owned and leased service
trucks, vans and support vehicles. It believes these vehicles generally are
adequate for the Company's current operations.

At September 30, 1997, the Company maintained offices at 48 locations. All
of the Company's facilities are leased. The Company's corporate headquarters are
located in Houston, Texas. The paragraphs below summarize the Company's primary
office and operating facilities.

The Company's primary warehouses, sales facilities and administrative
offices are as follows, subject to consolidation of certain facilities to
achieve operating efficiencies and subject to the execution of leases with
50
<PAGE> 53

certain owners of the Founding Companies in connection with the Acquisitions and
the consummation of the Offerings:

<TABLE>
<CAPTION>
APPROXIMATE
LOCATION SQUARE FT. TYPE
-------- ----------- ----
<S> <C> <C>
Birmingham, AL............................ 3,800 Offices
Phoenix, AZ............................... 6,900 Offices
Scottsdale, AZ............................ 6,400 Warehouse/Offices
Milford, CT............................... 900 Warehouse/Offices
Miami, FL................................. 19,000 Warehouse/Offices
Ocoee, FL................................. 12,800 Warehouse/Offices
Vero Beach, FL............................ 3,550 Warehouse/Offices
Aceworth, GA.............................. 5,256 Warehouse/Offices
Duluth, GA................................ 3,875 Warehouse/Offices
Valdosta, GA.............................. 11,084 Warehouse/Offices
Louisville, KY............................ 17,000 Warehouse/Offices
Monroe, NC................................ 4,500 Warehouse/Offices
Henderson, NV............................. 1,500 Warehouse/Offices
Cincinnati, OH............................ 6,000 Warehouse/Offices
Deadwood, SD.............................. 2,650 Warehouse/Offices
Huron, SD................................. 5,000 Warehouse/Offices/Showroom
Mitchell, SD.............................. 14,439 Warehouse/Offices
Mitchell, SD.............................. 8,000 Offices
Rapid City, SD............................ 5,830 Warehouse/Offices
Sioux Falls, SD........................... 5,000 Warehouse/Offices
Spearfish, SD............................. 1,825 Warehouse/Offices
Watertown, SD............................. 5,020 Warehouse/Offices
Austin, TX................................ 3,465 Warehouse/Offices
Austin, TX................................ 2,970 Warehouse/Offices
Austin, TX................................ 1,200 Warehouse/Offices
Dallas, TX................................ 32,424 Warehouse/Offices
Fort Worth, TX............................ 18,000 Warehouse/Offices
Grapevine, TX............................. 6,850 Warehouse/Offices
Houston, TX............................... 23,040 Warehouse/Offices
Houston, TX............................... 19,000 Warehouse
Houston, TX............................... 8,722 Warehouse/Offices
Katy, TX.................................. 5,000 Warehouse/Offices
Laredo, TX................................ 1,700 Warehouse/Offices
New Braunfels, TX......................... 3,164 Warehouse/Offices
Rowlett, TX............................... 4,000 Warehouse/Offices
Saginaw, TX............................... 37,000 Warehouse/Offices
San Antonio, TX........................... 16,692 Warehouse/Offices
San Antonio, TX........................... 13,492 Warehouse/Offices
San Antonio, TX........................... 6,535 Warehouse/Offices
San Antonio, TX........................... 5,588 Warehouse/Offices
San Antonio, TX........................... 5,000 Warehouse/Offices
Spring, TX................................ 5,500 Warehouse/Offices
Stafford, TX.............................. 15,000 Warehouse/Offices
Stafford, TX.............................. 10,500 Warehouse/Offices
Stafford, TX.............................. 3,500 Warehouse/Offices
Stafford, TX.............................. 3,500 Warehouse/Offices
Stafford, TX.............................. 1,661 Office
Webster, TX............................... 7,054 Warehouse/Offices
Everrett, WA.............................. 9,000 Lot
Everrett, WA.............................. 3,500 Warehouse/Offices
</TABLE>

51
<PAGE> 54

In addition to the facilities listed above, the Company may operate on a
short-term basis in other locations as may be required from time to time to
perform its contracts. Upon the consummation of the Offerings, the Company will
lease its principal and administrative offices in Houston, Texas and is
currently in the process of obtaining office space for this purpose.

The Company believes that its properties are generally adequate for its
present needs. Furthermore, the Company believes that suitable additional or
replacement space will be available as required.

COMPETITION

The electrical contracting industry is highly fragmented and competitive.
Most of the Company's competitors are small, owner-operated companies that
typically operate in a limited geographic area. There are few public companies
focused on providing electrical contracting services. In the future, competition
may be encountered from new entrants, such as public utilities and other
companies attempting to consolidate electrical contracting service companies.
Competitive factors in the electrical contracting industry include (i) the
availability of qualified and licensed electricians, (ii) safety record, (iii)
cost structure, (iv) relationships with customers, (v) geographic diversity,
(vi) ability to reduce project costs, (vii) access to technology, (viii)
experience in specialized markets and (ix) ability to obtain bonding. See "Risk
Factors -- Competition."

REGULATIONS

The Company's operations are subject to various federal, state and local
laws and regulations, including (i) licensing requirements applicable to
electricians; (ii) building and electrical codes; (iii) regulations relating to
consumer protection, including those governing residential service agreements
and (iv) regulations relating to worker safety and protection of the
environment. The Company believes it has all required licenses to conduct its
operations and is in substantial compliance with applicable regulatory
requirements. Failure of the Company to comply with applicable regulations could
result in substantial fines or revocation of the Company's operating licenses.

Many state and local regulations governing electricians require permits and
licenses to be held by individuals. In some cases, a required permit or license
held by a single individual may be sufficient to authorize specified activities
for all the Company's electricians who work in the state or county that issued
the permit or license. The Company intends to implement a policy to ensure that,
where possible, any such permits or licenses that may be material to the
Company's operations in a particular geographic region are held by at least two
Company employees within that region.

LITIGATION

Each of the Founding Companies has, from time to time, been a party to
litigation arising in the normal course of its business, most of which involves
claims for personal injury or property damage incurred in connection with its
operations. Management believes that none of these actions will have a material
adverse effect on the financial condition or results of operations of the
Company.

EMPLOYEES

At September 30, 1997, the Company had approximately 3,550 employees. The
Company is not a party to any collective bargaining agreements. The Company
believes that its relationship with its employees is satisfactory.

52
<PAGE> 55

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth information concerning the Company's
directors and officers and those persons who will become directors, executive
officers and certain key employees upon the consummation of the Offerings:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
C. Byron Snyder......................... 49 Chairman of the Board of Directors
Jon Pollock............................. 51 President, Chief Executive Officer and Director*
Jerry Mills............................. 57 Senior Vice President and Chief Operating
Officer -- Commercial and Industrial and Director*
Ben L. Mueller.......................... 50 Senior Vice President and Chief Operating
Officer --
Residential and Director*
Jim P. Wise............................. 54 Senior Vice President and Chief Financial Officer
John F. Wombwell........................ 36 Senior Vice President, General Counsel and
Secretary*
John S. Stanfield....................... 42 Vice President -- Mergers and Acquisitions
D. Merril Cummings...................... 37 Vice President -- Mergers and Acquisitions
J. Paul Withrow......................... 32 Vice President and Chief Accounting Officer
Richard Muth............................ 50 President of Muth Electric, Inc., and Director*
Alan R. Sielbeck........................ 44 Director*
Robert Stalvey.......................... 47 Vice President of Ace Electric, Inc., and Director*
Richard L. Tucker....................... 62 Director*
Bob Weik................................ 62 President of BW Consolidated, Inc., and Director*
Thomas E. White, Jr..................... 53 Director*
</TABLE>

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

* Election as a director or officer of the Company effective upon the
consummation of the Offerings.

Directors are elected at each annual meeting of stockholders. All officers
serve at the discretion of the Board of Directors, subject to the terms of their
employment agreements. See "-- Employment Agreements."

C. Byron Snyder has been Chairman of the Board of Directors of the Company
since its inception. Mr. Snyder is owner and President of Relco Refrigeration
Co., a distributor of refrigerator equipment, which he acquired in 1992. Prior
to 1992, Mr. Snyder was the owner and Chief Executive Officer of Southwestern
Graphics International, Inc., a diversified holding company which owned Brandt &
Lawson Printing Co., a Houston-based general printing business, and Acco Waste
Paper Company, an independent recycling business. Brandt & Lawson Printing Co.
was sold to Hart Graphics in 1989, and Acco Waste Paper Company was sold to
Browning-Ferris Industries in 1991. Mr. Snyder is a director of Carriage
Services, Inc., a publicly held death care company.

Jon Pollock will become President, Chief Executive Officer and a director
of the Company upon consummation of the Offerings. Mr. Pollock has been the
president of Pollock Electric Inc., one of the Founding Companies, since he
founded that company in 1983. Mr. Pollock is a Registered Professional Engineer
in Texas and several other states and holds Master Electrician licenses from 50
different jurisdictions. Mr. Pollock received a bachelor of science in
electrical engineering from Washington University. Mr. Pollock is past National
President of the Independent Electrical Contractors Association and received the
IEC Electrical Man of the Year award in 1996. As National President of the IEC,
Mr. Pollock was responsible for overseeing the IEC's activities relating to the
development and execution of apprenticeship and safety training programs,
industry lobbying activities and the development of national electrical code
standards.

Jerry Mills will become Senior Vice President and Chief Operating
Officer -- Commercial and Industrial and a director of the Company upon
consummation of the Offerings. Mr. Mills has been the President of Mills
Electrical Contractors, Inc., one of the founding companies, since he began that
company in 1972. Mr. Mills is

53
<PAGE> 56

a past board member of the Independent Electrical Contractors, the Associated
Builders and Contractors, the Associated General Contractors and the Richardson
Electrical Board. Prior to 1972, Mr. Mills was an officer and part owner of
Koegel Cash Consulting Engineers.

Ben L. Mueller will become Senior Vice President, Chief Operating
Officer -- Residential and a director of the Company upon consummation of the
Offerings. Mr. Mueller has been the Executive Vice President of Houston-Stafford
since 1993 and has served as vice president of Houston-Stafford since 1975. Mr.
Mueller is a past member of the board of the IEC, Houston Chapter, and has
served on the Electrical Board for the City of Sugar Land, Texas.

Jim P. Wise joined the Company in September 1997 as Senior Vice President
and Chief Financial Officer. From September 1994 to September 1997, he was Vice
President -- Finance and Chief Financial Officer at Sterling Chemicals, Inc., a
publicly held manufacturer of commodity petrochemicals and pulp chemicals. From
July 1994 to September 1994, he was Senior Vice President and Chief Financial
Officer of U.S. Delivery Systems, Inc., a delivery service consolidator. From
September 1991 to July 1994, he was Chairman and Chief Executive Officer of
Neostar Group, Inc., a private investment banking and financial advisory firm.
Mr. Wise was employed by Transco Energy Company as Executive Vice President,
Chief Financial Officer and was a member of the Board of Directors from November
1982 until September 1991.

John F. Wombwell will become Senior Vice President, General Counsel and
Secretary of the Company upon consummation of the Offerings. Mr. Wombwell is
currently a partner at Andrews & Kurth L.L.P., where he has practiced law in the
area of corporate and securities matters for more than five years.

John S. Stanfield joined the Company as Vice President -- Mergers and
Acquisitions in October 1997. From March 1996 to October 1997, he served as
Controller of Pollock Electric, Inc., one of the Founding Companies. From April
1993 through March 1996, Mr. Stanfield was an independent financial consultant,
specializing in acquisition, corporate reorganization, and accounting and
financial control services. From 1988 through 1993, Mr. Stanfield served as
Chief Financial Officer for companies in the distribution and manufacturing
industries. Mr. Stanfield was employed in various positions by Arthur Andersen
LLP from 1978 through 1988. Mr. Stanfield is a Certified Public Accountant.

D. Merril Cummings joined the Company as Vice President -- Mergers and
Acquisitions in October 1997. Mr. Cummings has served as a consultant to the
Company since its inception in June 1997. From February 1997 through June 1997
he served as a consultant to C. Byron Snyder and his privately owned
corporations. From 1992 through 1996, Mr. Cummings served as Vice President and
Chief Financial Officer for J A Interests, Inc., a private asset management
company, and its commonly owned affiliates, including Southern Jet Management,
Inc., a general aviation services and charter company. From 1982 through January
1992, Mr. Cummings held various positions with Arthur Andersen LLP. Mr. Cummings
is a Certified Public Accountant.

J. Paul Withrow has served as Vice President and Chief Accounting Officer
of the Company since October 1997. From 1987 to 1997, Mr. Withrow held various
positions with Arthur Andersen LLP. Mr. Withrow is a Certified Public
Accountant.

Richard Muth will become a director of the Company upon consummation of the
Offerings. Mr. Muth founded Muth Electric, Inc. in 1970 and has been the owner
and president since that time. Mr. Muth served on the South Dakota State
Electrical Commission from 1980 to 1991 and the Associated General Contractors
Associate Division Board. Mr. Muth also received the South Dakota Electrical
Council "Man of the Year" award in 1993. Mr. Muth holds electrical contractors'
licenses in South Dakota, Minnesota, Nebraska, Wyoming and Montana.

Alan R. Seilbeck will become a director of the Company upon consummation of
the Offerings. Mr. Sielbeck has served as Chairman of the Board and Chief
Executive Officer of Service Experts, Inc., a publicly traded heating,
ventilation and air conditioning service company, since its inception in March
1996. Mr. Sielbeck has served as Chairman of the Board and President of AC
Service and Installation Co. Inc. and Donelson Air Conditioning Company, Inc.
since 1990 and 1991, respectively. From 1985 to 1990,

54
<PAGE> 57

Mr. Sielbeck served as President of RC Mathews Contractor, Inc., a commercial
building general contractor, and Chief Financial Officer of RCM Interests, Inc.,
a commercial real estate development company.

Robert Stalvey will become a director of the Company upon consummation of
the Offerings. Mr. Stalvey has served as Vice President of Ace since 1976. Mr.
Stalvey will continue to serve in these positions following the consummation of
the Offerings.

Richard L. Tucker will become a director of the Company upon consummation
of the Offerings. Dr. Tucker holds the Joe C. Walter Jr. Chair in Engineering,
is Director of the Construction Industry Institute, and is Director of the Sloan
Program for the Construction Industry at the University of Texas at Austin. Dr.
Tucker has been on the faculty at the University of Texas since 1976. Dr. Tucker
is a registered engineer.

Bob Weik will become a director of the Company upon consummation of the
Offerings. Mr. Weik has served as President, Treasurer and a director of the
Bexar-Calhoun companies since their inception in 1958. Mr. Weik will continue to
serve in those positions following the consummation of the Offerings.

Thomas E. White, Jr. will become a director of the Company upon
consummation of the Offerings. Mr. White has served as Chairman and Chief
Executive Officer of Enron Ventures Corp., a subsidiary of Enron Corp., since
December 1996. Mr. White served as Chairman and Chief Executive Officer of Enron
Operations Corp. from June 1993 until December 1996. Mr. White served as
Chairman and Chief Executive Officer of Enron Power Corp. from June 1991 until
June 1993. Mr. White joined Enron Corp. in 1990 as Vice President of Operations
for Enron Power Corp., after a twenty-three year career in the United States
Army, from which he retired in July 1990 with the rank of Brigadier General.

The Board of Directors will establish an Audit Committee and a Compensation
Committee. The Audit Committee will recommend the appointment of auditors and
oversee the accounting and audit functions of the Company. The Compensation
Committee will determine the salaries and bonuses of executive officers and
administer the 1997 Stock Plan. Messrs. Seilbeck, Tucker and White will serve as
members of the Company's Compensation Committee and Audit Committee. Any future
material transactions, including the issuance of securities other than through
the 1997 Stock Plan and the 1997 Directors Stock Plan, between the Company and
its management and affiliates will be subject to prior review and approval by
the members of the Board of Directors without an interest in such transaction.

The Board of Directors is divided into three classes of directors, with
directors serving staggered three-year terms, expiring at the annual meeting of
stockholders following the 1998 fiscal year (Class I), 1999 fiscal year (Class
II) and 2000 fiscal year (Class III), respectively. At each annual meeting of
stockholders, one class of directors will be elected for a full term of three
years to succeed that class of directors whose terms are expiring. Effective
upon consummation of the Offerings, the Board of Directors will be classified as
follows: Class I--C. Byron Snyder, Jon Pollock, Bob Weik and Alan R. Sielbeck;
Class II--Jerry Mills, Richard Muth and Richard L. Tucker; Class III--Ben L.
Mueller, Robert Stalvey and Thomas E. White, Jr.

C. Byron Snyder and trusts for the benefit of his children, as the holders
of all of the outstanding Restricted Common Stock, will be entitled to elect one
member of the Company's Board of Directors and to one-half of one vote for each
share held on all other matters. Holders of Restricted Common Stock are not
entitled to vote on the election of any other directors. Only the holders of the
Restricted Common Stock may remove the director such holders are entitled to
elect. See "Description of Capital Stock."

DIRECTOR COMPENSATION

Directors who are employees of the Company or a subsidiary do not receive
additional compensation for serving as directors. Each director who is not an
employee of the Company or a subsidiary will receive a fee of $2,000 for
attendance at each Board of Directors meeting and $1,000 for each committee
meeting (unless held on the same day as a Board of Directors meeting). Directors
of the Company will be reimbursed for reasonable out-of-pocket expenses incurred
in attending meetings of the Board of Directors or committees thereof, and for
other expenses reasonably incurred in their capacity as directors of the
Company. Each non-employee director will receive stock options to purchase 5,000
shares of Common Stock upon initial election

55
<PAGE> 58

to the Board of Directors and thereafter an annual grant of 5,000 options on
each September 30 on which the non-employee director continues to serve. See
"-- 1997 Directors Stock Plan."

EXECUTIVE COMPENSATION

The Company was incorporated in June 1997 and, prior to the Offerings, has
not conducted any operations other than activities related to the Acquisitions
and the Offerings. During 1998 the annualized base salaries of its most highly
compensated executive officers will be: Mr. Pollock -- $225,000, Mr. Mills --
$200,000, Mr. Mueller -- $200,000, Mr. Wise -- $190,000 and Mr.
Wombwell -- $190,000.

EMPLOYMENT AGREEMENTS

The Company will enter into employment agreements with each executive
officer of the Company which prohibits such officer from disclosing the
Company's confidential information and trade secrets and generally restricts
these individuals from competing with the Company for a period of two years
after the date of the termination of employment with the Company. Each of the
agreements has an initial term of five years and provides for annual extensions
at the end of its initial term, subject to the parties' mutual agreement, and is
terminable by the Company for "cause" upon ten days' written notice and without
"cause" (i) by the employee upon thirty days' written notice or (ii) by the
Company upon approval of 51% of the Board of Directors. The employment
agreements provide that the Company shall pay each executive officer the annual
salary set forth above under "-- Executive Compensation," which salary may be
increased by the Board of Directors. Such agreements also provide that each
executive officer will be reimbursed for out-of-pocket business expenses and
shall be eligible to participate in all benefit plans and programs as are
maintained from time to time by the Company. All employment agreements provide
that if the officer's employment is terminated by the Company without "cause" or
is terminated by the officer for "good reason," the officer will be entitled to
receive a lump sum severance payment at the effective time of termination equal
to the base salary (at the rate then in effect) for the greater of (i) the time
period remaining under the term of the agreement or (ii) one year. In addition,
the time period during which such officer is restricted from competing with the
Company will be shortened from two years to one year.

The employment agreements contain certain provisions concerning a
change-in-control of the Company, including the following: (i) in the event the
officer's employment is terminated within two years following the change in
control by the Company other than for "cause" or by the officer for "good
reason," or the officer is terminated by the Company within three months prior
to the change in control at the request of the acquirer in anticipation of the
change in control, the officer will be entitled to receive a lump sum severance
amount equal to the greater of (i) three years' base salary or (ii) the base
salary for whatever period is then remaining on the initial term and the
provisions which restrict competition with the Company shall not apply; (ii) in
any change-of-control situation, the officer may elect to terminate his
employment by giving five business days' written notice prior to the closing of
the transaction giving rise to the change-in-control, which will be deemed a
termination of employment by the Company without "cause," and the provisions of
the employment agreement governing the same will apply, except that the
severance amount otherwise payable shall be doubled (but not to exceed six times
the officer's base pay) (if the successor does not give written notice of its
acceptance of the Company's obligations under the employment agreement at least
ten business days prior to the anticipated closing date, the severance amount
shall be tripled, but not to exceed nine times base salary) and provisions which
restrict competition with the Company shall not apply; and (iii) if any payment
to the officer is subject to the 20% excise tax on excess parachute payments,
the officer shall be made "whole" on a net aftertax basis. A change in control
is generally defined to occur upon (i) the acquisition by any person of 20% or
more of the total voting power of the outstanding securities of the Company,
(ii) the first purchase pursuant to a tender or exchange offer for Common Stock,
(iii) the approval of certain mergers, sale of substantially all the assets, or
dissolution of the Company or (iv) a change in a majority of the members of the
Company's Board of Directors.

In general, a "parachute payment" is any "payment" made by the Company in
the nature of compensation that is contingent on a change in control of the
Company and includes the present value of the accelerations of vesting and the
payment of options and other deferred compensation amounts upon a change

56
<PAGE> 59

in control. If the aggregate present value of the parachute payments to certain
individuals, including officers, equals or exceeds three times that individual's
"base amount" (generally, the individual's average annual compensation from the
Company for the five calendar years ending before the date of the change in
control), then all parachute amounts in excess of the base amount are "excess"
parachute payments. An individual will be subject to a 20% excise tax on excess
parachute amounts and the Company will not be entitled to a tax deduction for
such payments.

1997 STOCK PLAN

The Company's 1997 Stock Plan was adopted by the Board of Directors and
stockholders in October 1997. The purpose of the 1997 Stock Plan is to provide
officers, employees and consultants with additional incentives by increasing
their ownership interests in the Company. Individual awards under the 1997 Stock
Plan may take the form of one or more of: (i) either incentive stock options
("ISOs") or non-qualified stock options ("NQSOs"); (ii) stock appreciation
rights; (iii) restricted or phantom stock; (iv) bonus stock awards; (v) awards
not otherwise provided for, the value of which is based in whole or in part upon
the value of the Common Stock and (vi) cash awards that may or may not be based
on the achievement of performance goals, including goals related to one or more
of the following: cash flow, return on equity, sales, profit margin, earnings
per share and stock price.

The Compensation Committee or the Company's President, to the extent such
duties are delegated to him by the Compensation Committee, will administer the
1997 Stock Plan and select the individuals who will receive awards and establish
the terms and conditions of those awards. The Compensation Committee will not be
eligible to receive awards under the plan, and the President will not have the
authority to make grants to officers or directors of the Company. See
"Management -- Directors and Executive Officers" for the composition of the
Compensation Committee following the consummation of the Offerings. The maximum
number of shares of Common Stock that may be subject to outstanding awards,
determined immediately after the grant of any award, may not exceed the greater
of 3,500,000 shares or 15% of the aggregate number of shares of Common Stock
outstanding; provided, however, that ISOs may not be granted with respect to
more than 1,000,000 shares. Shares of Common Stock which are attributable to
awards which have expired, terminated or been canceled or forfeited are
available for issuance or use in connection with future awards. The maximum
number of shares of Common Stock with respect to which any person may receive
options and stock appreciation rights in any year is 250,000 shares and the
maximum value of any other amount may not exceed $4 million as of the date of
its grant.

The 1997 Stock Plan will remain in effect for ten years, unless earlier
terminated by the Board of Directors. The 1997 Stock Plan may be amended by the
Board of Directors or the Compensation Committee without the consent of the
stockholders of the Company, except that any amendment will be subject to
stockholder approval if required by any federal or state law or regulation or by
the rules of any stock exchange or automated quotation system on which the
Common Stock may then be listed or quoted.

NQSOs to purchase 150,000 shares of Common Stock have been granted to each
of Mr. Wise and Mr. Wombwell. In addition, at the consummation of the Offerings,
NQSOs to purchase approximately 2,328,600 shares will be granted to other key
employees of the Company and to employees of the Founding Companies. Each of the
foregoing options will have an exercise price equal to the initial public
offering price of the shares offered hereby, other than the options granted to
Messrs. Wise and Wombwell, which have been granted with exercise price equal to
60% of the initial public offering price per share. Each of these options will
vest at the rate of 20% per year, commencing on the first anniversary of grant
and will expire at the earliest of (i) ten years from the date of grant, (ii)
three months following termination of employment, other than due to death or
disability or (iii) one year following a termination of employment due to death
or disability.

1997 DIRECTORS STOCK PLAN

The Company's 1997 Directors Stock Plan was adopted by the Board of
Directors and approved by the Company's stockholders in October 1997. The
Directors Plan provides for (i) the automatic grant to each non-employee
director serving at the consummation of the Offerings of an option to purchase
5,000 shares,

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<PAGE> 60

(ii) the automatic grant to each non-employee director of an option to purchase
5,000 shares upon such person's initial election as a director and (iii) an
automatic annual grant to each non-employee director of an option to purchase
5,000 shares on each September 30th on which such director remains a
non-employee director. All options will have an exercise price per share equal
to the fair market value of the Common Stock on the date of grant, will vest
over five years at the rate of 20% per year and will expire on the earliest of
(i) ten years from the date of grant, (ii) three months after termination of
service as a director, other than due to death or disability or (iii) one year
following a termination of employment due to death or disability. In addition,
options can be granted to a non-employee director upon such terms as the Board
determines, whenever it believes such additional grant is appropriate. The
maximum number of shares of Common Stock that may be subject to outstanding
awards determined immediately after the grant of any award is 250,000.

CERTAIN TRANSACTIONS

ORGANIZATION OF THE COMPANY

The Company was founded in June 1997 by C. Byron Snyder. In connection with
the formation of IES, IES issued to Mr. Snyder, the Snyder Children's Trust and
D. Merril Cummings a total of 2,329,600 shares of Common Stock for nominal
consideration. The shares issued to the Snyder Children's Trust were
subsequently transferred to two separate trusts, each for the benefit of one of
Mr. Snyder's children. Mr. Snyder is currently president and a director of the
Company. The trustees of the trusts are independent third parties not subject to
control by Mr. Snyder. In September 1997, IES issued an additional 442,589
shares to Mr. Snyder and such trusts. The total value of the shares (based upon
a value of $9.75 per share) issued to Mr. Snyder and the trusts will be
recognized as acquisition costs in connection with the Acquisitions. In October
1997, Mr. Snyder and the trusts exchanged 2,655,709 shares of Common Stock for
an equal number of shares of Restricted Common Stock. Mr. Snyder has agreed to
advance whatever funds are necessary to effect the Acquisitions and the
Offerings. As of September 30, 1997, Mr. Snyder had outstanding advances to the
Company in the aggregate amount of approximately $1.6 million at September 30,
1997. The initial $1 million of such advances bears interest at a stated rate
(8.5% as of the date of this Prospectus), and additional advances bear interest
at LIBOR plus 1.5%. All of Mr. Snyder's advances will be repaid from the net
proceeds of the Offerings.

The Company has issued a total of 1,396,602 shares of Common Stock at $.01
per share to various members of management, including: Mr. Pollock -- 465,914
shares, Mr. Mills -- 232,957 shares, Mr. Mueller -- 232,957 shares, Mr.
Wise -- 100,000 shares, Mr. Wombwell -- 100,000 shares and other key
employees -- 264,774 shares. The Company also granted options to purchase 5,000
shares of Common Stock under the 1997 Directors Stock Plan, effective upon the
consummation of the Offerings, to each of the non-employee directors of the
Company.

Simultaneously with the closing of the Offerings, the Company will acquire
by stock purchase all the issued and outstanding capital stock and other equity
interests of the Founding Companies, at which time each Founding Company will
become a wholly owned subsidiary of the Company. The Acquisitions Consideration
was negotiated by the parties and was based primarily upon the pro forma
adjusted net income of each Founding Company. The Acquisitions Consideration
consists of (i) approximately $53.4 million in cash and (ii) 12,313,025 shares
of Common Stock. In addition, the Company intends to repay approximately $6.4
million of the historical indebtedness of the Founding Companies with proceeds
from the Offerings. In connection with the Acquisitions, owners of certain of
the Founding Companies will receive the Owner Amounts, as described below. The
Company expects to issue approximately $13.3 million of notes payable to fund a
portion of the Owner Amounts. Following the consummation of the Offerings, such
notes payable will be repaid with borrowings under the proposed credit facility.

The consummation of each Acquisition is subject to customary conditions.
These conditions include, among others, the accuracy of the representations and
warranties by the Founding Companies, their stockholders and the Company; the
performance by each of the parties of their respective covenants; and the
nonexistence of a material adverse change in the results of operations,
financial condition or business of each

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<PAGE> 61

Founding Company. There can be no assurance that the conditions to closing of
the Acquisitions will be satisfied or waived or that the acquisition agreements
will not be terminated prior to consummation.

The following table sets forth for each Founding Company (i) the
approximate portion of the Acquisitions Consideration to be paid to the
stockholders of each of the Founding Companies in cash and in shares of Common
Stock and (ii) the total debt which would have been assumed by the Company as of
September 30, 1997, which represents historical indebtedness, excluding (a)
indebtedness transferred to owners of the Founding Companies, (b) capital lease
obligations and (c) indebtedness incurred to fund a portion of the Owner
Amounts:

<TABLE>
<CAPTION>
SHARES OF
COMMON TOTAL
CASH STOCK DEBT
------- ---------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Houston-Stafford..................................... $14,526 3,352,039 $1,120
Mills................................................ 10,806 2,493,657 400
Bexar-Calhoun........................................ 8,075 1,863,397 179
Pollock.............................................. 985 319,729 1,718
Muth................................................. 2,051 473,324 540
Daniel............................................... 3,691 851,823 --
Amber................................................ 2,308 532,728 747
Haymaker............................................. 1,884 434,735 --
Summit............................................... 1,793 321,506 794
Thurman & O'Connell.................................. 2,165 499,600 95
Rodgers.............................................. 1,563 360,725 94
Hatfield............................................. 903 208,357 331
Ace.................................................. 828 191,056 --
Reynolds............................................. 872 201,191 400
Popp................................................. 906 209,158 --
------- ---------- ------
Total...................................... $53,356 12,313,025 $6,418
======= ========== ======
</TABLE>

The foregoing table does not include Owner Amounts (based on September 30,
1997 balances) having an aggregate net book value of $30.6 million, as follows:
$5.9 million to be received by the owners of Houston-Stafford, $9.4 million to
be received by the owners of Mills, $2.0 million to be received by the owners of
Bexar-Calhoun, $383,000 to be received by the owner of Pollock, $1.8 million to
be received by the owners of Muth, $4.3 million to be received by the owner of
Daniel, $1.3 million to be received by the owners of Amber, $1.2 million to be
received by the owners of Haymaker, $400,000 to be received by the owner of
Summit, $1.6 million to be received by the owners of Thurman & O'Connell,
$981,000 to be received by the owners of Rodgers, $46,000 to be received by the
owners of Hatfield, $407,000 to be received by the owners of Ace, $261,000 to be
received by the owners of Reynolds and $578,000 to be received by the owners of
Popp. The Owner Amounts were determined on the basis of negotiations between the
Founding Companies and IES in connection with entering into the various stock
purchase agreements. The Owner Amounts consist of transfers of cash in excess of
an agreed amount, nonoperating assets and liabilities, and net earnings of the
Founding Companies from July 1, 1997, through the date of the closing of the
Acquisitions.

Pursuant to the agreements relating to the Acquisitions, all stockholders
of each of the Founding Companies have agreed not to compete with the Company
for a period of two years after the termination of their affiliation with the
Company. In connection with the Acquisitions, the Company and the owners of the
Founding Companies have agreed to indemnify each other for breaches of
representations and warranties and certain other matters, subject to certain
limitations.

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<PAGE> 62

Individuals who are or will become executive officers or directors of the
Company will receive the following portions of the Acquisitions Consideration
for their interests in the Founding Companies, subject to adjustments as
described above.

<TABLE>
<CAPTION>
SHARES OF
COMPANY CASH COMMON STOCK
------- ----------- ------------
<S> <C> <C>
Houston-Stafford
Ben Mueller............................................... $ 4,648,161 1,072,652
Mills
Jerry Mills............................................... 9,306,722 2,147,705
Bexar-Calhoun
Bob Weik(a)............................................... 6,174,713 1,424,935
Pollock
Jon Pollock............................................... 985,493 319,729
Muth
Richard Muth(b)........................................... 1,939,750 447,635
Ace
Robert Stalvey............................................ 413,956 95,528
----------- ---------
Total............................................. $23,468,795 5,508,184
=========== =========
</TABLE>

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

(a) Excludes cash of $322,989 and 74,536 shares of Common Stock to be received
by two related trusts in which Mr. Weik may be deemed to have an interest,
as to which Mr. Weik disclaims beneficial ownership.

(b) Excludes cash of $111,320 and 25,689 shares of Common Stock to be received
by Mr. Muth's wife, Darlene Muth, as to which he disclaims beneficial
ownership.

The foregoing table does not include Owner Amounts that will be received by
the named individuals.

TRANSACTIONS INVOLVING CERTAIN OFFICERS, DIRECTORS AND PRINCIPAL STOCKHOLDERS

During fiscal 1994, 1995 and 1996, Houston-Stafford made payments totaling
$174,000, $124,000 and $187,000, respectively, to the Brown-Mueller Joint
Venture, a general partnership of which Mr. Mueller is a member, for lease
payments on certain real properties used as electrical shops. For the year ended
September 30, 1997, such lease payments totaled $109,000. Mr. Mueller will
become Senior Vice President, Chief Operating Officer -- Residential and a
director the Company following the consummation of the Offerings.

At December 31, 1996, Houston-Stafford owed Mr. Mueller $185,985 on a
promissory note, payable in monthly installments and maturing April 2001. Such
note was prepaid by Houston-Stafford in October 1997.

At December 31, 1996, Houston-Stafford owed Mr. Mueller $766,400 related to
a promissory note maturing August 2003 and secured by Mr. Mueller's stock in
Houston-Stafford, and such obligation and any related obligations shall be
terminated at the consummation of the Offerings. Mr. Mueller will receive
approximately $4.6 million and 1.1 million shares of Common Stock in connection
with the Acquisitions in exchange for such promissory note, as well as 0.2
million shares for his new role as a member of IES management. Houston-Stafford
will recognize a non-cash, non-recurring compensation charge of approximately
$17.0 million related to the transfer of such cash and shares of Common Stock to
Mr. Mueller at the time of the Acquisitions.

Pursuant to a 5-year lease agreement effective November 1, 1997,
Houston-Stafford agreed to lease certain facilities owned by Mr. Mueller in
Spring, Texas. Such lease agreement provides for an annual rent of $20,000,
which the Company believes is not in excess of fair rental value for such
facilities.

During fiscal 1994, Mills derived contract revenues of $187,000 from CIMA
Services, Inc. ("CIMA"), an electrical services company of which Mr. Mills was a
part owner until October 1997. Additionally, during fiscal 1994, Mills paid
$2,900,000 to CIMA for material purchases. At December 31, 1994, Mills had
outstanding accounts receivable from CIMA of $145,000 and accounts payable to
CIMA of $294,000. Mr. Mills will become Senior Vice President and Chief
Operating Officer -- Commercial and Industrial and a director of the Company
following the consummation of the Offerings.

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<PAGE> 63

During fiscal 1995, Mills derived contract revenues of $1.1 million from
CIMA. Additionally, during fiscal 1995, Mills paid $812,000 to CIMA for material
purchases. At December 31, 1995, Mills had outstanding accounts receivable from
CIMA of $2,000 and accounts payable to CIMA of $23,000.

During fiscal 1996, Mills derived contract revenues of $1.3 million from
CIMA. Additionally, during fiscal 1996, Mills paid $1.1 million to CIMA for
material purchases. At December 31, 1996, Mills had outstanding accounts
receivable from CIMA of $208,000 and accounts payable to CIMA of $633,000.

From January 1, 1997 to September 1, 1997, Mills derived contract revenues
of $776,000 from CIMA. Additionally, during this period of time, Mills paid $1.1
million to CIMA for material purchases. At August 31, 1997, Mills had
outstanding accounts receivable from CIMA of $314,000 and accounts payable to
CIMA of $119,000.

Mills leases certain real property from Mr. Mills. Amounts paid pursuant to
this lease were $26,000 for 1995, $156,000 for 1996 and $117,000 for the nine
months ended September 30, 1997.

During 1995, Mr. Weik incurred indebtedness from Bexar-Calhoun of which the
largest aggregate amount outstanding at any time was $647,000. All of such
indebtedness was repaid as of April 18, 1997. Mr. Weik will become a director of
the Company following the consummation of the Offerings.

During 1997, Mr. Weik incurred indebtedness from Bexar-Calhoun of which the
largest aggregate amount outstanding at any time was $533,525. All of such
indebtedness was repaid as of August 6, 1997.

Prior to the closing of the Acquisitions and the consummation of the
Offerings, Bexar-Calhoun will distribute all interest it owns, directly or
indirectly, in real property to Mr. Weik and his immediate family. It is
anticipated that such real estate will be leased to the Company for an annual
rent of approximately $150,000. The Company believes that such rent is not in
excess of fair rental value for such facilities.

Pollock leases certain real property from Mr. Pollock. Amounts paid
pursuant to this lease were $20,000 for fiscal 1995, $36,000 for fiscal 1996 and
$36,000 for fiscal 1997.

Since January 1, 1996, Mr. Muth has from time to time incurred indebtedness
from Muth, of which the largest aggregate amount outstanding at any time was
$205,000. All amounts owed by Mr. Muth to Muth will be repaid prior to the
closing of the Offerings. Mr. Muth will become a director of the Company
following the consummation of the Offerings.

Prior to the closing of the Acquisitions and the consummation of the
Offerings, certain assets of Muth will be purchased by Mr. Muth for $217,140.

From time to time in the past Muth has completed electrical contracts for
Muth Properties, L.L.C., a limited liability company of which Mr. Muth is a
member. Total electrical contracts completed by Muth for Muth Properties, L.L.C.
were $82,731 for 1995, $82,032 for 1996 and $120,915 for the six months ended
June 30, 1997. Prior to the closing of the Acquisitions and the consummation of
the Offerings, a final payment of $162,900 will be made by Muth Properties,
L.L.C. to Muth.

Prior to July 1, 1997, Muth leased certain real property from Mr. Muth,
d/b/a D & D Properties. Lease payments made by Muth to Mr. Muth totaled $80,725
for 1994, $95,180 for 1995, $118,088 for 1996 and $56,906 for the six months
ended June 30, 1997. Effective July 1, 1997, Muth Properties, L.L.C. became the
lessor of these properties. It is anticipated that annual rentals paid to Muth
Properties, L.L.C. by Muth will be approximately $120,000.

Stalvey Rentals, a general partnership of which Mr. Stalvey is a member, is
presently constructing a new facility to lease to Ace in Valdosta, Georgia and
an inducement letter has been executed regarding Ace's commitment to lease the
new facility for a period of 20 years beginning as soon as a certificate of
occupancy is obtained. Concurrently with the closing of the Acquisitions, Ace
will enter into a five year lease, with a five year option period, with Mr.
Stalvey and his brother. Initial annual rent on this facility will be $103,200,
without respect to property taxes and insurance. Mr. Stalvey will become a
director of the Company following the consummation of the Offerings.

In addition to the transactions described above, certain of the Founding
Companies have entered into lease agreements with parties related to the
Company, for rents that the Company believes are not in excess of fair rental
value.

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<PAGE> 64

PRINCIPAL STOCKHOLDERS

The following table sets forth information with respect to beneficial
ownership of the Company's Common Stock, after giving effect to the issuance of
shares of Common Stock in connection with the Acquisitions and after giving
effect to the Offerings, by (i) all persons known to the Company to be the
beneficial owner of 5% or more thereof, (ii) each director and nominee for
director, (iii) each executive officer and (iv) all officers and directors as a
group. Unless otherwise indicated, the address of each such person is c/o
Integrated Electrical Services, Inc., 2301 Preston, Houston, Texas 77003. All
persons listed have sole voting and investment power with respect to their
shares unless otherwise indicated.

<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
AFTER OFFERINGS
--------------------
SHARES PERCENT
--------- -------
<S> <C> <C>
C. Byron Snyder(a).......................................... 2,655,709 11.4%
Jon Pollock(b).............................................. 785,643 3.4
Jerry Mills................................................. 2,380,662 10.2
Ben L. Mueller.............................................. 1,305,609 5.6
Jim P. Wise................................................. 100,000 *
John F. Wombwell............................................ 100,000 *
Richard Muth(c)............................................. 473,324 2.0
Alan R. Sielbeck(d)......................................... -- *
Robert Stalvey.............................................. 95,528 *
Richard L. Tucker(d)........................................ -- *
Bob Weik(e)................................................. 1,499,469 6.4
Thomas E. White, Jr.(d)..................................... -- *
Roy D. Brown(d)............................................. 1,608,979 6.9
All executive officers and directors as a group (15
persons)(f)............................................... 9,660,718 41.3%
</TABLE>

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

* Less than one percent.

(a) Includes 1,118,194 shares held by trusts for the benefit of Mr. Snyder's
children, as to which Mr. Snyder disclaims beneficial ownership. Consists
entirely of Restricted Common Stock, which represents all of the Restricted
Common Stock outstanding. The holders of Restricted Common Stock, voting
together as a single class, are entitled to elect one member of the
Company's Board of Directors and to one-half of one vote for each share held
on all other matters on which they are entitled to vote. Holders of
Restricted Common Stock are not entitled to vote on the election of any
other directors. Such shares may be converted to Common Stock in certain
circumstances. See "Description of Capital Stock."

(b) Includes 465,914 shares of Common Stock held by the Pollock Family
Partnership, Ltd.

(c) Includes 25,689 shares of Common Stock owned by Mr. Muth's wife, as to which
Mr. Muth disclaims beneficial ownership.

(d) Mr. Seilbeck's address is Service Experts, Inc., 111 Westwood Place, Suite
420, Brentwood, TN 37027. Mr. Tucker's address is The University of Texas at
Austin, 3208 Red River Street, Suite 300, Austin, TX 78705-2697. Mr. White's
address is Enron Ventures Corp., 1400 Smith Street, Houston, TX 77002-7361.
Mr. Brown's address is Houston-Stafford Electric, Inc., 10203 Mula Circle,
Stafford, Texas 77477.

(e) Includes 74,536 shares of Common Stock owned by two related trusts, as to
which Mr. Weik disclaims beneficial ownership.

(f) Includes 2,655,709 shares of Restricted Common Stock described in Note (a)
above.

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<PAGE> 65

DESCRIPTION OF CAPITAL STOCK

GENERAL

The Company's authorized capital stock consists of 100,000,000 shares of
Common Stock, par value $0.01 per share, 2,655,709 shares of Restricted Common
Stock, par value $0.01 per share, and 10,000,000 shares of preferred stock, par
value $0.01 per share. After giving effect to the Acquisitions, there will be
16,365,336 shares of Common Stock outstanding, including 2,655,709 shares of
Restricted Common Stock, and no shares of preferred stock outstanding. After the
closing of the Offerings, 23,365,336 shares of Common Stock and Restricted
Common Stock will be issued and outstanding, assuming no exercise of the
Underwriters' over-allotment options. The following summary of the terms and
provisions of the Company's capital stock does not purport to be complete and is
qualified in its entirety by reference to the Company's Amended and Restated
Certificate of Incorporation and Bylaws, which have been filed as exhibits to
the Company's registration statement, of which this Prospectus is a part, and
applicable law.

COMMON STOCK AND RESTRICTED COMMON STOCK

The holders of Common Stock are entitled to one vote for each share on all
matters voted upon by stockholders, including the election of directors. Such
holders are not entitled to vote cumulatively for the election of directors.
Holders of a majority of the shares of Common Stock entitled to vote in any
election of directors may elect all of directors standing for election.

The holders of Restricted Common Stock, voting together as a single class,
are entitled to elect one member of the Company's Board of Directors and to
one-half of one vote for each share held on all other matters on which they are
entitled to vote. Holders of Restricted Common Stock are not entitled to vote on
the election of any other directors. Only the holder of the Restricted Common
Stock may remove the director such holder is entitled to elect.

Subject to the rights of any then outstanding shares of preferred stock,
holders of Common Stock and Restricted Common Stock are together entitled to
participate pro rata in such dividends as may be declared in the discretion of
the Board of Directors out of funds legally available therefor. Holders of
Common Stock and Restricted Common Stock together are entitled to share ratably
in the net assets of the Company upon liquidation after payment or provision for
all liabilities and any preferential liquidation rights of any preferred stock
then outstanding. Holders of Common Stock and holders of Restricted Common Stock
have no preemptive rights to purchase shares of stock of the Company. Shares of
Common Stock are not subject to any redemption provisions and are not
convertible into any other securities of the Company. Shares of Restricted
Common Stock are not subject to any redemption provisions and are convertible
into Common Stock as described below. All outstanding shares of Common Stock and
Restricted Common Stock are, and the shares of Common Stock to be issued
pursuant to the Offering and the Acquisitions will be, upon payment therefor,
fully paid and non-assessable.

Each share of Restricted Common Stock will automatically convert to Common
Stock on a share-for-share basis in the event of a disposition of such share of
Restricted Common Stock by the holder thereof (other than a distribution by a
holder to its partners or beneficial owners, or a transfer to a related party of
such holders (as defined in Sections 267, 707, 318 and/or 4946 of the Internal
Revenue Code of 1986, as amended)).

The Common Stock has been approved for listing upon notice of issuance on
the NYSE under the symbol "IEE." The Restricted Common Stock will not be listed
on any exchange.

PREFERRED STOCK

The preferred stock may be issued from time to time by the Board of
Directors as shares of one or more classes or series. Subject to the provisions
of the Company's Amended and Restated Certificate of Incorporation and
limitations prescribed by law, the Board of Directors is expressly authorized to
adopt resolutions to issue the shares, to fix the number of shares and to change
the number of shares constituting any series, and to provide for or change the
voting powers, designations, preferences and relative, participating,
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<PAGE> 66

optional or other special rights, qualifications, limitations or restrictions
thereof, including dividend rights (including whether dividends are cumulative),
dividend rates, terms of redemption (including sinking fund provisions),
redemption prices, conversion rights and liquidation preferences of the shares
constituting any class or series of the preferred stock, in each case without
any further action or vote by the stockholders. The Company has no current plans
to issue any shares of preferred stock of any class or series.

One of the effects of undesignated preferred stock may be to enable the
Board of Directors to render more difficult or to discourage an attempt to
obtain control of the Company by means of a tender offer, proxy contest, merger
or otherwise, and thereby to protect the continuity of the Company's management.
The issuance of shares of preferred stock pursuant to the Board of Directors'
authority described above may adversely affect the rights of the holders of
Common Stock. For example, preferred stock issued by the Company may rank prior
to the Common Stock as to dividend rights, liquidation preference or both, may
have full or limited voting rights and may be convertible into shares of Common
Stock. Accordingly, the issuance of shares of preferred stock may discourage
bids for the Common Stock at a premium or may otherwise adversely affect the
market price of the Common Stock.

STATUTORY BUSINESS COMBINATION PROVISION

The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law ("Section 203"). Section 203 provides, with certain
exceptions, that a Delaware corporation may not engage in any of a broad range
of business combinations with a person or an affiliate, or associate of such
person, who is an "interested stockholder" for a period of three years from the
date that such person became an interested stockholder unless: (i) the
transaction resulting in a person becoming an interested stockholder, or the
business combination, is approved by the Board of Directors of the corporation
before the person becomes an interested stockholder, (ii) the interested
stockholder acquired 85% or more of the outstanding voting stock of the
corporation in the same transaction that makes such person an interested
stockholder (excluding shares owned by persons who are both officers and
directors of the corporation, and shares held by certain employee stock
ownership plans) or (iii) on or after the date the person becomes an interested
stockholder, the business combination is approved by the corporation's board of
directors and by the holders of at least 66% of the corporation's outstanding
voting stock at an annual or special meeting, excluding shares owned by the
interested stockholder. Under Section 203, an "interested stockholder" is
defined as any person who is (i) the owner of 15% or more of the outstanding
voting stock of the corporation or (ii) an affiliate or associate of the
corporation and who was the owner of 15% or more of the outstanding voting stock
of the corporation at any time within the three-year period immediately prior to
the date on which it is sought to be determined whether such person is an
interested stockholder.

A corporation may, at its option, exclude itself from the coverage of
Section 203 by including in its certificate of incorporation or bylaws by action
of its stockholders to exempt itself from coverage. The Company has not adopted
such an amendment to its Amended and Restated Certificate of Incorporation or
Bylaws.

LIMITATION ON DIRECTORS' LIABILITIES

Pursuant to the Company's Amended and Restated Certificate of Incorporation
and under Delaware law, directors of the Company are not liable to the Company
or its stockholders for monetary damages for breach of fiduciary duty, except
for liability in connection with a breach of the duty of loyalty, for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, for dividend payments or stock repurchases illegal under
Delaware law or any transaction in which a director has derived an improper
personal benefit. The Company has entered into indemnification agreements with
its directors and executive officers which indemnify such person to the fullest
extent permitted by its Amended and Restated Certificate of Incorporation, its
Bylaws and the Delaware General Corporation Law. The Company also intends to
obtain directors' and officers' liability insurance. The foregoing provisions
may extend to liabilities arising due to violations of the federal securities
laws. It is the position of the Securities and Exchange Commission (the
"Commission") that indemnification for liabilities under the Securities Act is
against public policy and is, therefore, unenforceable.
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<PAGE> 67

AMENDED AND RESTATED CERTIFICATE OF INCORPORATION AND BYLAW PROVISIONS

The Company's Amended and Restated Certificate of Incorporation and Bylaws
include provisions that may have the effect of discouraging, delaying or
preventing a change in control of the Company or an unsolicited acquisition
proposal that a stockholder might consider favorable, including a proposal that
might result in the payment of a premium over the market price for the shares
held by stockholders. These provisions are summarized in the following
paragraphs.

Classified Board of Directors. The Amended and Restated Certificate of
Incorporation provides for the Board of Directors to be divided into three
classes of directors serving staggered three-year terms. The classification of
the Board of Directors has the effect of requiring at least two annual
stockholder meetings, instead of one, to replace a majority of members of the
Board of Directors.

Supermajority Voting. The Amended and Restated Certificate of Incorporation
requires the approval of the holders of at least 75% of the then outstanding
shares of the Company's capital stock entitled to vote thereon and the approval
of the holders of at least 75% of the then outstanding shares of each class of
stock of the Company voting separately as a class on, among other things,
certain amendments to the Amended and Restated Certificate of Incorporation. The
Board of Directors may amend, alter, change or repeal any bylaws without the
assent or vote of the stockholders, but any such bylaws may be altered, amended
or repealed upon the affirmative vote of at least 66 2/3% of the stock entitled
to vote thereon.

Authorized but Unissued or Undesignated Capital Stock. The Company's
authorized capital stock will consist of 100,000,000 shares of Common Stock,
2,655,709 shares of Restricted Common Stock, and 10,000,000 shares of preferred
stock. After the Offerings, the Company will have outstanding 23,365,336 shares
of Common Stock and Restricted Common Stock (assuming the Underwriters' over-
allotment options are not exercised). The authorized but unissued (and in the
case of preferred stock, undesignated) stock may be issued by the Board of
Directors in one or more transactions. In this regard, the Company's Amended and
Restated Certificate of Incorporation grants the Board of Directors broad power
to establish the rights and preferences of authorized and unissued preferred
stock. The issuance of shares of preferred stock pursuant to the Board of
Directors' authority described above could decrease the amount of earnings and
assets available for distribution to holders of Common Stock and adversely
affect the rights and powers, including voting rights, of such holders and may
also have the effect of delaying, deferring or preventing a change in control of
the Company. The Board of Directors does not currently intend to seek
stockholder approval prior to any issuance of preferred stock, unless otherwise
required by law.

Special Meeting of Stockholders. The Bylaws provide that special meetings
of stockholders of the Company may only be called by the Chairman of the Board
of Directors upon the written request of the Board of Directors pursuant to a
resolution approved by a majority of the Board of Directors.

Stockholder Action by Written Consent. The Amended and Restated Certificate
of Incorporation and Bylaws generally provide that any action required or
permitted by the stockholders of the Company must be effected at a duly called
annual or special meeting of the stockholders and may not be effected by any
written consent of the stockholders.

Notice Procedures. The Bylaws establish advance notice procedures with
regard to stockholder proposals relating to the nomination of candidates for
election as director, the removal of directors and amendments to the Amended and
Restated Certificate of Incorporation or Bylaws to be brought before annual
meetings of stockholders of the Company. These procedures provide that notice of
such stockholder proposals must be timely given in writing to the Secretary of
the Company prior to the annual meeting. Generally, to be timely, notice must be
received at the principal executive offices of the Company not less than 80 days
prior to an annual meeting (or if fewer than 90 days' notice or prior public
disclosure of the date of the annual meeting is given or made by the Company,
not later than the tenth day following the date on which the notice of the date
of the annual meeting was mailed or such public disclosure was made). The notice
must contain certain information specified in the Bylaws, including a brief
description of the business desired to be brought before the annual meeting and
certain information concerning the stockholder submitting the proposal.

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<PAGE> 68

Charter Provisions Relating to Rights Plan. The Amended and Restated
Certificate of Incorporation authorizes the Board of Directors of the Company to
create and issue rights (the "Rights") entitling the holders thereof to purchase
from the Company shares of capital stock or other securities. The times at
which, and the terms upon which, the Rights are to be issued may be determined
by the Board of Directors and set forth in the contracts or instruments that
evidence the Rights. The authority of the Board of Directors with respect to the
Rights includes, but is not limited to, the determination of (i) the initial
purchase price per share of the capital stock or other securities of the Company
to be purchased upon exercise of the Rights, (ii) provisions relating to the
times at which and the circumstances under which the Rights may be exercised or
sold or otherwise transferred, either together with or separately from, any
other securities of the Company, (iii) antidilutive provisions which adjust the
number or exercise price of the Rights or amount or nature of the securities or
other property receivable upon exercise of the Rights, (iv) provisions which
deny the holder of a specified percentage of the outstanding securities of the
Company the right to exercise the Rights and/or cause the Rights held by such
holder to become void, (v) provisions which permit the Company to redeem the
Rights and (vi) the appointment of a rights agent with respect to the Rights. If
authorized by the Board of Directors, the Rights would be intended to protect
the Company's stockholders from certain non-negotiated takeover attempts which
present the risk of a change of control on terms which may be less favorable to
the Company's stockholder than would be available in a transaction negotiated
with and approved by the Board of Directors. The Board of Directors believes
that the interests of the stockholders generally are best served if any
acquisition of the Company or a substantial percentage of the Company's Common
Stock results from arm's-length negotiations and reflects the Board of
Directors' careful consideration of the proposed terms of a transaction. In
particular, the Rights if issued would be intended to help (i) reduce the risk
of coercive two-tiered, front-end loaded or partial offers which may not offer
fair value to all stockholders of the Company, (ii) deter market accumulators
who through open market or private purchases may achieve a position of
substantial influence or control without paying to stockholders a fair control
premium and (iii) deter market accumulators who are simply interested in putting
the Company "in play."

TRANSFER AGENT AND REGISTRAR

The Transfer Agent and Registrar for the Common Stock is Harris Trust and
Savings Bank.

SHARES ELIGIBLE FOR FUTURE SALE

The market price of the Common Stock could be adversely affected by the
sale of substantial amounts of Common Stock in the public market. All of the
7,000,000 shares sold in the Offerings, except for shares acquired by affiliates
of the Company, will be freely tradeable. Simultaneously with the closing of the
Offerings, the stockholders of the Founding Companies will receive, in the
aggregate, 12,313,025 shares of Common Stock as a portion of the consideration
for their businesses. Certain other stockholders of the Company will hold, in
the aggregate, an additional 1,396,602 shares of Common Stock and 2,655,709
shares of Restricted Common Stock. None of these 16,365,336 shares was issued in
a transaction registered under the Securities Act, and, accordingly, such shares
may not be sold except in transactions registered under the Securities Act or
pursuant to an exemption from registration, including the exemptions contained
in Rules 144 and 701 under the Securities Act.

In general, under Rule 144 as currently in effect, a person, or persons
whose shares are aggregated, who has beneficially owned his or her shares for at
least one year but not more than two years, or a person who may be deemed an
"affiliate" of the Company who has beneficially owned shares for at least one
year, would be entitled to sell within any three month period a number of shares
that does not exceed the greater of 1% of the then outstanding shares of the
Common Stock or the average weekly trading volume of the Common Stock during the
four calendar weeks preceding the date on which notice of the proposed sale is
sent to the Commission. Sales under Rule 144 are also subject to certain manner
of sale provisions, notice requirements and the availability of current public
information about the Company. A person who is not deemed to have been an
affiliate of the Company at any time for 90 days preceding a sale and who has
beneficially owned his shares for at least two years would be entitled to sell
such shares under Rule 144 without regard to the volume

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<PAGE> 69

limitations, manner of sale provisions, notice requirements or the availability
of current public information about the Company.

In general, under Rule 701 under the Securities Act, any employee, officer,
or director of or consultant to the Company who purchased his or her shares
pursuant to a written compensatory plan or contract is entitled to rely on the
resale provisions of Rule 701. Such provisions permit nonaffiliates to sell
their Rule 701 shares without having to comply with the public information,
holding period, volume limitation, or notice provisions of Rule 144 and permit
affiliates to sell their Rule 701 shares without having to comply with the Rule
144 holding period restrictions, in each case commencing 90 days after the
commencement of the Offerings.

The Company has authorized (i) the issuance of 3,500,000 shares of its
Common Stock in accordance with the terms of the 1997 Stock Plan and (ii) the
issuance of 250,000 shares of its Common Stock in accordance with the terms of
the 1997 Directors Stock Plan. Options to purchase 300,000 shares have been
granted under the 1997 Stock Plan and it is anticipated that approximately
2,343,600 shares of Common Stock will be granted upon the closing of the
Offerings to certain other officers, directors and former stockholders of the
Company and the Founding Companies. The Company intends to file a registration
statement on Form S-8 under the Securities Act registering the issuance of
shares upon exercise of options granted under the 1997 Stock Plan. As a result,
such shares will be eligible for resale in the public market.

The Company currently intends to file a registration statement covering
6,000,000 additional shares of Common Stock under the Securities Act for its use
in connection with future acquisitions. These shares generally will be freely
tradeable after their issuance by persons not affiliated with the Company unless
the Company contractually restricts their resale.

The Company and each of its directors and executive officers have agreed
not to (i) directly or indirectly, offer, pledge, sell, contract to sell, sell
any option or contract to purchase, purchase any option or contract to sell,
grant any option, right or warrant for the sale of, or otherwise transfer or
dispose of any shares of Common Stock or any securities convertible into or
exchangeable or exercisable for Common Stock or file any registration statement
under the Securities Act with respect to any of the foregoing or (ii) enter into
any swap or any other agreement or any transaction that transfers, in whole or
in part, directly or indirectly, the economic consequence of ownership of the
Common Stock or any securities convertible into or exercisable or exchangeable
for Common Stock whether any such swap or transaction described in clause (i) or
(ii) above is to be settled by delivery of Common Stock or such other
securities, in cash or otherwise, for a period of 180 days from the date of this
Prospectus without the prior written consent of Merrill Lynch, Pierce, Fenner &
Smith Incorporated on behalf of the Underwriters, except for (i) shares issued
in connection with acquisitions, provided that (except with respect to shares
issued in transactions in which the issuance or resale of such shares is not
registered under the Securities Act), the recipients of such shares agree to be
bound by similar restrictions, (ii) any shares of Common Stock issued or options
to purchase Common Stock granted pursuant to the Company's benefit plans
described herein or (iii) with respect to directors and executive officers,
certain pledges of securities. In addition, the current stockholders of the
Company and the owners of the Founding Companies have agreed with the Company
not to sell, contract to sell or otherwise dispose of any shares of Common Stock
owned as of the consummation of the Acquisitions, including shares received as
consideration in the Acquisitions, for a period of two years following receipt
thereof, subject to the rights of such holders to exercise their registration
rights as described below.

Prior to the Offerings, there has been no established trading market for
the Common Stock, and no predictions can be made as to the effect that sales of
Common Stock under Rule 144, pursuant to a registration statement, or otherwise,
or the availability of shares of Common Stock for sale, will have on the market
price prevailing from time to time. Sales of substantial amounts of Common Stock
in the public market, or the perception that such sales could occur, could
depress the prevailing market price. Such sales may also make it more difficult
for the Company to issue or sell equity securities or equity-related securities
in the future at a time and price that it deems appropriate. See "Risk
Factors -- Shares Eligible for Future Sale."

Former stockholders of the Founding Companies, certain executive officers
and directors are entitled to certain rights with respect to the registration of
their shares of Common Stock under the Securities Act. In the aggregate, these
groups hold 16,365,336 shares of Common Stock and Restricted Common Stock. If
the

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Company proposes to register any of its securities under the Securities Act,
such stockholders are entitled to notice of such registration and are entitled
to include, at the Company's expense, all or a portion of their shares therein,
subject to certain conditions. These registration rights will not apply to the
registration statement the Company intends to file for use in future
acquisitions or with respect to employee benefit plans.

CERTAIN UNITED STATES FEDERAL TAX CONSEQUENCES TO NON-U.S. HOLDERS

The following is a general summary of certain United States federal income
and estate tax consequences expected to result under current law from the
purchase, ownership and taxable disposition of Common Stock by Non-U.S. Holders
of Common Stock. A "Non-U.S. Holder" is any person or entity other than (i) a
citizen or resident of the United States, (ii) a corporation, partnership or
other entity created or organized in or under the laws of the United States or
of any state thereof, (iii) an estate, the income of which is subject to United
States federal income taxation regardless of its source or (iv) a trust whose
administration is subject to the primary supervision of a United States court
and which has one or more United States fiduciaries who have the authority to
control all substantial decisions of the trust. This summary is for general
information only and does not address all of the United States federal income
and estate tax considerations that may be relevant to Non-U.S. Holders in light
of their particular circumstances or to Non-U.S. Holders that may be subject to
special treatment under United States federal income tax laws. Furthermore, this
summary does not discuss any aspect of state, local or foreign taxation. This
summary is based on current provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), Treasury regulations, judicial opinions, published
positions of the United States Internal Revenue Service and other applicable
authorities, all of which are subject to change, possibly with retroactive
effect. Prospective purchasers of Common Stock are advised to consult their tax
advisors regarding the federal, state and local and foreign income and other tax
consequences of acquiring, holding and disposing of Common Stock.

DIVIDENDS

Dividends paid to a Non-U.S. Holder on shares of Common Stock will be
subject to withholding of United States federal income tax at a 30 percent rate
(or such lower rate as may be provided by an applicable income tax treaty
between the United States and a foreign country) unless the dividends are
effectively connected with the conduct of a trade or business of the Non-U.S.
Holder within the United States (or in the case of an applicable tax treaty are
attributable to a United States permanent establishment maintained by such
Non-U.S. Holder). Dividends that are effectively connected with the conduct of a
trade or business within the United States (or are attributable to a United
States permanent establishment) will be subject to United States federal income
tax on a net income basis (that is, after allowance for applicable deductions)
which is not collected by withholding provided the Non-U.S. Holder files the
appropriate certification with the Company or its agent. Any such effectively
connected dividends received by a foreign corporation may, under certain
circumstances, be subject to an additional "branch profits tax" at a 30 percent
rate or such lower rate as may be specified by an applicable income tax treaty.

Under United States Treasury Regulations currently in effect, dividends
paid to an address outside the United States will be presumed to be paid to a
resident of the country of address (unless the payor has knowledge to the
contrary) for purposes of the withholding tax rules discussed above and for
purposes of determining the applicability of a tax treaty rate. Under
recently-issued United States Treasury Regulations that are effective for
payments made after December 31, 1998 ("Final Regulations"), a Non-U.S. Holder
of Common Stock who wishes to claim the benefit of a tax treaty rate would be
required to satisfy applicable certification requirements. In addition, under
such Final Regulations, in the case of Common Stock held by a foreign
partnership, (i) the certification requirement generally would be applied to the
partners of the partnership, and (ii) the partnership would be required to
provide certain information, including a United States taxpayer identification
number.

A Non-U.S. Holder of Common Stock that is eligible for a reduced rate of
United States withholding tax pursuant to a tax treaty may obtain a refund of
any excess amounts currently withheld by filing an appropriate claim for refund
with the Internal Revenue Service.

68
<PAGE> 71

SALE OR DISPOSITION OF COMMON STOCK

A Non-U.S. Holder generally will not be subject to United States federal
income tax in respect of any gain recognized on the sale or other taxable
disposition of Common Stock so long as (i) the gain is not effectively connected
with the conduct of a trade or business of the Non-U.S. Holder in the United
States; (ii) in the case of a Non-U.S. Holder who is an individual and holds the
Common Stock as a capital asset, either (a) such holder is not present in the
United States for 183 or more days in the taxable year of the disposition or (b)
such holder does not have a "tax home" in the United States for United States
federal income tax purposes nor does such holder maintain an office or other
fixed place of business in the United States to which such gain is attributable;
(iii) such Non-U.S. Holder is not subject to tax pursuant to the provisions of
United States federal income tax law applicable to certain United States
expatriates or (iv) the Common Stock continues to be "regularly traded on an
established securities market" for United States federal income tax purposes and
the Non-U.S. Holder has not held, directly or indirectly, at any time during the
five-year period ending on the date of disposition (or, if shorter, the Non-U.S.
Holder's holding period) more than 5 percent of the outstanding Common Stock.

INFORMATION REPORTING AND BACKUP WITHHOLDING

The Company must report annually to the Internal Revenue Service and to
each Non-U.S. Holder the amount of dividends paid to, and the tax withheld with
respect to, each Non-U.S. Holder. These reporting requirements apply regardless
of whether withholding was reduced by an applicable tax treaty. Copies of these
information returns may also be made available under the provisions of a treaty
or information exchange agreement with the tax authorities in the country in
which the Non-U.S. Holder resides. Under current law, U.S. backup withholding
tax (which is a withholding tax imposed at the rate of 31 percent on certain
payments to persons who fail to furnish the information required under U.S.
information reporting requirements) generally will not apply to dividends paid
on Common Stock to a Non-U.S. Holder at an address outside the United States
unless the payor has knowledge that the payee is a United States person.
However, under the Final Regulations described above, dividends paid on Common
Stock after December 31, 1998 may be subject to backup withholding unless
applicable certification requirements are satisfied.

Payment of the proceeds from a sale of Common Stock to or through a U.S.
office of a broker will be subject to information reporting and backup
withholding unless the owner certifies as to its status as a Non-U.S. Holder
under penalties of perjury or otherwise establishes an exemption. Payment of the
proceeds from a sale of Common Stock to or through a non-U.S. office of a broker
generally will not be subject to information reporting or backup withholding;
however, if such broker is (i) a United States person, (ii) a "controlled
foreign corporation", or (iii) a foreign person that derives 50 percent or more
of its gross income from the conduct of a trade or business in the United
States, such payment will be subject to information reporting (but currently not
backup withholding, although the issue of whether backup withholding should
apply is under consideration by the Internal Revenue Service) unless such broker
has documentary evidence in its records that the owner is a Non-U.S. Holder and
certain other conditions are met or the owner otherwise establishes an
exemption.

Any amounts withheld under the backup withholding rules will be credited
against the Non-U.S. Holder's federal income tax liability, if any, or refunded,
provided the required information is furnished to the Internal Revenue Service.

ESTATE TAX

The fair market value of Common Stock owned (or treated as owned) by an
individual at the time of his death will be includible in his gross estate for
U.S. federal estate tax purposes and thus may be subject to U.S. estate tax,
even though the individual at the time of death is neither a citizen of nor
domiciled in the United States, unless an applicable estate tax treaty provides
otherwise.

69
<PAGE> 72

UNDERWRITING

Subject to the terms and conditions set forth in the U.S. purchase
agreement (the "U.S. Purchase Agreement") among the Company and each of the
underwriters named below (the "U.S. Underwriters"), the Company has agreed to
sell to each of the U.S. Underwriters, and each of the U.S. Underwriters, for
whom Merrill Lynch, Pierce, Fenner & Smith Incorporated, Donaldson, Lufkin &
Jenrette Securities Corporation, SunTrust Equitable Securities Corporation and
Sanders Morris Mundy Inc. are acting as representatives (the "U.S.
Representatives"), severally has agreed to purchase from the Company, the
aggregate number of shares of Common Stock set forth opposite its name below.

<TABLE>
<CAPTION>
NUMBER OF
U.S. UNDERWRITER SHARES
---------------- ---------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated................................... 1,162,500
Donaldson, Lufkin & Jenrette Securities Corporation......... 1,162,500
SunTrust Equitable Securities Corporation................... 1,162,500
Sanders Morris Mundy Inc.................................... 1,162,500
ABN AMRO Chicago Corporation................................ 100,000
BT Alex. Brown Incorporated................................. 100,000
Bear, Stearns & Co. Inc..................................... 100,000
CIBC Oppenheimer Corp....................................... 100,000
Lehman Brothers Inc......................................... 100,000
NationsBanc Montgomery Securities, Inc...................... 100,000
Smith Barney Inc............................................ 100,000
J.C. Bradford & Co.......................................... 50,000
Dain Rauscher Incorporated.................................. 50,000
Harris Webb & Garrison, Inc................................. 50,000
Mesirow Financial, Inc...................................... 50,000
Southwest Securities, Inc................................... 50,000
---------
Total.......................................... 5,600,000
=========
</TABLE>

The Company has also entered into an international purchase agreement (the
"International Purchase Agreement") with Merrill Lynch International, Donaldson,
Lufkin & Jenrette International, SunTrust Equitable Securities Corporation and
Sanders Morris Mundy Inc. outside the United States and Canada (the
"International Managers" and, together with the U.S. Underwriters, the
"Underwriters"), for whom Merrill Lynch International is acting as
representative. Subject to the terms and conditions set forth in the
International Purchase Agreement, and concurrently with the sale of 5,600,000
shares of Common Stock to the U.S. Underwriters pursuant to the U.S. Purchase
Agreement, the Company has agreed to sell to the International Managers, and the
International Managers severally have agreed to purchase from the Company, an
aggregate of 1,400,000 shares of Common Stock. The public offering price per
share and the total underwriting discount per share are identical under the U.S.
Purchase Agreement and the International Purchase Agreement.

In the U.S. Purchase Agreement and the International Purchase Agreement,
the several U.S. Underwriters and the several International Managers,
respectively, have agreed, subject to the terms and conditions set forth
therein, to purchase all of the shares of Common Stock being sold pursuant to
each such Purchase Agreement if any of such shares being sold pursuant to each
such Purchase Agreement are purchased. Under certain circumstances, the
commitments of the non-defaulting U.S. Underwriters or the International
Managers (as the case may be) may be increased as set forth in the U.S. Purchase
Agreement and the International Purchase Agreement, respectively. The closing
with respect to the sale of shares of Common Stock to be purchased by the
International Managers and the U.S. Underwriters are conditioned upon one
another.

70
<PAGE> 73

The U.S. Underwriters and the International Managers have entered into an
intersyndicate agreement (the "Intersyndicate Agreement") that provides for the
coordination of their activities. Under the terms of the Intersyndicate
Agreement, the Underwriters are permitted to sell shares of Common Stock to each
other for purposes of resale at the public offering price, less an amount not
greater than the selling concession. Under the terms of the Intersyndicate
Agreement, the U.S. Underwriters and any dealer to whom they sell shares of
Common Stock will not offer to sell or sell shares of Common Stock to persons
who are non-United States and non-Canadian persons, and the International
Managers and any dealer to whom they sell shares of Common Stock will not offer
to sell or sell shares of Common Stock to persons who are United States or
Canadian persons or to persons they believe intend to resell to United States or
Canadian persons, except, in each case, for transactions pursuant to the
Intersyndicate Agreement.

The U.S. Representatives have advised the Company that the U.S.
Underwriters propose initially to offer the shares of Common Stock to the public
at the initial public offering price set forth on the cover page of this
Prospectus, and to certain dealers at such price less a concession not in excess
of $.55 per share. The U.S. Underwriters may allow, and such dealers may
reallow, a discount not in excess of $.10 per share to certain other dealers.
After the Offerings, the initial public offering price, concession and discount
may be changed.

The Company has granted the U.S. Underwriters an option, exercisable for 30
days after the date of this Prospectus, to purchase up to an aggregate of
840,000 additional shares of Common Stock at the initial public offering price
set forth on the cover page hereof, less the underwriting discount. The U.S.
Underwriters may exercise this option to cover overallotments, if any, made on
the sale of the shares of Common Stock offered hereby. If the U.S. Underwriters
exercise this option, each U.S. Underwriter will have a firm commitment, subject
to certain conditions, to purchase approximately the same percentage thereof
which the number of shares of Common Stock to be purchased by it shown in the
foregoing table bears to the 5,600,000 shares of Common Stock initially offered
hereby. The Company has also granted an option to the International Managers,
which expires 30 days after the date of this Prospectus, to purchase up to
210,000 additional shares of Common Stock to cover over-allotments, if any, on
terms similar to those granted to the U.S. Underwriters.

The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments the Underwriters may be required to make in respect thereof.

Until the distribution of the Common Stock is completed, rules of the
Commission may limit the ability of the Underwriters and certain selling group
members to bid for and purchase the Common Stock. As an exception to these
rules, the U.S. Underwriters are permitted to engage in certain transactions
that stabilize the price of the Common Stock. Such transactions consist of bids
or purchases for the purpose of pegging, fixing or maintaining the price of the
Common Stock.

71
<PAGE> 74

If the Underwriters create a short position in the Common Stock in
connection with the Offerings, (i.e., if they sell more shares of Common Stock
than are set forth on the cover page of this Prospectus), the U.S. Underwriters
may reduce that short position by purchasing Common Stock in the open market.
The U.S. Underwriters may also elect to reduce any short position by exercising
all or part of the over-allotment option described above.

The U.S. Underwriters may also impose a penalty bid on certain Underwriters
and selling group members. This means that if the U.S. Underwriters purchase
shares of Common Stock in the open market to reduce the Underwriters' short
position or to stabilize the price of the Common Stock, they may reclaim the
amount of the selling concession from the Underwriters and selling group members
who sold those shares as part of the Offerings.

In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an affect on the price of a security to the extent that it were
to discourage resales of the security.

Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Common Stock. In addition, neither
the Company nor any of the Underwriters makes any representation that the U.S.
Underwriters will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.

The Common Stock has been approved for listing upon notice of issuance on
the NYSE under the symbol "IEE."

The U.S. Underwriters have reserved for sale, at the initial public
offering price, up to 700,000 shares of Common Stock for certain employees,
directors and business associates of, and certain other persons designated by,
the Company who have expressed an interest in purchasing such shares of Common
Stock. The number of shares available for sale to the general public in the
Offerings will be reduced to the extent such persons purchase such reserved
shares. Any reserved shares not so purchased will be offered to the general
public on the same basis as other shares offered hereby.

Prior to the Offerings, there has been no established trading market for
the shares of Common Stock. The initial public offering price for the Common
Stock offered hereby has been determined by negotiations between the Company and
the Underwriters. Among the factors considered in making such determination were
the history of and the prospects for the industry in which the Company competes,
an assessment of the Company's management, the past and present operations of
the Founding Companies and the Company, the historical results of operations of
the Founding Companies and the Company and the trend of its revenues and
earnings, the prospects for future earnings of the Company, the general
condition of prices of similar securities of generally comparable companies and
other relevant factors. There can be no assurance that an active trading market
will develop for the Common Stock or that the Common Stock will trade in the
public market subsequent to the Offerings at or above the initial public
offering price.

The Underwriters have informed the Company that the Underwriters do not
intend to confirm sales to any account over which they exercise discretionary
authority.

72
<PAGE> 75

LEGAL MATTERS

Certain legal matters in connection with the Common Stock being offered
hereby will be passed upon for the Company by Andrews & Kurth L.L.P., Houston,
Texas and for the Underwriters by Vinson & Elkins L.L.P., Houston, Texas. A
partner in Andrews & Kurth L.L.P., will become Senior Vice President, General
Counsel and Secretary of the Company upon completion of the Offerings. The
partner owns 100,000 shares of Common Stock and options to purchase 150,000
shares of Common Stock, subject to vesting.

EXPERTS

The audited financial statements of IES and the Founding Companies included
in this Prospectus and elsewhere in the Registration Statement have been audited
by Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in accounting and auditing in giving said
reports.

ADDITIONAL INFORMATION

The Company has filed with the Commission a Registration Statement on Form
S-1 (together with all amendments, schedules and exhibits thereto the
"Registration Statement") under the Securities Act with respect to the Common
Stock offered hereby. This Prospectus, which is included as part of the
Registration Statement, does not contain all the information contained in the
Registration Statement, certain portions of which have been omitted in
accordance with 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 and the exhibits and schedules
thereto. Statements made in the Prospectus as to the contents of any contract,
agreement or other document are not necessarily complete; with respect to each
such contract, agreement or other document filed as an exhibit to the
Registration Statement, reference is made to the exhibit for a more complete
description of the matter involved, and each such statement shall be deemed
qualified in its entirety by such reference. The Registration Statement and the
exhibits thereto may be inspected, without charge, at the public reference
facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices
at Citicorp Center, 500 West Madison Street, Room 1400, Chicago, IL 60661, and 7
World Trade Center, Suite 1300, New York, NY 10048 or on the Internet at
http://www.sec.gov. Copies of such material can also be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates.

Prior to filing the Registration Statement of which this Prospectus is a
part, the Company was not subject to the reporting requirements of Section 13 or
15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act").
Upon effectiveness of the Registration Statement, the Company will become
subject to the informational and periodic reporting requirements of the Exchange
Act, and in accordance therewith, will file periodic reports, proxy statements,
and other information with the Commission. Such periodic reports, proxy
statements, and other information will be available for inspection and copying
at the public reference facilities and other regional offices referred to above.
The Company intends to register the securities offered by the Registration
Statement under the Exchange Act simultaneously with the effectiveness of the
Registration Statement and to furnish its stockholders with annual reports
containing audited financial statements and such other reports as may be
required from time to time by law or the New York Stock Exchange.

73
<PAGE> 76

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
INTEGRATED ELECTRICAL SERVICES, INC. AND FOUNDING COMPANIES
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
Introduction to Unaudited Pro Forma Combined Financial
Statements............................................ F-3
Unaudited Pro Forma Combined Balance Sheet............. F-4
Unaudited Pro Forma Combined Statement of Operations... F-5
Notes to Unaudited Pro Forma Combined Financial
Statements............................................ F-6
HOUSTON-STAFFORD ELECTRIC, INC. AND CONSOLIDATED ENTITY
Report of Independent Public Accountants............... F-10
Consolidated Balance Sheets............................ F-11
Consolidated Statements of Operations.................. F-12
Consolidated Statements of Cash Flows.................. F-13
Consolidated Statements of Stockholders' Equity........ F-14
Notes to Consolidated Financial Statements............. F-15
INTEGRATED ELECTRICAL SERVICES, INC.
Report of Independent Public Accountants............... F-26
Balance Sheet.......................................... F-27
Statement of Operations................................ F-28
Statement of Cash Flows................................ F-29
Statement of Stockholders' Equity...................... F-30
Notes to Financial Statements.......................... F-31
FOUNDING COMPANIES:
MILLS ELECTRICAL CONTRACTORS, INC. AND SUBSIDIARY
Report of Independent Public Accountants............... F-35
Consolidated Balance Sheets............................ F-36
Consolidated Statements of Operations.................. F-37
Consolidated Statements of Cash Flows.................. F-38
Consolidated Statements of Stockholders' Equity........ F-39
Notes to Consolidated Financial Statements............. F-40
BW CONSOLIDATED, INC. AND SUBSIDIARIES
Report of Independent Public Accountants............... F-47
Consolidated Balance Sheets............................ F-48
Consolidated Statements of Operations.................. F-49
Consolidated Statements of Cash Flows.................. F-50
Consolidated Statements of Stockholders' Equity........ F-51
Notes to Consolidated Financial Statements............. F-52
MUTH ELECTRIC, INC.
Report of Independent Public Accountants............... F-61
Balance Sheets......................................... F-62
Statements of Operations............................... F-63
Statements of Cash Flows............................... F-64
Statements of Stockholders' Equity..................... F-65
Notes to Financial Statements.......................... F-66
</TABLE>

F-1
<PAGE> 77
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
POLLOCK ELECTRIC INC.
Report of Independent Public Accountants............... F-71
Balance Sheets......................................... F-72
Statements of Operations............................... F-73
Statements of Cash Flows............................... F-74
Statements of Stockholder's Equity..................... F-75
Notes to Financial Statements.......................... F-76
CHARLES P. BAGBY, CO., INC.
Report of Independent Public Accountants............... F-84
Balance Sheets......................................... F-85
Statements of Operations............................... F-86
Statements of Cash Flows............................... F-87
Statements of Stockholder's Equity..................... F-88
Notes to Financial Statements.......................... F-89
AMBER ELECTRIC, INC.
Report of Independent Public Accountants............... F-93
Balance Sheets......................................... F-94
Statements of Operations............................... F-95
Statements of Cash Flows............................... F-96
Statements of Stockholder's Equity..................... F-97
Notes to Financial Statements.......................... F-98
DANIEL ELECTRICAL CONTRACTORS, INC. AND DANIEL ELECTRICAL OF
TREASURE COAST INC.
Report of Independent Public Accountants............... F-105
Combined Balance Sheets................................ F-106
Combined Statements of Operations...................... F-107
Combined Statements of Cash Flows...................... F-108
Combined Statements of Stockholder's Equity............ F-109
Notes to Combined Financial Statements................. F-110
SUMMIT ELECTRIC OF TEXAS, INCORPORATED
Report of Independent Public Accountants............... F-116
Balance Sheets......................................... F-117
Statements of Operations............................... F-118
Statements of Cash Flows............................... F-119
Statements of Stockholder's Equity..................... F-120
Notes to Financial Statements.......................... F-121
THURMAN & O'CONNELL CORPORATION
Report of Independent Public Accountants............... F-128
Balance Sheets......................................... F-129
Statements of Operations............................... F-130
Statements of Cash Flows............................... F-131
Statements of Stockholders' Equity..................... F-132
Notes to Financial Statements.......................... F-133
RODGERS ELECTRIC COMPANY, INC.
Report of Independent Public Accountants............... F-139
Balance Sheet.......................................... F-140
Statement of Operations................................ F-141
Statement of Cash Flows................................ F-142
Statement of Stockholders' Equity...................... F-143
Notes to Financial Statements.......................... F-144
</TABLE>

F-2
<PAGE> 78

INTEGRATED ELECTRICAL SERVICES, INC. AND FOUNDING COMPANIES

UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
BASIS OF PRESENTATION

The following unaudited pro forma combined financial statements give effect
to (i) the acquisitions by Integrated Electrical Services, Inc. (IES), of the
outstanding capital stock and other equity interests of Ace, Amber,
Bexar-Calhoun, Daniel, Hatfield, Haymaker, Houston-Stafford, Mills, Muth,
Pollock, Reynolds, Rodgers, Summit, Popp and Thurman & O'Connell (together, the
Founding Companies), and related transactions, and (ii) IES's initial public
offerings in the United States and Canada and outside the United States and
Canada (the Offerings). The acquisitions (the Acquisitions) will occur
simultaneously with the closing of the Offerings and will be accounted for using
the purchase method of accounting. Houston-Stafford has been reflected as the
accounting acquirer for financial statement presentation purposes.

The unaudited pro forma combined balance sheet gives effect to the
Acquisitions and related transactions, and the Offerings, as if they had
occurred on September 30, 1997. The unaudited pro forma combined statement of
operations gives effect to these transactions as if they had occurred on October
1, 1996.

IES has preliminarily analyzed the savings that it expects to be realized
from reductions in salaries, bonuses and certain benefits to the owners. To the
extent the owners of the Founding Companies have contractually agreed to
prospective changes in salary, bonuses, benefits and lease payments, these
changes have been reflected in the unaudited pro forma combined statement of
operations. With respect to other potential cost savings, IES has not and cannot
quantify these savings until completion of the Acquisitions. It is anticipated
that these savings will be offset by costs related to IES's new corporate
management and by the costs associated with being a public company. However,
because these costs cannot be accurately quantified at this time, they have not
been included in the pro forma combined financial information of IES.

The pro forma adjustments are based on preliminary estimates, available
information and certain assumptions that Company management deems appropriate
and may be revised as additional information becomes available. The pro forma
financial data do not purport to represent what IES's combined financial
position or results of operations would actually have been if such transactions
in fact had occurred on those dates and are not necessarily representative of
IES's combined financial position or results of operations for any future
period. Since the Founding Companies were not under common control or
management, historical combined results may not be comparable to, or indicative
of, future performance. The unaudited pro forma combined financial statements
should be read in conjunction with the historical financial statements and notes
thereto included elsewhere in this Prospectus. See also "Risk Factors" included
elsewhere herein.

F-3
<PAGE> 79

INTEGRATED ELECTRICAL SERVICES, INC. AND FOUNDING COMPANIES

UNAUDITED PRO FORMA COMBINED BALANCE SHEET
SEPTEMBER 30, 1997
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>

BEXAR- HOUSTON-
AMBER CALHOUN DANIEL HAYMAKER STAFFORD MILLS MUTH POLLOCK SUMMIT
------ ------- ------ -------- -------- ------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............... $ 988 $1,275 $ 917 $ 851 $2,492 $ 833 $ 81 $ 347 $ 157
Accounts receivable..................... 2,886 5,560 4,864 1,939 12,433 15,153 3,628 5,476 2,756
Less-Allowance.......................... 51 124 127 48 342 395 91 175 122
------ ------- ------ ------ ------- ------- ------ ------ ------
Accounts Receivable, net.............. 2,835 5,436 4,737 1,891 12,091 14,758 3,537 5,301 2,634
------ ------- ------ ------ ------- ------- ------ ------ ------
Costs and profits recognized in excess
of billings........................... 119 224 510 755 934 1,584 675 767 178
Inventories............................. 25 541 23 -- 2,878 93 898 18 --
Prepaid expenses and other.............. 244 100 1,700 338 1,162 779 381 554 170
------ ------- ------ ------ ------- ------- ------ ------ ------
Total current assets.................. 4,211 7,576 7,887 3,835 19,557 18,047 5,572 6,987 3,139
PROPERTY AND EQUIPMENT, NET.............. 516 5,206 541 246 2,125 2,397 1,133 379 180
OTHER ASSETS............................. -- 49 -- -- 1,830 443 -- -- 318
GOODWILL, NET............................ -- -- -- -- 958 173 -- -- --
------ ------- ------ ------ ------- ------- ------ ------ ------
Total assets.......................... $4,727 $12,831 $8,428 $4,081 $24,470 $21,060 $6,705 $7,366 $3,637
====== ======= ====== ====== ======= ======= ====== ====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt.... $ 179 $ 96 $ 62 $ -- $ 721 $ 643 $ 540 $1,777 $ 808
Accounts payable and accrued expenses... 1,276 2,400 1,840 1,821 9,549 7,672 2,177 3,335 1,494
Billings in excess of costs and profits
recognized............................ 196 840 1,370 366 2,417 1,966 543 889 182
Income taxes payable.................... 676 -- -- -- 1,234 -- -- 231 --
Other................................... 122 -- 81 -- 222 -- -- 146 19
------ ------- ------ ------ ------- ------- ------ ------ ------
Total current liabilities............. 2,449 3,336 3,353 2,187 14,143 10,281 3,260 6,378 2,503
------ ------- ------ ------ ------- ------- ------ ------ ------
LONG-TERM LIABILITIES:
Long-term debt, net of current
maturities............................ 568 842 102 -- 968 169 -- 71 88
Deferred income taxes................... 52 -- -- -- -- -- -- 21 11
Other long-term liabilities and minority
interest.............................. -- 1,302 483 -- 1,151 75 -- -- --
------ ------- ------ ------ ------- ------- ------ ------ ------
Total long-term liabilities........... 620 2,144 585 -- 2,119 244 -- 92 99
------ ------- ------ ------ ------- ------- ------ ------ ------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock............................ 1 20 8 1 295 1 74 1 1
Restricted common stock................. -- -- -- -- -- -- -- -- --
Receivable from stockholders............ -- -- -- -- -- -- -- -- --
Additional paid-in capital.............. -- 205 -- -- 112 175 -- 9 --
Retained earnings and unrealized
gain/loss on stock.................... 2,091 7,126 4,482 1,893 8,926 10,410 3,371 886 1,034
Treasury stock.......................... (434) -- -- -- (1,125) (51) -- -- --
------ ------- ------ ------ ------- ------- ------ ------ ------
Total stockholders' equity............ 1,658 7,351 4,490 1,894 8,208 10,535 3,445 896 1,035
------ ------- ------ ------ ------- ------- ------ ------ ------
Total liabilities and stockholders'
equity.............................. $4,727 $12,831 $8,428 $4,081 $24,470 $21,060 $6,705 $7,366 $3,637
====== ======= ====== ====== ======= ======= ====== ====== ======

<CAPTION>
OTHER PRO POST-
THURMAN & FOUNDING PRO FORMA FORMA MERGER
O'CONNELL RODGERS COMPANIES IES ADJUSTMENTS COMBINED ADJUSTMENTS
--------- ------- --------- -------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............... $1,160 $ 818 $ 829 $ -- $ (8,952) $ 1,796 $ 17,325
Accounts receivable..................... 679 623 3,548 -- (1,620) 57,925 --
Less-Allowance.......................... 17 15 61 -- -- 1,568 --
------ ------ ------ -------- -------- -------- --------
Accounts Receivable, net.............. 662 608 3,487 -- (1,620) 56,357 --
------ ------ ------ -------- -------- -------- --------
Costs and profits recognized in excess
of billings........................... 52 20 1,088 -- -- 6,906 --
Inventories............................. 213 -- 344 -- -- 5,033 --
Prepaid expenses and other.............. 24 73 213 1,560 (1,719) 5,579 (1,560)
------ ------ ------ -------- -------- -------- --------
Total current assets.................. 2,111 1,519 5,961 1,560 (12,291) 75,671 15,765
PROPERTY AND EQUIPMENT, NET.............. 301 393 1,057 6 (3,921) 10,559 --
OTHER ASSETS............................. -- 175 -- -- (1,169) 1,646 --
GOODWILL, NET............................ -- -- -- -- 151,020 152,151 --
------ ------ ------ -------- -------- -------- --------
Total assets.......................... $2,412 $2,087 $7,018 $ 1,566 $133,639 $240,027 $ 15,765
====== ====== ====== ======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt.... $ 7 $ 36 $ 918 $ -- $ 52,475 $58,262 $(57,897)
Accounts payable and accrued expenses... 262 488 2,218 1,565 -- 36,097 (1,560)
Billings in excess of costs and profits
recognized............................ 361 109 430 -- -- 9,669 --
Income taxes payable.................... -- 213 -- -- -- 2,354 --
Other................................... -- -- 73 -- 406 1,069 --
------ ------ ------ -------- -------- -------- --------
Total current liabilities............. 630 846 3,639 1,565 52,881 107,451 (59,457)
------ ------ ------ -------- -------- -------- --------
LONG-TERM LIABILITIES:
Long-term debt, net of current
maturities............................ 88 58 398 -- 15,189 18,541 (4,558)
Deferred income taxes................... -- 75 5 -- 869 1,033 --
Other long-term liabilities and minority
interest.............................. -- -- 6 -- (2,428) 589 --
------ ------ ------ -------- -------- -------- --------
Total long-term liabilities........... 88 133 409 -- 13,630 20,163 (4,558)
------ ------ ------ -------- -------- -------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock............................ 300 15 42 41 (663) 137 70
Restricted common stock................. -- -- -- -- 26 26 --
Receivable from stockholders............ -- -- -- (40) 40 -- --
Additional paid-in capital.............. -- -- 198 13,618 113,299 127,616 79,710
Retained earnings and unrealized
gain/loss on stock.................... 1,394 1,093 2,760 (13,618) (47,214) (15,366) --
Treasury stock.......................... -- -- (30) -- 1,640 -- --
------ ------ ------ -------- -------- -------- --------
Total stockholders' equity............ 1,694 1,108 2,970 1 67,128 112,413 79,780
------ ------ ------ -------- -------- -------- --------
Total liabilities and stockholders'
equity.............................. $2,412 $2,087 $7,018 $ 1,566 $133,639 $240,027 $ 15,765
====== ====== ====== ======== ======== ======== ========

AS
ADJUSTED
--------
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............... 19,121
Accounts receivable..................... 57,925
Less-Allowance.......................... 1,568
--------
Accounts Receivable, net.............. 56,357
--------
Costs and profits recognized in excess
of billings........................... 6,906
Inventories............................. 5,033
Prepaid expenses and other.............. 4,019
--------
Total current assets.................. 91,436
PROPERTY AND EQUIPMENT, NET.............. 10,559
OTHER ASSETS............................. 1,646
GOODWILL, NET............................ 152,151
--------
Total assets.......................... $255,792
========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt.... $ 365
Accounts payable and accrued expenses... 34,537
Billings in excess of costs and profits
recognized............................ 9,669
Income taxes payable.................... 2,354
Other................................... 1,069
--------
Total current liabilities............. 47,994
--------
LONG-TERM LIABILITIES:
Long-term debt, net of current
maturities............................ 13,983
Deferred income taxes................... 1,033
Other long-term liabilities and minority
interest.............................. 589
--------
Total long-term liabilities........... 15,605
--------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock............................ 207
Restricted common stock................. 26
Receivable from stockholders............ --
Additional paid-in capital.............. 207,326
Retained earnings and unrealized
gain/loss on stock.................... (15,366)
Treasury stock.......................... --
--------
Total stockholders' equity............ 192,193
--------
Total liabilities and stockholders'
equity.............................. $255,792
========
</TABLE>

F-4
<PAGE> 80

INTEGRATED ELECTRICAL SERVICES, INC. AND FOUNDING COMPANIES

UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>

BEXAR- HOUSTON-
AMBER CALHOUN DANIEL HAYMAKER STAFFORD MILLS MUTH
------- ------- ------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES........................................... $16,386 $32,165 $18,409 $11,772 $ 81,575 $74,399 $18,779
COST OF SERVICES................................... 13,415 24,976 13,518 9,920 64,831 60,572 14,511
------- ------- ------- ------- -------- ------- -------
Gross profit...................................... 2,971 7,189 4,891 1,852 16,744 13,827 4,268
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES....... 1,379 3,766 2,316 1,140 11,474 8,778 3,074
GOODWILL AMORTIZATION.............................. -- -- -- -- -- -- --
------- ------- ------- ------- -------- ------- -------
INCOME (LOSS) FROM OPERATIONS...................... 1,592 3,423 2,575 712 5,270 5,049 1,194
OTHER INCOME (EXPENSE):
Interest expense.................................. (45) (108) (60) (2) (187) (46) (27)
Other, net........................................ 69 (121) 100 -- 425 279 1
------- ------- ------- ------- -------- ------- -------
Other income (expense), net....................... 24 (229) 40 (2) 238 233 (26)
------- ------- ------- ------- -------- ------- -------
INCOME (LOSS) BEFORE INCOME TAXES.................. 1,616 3,194 2,615 710 5,508 5,282 1,168
PROVISION (BENEFIT) FOR INCOME TAXES............... 632 72 -- -- 2,192 274 --
------- ------- ------- ------- -------- ------- -------
NET INCOME (LOSS).................................. $ 984 $3,122 $ 2,615 $ 710 $ 3,316 $ 5,008 $ 1,168
======= ======= ======= ======= ======== ======= =======
NET INCOME PER SHARE...............................
SHARES USED IN COMPUTING PRO FORMA NET INCOME PER
SHARE(1)..........................................

<CAPTION>
OTHER
THURMAN & FOUNDING PRO FORMA
POLLOCK SUMMIT O'CONNELL RODGERS COMPANIES IES ADJUSTMENTS
------- ------- --------- ------- --------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES........................................... $20,291 $10,995 $4,049 $3,325 $20,602 $ -- $ --
COST OF SERVICES................................... 16,670 9,454 2,181 1,621 16,103 -- --
------- ------- ------ ------ ------- -------- -------
Gross profit...................................... 3,621 1,541 1,868 1,704 4,499 -- --
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES....... 2,895 1,463 503 1,238 3,980 13,618 (19,686)
GOODWILL AMORTIZATION.............................. -- -- -- -- -- -- 3,780
------- ------- ------ ------ ------- -------- -------
INCOME (LOSS) FROM OPERATIONS...................... 726 78 1,365 466 519 (13,618) 15,906
OTHER INCOME (EXPENSE):
Interest expense.................................. (172) (79) (6) (7) (87) -- (255)
Other, net........................................ 3 23 70 36 129 -- 316
------- ------- ------ ------ ------- -------- -------
Other income (expense), net....................... (169) (56) 64 29 42 -- 61
------- ------- ------ ------ ------- -------- -------
INCOME (LOSS) BEFORE INCOME TAXES.................. 557 22 1,429 495 561 (13,618) 15,967
PROVISION (BENEFIT) FOR INCOME TAXES............... 214 21 46 178 (51) 7,583
------- ------- ------ ------ ------- -------- -------
NET INCOME (LOSS).................................. $ 343 $ 1 $1,383 $ 317 $ 612 $(13,618) $ 8,384
======= ======= ====== ====== ======= ======== =======
NET INCOME PER SHARE...............................

SHARES USED IN COMPUTING PRO FORMA NET INCOME PER
SHARE(1)..........................................

PRO FORMA
COMBINED
-----------
<S> <C>
REVENUES........................................... $ 312,747
COST OF SERVICES................................... 247,772
-----------
Gross profit...................................... 64,975
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES....... 35,938
GOODWILL AMORTIZATION.............................. 3,780
-----------
INCOME (LOSS) FROM OPERATIONS...................... 25,257
OTHER INCOME (EXPENSE):
Interest expense.................................. (1,081)
Other, net........................................ 1,330
-----------
Other income (expense), net....................... 249
-----------
INCOME (LOSS) BEFORE INCOME TAXES.................. 25,506
PROVISION (BENEFIT) FOR INCOME TAXES............... 11,161
-----------
NET INCOME (LOSS).................................. $ 14,345
===========
NET INCOME PER SHARE............................... $ .65
===========
SHARES USED IN COMPUTING PRO FORMA NET INCOME PER
SHARE(1).......................................... 22,152,604
===========
</TABLE>

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

(1) Includes (a) 2,655,709 shares issued to the IES founder and chairman of the
board, (b) 1,396,602 shares issued to management of IES, (c) 12,313,025
shares issued to owners of the Founding Companies and (d) 5,667,268 of the
7,000,000 shares sold in the Offering necessary to pay the cash portion of
the Acquisitions consideration and expenses of the Offerings. The 1,332,732
shares excluded reflect an equivalent number of shares related to the net
cash proceeds to IES. Additionally, includes 120,000 shares computed under
the treasury stock method related to 300,000 options which are currently
outstanding.

F-5
<PAGE> 81

INTEGRATED ELECTRICAL SERVICES, INC. AND FOUNDING COMPANIES

NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS

1. GENERAL:

Integrated Electrical Services, Inc. (IES), was founded to create a leading
national provider of electrical contracting and maintenance services to the
commercial, industrial and residential markets. IES has conducted no operations
to date and will acquire the Founding Companies (the Acquisitions) concurrently
with and as a condition to the closing of the Offerings.

The historical financial statements reflect the financial position and
results of operations of the Founding Companies and were derived from the
respective Founding Companies' financial statements. The periods included in
these financial statements for the individual Founding Companies are as of and
for the year ended September 30, 1997, except for Ace, Hatfield, Reynolds, and
Popp for which the period is as of and for the year ended June 30, 1997. The
audited historical financial statements included elsewhere herein have been
included in accordance with Securities and Exchange Commission (SEC) Staff
Accounting Bulletin No. 80.

2. ACQUISITION OF FOUNDING COMPANIES:

Concurrently with and as a condition to the closing of the Offerings, IES
will acquire all of the outstanding capital stock and other equity interests of
the Founding Companies. The acquisitions will be accounted for using the
purchase method of accounting with Houston-Stafford being reflected as the
accounting acquirer.

The following table sets forth the consideration to be paid (a) in cash and
(b) in shares of Common Stock to the common stockholders of each of the Founding
Companies, other than the accounting acquirer (Houston-Stafford). For purposes
of computing the estimated purchase price for accounting purposes, the value of
the shares (including 3.9 million of the 4.1 million shares issued to the
corporate management of IES, the founder and Chairman of the Board of IES and
the trusts for the benefit of his children, which are reflected as additional
acquisition cost) was determined using an estimated fair value of $9.75 per
share (or $124.6 million), which is less than the initial public offering price
of $13.00 per share due primarily to restrictions on the sale and
transferability of the shares issued. The total purchase price, including cash
consideration of $38.8 million, is $163.4 million. The table does not reflect
net transfers of $30.6 million which represents previously undistributed
earnings and nonoperating assets and liabilities that will be transferred in
connection with the Acquisitions to the owners of the Founding Companies.

<TABLE>
<CAPTION>
SHARES OF
CASH COMMON STOCK
------- -------------
(IN THOUSANDS)
<S> <C> <C>
Ace......................................................... $ 828 191
Amber....................................................... 2,308 533
Bexar-Calhoun............................................... 8,075 1,863
Daniel...................................................... 3,691 852
Hatfield.................................................... 903 208
Haymaker.................................................... 1,884 435
Mills....................................................... 10,806 2,494
Muth........................................................ 2,051 473
Pollock..................................................... 985 320
Reynolds.................................................... 872 201
Rodgers..................................................... 1,563 361
Summit...................................................... 1,793 321
Popp........................................................ 906 209
Thurman & O'Connell......................................... 2,165 500
------- -----
Total............................................. $38,830 8,961
======= =====
</TABLE>

F-6
<PAGE> 82

INTEGRATED ELECTRICAL SERVICES, INC. AND FOUNDING COMPANIES

NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

3. UNAUDITED PRO FORMA COMBINED BALANCE SHEET ADJUSTMENTS:

(a) Records the transfer in connection with the Acquisitions of $30.6
million of previously undistributed earnings and nonoperating assets and
liabilities to the owners of the Founding Companies, which is expected
to be funded using $11.6 million of cash (including $2.7 million of
Offerings proceeds), $5.7 million of nonoperating assets, net of
liabilities, and notes payable to owners of $13.3 million which will be
retired with new borrowings under the proposed credit facility.

(b) Records the liability for the cash portion of the consideration to be
paid to Houston-Stafford, the accounting acquirer.

(c) Records the merger of IES with Houston-Stafford, the accounting
acquirer, and the payment of the receivable from IES stockholders.

(d) Records the purchase of the Founding Companies by IES consisting of
notes payable of $38.8 million and 12,780,340 shares of Common Stock
valued at $9.75 per share (or $124.6 million) for a total purchase price
of $163.4 million resulting in excess purchase price of $151.2 million
over the net assets acquired of $12.2 million (see Note 2).

The following reconciles the combined historical net assets of the
Founding Companies to the net assets acquired (in
thousands):

<TABLE>
<CAPTION>
TOTAL LESS: ACQUIRED
COMBINED HOUSTON-STAFFORD FOUNDING COMPANIES
-------- ---------------- ------------------
<S> <C> <C> <C>
Historical net assets.................................. $45,285 $(8,209) $37,076
Transfer of Owner Amounts (as defined elsewhere
herein).............................................. (30,638) 5,879 (24,759)
Other purchase adjustments, net........................ (71) -- (71)
------- ------- -------
Net assets after transfers and purchase adjustments.... $14,576 $(2,330) $12,246
======= ======= =======
</TABLE>

(e) Records the noncash, non-recurring compensation charge related to the
exchange of cash and shares of Common Stock for a note receivable from
an officer of Houston-Stafford. The compensation charge has not been
included in the accompanying unaudited pro forma combined statement of
operations as it represents a non-recurring charge directly related to
the Acquisitions.

(f) Records the net cash proceeds of $79.8 million from the issuance of
shares of IES common stock (based on an initial public offering price of
$13.00 per share and net of estimated offering costs, including
underwriters commissions and discounts, accounting, legal and other
estimated Offerings costs of $11.2 million).

(g) Records payment of the cash portion of the consideration to the
stockholders of the Founding Companies of $53.4 million in connection
with the Acquisitions (see (b) and (d) above), the expected repayment of
remaining historical short- and long-term debt totaling $6.4 million and
the payment of $2.7 million of the Owner Amounts.

The following tables summarize unaudited pro forma combined balance sheet
adjustments (in thousands):

<TABLE>
<CAPTION>
ADJUSTMENT
-------------------------------------------------------- PRO FORMA
(A) (B) (C) (D) (E) ADJUSTMENTS
-------- -------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets --
Cash and cash equivalents.................. $ (8,952) $ -- $ -- $ -- $ -- $ (8,952)
Accounts receivable........................ (1,620) -- -- -- -- (1,620)
Prepaid expenses and other................. (1,719) -- -- -- -- (1,719)
-------- -------- -------- -------- -------- --------
Total current assets................. (12,291) -- -- -- -- (12,291)
Property and equipment, net.................. (3,921) -- -- -- -- (3,921)
Other assets................................. (1,169) -- -- -- -- (1,169)
Goodwill, net................................ -- -- -- 151,020 -- 151,020
-------- -------- -------- -------- -------- --------
Total assets......................... $(17,381) $ -- $ -- $151,020 $ -- $133,639
======== ======== ======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities --
Current maturities of long-term debt....... $ (882) $ 14,526 $ -- $ 38,831 $ -- $ 52,475
Other...................................... -- -- -- 406 -- 406
-------- -------- -------- -------- -------- --------
Total current liabilities............ (882) 14,526 -- 39,237 -- 52,881
-------- -------- -------- -------- -------- --------
Long-term debt, net of current maturities.... 15,189 -- -- -- -- 15,189
Deferred income taxes........................ -- -- -- 869 -- 869
Other long-term liabilities.................. (1,051) -- -- (1,377) -- (2,428)
-------- -------- -------- -------- -------- --------
Total long-term liabilities.......... 14,138 -- -- (508) -- 13,630
-------- -------- -------- -------- -------- --------
Stockholders' equity --
Common stock............................... -- -- (262) (401) -- (663)
Restricted common stock.................... -- -- -- 26 -- 26
Receivable from stockholders............... -- -- 40 -- -- 40
Additional paid-in capital................. -- (14,526) (14,521) 125,310 17,036 113,299
Retained earnings.......................... (30,637) -- 13,618 (13,159) (17,036) (47,214)
Treasury stock............................. -- -- 1,125 515 -- 1,640
-------- -------- -------- -------- -------- --------
Total stockholders' equity........... (30,637) (14,526) -- 112,291 -- 67,128
-------- -------- -------- -------- -------- --------
Total liabilities and stockholders'
equity............................. $(17,381) $ -- $ -- $151,020 $ -- $133,639
======== ======== ======== ======== ======== ========
</TABLE>

F-7
<PAGE> 83

INTEGRATED ELECTRICAL SERVICES, INC. AND FOUNDING COMPANIES

NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
ADJUSTMENT
------------------- POST-MERGER
(F) (G) ADJUSTMENTS
------- -------- -----------
<S> <C> <C> <C>
ASSETS
Current assets --
Cash and cash equivalents................................. $79,780 $(62,455) $ 17,325
Prepaid expenses and other................................ -- (1,560) (1,560)
------- -------- --------
Total current assets................................ 79,780 (64,015) 15,765
------- -------- --------
Total assets........................................ $79,780 $(64,015) $ 15,765
======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities --
Current maturities of long-term debt...................... $ -- $(57,897) $(57,897)
Accounts payable and accrued expenses..................... -- (1,560) (1,560)
------- -------- --------
Total current liabilities........................... -- (59,457) (59,457)
------- -------- --------
Long-term debt, net of current maturities................... -- (4,558) (4,558)
------- -------- --------
Total long-term liabilities......................... -- (4,558) (4,558)
------- -------- --------
Stockholders' equity --
Common stock.............................................. 70 -- 70
Additional paid-in capital................................ 79,710 -- 79,710
------- -------- --------
Total stockholders' equity.......................... 79,780 -- 79,780
------- -------- --------
Total liabilities and stockholders' equity.......... $79,780 $(64,015) $ 15,765
======= ======== ========
</TABLE>

4. UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS ADJUSTMENTS:

(a) Reflects the $6.1 million reduction in salaries, bonuses and benefits
and lease payments to the owners of the Founding Companies. These
reductions in salaries, bonuses and benefits and lease payments have
been agreed prospectively in accordance with the terms of employment
agreements executed as part of the Acquisitions. Such employment
agreements are primarily for five years, contain restrictions related
to competition and provide severance for termination of employment in
certain circumstances.

(b) Reflects the amortization of goodwill to be recorded as a result of
these Acquisitions over a 40-year estimated life, as well as a
reduction in historical Founding Companies' minority interest expense
attributable to minority interests that will be acquired as part of the
transaction.

(c) Reflects the reversal of the non-recurring, non-cash compensation
charge of $13.6 million recorded by IES for common stock issued to
management for nominal consideration. Also, reflects interest expense
of $1.0 million on borrowings of $13.3 million necessary to fund the
transfers discussed in 3.(a) above, net of interest savings of $0.7
million on the $8.1 million of historical debt to be repaid using
proceeds from the Offerings or to be transferred to the Founding
Companies as discussed in 3.(a) above. The additional $1.0 million of
interest expense was calculated utilizing an assumed annual effective
interest rate of approximately 7.5%.

(d) Reflects the incremental provision for federal and state income taxes
at a 38% overall tax rate, before non-deductible goodwill and other
permanent items, relating to the other statements of operations
adjustments and for income taxes on the pretax income of Founding
Companies that have historically elected S Corporation tax status.

F-8
<PAGE> 84

INTEGRATED ELECTRICAL SERVICES, INC. AND FOUNDING COMPANIES

NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

The following table summarizes unaudited pro forma combined statement of
operations adjustments (in thousands):

<TABLE>
<CAPTION>
ADJUSTMENT
-------------------------------------- PRO FORMA
(A) (B) (C) (D) ADJUSTMENTS
------- ------- -------- ------- -----------
<S> <C> <C> <C> <C> <C>
Selling, general and administrative
expenses......................... $(6,068) $ -- $(13,618) $ -- $(19,686)
Goodwill amortization.............. -- 3,780 -- -- 3,780
------- ------- -------- ------- --------
Income (loss) from operations.... 6,068 (3,780) 13,618 -- 15,906
Other income (expense) --
Interest expense................. -- -- (255) -- (255)
Other, net....................... -- 316 -- -- 316
------- ------- -------- ------- --------
Other income (expense), net...... -- 316 (255) -- 61
------- ------- -------- ------- --------
Income (loss) before income
taxes......................... 6,068 (3,464) 13,363 -- 15,967
Provision for income taxes......... -- -- -- 7,583 7,583
------- ------- -------- ------- --------
Net income (loss).................. $ 6,068 $(3,464) $ 13,363 $(7,583) $ 8,384
======= ======= ======== ======= ========
</TABLE>

F-9
<PAGE> 85

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Houston-Stafford Electric, Inc.:

We have audited the accompanying consolidated balance sheets of
Houston-Stafford Electric, Inc., a Texas corporation, and consolidated entity
(see Note 1) as of December 31, 1995 and 1996 and September 30, 1997, and the
related consolidated statements of operations, cash flows and stockholder's
equity for each of the three years in the period ended December 31, 1996 and for
the year ended September 30, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with 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 financial position of Houston-Stafford Electric,
Inc. and consolidated entity as of December 31, 1995 and 1996 and September 30,
1997, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996 and for the year ended
September 30, 1997, in conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Houston, Texas
November 14, 1997

F-10
<PAGE> 86

HOUSTON-STAFFORD ELECTRIC, INC. AND CONSOLIDATED ENTITY
(SEE NOTE 1)

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
----------------- SEPTEMBER 30,
1995 1996 1997
------ ------- -------------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $1,048 $ 2,682 $ 2,492
Accounts receivable --
Trade, net of allowance of $220, $264 and $342,
respectively......................................... 4,605 5,445 9,580
Retainage.............................................. 1,480 1,847 2,511
Inventories, net.......................................... 337 346 2,878
Costs and estimated earnings in excess of billings on
uncompleted contracts.................................. 259 247 934
Prepaid expenses and other current assets................. 560 663 1,162
------ ------- -------
Total current assets.............................. 8,289 11,230 19,557
RECEIVABLES FROM RELATED PARTIES............................ 335 338 309
OTHER RECEIVABLES........................................... 210 166 264
GOODWILL AND OTHER INTANGIBLE ASSETS........................ -- 23 2,008
OTHER NON-CURRENT ASSETS.................................... 38 41 207
PROPERTY AND EQUIPMENT, net................................. 485 1,428 2,125
------ ------- -------
Total assets...................................... $9,357 $13,226 $24,470
====== ======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY

CURRENT LIABILITIES:
Current maturities of long-term debt...................... $ 353 $ 428 $ 721
Accounts payable and accrued expenses..................... 3,921 3,682 9,549
Income taxes payable...................................... -- -- 1,234
Billings in excess of costs and estimated earnings on
uncompleted contracts.................................. 1,143 1,733 2,417
Other current liabilities................................. 197 716 222
------ ------- -------
Total current liabilities......................... 5,614 6,559 14,143
------ ------- -------
LONG-TERM DEBT, net of current maturities................... 634 1,295 968
OTHER NON-CURRENT LIABILITIES............................... 5 21 1,151
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY:
Common stock, $5 par value, 500,000 shares authorized,
59,000 shares issued and 20,000 shares outstanding..... 295 295 295
Additional paid-in capital................................ 112 112 112
Retained earnings......................................... 3,022 6,069 8,926
Treasury stock, 29,000 and 39,000 shares, at cost,
respectively........................................... (325) (1,125) (1,125)
------ ------- -------
Total stockholder's equity........................ 3,104 5,351 8,208
------ ------- -------
Total liabilities and stockholder's equity........ $9,357 $13,226 $24,470
====== ======= =======
</TABLE>

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

F-11
<PAGE> 87

HOUSTON-STAFFORD ELECTRIC, INC. AND CONSOLIDATED ENTITY
(SEE NOTE 1)

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, YEAR ENDED SEPTEMBER 30,
--------------------------- SEPTEMBER 30, ------------------
1994 1995 1996 1997 1996 1997
------- ------- ------- ------------- -------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
REVENUES.................................... $48,001 $54,082 $70,493 $81,575 $ 53,062 $64,144
COST OF SERVICES (including depreciation)... 42,163 46,712 57,662 64,831 44,485 51,654
------- ------- ------- ------- -------- -------
Gross profit...................... 5,838 7,370 12,831 16,744 8,577 12,490
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES.................................. 5,319 6,027 7,810 11,474 4,404 8,068
------- ------- ------- ------- -------- -------
Income from operations............ 519 1,343 5,021 5,270 4,173 4,422
------- ------- ------- ------- -------- -------
OTHER INCOME (EXPENSE):
Interest expense.......................... (137) (254) (134) (187) (90) (143)
Other..................................... 66 58 94 425 49 380
------- ------- ------- ------- -------- -------
Other income (expense), net....... (71) (196) (40) 238 (41) 237
------- ------- ------- ------- -------- -------
INCOME BEFORE PROVISION FOR INCOME TAXES.... 448 1,147 4,981 5,508 4,132 4,659
PROVISION FOR INCOME TAXES.................. 186 416 1,934 2,192 1,544 1,802
------- ------- ------- ------- -------- -------
NET INCOME.................................. $ 262 $ 731 $ 3,047 $ 3,316 $ 2,588 $ 2,857
======= ======= ======= ======= ======== =======
</TABLE>

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

F-12
<PAGE> 88

HOUSTON-STAFFORD ELECTRIC, INC. AND CONSOLIDATED ENTITY
(SEE NOTE 1)

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, YEAR ENDED SEPTEMBER 30,
--------------------------- SEPTEMBER 30, -----------------
1994 1995 1996 1997 1996 1997
------- ------- ------- ------------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................... $ 262 $ 731 $ 3,047 $ 3,316 $ 2,588 $ 2,857
Adjustments to reconcile net income to net cash
provided by (used in) operating activities --
Depreciation and amortization...................... 55 76 133 187 54 108
Loss (gain) on sale of property and equipment...... (29) (5) 2 (138) -- (140)
Changes in operating assets and liabilities --
(Increase) decrease in --
Accounts receivable........................... (1,725) (625) (1,237) (3,631) (1,687) (4,081)
Inventories................................... (331) 315 (9) (1,409) -- (1,400)
Costs and estimated earnings in excess of
billings on uncompleted contracts........... (298) 850 12 (988) 313 (687)
Prepaid expenses and other current assets..... (31) 156 (85) (287) 49 (153)
Increase (decrease) in --
Accounts payable and accrued expenses......... 367 617 (239) 2,563 (202) 2,600
Billings in excess of costs and estimated
earnings on uncompleted contracts........... 281 637 590 (10) 1,283 683
Other current liabilities..................... 68 157 505 47 1,014 556
Other, net......................................... 28 (29) (4) 216 30 250
------- ------- ------- ------- ------- -------
Net cash provided by (used in) operating
activities......................................... (1,353) 2,880 2,715 (134) 3,442 593
------- ------- ------- ------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment......... 48 49 12 47 -- 35
Additions of property and equipment.................. (64) (145) (642) (478) (494) (330)
Purchase of business................................. -- -- -- (100) -- (100)
Collections of notes receivable...................... -- -- -- 77 -- 77
------- ------- ------- ------- ------- -------
Net cash used in investing activities................ (16) (96) (630) (454) (494) (318)
------- ------- ------- ------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of long-term debt......................... 3,146 405 2,875 10,820 2,070 10,015
Payments of long-term debt........................... (1,543) (2,397) (3,326) (11,431) (2,375) (10,480)
Distributions to stockholders........................ -- (15) -- -- -- --
------- ------- ------- ------- ------- -------
Net cash provided by (used in) financing
activities......................................... 1,603 (2,007) (451) (611) (305) (465)
------- ------- ------- ------- ------- -------
NET INCREASE IN CASH AND CASH EQUIVALENTS.............. 234 777 1,634 (1,199) 2,643 (190)
CASH AND CASH EQUIVALENTS, beginning of period......... 37 271 1,048 3,691 1,048 2,682
------- ------- ------- ------- ------- -------
CASH AND CASH EQUIVALENTS, end of period............... $ 271 $ 1,048 $ 2,682 $ 2,492 $ 3,691 $ 2,492
======= ======= ======= ======= ======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for --
Interest........................................... $ 137 $ 254 $ 134 $ 166 $ 111 $ 143
Income taxes....................................... 104 225 1,482 2,050 332 900
</TABLE>

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

F-13
<PAGE> 89

HOUSTON-STAFFORD ELECTRIC, INC. AND CONSOLIDATED ENTITY
(SEE NOTE 1)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE INFORMATION)

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
--------------- PAID-IN RETAINED TREASURY STOCKHOLDER'S
SHARES AMOUNT CAPITAL EARNINGS STOCK EQUITY
------ ------ ---------- -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1993......... 59,000 $295 $112 $2,044 $ (325) $2,126
Distributions to stockholders.... -- -- -- (15) -- (15)
Net income....................... -- -- -- 262 -- 262
------ ---- ---- ------ ------- ------
BALANCE, December 31, 1994......... 59,000 295 112 2,291 (325) 2,373
Net income....................... -- -- -- 731 -- 731
------ ---- ---- ------ ------- ------
BALANCE, December 31, 1995......... 59,000 295 112 3,022 (325) 3,104
Purchase of treasury stock....... -- -- -- -- (800) (800)
Net income....................... -- -- -- 3,047 -- 3,047
------ ---- ---- ------ ------- ------
BALANCE, December 31, 1996......... 59,000 295 112 6,069 (1,125) 5,351
Net income (unaudited)........... -- -- -- 2,857 -- 2,857
------ ---- ---- ------ ------- ------
BALANCE, September 30, 1997........ 59,000 $295 $112 $8,926 $(1,125) $8,208
====== ==== ==== ====== ======= ======
</TABLE>

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

F-14
<PAGE> 90

HOUSTON-STAFFORD ELECTRIC, INC. AND CONSOLIDATED ENTITY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. BUSINESS AND ORGANIZATION AND BASIS OF PRESENTATION:

Houston-Stafford Electric, Inc. (the Company), a Texas corporation, focuses
on providing electrical system installation and repair services primarily for
residential and mid-sized to large commercial facilities. Work on new structures
is performed primarily under fixed-price contracts. The Company performs the
majority of its contract work under fixed-price contracts with contract terms
ranging from six to 18 months. The Company performs the majority of its work in
Texas and has operations in other states.

In April 1997, the Company acquired an electrical supply company from a
third party for $100,000. The purchase of such electrical supply company has
been reflected as a purchase business combination. Consequently, the
accompanying financial statements reflect the consolidated results of operations
and financial position of the Company and the acquired electrical supply company
for periods subsequent to April 1997. All significant intercompany transactions
and balances have been eliminated for those periods.

In October 1997, the Company and its stockholder entered into a definitive
agreement with Integrated Electrical Services, Inc. (IES), pursuant to which all
outstanding shares of the Company's common stock will be exchanged for cash and
shares of IES common stock, concurrent with the consummation of the initial
public offerings in the United States and Canada and outside the United States
and Canada (the Offerings) of additional common stock by IES. In addition, the
key executives of the Company entered into employment agreements with the
Company and IES which have an initial term of five years, and generally restrict
the disclosure of confidential information as well as restrict competition with
the Company and IES for a period of two years following termination of
employment.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Interim Financial Information

The interim financial statements for the nine months ended September 30,
1996 and 1997, are unaudited and have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of the
Company's management, the unaudited interim financial statements contain all
adjustments (consisting of normal recurring adjustments) considered necessary
for a fair presentation. The results of operations for the interim periods are
not necessarily indicative of the results for the entire fiscal year.

Cash and Cash Equivalents

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

F-15
<PAGE> 91

HOUSTON-STAFFORD ELECTRIC, INC. AND CONSOLIDATED ENTITY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Supplemental Cash Flow Information (in thousands)

The Company had the following noncash investing and financing activities
for the years ended December 31, 1996 and September 30, 1997 and the nine months
ended September 30, 1996 and 1997 (in thousands):

<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
---------------------------- SEPTEMBER 30,
DECEMBER 31, SEPTEMBER 30, -------------
1996 1997 1996 1997
------------ ------------- ----- -----
(UNAUDITED)
<S> <C> <C> <C> <C>
Treasury stock purchased........................ $800 $ -- 800 --
Debt assumed in treasury stock purchase
transaction................................... 800 -- 800 --
Purchase price of real property................. 496 396 396 296
Debt assumed in connection with purchase of
property...................................... 368 321 343 296
Receivables reduced in connection with purchase
of property................................... 79 26 53 --
Debt assumed in connection with prepayments..... -- 31 -- 31
</TABLE>

Inventories

Inventories consist of parts and supplies held for use in the ordinary
course of business and are valued by the Company at the lower of cost or market
using the first-in, first-out (FIFO) method.

Property and Equipment

Property and equipment are stated at cost, and depreciation is computed
using the straight-line method over the estimated useful lives of the assets.
Leasehold improvements are capitalized and amortized over the lesser of the life
of the lease or the estimated useful life of the asset. Depreciation expense was
approximately $55,000, $76,000 and $133,000 for the years ended December 31,
1994, 1995 and 1996 and $187,000 for the year ended September 30, 1997,
respectively.

Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments, which extend the
useful lives of existing equipment, are capitalized and depreciated. Upon
retirement or disposition of property and equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is recognized in the statements of operations.

Revenue Recognition

The Company recognizes revenue when services are performed except when work
is being performed under a construction contract. Revenues from construction
contracts are recognized on the percentage-of-completion method measured by the
percentage of costs incurred to date to total estimated costs for each contract.
Contract costs include all direct material and labor costs and those indirect
costs related to contract performance, such as indirect labor, supplies, tools,
repairs and depreciation costs. Provisions for total estimated losses on
uncompleted contracts are made in the period in which such losses are
determined. Changes in job performance, job conditions, estimated profitability
and final contract settlements may result in revisions to costs and income. The
effects of these revisions are recognized in the period in which the revisions
are determined. An amount equal to contract costs attributable to claims is
included in revenues when realization is probable and the amount can be reliably
estimated.

F-16
<PAGE> 92

HOUSTON-STAFFORD ELECTRIC, INC. AND CONSOLIDATED ENTITY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

experience with similar contracts in recent years, the retention balance at each
balance sheet date will be collected within the subsequent fiscal year.

The current asset, "Costs and estimated earnings in excess of billings on
uncompleted contracts," represents revenues recognized in excess of amounts
billed. The current liability, "Billings in excess of costs and estimated
earnings on uncompleted contracts," represents billings in excess of revenues
recognized.

Warranty Costs

For certain contracts, the Company warrants labor for the first year after
installation of new electrical systems. The Company generally warrants labor for
30 days after servicing of existing electrical systems. A reserve for warranty
costs is recorded based upon the historical level of warranty claims and
management's estimate of future costs.

Accounts Receivable and Provision for Doubtful Accounts

Accounts receivable at December 31, 1995, 1996 and September 30, 1997,
include approved claims and change orders which were expected to be collected
within the fiscal year.

The Company provides an allowance for doubtful accounts based on a
specified percentage of outstanding receivables and the specific identification
of accounts receivable where collection is no longer probable.

Income Taxes

The Company follows the asset and liability method of accounting for income
taxes in accordance with Statement of Financial Accounting Standards (SFAS) No.
109. Under this method, deferred assets and liabilities are recorded for future
tax consequences of temporary differences between the financial reporting and
tax bases of assets and liabilities, and are measured using enacted tax rates
and laws.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions by
management in determining the reported amounts of assets and liabilities,
disclosures of contingent liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. Reference is made to the
"Revenue Recognition" section of this footnote and Note 11 for discussion of
significant estimates reflected in the Company's financial statements.

New Accounting Pronouncement

Effective January 1, 1996, the Company adopted SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." Accordingly, in the event that facts and circumstances indicate that
property and equipment or other assets may be impaired, an evaluation of
recoverability would be performed. If an evaluation is required, the estimated
future undiscounted cash flows associated with the asset are compared to the
asset's carrying amount to determine if an impairment of such property is
necessary. The effect of any impairment would be to expense the difference
between the fair value of such property and its carrying value. Adoption of this
standard did not have a material effect on the consolidated financial position
or results of operations of the Company.

F-17
<PAGE> 93

HOUSTON-STAFFORD ELECTRIC, INC. AND CONSOLIDATED ENTITY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

3. PROPERTY AND EQUIPMENT:

Property and equipment consists of the following (in thousands):

<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31, SEPTEMBER 30,
USEFUL LIVES ----------------- -------------
IN YEARS 1995 1996 1997
------------ ------- ------- -------------
<S> <C> <C> <C> <C>
Land..................................... N/A $ 236 $ 461 $ 569
Buildings................................ 5-32 144 439 634
Transportation equipment................. 5 1,432 615 967
Machinery and equipment.................. 3-10 329 370 479
Computer and telephone equipment......... 5-7 180 129 174
Building and Leasehold improvements...... 5-32 185 251 273
Furniture and fixtures................... 5-7 198 207 403
------- ------- -------
2,704 2,472 3,499
Less -- Accumulated depreciation and
amortization........................... (2,219) (1,044) (1,374)
------- ------- -------
Property and equipment, net.... $ 485 $ 1,428 $ 2,125
======= ======= =======
</TABLE>

4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:

Activity in the Company's allowance for doubtful accounts receivable
consists of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------- -------------
1995 1996 1997
----- ---- -------------
<S> <C> <C> <C>
Balance at beginning of period......................... $ 395 $220 $264
Additions to costs and expenses........................ 49 58 85
Deductions for uncollectible receivables written off
and recoveries....................................... (224) (14) (7)
----- ---- ----
Balance at end of period............................... $ 220 $264 $342
===== ==== ====
</TABLE>

Accounts payable and accrued expenses consist of the following (in
thousands):

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
---------------- -------------
1995 1996 1997
------ ------ -------------
<S> <C> <C> <C>
Accounts payable, trade.............................. $2,210 $1,748 $6,093
Accrued compensation and other expenses.............. 1,711 1,934 3,456
------ ------ ------
$3,921 $3,682 $9,549
====== ====== ======
</TABLE>

F-18
<PAGE> 94

HOUSTON-STAFFORD ELECTRIC, INC. AND CONSOLIDATED ENTITY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Electrical system installation contracts in progress are as follows (in
thousands):

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
-------------------- -------------
1995 1996 1997
-------- -------- -------------
<S> <C> <C> <C>
Costs incurred on contracts in progress.......... $ 15,370 $ 22,926 $ 22,201
Estimated earnings............................... 2,193 4,269 3,286
-------- -------- --------
17,563 27,195 25,487
Less -- Billings to date......................... (18,447) (28,681) (26,970)
-------- -------- --------
$ (884) $ (1,486) $ (1,483)
======== ======== ========
Costs and estimated earnings in excess of
billings on uncompleted contracts.............. $ 259 $ 247 $ 934
Less -- Billings in excess of costs and
estimated earnings on uncompleted
contracts................................... (1,143) (1,733) (2,417)
-------- -------- --------
$ (884) $ (1,486) $ (1,483)
======== ======== ========
</TABLE>

F-19
<PAGE> 95

HOUSTON-STAFFORD ELECTRIC, INC. AND CONSOLIDATED ENTITY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

5. LONG-TERM DEBT:

Long-term debt consists of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
--------------- -------------
1995 1996 1997
----- ------ -------------
<S> <C> <C> <C>
Note payable to an officer, dated August 1996,
payable in monthly payments of $12 including
interest at a rate of 8%, maturing August 2003 and
secured by treasury stock.......................... $ -- $ 766 $ 699
Note payable to a bank, dated October 1994, payable
in monthly payments of $21 plus interest at prime
plus .75%, maturing October 1998 and secured by
trade receivables, inventory and equipment......... 729 458 --
Line of credit with a bank with total borrowing
capacity of $3,100,000, bearing interest at prime
plus 1/2 percent, maturing in July 1998 and
secured by the Company's trade receivables,
inventory and equipment. (Prime was 8.5 percent as
of September 30, 1997)............................. -- -- 507
Mortgage payable to an officer, dated April 1996,
payable in monthly installments of $4 including
interest at 10%, maturing April 2001 and secured by
certain real property.............................. -- 186 159
Mortgage payable to an individual, dated September
1996, payable in monthly installments of $3
including interest at 9%, maturing October 2001 and
secured by certain real property................... -- 130 115
Mortgage payable to a financial institution, dated
December 1995, payable in monthly installments of
$1 including interest at 7.426%, maturing October
2112 and secured by certain real property.......... 113 110 108
Mortgage payable to a bank, renewed January 1996,
payable in monthly installments of $2 plus interest
at 9.25%, maturing January 1999 and secured by
certain
real property...................................... 70 48 30
Mortgage payable to a bank, assumed December 1996,
payable in monthly installments of $.5 including
interest at 9.875%, maturing October 2006 and
secured by certain real property................... -- 25 --
Capital lease obligations............................ -- -- 65
Other................................................ 75 -- 6
----- ------ ------
987 1,723 1,689
Less -- Current maturities........................... (353) (428) (721)
----- ------ ------
Total long-term debt....................... $ 634 $1,295 $ 968
===== ====== ======
</TABLE>

F-20
<PAGE> 96

HOUSTON-STAFFORD ELECTRIC, INC. AND CONSOLIDATED ENTITY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Principal payments due on long-term debt at September 30, 1997 are as
follows (in thousands):

<TABLE>
<S> <C>
1997........................................................ $ 83
1998........................................................ 718
1999........................................................ 190
2000........................................................ 198
2001........................................................ 174
2002........................................................ 141
Thereafter.................................................. 185
------
Total............................................. $1,689
======
</TABLE>

6. LEASES:

The Company leases various facilities, at which it conducts some of its
operations, under operating leases from third parties. Lease expiration dates
and approximate lease payments for the years ending December 31, 1995 and 1996,
and for the year ended September 30, 1997 are as follows (in thousands):

<TABLE>
<CAPTION>
SEPTEMBER 30,
LOCATION EXPIRATION 1995 1996 1997
-------- ---------- ---- ---- -------------
<S> <C> <C> <C> <C>
Austin.............................. October 31, 1997 $ 7 $ 2 $ 12
S.A. Com............................ August 15, 1999 -- 3 25
Fort Worth.......................... September 21, 2000 14 14 24
Acworth............................. November 30, 2002 7 7 10
Duluth.............................. February 28, 1998 18 18 19
Nevada.............................. January 31, 1998 -- 13 15
Polaris............................. December 31, 1997 -- 6 6
--- --- ----
$46 $63 $111
=== === ====
</TABLE>

Future minimum lease payments under these noncancelable operating leases
are as follows (in thousands):

<TABLE>
<S> <C>
Year ending December 31 --
1997................................................. $ 51
1998................................................. 95
1999................................................. 76
2000................................................. 51
2001................................................. 24
2002................................................. 23
----
$320
====
</TABLE>

For a discussion of leases with certain related parties, see Note 8.

F-21
<PAGE> 97

HOUSTON-STAFFORD ELECTRIC, INC. AND CONSOLIDATED ENTITY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

7. INCOME TAXES:

Federal and state income taxes are as follows (in thousands):

<TABLE>
<CAPTION>
YEAR ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------- -------------
1994 1995 1996 1997
----- ----- ------- -------------
<S> <C> <C> <C> <C>
Federal --
Current..................................... $158 $372 $1,455 $2,155
Deferred.................................... 28 (9) 235 (240)
State --
Current..................................... -- 54 210 311
Deferred.................................... -- (1) 34 (34)
---- ---- ------ ------
$186 $416 $1,934 $2,192
==== ==== ====== ======
</TABLE>

Actual income tax expense differs from income tax expense computed by
applying the U.S. federal statutory corporate rate of 35 percent to income
before provision for income taxes as follows (in thousands):

<TABLE>
<CAPTION>
YEAR ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------- -------------
1994 1995 1996 1997
----- ----- ------- -------------
<S> <C> <C> <C> <C>
Provision at the statutory rate............... $157 $401 $1,743 $1,928
Increase resulting from --
Non-deductible expenses..................... 29 (19) 32 84
State income tax, net of benefit for federal
deduction................................ -- 34 159 180
---- ---- ------ ------
$186 $416 $1,934 $2,192
==== ==== ====== ======
</TABLE>

Deferred income tax provisions result from temporary differences in the
recognition of income and expenses for financial reporting purposes and for tax
purposes. The tax effects of these temporary differences, representing deferred
tax assets and liabilities, result principally from the following (in
thousands):

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
-------------- -------------
1995 1996 1997
----- ----- -------------
<S> <C> <C> <C>
Deferred income tax assets --
Bad debts........................................... $ 148 $ 137 $ 162
Reserves and accrued expenses....................... 386 365 564
Other............................................... 1 -- --
----- ----- -----
Total deferred income tax asset............. 535 502 726
----- ----- -----
Deferred income tax liabilities --
Property and equipment.............................. -- (21) (81)
Deferred contract revenue........................... (138) (353) (220)
Accrued expenses.................................... -- -- (40)
----- ----- -----
Total deferred income tax liability......... (138) (374) (341)
----- ----- -----
Net deferred income tax asset............... $ 397 $ 128 $ 385
===== ===== =====
</TABLE>

F-22
<PAGE> 98

HOUSTON-STAFFORD ELECTRIC, INC. AND CONSOLIDATED ENTITY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The net deferred tax assets and liabilities are comprised of the following
(in thousands):

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
-------------- -------------
1995 1996 1997
----- ----- -------------
<S> <C> <C> <C>
Deferred tax assets --
Current............................................. $ 535 $ 502 $ 726
Long-term........................................... -- -- --
----- ----- -----
Total....................................... 535 502 726
----- ----- -----
Deferred tax liabilities --
Current............................................. (138) (353) (260)
Long-term........................................... -- (21) (81)
----- ----- -----
Total....................................... $(138) $(374) $(341)
===== ===== =====
</TABLE>

8. RELATED-PARTY TRANSACTIONS:

The Company is owned by Roy D. Brown and conducts business with the
following affiliated entities:

<TABLE>
<S> <C>
Houston-Stafford Plumbing, Inc. T and R Development
HSC Building Co., Inc. Ten Ninety Two, Ltd.
Brown-Mueller Joint Venture Lite Management
Hospital Solutions, Inc.
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
-------------------- -------------
1995 1996 1997
------- -------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
RECEIVABLES:
Lite Management................................. $ -- $ 23,000 $23,000
Hospital Solutions, Inc......................... -- 25,000 73,396
T and R Development............................. 98,717 106,638 106,637
Houston-Stafford Plumbing....................... 74,495 -- --
Brown-Mueller Joint Venture..................... -- 2,457 29,753
Houston-Stafford Bldg. Co....................... 36,379 -- --
Principal, Houston-Stafford Electric, Inc....... 52,502 84,840 84,841
Ben Mueller, officer............................ -- 25,943 25,943
PAYABLES:
Houston-Stafford Plumbing, Inc.................. 5,645 13,163 13,785
</TABLE>

TRANSACTIONS

The Company leases certain real properties from certain related parties for
use as electrical shops. These leases are open without binding contracts. The
annual rentals for 1994, 1995, 1996 and for the year ended September 30, 1997,
approximated $204,000, $154,000, $217,000 and $139,000 respectively, including
payments to Brown-Mueller Joint Venture (co-owned by Roy Brown and Ben Mueller)
of $174,000, $124,000, $187,000 and $109,000 respectively.

The Company has a mortgage payable to an officer of $159,000 which is
payable in monthly installments of $4,000. This mortgage matures in April 2001
and is secured by certain real property. The Company has a mortgage payable to a
related party of $115,000 which is payable in monthly installments of $3,000
(including interest at 9%). This mortgage matures in October 2001 and is secured
by certain real property. See Note 5 for additional disclosure regarding these
mortgages.

F-23
<PAGE> 99

HOUSTON-STAFFORD ELECTRIC, INC. AND CONSOLIDATED ENTITY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company received two pieces of real property in exchange for the
elimination of a balance due from HSC Building Company, of $79,449 and the
assumption of a note due HSC Building Co., Inc., of $25,376.

At September 30, 1997, the company did not have a balance due to or from
HSC Building Co., Inc.

In May 1996, the Company acquired a building and land at a cost of
$220,115. The financing for the acquisition was provided by an officer of the
Company, Ben Mueller. An installment promissory note of $208,123 was signed by
the Company. The note is payable over five years at 10 percent interest.

In August 1996, the Company negotiated the purchase of the stock of Ben
Mueller, a principal who had a one-third interest. The selling price of the
shares totaled $800,000. The Company has signed an installment promissory note
which will provide for the payout of $800,000 over seven years at 8 percent
interest and is secured by the purchased stock. Subsequent to the August 1996
transaction, Mr. Mueller remained an officer of the Company and was paid cash
compensation of approximately $372,000 during the last four months of 1996 and
approximately $252,000 during the first nine months of 1997. These amounts have
been reflected as compensation expense in the accompanying income statements for
the applicable periods.

As a result of the acquisition of the electrical supply company, the
Company assumed two non-compete agreements with certain related parties. The
total amount due under these agreements at September 30, 1997 is $1,051,000, the
majority of which is payable monthly and due August 2006.

9. EMPLOYEE BENEFIT PLAN:

The Company has a defined contribution benefit plan. The Company may make
discretionary contributions. Through September 30, 1997, the Company has made no
contributions to the plan.

10. FINANCIAL INSTRUMENTS:

The Company's financial instruments consist of cash and cash equivalents,
accounts receivable, receivables from related parties, other receivables,
accounts payable, a line of credit, notes payable and long-term debt. The
Company believes that the carrying value of these instruments on the
accompanying balance sheets approximates their fair value.

11. COMMITMENTS AND CONTINGENCIES:

Litigation

The Company is involved in disputes or legal actions arising in the
ordinary course of business. Management does not believe the outcome of such
legal actions will have a material adverse effect on the Company's financial
position or results of operations.

Insurance

The Company carries a broad range of insurance coverage, including business
auto liability, general liability and an umbrella policy. The Company also
carries employment practices liability coverage. The Company has not incurred
significant uninsured losses on any of these items.

Additionally, the Company provides workers' compensation coverage. The
policy has no deductible and provides coverage in the amount of $500,000 per
accident.

F-24
<PAGE> 100

HOUSTON-STAFFORD ELECTRIC, INC. AND CONSOLIDATED ENTITY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

During 1997, a general contractor with which the Company does business
acquired a line of credit from a bank on which the Company agreed to act as
second guarantor. This guaranty expires in December of 1997 and is in the amount
of $750,000.

12. MAJOR CUSTOMERS AND RISK CONCENTRATION:

The Company had sales of approximately 15 percent, 11 percent and 10
percent of total sales to one major customer during the years ended December 31,
1995, 1996 and September 30, 1997, respectively.

In addition, the Company grants credit, generally without collateral, to
its customers, which are general contractors and home builders, located
primarily in Texas. Consequently, the Company is subject to potential credit
risk related to changes in business and economic factors within the Texas
construction and home-building market. However, management believes that its
contract acceptance, billing and collection policies are adequate to minimize
any potential credit risk.

The Company routinely maintains cash balances in financial institutions in
excess of federally insured limits.

13. SUBSEQUENT EVENT CONDITIONAL UPON IES TRANSACTION (UNAUDITED):

As a condition of the definitive agreement with IES discussed in Note 1,
the Company will recognize a non-cash, non-recurring compensation charge of
approximately $17.0 million related to the exchange of cash and 1.1 million
shares of Common Stock for a note payable by the Company to an officer of the
Company, and the issuance of 0.2 million shares to such officer for his new role
as IES management.

F-25
<PAGE> 101

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Integrated Electrical Services, Inc.:

We have audited the accompanying balance sheet of Integrated Electrical
Services, Inc., a Delaware corporation, as of September 30, 1997, and the
related statements of operations, cash flows and stockholders' equity for the
period from inception (June 26, 1997) through September 30, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Integrated Electrical
Services, Inc. as of September 30, 1997, and the results of its operations and
its cash flows for the period from inception (June 26, 1997) through September
30, 1997, in conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Houston, Texas
November 14, 1997

F-26
<PAGE> 102

INTEGRATED ELECTRICAL SERVICES, INC.

BALANCE SHEET -- SEPTEMBER 30, 1997
(IN THOUSANDS, EXCEPT SHARE INFORMATION)

ASSETS

<TABLE>
<S> <C>
CASH AND CASH EQUIVALENTS................................... $ --
DEFERRED OFFERING COSTS..................................... 1,560
-------
Total current assets.............................. 1,560
PROPERTY AND EQUIPMENT, NET................................. 6
-------
Total assets...................................... $ 1,566
=======
LIABILITIES AND STOCKHOLDERS' EQUITY
AMOUNTS DUE TO STOCKHOLDER.................................. $ 1,565
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 10,000,000 authorized,
none issued and outstanding............................ --
Common stock, $.01 par value, 100,000,000 shares
authorized, 4,052,311 shares issued and outstanding.... 41
Receivable from stockholders.............................. (40)
Additional paid-in capital................................ 13,618
Retained deficit.......................................... (13,618)
-------
Total stockholders' equity........................ 1
-------
Total liabilities and stockholders' equity........ $ 1,566
=======
</TABLE>

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

Reflects a 2,329.6-for-one stock split effected in October 1997.

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

F-27
<PAGE> 103

INTEGRATED ELECTRICAL SERVICES, INC.

STATEMENT OF OPERATIONS
FOR THE PERIOD FROM INCEPTION
(JUNE 26, 1997) THROUGH SEPTEMBER 30, 1997
(IN THOUSANDS)

<TABLE>
<S> <C>
REVENUES.................................................... $ --
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES................ 13,618
--------
LOSS BEFORE INCOME TAXES.................................... (13,618)
PROVISION FOR INCOME TAXES.................................. --
--------
NET LOSS.................................................... $(13,618)
========
</TABLE>

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

F-28
<PAGE> 104

INTEGRATED ELECTRICAL SERVICES, INC.

STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION
(JUNE 26, 1997) THROUGH SEPTEMBER 30, 1997
(IN THOUSANDS)

<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $(13,618)
Non-cash compensation charge.............................. 13,618
Adjustments to reconcile net loss to net cash used in
operating activities --
Changes in assets and liabilities --
Increase in deferred offering costs.................. (1,560)
Increase in amounts due to stockholder............... 1,565
--------
Net cash provided by operating activities......... 5
--------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Expenditures...................................... (6)
--------
Net cash used in investing activities............. (6)
--------
CASH FLOWS FROM FINANCING ACTIVITIES:
Initial capitalization.................................... 1
--------
Net cash provided by financing activities......... 1
--------
NET INCREASE IN CASH AND CASH EQUIVALENTS................... --
CASH AND CASH EQUIVALENTS, beginning of period.............. --
--------
CASH AND CASH EQUIVALENTS, end of period.................... $ --
========
</TABLE>

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

F-29
<PAGE> 105

INTEGRATED ELECTRICAL SERVICES, INC.

STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION
(JUNE 26, 1997) THROUGH SEPTEMBER 30, 1997
(IN THOUSANDS, EXCEPT SHARE INFORMATION)

<TABLE>
<CAPTION>
COMMON STOCK RECEIVABLE ADDITIONAL TOTAL
------------------ FROM PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT STOCKHOLDERS CAPITAL DEFICIT EQUITY
--------- ------ ------------ ---------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
INITIAL CAPITALIZATION, June
26, 1997.................... 2,329,600 $23 $ -- $ -- $ -- $23
ISSUANCE OF ADDITIONAL SHARES
TO MANAGEMENT............... 1,722,711 18 -- -- -- 18
NET INCOME (LOSS)............. -- -- -- 13,618 (13,618) --
RECEIVABLE FROM STOCKHOLDERS
FOR STOCK ISSUED............ -- -- (40) -- -- (40)
--------- --- ---- ------- -------- ---
BALANCE, September 30, 1997... 4,052,311 $41 $(40) $13,618 $(13,618) $ 1
========= === ==== ======= ======== ===
</TABLE>

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

Reflects a 2,329.6-for-one stock split effected in October 1997.

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

F-30
<PAGE> 106

INTEGRATED ELECTRICAL SERVICES, INC.

NOTES TO FINANCIAL STATEMENTS

1. BUSINESS AND ORGANIZATION:

Integrated Electrical Services, Inc., a Delaware corporation (IES or the
Company), was founded in June 1997 to create a leading national provider of
electrical contracting and maintenance services, focusing primarily on the
residential, commercial and industrial markets. IES intends to acquire certain
U.S. businesses (the Acquisitions), complete the consummation of the initial
public offerings in the United States and Canada and outside the United States
and Canada (the Offerings) of its common stock and, subsequent to the Offerings,
continue to acquire through merger or purchase similar companies to expand its
national and regional operations.

IES has not conducted any operations, and all activities to date have
related to the Offerings and the Acquisitions. All expenditures of the Company
to date have been funded by its founder and current primary stockholder, on
behalf of the Company. The Company's founder and primary stockholder has also
committed to fund future organization expenses and offering costs. As of
September 30, 1997, costs of approximately $1,560,000 have been incurred in
connection with the Offerings, and such costs will be a reduction of the
proceeds from the Offerings. IES has treated these costs as deferred offering
costs in the accompanying balance sheet. IES is dependent upon the Offerings to
execute the pending Acquisitions and to repay its current primary stockholder
for funding deferred offering costs. There is no assurance that the pending
Acquisitions will be completed. The ability of IES to generate future operating
revenues is dependent upon the ability of the Company to manage the effect on
the combined companies of changes in demand for commercial and residential
construction, the effect of business growth, including the availability of
electricians, and the need for other key personnel. These risk factors are
discussed in more detail in "Risk Factors".

2. STOCKHOLDERS' EQUITY:

Common Stock and Preferred Stock

In connection with the organization and initial capitalization of IES, the
Company issued 2,329,600 shares (as restated for the 2,329.6-for-one stock split
discussed below) of common stock at $.01 par value (Common Stock). IES
subsequently issued another 1,722,711 shares (as restated for the
2,329.6-for-one stock split discussed below) of Common Stock at $.01 par value
to certain management of IES. Consequently, as restated for the 2,329.6-for-one
stock split discussed below, the Company had issued a total of 2,655,709 shares
to its founder and Chairman of the Board, and certain trusts established for the
benefit of his children, and an aggregate of 1,396,602 shares to other executive
management of the Company. As a result of the issuance of shares to management
for nominal consideration, the Company recorded for financial statement
presentation purposes, a nonrecurring, noncash compensation charge of $13.6
million, calculated based on the fair value of such shares which has been
determined to be $9.10 and $9.80 per share (a discount of 35% and 30%,
respectively, from the estimated initial public offering price) for the shares
issued in June 1997 and September 1997, respectively. The fair value of such
shares was based on specific factors related to the Company and the transaction
including restrictions on transferability and sale, the time value of money
during the holding period and the substantive progress of the transaction at
each issuance date. The nonrecurring compensation charge discussed above does
not include any of the shares issued to the founder and chairman of the board,
and certain trusts established for the benefit of his children. The shares
issued to the founder and Chairman of the Board, and such trusts, will be
reflected as acquisition costs in connection with the Acquisitions.

IES effected a 2,329.6-for-one stock split in October 1997, for each share
of common stock of the Company then outstanding. In addition, the Company
increased the number of authorized shares of common stock to 100,000,000 and
increased the number of authorized shares of $.01 par value preferred stock to
10,000,000. The effects of the Common Stock split and the increase in the shares
of authorized common stock have been retroactively reflected on the balance
sheet, statement of stockholders' equity and in the accompanying notes.
Additionally, the difference between the initial capitalization and the par
value of

F-31
<PAGE> 107

INTEGRATED ELECTRICAL SERVICES, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Common Stock outstanding subsequent to the stock split has been reflected as a
receivable from stockholders, which is presented as a reduction in stockholders'
equity in the accompanying financial statements.

Restricted Common Stock

In October 1997, the 2,655,709 shares of Common Stock held by the founder
of IES were converted into 2,655,709 shares of restricted common stock. The
shares of restricted common stock have rights similar to shares of Common Stock,
except that such shares are entitled to elect one member of the board of
directors and are entitled to one-half of one vote for each share held on all
other matters. Each share of restricted common stock will convert into Common
Stock upon disposition by the holder of such shares.

Stock Plan

In September 1997, the Company's board of directors and stockholders
approved the Company's 1997 Stock Plan (the Plan), which provides for the
granting or awarding of incentive or nonqualified stock options, stock
appreciation rights, restricted or phantom stock, and other incentive awards to
directors, officers, key employees and consultants of the Company. The number of
shares authorized and reserved for issuance under the Plan is the greater of 3.5
million shares or 15% of the aggregate number of shares of Common Stock
outstanding. The terms of the option awards will be established by the
Compensation Committee of the Company's board of directors. The Company intends
to file a registration statement on Form S-8 under the Securities Act of 1933
registering the issuance of shares upon exercise of options granted under this
Plan. The Company expects to grant nonqualified stock options to purchase a
total of approximately 2.3 million shares of Common Stock to key employees of
the Company at the initial public offering price upon consummation of the
Offerings. These options will vest at the rate of 20 percent per year,
commencing on the first anniversary of the grant date and will expire ten years
from the date of grant, three months following termination of employment due to
death or disability, or one year following termination of employment by means
other than death or disability. In September 1997, 300,000 options were granted
to certain key employees under the Plan with an exercise price equal to 60% of
the initial public offering price. These options vest at a rate of 20 percent
per year, commencing on the date of grant. The compensation expense recognized
for these options prior to September 30, 1997 was not material as they were not
granted until September 1997.

Directors' Stock Plan

In September 1997, the Company's board of directors and stockholders
approved the 1997 Directors' Stock Plan (the Directors' Plan), which provides
for the granting or awarding of stock options to nonemployee directors. The
number of shares authorized and reserved for issuance under the Directors' Plan
is 250,000 shares. The Directors' Plan provides for the automatic grant of
options to purchase 5,000 shares to each nonemployee director serving in such
capacity at the commencement of the Offerings.

Each nonemployee director will be granted options to purchase an additional
5,000 shares at the time of an initial election of such director. In addition,
each director will be automatically granted options to purchase 5,000 shares
annually at each September 30 on which such director remains a director. All
options will have an exercise price based on the fair market value at the date
of grant and have vesting terms similar to options granted under the Stock Plan
discussed above.

The Directors' Plan allows nonemployee directors to receive additional
option grants in amounts and at terms as deemed appropriate by the Company's
board of directors.

3. STOCK-BASED COMPENSATION:

Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation," allows entities to choose between a new fair value
method of accounting for employee stock options or similar equity instruments
and the current method of accounting prescribed by Accounting Principles Board

F-32
<PAGE> 108

INTEGRATED ELECTRICAL SERVICES, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

(APB) Opinion No. 25 under which compensation expense is recorded to the extent
that the fair market value of the related stock is in excess of the options
exercise price at date of grant. Entities electing to remain with the accounting
in APB Opinion No. 25 must make pro forma disclosures of net income and earnings
per share as if the fair value method of accounting prescribed in SFAS No. 123
had been applied. The Company will measure compensation expense attributable to
stock options based on the method prescribed in APB Opinion No. 25 and will
provide the required pro forma disclosure of net income and earnings per share,
as applicable, in the notes to future consolidated annual financial statements.

4. NEW ACCOUNTING PRONOUNCEMENTS:

SFAS No. 128 requires the presentation of basic earnings per share and
diluted earnings per share in financial statements of public enterprises rather
than primary and fully diluted earnings per share as previously required. Under
the provisions of this statement, basic earnings per share will be computed
based on weighted average shares outstanding and will exclude dilutive
securities such as options and warrants. Diluted earnings per share will be
computed including the impacts of all potentially dilutive securities. The
Company will adopt this statement in December 1997, but does not anticipate that
the statement will have a material impact on the Company.

SFAS No. 129 will require additional disclosure of information about an
entity's capital structure, including information about dividend and liquidation
preferences, voting rights, contracts to issue additional shares, and conversion
and exercise prices. The Company will adopt this statement in December 1997.

SFAS No. 130 requires the presentation of comprehensive income in an
entity's financial statements. Comprehensive income represents all changes in
equity of an entity during the reporting period, including net income and
charges directly to equity which are excluded from net income. This statement is
not anticipated to have a material impact on the Company or its financial
disclosures, as the Company currently does not plan to enter into any material
transactions which result in charges (or credits) directly to equity (such as
additional minimum pension liability changes, currency translation adjustments,
and unrealized gains and losses on available for sale securities).

5. FOUNDING COMPANY ACQUISITIONS:

IES has signed definitive agreements to acquire the following entities (the
Founding Companies) to be effective contemporaneously with the Offerings. The
entities to be acquired are:

Ace Electric, Inc.
Amber Electric, Inc.
BW Consolidated, Inc. and Subsidiaries
Daniel Electrical Contractors, Inc. and Daniel Electrical of Treasure
Coast Inc.
Hatfield Electric, Inc.
Charles P. Bagby, Co., Inc. and General Partner, Inc.
Houston-Stafford Electric, Inc. and Stark Investments, Inc.
Mills Electrical Contractors, Inc.
Muth Electric, Inc.
Pollock Electric Inc.
Reynolds Electric Corp.
Rodgers Electric Company, Inc.
Summit Electric of Texas, Incorporated
Thomas Popp & Company
Thurman & O'Connell Corporation

F-33
<PAGE> 109

INTEGRATED ELECTRICAL SERVICES, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

The aggregate consideration that will be paid by IES to acquire the
Founding Companies will be approximately $53.4 million in cash and 12.3 million
shares of Common Stock. Additionally, approximately 3.9 million of the 4.1
million shares issued to the IES founder and Chairman of the Board and certain
trusts, and certain other management, will be reflected as acquisition costs as
part of the acquisition transactions.

In addition, the Company has entered into employment agreements with
certain key executives of the Founding Companies and the executive officers of
IES. These employment agreements generally prohibit such individuals from
disclosing confidential information and trade secrets, and restrict such
individuals from competing with the Company for a period of two years following
termination of employment. The initial term of these employment agreements is
five years with provisions for annual extensions at the end of the initial term.

6. EVENTS SUBSEQUENT TO THE DATE OF THE REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS (UNAUDITED)

The Company expects to enter into a credit facility effective following the
closing of the Offerings. The credit facility will be a three-year revolving
credit facility of up to $65 million to be used for working capital, capital
expenditures, other corporate purposes and acquisitions. Amounts borrowed under
the proposed credit facility will bear interest at an annual rate equal to
either (a) the London interbank offered rate ("LIBOR") plus 1.0% to 2.0%, as
determined by the ratio of the Company's total funded debt to EBITDA (as defined
in the credit facility), or (b) the higher of (i) the bank's prime rate and (ii)
the Federal Funds rate plus 0.5%, plus up to 0.5%, as determined by the ratio of
the Company's total funded debt to EBITDA. Commitment fees of 0.25% to 0.375%,
as determined by the ratio of the Company's total funded debt to EBITDA, will be
due on any unused borrowing capacity under the credit facility. The Company's
existing and future subsidiaries will guarantee the repayment of all amounts due
under the facility, and the facility will be secured by the capital stock of
those subsidiaries and the accounts receivable of the Company and those
subsidiaries. The credit facility will require the consent of the lenders for
acquisitions exceeding a certain level of cash consideration, prohibit the
payment of cash dividends on the Common Stock, restrict the ability of the
Company to incur other indebtedness and require the Company to comply with
certain financial covenants. Availability of the credit facility will be subject
to customary drawing conditions and execution of certain loan documentation.

F-34
<PAGE> 110

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Mills Electrical Contractors, Inc.:

We have audited the accompanying consolidated balance sheets of Mills
Electrical Contractors, Inc., a Texas corporation, and Subsidiary as of December
31, 1995 and 1996 and September 30, 1997, and the related consolidated
statements of operations, cash flows and stockholders' equity for each of the
three years in the period ended December 31, 1996 and for the year ended
September 30, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Mills Electrical
Contractors, Inc. and Subsidiary as of December 31, 1995 and 1996 and September
30, 1997, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1996 and for the year ended
September 30, 1997, in conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Houston, Texas
November 14, 1997

F-35
<PAGE> 111

MILLS ELECTRICAL CONTRACTORS, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
------------------ SEPTEMBER 30,
1995 1996 1997
------- ------- -------------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $ 1,808 $ 5,239 $ 833
Accounts receivable --
Trade, net of allowance of $148, $252 and $353,
respectively......................................... 6,251 10,121 13,137
Retainage, net of allowance of $20, $74 and $42,
respectively......................................... 796 2,669 1,621
Related parties........................................ 3 208 632
Other receivables...................................... 307 1,055 27
Inventories, net.......................................... 69 49 93
Costs and estimated earnings in excess of billings on
uncompleted contracts.................................. 131 329 1,584
Prepaid expenses and other current assets................. 29 118 120
------- ------- -------
Total current assets.............................. 9,394 19,788 18,047
PROPERTY AND EQUIPMENT, net................................. 912 1,675 2,397
GOODWILL, net............................................... -- 180 173
OTHER ASSETS................................................ 340 394 443
------- ------- -------
Total assets...................................... $10,646 $22,037 $21,060
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line-of-Credit and current maturities of long-term debt... $ 131 $ 294 $ 643
Accounts payable and accrued expenses --
Trade.................................................. 4,439 8,886 7,672
Related parties........................................ 23 633 --
Billings in excess of costs and estimated earnings on
uncompleted contracts.................................. 1,746 4,523 1,966
Unearned revenue and other current liabilities............ 98 -- --
------- ------- -------
Total current liabilities......................... 6,437 14,336 10,281
------- ------- -------
LONG-TERM DEBT, net of current maturities................... 260 333 169
MINORITY INTEREST........................................... -- 3 75
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $1 par value, 1,000 shares authorized, 855
shares issued and 727 shares outstanding............... 1 1 1
Additional paid-in capital................................ 175 175 175
Retained earnings......................................... 3,824 7,240 10,410
Treasury stock, 128 shares, at cost....................... (51) (51) (51)
------- ------- -------
Total stockholders' equity........................ 3,949 7,365 10,535
------- ------- -------
Total liabilities and stockholders' equity........ $10,646 $22,037 $21,060
======= ======= =======
</TABLE>

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

F-36
<PAGE> 112

MILLS ELECTRICAL CONTRACTORS, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, YEAR ENDED SEPTEMBER 30,
--------------------------- SEPTEMBER 30, -----------------
1994 1995 1996 1997 1996 1997
------- ------- ------- ------------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
REVENUES........................... $25,544 $35,250 $65,439 $74,399 $43,684 $52,644
COST OF SERVICES (including
depreciation and amortization)... 20,937 27,372 50,535 60,572 33,998 44,035
------- ------- ------- ------- ------- -------
Gross profit............. 4,607 7,878 14,904 13,827 9,686 8,609
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES......................... 3,391 4,741 7,643 8,778 3,837 4,972
------- ------- ------- ------- ------- -------
Income from operations... 1,216 3,137 7,261 5,049 5,849 3,637
------- ------- ------- ------- ------- -------
OTHER INCOME (EXPENSE):
Interest expense................. (22) (56) (61) (46) (34) (19)
Other............................ 92 195 215 277 153 215
------- ------- ------- ------- ------- -------
Other income (expense),
net.................... 70 139 154 231 119 196
------- ------- ------- ------- ------- -------
INCOME BEFORE MINORITY INTEREST AND
PROVISION FOR STATE INCOME
TAXES............................ 1,286 3,276 7,415 5,280 5,968 3,833
Minority interest in net (income)
loss of subsidiary............... -- -- (3) 2 (5) --
------- ------- ------- ------- ------- -------
INCOME BEFORE PROVISION FOR STATE
INCOME TAXES..................... 1,286 3,276 7,412 5,282 5,963 3,833
Provision for state income taxes... 52 131 309 274 182 147
------- ------- ------- ------- ------- -------
NET INCOME......................... $ 1,234 $ 3,145 $ 7,103 $ 5,008 $ 5,781 $ 3,686
======= ======= ======= ======= ======= =======
</TABLE>

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

F-37
<PAGE> 113

MILLS ELECTRICAL CONTRACTORS, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED NINE MONTHS
DECEMBER 31, SEPTEMBER 30, ENDED SEPTEMBER 30,
--------------------------- ------------- -------------------
1994 1995 1996 1997 1996 1997
------- ------- ------- ------------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income..................................... $ 1,234 $ 3,145 $ 7,103 $ 5,008 $ 5,781 $ 3,686
Adjustments to reconcile net income to net cash
provided by (used in) operating
activities --
Depreciation and amortization................ 179 253 385 637 197 449
Loss (gain) on sale of property and
equipment................................. (2) -- (20) 6 (21) 5
Changes in operating assets and
liabilities --
(Increase) decrease in --
Accounts receivable..................... (2,107) (1,894) (6,997) 1,637 (9,998) (1,364)
Inventories, net........................ 10 1 20 (27) 2 (45)
Costs and estimated earnings in excess
of billings on uncompleted
contracts............................. (402) 386 (198) (1,146) (307) (1,255)
Prepaid expenses and other current
assets................................ (46) 105 (89) 58 (149) (2)
Increase (decrease) in --
Accounts payable and accrued expenses... 1,780 1,178 5,057 121 3,090 (1,846)
Billings in excess of costs and
estimated earnings on uncompleted
contracts............................. (353) 1,159 2,777 (3,705) 3,926 (2,556)
Unearned revenue and other current
liabilities........................... -- 98 (98) -- (98) --
Other, net................................... (64) (29) (52) 100 (130) 22
------- ------- ------- ------- ------- -------
Net cash provided by (used in) operating
activities................................ 229 4,402 7,888 2,689 2,293 (2,906)
------- ------- ------- ------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in notes receivable................... (12) (291) (75) -- (75) --
Collection of notes receivable................. 140 141 377 -- 377 --
Proceeds from sale of property and equipment... 8 15 44 8 44 8
Additions of property and equipment............ (279) (255) (912) (1,551) (538) (1,177)
------- ------- ------- ------- ------- -------
Net cash used in investing activities... (143) (390) (566) (1,543) (192) (1,169)
------- ------- ------- ------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of long-term debt................... -- -- -- 1,000 -- 1,000
Payments of long-term debt..................... (19) (136) (204) (902) (117) (815)
Distributions to stockholders.................. (147) (2,216) (3,687) (3,777) (426) (516)
Sale of treasury stock......................... 181 -- -- -- -- --
------- ------- ------- ------- ------- -------
Net cash provided by (used in) financing
activities............................ 15 (2,352) (3,891) (3,679) (543) (331)
------- ------- ------- ------- ------- -------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS.................................... 101 1,660 3,431 (2,533) 1,558 (4,406)
CASH AND CASH EQUIVALENTS, beginning of period... 47 148 1,808 3,366 1,808 5,239
------- ------- ------- ------- ------- -------
CASH AND CASH EQUIVALENTS, end of period......... $ 148 $ 1,808 $ 5,239 $ 833 $ 3,366 $ 833
======= ======= ======= ======= ======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for --
Interest..................................... $ 22 $ 56 $ 61 46 $ 34 $ 19
Income Taxes................................. $ -- $ 55 $ 93 $ 105 $ 93 $ 105
</TABLE>

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

F-38
<PAGE> 114

MILLS ELECTRICAL CONTRACTORS, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE INFORMATION)

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
--------------- PAID-IN RETAINED TREASURY STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS STOCK EQUITY
------ ------ ---------- -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1993.......... 855 $ 1 $ 11 $ 1,808 $(68) $ 1,752
Sale of 42 shares of treasury
stock........................ -- -- 164 -- 17 181
Distributions to
stockholders................. -- -- -- (147) -- (147)
Net income..................... -- -- -- 1,234 -- 1,234
--- --- ---- ------- ---- -------
BALANCE, December 31, 1994.......... 855 1 175 2,895 (51) 3,020
Distributions to
stockholders................. -- -- -- (2,216) -- (2,216)
Net income..................... -- -- -- 3,145 -- 3,145
--- --- ---- ------- ---- -------
BALANCE, December 31, 1995.......... 855 1 175 3,824 (51) 3,949
Distributions to
stockholders................. -- -- -- (3,687) -- (3,687)
Net income..................... -- -- -- 7,103 -- 7,103
--- --- ---- ------- ---- -------
BALANCE, December 31, 1996.......... 855 1 175 7,240 (51) 7,365
Distributions to stockholders
(unaudited).................. -- -- -- (516) -- (516)
Net income (unaudited)......... -- -- -- 3,686 -- 3,686
--- --- ---- ------- ---- -------
BALANCE, September 30, 1997......... 855 $ 1 $175 $10,410 $(51) $10,535
=== === ==== ======= ==== =======
</TABLE>

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

F-39
<PAGE> 115

MILLS ELECTRICAL CONTRACTORS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. BUSINESS AND ORGANIZATION:

The accompanying consolidated financial statements include the accounts of
Mills Electrical Contractors, Inc. (Mills), a Texas corporation, and its 89%
owned subsidiary, Fort Worth Regional Electrical Systems, L.L.C. (RES), a Texas
limited liability company (collectively, the Company). The subsidiary was formed
during 1996. In September 1997, Mills sold 10% of the capital stock of RES to an
officer of RES at net book value per share resulting in proceeds to the Company
of $71,000. Financial statements prior to 1996 reflect only the accounts of
Mills. All significant intercompany transactions have been eliminated in
consolidation.

The Company focuses on providing electrical system installation and repair
services primarily for mid-sized to large commercial facilities as well as
residential facilities. The Company performs the majority of its contract work
under fixed price contracts, with contract terms generally ranging from 12 to 36
months. The Company performs the majority of its work in the Dallas-Fort Worth,
Texas, area.

In October 1997, the Company and its stockholders entered into a definitive
agreement with Integrated Electrical Services, Inc. (IES), pursuant to which all
outstanding shares of the Company's common stock will be exchanged for cash and
shares of IES common stock, concurrent with the consummation of the initial
public offerings in the United States and Canada and outside the United States
and Canada (the Offerings) of additional common stock by IES. In addition, the
key executives of the Company entered into employment agreements with the
Company and IES which have an initial term of five years, and generally restrict
the disclosure of confidential information as well as restrict competition with
the Company and IES for a period of two years following termination of
employment.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Interim Financial Information

The interim consolidated financial statements for the nine months ended
September 30, 1996 and 1997, are unaudited and have been prepared pursuant to
the rules and regulations of the Securities and Exchange Commission.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of the Company's management, the unaudited interim consolidated
financial statements contain all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation. The results of
operations for the interim periods are not necessarily indicative of the results
for the entire fiscal year.

Cash and Cash Equivalents

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

Supplemental Cash Flow Information (in thousands)

The Company had the following noncash investing and financing activities
for the years ended December 31, 1994, 1995, 1996 and September 1997 and the
nine months ended September 30, 1996 and 1997:

<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED SEPTEMBER 30,
SEPTEMBER 30, -------------
1994 1995 1996 1997 1996 1997
---- ---- ---- ------------- ----- -----
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Property acquired in capital lease
transactions........................ $290 $195 $254 $17 $237 $ --
Goodwill recognized in purchase
transactions........................ $ -- $ -- $185 -- 185 --
</TABLE>

F-40
<PAGE> 116

MILLS ELECTRICAL CONTRACTORS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Inventories

Inventories consist of parts and supplies held for use in the ordinary
course of business and are stated at the lower of cost, net of an allowance for
obsolescence, or market using the first-in, first-out (FIFO) method.

Property and Equipment

Property and equipment are stated at cost, and depreciation is computed
using the straight-line method over the estimated useful lives of the assets.
Leasehold improvements are capitalized and amortized over the lesser of the life
of the lease or the estimated useful life of the asset. Depreciation and
amortization expense was $179,000, $253,000 and $385,000 and $637,000 for the
years ended December 31, 1994, 1995 and 1996 and September 30, 1997,
respectively.

In June 1996, RES agreed to purchase a business, consisting of equipment in
a capital lease transaction and an agreement to lease a building under an
operating lease, as well as the purchase of the rights to the name "Regional
Electric Systems" from an individual who became an officer of RES. The acquired
assets were recorded at their estimated fair market value using the purchase
method of accounting. The transaction resulted in the recognition of goodwill of
approximately $185,000 which is being amortized over a 20 year period.

Revenue Recognition

The Company recognizes revenue when services are performed except when work
is being performed under a construction contract. Revenues from construction
contracts are recognized on the percentage-of-completion method measured by the
percentage of costs incurred to date to total estimated costs for each contract.
Contract costs include all direct material and labor costs and those indirect
costs related to contract performance, such as indirect labor, supplies, tools
and repairs. Provisions for the total estimated losses on uncompleted contracts
are made in the period in which such losses are determined. Changes in job
performance, job conditions, estimated profitability and final contract
settlements may result in revisions to costs and income and their effects are
recognized in the period in which the revisions are determined. An amount equal
to contract costs attributable to claims is included in revenues when
realization is probable and the amount can be reliably estimated.

The balances billed but not paid by customers pursuant to retainage
provisions in construction contracts will be due upon completion of the
contracts and acceptance by the customer. Based on the Company's experience with
similar contracts in recent years, the retention balance at each balance sheet
date will be collected within the subsequent fiscal year.

Warranty Costs

F-41
<PAGE> 117

MILLS ELECTRICAL CONTRACTORS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Accounts Receivable and Provision for Doubtful Accounts

The Company provides an allowance for doubtful accounts based upon the
specific identification of accounts receivable where collection is no longer
probable and a general reserve based upon the total trade and retainage accounts
receivable balances.

Income Taxes

The Company has elected S Corporation status as defined by the Internal
Revenue Code, whereby the Company itself is not subject to taxation for federal
purposes. Under S Corporation status, the stockholders report their share of the
Company's taxable earnings or losses in their personal tax returns.
Consequently, the accompanying consolidated financial statements of the Company
include only a provision for state income taxes and do not include a provision
for current or deferred federal income taxes. The Company intends to terminate
its S Corporation status concurrently with the effective date of the Offerings.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions by
management in determining the reported amounts of assets and liabilities,
disclosures of contingent liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. Reference is made to the
"Revenue Recognition" section of this footnote and Note 10 for discussion of
significant estimates reflected in the Company's consolidated financial
statements.

New Accounting Pronouncement

Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." Accordingly, in
the event that facts and circumstances indicate that property and equipment or
other assets may be impaired, an evaluation of recoverability would be
performed. If an evaluation is required, the estimated future undiscounted cash
flows associated with the asset are compared to the asset's carrying amount to
determine if an impairment of such property is necessary. The effect of any
impairment would be to expense the difference between the fair value of such
property and its carrying value. Adoption of this standard did not have a
material effect on the consolidated financial position or results of operations
of the Company.

3. PROPERTY AND EQUIPMENT:

Property and equipment consists of the following (in thousands):

<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31,
USEFUL LIVES ------------------ SEPTEMBER 30,
IN YEARS 1995 1996 1997
------------ ------- ------- -------------------------------
<S> <C> <C> <C> <C>
Transportation equipment............... 3-5 $ 788 $ 1,031 $ 1,346
Machinery and equipment................ 5 785 1,071 1,266
Leasehold improvements................. 5-10 170 330 421
Furniture and fixtures................. 5 591 901 1,439
Less -- Accumulated depreciation and
amortization......................... (1,422) (1,658) (2,075)
------- ------- -------
Property and equipment,
net........................ $ 912 $ 1,675 $ 2,397
======= ======= =======
</TABLE>

F-42
<PAGE> 118

MILLS ELECTRICAL CONTRACTORS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:

Activity in the Company's allowance for doubtful accounts receivable
consists of the following (in thousands):

<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------
DECEMBER 31,
-------------------- SEPTEMBER 30,
1994 1995 1996 1997
---- ---- ---- -------------
<S> <C> <C> <C> <C>
Balance at beginning of period................... $ 77 $128 $168 $432
Additions to/(reduction of) costs and expenses... 51 40 158 (37)
---- ---- ---- ----
Balance at end of period......................... $128 $168 $326 $395
==== ==== ==== ====
</TABLE>

Included as a component of other receivables at December 31, 1995, is a
note receivable from a corporation of $291,000 with interest at 10 percent per
annum. This note was collected during 1996.

Accounts payable and accrued expenses, trade consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------- SEPTEMBER 30,
1995 1996 1997
------ ------ -------------
<S> <C> <C> <C>
Accounts payable, trade.................................. $2,236 $4,922 $6,275
Accrued compensation and benefits........................ 1,608 3,423 1,017
Other accrued expenses................................... 595 541 380
------ ------ ------
$4,439 $8,886 $7,672
====== ====== ======
</TABLE>

Electrical system installation contracts in progress are as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------ SEPTEMBER 30,
1995 1996 1997
------- -------- -------------
<S> <C> <C> <C>
Costs incurred on contracts in progress............... $33,016 $ 55,954 $ 80,236
Estimated earnings, net of losses..................... 7,090 15,879 16,534
------- -------- --------
40,106 71,833 96,770
Less -- Billings to date.............................. (41,721) (76,027) (97,152)
------- -------- --------
$(1,615) $ (4,194) $ (382)
======= ======== ========
Costs and estimated earnings in excess of billings on
uncompleted contracts............................... $ 131 $ 329 $ 1,584
Less -- Billings in excess of costs and estimated
earnings on uncompleted contracts................ (1,746) (4,523) (1,966)
------- -------- --------
$(1,615) $ (4,194) $ (382)
======= ======== ========
</TABLE>

5. LINE-OF-CREDIT DEBT:

The Company has a $2,000,000 line-of-credit agreement with a bank to be
drawn upon as needed, with variable interest at the bank's prime rate, as
defined, secured by accounts receivable, furniture, fixtures and equipment, an
assignment of a $500,000 life insurance policy on the president and the
president's personal guaranty. In June 1997, the line-of-credit agreement was
extended to June of 1999. At September 30, 1997, there was an outstanding draw
against this line of credit in the amount of $400,000, which is due and payable
within one year.

F-43
<PAGE> 119

MILLS ELECTRICAL CONTRACTORS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The line-of-credit agreement with the bank contains various covenants
pertaining to working capital, certain financial ratios and net worth. At
September 30, 1997, the Company was in compliance with all such covenants.

LONG-TERM DEBT

Long-term debt consists primarily of capital leases for the purchase of
vehicles and construction equipment as discussed in Note 6.

The Company has a term note payable with a bank, secured by a Company
vehicle. The principal is payable monthly in the amount of $1,000 plus interest
at 9.75 percent. At December 31, 1996 and September 30, 1997, a balance of
$5,000 and $0 was due and payable within one year, respectively.

The Company has an obligation to a related party for the purchase of the
rights to the name "Regional Electric Systems" requiring monthly payments of
principal and interest, at 8.25 percent, of $6,000 through May 1999. At December
31, 1996 and September 30, 1997, a balance of $60,000 and $63,000 was due and
payable within one year, respectively.

The maturities of the line of credit and long-term debt as of September 30,
1997, are as follows (in thousands):

<TABLE>
<S> <C>
Year ending September 30 --
1998................................................... $643
1999................................................... 143
2000................................................... 26
----
$812
====
</TABLE>

6. LEASES:

Obligations Under Capital Leases

The Company leases certain vehicles and construction equipment under leases
classified as capital leases. The construction equipment lease is with an
officer of the Company. The following is a schedule showing the future minimum
lease payments under capital leases by years and the present value of the
minimum lease payments as of September 30, 1997 (in thousands):

<TABLE>
<S> <C>
Year ending September 30 --
1998...................................................... $212
1999...................................................... 103
2000...................................................... 5
----
Total minimum lease payments...................... 320
Less -- Amounts representing interest....................... 17
----
Present value of minimum lease payments........... $303
====
</TABLE>

Operating Leases

The Company leases a building which is owned by the principal stockholder
of the Company. The lease is classified as an operating lease and expires on
October 31, 1997. The rent paid under this related-party lease was approximately
$156,000, $156,000 and $156,000 for the years ended December 31, 1995, 1996 and
September 30, 1997, respectively. The Company also leases a building which is
owned by an officer of the Company. This lease commenced during 1996. The lease
is classified as an operating lease and expires on May 31, 1999. The Company has
an option to renew the lease for one additional two-year term at a reduced

F-44
<PAGE> 120

MILLS ELECTRICAL CONTRACTORS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

lease rate. The rent paid under this related-party lease was approximately
$60,000 for the year ended September 30, 1997. The Company also rents certain
office equipment and warehouse space under several operating lease agreements
which vary in length and terms. The rent paid under these lease agreements was
approximately $8,000, $45,000 and $49,000 for the years ended December 31, 1995,
1996 and September 30, 1997, respectively.

Future minimum lease payments under these noncancelable operating leases
are as follows (in thousands):

<TABLE>
<S> <C>
Year Ended September 30 --
1998................................................... $138
1999................................................... 67
2000................................................... 38
Thereafter............................................. 71
----
$314
====
</TABLE>

7. RELATED-PARTY TRANSACTIONS:

The Company has entered into operating and capital lease transactions with
related parties as discussed in Note 6.

CIMA Services, Inc. (CIMA) and RES are related parties due to the ownership
by the Company's president of 49% and 1%, respectively, of these companies'
capital stock.

The related-party transactions and balances are as follows (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
--------------- -------------
1995 1996 1997
------ ------ -------------
<S> <C> <C> <C>
Accounts receivable from CIMA.......................... $ 2 $ 208 $ 632
Accounts receivable from sale of subsidiary stock...... -- -- 71
Interest receivable from CIMA and officer.............. 1 -- --
Accounts payable to CIMA............................... 23 633 --
Contract revenues from CIMA............................ 1,116 1,257 1,368
Purchases of material from CIMA........................ 812 1,080 2,062
Interest income received from CIMA and officers........ 38 14 1
Minority interest in net income of RES................. -- 3 (2)
Liability attributable to minority interest............ -- 3 75
Capital lease obligation to an officer of RES.......... -- 116 82
Payments under capital lease obligation with an officer
of RES............................................... -- 31 54
Payments under operating leases with officers of the
Company.............................................. 26 232 270
</TABLE>

Additionally, the Company has guaranteed an officer note at a bank with an
outstanding balance of approximately $125,000 at September 30, 1997. The
Company's property and equipment has been cross-pledged as collateral.

8. EMPLOYEE BENEFIT PLAN:

The Company has a defined contribution profit-sharing plan that covers all
employees meeting certain age and service requirements. Company contributions to
the plan are at the discretion of the board of directors. Contributions to the
plan charged to operations in 1994, 1995, 1996 and the year ended September 30,
1997 were $186,000, $450,000, $789,000 and $789,000, respectively.

F-45
<PAGE> 121

MILLS ELECTRICAL CONTRACTORS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

9. FINANCIAL INSTRUMENTS:

The Company's financial instruments consist of cash and cash equivalents,
accounts receivable, accounts payable, a line of credit, notes payable and
long-term debt. The Company believes that the carrying values of these
instruments on the accompanying consolidated balance sheets approximates their
fair values.

10. COMMITMENTS AND CONTINGENCIES:

Litigation

Insurance

The Company carries a broad range of insurance coverage, including workers'
compensation, business auto liability, commercial general liability, property
and an umbrella policy. The Company has not incurred significant uninsured
losses on any of these items.

11. MAJOR CUSTOMERS AND RISK CONCENTRATION:

The Company had sales greater than 10 percent of total sales to three major
customers (comprising approximately 20%, 12% and 11% of total sales), two major
customers (comprising approximately 15% and 13% of total sales), two major
customers (comprising approximately 20% and 18% of total sales) and one major
customer (comprising approximately 32% of total sales) during the years ended
December 31, 1994, 1995, 1996 and September 1997, respectively.

In addition, the Company grants credit, generally without collateral, to
its customers, which are usually general contractors located primarily in the
Dallas-Fort Worth, Texas area. Consequently, the Company is subject to potential
credit risk related to changes in business and economic factors within the
Dallas-Fort Worth, Texas, area. However, management believes that its contract
acceptance, billing and collection policies are adequate to minimize the
potential credit risk.

Cash and Cash Equivalents

The Company routinely maintains cash balances in financial institutions in
excess of federally insured limits.

12. BACKCHARGE CLAIMS:

It is the Company's policy to recognize income from backcharge claims only
when a definitive agreement has been reached and collection is reasonably
assured. In December 1996, the Company reached a settlement on one of its
backcharge claims related to prior periods for approximately $856,000 which is
reflected in the accompanying consolidated statement of operations for the year
ended December 31, 1996, as an increase in revenues and as a component of other
receivables in the accompanying consolidated balance sheet at December 31, 1996.
This amount was collected in 1997.

F-46
<PAGE> 122

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To BW Consolidated, Inc. and Subsidiaries:

We have audited the accompanying consolidated balance sheets of BW
Consolidated, Inc., a Texas corporation, and Subsidiaries as of December 31,
1995 and 1996 and September 30, 1997, and the related consolidated statements of
operations, cash flows and stockholders' equity for each of the three years in
the period ended December 31, 1996 and for the year ended September 30, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of BW Consolidated, Inc. and
Subsidiaries as of December 31, 1995 and 1996 and September 30, 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1996 and for the year ended September 30, 1997, in
conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Houston, Texas
November 14, 1997

F-47
<PAGE> 123

BW CONSOLIDATED, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
------------------ SEPTEMBER 30,
1995 1996 1997
------- ------- -------------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $ 1,180 $ 507 $ 1,275
Accounts receivable --
Trade, net of allowance of $82, $119 and $124,
respectively......................................... 3,178 4,718 4,835
Retainage.............................................. 471 768 601
Other receivables...................................... 62 53 71
Notes receivable from stockholders........................ 42 -- --
Inventories, net of allowance of $24, $29 and $28,
respectively........................................... 461 557 541
Costs and estimated earnings in excess of billings........ 186 182 224
Prepaid expenses and other current assets................. 5 10 29
------- ------- -------
Total current assets.............................. 5,585 6,795 7,576
PROPERTY AND EQUIPMENT, net................................. 3,925 4,609 5,206
NOTE RECEIVABLE FROM STOCKHOLDERS, net of current portion... 470 -- --
OTHER ASSETS................................................ 21 27 49
------- ------- -------
Total assets...................................... $10,001 $11,431 $12,831
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt...................... $ 214 $ 94 $ 96
Accounts payable and accrued expenses..................... 2,318 2,131 2,400
Income taxes payable...................................... 130 166 --
Billings in excess of costs and estimated earnings........ 606 749 840
------- ------- -------
Total current liabilities......................... 3,268 3,140 3,336
------- ------- -------
LONG-TERM DEBT, net of current maturities................... 951 861 842
DEFERRED TAXES.............................................. 180 -- --
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY................ -- 209 1,302
STOCKHOLDERS' EQUITY:
Common stock, $1 par value, 2,000,000, 500,000 and 500,000
shares authorized, respectively; 31,598, 20,000 and
20,000 shares issued and outstanding, respectively..... 32 20 20
Additional paid-in capital................................ 566 205 205
Retained earnings......................................... 5,965 6,996 7,126
Treasury stock, 5,088 shares, at cost..................... (961) -- --
------- ------- -------
Total stockholders' equity........................ 5,602 7,221 7,351
------- ------- -------
Total liabilities and stockholders' equity........ $10,001 $11,431 $12,831
======= ======= =======
</TABLE>

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

F-48
<PAGE> 124

BW CONSOLIDATED, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)

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

F-49
<PAGE> 125

BW CONSOLIDATED, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, YEAR ENDED SEPTEMBER 30,
-------------------------- SEPTEMBER 30, -----------------
1994 1995 1996 1997 1996 1997
------ ------- ------- ------------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income..................................... $1,300 $ 2,034 $ 4,175 $ 3,122 $ 3,300 $ 2,247
Adjustments to reconcile net income to net cash
provided by operating activities --
Depreciation and amortization................ 292 329 426 534 296 404
Loss (gain) on sale of property and
equipment.................................. 9 (54) (17) (3) (19) (5)
Deferred tax benefit......................... -- -- (180) -- (180) --
Minority interest expense.................... -- -- 250 316 203 269
Changes in operating assets and
liabilities --
(Increase) decrease in --
Accounts receivable........................ (459) (244) (1,828) (663) (1,115) 50
Inventories................................ (7) 131 (96) 29 (109) 16
Costs and estimated earnings in excess of
billings on uncompleted contracts....... 80 (13) 4 156 (194) (42)
Prepaid expenses and other current
assets.................................. (3) 4 (5) (19) (5) (19)
Increase (decrease) in --
Accounts payable and accrued expenses...... (153) 141 (187) (140) 222 269
Billings in excess of costs and estimated
earnings on uncompleted contracts....... (51) 282 143 34 200 91
Other current liabilities.................. 34 41 36 (112) (18) (166)
------ ------- ------- ------- ------- -------
Net cash provided by operating
activities............................ 1,042 2,651 2,721 3,254 2,581 3,114
------ ------- ------- ------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment... 4 141 66 23 63 20
Stockholder receivable......................... -- (512) 512 -- 512 --
Other assets................................... 1 (3) (6) (31) 3 (22)
Additions of property and equipment............ (485) (1,001) (1,160) (1,068) (984) (892)
------ ------- ------- ------- ------- -------
Net cash used in investing activities... (480) (1,375) (588) (1,076) (406) (894)
------ ------- ------- ------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of short-term debt.................. 643 515 1,832 2,000 632 800
Borrowings of long-term debt................... -- -- 10 25 24 39
Repayments of short-term debt.................. (643) (515) (1,832) (2,000) (632) (800)
Repayments of long-term debt................... (377) (310) (219) (217) (200) (198)
Stockholder distributions...................... -- (32) (2,556) (2,451) (2,222) (2,117)
Minority interest contributions................ -- -- 85 935 85 935
Minority interest distributions................ -- -- (126) (165) (72) (111)
Purchase of treasury stock..................... -- (961) -- -- -- --
------ ------- ------- ------- ------- -------
Net cash used in financing activities... (377) (1,303) (2,806) (1,873) (2,385) (1,452)
------ ------- ------- ------- ------- -------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS.................................... 185 (27) (673) 305 (210) 768
CASH AND CASH EQUIVALENTS, beginning of period... 1,022 1,207 1,180 970 1,180 507
------ ------- ------- ------- ------- -------
CASH AND CASH EQUIVALENTS, end of
period......................................... $1,207 $ 1,180 $ 507 $ 1,275 $ 970 $ 1,275
====== ======= ======= ======= ======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for --
Interest..................................... $ 137 $ 119 $ 97 $ 108 $ 73 $ 84
Income taxes................................. 744 1,197 132 202 128 198
</TABLE>

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

F-50
<PAGE> 126

BW CONSOLIDATED, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE INFORMATION)

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
---------------- PAID-IN RETAINED TREASURY STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS STOCK EQUITY
------- ------ ---------- -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1993........ 31,151 $ 31 $ 512 $ 2,663 $ -- $ 3,206
Sale of common stock............ 261 1 30 -- -- 31
Net income...................... -- -- -- 1,300 -- 1,300
------- ---- ----- ------- ----- -------
BALANCE, December 31, 1994........ 31,412 32 542 3,963 -- 4,537
Sale of common stock............ 186 -- 24 -- -- 24
Net income...................... -- -- -- 2,034 -- 2,034
Dividends paid.................. -- -- -- (32) -- (32)
Purchase of treasury stock...... -- -- -- -- (961) (961)
------- ---- ----- ------- ----- -------
BALANCE, December 31, 1995........ 31,598 32 566 5,965 (961) 5,602
Shares retired upon merger...... (26,510) (27) 154 (127) -- --
Treasury stock canceled......... (5,088) (5) (515) (441) 961 --
Shares issued................... 1,000 10 -- (10) -- --
Stock split 20 to 1 and
recapitalization (Note 1).... 19,000 10 -- (10) -- --
Distributions to stockholders... -- -- -- (2,556) -- (2,556)
Net income...................... -- -- -- 4,175 -- 4,175
------- ---- ----- ------- ----- -------
BALANCE, December 31, 1996........ 20,000 20 205 6,996 -- 7,221
Distributions to stockholders
(unaudited).................. -- -- -- (2,117) -- (2,117)
Net income (unaudited).......... -- -- -- 2,247 -- 2,247
------- ---- ----- ------- ----- -------
BALANCE, September 30, 1997....... 20,000 $ 20 $ 205 $ 7,126 $ -- $ 7,351
======= ==== ===== ======= ===== =======
</TABLE>

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

F-51
<PAGE> 127

BW CONSOLIDATED, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. BUSINESS, ORGANIZATION AND BASIS OF PRESENTATION:

BW Consolidated, Inc. (the Company), a Nevada S Corporation, and
Subsidiaries, two of which are Texas limited partnerships, focuses on providing
electrical system installation and repair services primarily for residential and
mid-sized to large commercial facilities. The Company performs the majority of
its contract work under fixed-price contracts with contract terms generally
ranging from three to 24 months. The Company performs the majority of its work
in Texas.

In January 1996, the original parent company, Bexar Enterprises, Inc., a
Nevada C Corporation, was merged with BW Investments, Inc., Bexar Electric
Company, Inc., and Calhoun Electric Company, Inc., all wholly owned
subsidiaries. The survivor of the merger was Calhoun Electric Company, Inc., a
Texas S Corporation, and its 90 percent owned subsidiary, Bexar Electric
Company, Ltd. (BEC), a Texas limited partnership. The 10 percent minority
interest in the partnership was purchased by employees of Bexar Electric
Company, Ltd. An additional 10 percent minority interest in Bexar Electric
Company, Ltd. (a Texas limited partnership), was purchased by employees of the
Company in January 1997.

In May 1997, Calhoun Electric Company, Inc., a Texas S Corporation,
transferred its assets and liabilities to Calhoun Electric Company, Ltd. (CEC),
a Texas limited partnership. Subsequent to this transfer, Calhoun Electric
Company, Inc., a Texas S Corporation, reorganized as a Nevada S Corporation and
changed its name to BW Consolidated, Inc.

The accompanying financial statements present BW Consolidated, Inc. (and
its predecessors), together with its majority-owned subsidiaries on a
consolidated basis. All significant intercompany activity has been eliminated in
consolidation. Additionally, minority interests in subsidiaries of BW
Consolidated, Inc. have been reflected as "Minority Interest in Consolidated
Subsidiary" in the accompanying consolidated financial statements.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Interim Financial Information

F-52
<PAGE> 128

BW CONSOLIDATED, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Cash and Cash Equivalents

The Company considers all highly liquid debt instruments with an original
maturity of three months or less when purchased to be cash equivalents.

Supplemental Cash Flow Information (in thousands)

The Company had the following noncash investing and financing activities
for the years ended December 31, 1994, 1995 and 1996, for the year ended
September 30, 1997, and the nine months ended September 30, 1996 and 1997.

<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
SEPTEMBER 30, SEPTEMBER 30,
------------- --------------
1994 1995 1996 1997 1996 1997
---- ---- ---- ------------- ----- ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Property and equipment purchased with
direct financing......................... $-- $25 $-- $141 $-- $141
Like-kind exchange of equipment............ -- 15 6 6 -- 6
Employee Stock Option Plan contribution
through stock distribution............... 30 25 -- -- -- --
Exchange of property and equipment for note
receivable............................... -- -- -- 18 -- 18
</TABLE>

Inventories

Inventories consist of parts and supplies held for use in the ordinary
course of business and are stated at the lower of cost or market using the
average cost method.

Property and Equipment

Revenue Recognition

The Company recognizes revenue when services are performed except when work
is being performed under a construction contract. Revenues from construction
contracts are recognized on the percentage-of-completion method measured by the
percentage of costs incurred to date to total estimated costs for each contract.
Contract costs include all direct material and labor costs and those indirect
costs related to contract performance, such as indirect labor, supplies, tools,
repairs and depreciation costs. Provisions for the total estimated losses on
uncompleted contracts are made in the period in which such losses are
determined. Changes in job performance, job conditions, estimated profitability
and final contract settlements may result in revisions to costs and income and
their effects are recognized in the period in which the revisions are
determined. An amount equal to contract costs attributable to claims is included
in revenues when realization is probable and the amount can be reliably
estimated.

F-53
<PAGE> 129

BW CONSOLIDATED, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The current asset, "Costs and estimated earnings in excess of billings on
uncompleted contracts," represents revenues recognized in excess of amounts
billed. The current liability, "Billings in excess of costs and estimated
earnings on uncompleted contracts,"' represents billings in excess of revenues
recognized.

Warranty Costs

The Company warrants labor for the first year after installation of new
electrical systems and servicing of existing electrical systems. A reserve for
warranty costs is recorded based upon the historical level of warranty claims
and management's estimate of future costs.

Provision for Doubtful Accounts

The Company provides an allowance for doubtful accounts based upon the
specific identification of accounts receivable where collection is no longer
probable.

Income Taxes

The Company has elected S Corporation status effective January 1, 1996, as
defined by the Internal Revenue Code, whereby the Company itself is not subject
to taxation for federal purposes. Under S Corporation status, the stockholders
report their share of the Company's taxable earnings or losses in their personal
tax returns. Consequently, the accompanying financial statements of the Company
do not include a provision for current or deferred income taxes (see Note 7).
The Company intends to terminate its S Corporation status concurrently with the
effective date of the Offerings (see Note 1).

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions by
management in determining the reported amounts of assets and liabilities,
disclosures of contingent liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. Reference is made to the
"Revenue Recognition" section of this footnote and Note 10 for discussion of
significant estimates reflected in the Company's financial statements.

New Accounting Pronouncements

F-54
<PAGE> 130

BW CONSOLIDATED, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

3. PROPERTY AND EQUIPMENT:

Property and equipment consists of the following (in thousands):

<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31,
USEFUL LIVES ----------------- SEPTEMBER 30,
IN YEARS 1995 1996 1997
------------ ------- ------- -------------
<S> <C> <C> <C> <C>
Transportation equipment................. 10 $ 2,783 $ 3,446 $ 3,953
Machinery and equipment.................. 5-10 709 673 684
Land and buildings....................... 40 2,592 2,592 2,941
Furniture, fixtures and office
equipment.............................. 3-15 680 926 965
------- ------- -------
6,764 7,637 8,543
Less -- Accumulated depreciation and
amortization........................... (2,839) (3,028) (3,337)
------- ------- -------
Property and equipment, net.... $ 3,925 $ 4,609 $ 5,206
======= ======= =======
</TABLE>

4. DETAIL OF CERTAIN CONSOLIDATED BALANCE SHEET ACCOUNTS:

Activity in the Company's allowance for doubtful accounts receivable
consists of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
------------ SEPTEMBER 30,
1995 1996 1997
---- ---- -------------
<S> <C> <C> <C>
Balance at beginning of period.......................... $ 80 $ 82 $105
Additions to costs and expenses......................... 27 127 49
Deductions for uncollectible receivables written off and
recoveries............................................ (25) (90) (30)
---- ---- ----
Balance at end of period.............................. $ 82 $119 $124
==== ==== ====
</TABLE>

Accounts payable and accrued expenses consist of the following (in
thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
---------------- SEPTEMBER 30,
1995 1996 1997
------ ------ -------------
<S> <C> <C> <C>
Accounts payable, trade.............................. $1,134 $1,191 $1,441
Wages................................................ 700 407 470
Insurance............................................ 238 146 83
Contract costs....................................... 141 207 208
Warranty reserve..................................... 83 99 97
Other................................................ 22 81 101
------ ------ ------
Total accounts payable and accrued
expenses................................. $2,318 $2,131 $2,400
====== ====== ======
</TABLE>

F-55
<PAGE> 131

BW CONSOLIDATED, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Electrical system installation contracts in progress are as follows (in
thousands):

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------------ -------------
1995 1996 1997
------- ------- -------------
<S> <C> <C> <C>
Amended contract amount............................ $15,945 $18,918 $16,983
Revenue recognized to date......................... 7,953 11,105 8,663
------- ------- -------
Unearned contract amount, backlog.................. $ 7,992 $ 7,813 8,320
======= ======= =======
Costs incurred on uncompleted contracts............ $ 5,647 $ 8,298 6,433
Estimated earnings................................. 2,306 2,807 2,230
------- ------- -------
Total contract revenue earned to date.... 7,953 11,105 8,663
Less -- Billings to date........................... 8,403 11,711 9,278
------- ------- -------
Net overbilled open contracts...................... (450) (606) (615)
Unbilled completed contracts....................... 30 39 (1)
------- ------- -------
$ (420) $ (567) $ (616)
======= ======= =======
Costs and estimated earnings in excess of
billings......................................... $ 186 $ 182 $ 224
Billings in excess of costs and estimated
earnings......................................... (606) (749) (840)
------- ------- -------
$ (420) $ (567) $ (616)
======= ======= =======
</TABLE>

5. LONG-TERM DEBT:

Long-term debt consists of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
-------------- -------------
1995 1996 1997
------ ---- -------------
<S> <C> <C> <C>
Note payable to a bank, interest at prime plus .75
percent (prime rate at 8.50 percent at September 30,
1997, principal and interest due monthly of $10
maturing in March 2004, secured by certain real
estate.............................................. $ 678 $632 $586
Note payable to a corporation, interest at 7 percent,
principal and interest due monthly of $2 maturing in
July 2004, secured by certain real estate........... 140 128 --
Note payable to a bank, interest at prime, principal
and interest due monthly of $3, maturing in November
2003, secured by certain real estate................ 205 190 179
Note payable to a bank, interest at prime plus .75
percent, principal and interest due monthly of $2
maturing in February 2007, secured by real estate... -- -- $173
Notes payable to manufacturers, interest at 7.9
percent, principal and interest due monthly of $3,
maturing in December 1996 and May 1997, secured by
certain equipment................................... 43 5 --
Notes payable to a bank, interest at 8.25 percent,
principal and interest due monthly of $6, maturing
in July and October 1996, secured by certain
vehicles and equipment.............................. 50 -- --
Various notes payable to a bank, interest ranging from
7.9 percent to 8.25 percent, principal and interest
due monthly of $7, maturing in July through November
1996, secured by certain vehicles, machinery and
office equipment.................................... 49 -- --
------ ---- ----
Total debt.................................. 1,165 955 938
Less -- current maturities............................ 214 94 96
------ ---- ----
Long-term debt less current maturities................ $ 951 $861 $842
====== ==== ====
</TABLE>

F-56
<PAGE> 132

BW CONSOLIDATED, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The maturities of long-term debt at September 30, 1997, are as follows (in
thousands):

<TABLE>
<S> <C>
1998........................................................ $ 96
1999........................................................ 112
2000........................................................ 116
2001........................................................ 126
2002........................................................ 138
Thereafter.................................................. 350
----
$938
====
</TABLE>

The Company currently has two lines of credit established. The first line
of credit for $750,000, secured by BEC accounts receivable, inventory and
equipment, requires monthly payments of interest at 1 percent over the prime
rate. At December 31, 1995 and 1996 and at September 30, 1997, respectively,
there were no advances outstanding against the line and the full $750,000 was
available. The note maturity date is April 1998. The second line of credit for
$500,000, secured by CEC accounts receivable, inventory, equipment and trucks,
requires monthly payments of interest at 1/2 percent over the prime rate. During
the 1997, this line of credit agreement was renewed and was increased from
$300,000 to $500,000. At December 31, 1995 and 1996, respectively, there were no
advances outstanding against the line and the full $300,000 was available. At
September 30, 1997, there was no advance outstanding against the line and the
full $500,000 was available. The note maturity date is May 1998.

The Company had an irrevocable letter of credit from a bank in the amount
of $199,000 in favor of the Company's workers' compensation carrier. The
expiration date was July 1, 1997. Security for this letter of credit consisted
of the assignment of $125,000 in certificates of deposit and a second lien on
real estate of the Company, and the personal guarantee of the major stockholder.

6. LEASES:

The Company leased undeveloped property from the majority stockholder for
storage of equipment and trailers. The lease was entered into on July 1, 1994,
and expired on June 30, 1997, and was on a month-to-month basis. The
consideration for this lease was $8,000, $17,000, $19,000 and $10,000 in 1994,
1995, 1996 and the year ended September 30, 1997 respectively.

7. INCOME TAXES (IN THOUSANDS):

Federal and state income taxes are as follows:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------
1994 1995
---- ------
<S> <C> <C>
Federal --
Current.................................................. $663 $1,118
Deferred................................................. 26 (45)
State --
Current.................................................. 83 157
Deferred................................................. -- 8
---- ------
$772 $1,238
==== ======
</TABLE>

F-57
<PAGE> 133

BW CONSOLIDATED, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Actual income tax expense differs from income tax expense computed by
applying the U.S. federal statutory corporate rate of 34% to income before
provision for income taxes as follows:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------
1994 1995
---- ------
<S> <C> <C>
Provision at the statutory rate............................ $704 $1,112
State income tax, net of benefit for federal deduction..... 54 107
Other...................................................... 14 19
---- ------
$772 $1,238
==== ======
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------
<S> <C>
Deferred income tax assets --
Allowance for bad debt.................................... $ 4
Accrued liabilities and expenses.......................... 122
------
Total deferred income tax asset................... 126
------
Deferred income tax liabilities --
Property and equipment.................................... (306)
------
Total deferred income tax liability............... (306)
------
Net deferred income tax liability................. $ (180)
======
</TABLE>

The net deferred tax assets and liabilities are comprised of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------
<S> <C>
Deferred tax assets --
Current................................................... $ 126
Long-term................................................. --
-----
Total............................................. $ 126
=====
Deferred tax liabilities --
Current................................................... $ --
Long-term................................................. (306)
-----
Total............................................. $(306)
=====
</TABLE>

Effective January 1, 1996, the Company elected S Corporation status for
Calhoun Electric and partnership status for Bexar Electric. The Company will no
longer be directly responsible for any deferred tax liability which might exist.
The removal of the deferred tax liability which existed as of December 31, 1995,
is recognized in the 1996 consolidated statement of operations (see Note 2).

F-58
<PAGE> 134

BW CONSOLIDATED, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

8. RELATED-PARTY TRANSACTIONS:

Notes receivable from a stockholder consists of the following (in
thousands):

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------ -------------
1995 1996 1997
---- ---- -------------
<S> <C> <C> <C>
Note receivable, secured by a second lien on real estate,
interest at 7.5 percent, payable in 60 quarterly
installments of $3....................................... $107 $ -- $ --
Note receivable, unsecured, interest at 7.45 percent,
payments due annually in January of 15 percent of
principal plus accrued interest, balance due in January
2000..................................................... 405 -- --
---- ---- ------
Total notes receivable from a stockholder........ 512 -- --
Current portion............................................ 42 -- --
---- ---- ------
Noncurrent portion......................................... $470 $ -- $ --
==== ==== ======
</TABLE>

The Company recognized interest income from a stockholder of $--, $30,000,
$13,000 and $5,000 in 1994, 1995, 1996 and for the year ended September 30,
1997, respectively.

9. EQUITY:

In 1991, the Company adopted an employee stock ownership plan (ESOP) for
the benefit of the Company's employees. The plan covered substantially all
employees of the Company. The Company's contributions to the plan are at the
discretion of the board of directors, but may not exceed the maximum allowable
deduction permitted under the Internal Revenue Code at the time of the
contribution. Under this ESOP plan, employees cannot make contributions to the
plan. The Company made a contribution of $35,000 and $25,000 in 1994 and 1995,
respectively. Effective December 8, 1995, the Company has requested and received
approval from the Internal Revenue Service to terminate the ESOP plan. In
accordance with the termination of the ESOP, the Company repurchased as treasury
stock 5,088 shares for $961,000.

In 1996, the Company sold a minority interest in the limited partnership of
Bexar Electric to certain employees of the Company. The minority interest is
considered a limited partner; the minority interest held 10 percent and 20
percent at December 31, 1996 and September 30, 1997, respectively.

10. FINANCIAL INSTRUMENTS:

The Company's financial instruments consist of cash and cash equivalents,
accounts receivable, notes receivable from stockholders, accounts payable, a
line of credit, notes payable and long-term debt. The Company believes that the
carrying value of these instruments on the accompanying consolidated balance
sheets approximates their fair value.

11. COMMITMENTS AND CONTINGENCIES:

Litigation

Insurance

The Company carries a broad range of insurance coverage, including business
auto liability, general liability and an umbrella policy. The Company has not
incurred significant uninsured losses on any of these items.

F-59
<PAGE> 135

BW CONSOLIDATED, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

12. MAJOR CUSTOMERS AND RISK CONCENTRATION:

The Company had sales of approximately 11 percent of total sales to one
major customer during the year ended December 31, 1996.

The Company had accounts receivable balances of approximately 15 percent
and 14 percent of total accounts receivable from two major customers as of
December 31, 1996, and approximately 10% due from one major customer for the
year ended September 30, 1997.

The Company had cash and cash equivalents in financial institutions which
exceeded the federally insured limits by $911,000, $269,000 and $858,000 at
December 31, 1995 and 1996, and September 30, 1997, respectively.

In addition, the Company grants credit, generally without collateral, to
its customers, which are primarily general contractors, located in Central and
South Texas. Consequently, the Company is subject to potential credit risk
related to changes in business and economic factors within the state of Texas.
However, management believes that its contract acceptance, billing and
collection policies are adequate to minimize the potential credit risk.

F-60
<PAGE> 136

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Muth Electric, Inc.:

We have audited the accompanying balance sheets of Muth Electric, Inc., a
South Dakota corporation, as of December 31, 1995 and 1996 and September 30,
1997, and the related statements of operations, cash flows and stockholder's
equity for each of the three years in the period ended December 31, 1996 and for
the year ended September 30, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Muth Electric, Inc., as of
December 31, 1995 and 1996 and September 30, 1997, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1996 and for the year ended September 30, 1997, in conformity with
generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Houston, Texas
November 14, 1997

F-61
<PAGE> 137

MUTH ELECTRIC, INC.

BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
---------------- SEPTEMBER 30,
1995 1996 1997
------ ------ -------------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $ 53 $ 82 $ 81
Accounts receivable --
Trade, net of allowance of $55, $63 and $91,
respectively......................................... 1,718 2,556 3,154
Retainage.............................................. 417 212 383
Related party.......................................... -- 74 246
Inventories............................................... 750 820 898
Costs and estimated earnings in excess of billings on
uncompleted contracts.................................. 545 436 675
Prepaid expenses and other current assets................. 150 140 135
------ ------ ------
Total current assets.............................. 3,633 4,320 5,572
PROPERTY AND EQUIPMENT, net................................. 946 1,140 1,133
------ ------ ------
Total assets...................................... $4,579 $5,460 $6,705
====== ====== ======

LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Notes payable............................................. $ -- $ 530 $ 540
Accounts payable and accrued expenses..................... 1,621 1,680 2,177
Billings in excess of costs and estimated earnings on
uncompleted contracts.................................. 305 180 543
------ ------ ------
Total current liabilities......................... 1,926 2,390 3,260
------ ------ ------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY:
Common stock, $100 par value, 3,000 shares authorized, 737
shares issued and outstanding.......................... 74 74 74
Retained earnings......................................... 2,579 2,996 3,371
------ ------ ------
Total stockholder's equity........................ 2,653 3,070 3,445
------ ------ ------
Total liabilities and stockholder's equity........ $4,579 $5,460 $6,705
====== ====== ======
</TABLE>

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

F-62
<PAGE> 138

MUTH ELECTRIC, INC.

STATEMENTS OF OPERATIONS
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
DECEMBER 31, YEAR ENDED ENDED SEPTEMBER 30,
--------------------------- SEPTEMBER 30, -------------------
1994 1995 1996 1997 1996 1997
------- ------- ------- ------------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
REVENUES........................ $13,466 $16,012 $16,830 $18,779 $12,517 $14,466
COST OF SERVICES (including
depreciation)................. 9,805 12,189 12,834 14,511 9,751 11,428
------- ------- ------- ------- ------- -------
Gross profit.......... 3,661 3,823 3,996 4,268 2,766 3,038
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES....... 2,678 2,923 2,957 3,074 2,147 2,264
------- ------- ------- ------- ------- -------
Income from
operations.......... 983 900 1,039 1,194 619 774
------- ------- ------- ------- ------- -------
OTHER INCOME (EXPENSE):
Interest income (expense)..... 6 11 (24) (27) (17) (20)
Other......................... (79) (95) 27 1 22 (4)
------- ------- ------- ------- ------- -------
Other income
(expense), net...... (73) (84) 3 (26) 5 (24)
------- ------- ------- ------- ------- -------
NET INCOME...................... $ 910 $ 816 $ 1,042 $ 1,168 $ 624 $ 750
======= ======= ======= ======= ======= =======
</TABLE>

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

F-63
<PAGE> 139

MUTH ELECTRIC, INC.

STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR NINE MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
---------------------- ------------- -------------
1994 1995 1996 1997 1996 1997
----- ----- ------ ------------- ----- -----
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income...................................... $ 910 $ 816 $1,042 $ 1,168 $ 624 $ 750
Adjustments to reconcile net income to net cash
provided by operating activities --
Depreciation and amortization................. 142 185 224 212 194 182
Loss (gain) on sale of property and
equipment................................... (6) 16 (28) (26) (16) (14)
Changes in operating assets and liabilities --
(Increase) decrease in --
Accounts receivable...................... (260) 70 (674) (1,209) (406) (941)
Inventories.............................. 31 (38) (70) (82) (66) (78)
Costs and estimated earnings in excess of
billings on uncompleted contracts...... 579 (291) 70 (125) (44) (239)
Prepaid expenses and other current
assets................................. (41) 5 10 (81) 96 5
Increase (decrease) in --
Accounts payable and accrued expenses.... (478) 525 59 451 105 497
Billings in excess of costs and estimated
earnings on uncompleted contracts...... (252) (95) (119) 197 47 363
----- ----- ------ ------- ----- -----
Net cash provided by operating
activities............................. 625 1,193 514 505 534 525
----- ----- ------ ------- ----- -----
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment.... 11 5 53 42 34 23
Additions of property and equipment............. (201) (560) (443) (226) (401) (184)
----- ----- ------ ------- ----- -----
Net cash used in investing activities.... (190) (555) (390) (184) (367) (161)
----- ----- ------ ------- ----- -----
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings or notes payable................. -- -- 530 300 240 10
Payments of long-term loan receivable........... 390 -- -- -- -- --
Distributions to stockholders................... (715) (722) (625) (625) (375) (375)
----- ----- ------ ------- ----- -----
Net cash used in financing activities.... (325) (722) (95) (325) (135) (365)
----- ----- ------ ------- ----- -----
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS..................................... 110 (84) 29 (4) 32 (1)
CASH AND CASH EQUIVALENTS, beginning of period.... 27 137 53 85 53 82
----- ----- ------ ------- ----- -----
CASH AND CASH EQUIVALENTS, end of period.......... $ 137 $ 53 $ 82 $ 81 $ 85 $ 81
===== ===== ====== ======= ===== =====
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for --
Interest...................................... $ 9 $ 4 $ 33 $ 36 $ 25 $ 28
</TABLE>

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

F-64
<PAGE> 140

MUTH ELECTRIC, INC.

STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE INFORMATION)

<TABLE>
<CAPTION>
COMMON STOCK TOTAL
---------------- RETAINED STOCKHOLDER'S
SHARES AMOUNT EARNINGS EQUITY
------ ------ -------- -------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1993......................... 737 $74 $2,290 $2,364
Distributions to stockholders.................... -- -- (715) (715)
Net income....................................... -- -- 910 910
--- --- ------ ------
BALANCE, December 31, 1994......................... 737 74 2,485 2,559
Distributions to stockholders.................... -- -- (722) (722)
Net income....................................... -- -- 816 816
--- --- ------ ------
BALANCE, December 31, 1995......................... 737 74 2,579 2,653
Distributions to stockholders.................... -- -- (625) (625)
Net income....................................... -- -- 1,042 1,042
--- --- ------ ------
BALANCE, December 31, 1996......................... 737 74 2,996 3,070
Distributions to stockholders (unaudited)........ -- -- (375) (375)
Net income (unaudited)........................... -- -- 750 750
--- --- ------ ------
BALANCE, September 30, 1997........................ 737 $74 $3,371 $3,445
=== === ====== ======
</TABLE>

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

F-65
<PAGE> 141

MUTH ELECTRIC, INC.

NOTES TO FINANCIAL STATEMENTS

1. BUSINESS AND ORGANIZATION:

Muth Electric, Inc. (the Company), a South Dakota corporation, focuses on
providing electrical system installation and repair services primarily for
residential and commercial facilities. The Company performs the majority of its
contract work under fixed-price contracts with contract terms generally ranging
from one to 12 months. The Company performs the majority of its work in South
Dakota and surrounding states.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Interim Financial Information

Cash and Cash Equivalents

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

Inventories

Inventories consist of parts and supplies held for use in the ordinary
course of business and are stated at the lower of cost or market using the
first-in, first-out (FIFO) method.

Property and Equipment

Property and equipment are stated at cost, and depreciation is computed
using the straight-line method over the estimated useful lives of the assets.
Leasehold improvements are capitalized and amortized over the estimated useful
life of the asset. Depreciation expense was approximately $142,000, $185,000,
$224,000 and $212,000 for the years ended December 31, 1994, 1995, 1996 and
September 30, 1997, respectively.

Revenue Recognition

The Company recognizes revenue when services are performed except when work
is being performed under a construction contract. Revenues from construction
contracts are recognized on the percentage-of-

F-66
<PAGE> 142

MUTH ELECTRIC, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

completion method measured by the percentage of costs incurred to date to total
estimated costs for each contract. Contract costs include all direct material
and labor costs and those indirect costs related to contract performance, such
as indirect labor and depreciation costs. Provisions for the total estimated
losses on uncompleted contracts are made in the period in which such losses are
determined. Changes in job performance, job conditions, estimated profitability
and final contract settlements may result in revisions to costs and income and
their effects are recognized in the period in which the revisions are
determined. An amount equal to contract costs attributable to claims is included
in revenues when realization is probable and the amount can be reliably
estimated.

Warranty Costs

The Company warrants labor and materials for the first year after
installation of new electrical systems. A reserve for warranty costs is recorded
based upon the historical level of warranty claims and management's estimate of
future costs.

Accounts Receivable and Provision for Doubtful Accounts

The Company provides an allowance for doubtful accounts based upon the
specific identification of accounts receivable where collection is no longer
probable, as well as provides a general reserve for potential unknown
adjustments.

Income Taxes

The Company has elected S Corporation status as defined by the Internal
Revenue Code, whereby the Company itself is not subject to taxation for federal
purposes. Under S Corporation status, the stockholders report their share of the
Company's taxable earnings or losses in their personal tax returns.
Consequently, the accompanying financial statements of the Company do not
include a provision for current or deferred income taxes. The Company intends to
terminate its S Corporation status concurrently with the effective date of the
Offerings.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions by
management in determining the reported amounts of assets and liabilities,
disclosures of contingent liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. Reference is made to the
"Revenue Recognition" section of this footnote and Note 9 for discussion of
significant estimates reflected in the Company's financial statements.

New Accounting Pronouncement

Effective November 1, 1996, the Company adopted SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." Accordingly, in the event that facts and circumstances indicate that
property and equipment or other assets may be impaired, an evaluation of

F-67
<PAGE> 143

MUTH ELECTRIC, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

recoverability would be performed. If an evaluation is required, the estimated
future undiscounted cash flows associated with the asset are compared to the
asset's carrying amount to determine if an impairment of such property is
necessary. The effect of any impairment would be to expense the difference
between the fair value of such property and its carrying value. Adoption of this
standard did not have a material effect on the financial position or results of
operations of the Company.

3. PROPERTY AND EQUIPMENT:

Property and equipment consists of the following (in thousands):

<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31, SEPTEMBER 30,
USEFUL LIVES ----------------- -------------
IN YEARS 1995 1996 1997
------------ ------- ------- -------------
<S> <C> <C> <C> <C>
Transportation equipment................... 5 $ 806 $ 868 $ 890
Machinery and equipment.................... 7 466 635 707
Leasehold improvements..................... 40 409 479 517
Furniture and fixtures..................... 5 403 425 444
------- ------- ------
2,084 2,407 2,558
Less -- Accumulated depreciation and
amortization............................. (1,138) (1,267) (1,425)
------- ------- ------
Property and equipment, net...... $ 946 $ 1,140 $1,133
======= ======= ======
</TABLE>

4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:

Activity in the Company's allowance for doubtful accounts receivable
consists of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------- -------------
1995 1996 1997
---- ---- -------------
<S> <C> <C> <C>
Balance at beginning of period........................... $60 $55 $63
Additions (deductions) to costs and expenses............. (5) 8 28
--- --- ---
Balance at end of period................................. $55 $63 $91
=== === ===
</TABLE>

Accounts payable and accrued expenses consist of the following (in
thousands):

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
---------------- -------------
1995 1996 1997
------ ------ -------------
<S> <C> <C> <C>
Accounts payable, trade................................ $ 652 $ 757 $1,258
Accrued compensation and benefits...................... 376 520 435
Other accrued expenses................................. 593 403 484
------ ------ ------
$1,621 $1,680 $2,177
====== ====== ======
</TABLE>

F-68
<PAGE> 144

MUTH ELECTRIC, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Electrical system installation contracts in progress are as follows (in
thousands):

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------------- -------------
1995 1996 1997
-------- ------- -------------
<S> <C> <C> <C>
Costs incurred on contracts in progress.............. $ 9,215 $ 7,159 $ 7,250
Estimated earnings, net of losses.................... 1,914 1,277 2,082
-------- ------- -------
11,129 8,436 9,332
Less -- Billings to date............................. (10,889) (8,180) (9,200)
-------- ------- -------
$ 240 $ 256 $ 132
======== ======= =======
Costs and estimated earnings in excess of billings on
uncompleted contracts.............................. $ 545 $ 436 $ 675
Less: Billings in excess of costs and estimated
earnings on uncompleted contracts.................. (305) (180) (543)
-------- ------- -------
$ 240 $ 256 $ 132
======== ======= =======
</TABLE>

5. LINE OF CREDIT:

The Company has three lines of credit with a bank totaling $1,140,000 of
available credit. The line of credit expires January 1998 and bears interest at
9 percent. The line of credit is unsecured. At September 30, 1997, borrowings
outstanding under the line of credit were $540,000.

6. EMPLOYEE BENEFIT PLAN:

The Company has a defined 401(k) contribution profit-sharing plan. The Plan
provides for the Company to match one-half of the first 5 percent contributed by
each employee. Total contributions by the Company under the plan were
approximately $83,000, $93,000 and $85,000 for the years ending December 31,
1995, 1996 and September 31, 1997 respectively. The Company may also make
discretionary contributions. The Company declared discretionary contributions of
$70,000 and $65,000 for the years ended December 31, 1995 and 1996,
respectively, and had accrued approximately $74,000 at December 31, 1996,
relating to all contributions to be funded in the subsequent fiscal year.

7. RELATED-PARTY TRANSACTIONS:

The Company periodically will obtain loans from the stockholder to meet
current cash needs. The Company will also loan out excess funds to the
stockholder. Loans neither to nor from the stockholder are charged interest. A
total of $172,000 was due from a stockholder at September 30, 1997.

The Company has an outstanding trade receivable in the amount of $74,000 to
a company owned by a member of the stockholder's family.

The Company also provides real estate management services to a company
owned by the stockholder.

The Company leases facilities from the Company's stockholder. The leases
expire annually. The rent paid under these related-party leases was
approximately $95,000, $118,000 and $115,000 for the years ended December 31,
1995 and 1996 and September 30, 1997, respectively.

8. FINANCIAL INSTRUMENTS:

The Company's financial instruments consist of cash and cash equivalents,
accounts receivable, accounts payable, lines of credit, notes payable and
long-term debt. The Company believes that the carrying value of these
instruments on the accompanying balance sheets approximates their fair value.

F-69
<PAGE> 145

MUTH ELECTRIC, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

9. COMMITMENTS AND CONTINGENCIES:

Litigation

Insurance

The Company carries a broad range of insurance coverage, including business
auto liability, general liability, workers compensation and an umbrella policy.
The Company has not incurred significant uninsured losses on any of these items.

The Company is self-insured for medical claims up to $20,000 per year per
covered individual. Claims in excess of these amounts are covered by a stop-loss
policy. The Company has recorded reserves for its portion of self-insured claims
based on estimated claims incurred through December 31, 1995 and 1996 or 1997.

10. MAJOR CUSTOMERS AND RISK CONCENTRATION:

The Company did not have sales greater than 10 percent of total sales to
any one customer during the years ended December 31, 1994, 1995 and 1996 or
September 30, 1997.

In addition, the Company grants credit, generally without collateral, to
its customers located primarily in the Midwest region. Consequently, the Company
is subject to potential credit risk related to changes in business and economic
factors within the Midwest. However, management believes that its contract
acceptance, billing and collection policies are adequate to minimize the
potential credit risk.

F-70
<PAGE> 146

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Pollock Electric Inc.:

We have audited the accompanying balance sheets of Pollock Electric Inc., a
Texas corporation, as of October 31, 1995 and 1996 and September 30, 1997, and
the related statements of operations, cash flows and stockholder's equity for
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Pollock Electric Inc. as of
October 31, 1995 and 1996 and September 30, 1997, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.

ARTHUR ANDERSEN LLP
Houston, Texas
November 14, 1997

F-71
<PAGE> 147

POLLOCK ELECTRIC INC.

BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)

ASSETS

<TABLE>
<CAPTION>
OCTOBER 31,
---------------- SEPTEMBER 30,
1995 1996 1997
------ ------ -------------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $ 302 $ 222 $ 347
Accounts receivable --
Trade, net of allowance of $96, $178 and $175,
respectively......................................... 2,204 4,030 4,536
Retainage.............................................. 99 566 765
Other receivables...................................... 40 4 13
Inventories, net.......................................... -- -- 18
Costs and estimated earnings in excess of billings on
uncompleted contracts.................................. 399 202 767
Deferred tax asset........................................ 161 263 343
Prepaid expenses and other current assets................. 49 115 198
------ ------ ------
Total current assets.............................. 3,254 5,402 6,987
PROPERTY AND EQUIPMENT, net................................. 280 341 379
------ ------ ------
Total assets...................................... $3,534 $5,743 $7,366
====== ====== ======

LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Notes payable and capital lease obligations............... $ 28 $ 67 $ 167
Advances outstanding under line of credit................. 625 1,350 1,610
Accounts payable and accrued expenses..................... 1,378 3,013 3,335
Income taxes payable...................................... 354 181 231
Billings in excess of costs and estimated earnings on
uncompleted contracts.................................. 234 317 889
Unearned revenue and other current liabilities............ 14 13 146
------ ------ ------
Total current liabilities......................... 2,633 4,941 6,378
------ ------ ------
CAPITAL LEASE OBLIGATIONS, net of current portion........... 75 75 71
DEFERRED TAX LIABILITY...................................... 20 20 21
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY:
Common stock, $1 par value, 1,000,000 shares authorized,
1,000 shares issued and outstanding.................... 1 1 1
Additional paid-in capital................................ 9 9 9
Retained earnings......................................... 796 697 886
------ ------ ------
Total stockholder's equity........................ 806 707 896
------ ------ ------
Total liabilities and stockholder's equity........ $3,534 $5,743 $7,366
====== ====== ======
</TABLE>

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

F-72
<PAGE> 148

POLLOCK ELECTRIC INC.

STATEMENTS OF OPERATIONS
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED ELEVEN MONTHS ENDED
OCTOBER 31, SEPTEMBER 30, SEPTEMBER 30,
----------------------- ------------- --------------------
1995 1996 1997 1996 1997
------- ------------- ------------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES............................... $13,002 $15,816 $20,291 $13,305 $17,780
COST OF SERVICES (including
depreciation)........................ 10,602 13,534 16,670 11,646 14,782
------- ------- ------- ------- -------
Gross profit................. 2,400 2,282 3,621 1,659 2,998
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES............................. 2,149 2,463 2,895 2,083 2,515
------- ------- ------- ------- -------
Income (loss) from
operations................. 251 (181) 726 (424) 483
------- ------- ------- ------- -------
OTHER INCOME (EXPENSE):
Interest expense..................... (77) (104) (172) (87) (155)
Other................................ -- 156 3 154 1
------- ------- ------- ------- -------
Other income (expense),
net........................ (77) 52 (169) 67 (154)
------- ------- ------- ------- -------
INCOME (LOSS) BEFORE INCOME TAXES...... 174 (129) 557 (357) 329
PROVISION (BENEFIT) FOR INCOME TAXES... 82 (30) 214 (104) 140
------- ------- ------- ------- -------
NET INCOME (LOSS)...................... $ 92 $ (99) $ 343 $ (253) $ 189
======= ======= ======= ======= =======
</TABLE>

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

F-73
<PAGE> 149

POLLOCK ELECTRIC INC.

STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
ELEVEN MONTHS
YEAR ENDED YEAR ENDED ENDED
OCTOBER 31, SEPTEMBER 30, SEPTEMBER 30,
--------------- ------------- ---------------
1995 1996 1997 1996 1997
----- ------- ------------- ------- -----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).......................... $ 92 $ (99) $ 343 $ (253) $ 189
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities --
Depreciation and amortization........... 64 107 131 83 107
Deferred income taxes................... (141) (103) (35) (146) (78)
Changes in operating assets and
liabilities --
(Increase) decrease in --
Accounts receivable................ 577 (2,257) (1,479) (1,492) (714)
Inventories........................ -- -- (18) -- (18)
Costs and estimated earnings in
excess of billings on uncompleted
contracts........................ (164) 197 (234) (134) (565)
Prepaid expenses and other current
assets........................... (30) (41) (78) (71) (83)
Increase (decrease) in --
Accounts payable and accrued
expenses......................... (546) 1,635 1,143 815 323
Income taxes payable............... 170 (172) 120 (243) 49
Billings in excess of costs and
estimated earnings on uncompleted
contracts........................ 9 83 19 636 572
Unearned revenue and other current
liabilities...................... (31) (1) 103 29 133
----- ------- ------- ------- -----
Net cash provided by (used in)
operating activities............. -- (651) 15 (776) (85)
----- ------- ------- ------- -----
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions of property and equipment........ (77) (154) (175) (112) (133)
----- ------- ------- ------- -----
Net cash used in investing
activities....................... (77) (154) (175) (112) (133)
----- ------- ------- ------- -----
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under line of credit........ 241 725 484 609 343
----- ------- ------- ------- -----
Net cash provided by financing
activities....................... 241 725 484 609 343
----- ------- ------- ------- -----
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS................................ 164 (80) 324 (279) 125
CASH AND CASH EQUIVALENTS, beginning of
period..................................... 138 302 23 302 222
----- ------- ------- ------- -----
CASH AND CASH EQUIVALENTS, end of period..... $ 302 $ 222 $ 347 $ 23 $ 347
===== ======= ======= ======= =====
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for --
Interest................................ $ 77 $ 104 $ 171 $ 88 $ 155
Income taxes............................ 21 245 38 245 38
</TABLE>

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

F-74
<PAGE> 150

POLLOCK ELECTRIC INC.

STATEMENTS OF STOCKHOLDER'S EQUITY
(IN THOUSANDS, EXCEPT SHARE INFORMATION)

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
--------------- PAID-IN RETAINED STOCKHOLDER'S
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------ ------ ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, October 31, 1994.................... 1,000 $ 1 $ 9 $ 704 $ 714
Net income................................. -- -- -- 92 92
----- --- --- ------ ------
BALANCE, October 31, 1995.................... 1,000 1 9 796 806
Net income................................. -- -- -- (99) (99)
----- --- --- ------ ------
BALANCE, October 31, 1996.................... 1,000 1 9 697 707
Net income (unaudited)..................... -- -- -- 189 189
----- --- --- ------ ------
BALANCE, September 30, 1997.................. 1,000 $ 1 $ 9 $ 886 $ 896
===== === === ====== ======
</TABLE>

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

F-75
<PAGE> 151

POLLOCK ELECTRIC INC.

NOTES TO FINANCIAL STATEMENTS

1. BUSINESS AND ORGANIZATION:

Pollock Electric Inc., a Texas corporation (the Company), provides
electrical system installation, data and fiber optic cabling installation and
repair services primarily for mid-sized to large commercial facilities. The
Company performs the majority of its contract work under fixed-price contracts,
with contract terms generally ranging from one to 12 months. The Company
performs the majority of its work in the commercial and industrial markets in
Harris County, Texas, and surrounding areas.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Interim Financial Information

The interim financial statements for the eleven months ended September 30,
1996 and 1997, are unaudited and have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of the
Company's management, the unaudited interim financial statements contain all
adjustments (consisting of normal recurring adjustments) considered necessary
for a fair presentation. The results of operations for the interim periods are
not necessarily indicative of the results for the entire fiscal year.

Cash and Cash Equivalents

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

Property and Equipment

Property and equipment are stated at cost, and depreciation is computed
using the straight-line method over the estimated useful lives of the assets.
Leasehold improvements are capitalized and amortized over the lesser of the life
of the lease or the estimated useful life of the asset. Depreciation expense was
$64,144, $107,242 and $131,190 for the years ended October 31, 1995 and 1996 and
September 30, 1997, respectively.

Revenue Recognition

F-76
<PAGE> 152

POLLOCK ELECTRIC INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

estimated losses on uncompleted contracts are made in the period in which such
losses are determined. Changes in job performance, job conditions, estimated
profitability and final contract settlements may result in revisions to costs
and income and their effects are recognized in the period in which the revisions
are determined. An amount equal to contract costs attributable to claims is
included in revenues when realization is probable and the amount can be
reasonably estimated.

Warranty Costs

For certain contracts, the Company warrants labor and materials for the
first year after installation of new electrical systems. The Company generally
warrants labor for one year after servicing existing electrical systems. A
reserve for warranty costs is recorded based upon the historical level of
warranty claims and management's estimate of future costs.

Accounts Receivable and Provision for Doubtful Accounts

Accounts receivable at October 31, 1995 and 1996 and September 30, 1997,
include immaterial amounts of claims and unapproved change orders, however, the
Company generally does not recognize change orders until they are approved.

The Company provides an allowance for doubtful accounts based upon a
percentage of gross sales revenue. In addition, the Company reserves for
specific accounts when collection of such accounts is no longer probable.

Income Taxes

The Company follows the asset and liability method of accounting for income
taxes in accordance with Statement of Financial Accounting Standards (SFAS) No.
109. Under this method, deferred tax assets and liabilities are recorded for
future tax consequences of temporary differences between the financial reporting
and tax bases of assets and liabilities, and are measured using the enacted tax
rates and laws.

Use of Estimates

New Accounting Pronouncement

F-77
<PAGE> 153

POLLOCK ELECTRIC INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

3. PROPERTY AND EQUIPMENT:

Property and equipment consists of the following (in thousands):

<TABLE>
<CAPTION>
ESTIMATED OCTOBER 31, SEPTEMBER 30,
USEFUL LIVES -------------- -------------
IN YEARS 1995 1996 1997
------------ ----- ----- ----
<S> <C> <C> <C> <C>
Transportation equipment................. 4-5 $ 95 $ 132 $ 143
Machinery and equipment.................. 5-7 221 267 331
Computer and telephone equipment......... 5 161 201 259
Leasehold improvements................... 5-39 71 107 119
Furniture and fixtures................... 5-7 15 24 24
----- ----- -----
563 731 876
Less -- Accumulated depreciation and
amortization........................... (283) (390) (497)
----- ----- -----
Property and equipment, net.... $ 280 $ 341 $ 379
===== ===== =====
</TABLE>

4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:

Activity in the Company's allowance for doubtful accounts receivable
consists of the following (in thousands):

<TABLE>
<CAPTION>
OCTOBER 31, SEPTEMBER 30,
------------ -------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of period.......................... $ 68 $ 96 $178
Additions to costs and expenses......................... 59 108 26
Deductions for uncollectible receivables written off and
recoveries............................................ (31) (26) (29)
---- ---- ----
Balance at end of period................................ $ 96 $178 $175
==== ==== ====
</TABLE>

Accounts payable and accrued expenses consist of the following (in
thousands):

<TABLE>
<CAPTION>
OCTOBER 31, SEPTEMBER 30,
---------------- -------------
1995 1996 1997
------ ------ ----
<S> <C> <C> <C>
Accounts payable, trade.............................. $ 944 $2,553 $2,859
Accrued compensation and benefits.................... 301 344 302
Other accrued expenses............................... 133 116 174
------ ------ ------
$1,378 $3,013 $3,335
====== ====== ======
</TABLE>

F-78
<PAGE> 154

POLLOCK ELECTRIC INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Electrical system installation contracts in progress are as follows (in
thousands):

<TABLE>
<CAPTION>
OCTOBER 31, SEPTEMBER 30,
------------------ -------------
1995 1996 1997
------- ------- -------------
<S> <C> <C> <C>
Costs incurred on contracts in progress............ $ 1,300 $ 6,592 $ 9,484
Estimated earnings, net of losses.................. 239 742 1,748
------- ------- --------
1,539 7,334 11,232
Less -- Billings to date........................... (1,374) (7,449) (11,354)
------- ------- --------
$ 165 $ (115) $ (122)
======= ======= ========
Costs and estimated earnings in excess of billings
on uncompleted contracts......................... $ 399 $ 202 $ 767
Less -- Billings in excess of costs and estimated
earnings on uncompleted contracts................ (234) (317) (889)
------- ------- --------
$ 165 $ (115) $ (122)
======= ======= ========
</TABLE>

5. LINE OF CREDIT:

The Company has a $2,500,000 line of credit with a bank. At October 31,
1995 and 1996 and September 30, 1997, unpaid borrowings were $625,000,
$1,350,000 and $1,610,000, respectively. The line of credit expires February 28,
1998, and bears interest at the bank's prime lending rate plus 1 percent. The
line of credit is personally guaranteed by Jon Pollock, sole stockholder and
president of the Company, and is secured by all accounts, contract rights,
chattel paper, instruments, general intangibles, rights to payments of any kind,
all interest of the Company in any goods, and a blanket lien of all property and
equipment. The borrowing base is limited to 75 percent of eligible accounts
receivable that are outstanding less than 60 days from the invoice date.

Interest is computed monthly on the unpaid balance and is payable monthly.
The Company has restrictive and various financial covenants with which the
Company was in compliance at September 30, 1997.

6. LEASES:

The Company leases its office space from its sole stockholder and president
under a lease agreement with a primary lease term of one year beginning November
15, 1991. At the expiration of the primary lease term, the Company exercised its
option to extend the lease for an additional five-year period. Effective
November 1, 1995, the lease agreement was modified to include additional office
space. The basic rent was increased to $3,000 per month, and the expiration date
was extended to November 30, 1998.

In addition to the basic lease cost, the Company must pay insurance, actual
taxes, maintenance and other operating costs. The rent paid under this
related-party lease was approximately $20,000, $36,000 and $36,000 for the years
ended October 31, 1995 and 1996 and September 30, 1997, respectively.

Future minimum lease payments under this noncancelable operating lease are
as follows (in thousands):

<TABLE>
<CAPTION>
OCTOBER 31, SEPTEMBER 30,
----------- -------------
<S> <C> <C>
1997............................................. $36 $--
1998............................................. 36 36
1999............................................. 3 6
--- ---
$75 $42
=== ===
</TABLE>

F-79
<PAGE> 155

POLLOCK ELECTRIC INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Certain vehicles and equipment have been leased under terms that constitute
capital leases. Accordingly, the costs of the assets (the lower of the cash
purchase price or the present value of the future minimum lease payments) were
recorded as an addition to property and the related liabilities were recorded as
lease obligations. The assets are amortized using the straight-line method, and
interest expense is recorded on the basis of the outstanding lease obligation.

The net present value of future minimum lease payments under the capital
leases as recorded in short-term and long-term debt at October 31, 1996 and
September 30, 1997, are as follows (in thousands):

<TABLE>
<S> <C>
Year ending October 31 --
1997...................................................... $ 54
1998...................................................... 51
1999...................................................... 32
----
Total lease payments........................................ 137
Less -- Amounts representing interest....................... (16)
----
Present value of minimum lease payments..................... $121
====

Year ending September 30 --
1998...................................................... $ 71
1999...................................................... 54
2000...................................................... 20
2001...................................................... 7
----
Total lease payments........................................ 152
Less -- Amounts representing interest....................... (19)
----
Present value of minimum lease payments..................... $133
====
</TABLE>

7. INCOME TAXES:

Federal and state income taxes are as follows (in thousands):

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
OCTOBER 31, SEPTEMBER 30,
-------------- -------------
1995 1996 1997
----- ----- -------------
<S> <C> <C> <C>
Federal --
Current..................................... $ 259 $ 72 $ 318
Deferred.................................... (187) (99) (122)
State --
Current..................................... 35 10 39
Deferred.................................... (25) (13) (21)
----- ----- -----
$ 82 $ (30) $ 214
===== ===== =====
</TABLE>

Actual income tax expense differs from income tax expense computed by
applying the U.S. federal statutory corporate rate of 35 percent to income
(loss) for income taxes as follows (in thousands):

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
OCTOBER 31, SEPTEMBER 30,
-------------- -------------
1995 1996 1997
----- ----- -------------
<S> <C> <C> <C>
Income tax expense (benefit) at the statutory
rate........................................ $ 61 $ (45) $ 194
Increase (decrease) resulting from --
State income taxes, net of related tax
effect................................... 6 (2) 12
Nondeductible expenses...................... 15 17 8
----- ----- -----
$ 82 $ (30) $ 214
===== ===== =====
</TABLE>

F-80
<PAGE> 156

POLLOCK ELECTRIC INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Deferred income taxes result from temporary differences in the recognition
of income and expenses for financial reporting purposes and for tax purposes.
The tax effects of these temporary differences, representing deferred tax assets
and liabilities, result principally from the following (in thousands):

<TABLE>
<CAPTION>
OCTOBER 31,
-------------- SEPTEMBER 30,
1995 1996 1997
----- ----- -------------
<S> <C> <C> <C>
Deferred income tax assets --
Bad debt reserve.................................... $ 42 $ 51 $ 53
Warranty reserve.................................... 28 44 49
Contracts........................................... 51 50 75
Accrued expenses.................................... 40 118 166
----- ----- -----
Total deferred income tax assets............ 161 263 343
----- ----- -----
Deferred income tax liabilities --
Property and equipment.............................. (17) (17) (52)
State taxes......................................... (1) (4) (4)
Contracts........................................... (116) (103) (208)
----- ----- -----
Total deferred income tax liabilities....... (134) (124) (264)
----- ----- -----
Total deferred income tax assets............ $ 27 $ 139 $ 79
===== ===== =====
</TABLE>

The net deferred tax assets and liabilities are comprised of the following
(in thousands):

<TABLE>
<CAPTION>
OCTOBER 31,
-------------- SEPTEMBER 30,
1995 1996 1997
----- ----- -------------
<S> <C> <C> <C>
Deferred tax assets --
Current............................................. $ 161 $ 263 $ 343
Long-term........................................... -- -- --
----- ----- -----
Total....................................... 161 263 343
----- ----- -----
Deferred tax liabilities --
Current............................................. (114) (104) (243)
Long-term........................................... (20) (20) (21)
----- ----- -----
Total....................................... (134) (124) (264)
----- ----- -----
Net deferred income tax assets.............. $ 27 $ 139 $ 79
===== ===== =====
</TABLE>

8. RELATED-PARTY TRANSACTIONS:

The Company leases its office space from its sole stockholder and
president. Total payments made under this lease agreement were approximately
$20,000, $36,000, and $36,000 for the years ended October 31, 1995 and 1996 and
September 30, 1997, respectively. (See Note 6).

In 1995, the Company encouraged its employees to purchase personal
computers by making the down payments for the purchases. The employees are
repaying the Company through payroll deductions. The outstanding amounts are
classified as accounts receivable, other in the accompanying balance sheets.

9. EMPLOYEE BENEFIT PLANS:

Stock Appreciation Plan

On May 4, 1994, the Company adopted a stock appreciation rights plan titled
the Stock Unit Plan (the Plan). Under the Plan, stock rights or units were
awarded to employees valued at the book value of the

F-81
<PAGE> 157

POLLOCK ELECTRIC INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Company's stock at that date. Subsequent increases in the book value of the
stock accrue to the benefit of the officer or employee, while decreases in the
book value reduce accrued benefits. Payments of amounts accrued under the Plan
are payable at retirement or resignation from the Company, except for cases of
termination with cause, at which time the units and benefits are forfeited.
Deferred compensation liability accrued under the Plan totaled $11,500, $17,435
and $17,435 at October 31, 1995 and 1996 and September 30, 1997, respectively.
The change in the value of the stock appreciation rights under the Plan are
recorded as compensation expense as the Company's net book value fluctuates.

Stock Purchase Agreement

The Company has entered into various agreements with certain of its
officers to provide for business continuity in the event of the death of the
Company's president and sole stockholder. The agreements provide for the
purchase of life insurance on the Company's president through split-dollar
arrangements and term insurance to provide funds for the officers of the Company
to acquire the president's stock in the event of his death. All amounts advanced
by the Company to pay premiums that are not subject to reimbursement from the
officers shall be collectible by the Company from the net equity of the
insurance policy or from the proceeds paid thereon.

Profit-Sharing and 401(k) Plan

Effective November 1, 1994, the Company established a defined contribution
plan for its employees. Employees over the age of 21 are eligible to participate
after one year of service with the Company. Under this plan, employees may elect
to defer up to 15 percent of their salary, subject to Internal Revenue Code
limits. The Company may make a discretionary match as well as a discretionary
profit-sharing contribution. The Company's contribution for the years ended
October 31, 1995 and 1996, totaled $16,970 and $22,466, respectively, and the
Company has accrued approximately $21,500 at September 30, 1997, for
contributions to be funded in the subsequent fiscal year.

10. FINANCIAL INSTRUMENTS:

The Company's financial instruments consist of cash and cash equivalents,
accounts receivable, accounts payable, a line of credit and notes payable. The
Company believes that the carrying value of these instruments on the
accompanying balance sheets approximates their fair value.

11. COMMITMENTS AND CONTINGENCIES:

Litigation

Insurance

The Company carries a broad range of insurance coverage, including business
auto liability, workers' compensation, general liability and an umbrella policy.
The Company has not incurred significant uninsured losses on any of these items.

12. MAJOR CUSTOMERS AND RISK CONCENTRATION:

The Company had sales of approximately 16 percent of total sales to one
major customer during the years ended October 31, 1995 and 1996. During the year
ended September 30, 1997, the Company had sales of approximately 11% and 10% of
total sales to two major customers.

F-82
<PAGE> 158

POLLOCK ELECTRIC INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

In addition, the Company grants credit, generally without collateral, to
its customers, which are general contractors located primarily in Harris County,
Texas, and surrounding areas. Consequently, the Company is subject to potential
credit risk related to changes in business and economic factors within the
commercial and industrial markets in this geographic region. However, management
believes that its contract acceptance, billing and collection policies are
adequate to minimize the potential credit risk.

The Company routinely maintains cash balances in financial institutions in
excess of federally insured limits.

F-83
<PAGE> 159

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Charles P. Bagby, Co., Inc.:

We have audited the accompanying balance sheets of Charles P. Bagby, Co.,
Inc., an Alabama S-Corporation, as of December 31, 1996 and September 30, 1997,
and the related statements of operations, cash flows and stockholder's equity
for the years ended December 31, 1996 and September 30, 1997 and for the nine
months ended September 30, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Charles P. Bagby, Co., Inc.
as of December 31, 1996 and September 30, 1997, and the results of its
operations and its cash flows for the years ended December 31, 1996 and
September 30, 1997, and for the nine months ended September 30, 1997, in
conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Houston, Texas
November 14, 1997

F-84
<PAGE> 160

CHARLES P. BAGBY, CO., INC.

BALANCE SHEETS
(IN THOUSANDS)

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $ 624 $ 851
Accounts receivable --
Trade, net of allowance of $42 and $48, respectively... 1,186 1,289
Retainage.............................................. 444 602
Notes receivable, related party........................... 2 15
Costs and estimated earnings in excess of billings on
uncompleted contracts.................................. 167 755
Prepaid expenses and other current assets................. 359 323
------ ------
Total current assets.............................. 2,782 3,835
PROPERTY AND EQUIPMENT, net................................. 221 246
------ ------
Total assets...................................... $3,003 $4,081
====== ======

LIABILITIES AND STOCKHOLDER'S EQUITY

CURRENT LIABILITIES:
Accounts payable and accrued expenses..................... $1,402 $1,821
Billings in excess of costs and estimated earnings on
uncompleted contracts.................................. 66 366
------ ------
Total current liabilities......................... 1,468 2,187
------ ------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY
Common stock, $1 par value, 1,000 shares authorized and
outstanding............................................ 1 1
Retained earnings......................................... 1,534 1,893
------ ------
Total stockholder's equity........................ 1,535 1,894
------ ------
Total liabilities and stockholder's equity........ $3,003 $4,081
====== ======
</TABLE>

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

F-85
<PAGE> 161

CHARLES P. BAGBY, CO., INC.

STATEMENTS OF OPERATIONS
(IN THOUSANDS)

<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
------------ ------------- ---------------------------
1996 1997 1996 1997
------------ ------------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES................................... $7,634 $11,772 $5,105 $ 9,243
COST OF SERVICES (including depreciation).. 6,412 9,920 4,419 7,927
------ ------- ------ -------
Gross profit..................... 1,222 1,852 686 1,316
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES................................. 680 1,140 364 824
------ ------- ------ -------
Income from operations........... 542 712 322 492
------ ------- ------ -------
OTHER INCOME (EXPENSE):
Other.................................... 39 (2) 37 (4)
------ ------- ------ -------
Other income (expense), net...... 39 (2) 37 (4)
------ ------- ------ -------
NET INCOME................................. $ 581 $ 710 $ 359 $ 488
====== ======= ====== =======
</TABLE>

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

F-86
<PAGE> 162

CHARLES P. BAGBY, CO., INC.

STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED YEAR ENDED ENDED SEPTEMBER 30,
DECEMBER 31, SEPTEMBER 30, -------------------
1996 1997 1996 1997
------------ ------------- ----------- -----
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................... $ 581 $ 710 $ 359 $ 488
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities --
Depreciation and amortization.............. 21 23 15 17
Changes in operating assets and
liabilities -- (Increase) decrease in --
Accounts receivable................... (764) (879) (159) (274)
Costs and estimated earnings in excess
of billings on uncompleted
contracts........................... (15) (697) 94 (588)
Prepaid expenses and other current
assets.............................. (136) 83 (183) 36
Increase (decrease) in --
Accounts payable and accrued
expenses............................ 130 1,131 (582) 419
Billings in excess of costs and
estimated earnings on uncompleted
contracts........................... 51 315 37 301
Other, net............................ 30 12 20 2
----- ------- ------ -----
Net cash provided by (used in)
operating activities................ (102) 698 (399) 401
----- ------- ------ -----
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions of property and equipment........... (20) (48) (16) (54)
----- ------- ------ -----
Net cash used in investing
activities.......................... (20) (48) (16) (54)
----- ------- ------ -----
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term borrowings......................... -- 230 -- 230
Payments on short-term borrowings............. -- (230) (230)
Distributions to shareholders................. (360) (480) (10) (120)
----- ------- ------ -----
Net cash used in financing
activities.......................... (360) (480) (10) (120)
----- ------- ------ -----
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS................................... (482) 170 (425) 227
----- ------- ------ -----
CASH AND CASH EQUIVALENTS, beginning of
period........................................ 1,106 681 1,106 624
----- ------- ------ -----
CASH AND CASH EQUIVALENTS, end of
period........................................ $ 624 $ 851 $ 681 $ 851
===== ======= ====== =====
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for --
Interest................................... $ 1 $ 10 $ 1 $ 10
</TABLE>

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

F-87
<PAGE> 163

CHARLES P. BAGBY, CO., INC.

STATEMENTS OF STOCKHOLDER'S EQUITY
(IN THOUSANDS, EXCEPT SHARE INFORMATION)

<TABLE>
<CAPTION>
COMMON STOCK TOTAL
----------------- RETAINED STOCKHOLDER'S
SHARES AMOUNT EARNINGS EQUITY
------ ------- -------- -------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1995.......................... 1,000 $ 1 $1,283 $1,284
Distributions to shareholder...................... -- -- (360) (360)
Net unrealized gains.............................. -- -- 30 30
Net income........................................ -- -- 581 581
----- ------- ------ ------
BALANCE, December 31, 1996.......................... 1,000 1 1,534 1,535
Distributions to shareholder...................... -- -- (120) (120)
Net unrealized gains (losses)..................... -- -- (9) (9)
Net income........................................ -- -- 488 488
----- ------- ------ ------
BALANCE, September 30, 1997......................... 1,000 $ 1 $1,893 $1,894
===== ======= ====== ======
</TABLE>

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

F-88
<PAGE> 164

CHARLES P. BAGBY, CO., INC.

NOTES TO FINANCIAL STATEMENTS

1. BUSINESS AND ORGANIZATION:

Charles P. Bagby, Co., Inc. (an Alabama S-Corporation), and its
majority-owned subsidiary, Haymaker Electric, Ltd. (collectively, the
"Company"), focuses on providing electrical system installation and repair
services primarily for mid-sized to large commercial facilities. The Company
performs the majority of its contract work under cost-plus-fee contracts and
fixed price contracts, with contract terms generally ranging from two to 18
months. The Company performs the majority of its work in the state of Alabama.
All significant intercompany activity has been eliminated in consolidation.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Interim Financial Information

The interim financial statements for the nine months ended September 30,
1996, are unaudited and have been prepared pursuant to the rules and regulations
of the Securities and Exchange Commission. Accordingly, they do not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of the Company's
management, the unaudited interim financial statements contain all adjustments
(consisting of normal recurring adjustments) considered necessary for a fair
presentation. The results of operations for the interim periods are not
necessarily indicative of the results for the entire fiscal year.

Cash and Cash Equivalents

The Company considers all highly liquid debt instruments with an original
maturity of three months or less when purchased to be cash equivalents.

Property and Equipment

Property and equipment are stated at cost, and depreciation is computed
using the straight-line method over the estimated useful lives of the assets.
Leasehold improvements are capitalized and amortized over the lesser of the life
of the lease or the estimated useful life of the asset. Depreciation expense was
$21,000 for the year ended December 31, 1996, and $23,000 for the year ended
September 30, 1997.

Revenue Recognition

F-89
<PAGE> 165

CHARLES P. BAGBY, CO., INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

performance, such as indirect labor, supplies, tools, repairs and depreciation
costs. Provisions for the total estimated losses on uncompleted contracts are
made in the period in which such losses are determined. Changes in job
performance, job conditions, estimated profitability and final contract
settlements may result in revisions to costs and income and their effects are
recognized in the period in which the revisions are determined. An amount equal
to contract costs attributable to claims is included in revenues when
realization is probable and the amount can be reliably estimated.

Warranty Costs

Provision for Doubtful Accounts

The Company provides an allowance for doubtful accounts based upon the
specific identification of accounts receivable where collection is no longer
probable.

Income Taxes

The Company is an Alabama sub-chapter S corporation and is not subject to
federal income tax. The earnings of the Company are taxable to the individual
stockholder.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions by
management in determining the reported amounts of assets and liabilities,
disclosures of contingent liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. Reference is made to the
"Revenue Recognition" section of this footnote and Note 10 for discussion of
significant estimates reflected in the Company's financial statements.

New Accounting Pronouncement

Effective November 1, 1996, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." Accordingly, in
the event that facts and circumstances indicate that property and equipment or
other assets may be impaired, an evaluation of recoverability would be
performed. If an evaluation is required, the estimated future undiscounted cash
flows associated with the asset are compared to the asset's carrying amount to
determine if an impairment of such property is necessary. The effect of any
impairment would be to expense the difference between the fair value of such
property and its carrying value. Adoption of this standard did not have a
material effect on the financial position or results of operations of the
Company.

F-90
<PAGE> 166

CHARLES P. BAGBY, CO., INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

3. PROPERTY AND EQUIPMENT:

Property and equipment consists of the following (in thousands):

<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIVES DECEMBER 31, SEPTEMBER 30,
IN YEARS 1996 1997
------------ ------------ -------------
<S> <C> <C> <C>
Transportation equipment...................... 5-6 $ 52 $ 84
Machinery and equipment....................... 5-10 33 33
Buildings and leasehold improvements.......... 40 208 208
Furniture and fixtures........................ 3-10 83 93
----- -----
376 418
Less -- Accumulated depreciation and
amortization................................ (155) (172)
----- -----
Property and equipment, net......... $ 221 $ 246
===== =====
</TABLE>

4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:

Activity in the Company's allowance for doubtful accounts receivable
consists of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
Balance at beginning of period............................. $22 $26
Additions to costs and expenses............................ 20 22
--- ---
Balance at end of period................................... $42 $48
=== ===
</TABLE>

Accounts payable and accrued expenses consist of the following (in
thousands):

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
Accounts payable, trade.................................... $ 685 $1,120
Accrued compensation and benefits.......................... 175 624
Other accrued expenses..................................... 542 77
------ ------
$1,402 $1,821
====== ======
</TABLE>

Electrical system installation contracts in progress are as follows (in
thousands):

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
Costs incurred on contracts in progress.................... $ 4,304 $ 5,937
Estimated earnings, net of losses.......................... 546 1,321
------- -------
4,850 7,258
Less -- Billings to date................................... (4,749) (6,869)
------- -------
$ 101 $ 389
======= =======
Costs and estimated earnings in excess of billings on
uncompleted contracts.................................... $ 167 $ 755
Less -- Billings in excess of costs and estimated earnings
on uncompleted contracts................................. (66) (366)
------- -------
$ 101 $ 389
======= =======
</TABLE>

F-91
<PAGE> 167

CHARLES P. BAGBY, CO., INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

5. LONG-TERM DEBT:

The Company has a $650,000 line of credit with a bank. The line of credit
expires June 30, 1998, and bears interest at 1 percent over the prime lending
rate. The line of credit is secured by a stockholder of a partner corporation.
No borrowings were outstanding under this line of credit at December 31, 1996 or
September 30, 1997.

6. EMPLOYEE BENEFIT PLAN:

The Company has a defined contribution profit-sharing plan. The plan
provides for the Company to match 3 percent of the gross salary of each employee
subject to certain limitations. All participants are immediately fully vested.
Total contributions by the Company under the plan were approximately $51,000 for
the year ended December 31, 1996, and $106,000 for the year ended September 30,
1997.

7. FINANCIAL INSTRUMENTS:

The Company's financial instruments consist of cash and cash equivalents,
accounts receivable, notes receivable, accounts payable, a line of credit and
short-term borrowings. The Company believes that the carrying value of these
instruments on the accompanying balance sheets approximates their fair value.

8. COMMITMENTS AND CONTINGENCIES:

Litigation

Insurance

9. MAJOR CUSTOMERS AND RISK CONCENTRATION:

The Company had sales comprising approximately 10%, 11% and 11% of total
sales to three major customers during the years ended December 31, 1996 and
September 30, 1997.

F-92
<PAGE> 168

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Amber Electric, Inc.:

We have audited the accompanying balance sheets of Amber Electric, Inc., a
Florida corporation, as of December 31, 1995 and 1996 and September 30, 1997,
and the related statements of operations, cash flows and stockholder's equity
for the years then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Amber Electric, Inc. as of
December 31, 1995 and 1996 and September 30, 1997, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Houston, Texas
November 14, 1997

F-93
<PAGE> 169

AMBER ELECTRIC, INC.

BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
---------------- SEPTEMBER 30,
1995 1996 1997
------ ------ -------------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $ 83 $ 565 $ 988
Accounts receivable --
Trade, net of allowance of $28, $40 and $51,
respectively......................................... 1,159 1,382 2,365
Retainage.............................................. 468 518 470
Inventories............................................... 39 28 25
Costs and estimated earnings in excess of billings on
uncompleted contracts.................................. 25 151 119
Employee advances (Note 8)................................ 2 29 4
Note receivable, related party (Note 8)................... -- -- 123
Deferred tax asset........................................ 36 65 63
Prepaid expenses and other current assets................. 22 -- 54
------ ------ ------
Total current assets.............................. 1,834 2,738 4,211
PROPERTY AND EQUIPMENT, net................................. 284 380 516
NOTE RECEIVABLE, related party (Note 8)..................... 37 58 --
------ ------ ------
Total assets...................................... $2,155 $3,176 $4,727
====== ====== ======
LIABILITIES AND STOCKHOLDER'S EQUITY

CURRENT LIABILITIES:
Current maturities of long-term debt...................... $ 96 $ 133 $ 179
Line of credit............................................ 101 -- --
Accounts payable and accrued expenses..................... 696 1,157 1,276
Income taxes payable...................................... 3 244 676
Billings in excess of costs and estimated earnings on
uncompleted contracts.................................. 355 408 196
Note payable, related party (Note 8)...................... -- 100 --
Deferred tax liability.................................... 129 97 122
------ ------ ------
Total current liabilities......................... 1,380 2,139 2,449
------ ------ ------
LONG-TERM DEBT, net of current maturities................... 573 538 568
DEFERRED TAX LIABILITY...................................... 38 45 52
COMMITMENTS AND CONTINGENCIES (Note 11)
STOCKHOLDER'S EQUITY:
Common stock, $1 par value, 7,500 shares authorized, 1,100
shares issued and outstanding.......................... 1 1 1
Retained earnings......................................... 597 887 2,091
Treasury stock, 539 shares, at cost....................... (434) (434) (434)
------ ------ ------
Total stockholder's equity........................ 164 454 1,658
------ ------ ------
Total liabilities and stockholder's equity........ $2,155 $3,176 $4,727
====== ====== ======
</TABLE>

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

F-94
<PAGE> 170

AMBER ELECTRIC, INC.

STATEMENTS OF OPERATIONS
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, YEAR ENDED SEPTEMBER 30,
----------------- SEPTEMBER 30, -----------------
1995 1996 1997 1996 1997
------- ------- ------------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES................................... $ 9,728 $13,878 $16,386 $10,572 $13,080
COST OF SERVICES (including
depreciation)............................ 8,635 12,215 13,415 8,710 9,910
------- ------- ------- ------- -------
Gross profit..................... 1,093 1,663 2,971 1,862 3,170
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES................................. 957 1,160 1,379 978 1,197
------- ------- ------- ------- -------
Income from operations........... 136 503 1,592 884 1,973
------- ------- ------- ------- -------
OTHER INCOME (EXPENSE):
Interest expense......................... (65) (51) (45) (51) (45)
Other.................................... 24 36 69 10 43
------- ------- ------- ------- -------
Other income (expense), net...... (41) (15) 24 (41) (2)
------- ------- ------- ------- -------
INCOME BEFORE PROVISION FOR INCOME TAXES... 95 488 1,616 843 1,971
PROVISION FOR INCOME TAXES................. 36 198 632 333 767
------- ------- ------- ------- -------
NET INCOME................................. $ 59 $ 290 $ 984 $ 510 $ 1,204
======= ======= ======= ======= =======
</TABLE>

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

F-95
<PAGE> 171

AMBER ELECTRIC, INC.

STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, YEAR ENDED SEPTEMBER 30,
------------- SEPTEMBER 30, ---------------
1995 1996 1997 1996 1997
----- ----- ------------- ----- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income...................................... $ 59 $ 290 $ 984 $ 510 $ 1,204
Adjustments to reconcile net income to net cash
provided by operating activities --
Depreciation and amortization................ 62 87 172 61 146
Bad debt expense............................. 17 35 37 9 11
(Gain) Loss on sale of property and
equipment.................................. -- 5 -- 4 (1)
Increase in cash surrender value of life
insurance policy........................... (14) -- -- -- --
Deferred income taxes........................ (41) 24 89 (31) 34
Changes in operating assets and
liabilities --
(Increase) decrease in --
Accounts receivable..................... (299) (308) (1,142) (112) (946)
Inventories............................. 15 11 11 3 3
Costs and estimated earnings in excess
of billings on uncompleted
contracts............................. (6) (126) 35 (129) 32
Employee advances....................... 14 (27) 13 (15) 25
Prepaid expenses and other current
assets................................ (7) 22 (13) (19) (54)
Note receivable, related party.......... -- (21) (65) (21) (65)
Increase (decrease) in --
Accounts payable and accrued expenses... 20 461 392 188 119
Billings in excess of costs and
estimated earnings on uncompleted
contracts............................. 304 53 12 (171) (212)
Income taxes payable.................... 49 163 218 377 432
Other, net................................... 4 1 (6) (7)
----- ----- ----- ----- -------
Net cash provided by operating
activities.............................. 177 670 737 654 721
----- ----- ----- ----- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment.... 5 2 8 2 8
Additions of property and equipment............. (155) (190) (323) (157) (290)
----- ----- ----- ----- -------
Net cash used in investing activities... (150) (188) (315) (155) (282)
----- ----- ----- ----- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Note payable, related party..................... -- 100 -- -- (100)
Borrowings of line of credit.................... 101 -- -- -- --
Payments of line of credit...................... (125) (101) -- (101) --
Borrowings of long-term debt.................... 104 131 236 95 200
Payments of long-term debt...................... (74) (130) (163) (83) (116)
----- ----- ----- ----- -------
Net cash provided by (used in) financing
activities............................ 6 -- 73 (89) (16)
----- ----- ----- ----- -------
NET INCREASE IN CASH AND CASH EQUIVALENTS......... 33 482 495 410 423
CASH AND CASH EQUIVALENTS, beginning of period.... 50 83 493 83 565
----- ----- ----- ----- -------
CASH AND CASH EQUIVALENTS, end of period.......... $ 83 $ 565 $ 988 $ 493 $ 988
===== ===== ===== ===== =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for --
Interest..................................... $ 65 $ 51 $ 45 $ 51 $ 45
Income taxes................................. 27 10 303 8 301
</TABLE>

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

F-96
<PAGE> 172

AMBER ELECTRIC, INC.

STATEMENTS OF STOCKHOLDER'S EQUITY
(IN THOUSANDS, EXCEPT SHARE INFORMATION)

<TABLE>
<CAPTION>
COMMON STOCK TOTAL
--------------- RETAINED TREASURY STOCKHOLDER'S
SHARES AMOUNT EARNINGS STOCK EQUITY
------ ------ -------- -------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1994..................... 1,100 $1 $ 538 $(434) $ 105
Net income................................... -- -- 59 -- 59
----- -- ------ ----- ------
BALANCE, December 31, 1995..................... 1,100 1 597 (434) 164
Net income................................... -- -- 290 -- 290
----- -- ------ ----- ------
BALANCE, December 31, 1996..................... 1,100 1 887 (434) 454
Net income (unaudited)....................... -- -- 1,204 -- 1,204
----- -- ------ ----- ------
BALANCE, September 30, 1997.................... 1,100 $1 $2,091 $(434) $1,658
===== == ====== ===== ======
</TABLE>

The accompanying notes are an integral part of these financial statements

F-97
<PAGE> 173

AMBER ELECTRIC, INC.

NOTES TO FINANCIAL STATEMENTS

1. BUSINESS AND ORGANIZATION:

Amber Electric, Inc. (the Company), a Florida corporation, focuses on
providing electrical system installation and repair services primarily for
residential and mid-sized to large commercial facilities. The Company performs
the majority of its contract work under fixed price contracts, with contract
terms generally ranging from two to 12 months. The Company performs the majority
of its work in central Florida.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Interim Financial Information

Cash and Cash Equivalents

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

Inventories

Inventories consist of parts and supplies held for use in the ordinary
course of business and are stated at the lower of cost or market using the
first-in, first-out (FIFO) method.

Property and Equipment

Property and equipment are stated at cost, and depreciation is computed
using the straight-line and declining-balance methods over the estimated useful
lives of the related assets. Leasehold improvements are capitalized and
amortized over the estimated useful life of the asset. Depreciation and
amortization expense was approximately $62,000, $87,000 and $172,000 for the
years ended December 31, 1995, 1996, and September 30, 1997, respectively.

F-98
<PAGE> 174

AMBER ELECTRIC, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Revenue Recognition

The Company recognizes revenue when services are performed except when work
is being performed under a construction contract. Revenues from construction
contracts are recognized on the percentage-of-completion method measured by the
percentage of costs incurred to date to total estimated costs for each contract.
Contract costs include all direct material and labor costs and those indirect
costs related to contract performance, such as indirect labor, supplies, tools,
repairs and depreciation costs. Provisions for the total estimated losses on
uncompleted contracts are made in the period in which such losses are
determined. Changes in job performance, job conditions, estimated profitability
and final contract settlements may result in revisions to costs and income and
their effects are recognized in the period in which the revisions are
determined. An amount equal to contract costs attributable to claims is included
in revenues when realization is probable and the amount can be reliably
estimated.

Warranty Costs

For certain contracts, the Company warrants labor for the first year after
installation of new electrical systems. The Company generally warrants labor for
one year after servicing of existing electrical systems.

Allowance for Doubtful Accounts

The Company provides an allowance for doubtful accounts based upon the
specific identification of accounts receivable where collection is no longer
probable.

Income Taxes

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions by
management in determining the reported amounts of assets and liabilities,
disclosures of contingent liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. Reference is made to the
"Revenue Recognition" section of this footnote for discussion of significant
estimates reflected in the Company's financial statements.

New Accounting Pronouncement

F-99
<PAGE> 175

AMBER ELECTRIC, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

3. PROPERTY AND EQUIPMENT:

Property and equipment consists of the following (in thousands):

<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31, SEPTEMBER 30,
USEFUL LIVES -------------- -------------
IN YEARS 1995 1996 1997
------------ ----- ----- -------------
<S> <C> <C> <C> <C>
Transportation equipment................. 3-7 $ 430 $ 541 $ 631
Machinery and equipment.................. 3-7 101 78 99
Leasehold improvements................... 5-39 76 74 87
Furniture and fixtures................... 3-7 121 91 191
----- ----- ------
728 784 1,008
Less - Accumulated depreciation and
amortization........................... (444) (404) (492)
----- ----- ------
Property and equipment, net.... $ 284 $ 380 $ 516
===== ===== ======
</TABLE>

4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:

Activity in the Company's allowance for doubtful accounts receivable
consists of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
----------------- -------------
1995 1996 1997
------- ------- -------------
<S> <C> <C> <C>
Balance at beginning of period...................... $ 17 $ 28 $ 40
Additions to costs and expenses..................... 17 35 11
Deductions for uncollectible receivables written off
and recoveries.................................... (6) (23) --
------- ------- ------
Balance at end of period............................ $ 28 $ 40 $ 51
======= ======= ======
</TABLE>

Accounts payable and accrued expenses consist of the following (in
thousands):

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
----------------- -------------
1995 1996 1997
------- ------- -------------
<S> <C> <C> <C>
Accounts payable, trade............................. $ 537 $ 882 $1,006
Accrued compensation and benefits................... 84 110 187
Other accrued expenses.............................. 75 165 83
------- ------- ------
$ 696 $ 1,157 $1,276
======= ======= ======
</TABLE>

F-100
<PAGE> 176

AMBER ELECTRIC, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Electrical system installation contracts in progress are as follows (in
thousands):

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
----------------- -------------
1995 1996 1997
------- ------- -------------
<S> <C> <C> <C>
Costs incurred on contracts in progress............. $ 1,912 $ 2,100 $ 1,582
Estimated earnings, net of losses................... 333 258 192
------- ------- -------
2,245 2,358 1,774
Less -- Billings to date............................ (2,575) (2,615) (1,851)
------- ------- -------
$ (330) $ (257) $ (77)
======= ======= =======
Costs and estimated earnings in excess of billings
on uncompleted contracts.......................... $ 25 $ 151 $ 119
Less -- Billings in excess of costs and
estimated earnings on uncompleted
contracts.................................... (355) (408) (196)
------- ------- -------
$ (330) $ (257) $ (77)
======= ======= =======
</TABLE>

5. LONG-TERM DEBT:

Long-term debt consists of notes payable to various banks. The debt is
secured by certain equipment. The notes are payable in monthly installments
including interest at rates ranging from 8 percent to 10.9 percent.

The Company has a note payable to a former stockholder payable in monthly
installments of $4,333, including interest at 7.5 percent, due August 2004. The
debt is guaranteed by the majority stockholder. The balance of such debt was
approximately $330,000, $302,000 and $279,000 at December 31, 1995, 1996 and
September 30, 1997, respectively.

The Company also has a note payable outstanding to an individual with a 5
percent stated interest rate and an 8.12 percent imputed interest rate. The note
is payable in monthly installments of principal and interest of $1,893,
collateralized by equipment and inventories, and is due February 2005. The
balance of the note was approximately $168,000, $153,000 and $142,000 at
December 31, 1995, 1996 and September 30, 1997, respectively.

The maturities of long-term debt as of September 30, 1997, are as follows
(in thousands):

<TABLE>
<S> <C>
Year ending December 31 --
1998................................................... $179
1999................................................... 155
2000................................................... 115
2001................................................... 76
2002................................................... 70
Thereafter............................................. 152
----
$747
====
</TABLE>

At September 30, 1997 and December 31, 1996, the Company had a $500,000
line of credit with a bank, collateralized by accounts receivable and certain
other assets. Interest is payable monthly at the bank's prime rate (8.5 percent
at September 30, 1997). The agreement stipulates a minimum interest rate of 8
percent. Any amounts available are limited to 75 percent of eligible accounts
receivable, as defined. At September 30, 1997 and December 31, 1996, the entire
amount of the line remains available to be borrowed. The line of credit is
subject to a continuing guarantee by the Company's majority stockholder. The
line of credit is due on demand, but in no event no later than July 5, 1998.

F-101
<PAGE> 177

AMBER ELECTRIC, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

At December 31, 1995, the maximum amount available under such line of
credit was approximately $99,000 as the Company had a $200,000 line of credit
with the bank.

6. LEASES:

The Company leases office space from the majority stockholder under a
month-to-month operating lease. Rent expense incurred under this related-party
lease was approximately $67,000, $81,000 and $83,000 for the years ended
December 31, 1995, 1996 and September 30, 1997, respectively.

There are no future minimum lease payments under this operating lease.

7. INCOME TAXES (IN THOUSANDS):

Federal income taxes are as follows:

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, SEPTEMBER 30,
------------ -------------
1995 1996 1997
---- ---- -------------
<S> <C> <C> <C>
Federal --
Current............................................... $ 1 $224 $510
Deferred.............................................. 30 (54) 32
State --
Current............................................... -- 27 95
Deferred.............................................. 5 1 (5)
---- ---- ----
$ 36 $198 $632
==== ==== ====
</TABLE>

Actual income tax expense differs from income tax expense computed by
applying the U.S. federal statutory corporate rate of 35 percent to income
before provision for income taxes as follows:

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, SEPTEMBER 30,
------------ -------------
1995 1996 1997
---- ---- -------------
<S> <C> <C> <C>
Provision at the statutory rate.......................... $33 $171 $565
Increase resulting from --
State income taxes, net of related federal benefit..... 3 19 59
Permanent differences, primarily meals and
entertainment....................................... -- 8 8
--- ---- ----
$36 $198 $632
=== ==== ====
</TABLE>

F-102
<PAGE> 178

AMBER ELECTRIC, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
-------------- -------------
1995 1996 1997
----- ----- -------------
<S> <C> <C> <C>
Deferred tax assets --
Allowance for doubtful accounts..................... $ 11 $ 17 $ 20
Other accrued expenses not deducted for tax
purposes......................................... 25 48 43
----- ----- -----
Total....................................... 36 65 63
----- ----- -----
Deferred tax liabilities --
Accounting for long-term contracts.................. (129) (97) (122)
Bases differences on property and equipment and
capital
lease accounting................................. (38) (45) (52)
----- ----- -----
Total....................................... (167) (142) (174)
----- ----- -----
Net deferred income tax liabilities......... $(131) $ (77) $(111)
===== ===== =====
</TABLE>

The net deferred tax assets and liabilities are comprised of the following:

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------- -------------
1995 1996 1997
----- ---- -------------
<S> <C> <C> <C>
Deferred tax assets --
Current.............................................. $ 36 $ 65 $ 63
Long-term............................................ -- -- --
----- ---- -----
Total........................................ 36 65 63
----- ---- -----
Deferred tax liabilities --
Current.............................................. (129) (97) (122)
Long-term............................................ (38) (45) (52)
----- ---- -----
Total........................................ (167) (142) (174)
----- ---- -----
Net deferred tax liability................... $(131) $(77) $(111)
===== ==== =====
</TABLE>

8. RELATED-PARTY TRANSACTIONS:

During 1995, the Company transferred its interest in the cash surrender
value of life insurance policies in exchange for a note receivable bearing
annual interest of 4 percent to a partnership controlled by the majority
stockholder of the Company. The entire principal and accrued interest is due
August 2005. The Company continues to pay premiums for this policy, also
increasing the receivable.

The Company had a note payable to the majority stockholder at December 31,
1996, which represented a bonus to the stockholder and was loaned to the Company
without interest attached. The balance was subsequently paid to the stockholder.

The Company will advance money to employees on occasion. Advanced amounts
are based on certain levels of employment and are repaid to the Company based on
a variety of repayment plans.

9. EMPLOYEE BENEFIT PLAN:

The Company has a defined contribution profit-sharing plan. The plan
provides for the Company to match, on a discretionary basis, one-half of the
first 4 percent contributed by each employee. Total

F-103
<PAGE> 179

AMBER ELECTRIC, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

contributions by the Company under the plan were approximately $31,000, $44,000
and $56,000 for the years ending December 31, 1995, 1996 and September 30, 1997,
respectively. The Company had accrued approximately $5,000 at September 30,
1997, for contributions to be funded in the subsequent fiscal year.

10. FINANCIAL INSTRUMENTS:

The Company's financial instruments consist of cash and cash equivalents,
accounts receivable, employee advances, notes receivable, a line of credit,
accounts payable, notes payable and long-term debt. The Company believes that
the carrying value of these instruments on the accompanying balance sheets
approximates their fair value.

11. COMMITMENTS AND CONTINGENCIES:

Litigation

Insurance

The Company provides for workers' compensation insurance through a
partially self-insured plan whereby the Company is responsible for certain
incurred losses with a maximum of 125 percent of standard state-rated workers'
compensation premiums. Estimated claims incurred during the years ended December
31, 1995, 1996 and September 30, 1997 were not material. Accordingly, the
Company has not recorded any reserves for its portion of self-insurance claims.
During 1997, the Company enrolled in a secured individual preferred dividend
safety incentive program for workers' compensation with a maximum premium of 100
percent of the total normal state-rated premium. Employee health insurance is
provided for under a fully insured medical plan consisting of HMO and POS
programs.

12. MAJOR CUSTOMERS AND RISK CONCENTRATION:

The Company had sales of approximately 16 percent of total sales to one
major customer for the year ended December 31, 1995, sales of approximately 15
and 13 percent of total sales to two major customers for the year ended December
31, 1996, and sales of approximately 22 percent of total sales to one major
customer during the year ended September 30, 1997.

In addition, the Company grants credit, generally without collateral, to
its customers, which are real estate operations, general contractors, etc.,
located primarily in central Florida. Consequently, the Company is subject to
potential credit risk related to changes in business and economic factors within
the central Florida region. However, management believes that its contract
acceptance, billing and collection policies are adequate to minimize the
potential credit risk.

The Company routinely maintains cash balances in financial institutions in
excess of federally insured limits.

F-104
<PAGE> 180

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Daniel Electrical Contractors, Inc. and
Daniel Electrical of Treasure Coast Inc.:

We have audited the accompanying combined balance sheets of Daniel
Electrical Contractors, Inc., a Florida corporation, and Daniel Electrical of
Treasure Coast Inc., a Florida corporation, as of December 31, 1995 and 1996 and
September 30, 1997, and the related combined statements of operations, cash
flows and stockholder's equity for the years then ended and for the nine months
ended September 30, 1997. These combined financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these combined financial statements based on our audits.

In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Daniel
Electrical Contractors, Inc. and Daniel Electrical of Treasure Coast Inc., as of
December 31, 1995 and 1996 and September 30, 1997, and the combined results of
their operations and their cash flows for the years then ended and for the nine
months ended September 30, 1997, in conformity with generally accepted
accounting principles.

ARTHUR ANDERSEN LLP

Houston, Texas
November 14, 1997

F-105
<PAGE> 181

DANIEL ELECTRICAL CONTRACTORS, INC. AND
DANIEL ELECTRICAL OF TREASURE COAST INC.

COMBINED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)

<TABLE>
<CAPTION>
DECEMBER 31,
---------------- SEPTEMBER 30,
1995 1996 1997
------ ------ -------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 62 $ 411 $ 917
Investments............................................... 393 694 1,504
Accounts receivable --
Trade, net of allowance of $68, $69 and $115,
respectively......................................... 1,819 1,444 3,443
Retainage, net of allowance of $ -- , $12 and $12,
respectively......................................... 815 1,353 1,294
Employee receivables (Note 7).......................... 8 17 30
Inventories............................................... 103 84 23
Costs and estimated earnings in excess of billings on
uncompleted contracts.................................. 119 719 510
Prepaid expenses and other current assets................. 24 35 166
------ ------ ------
Total current assets.............................. 3,343 4,757 7,887
PROPERTY AND EQUIPMENT, net................................. 322 371 541
------ ------ ------
Total assets...................................... $3,665 $5,128 $8,428
====== ====== ======
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt...................... $ 46 $ 34 $ 62
Accounts payable and accrued expenses..................... 1,325 946 1,840
Billings in excess of costs and estimated earnings on
uncompleted contracts.................................. 121 752 1,370
Deposit on contract in progress........................... -- 500 --
Other current liabilities (Note 7)........................ 477 114 81
------ ------ ------
Total current liabilities......................... 1,969 2,346 3,353
------ ------ ------
LONG-TERM DEBT, net of current maturities................... 42 52 102
OTHER LONG-TERM LIABILITIES (Note 7)........................ 483 483 483
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY:
Common stock, $1 and $0.01 par value, 7,500 and 2,000
shares authorized, 7,500 and 100 shares issued and
outstanding at December 31, 1995, 1996, and September
30, 1997 for Daniel Electrical Contractors, Inc. and
Daniel Electrical of Treasure Coast Inc.,
respectively........................................... 8 8 8
Retained earnings......................................... 1,110 2,111 4,131
Unrealized gain on securities............................. 53 128 351
------ ------ ------
Total stockholder's equity........................ 1,171 2,247 4,490
------ ------ ------
Total liabilities and stockholder's equity........ $3,665 $5,128 $8,428
====== ====== ======
</TABLE>

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

F-106
<PAGE> 182

DANIEL ELECTRICAL CONTRACTORS, INC. AND
DANIEL ELECTRICAL OF TREASURE COAST INC.

COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
DECEMBER 31, YEAR ENDED ENDED SEPTEMBER 30,
----------------- SEPTEMBER 30, ---------------------
1995 1996 1997 1996 1997
------- ------- ------------- ----------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES................................ $12,049 $12,585 $18,409 $8,846 $14,670
COST OF SERVICES (including
depreciation)......................... 11,725 9,713 13,518 6,675 10,480
------- ------- ------- ------ -------
Gross profit.................. 324 2,872 4,891 2,171 4,190
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES.............................. 1,502 1,884 2,316 1,360 1,792
------- ------- ------- ------ -------
Income (loss) from
operations.................. (1,178) 988 2,575 811 2,398
------- ------- ------- ------ -------
OTHER INCOME (EXPENSE):
Interest expense...................... (46) (73) (60) (58) (45)
Other................................. 71 86 100 48 62
------- ------- ------- ------ -------
Other income (expense), net... 25 13 40 (10) 17
------- ------- ------- ------ -------
NET INCOME (LOSS)....................... $(1,153) $ 1,001 $ 2,615 $ 801 $ 2,415
======= ======= ======= ====== =======
</TABLE>

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

F-107
<PAGE> 183

DANIEL ELECTRICAL CONTRACTORS, INC. AND
DANIEL ELECTRICAL OF TREASURE COAST INC.

COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
DECEMBER 31, YEAR ENDED ENDED SEPTEMBER 30,
---------------- SEPTEMBER 30, --------------------
1995 1996 1997 1996 1997
------- ------ ------------- ----------- ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................... $(1,153) $1,001 $ 2,615 $ 801 $2,415
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities --
Depreciation and amortization.......... 113 125 141 100 116
Provision for bad debts................ 29 205 229 23 47
Loss on abandonment of leasehold
improvements......................... -- -- 34 -- 34
Changes in operating assets and
liabilities --
(Increase) decrease in --
Accounts receivable............... 423 (185) (1,606) (577) (1,998)
Inventories....................... 14 19 37 43 61
Costs and estimated earnings in
excess of billings on
uncompleted contracts........... 733 (600) 45 (436) 209
Prepaid expenses and other current
assets.......................... 25 (11) (158) 17 (130)
Increase (decrease) in --
Accounts payable and accrued
expenses........................ (567) (379) 667 (151) 895
Deposits on contracts in
progress........................ -- 500 (500) 500 (500)
Billings in excess of costs and
estimated earnings on
uncompleted contracts........... (92) 631 548 701 618
Other current liabilities......... (42) (87) (68) (8) 11
------- ------ ------- ----- ------
Net cash provided by (used in)
operating activities............ (517) 1,219 1,984 1,013 1,778
------- ------ ------- ----- ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investments................... (31) (306) (889) (3) (586)
Additions of property and equipment....... (97) (175) (444) (84) (353)
------- ------ ------- ----- ------
Net cash used in investing
activities...................... (128) (481) (1,333) (87) (939)
------- ------ ------- ----- ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of long-term debt.............. 350 17 171 -- 154
Payments of long-term debt................ (44) (406) (175) (323) (92)
Distributions to stockholders............. -- -- (395) -- (395)
------- ------ ------- ----- ------
Net cash provided by (used in)
financing activities............ 306 (389) (399) (323) (333)
------- ------ ------- ----- ------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS............................... (339) 349 252 603 506
CASH AND CASH EQUIVALENTS, beginning of
period.................................... 401 62 665 62 411
------- ------ ------- ----- ------
CASH AND CASH EQUIVALENTS, end of period.... $ 62 $ 411 $ 917 $ 665 $ 917
======= ====== ======= ===== ======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for --
Interest.................................. $ 20 $ 113 $ 102 $ 18 $ 7
</TABLE>

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

F-108
<PAGE> 184

DANIEL ELECTRICAL CONTRACTORS INC. AND
DANIEL ELECTRICAL OF TREASURE COAST INC.

COMBINED STATEMENTS OF STOCKHOLDER'S EQUITY
(IN THOUSANDS, EXCEPT SHARE INFORMATION)

<TABLE>
<CAPTION>
UNREALIZED
COMMON STOCK GAIN (LOSS) TOTAL
--------------- RETAINED ON STOCKHOLDER'S
SHARES AMOUNT EARNINGS SECURITIES EQUITY
------ ------ -------- ------------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1994................. 7,500 $8 $ 2,263 $(13) $ 2,258
Issuance of stock in Daniel Electrical of
Treasure Coast Inc. .................. 100 -- -- -- --
Change in unrealized gain on
securities............................ -- -- -- 66 66
Net loss................................. -- -- (1,153) -- (1,153)
----- -- ------- ---- -------
BALANCE, December 31, 1995................. 7,600 8 1,110 53 1,171
Change in unrealized gain on
securities............................ -- -- -- 75 75
Net income............................... -- -- 1,001 -- 1,001
----- -- ------- ---- -------
BALANCE, December 31, 1996................. 7,600 8 2,111 128 2,247
Distributions to stockholders............ -- -- (395) -- (395)
Change in unrealized gain on
securities............................ -- -- -- 223 223
Net income............................... -- -- 2,415 -- 2,415
----- -- ------- ---- -------
BALANCE, September 30, 1997................ 7,600 $8 $ 4,131 $351 $ 4,490
===== == ======= ==== =======
</TABLE>

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

F-109
<PAGE> 185

DANIEL ELECTRICAL CONTRACTORS, INC. AND
DANIEL ELECTRICAL OF TREASURE COAST INC.

NOTES TO COMBINED FINANCIAL STATEMENTS

1. BUSINESS AND ORGANIZATION:

Daniel Electrical Contractors, Inc. and Daniel Electrical of Treasure Coast
Inc., (collectively, the Company), both Florida corporations focuses on
providing electrical system installation and repair services primarily for
residential and mid-sized to large commercial facilities. The Company performs
the majority of its contract work under fixed price contracts with contract
terms generally ranging from six to 18 months. The Company performs the majority
of its work in Dade County, Florida.

The combined financial statements include the accounts of Daniel Electrical
Contractors, Inc. and Daniel Electrical of Treasure Coast Inc. These entities
are related by virtue of common ownership. All material intercompany
transactions and balances have been eliminated in combination.

In October 1997, the Company and its stockholders entered into a definitive
agreement with Integrated Electrical Services, Inc. (IES), pursuant to which all
outstanding shares of the Company's common stock will be exchanged for cash and
shares of IES common stock, concurrent with the consummation of the initial
public offerings in the United States and Canada and outside the United States
and Canada (the Offerings)of additional common stock by IES. In addition, the
key executives of the Company entered into employment agreements with the
Company and IES which have an initial term of five years, and generally restrict
the disclosure of confidential information as well as restrict competition with
the Company and IES for a period of two years following termination of
employment.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Interim Financial Information

The interim financial statements for the nine months ended September 30,
1996 are unaudited and have been prepared pursuant to the rules and regulations
of the Securities and Exchange Commission. Accordingly, they do not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of the Company's
management, the unaudited interim financial statements contain all adjustments
(consisting of normal recurring adjustments) considered necessary for a fair
presentation. The results of operations for the interim periods are not
necessarily indicative of the results for the entire fiscal year.

Cash and Cash Equivalents

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

Investments

Investments in securities are classified as securities available for sale
and consist of equity securities. Unrealized holding gains and losses on
securities available-for-sale are reported as net amount as a separate component
of stockholder's equity.

Inventories

Inventories consist of parts and supplies held for use in the ordinary
course of business and are stated at the lower of cost or market using the
first-in, first-out (FIFO) method.

Property and Equipment

F-110
<PAGE> 186

DANIEL ELECTRICAL CONTRACTORS, INC. AND
DANIEL ELECTRICAL OF TREASURE COAST INC.

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

lesser of the life of the lease or the estimated useful life of the asset.
Depreciation and amortization expense was $113,000, $125,000 and $141,000 for
the years ended December 31, 1995, 1996 and September 30, 1997, respectively.

Revenue Recognition

The Company recognizes revenue when services are performed, except when
work is being performed under a construction contract. Revenues from
construction contracts are recognized on the percentage-of-completion method
measured by the percentage of costs incurred to date to total estimated costs
for each contract. Contract costs include all direct material and labor costs
and those indirect costs related to contract performance, such as indirect
labor, supplies, tools, repairs and depreciation costs. Provisions for the total
estimated losses on uncompleted contracts are made in the period in which such
losses are determined. Changes in job performance, job conditions, estimated
profitability and final contract settlements may result in revisions to costs
and income and their effects are recognized in the period in which the revisions
are determined. An amount equal to contract costs attributable to claims is
included in revenues when realization is probable and the amount can be reliably
estimated.

Warranty Costs

For certain contracts, the Company warrants labor for the first year after
installation of new electrical systems. The Company generally warrants labor for
30 days after servicing existing electrical systems. A reserve for warranty
costs is recorded based upon the historical level of warranty claims and
management's estimate of future costs.

Accounts Receivable and Allowance for Doubtful Accounts

The Company provides an allowance for doubtful accounts based upon the
specific identification of accounts receivable where collection is no longer
probable.

Income Taxes

The Company has elected S Corporation status as defined by the Internal
Revenue Code, whereby the Company itself is not subject to taxation for federal
purposes. Under S Corporation status, the stockholders report their share of the
Company's taxable earnings or losses in their personal tax returns.
Consequently, the accompanying financial statements of the Company do not
include a provision for current or deferred income taxes. The Company intends to
terminate its S Corporation status concurrently with the effective date of the
Offerings.

F-111
<PAGE> 187

DANIEL ELECTRICAL CONTRACTORS, INC. AND
DANIEL ELECTRICAL OF TREASURE COAST INC.

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions by
management in determining the reported amounts of assets and liabilities,
disclosures of contingent liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. Reference is made to the
"Revenue Recognition" section of this footnote and Note 10 for discussion of
significant estimates reflected in the Company's combined financial statements.

New Accounting Pronouncement

Effective November 1, 1996, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." Accordingly, in
the event that facts and circumstances indicate that property and equipment or
other assets may be impaired, an evaluation of recoverability would be
performed. If an evaluation is required, the estimated future undiscounted cash
flows associated with the asset are compared to the asset's carrying amount to
determine if an impairment of such property is necessary. The effect of any
impairments would be to expense the difference between the fair value of such
property and its carrying value. Adoption of this standard did not have a
material effect on the combined financial position or results of operations of
the Company.

3. PROPERTY AND EQUIPMENT:

Property and equipment consists of the following (in thousands):

<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31,
USEFUL LIVES -------------- SEPTEMBER 30,
IN YEARS 1995 1996 1997
------------ ----- ----- -------------
<S> <C> <C> <C> <C>
Transportation equipment................... 5 $ 446 $ 517 $ 597
Machinery and equipment.................... 5 120 134 151
Computer and telephone equipment........... 5 92 114 141
Leasehold improvements..................... 5 116 144 209
Furniture and fixtures..................... 5 26 29 29
----- ----- ------
800 938 1,127
Less -- Accumulated depreciation and
amortization............................. (478) (567) (586)
----- ----- ------
Property and equipment, net...... $ 322 $ 371 $ 541
===== ===== ======
</TABLE>

4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:

Activity in the Company's allowance for doubtful accounts receivable
consists of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
------------- SEPTEMBER 30,
1995 1996 1997
---- ----- -------------
<S> <C> <C> <C>
Balance at beginning of period.......................... $47 $ 68 $ 87
Additions to costs and expenses......................... 29 205 229
Deductions for uncollectible receivables written off and
recoveries............................................ (8) (192) (189)
--- ----- -----
Balance at end of period...................... $68 $ 81 $ 127
=== ===== =====
</TABLE>

F-112
<PAGE> 188

DANIEL ELECTRICAL CONTRACTORS, INC. AND
DANIEL ELECTRICAL OF TREASURE COAST INC.

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

Accounts payable and accrued expenses consist of the following (in
thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
-------------- SEPTEMBER 30,
1995 1996 1997
------ ---- -------------
<S> <C> <C> <C>
Accounts payable, trade............................... $1,009 $686 $1,296
Accrued compensation and benefits..................... 76 28 180
Other accrued expenses................................ 240 232 364
------ ---- ------
$1,325 $946 $1,840
====== ==== ======
</TABLE>

Electrical system installation contracts in progress are as follows (in
thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
----------------- SEPTEMBER 30,
1995 1996 1997
------ ------- -------------
<S> <C> <C> <C>
Costs incurred on contracts in progress............. $6,197 $ 8,381 $ 11,760
Estimated earnings, net of losses................... 1,238 2,993 4,120
------ ------- --------
7,435 11,374 15,880
Less -- Billings to date............................ (7,437) (11,407) (16,740)
------ ------- --------
$ (2) $ (33) $ (860)
====== ======= ========
Costs and estimated earnings in excess of billings
on uncompleted contracts.......................... $ 119 $ 719 $ 510
Less -- Billings in excess of costs and estimated
earnings on uncompleted contracts................. (121) (752) (1,370)
------ ------- --------
$ (2) $ (33) $ (860)
====== ======= ========
</TABLE>

5. LONG-TERM DEBT:

Long-term debt consists of installment obligations collateralized by
certain transportation and computer equipment, and due in various monthly
installments, including interest ranging from 6 percent to 11 percent.

The maturities of long-term debt at September 30, 1997, are as follows (in
thousands):

The Company has a $400,000 open line of credit with a bank. The line of
credit bears interest based upon the prime lending rate, which was 8.25% at
September 30, 1997. The line of credit is secured by the Company's investment in
securities and borrowings under such line of credit are due on demand. No
borrowings were outstanding under this line of credit at September 30, 1997.

6. LEASES:

In February of 1997, the Company leased its Miami facility from a Limited
Partnership which is controlled by the Company's stockholder. Prior to February
1997, the Company leased office space from a

F-113
<PAGE> 189

DANIEL ELECTRICAL CONTRACTORS, INC. AND
DANIEL ELECTRICAL OF TREASURE COAST INC.

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

third party, and such lease expired January 1997. The rent paid under this lease
was approximately $71,000 for December 31, 1996. The Company leases its Vero
Beach facility from a company which is owned by the Company's stockholder and is
leased on a month-to-month basis.

7. RELATED-PARTY TRANSACTIONS:

Related-Party Notes Payable

The Company has a $483,000 subordinated long-term note payable to the
president of the Company at December 31, 1995, 1996 and at September 30, 1997.
The Company also has a $175,000, $115,000 and $81,000 note payable due on demand
to the president of the Company at the respective periods.

Related-Party Accounts Receivable

The Company has an $8,000, $8,000 and $18,000 account receivable due from
the president of the Company at December 31, 1995, 1996 and at September 30,
1997, respectively. The Company also has a $9,000 and $12,000 employee
receivable at December 31, 1996 and at September 30, 1997, respectively.

Related-Party Entertainment Expense

Costs related to related-party entertainment expense amounted to $15,000,
$8,000 and $4,000 for the years ended December 31, 1995, 1996 and September 30,
1997, respectively.

Related-Party Compensation

The Company paid $58,000, $72,000 and $72,000 for the years ended December
31, 1995, 1996 and September 30, 1997, respectively to a related-party company
for compensation.

8. EMPLOYEE BENEFIT PLAN:

The Company has a nonqualifying discriminatory pension plan for certain key
executives. Contributions are subject to management's discretion. Total
contributions by the Company under the plan were approximately $9,000, $14,000
and $14,000 for the years ended December 31, 1995, 1996 and September 30, 1997,
respectively.

9. FINANCIAL INSTRUMENTS:

The Company's financial instruments consist of cash and cash equivalents,
investments, accounts receivable, accounts payable, a line of credit, notes
payable and long-term debt. The Company believes that the carrying value of
these instruments on the accompanying balance sheets approximates their fair
value.

10. COMMITMENTS AND CONTINGENCIES:

Litigation

Insurance

F-114
<PAGE> 190

DANIEL ELECTRICAL CONTRACTORS, INC. AND
DANIEL ELECTRICAL OF TREASURE COAST INC.

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

The Company is self-insured for medical claims up to $14,000 per year in
total for all covered individuals. Additionally, the Company is part of the
state's workers' compensation plan and is responsible for claims up to $100,000
per accident with a maximum aggregate exposure for 24 months of $500,000. Claims
in excess of these amounts are covered by a stop-loss policy. Under the state's
policy, the Company has a $305,000 letter of credit which expires April 1, 1998.
The Company has recorded reserves for its portion of self-insured claims based
on estimated claims incurred through March 31, 1995 and 1996, December 31, 1996,
and September 30, 1997.

11. INVESTMENTS AVAILABLE-FOR-SALE:

Investments in securities consist of equity securities and mutual funds
with an aggregate market value of $393,000, $694,000 and $1,504,000 at December
31, 1995, 1996 and September 30, 1997, respectively, and unrealized holding
gains of $66,000, $75,000 and $237,000 for the respective periods.

12. MAJOR CUSTOMERS AND RISK CONCENTRATION:

The Company had sales of approximately 32 percent and 21 percent of total
sales to two major customers during the year ended December 31, 1995, sales of
approximately 29 percent and 25 percent of total sales to two major customers
during the year ended December 31, 1996, and sales of approximately 30 percent
and 38 percent of total sales to two major customers during the year ended
September 30, 1997.

In addition, the Company grants credit, generally without collateral, to
its customers, which are general contractors located primarily in southern
Florida. Consequently, the Company is subject to potential credit risk related
to changes in business and economic factors within the southern Florida region.
However, management believes that its contract acceptance, billing and
collection policies are adequate to minimize the potential credit risk.

The Company routinely maintains cash balances in financial institutions in
excess of federally insured limits.

F-115
<PAGE> 191

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Summit Electric of Texas, Incorporated:

We have audited the accompanying balance sheets of Summit Electric of
Texas, Incorporated, a Texas corporation, as of March 31, 1997 and September 30,
1997, and the related statements of operations, cash flows and stockholder's
equity for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Summit Electric of Texas,
Incorporated as of March 31, 1997 and September 30, 1997, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Houston, Texas
November 14, 1997

F-116
<PAGE> 192

SUMMIT ELECTRIC OF TEXAS, INCORPORATED

BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

ASSETS

<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1997 1997
--------- -------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $ 57 $ 157
Accounts receivable --
Trade, net of allowance of $112 and $122,
respectively.......................................... 2,270 2,543
Retainage.............................................. 128 91
Receivable from stockholder............................ -- 66
Other receivables...................................... 6 8
Deferred tax asset........................................ 69 69
Costs and estimated earnings in excess of billings on
uncompleted contracts.................................. 239 178
Prepaid expenses and other current assets................. 25 27
------ ------
Total current assets.............................. 2,794 3,139
NOTES RECEIVABLE FROM RELATED PARTIES....................... 270 268
PROPERTY AND EQUIPMENT, net................................. 223 180
OTHER ASSETS................................................ 49 50
------ ------
Total assets...................................... $3,336 $3,637
====== ======
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Short-term debt, including current maturities of long-term
debt................................................... $ 819 $ 808
Accounts payable and accrued expenses..................... 974 1,494
Billings in excess of costs and estimated earnings on
uncompleted contracts.................................. 436 182
Other current liabilities................................. 3 19
------ ------
Total current liabilities......................... 2,232 2,503
------ ------
LONG-TERM DEBT, net of current maturities................... 101 88
DEFERRED TAX LIABILITY...................................... 11 11
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY:
Common stock, $1 par value, 10,000 shares authorized,
1,000 shares issued and outstanding.................... 1 1
Retained earnings......................................... 991 1,034
------ ------
Total stockholder's equity........................ 992 1,035
------ ------
Total liabilities and stockholder's equity........ $3,336 $3,637
====== ======
</TABLE>

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

F-117
<PAGE> 193

SUMMIT ELECTRIC OF TEXAS, INCORPORATED

STATEMENTS OF OPERATIONS
(IN THOUSANDS)

<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED YEAR ENDED ENDED SEPTEMBER 30,
MARCH 31, SEPTEMBER 30, --------------------
1997 1997 1996 1997
---------- ------------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES........................................... $10,565 $10,995 $5,735 $6,165
COST OF SERVICES (including depreciation).......... 9,157 9,454 4,946 5,243
------- ------- ------ ------
Gross profit............................. 1,408 1,541 789 922
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES....... 1,340 1,463 699 822
------- ------- ------ ------
Income from operations................... 68 78 90 100
------- ------- ------ ------
OTHER INCOME (EXPENSE):
Interest expense................................. (56) (79) (19) (42)
Other............................................ 25 23 13 11
------- ------- ------ ------
Other expense, net....................... (31) (56) (6) (31)
------- ------- ------ ------
INCOME BEFORE PROVISION FOR INCOME TAXES........... 37 22 84 69
PROVISION FOR INCOME TAXES......................... 23 21 28 26
------- ------- ------ ------
NET INCOME......................................... $ 14 $ 1 $ 56 $ 43
======= ======= ====== ======
</TABLE>

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

F-118
<PAGE> 194

SUMMIT ELECTRIC OF TEXAS, INCORPORATED

STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED YEAR ENDED SEPTEMBER 30,
MARCH 31, SEPTEMBER 30, -------------
1997 1997 1996 1997
---------- ------------- ----- -----
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.......................................... $ 14 $ 1 $ 56 $ 43
Adjustments to reconcile net income to net cash
provided by (used in) operating activities --
Depreciation and amortization.................... 72 75 38 41
Provision for doubtful accounts.................. -- 10 -- 10
Changes in operating assets and liabilities --
(Increase) decrease in --
Accounts receivable......................... 316 (420) 452 (284)
Receivable from stockholder................. 56 (58) 48 (66)
Other receivables........................... 32 42 25 35
Costs and estimated earnings in excess of
billings on uncompleted contracts......... (105) (45) 1 61
Prepaid expenses and other current assets... (23) (8) (16) (1)
Increase (decrease) in --
Accounts payable and accrued expenses....... (498) 541 (519) 520
Billings in excess of costs and estimated
earnings on uncompleted contracts......... 48 (153) (52) (253)
Other, net....................................... 3 15 2 14
----- ----- ----- -----
Net cash provided by (used in) operating
activities................................ (85) -- 35 120
----- ----- ----- -----
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments on notes receivable from related parties... 3 4 1 2
Additions to property and equipment................. (191) (156) (35) --
----- ----- ----- -----
Net cash provided by (used in) investing
activities................................ (188) (152) (34) 2
----- ----- ----- -----
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of long-term debt and notes payable...... 238 226 3 (9)
Payments of long-term debt.......................... (19) (24) (8) (13)
----- ----- ----- -----
Net cash provided by (used in) financing
activities................................ 219 202 (5) (22)
----- ----- ----- -----
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS......................................... (54) 50 (4) 100
CASH AND CASH EQUIVALENTS, beginning of period........ 111 107 111 57
----- ----- ----- -----
CASH AND CASH EQUIVALENTS, end of period.............. $ 57 $ 157 $ 107 $ 157
===== ===== ===== =====
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for --
Interest......................................... $ 56 $ 79 $ 19 $ 42
Income taxes..................................... 35 19 19 3
</TABLE>

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

F-119
<PAGE> 195

SUMMIT ELECTRIC OF TEXAS, INCORPORATED

STATEMENTS OF STOCKHOLDER'S EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
COMMON STOCK TOTAL
---------------- RETAINED STOCKHOLDER'S
SHARES AMOUNT EARNINGS EQUITY
------ ------ -------- -------------
<S> <C> <C> <C> <C>
BALANCE, March 31, 1996............................ 1,000 $1 $ 977 $ 978
Net income....................................... -- -- 14 14
----- -- ------ ------
BALANCE, March 31, 1997............................ 1,000 1 991 992
Net income (unaudited)........................... -- -- 43 43
----- -- ------ ------
BALANCE, September 30, 1997........................ 1,000 $1 $1,034 $1,035
===== == ====== ======
</TABLE>

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

F-120
<PAGE> 196

SUMMIT ELECTRIC OF TEXAS, INCORPORATED

NOTES TO FINANCIAL STATEMENTS

1. BUSINESS AND ORGANIZATION:

Summit Electric of Texas, Incorporated (the Company), a Texas corporation,
focuses on providing electrical system installation and repair services
primarily for mid-sized to large commercial facilities. The Company performs the
majority of its contract work under fixed price contracts, with contract
duration generally ranging from two to eight months. The Company performs the
majority of its work primarily in Houston, Texas.

On a limited basis, the Company provides auto repair and restoration
services to its sole stockholder (the Stockholder) and third parties. The
revenues and cost of services related to such activities have not been removed
from the Company's results of operations for the year ended March 31, 1997 and
September 30, 1997, as such amounts are not material.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Interim Financial Information

The interim financial statements for the six months ended September 30,
1996 and 1997, are unaudited and have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of the
Company's management, the unaudited interim financial statements contain all
adjustments (consisting of normal recurring adjustments) considered necessary
for a fair presentation. The results of operations for the interim periods are
not necessarily indicative of the results for the entire fiscal year.

Cash and Cash Equivalents

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

Property and Equipment

Property and equipment are stated at cost, and depreciation is computed
using an accelerated method over the estimated useful lives of the assets.
Leasehold improvements are capitalized and amortized over the lesser of the life
of the lease or the estimated useful life of the asset. Depreciation expense was
$72,101 and $75,358 for the years ended March 31, 1997 and September 30, 1997,
respectively.

F-121
<PAGE> 197

SUMMIT ELECTRIC OF TEXAS, INCORPORATED

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Revenue Recognition

The Company recognizes revenue when services are performed except when work
is being performed under a construction contract. Revenues from construction
contracts are recognized on the percentage-of-completion method measured by the
percentage of costs incurred to date to total estimated costs for each contract.
Contract costs include all direct material and labor costs and those indirect
costs related to contract performance, such as indirect labor, supplies, tools,
repairs and depreciation costs. Provisions for the total estimated losses on
uncompleted contracts are made in the period in which such losses are
determined. Changes in job performance, job conditions, estimated profitability
and final contract settlements may result in revisions to costs and income, and
their effects are recognized in the period in which the revisions are
determined. An amount equal to contract costs attributable to claims is included
in revenues when realization is probable and the amount can be reliably
estimated.

Warranty Costs

Accounts Receivable and Provision for Doubtful Accounts

The Company provides an allowance for doubtful accounts based upon the
specific identification of accounts receivable where collection is no longer
probable.

Income Taxes

The Company follows the asset and liability method of accounting for income
taxes in accordance with Statement of Financial Accounting Standards (SFAS) No.
109. Under this method, deferred assets and liabilities are recorded for future
tax consequences of temporary differences between the financial reporting and
tax bases of assets and liabilities and are measured using enacted tax rates and
laws.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions by
management in determining the reported amounts of assets and liabilities and
disclosures of contingent liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. Reference is made to the
"Revenue Recognition" section of this footnote and Note 11 for discussion of
significant estimates reflected in the Company's financial statements.

F-122
<PAGE> 198

SUMMIT ELECTRIC OF TEXAS, INCORPORATED

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

New Accounting Pronouncement

Effective April 1, 1996, the Company adopted SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." Accordingly, in the event that facts and circumstances indicate that
property and equipment or other assets may be impaired, an evaluation of
recoverability would be performed. If an evaluation is required, the estimated
future undiscounted cash flows associated with the asset are compared to the
asset's carrying amount to determine if an impairment of such property is
necessary. The effect of any impairment would be to expense the difference
between the fair value of such property and its carrying value. Adoption of this
standard did not have a material effect on the financial position or results of
operations of the Company.

3. PROPERTY AND EQUIPMENT:

Property and equipment consists of the following (in thousands):

<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIVES MARCH 31, SEPTEMBER 30,
IN YEARS 1997 1997
------------ --------- -------------
<S> <C> <C> <C>
Transportation equipment......................... 5 $ 450 $ 447
Machinery and equipment.......................... 7 11 11
Computer and telephone equipment................. 5 84 84
Leasehold improvements........................... 31.5 52 52
Furniture and fixtures........................... 7 43 43
----- -----
640 637
Less -- Accumulated depreciation and
amortization................................... (417) (457)
----- -----
Property and equipment, net............ $ 223 $ 180
===== =====
</TABLE>

4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:

Activity in the Company's allowance for doubtful accounts receivable
consists of the following (in thousands):

<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1997 1997
--------- -------------
<S> <C> <C>
Balance at beginning of period.............................. $112 $112
Additions to costs and expenses............................. -- 10
Deductions for uncollectible receivables written off and
recoveries................................................ -- --
---- ----
Balance at end of period.................................... $112 $122
==== ====
</TABLE>

Accounts payable and accrued expenses consist of the following (in
thousands):

<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1997 1997
--------- -------------
<S> <C> <C>
Accounts payable, trade..................................... $696 $ 1,175
Other accrued expenses...................................... 278 319
---- -------
$974 $ 1,494
==== =======
</TABLE>

F-123
<PAGE> 199

SUMMIT ELECTRIC OF TEXAS, INCORPORATED

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Electrical system installation contracts in progress are as follows (in
thousands):

<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1997 1997
--------- -------------
<S> <C> <C>
Costs incurred on contracts in progress..................... $ 6,482 $ 6,373
Estimated earnings, net of losses........................... 2,122 1,818
------- -------
8,604 8,191
Less -- Billings to date.................................... (8,801) (8,195)
------- -------
$ (197) $ (4)
======= =======
Costs and estimated earnings in excess of billings on
uncompleted contracts..................................... $ 239 $ 178
Less -- Billings in excess of costs and estimated earnings
on
uncompleted contracts.................................. (436) (182)
------- -------
Net liability..................................... $ (197) $ (4)
======= =======
</TABLE>

5. LONG-TERM DEBT:

Long-term debt consists of the following (in thousands):

<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1997 1997
--------- -------------
<S> <C> <C>
Note payable to bank bearing interest at 9.15%, payable in
monthly installments of principal and interest of $2,612
through October 2001, secured by transportation
equipment................................................. $117 $106
Note payable to a financing company bearing interest at
7.9%, payable in monthly installments of principal and
interest of $557 through January 1999, secured by
transportation equipment.................................. 11 9
---- ----
128 115
Less -- Current portion..................................... (27) (27)
---- ----
Long-term debt............................................ $101 $ 88
==== ====
</TABLE>

The maturities of long-term debt are as follows (in thousands):

<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
YEAR ENDED --------- -------------
<S> <C> <C>
1998................................................... $ 27 $ 27
1999................................................... 29 28
2000................................................... 26 27
2001................................................... 28 28
2002................................................... 18 5
---- ----
$128 $115
==== ====
</TABLE>

The Company has a $1,000,000 line of credit with a bank. The line of credit
expired September 30, 1997, and bears interest at 1 percent above the prime
lending rate. The weighted average interest rate under this line of credit was
9.25 percent for fiscal 1997. The line of credit is secured by contracts
receivable, equipment, furniture and fixtures, and the personal guarantee of the
Stockholder. Outstanding borrowings under this line of credit at March 31, 1997,
total $788,142.

On September 30, 1997, the Company negotiated an amendment to its existing
bank line of credit (the Amended Line of Credit). The Amended Line of Credit has
a $1,500,000 borrowing base and is due

F-124
<PAGE> 200

SUMMIT ELECTRIC OF TEXAS, INCORPORATED

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

October 3, 1998. The Amended Line of Credit bears interest at 1 percent above
the prime lending rate. Outstanding borrowings under this line of credit at
September 30, 1997, total $779,458.

The bank line of credit requires the Company to maintain certain net worth
and profitability covenants. At March 31, 1997 and September 30, 1997, the
Company was in compliance with its line-of-credit covenants, as amended.

6. LEASES:

The Company leases a facility from a company which is owned by the
Company's stockholder. The lease expires on November 30, 1998. The rent paid
under this related-party lease was approximately $96,000 for each of the years
ended March 31, 1997 and September 30, 1997. The Company also leases two
facilities from third parties. The rent paid under these leases were
approximately $7,144 and $15,051 for the years ended March 31, 1997 and
September 30, 1997, respectively.

Future minimum lease payments under these noncancelable operating leases
are as follows (in thousands):

<TABLE>
<CAPTION>
YEAR ENDED
-------------------------
MARCH 31, SEPTEMBER 30,
1997 1997
--------- -------------
<S> <C> <C>
1998................................................... $ 99 $ 99
1999................................................... 66 26
2000................................................... 1 --
Thereafter............................................. -- --
---- ----
$166 $125
==== ====
</TABLE>

7. INCOME TAXES:

Federal income taxes are as follows (in thousands):

<TABLE>
<CAPTION>
YEAR ENDED
-------------------------
MARCH 31, SEPTEMBER 30,
1997 1997
--------- -------------
<S> <C> <C>
Current --
Federal................................................... $17 $19
State..................................................... 6 2
--- ---
$23 $21
=== ===
</TABLE>

Actual income tax expense differs from income tax expense computed by
applying the blended U.S. federal and state statutory corporate rate of 28
percent to income before provision for income taxes as follows (in thousands):

<TABLE>
<CAPTION>
YEAR ENDED
--------------------------
MARCH 31, SEPTEMBER 30,
1997 1997
---------- -------------
<S> <C> <C>
Provision at the statutory rate............................. $10 $ 6
Increase resulting from --
Permanent differences, primarily meals and
entertainment.......................................... 9 14
State income tax, net of benefit for federal deduction.... 4 1
--- ---
$23 $21
=== ===
</TABLE>

F-125
<PAGE> 201

SUMMIT ELECTRIC OF TEXAS, INCORPORATED

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Deferred income tax provisions result from temporary differences in the
recognition of income and expenses for financial reporting purposes and for tax
purposes. The tax effects of these temporary differences, representing deferred
tax assets and liabilities result principally from the following (in thousands):

<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1997 1997
--------- -------------
<S> <C> <C>
Allowance for doubtful accounts............................ $ 40 $ 40
Warranty and contract allowances........................... 29 29
Bases difference on property and equipment................. (15) (29)
---- ----
Deferred tax assets.............................. $ 54 $ 40
==== ====
</TABLE>

The net deferred tax assets and liabilities are comprised of the following
(in thousands):

<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1997 1997
--------- -------------
<S> <C> <C>
Deferred tax assets --
Current................................................... $ 69 $ 69
Long-term................................................. -- --
---- ----
Deferred tax assets............................... 69 69
---- ----
Deferred tax liabilities --
Current................................................... (4) (18)
Long-term................................................. (11) (11)
---- ----
Deferred tax liability............................ (15) (29)
---- ----
Net deferred tax assets..................................... $ 54 $ 40
==== ====
</TABLE>

8. RELATED-PARTY TRANSACTIONS:

Notes receivable from related parties consist of the following (in
thousands):

<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1997 1997
--------- -------------
<S> <C> <C>
Note receivable from the Stockholder, bearing an interest
rate of 7.07%, requiring monthly payments of interest,
maturing November 1998.................................... $250 $250
Note receivable from the spouse of the Stockholder, bearing
an interest rate of 8%, requiring monthly installments of
principal and interest of $480, maturing April 2001....... 20 18
---- ----
$270 $268
==== ====
</TABLE>

The Company provides auto repair and restoration services to the
Stockholder. The Stockholder reimbursed the Company $81,161 and $122,979 for
such services for the years ended March 31, 1997 and September 30, 1997,
respectively.

9. EMPLOYEE BENEFIT PLAN:

The Company adopted a 401(k) savings and investment plan approved by the
Internal Revenue Service effective January 1, 1996, covering all eligible
Company employees. Contributions may be made to the plan by an employee at a
percentage of salary but cannot exceed the maximum allowed by the Internal
Revenue Code and may be matched by a discretionary Company contribution.

F-126
<PAGE> 202

SUMMIT ELECTRIC OF TEXAS, INCORPORATED

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

The Company's contributions to the plan for the years ended March 31, 1997
and September 30, 1997, totaled $24,747 and $24,660, respectively.

10. FINANCIAL INSTRUMENTS:

The Company's financial instruments consist of cash and cash equivalents,
accounts receivable, notes receivable, accounts payable, and short and long-term
debt. The Company believes that the carrying values of these instruments on the
accompanying balance sheets approximate their fair values.

11. COMMITMENTS AND CONTINGENCIES:

Litigation

Insurance

The Company carries a broad range of insurance coverage, including business
auto liability, general liability, workers' compensation and an umbrella policy.
The Company has not incurred significant uninsured losses on any of these items.

12. MAJOR CUSTOMERS AND RISK CONCENTRATION:

For the years ended March 31, 1997 and September 30, 1997, revenues from no
one individual customer exceeded 10 percent of total revenues.

In addition, the Company grants credit, generally without collateral, to
its customers, which are primarily general contractors located in Houston,
Texas. Consequently, the Company is subject to potential credit risk related to
changes in business and economic factors within Houston, Texas. However,
management believes that its contract acceptance, billing and collection
policies are adequate to minimize the potential credit risk.

F-127
<PAGE> 203

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Thurman & O'Connell Corporation:

We have audited the accompanying balance sheets of Thurman & O'Connell
Corporation, a Kentucky corporation, as of December 31, 1995 and 1996 and
September 30, 1997, and the related statements of operations, cash flows and
stockholders' equity for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Thurman & O'Connell
Corporation as of December 31, 1995 and 1996 and September 30, 1997, and the
results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Houston, Texas
November 14, 1997

F-128
<PAGE> 204

THURMAN & O'CONNELL CORPORATION

BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
---------------- SEPTEMBER 30,
1995 1996 1997
------ ------ -------------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $ 860 $1,488 $1,160
Accounts receivable --
Trade, net of allowance of $37, $10 and $17,
respectively......................................... 1,078 315 538
Retainage.............................................. 348 78 124
Other receivables...................................... 12 17 9
Inventories............................................... 1,072 273 213
Costs and estimated earnings in excess of billings on
uncompleted contracts.................................. -- 22 52
Prepaid expenses and other current assets................. 4 13 15
------ ------ ------
Total current assets.............................. 3,374 2,206 2,111
PROPERTY AND EQUIPMENT, net................................. 342 306 301
------ ------ ------
Total assets...................................... $3,716 $2,512 $2,412
====== ====== ======

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
Current maturities of long-term debt...................... $ 13 $ 6 $ 7
Accounts payable and accrued expenses..................... 663 242 262
Dividends payable to stockholders......................... 160 200 --
Billings in excess of costs and estimated earnings on
uncompleted contracts.................................. 1,652 479 361
------ ------ ------
Total current liabilities......................... 2,488 927 630
------ ------ ------
LONG-TERM DEBT, net of current maturities................... 96 93 88
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, no par value, 2,000 shares authorized, 200
shares issued and outstanding.......................... 300 300 300
Retained earnings......................................... 832 1,192 1,394
------ ------ ------
Total stockholders' equity........................ 1,132 1,492 1,694
------ ------ ------
Total liabilities and stockholders' equity........ $3,716 $2,512 $2,412
====== ====== ======
</TABLE>

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

F-129
<PAGE> 205

THURMAN & O'CONNELL CORPORATION

STATEMENTS OF OPERATIONS
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED NINE MONTHS
DECEMBER 31, SEPTEMBER 30, ENDED SEPTEMBER 30,
--------------- ------------- --------------------
1995 1996 1997 1996 1997
------ ------ ------------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES..................................... $4,729 $4,551 $4,049 $3,741 $3,239
COST OF SERVICES............................. 3,309 3,059 2,181 2,531 1,653
------ ------ ------ ------ ------
Gross profit....................... 1,420 1,492 1,868 1,210 1,586
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES................................... 512 503 503 397 397
------ ------ ------ ------ ------
Income from operations............. 908 989 1,365 813 1,189
------ ------ ------ ------ ------
OTHER INCOME (EXPENSE):
Interest expense........................... (13) (8) (6) (6) (4)
Other...................................... 36 65 70 46 51
------ ------ ------ ------ ------
Other income (expense), net........ 23 57 64 40 47
------ ------ ------ ------ ------
INCOME BEFORE INCOME TAX EXPENSE............. 931 1,046 1,429 853 1,236
INCOME TAX EXPENSE........................... 19 36 46 24 34
------ ------ ------ ------ ------
NET INCOME................................... $ 912 $1,010 $1,383 $ 829 $1,202
====== ====== ====== ====== ======
</TABLE>

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

F-130
<PAGE> 206

THURMAN & O'CONNELL CORPORATION

STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, YEAR ENDED SEPTEMBER 30,
---------------- SEPTEMBER 30, ---------------
1995 1996 1997 1996 1997
------ ------- ------------- ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income..................................... $ 912 $ 1,010 $ 1,383 $ 829 $1,202
Adjustments to reconcile net income to net cash
provided by operating activities --
Depreciation and amortization............... 53 49 51 37 39
Provision to (reduction in) allowance for
doubtful accounts......................... 13 10 36 (19) 7
Loss (gain) on sale of property and
equipment................................. (1) -- (1) -- (1)
Changes in operating assets and
liabilities --
(Increase) decrease in --
Receivables............................... (506) 1,018 (6) 756 (268)
Inventories............................... (405) 799 181 678 60
Costs and estimated earnings in excess of
billings on uncompleted contracts...... 68 (22) (28) (24) (30)
Prepaid expenses and other current
assets................................. 25 (9) (9) (2) (2)
Increase (decrease) in --
Accounts payable and accrued expenses..... (1) (421) (165) (236) 20
Billings in excess of costs and estimated
earnings on uncompleted contracts...... 916 (1,173) (506) (785) (118)
------ ------- ------- ------ ------
Net cash provided by operating
activities........................... 1,074 1,261 936 1,234 909
------ ------- ------- ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment... 1 -- 23 -- 23
Additions of property and equipment............ (42) (13) (62) (7) (56)
------ ------- ------- ------ ------
Net cash used in investing
activities........................... (41) (13) (39) (7) (33)
------ ------- ------- ------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of long-term debt................... -- 103 103 -- --
Payments of long-term debt..................... (63) (113) (110) (7) (4)
Distributions to stockholders.................. (620) (610) (1,200) (610) (1,200)
------ ------- ------- ------ ------
Net cash used in financing
activities........................... (683) (620) (1,207) (617) (1,204)
------ ------- ------- ------ ------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS.................................... 350 628 (310) 610 (328)
CASH AND CASH EQUIVALENTS, beginning of period... 510 860 1,470 860 1,488
------ ------- ------- ------ ------
CASH AND CASH EQUIVALENTS, end of period......... $ 860 $ 1,488 $ 1,160 1,470 $1,160
====== ======= ======= ====== ======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for --
Interest.................................. $ 10 $ 8 $ 7 $ 5 $ 4
Taxes..................................... $ 6 $ 26 $ 50 $ 23 $ 47
</TABLE>

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

F-131
<PAGE> 207

THURMAN & O'CONNELL CORPORATION

STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE INFORMATION)

<TABLE>
<CAPTION>
COMMON STOCK TOTAL
---------------- RETAINED STOCKHOLDERS'
SHARES AMOUNT EARNINGS EQUITY
------ ------ -------- -------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1994.......................... 200 $300 $ 580 $ 880
Distributions to stockholders..................... -- -- (660) (660)
Net income........................................ -- -- 912 912
--- ---- ------ ------
BALANCE, December 31, 1995.......................... 200 300 832 1,132
Distributions to stockholders..................... -- -- (650) (650)
Net income........................................ -- -- 1,010 1,010
--- ---- ------ ------
BALANCE, December 31, 1996.......................... 200 300 1,192 1,492
Distributions to stockholders (unaudited)......... -- -- (1,000) (1,000)
Net income (unaudited)............................ -- -- 1,202 1,202
--- ---- ------ ------
BALANCE, September 30, 1997......................... 200 $300 $1,394 $1,694
=== ==== ====== ======
</TABLE>

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

F-132
<PAGE> 208

THURMAN & O'CONNELL CORPORATION

NOTES TO FINANCIAL STATEMENTS

1. BUSINESS AND ORGANIZATION:

Thurman & O'Connell Corporation (the Company), a Kentucky corporation,
focuses on providing electrical system installation and repair services
primarily to large commercial facilities. The Company performs the majority of
its contract work under fixed price contracts, with contract terms generally
ranging from 12 to 24 months. The Company performs the majority of its work in
Kentucky.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Interim Financial Information

The interim financial statements for the nine months ended September 30,
1997 and 1996, are unaudited and have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of the
Company's management, the unaudited interim financial statements contain all
adjustments (consisting of normal recurring adjustments) considered necessary
for a fair presentation. The results of operations for the interim periods are
not necessarily indicative of the results for the entire fiscal year.

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. The Company
maintains its principal cash balances in one financial institution. The balances
are insured by the Federal Deposit Insurance Corporation up to $100,000.

Inventories

Inventories consist of parts and supplies held for use in the ordinary
course of business and are stated at the lower of cost or market using the
first-in, first-out (FIFO) method.

Property and Equipment

Property and equipment are stated at cost, and depreciation is computed
using the straight-line method over the estimated useful lives of the assets.
Depreciation expense was approximately $53,000, $49,000 and $51,000 for the
years ended December 31, 1995 and 1996 and September 30, 1997, respectively.

Revenue Recognition

The Company recognizes revenue when services are performed except when work
is being performed under a construction contract. Revenues from construction
contracts are recognized on the percentage-of-

F-133
<PAGE> 209

THURMAN & O'CONNELL CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

completion method measured by the percentage of costs incurred to date to total
estimated costs for each contract. Contract costs include all direct material
and labor costs and those indirect costs related to contract performance, such
as indirect labor, supplies, tools, repairs and depreciation costs. Provisions
for the total estimated losses on uncompleted contracts are made in the period
in which such losses are determined. Changes in job performance, job conditions,
estimated profitability and final contract settlements may result in revisions
to costs and income and their effects are recognized in the period in which the
revisions are determined.

Warranty Costs

Income Taxes

The stockholders of the Company have elected S Corporation status as
defined by the Internal Revenue Code, whereby the Company itself is not subject
to taxation for federal purposes. Under S Corporation status, the stockholders
report their share of the Company's taxable earnings or losses in their personal
tax returns. The provision for income taxes in the accompanying financial
statements relates to income and other taxes incurred by the Company in those
localities that do not permit the Company to report its net income with that of
its stockholders (S Corporation treatment). The Company intends to terminate its
S Corporation status concurrently with the effective date of the Offerings (as
defined in Note 1).

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions by
management in determining the reported amounts of assets and liabilities,
disclosures of contingent liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. Reference is made to the
"Revenue Recognition" section of this footnote for discussion of significant
estimates reflected in the Company's financial statements.

New Accounting Pronouncement

Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." Accordingly, in
the event that facts and circumstances indicate that property and equipment or
other assets may be impaired, an evaluation of recoverability would be
performed. If an evaluation is required, the estimated future undiscounted cash
flows associated with the asset are compared to the asset's carrying amount to
determine if an impairment of such property is necessary. The effect of any
impairment would be to expense the difference between the fair value of such
property and its carrying value. Adoption of this standard did not have a
material effect on the financial position or results of operations of the
Company.

F-134
<PAGE> 210

THURMAN & O'CONNELL CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

3. PROPERTY AND EQUIPMENT:

Property and equipment, at cost, consists of the following (in thousands):

<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31,
USEFUL LIVES -------------- SEPTEMBER 30,
IN YEARS 1995 1996 1997
------------ ----- ----- -------------
<S> <C> <C> <C> <C>
Land..................................... -- $ 25 $ 25 $ 25
Building................................. 30 206 206 206
Machinery and equipment.................. 7 39 39 42
Transportation equipment................. 5 239 241 257
Computer and telephone equipment......... 7 19 24 26
Furniture and fixtures................... 7 20 23 21
----- ----- ------
548 558 577
Less -- Accumulated depreciation and
amortization........................... (206) (252) (276)
----- ----- ------
$ 342 $ 306 $ 301
===== ===== ======
</TABLE>

4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:

Activity in the Company's allowance for doubtful accounts receivable
consists of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
------------ SEPTEMBER 30,
1995 1996 1997
---- ---- -------------
<S> <C> <C> <C>
Balance at beginning of period........................... $24 $ 37 $ 18
Additions to costs and expenses.......................... 13 10 36
Deductions for uncollectible receivables
written off and recoveries............................. -- (37) (37)
--- ---- ----
Balance at end of period................................. $37 $ 10 $ 17
=== ==== ====
</TABLE>

Accounts payable and accrued expenses consist of the following (in
thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
------------ SEPTEMBER 30,
1995 1996 1997
---- ---- -------------
<S> <C> <C> <C>
Accounts payable, trade................................. $516 $130 $150
Accrued compensation and benefits....................... 50 60 64
Accrued cost overruns................................... 78 21 20
Accrued warranty costs.................................. 10 10 10
Other accrued expenses.................................. 9 21 18
---- ---- ----
$663 $242 $262
==== ==== ====
</TABLE>

F-135
<PAGE> 211

THURMAN & O'CONNELL CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Electrical system installation contracts in progress are as follows (in
thousands):

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------------ -------------
1995 1996 1997
------- ------- -------------
<S> <C> <C> <C>
Costs incurred on contracts in progress............ $ 2,159 $ 623 $1,844
Estimated earnings, net of losses.................. 721 229 1,466
------- ------- ------
2,880 852 3,310
Less -- Billings to date........................... (4,532) (1,309) (3,619)
------- ------- ------
$(1,652) $ (457) $ (309)
======= ======= ======
Costs and estimated earnings in excess of billings
on uncompleted contracts......................... $ -- $ 22 $ 52
Less -- Billings in excess of costs and estimated
earnings on uncompleted contracts............. (1,652) (479) (361)
------- ------- ------
$(1,652) $ (457) $ (309)
======= ======= ======
</TABLE>

5. LONG-TERM DEBT:

During 1996, the Company refinanced the note payable to a bank which was in
place at December 31, 1995, with a variable rate note payable. The note is
payable in monthly principal and interest payments of $1,051 through October
2004, at which time any unpaid principal and interest is due. The note is
collateralized by a cash account at the bank, and the Company has agreed not to
pay dividends in excess of the Company's net income for any fiscal year.
Interest is based upon a variable rate of 1% above the rate being offered on the
sweep account (6% as of December 31, 1996 and September 30, 1997).

At December 31, 1995, the Company had a note payable to a bank which
required monthly principal payments of $1,051 plus interest at the prime rate
(8.25% at December 31, 1995) through July 2008. Under the agreement, the Company
agreed not to pay dividends in excess of the Company's net income for the year.
The note was collateralized by the Company's land and building.

The approximate aggregate maturities of long-term debt as of September 30,
1997, are as follows (in thousands):

<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31 --
- --------------------------
<S> <C>
1997................................................... $ 2
1998................................................... 7
1999................................................... 8
2000................................................... 8
2001................................................... 9
Thereafter............................................. 61
---
$95
===
</TABLE>

The Company has a $1,000,000 line of credit with a bank. The line of credit
expires in April 1998 and bears interest at the prime lending rate. All
receivables are pledged as collateral under the agreement, and the Company has
agreed not to pay dividends in excess of net income for the year and to maintain
its deposit accounts with the bank. There were no borrowings under this
agreement at December 31, 1996 or September 30, 1997. In 1995, the Company had a
$500,000 unsecured line of credit at prime with a bank, which expired in April
1996. There were no borrowings under this agreement during 1995 or 1996.

F-136
<PAGE> 212

THURMAN & O'CONNELL CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

6. RELATED-PARTY TRANSACTIONS:

The Company earned revenue for electrical contracting services from
companies owned by a stockholder of approximately $47,000, $40,000 and $25,000
for the years ended December 31, 1995 and 1996, and September 30, 1997,
respectively, with approximately $1,000, $2,000 and $4,000 of the revenue being
recorded as receivables at the respective balance sheet dates. In addition, the
Company had a receivable from another stockholder in the amount of approximately
$1,000, $2,000 and $5,000 as of December 31, 1995 and 1996 and September 30,
1997, respectively, related to travel expense advances.

7. EMPLOYEE BENEFIT PLAN:

During 1995, the Company adopted a defined contribution 401(k) savings plan
covering employees meeting certain minimum service and age requirements, as
defined. The plan provides for discretionary contributions on the part of the
Company. For the years ended December 31, 1995 and 1996 and September 30, 1997,
the Company elected to match 100% of the first 2 percent contributed by each
employee. The contributions paid by the Company totaled approximately $9,000,
$12,000 and $8,000 for the years ended December 31, 1995 and 1996 and September
30, 1997, respectively.

8. FINANCIAL INSTRUMENTS:

The Company's financial instruments consist of cash and cash equivalents,
accounts receivable, accounts payable, a line of credit, and long-term debt. The
Company believes that the carrying value of these instruments on the
accompanying balance sheets approximates their fair value.

9. STOCKHOLDERS' AGREEMENT:

The Company has a right of first refusal on any stock voluntarily offered
for sale by a stockholder subject to certain terms and conditions. The
redemption price shall be as determined by the stockholders on an annual basis
or by formula which is contained in the agreement if a value has not been
established by the stockholders. Such redemption price is payable in not more
than 10 equal quarterly installments with interest at the prime rate. As of
September 30, 1997 and December 31, 1996, the redemption price was determined to
be $5,141 per share.

Upon the death of any stockholder, the Company shall redeem the stock held
by such stockholder provided that the redemption is requested in writing by the
personal representative of the deceased stockholder within two months of the
appointment of such representative or the Company elects to redeem such stock
within the same two-month period. The redemption price pursuant to this
paragraph is the same as described above. Such redemption price may be paid in
full at the closing or in installments, the down payment being the greater of
one-fifth of redemption price or any life insurance proceeds received by the
Company resulting from the death of the stockholder with the balance payable in
quarterly installments over not more than five years with interest at the prime
rate. Coverage under the key-man term life insurance purchased by the Company
totaled $1,000,000 as of December 31, 1995 and 1996 and September 30, 1997.

10. DIVIDENDS:

As long as the election made by the stockholders to report the operations
of the Company on their individual federal and state income tax returns remains
in effect, the board of directors of the Company is required to declare a
dividend, subsequent to the close of the Company's tax year and prior to the
date when payment of individual income taxes is required, to provide the
stockholders sufficient cash to pay any applicable individual income taxes
resulting from the inclusion of the Company's taxable income on their individual
income tax returns. In addition, at the discretion of the Company's board of
directors, an additional

F-137
<PAGE> 213

THURMAN & O'CONNELL CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

minimum dividend shall be authorized which, when combined with the dividend
required to meet the tax obligations of the shareholders, shall equal not less
than 50 percent of the net pretax income of the Company.

11. COMMITMENTS AND CONTINGENCIES:

Litigation

The Company is not currently involved in any significant disputes or legal
actions, however, such actions could arise in the ordinary course of business.

Insurance

12. MAJOR CUSTOMERS AND RISK CONCENTRATION:

The Company had sales of approximately 25, 18, 12, 12 and 11 percent of
total sales to five major customers during 1995, sales of approximately 48, 11
and 10 percent of total sales to three major customers during 1996 and sales of
approximately 26, 12 and 12 percent of total sales to three major customers
during the year ended September 30, 1997.

In addition, the Company grants credit, generally without collateral, to
its customers, which are general contractors in the commercial and industrial
construction markets in Kentucky. Consequently, the Company is subject to
potential credit risk related to changes in business and economic factors within
the commercial and industrial construction markets in this state. However,
management believes that its contract acceptance, billing and collection
policies are adequate to minimize the potential credit risk.

F-138
<PAGE> 214

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Rodgers Electric Company, Inc.:

We have audited the accompanying balance sheet of Rodgers Electric Company,
Inc., a Washington corporation, as of September 30, 1997, and the related
statement of operations, cash flows and stockholders' equity for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.

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

ARTHUR ANDERSEN LLP

Houston, Texas
November 14, 1997

F-139
<PAGE> 215

RODGERS ELECTRIC COMPANY, INC.

BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

ASSETS

<TABLE>
<CAPTION>
SEPTEMBER 30,
1997
-------------
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $ 818
Accounts receivable --
Trade, net of allowance of $15......................... 571
Retainage.............................................. 37
Other receivables...................................... 5
Costs and estimated earnings in excess of billings on
uncompleted contracts................................. 20
Deferred tax asset........................................ 39
Prepaid expenses and other current assets................. 29
------
Total current assets.............................. 1,519
PROPERTY AND EQUIPMENT, net................................. 393
OTHER ASSETS................................................ 175
------
Total assets...................................... $2,087
======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt, including current maturities of long-term
debt................................................... $ 36
Accounts payable and accrued expenses..................... 488
Billings in excess of costs and estimated earnings on
uncompleted contracts.................................. 109
Income taxes payable...................................... 213
------
Total current liabilities......................... 846
------
LONG-TERM DEBT, net of current maturities................... 58
DEFERRED TAX LIABILITY...................................... 75
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $100 par value, 500 shares authorized, 150
shares issued and outstanding.......................... 15
Retained earnings......................................... 1,093
------
Total stockholders' equity........................ 1,108
------
Total liabilities and stockholders' equity........ $2,087
======
</TABLE>

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

F-140
<PAGE> 216

RODGERS ELECTRIC COMPANY, INC.

STATEMENT OF OPERATIONS
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
1997
-------------
<S> <C>
REVENUES.................................................... $3,325
COST OF SERVICES (including depreciation)................... 1,621
------
Gross profit...................................... 1,704
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES................ 1,238
------
Income from operations............................ 466
------
OTHER INCOME (EXPENSE):
Interest expense.......................................... (7)
Other..................................................... 36
------
Other income, net................................. 29
------
INCOME BEFORE PROVISION FOR INCOME TAXES.................... 495
PROVISION FOR INCOME TAXES.................................. 178
------
NET INCOME.................................................. $ 317
======
</TABLE>

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

F-141
<PAGE> 217

RODGERS ELECTRIC COMPANY, INC.

STATEMENT OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
1997
-------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 317
Adjustments to reconcile net income to net cash provided
by operating activities --
Depreciation and amortization.......................... 47
Provision for doubtful accounts........................ 11
Changes in operating assets and liabilities --
(Increase) decrease in --
Accounts receivable............................... (275)
Costs and estimated earnings in excess of billings
on uncompleted contracts.......................... (20)
Deferred taxes, net............................... (34)
Other............................................. 14
Increase (decrease) in --
Accounts payable and accrued expenses............. 355
Income taxes payable.............................. 211
Billings in excess of costs and estimated earnings
on uncompleted contracts.......................... 109
-----
Net cash provided by operating activities......... 735
-----
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments on notes receivable from related parties......... 2
Additions to property and equipment....................... (170)
-----
Net cash used in investing activities............. (168)
-----
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of long-term debt and notes payable............ 70
Payments of long-term debt................................ (23)
-----
Net cash provided by financing activities......... 47
-----
NET INCREASE IN CASH AND CASH EQUIVALENTS................... 614
CASH AND CASH EQUIVALENTS, beginning of period.............. 204
-----
CASH AND CASH EQUIVALENTS, end of period.................... $ 818
=====
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for --
Interest............................................... $ 7
Income taxes........................................... --
</TABLE>

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

F-142
<PAGE> 218

RODGERS ELECTRIC COMPANY, INC.

STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
COMMON STOCK TOTAL
---------------- RETAINED STOCKHOLDERS'
SHARES AMOUNT EARNINGS EQUITY
------ ------ -------- -------------
<S> <C> <C> <C> <C>
BALANCE, September 30, 1996.......................... 150 $15 $ 776 $ 791
Net income......................................... -- -- 317 317
--- --- ------ ------
BALANCE, September 30, 1997.......................... 150 $15 $1,093 $1,108
=== === ====== ======
</TABLE>

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

F-143
<PAGE> 219

RODGERS ELECTRIC COMPANY, INC.

NOTES TO FINANCIAL STATEMENTS

1. BUSINESS AND ORGANIZATION:

Principles of Presentation

Rodgers Electric Company, Inc. is a Washington corporation. The Company
provides electrical contracting services to commercial and industrial customers
in Western Washington. Most of the Company's revenue is from partnering with
customers and providing engineering services for design-build projects on a time
and material basis with a guaranteed not-to-exceed price.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Cash and Cash Equivalents

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

Property and Equipment

Property and equipment are stated at cost, and depreciation is computed
using a straight-line method over the estimated useful lives of the assets.
Leasehold improvements are capitalized and amortized over the lesser of the life
of the lease or the estimated useful life of the asset. Depreciation expense was
approximately $47,000 for the year ended September 30, 1997.

Revenue Recognition

The Company recognizes revenue when services are performed except when work
is being performed under a construction contract. Revenues from construction
contracts are recognized on the percentage-of-completion method measured by the
percentage of costs incurred to date to total estimated costs for each contract.
Contract costs include all direct material and labor costs and those indirect
costs related to contract performance, such as indirect labor, supplies, tools,
repairs and depreciation costs. Provisions for the total estimated losses on
uncompleted contracts are made in the period in which such losses are
determined. Changes in job performance, job conditions, estimated profitability
and final contract settlements may result in revisions to costs and income, and
their effects are recognized in the period in which the revisions are
determined. An amount equal to contract costs attributable to claims is included
in revenues when realization is probable and the amount can be reliably
estimated.

F-144
<PAGE> 220

RODGERS ELECTRIC COMPANY, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Warranty Costs

Accounts Receivable and Provision for Doubtful Accounts

The Company provides an allowance for doubtful accounts based upon the
specific identification of accounts receivable where collection is no longer
probable.

Income Taxes

The Company follows the asset and liability method of accounting for income
taxes in accordance with Statement of Financial Accounting Standards (SFAS) No.
109. Under this method, deferred assets and liabilities are recorded for future
tax consequences of temporary differences between the financial reporting and
tax bases of assets and liabilities and are measured using enacted tax rates and
laws.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions by
management in determining the reported amounts of assets and liabilities and
disclosures of contingent liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. Reference is made to the
"Revenue Recognition" section of this footnote and Note 11 for discussion of
significant estimates reflected in the Company's financial statements.

New Accounting Pronouncement

F-145
<PAGE> 221

RODGERS ELECTRIC COMPANY, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

3. PROPERTY AND EQUIPMENT:

Property and equipment consists of the following (in thousands):

<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIVES SEPTEMBER 30,
IN YEARS 1997
------------ -------------
<S> <C> <C>
Transportation equipment.................................... 10 $ 434
Machinery and equipment..................................... 10 53
Leasehold improvements...................................... 10-25 33
Furniture and fixtures...................................... 10 96
-----
616
Less -- Accumulated depreciation and amortization........... (223)
-----
Property and equipment, net....................... $ 393
=====
</TABLE>

4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:

Accounts payable and accrued expenses consist of the following (in
thousands):

<TABLE>
<CAPTION>
SEPTEMBER 30,
1997
-------------
<S> <C>
Accounts payable, trade..................................... $106
Payroll, profit sharing and related items................... 363
Other accrued expenses...................................... 19
----
$488
====
</TABLE>

Contracts in progress (in thousands):

<TABLE>
<CAPTION>
SEPTEMBER 30,
1997
-------------
<S> <C>
Costs incurred on contracts in progress..................... $321
Estimated earnings, net of losses........................... 472
----
793
Less-Billings to date....................................... (882)
----
$(89)
====
Costs and estimated earnings in excess of billings on
uncompleted contracts..................................... $ 20
Less-Billings in excess of costs and estimated earnings on
uncompleted contracts.................................. (109)
----
Net liability..................................... $(89)
====
</TABLE>

F-146
<PAGE> 222

RODGERS ELECTRIC COMPANY, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

5. LONG-TERM DEBT:

Long-term debt consists of the following (in thousands):

<TABLE>
<CAPTION>
SEPTEMBER 30,
1997
-------------
<S> <C>
Notes payable to financing companies with interest rates
ranging from 3.9% to 9.75%, payable in monthly
installments of principal and interest through March 2002,
secured by transportation equipment....................... 94
Less -- Current portion..................................... (36)
----
Long-term debt............................................ $ 58
====
</TABLE>

The maturities of long-term debt are as follows (in thousands):

<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30 --
--------------------------
<S> <C>
1998................................................... $ 36
1999................................................... 27
2000................................................... 18
2001................................................... 10
2002................................................... 3
----
$ 94
====
</TABLE>

6. RELATED PARTY TRANSACTIONS:

The Company is located in a building owned by the sole stockholder which is
leased to the Company with monthly lease payments of $2,200 per month.

7. INCOME TAXES:

Federal income taxes are $178,000 for the fiscal year ended September 30,
1997.

<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
1997
-------------
<S> <C>
Provision at the statutory rate............................. $173
Increase resulting from --
Permanent differences, mainly meals and entertainment..... 5
----
$178
====
</TABLE>

F-147
<PAGE> 223

RODGERS ELECTRIC COMPANY, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Deferred income tax provisions result from temporary differences in the
recognition of income and expenses for financial reporting purposes and for tax
purposes. The tax effects of these temporary differences, representing deferred
tax assets result principally from the following (in thousands):

<TABLE>
<CAPTION>
SEPTEMBER 30,
1997
-------------
<S> <C>
Allowance for doubtful accounts and other................... $ 39
Bases difference on property and equipment.................. (75)
----
Net deferred tax liabilities...................... $(36)
====
</TABLE>

9. EMPLOYEE BENEFIT PLAN:

The Company has a profit sharing plan which covers substantially all
qualified employees. The profit sharing contribution is made at the discretion
of the Directors. Benefits payable under the profit sharing plan are limited to
contributions made and earnings therein. Company contributions for the year
ended September 30, 1997 were $192,000.

10. FINANCIAL INSTRUMENTS:

The Company's financial instruments consist of cash and cash equivalents,
accounts receivable, accounts payable, and short and long-term debt. The Company
believes that the carrying values of these instruments on the accompanying
balance sheets approximate their fair values.

11. COMMITMENTS AND CONTINGENCIES:

Litigation

The Company is periodically involved in disputes or legal actions arising
in the ordinary course of business. Management does not believe the outcome of
such legal actions will have a material adverse effect on the Company's
financial position or results of operations.

Insurance

The Company carries a broad range of insurance coverage, including business
auto liability, general liability and an umbrella policy.

12. MAJOR CUSTOMERS AND RISK CONCENTRATION:

The Company had sales greater than 10% of total sales to three major
customers, comprising approximately 25%, 22% and 13% of sales during the year
ended September 30, 1997.

In addition, the Company grants credit, generally without collateral, to
its customers, which are primarily commercial and industrial companies located
in the North Puget Sound area of Western Washington. Consequently, the Company
is subject to potential credit risk related to changes in business and economic
factors in that area, including cyclical changes in the aerospace industry.
However, management believes that its contract acceptance, billing and
collection policies are adequate to minimize the potential credit risk.

F-148
<PAGE> 224

======================================================

NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS. IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE
COMMON STOCK IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION
THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR
IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
------------------------
TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 1
Risk Factors.......................... 9
The Company........................... 14
Use of Proceeds....................... 17
Dividend Policy....................... 17
Capitalization........................ 18
Dilution.............................. 19
Selected Financial Data............... 20
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 23
Business.............................. 45
Management............................ 53
Certain Transactions.................. 58
Principal Stockholders................ 62
Description of Capital Stock.......... 63
Shares Eligible for Future Sale....... 66
Certain United States Federal Tax
Consequences to Non-U.S. Holders.... 68
Underwriting.......................... 70
Legal Matters......................... 73
Experts............................... 73
Additional Information................ 73
Index to Financial Statements......... F-1
</TABLE>

------------------------
UNTIL FEBRUARY 20, 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT 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.

======================================================

7,000,000 SHARES

[INTEGRATED LOGO]

COMMON STOCK
------------------------

PROSPECTUS

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

MERRILL LYNCH & CO.

DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION

SUNTRUST EQUITABLE SECURITIES

SANDERS MORRIS MUNDY
JANUARY 26, 1998

======================================================