AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 18, 1996
                                                     REGISTRATION NO. 333-
================================================================================
                       SECURITIES AND EXCHANGE COMMISSION

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

                                    FORM S-1

            REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

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

                      AMERICAN RESIDENTIAL SERVICES, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S>                                <C>                               <C>
          DELAWARE                             1711                                76-0484996
(STATE OR OTHER JURISDICTION OF    (PRIMARY STANDARD INDUSTRIAL      (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
 INCORPORATION OR ORGANIZATION      CLASSIFICATION CODE NUMBER)
</TABLE>
                          5850 SAN FELIPE -- SUITE 500
                           HOUSTON, TEXAS 77057-8003
                                 (713) 706-6177

              (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
       INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
                            ------------------------

                               JOHN D. HELD, ESQ.
              SENIOR VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
                      AMERICAN RESIDENTIAL SERVICES, INC.
                          5850 SAN FELIPE -- SUITE 500
                           HOUSTON, TEXAS 77057-8003
                                 (713) 706-6177
               (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE
               NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE)

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

                                   COPIES TO:

      JAMES L. LEADER, ESQ.                 STEPHEN P. FARRELL, ESQ.
      BAKER & BOTTS, L.L.P.                MORGAN, LEWIS & BOCKIUS LLP
      3000 ONE SHELL PLAZA                       101 PARK AVENUE
    HOUSTON, TEXAS 77002-4995               NEW YORK, NEW YORK 10178
         (713) 229-1234                          (212) 309-6000

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

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

     If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box.  [ ]

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

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

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

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

                        CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=========================================================================================================================
                                                             PROPOSED MAXIMUM     PROPOSED MAXIMUM
  TITLE OF EACH CLASS OF SECURITIES       AMOUNT TO BE        OFFERING PRICE     AGGREGATE OFFERING        AMOUNT OF
          TO BE REGISTERED                REGISTERED(1)        PER SHARE(2)           PRICE(2)         REGISTRATION FEE
- -------------------------------------------------------------------------------------------------------------------------
<S>                                         <C>                   <C>                <C>                    <C>
Common Stock, par value
  $.001 per share(3).................       4,830,000             $13.00             $62,790,000            $21,652
=========================================================================================================================
</TABLE>
(1) Includes 630,000 shares subject to an option granted to the Underwriters to
    cover over-allotments, if any.

(2) Estimated solely for the purpose of calculating the registration fee.

(3) Includes the associated rights to purchase preferred stock.

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

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

                      AMERICAN RESIDENTIAL SERVICES, INC.

                             CROSS-REFERENCE SHEET
                   PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
               ITEM NUMBER AND CAPTION IN FORM S-1                          LOCATION OR CAPTION IN PROSPECTUS
- -----------------------------------------------------------------  ----------------------------------------------------
<S>                                                                <C>
       1.  Forepart of the Registration Statement and
             Outside Front Cover Page of Prospectus..............  Outside Front Cover Page of Prospectus

       2.  Inside Front and Outside Back Cover Pages
             of Prospectus.......................................  Inside Front and Outside Back Cover Pages
                                                                   of Prospectus
       3.  Summary Information, Risk Factors and Ratio
             of Earnings to Fixed Charges........................  Prospectus Summary; Risk Factors; The Company

       4.  Use of Proceeds.......................................  Prospectus Summary; Use of Proceeds; Business

       5.  Determination of Offering Price.......................  Outside Front Cover Page of Prospectus; Risk
                                                                   Factors; Underwriting

       6.  Dilution..............................................  Dilution

       7.  Selling Security Holders..............................  Not Applicable

       8.  Plan of Distribution..................................  Outside Front Cover Page of Prospectus; Underwriting

       9.  Description of Securities to be Registered............  Prospectus Summary; Capitalization; Description of
                                                                   Capital Stock

      10.  Interests of Named Experts and Counsel................  Not Applicable

      11.  Information with Respect to the Registrant............  Outside Front Cover Page of Prospectus; Prospectus
                                                                   Summary; Risk Factors; The Company; Use of Proceeds;
                                                                   Dividend Policy; Capitalization; Dilution; Selected
                                                                   Financial Data; Management's Discussion and Analysis
                                                                   of Financial Condition and Results of Operations;
                                                                   Business; Management; Certain Transactions; Security
                                                                   Ownership of Certain Beneficial Owners and
                                                                   Management; Shares Eligible for Future Sale;
                                                                   Description of Capital Stock; Financial Statements

      12.  Disclosure of Commission Position on
             Indemnification for Securities Act Liabilities......  Not Applicable
</TABLE>
<PAGE>
*******************************************************************************
*    INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A    *
*    REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED       *
*    WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT    *
*    BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE          *
*    REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT      *
*    CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR   *
*    SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH   *
*    OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR   *
*    QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.               *
*******************************************************************************

                 SUBJECT TO COMPLETION, DATED JUNE 18, 1996
PROSPECTUS

                              4,200,000 Shares

                    AMERICAN RESIDENTIAL SERVICES, INC.

                                Common Stock

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

     All the shares of common stock, $.001 par value per share (the "Common
Stock"), offered hereby are being sold by American Residential Services, Inc.
("ARS"). Prior to this offering, there has not been a public market for the
Common Stock of ARS. It is currently estimated that the initial public offering
price will be $13.00 per share. See "Underwriting" for information relating to
the factors to be considered in determining the initial public offering price.
Application has been made to have the Common Stock listed on the New York Stock
Exchange under the symbol "ARS."

     SEE "RISK FACTORS" ON PAGE 10 OF THIS PROSPECTUS FOR A DISCUSSION OF
CERTAIN RISK FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE
COMMON STOCK OFFERED HEREBY.
                               ------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
     EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
   SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
        PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
           REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
==================================================================================================================
                                                                       UNDERWRITING
                                               PRICE TO               DISCOUNTS AND              PROCEEDS TO
                                                PUBLIC                COMMISSIONS(1)              COMPANY(2)
- ------------------------------------------------------------------------------------------------------------------
<S>                                            <C>                       <C>                       <C>
Per Share............................            $                         $                         $
- ------------------------------------------------------------------------------------------------------------------
Total(3).............................          $                         $                         $
==================================================================================================================
</TABLE>
   (1) For information regarding indemnification of the several Underwriters,
       see "Underwriting."

   (2) Before deducting expenses estimated at $      payable by ARS.

   (3) ARS has granted the several Underwriters a 30-day option to purchase up
       to 630,000 additional shares of Common Stock solely to cover
       over-allotments, if any. See "Underwriting." If such option is
       exercised in full, the total Price to Public, Underwriting Discounts and
       Commissions and Proceeds to Company will be $       , $       and
       $       , respectively.

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

     The shares of Common Stock are being offered by the several Underwriters
named herein, subject to prior sale, when, as and if accepted by them and
subject to certain conditions. It is expected that certificates for the shares
of Common Stock offered hereby will be available for delivery on or about August
  , 1996 at the office of Smith Barney Inc., 333 West 34th Street, New York, New
York 10001.

Smith Barney Inc.                                          Montgomery Securities

August   , 1996

<PAGE>

             [graphics -- gatefold, showing service vehicles,
            facilities and personnel of the Founding Companies]

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

     IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
 
                                       2

                               PROSPECTUS SUMMARY

     CONCURRENTLY WITH THE CLOSING OF THE OFFERING MADE HEREBY (THE
"OFFERING"), ARS PLANS TO ACQUIRE, IN SEPARATE TRANSACTIONS (COLLECTIVELY, THE
"ACQUISITIONS"), IN EXCHANGE FOR CONSIDERATION INCLUDING SHARES OF ITS COMMON
STOCK, SEVEN RESIDENTIAL SERVICES BUSINESSES (COLLECTIVELY, THE "FOUNDING
COMPANIES"), TWO OF WHICH ALREADY HAVE BEEN ACQUIRED BY AN AFFILIATE OF ARS.
SEE "THE COMPANY." THE NUMBER OF SHARES OF COMMON STOCK TO BE ISSUED IN EACH
ACQUISITION WILL DEPEND ON THE INITIAL PUBLIC OFFERING PRICE OF THE COMMON
STOCK. ACCORDINGLY, THE DISCLOSURES HEREIN RELATING TO THE SHARES OF COMMON
STOCK TO BE ISSUED IN CONNECTION WITH THE ACQUISITIONS ARE ESTIMATED, BASED ON
AN ASSUMED INITIAL PUBLIC OFFERING PRICE OF $13.00 PER SHARE. UNLESS OTHERWISE
INDICATED BY THE CONTEXT, REFERENCES HEREIN TO (I) "ARS" MEAN AMERICAN
RESIDENTIAL SERVICES, INC., (II) THE "COMPANY" MEAN ARS AND THE FOUNDING
COMPANIES AND (III) "FISCAL 1993," "FISCAL 1994" AND "FISCAL 1995" MEAN,
RESPECTIVELY, THE YEAR ENDED DECEMBER 31, 1993, 1994 AND 1995 WITH RESPECT TO
THE COMPANY AND FIVE FOUNDING COMPANIES, JUNE 30, 1993 AND 1994 AND DECEMBER 31,
1995 WITH RESPECT TO ONE FOUNDING COMPANY AND APRIL 30, 1994, 1995 AND 1996 WITH
RESPECT TO ONE OTHER FOUNDING COMPANY.

     THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED
INFORMATION AND FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, APPEARING
ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, THE INFORMATION AND
SHARE AND PER SHARE DATA IN THIS PROSPECTUS (I) GIVE EFFECT TO THE ACQUISITIONS,
(II) ASSUME THE UNDERWRITERS' OVER-ALLOTMENT OPTION IS NOT EXERCISED AND (III)
GIVE EFFECT TO AN APPROXIMATE 1.35-FOR-1 STOCK SPLIT OF THE COMMON STOCK AND THE
CONVERSION OF A CONVERTIBLE NOTE INTO COMMON STOCK.

                                  THE COMPANY
 
     ARS was founded in October 1995 to create a leading national provider of
(i) comprehensive maintenance, repair and replacement services for heating,
ventilating and air conditioning ("HVAC") systems, including indoor air
quality services, and for plumbing, electrical and other systems in homes and
commercial buildings and (ii) new installation services of those systems in
homes and commercial facilities under construction (collectively, "residential
services"). To achieve this goal, the Company intends to implement an
aggressive acquisition program and a national operating strategy designed to
increase internal revenue growth and capitalize on cost efficiencies. During
fiscal 1995, the combined revenues of the Founding Companies totaled $114.6
million, of which maintenance, repair and replacement services accounted for
approximately 48% and new installation services accounted for approximately 52%.
The Company believes the profitability of its maintenance, repair and
replacement business benefits from its installation services operations as a
result of (i) the significant volume of purchases of HVAC systems for its
high-volume installation services and (ii) the addition of new customer and
equipment information to the Company's marketing database. This database
provides the Company with valuable information that can be used to expand the
Company's future residential services revenue base. In addition, new
installation services provide the Company with cooperative advertising credits
from HVAC system manufacturers which it uses for promoting its maintenance,
repair and replacement services for residential HVAC systems. Through leveraging
these benefits, acquiring new service companies and internal development, the
Company intends to emphasize the growth of its higher-margin maintenance, repair
and replacement services business.
 
     ARS has definitive agreements to acquire the seven Founding Companies
simultaneously with the closing of this Offering. The Founding Companies have
been in business an average of 31 years and provide various residential services
in and around the Houston and Washington-Baltimore metropolitan areas, Richmond,
Virginia, throughout South Carolina, southeast Florida and central Indiana
(primarily Indianapolis). The Company is a leading provider of one or more
residential services in each region in which it operates. During fiscal 1995,
the Company's service and installation technicians (totaling approximately 930
as of March 31, 1996) responded to approximately 263,000 maintenance, repair and
replacement service calls and installed approximately 12,800 HVAC systems in
newly built homes, 

                                     3

apartments and small commercial buildings. Three of the largest Founding
Companies, representing approximately 63% of the Company's fiscal 1995 combined
revenues, have been members of an industry-sponsored practice-sharing group for
the past six years. Through this arrangement, they have developed common
marketing plans, computer systems and other operational practices in order to
develop "best practices" in their respective markets. The Company believes
building upon this arrangement to include all the Founding Companies will aid in
the initial integration of the Founding Companies following the closing of this
Offering.
 
     The Company estimates that the HVAC, plumbing and electrical industries in
the United States represent an annual market in excess of $  billion, of which
maintenance, repair and replacement services account for in excess of $
billion. It believes this market is served by several thousand companies,
consisting predominantly of small, owner-operated businesses operating in single
local geographic areas and providing a limited range of services. For example,
the Company estimates there are more than 500 companies serving this market in
Houston. It believes the majority of owners in its industry have limited access
to adequate capital for modernization, training and expansion and limited
opportunities for liquidity in their businesses.
 
     The Company believes significant opportunities are available to a well
capitalized, national company employing professionally trained,
customer-oriented service technicians and providing a full complement of
high-quality residential services in an industry that has been characterized by
inconsistent quality, reliability and pricing. It also believes the highly
fragmented nature of the residential services industry will provide it with
significant opportunities to consolidate the capabilities and resources of a
large number of existing residential services businesses.
 
BUSINESS STRATEGY
 
     The Company plans to achieve its goal of becoming the leading national
provider of professional, high-quality residential services by emphasizing
growth through acquisitions and implementing a national operating strategy that
enhances internal revenue growth and achieves cost efficiencies.
 
     GROWTH THROUGH ACQUISITION.  The Company intends to implement an aggressive
acquisition program targeting large metropolitan and high-growth suburban areas
with attractive residential demographics. The Company's acquisition strategy
involves entering new geographic markets and expanding within existing markets.
 
      o   ENTERING NEW GEOGRAPHIC MARKETS.  In each new market, the Company will
          initially target for acquisition one or more leading local or regional
          companies providing residential services and having the critical mass
          necessary to be a core business around which other residential service
          operations can be assembled. An important criterion for these
          acquisition candidates will be superior operational management
          personnel, whom the Company generally will seek to retain.
 
      o   EXPANDING WITHIN EXISTING MARKETS.  Once the Company has entered a
          market, it will seek to acquire other well-established service
          companies operating within that region, in order to expand its market
          penetration and expand the range of services it offers in that market.
          The Company also will pursue "tuck-in" acquisitions of smaller
          residential services companies whose operations can be incorporated
          into the Company's existing operations without a significant increase
          in infrastructure.
 
     IMPLEMENTATION OF A NATIONAL OPERATING STRATEGY.  The Company intends to
implement a national operating strategy employing "best practices" designed to
increase internal growth through enhanced operations and the achievement of cost
efficiencies.
 
      o   INTERNAL GROWTH.  The Company will review its operations at the local
          and regional operating levels (as well as examine other service
          industry practices) in order to identify certain "best practices"
          that will be implemented throughout its operations. For example, the
          Company intends 

                                       4

          to provide 24-hour emergency service at each of its locations and to
          monitor service call quality by attempting to contact each of its
          service customers promptly following a service call. In addition, the
          Company intends to utilize a national training program to improve and
          keep current the technical, selling and customer relations skills of
          its service technicians and will use specialized computer technology
          at each of its locations to improve communications, vehicle dispatch
          and service quality and responsiveness. Management believes these
          practices will enable the Company to provide superior customer service
          and maximize sales opportunities. This service-oriented strategy will
          also allow the Company to reinforce its brand images at the local
          level while fostering its efforts to develop a national brand name.
 
      o   COST EFFICIENCIES.  The Company believes it should be able to reduce
          the total operating expenses of the Founding Companies and other
          acquired businesses by eliminating duplicative functions and
          consolidating certain functions performed separately by each company
          prior to its acquisition. In addition, the Company believes that, as a
          large, national residential services company, it should experience
          reduced costs compared to those of the individual Founding Companies
          and other acquired companies in such areas as: the purchase of
          equipment for resale, service vehicles, parts and tools; vehicle and
          equipment maintenance; financing arrangements; and insurance and
          bonding.
 
                                 THIS OFFERING
 
                                    
Common Stock offered by the Company..  4,200,000

Common Stock to be outstanding after
  this Offering(1)...................  8,995,564

Use of Proceeds......................  To pay the cash portion of the purchase 
                                       price for the Founding Companies and to 
                                       repay indebtedness of the Founding 
                                       Companies. See "Use of Proceeds."

Proposed NYSE symbol.................  ARS
- ------------
(1) The number of shares estimated to be outstanding on completion of this
    Offering (i) includes shares issued as consideration in the Acquisitions or
    on conversion in part of an ARS convertible note issued in the
    organizational financing of ARS and (ii) includes 46,156 shares to be
    awarded under the Company's 1996 Incentive Plan to certain employees of the
    Company on the closing of one of the Acquisitions, but (iii) excludes an
    aggregate of 1,345,000 shares subject to options granted under the Company's
    1996 Incentive Plan. See "Certain Transactions -- Organization of the
    Company" and "Management -- Option Grants."
 
                            ------------------------
 
                                  RISK FACTORS
 
   The Common Stock offered hereby involves a high degree of risk. See "Risk
                                   Factors."
 
                            ------------------------

                                       5
 
                             SUMMARY FINANCIAL DATA
                 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
 
     ARS will acquire the Founding Companies simultaneously with and as a
condition to the consummation of this Offering. The Combined Founding Company
Statements of Operations data for fiscal 1993, 1994, and 1995 and for the three
months ended March 31, 1995 and 1996 represent the combined data of the Founding
Companies on an historical basis and exclude the effects of pro forma
adjustments. This 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 had different tax
structures (S corporations and C corporations) during the periods presented and
(ii) the Company will use the purchase method to establish a new basis of
accounting to record the Acquisitions. The following summary unaudited pro forma
financial data presents ARS, as adjusted for (i) the effects of the Acquisitions
on an historical basis, (ii) the effects of certain pro forma adjustments to the
historical financial statements and (iii) the consummation of this Offering. See
"Selected Financial Data" and the Unaudited Pro Forma Combined Financial
Statements and the notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
                                                                              THREE MONTHS
                                               FISCAL YEAR ENDED             ENDED MARCH 31
                                       ---------------------------------  --------------------
                                         1993        1994        1995       1995       1996
                                       ---------  ----------  ----------  ---------  ---------
                                                                      
<S>                                    <C>        <C>         <C>         <C>        <C>      
COMBINED FOUNDING COMPANIES
  STATEMENTS OF OPERATIONS DATA
  (UNAUDITED):
     Revenues........................  $  94,263  $  105,610  $  114,636  $  23,727  $  26,076
     Gross profit....................     25,579      25,860      29,416      5,573      6,670
     Selling, general and
       administrative expenses(1)....     20,629      22,104      24,190      5,301      5,853
</TABLE>

                                                   PRO FORMA(2)
                                        -----------------------------------
                                                           THREE MONTHS
                                                          ENDED MARCH 31
                                                       --------------------
                                        FISCAL 1995      1995       1996
                                        ------------   ---------  ---------
ARS STATEMENTS OF OPERATIONS DATA
  (UNAUDITED):
     Revenues........................     $114,636     $  23,727  $  26,076
     Gross profit....................       29,643         5,630      6,739
     Selling, general and
       administrative expenses(1)....       22,321         4,776      5,670
     Goodwill amortization(3)........        1,549           387        387
     Operating income................        5,773           467        682
     Interest income and other
       expense, net(4)...............          613           152        174
     Interest expense................         (865)         (221)      (227)
     Net income from continuing
       operations....................     $  2,972     $     214  $     339
                                          ========     =========  =========
     Net income per share from
       continuing operations.........     $    .33     $     .02  $     .04
                                          ========     =========  =========
     Shares used in computing pro
       forma net income per share
       from continuing
       operations(4).................        8,996         8,996      8,996
                                          ========     =========  =========

                                              MARCH 31, 1996
                                        ---------------------------
                                          PRO
                                        FORMA(2)     AS ADJUSTED(5)
                                        --------     --------------

ARS BALANCE SHEET DATA (UNAUDITED):
     Working capital.................   $(33,873)       $  2,027
     Total assets....................     93,784          93,826
     Total debt, including current
      portion........................     22,546          10,435
     Stockholders' equity............     20,176          67,629

                                                   (FOOTNOTES ON FOLLOWING PAGE)
                                       6
- ------------
(1) The historical combined statements exclude, and the pro forma combined
    statements include, the effect of certain reductions in salary and benefits
    to the owners of six of the Founding Companies to which they have agreed, as
    follows: fiscal 1993, $998; fiscal 1994, $1,420; fiscal 1995, $1,808; and
    three months ended March 31, 1995 and 1996, $470 and $493, respectively.

(2) The pro forma statements of operations and the pro forma balance sheet
    assume that the Acquisitions were closed on January 1 of each period
    presented and March 31, 1996, respectively, and are not necessarily
    indicative of the results the Company would have obtained had these events
    actually then occurred or of the Company's future results. The pro forma
    combined financial information in these statements (i) is based on
    preliminary estimates, available information and certain assumptions that
    management deems appropriate and (ii) should be read in conjunction with the
    other financial statements and notes thereto included elsewhere in this
    Prospectus.

(3) Reflects amortization of the goodwill to be recorded as a result of the
    Acquisitions over a 40-year period.

(4) Computed on a basis described in Note 5 of Notes to Unaudited Pro Forma
    Combined Financial Statements.

(5) Reflects the closing of this Offering and the Company's application of the
    net proceeds therefrom. See "Use of Proceeds."

                                       7

               SUMMARY INDIVIDUAL FOUNDING COMPANY FINANCIAL DATA
                                 (IN THOUSANDS)

     The following table presents summary data for each Founding Company for its
three most recent fiscal years as well as the most recent interim period and
comparative period of the prior year, as applicable.
<TABLE>
<CAPTION>
                                                                         THREE MONTHS ENDED
                                                   FISCAL                     MARCH 31
                                       -------------------------------  --------------------
                                         1993       1994       1995       1995       1996
                                       ---------  ---------  ---------  ---------  ---------
                                                                            (UNAUDITED)
<S>                                    <C>        <C>        <C>        <C>        <C>
GENERAL HEATING:

     Revenues........................  $  34,642  $  36,334  $  35,159  $   7,651  $   7,033
     Gross profit....................      7,249      6,406      6,293      1,250      1,162
     Selling, general and
       administrative expenses(1)....      5,011      5,245      5,280      1,351      1,186
ATLAS(2):
     Revenues........................  $  10,210  $  15,625  $  22,048  $   4,939  $   6,573
     Gross profit....................      2,027      2,948      4,237        945      1,358
     Selling, general and
       administrative expenses(1)....      1,761      2,421      3,022        688        874
CROWN:
     Revenues........................  $  16,268  $  16,844  $  19,124  $   3,555  $   4,152
     Gross profit....................      5,937      6,529      7,791      1,400      1,509
     Selling, general and
       administrative expenses(1)....      5,698      5,837      6,165      1,348      1,519
FLORIDA HAC(3):
     Revenues........................  $  13,123  $  15,845  $  14,510  $   3,919  $   3,658
     Gross profit....................      3,217      3,766      3,969        929        984
     Selling, general and
       administrative expenses(1)....      2,807      3,321      3,738        894        837
MERIDIAN & HOOSIER(3):
     Revenues........................  $   5,864  $   8,066  $  10,133  $   1,959  $   2,638
     Gross profit....................      1,800      2,269      2,852        537        871
     Selling, general and
       administrative expenses(1)....      1,454      1,989      2,350        512        854
A-ABC(3):
     Revenues........................  $  10,979  $   8,676  $   8,707  $   1,704  $   2,022
     Gross profit....................      4,584      3,101      2,998        512        786
     Selling, general and
       administrative expenses(1)....      3,159      2,444      2,348        508        583
CLIMATIC:(3)
     Revenues........................  $   3,177  $   4,220  $   4,955
     Gross profit....................        765        841      1,276
     Selling, general and
       administrative
       expenses......................        739        847      1,287
</TABLE>
                                                   (FOOTNOTES ON FOLLOWING PAGE)
                                       8

 (1) Excludes the effects of certain reductions in salaries and benefits to the
     owners of six of the Founding Companies, as follows:
<TABLE>
<CAPTION>
                                                                            THREE MONTHS ENDED
                                                      FISCAL                     MARCH 31
                                          -------------------------------  --------------------
                                            1993       1994       1995       1995       1996
                                          ---------  ---------  ---------  ---------  ---------
<S>                                       <C>        <C>        <C>        <C>        <C>
General Heating.........................  $      39  $      31  $      41  $      10  $      10
Atlas...................................         88        123        210         52         52
Crown...................................        729        402        449        110        115
Florida HAC.............................         58        712        868        245        266
Meridian & Hoosier......................          8         42        104         19         16
A-ABC...................................         76        110        136         34         34
</TABLE>
- ------------
 (2) Results for fiscal years ended June 30, 1993 and 1994 and December 31,
     1995.

 (3) The following summary financial data is unaudited: Florida HAC, fiscal 1993
     and 1994; Meridian & Hoosier and A-ABC, fiscal 1993; and Climatic, all
     fiscal years.

                                        9

                                  RISK FACTORS

     PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS, AS
WELL AS THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS. THIS PROSPECTUS
CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS. ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE PROJECTED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF
ANY NUMBER OF FACTORS, INCLUDING THE RISK FACTORS SET FORTH BELOW AND ELSEWHERE
IN THIS PROSPECTUS.

ABSENCE OF COMBINED OPERATING HISTORY
 
     ARS, incorporated in Delaware in October 1995, has conducted no operations
to date other than in connection with its pending acquisitions in separate
transactions (the "Acquisitions") of seven businesses (the "Founding
Companies"), two of which already have been acquired by an affiliate of ARS,
and this Offering. See "The Company." The Founding Companies have operated,
and will continue to operate prior to the closing of the Acquisitions, as
separate, independent businesses, and the Company will use the purchase method
of accounting to record the Acquisitions. Consequently, the pro forma financial
information herein may not be indicative of the Company's future operating
results and financial condition. Until the Company establishes centralized
accounting and other administrative systems, it will rely on the separate
systems of the Founding Companies. The success of the Company will depend, in
part, on the extent to which the Company is able to centralize these functions,
eliminate the unnecessary duplication of other functions and otherwise integrate
the Founding Companies and such additional businesses as the Company may acquire
into a cohesive, efficient enterprise. No assurance can be given the Company's
management group will be able to manage effectively the combined entity or
implement the Company's acquisition or national operating strategy.
 
DEPENDENCE ON ACQUISITIONS FOR GROWTH
 
     The Company intends to grow primarily by acquiring residential services
businesses that maintain, repair, replace and install heating, ventilating and
air conditioning ("HVAC"), plumbing, electrical and other systems and
equipment in homes and small commercial buildings in its existing and in new
markets. Its acquisition strategy presents risks that, singly or in any
combination, could materially adversely affect the Company's business and
financial performance. These risks include the possibility of the adverse effect
on existing operations of the Company from the diversion of management attention
and resources to acquisitions, the possible loss of acquired customer bases and
key personnel, including service technicians, and the contingent and latent
risks associated with the past operations and other unanticipated problems
arising in the acquired businesses. The success of the Company's acquisition
strategy will depend on the extent to which it is able to acquire, successfully
absorb and profitably manage additional businesses, and no assurance can be
given the Company's strategy will succeed. In this connection, if competition
for acquisition candidates develops, the cost of acquiring businesses could
increase materially. See "Business -- Business Strategy."

NEED FOR ADDITIONAL FINANCING

     The Company currently intends to use shares of its Common Stock in making
future acquisitions. The extent to which the Company will be able or willing to
use the Common Stock for this purpose will depend on its market value from time
to time and the willingness of potential sellers to accept it as full or partial
payment. To the extent the Company is unable to use its Common Stock to make
future acquisitions, its ability to grow may be limited by the extent to which
it is able to raise capital for this purpose, as well as to expand existing
operations, through debt or additional equity financings. The Company is
currently pursuing the establishment of a line of credit of at least $50 million
from one or more financial institutions to be used for acquisitions, working
capital and other corporate purposes. In addition, the Company plans to use a
portion of this facility (presently estimated to be approximately $10 million)
to refinance indebtedness of the Founding Companies. No assurance can be given
the Company will be able to obtain a line of credit of that size on terms it
considers acceptable or that it will otherwise be able to obtain the capital it
would need to finance a successful acquisition program and its other cash needs.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."

                                       10

DEPENDENCE ON HOUSING STARTS

     The extent to which the Company is able to maintain or increase revenues
from new installation services for homebuilders will depend on the levels of
housing starts from time to time in the markets in which it operates and likely
will reflect the cyclical nature of the homebuilding industry. That industry is
affected significantly 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 interest in
determining federal income tax), consumer confidence and housing demand. Unless
and until the Company is able through implementation of its growth strategy to
reduce the relative importance of new installation services to its overall
operating results, downturns in the levels of housing starts could have a
material adverse effect on its results of operations.

FACTORS AFFECTING INTERNAL GROWTH
 
     The factors affecting the Company's ability to generate internal growth
will include the extent to which it is able to expand the range of services
offered to customers, increase existing customer bases through the development
and implementation of cost-effective advertising and other marketing programs
and reduce operating and overhead costs of acquired businesses. Factors
affecting the ability of the Founding Companies to expand services will include
the extent to which they are able to attract and retain qualified operational
management and service and installation technicians in new areas of operation
and leverage their relationships with existing customers to provide them
services they currently obtain from others.
 
PROCEEDS OF OFFERING PAYABLE TO AFFILIATES AND ASSOCIATES
 
     ARS will use the net proceeds of this Offering, an anticipated new credit
facility and cash available from the Founding Companies to meet its cash
requirements relating to the closing of the Acquisitions, and no portion of the
net proceeds of this Offering should be considered available to meet the
Company's cash requirements following closing of the Acquisitions and this
Offering. In connection with the closing of the Acquisitions, ARS will pay,
subject to upward and possible downward working capital and other adjustments,
approximately $30.2 million in cash for stock of the Founding Companies which is
beneficially owned by individuals who will become directors of the Company
and/or executive officers of subsidiaries of the Company and approximately
$     million to pay or refinance debt of or relating to the Founding Companies,
including approximately $14.5 million of debt of Enterprises Holding Company
("EHC"), an affiliate of ARS and the owner of two of the Founding Companies.
See "Use of Proceeds" and "Certain Transactions."
 
COMPETITION
 
     The markets for the residential services the Company provides are highly
competitive and are served principally by small, owner-operated private
companies. Certain of these smaller competitors may have lower overhead cost
structures and, consequently, may be able to provide their services at lower
rates than the Company. The Company believes the residential services industry
is subject to rapid consolidation on both a national and a regional scale. Other
companies, including unregulated affiliates of electric and gas public
utilities, which have objectives the same as or similar to the Company's
objectives, may enter the industry. These entrants 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 opportunities. Consequently, the Company may encounter significant
competition in its efforts to achieve its growth objectives. See
"Business -- Competition."
 
SEASONALITY
 
     The Company's installation, maintenance, repair and replacement operations
are subject to seasonal variations in the different lines of service. Except in
southeast Florida and South Carolina, the demand for new installations can be
substantially lower during the winter months. Demand for HVAC and plumbing
services generally varies with the weather; demand generally is higher during
periods of extremely cold or hot weather and lower in the spring and fall
months. The Company expects its revenues and operating
 
                                       11
 
results generally will be lower in its first and fourth quarters. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Seasonality."
 
DEPENDENCE ON KEY PERSONNEL
 
     The Company's operations depend on the continuing efforts of its executive
officers and the senior management of the Founding Companies, and the Company
likely will depend on the senior management of any significant businesses it
acquires in the future. The business or prospects of the Company could be
affected adversely if any of these persons does not continue in his or her
management role after joining the Company and the Company is unable to attract
and retain qualified replacements. The success of the Company's growth strategy,
as well as the Company's current operations, will depend on the extent to which
the Company is able to retain, recruit and train qualified service and
installation technicians who meet the Company's standards of conduct and service
to its customers. See "Business -- Hiring, Training and Safety."
 
CONTROL BY EXISTING MANAGEMENT AND STOCKHOLDERS
 
     On closing of the Acquisitions and this Offering, 10 former owners of the
Founding Companies, including the principal venture-capital financing source of
ARS (Equus II Incorporated ("Equus II")) and three executive officers of ARS,
will beneficially own in the aggregate approximately 49% of the outstanding
Common Stock. If these persons were to act in concert, they would, as a
practical matter, be able to exercise control over the Company's affairs,
including the election of the entire Board of Directors and (subject to Section
203 of the Delaware General Corporation Law (the "DGCL")) any matter submitted
to a vote of stockholders. See "Security Ownership of Certain Beneficial Owners
and Management."

POTENTIAL EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE ON PRICE OF COMMON STOCK
 
     On closing of the Acquisitions and this Offering, 8,995,564 shares of
Common Stock will be outstanding. The 4,200,000 shares sold in this Offering
(other than shares that may be purchased by affiliates of the Company) will be
freely tradable. The remaining shares outstanding may be resold publicly only
following their effective registration under the Securities Act of 1933, as
amended (the "Securities Act"), or pursuant to an available exemption (such as
provided by Rule 144 following a holding period for previously unregistered
shares) from the registration requirements of that Act. The holders of those
remaining shares have certain rights to have their shares registered in the
future under the Securities Act (see "Shares Eligible for Future Sale"), but
may not exercise such registration rights, and have agreed with ARS that they
will not sell, transfer or otherwise dispose of any of their shares, for two
years following the closing of this Offering (or for such shorter period as the
Securities and Exchange Commission (the "SEC") may prescribe as the holding
period for restricted securities under Rule 144). Sales made pursuant to Rule
144 must comply with its applicable volume limitations and other requirements.
 
     On closing of this Offering, the Company also will have outstanding options
and warrants to purchase up to a total of 1,454,615 shares of Common Stock, of
which only warrants to purchase 109,615 shares will become exercisable
immediately after the Closing. The Company intends to register all the shares
subject to these options and warrants under the Securities Act for public
resale.
 
     The Company and its directors and executive officers, Equus II and all
persons who acquire shares of Common Stock in connection with the Acquisitions
have agreed not to offer or sell any shares for a period of 180 days following
the date of this Prospectus (the "Lockup Period") without the prior written
consent of Smith Barney Inc., except that the Company may issue Common Stock in
connection with acquisitions, pursuant to the Company's 1996 Incentive Plan (see
"Management -- 1996 Incentive Plan") and pursuant to the exercise of warrants
outstanding as of the closing of this Offering.
 
     Within 60 days after the closing of this Offering, the Company intends to
register 5,000,000 additional shares of Common Stock under the Securities Act
for its use in connection with future acquisitions. These shares generally will
be freely tradable after their issuance by persons not affiliated with the
Company unless the Company contractually restricts their resale.
 
                                       12
 
     The effect, if any, the availability for sale, or sale, of the shares of
Common Stock eligible for future sale will have on the market price of the
Common Stock prevailing from time to time is unpredictable, and no assurance can
be given that the effect will not be adverse.
 
NO PRIOR MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
 
     Prior to this Offering, no public market for the Common Stock has existed,
and the initial public offering price, which will be determined by negotiation
between the Company and representatives of the Underwriters, may not be
indicative of the price at which the Common Stock will trade after this
Offering. See "Underwriting" for the factors to be considered in determining
the initial public offering price. Application has been made to list the Common
Stock on the New York Stock Exchange, but no assurance can be given an active
trading market for the Common Stock will develop or, if developed, continue
after this Offering. The market price of the Common Stock after this Offering
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 Company's
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 at that
time.
 
IMMEDIATE, SUBSTANTIAL DILUTION
 
     Purchasers of Common Stock in this Offering (i) will experience immediate,
substantial dilution in the net tangible book value of their stock of $12.37 per
share (see "Dilution") and (ii) may experience further dilution in that value
from issuances of Common Stock in connection with future acquisitions.
 
POTENTIAL ADVERSE EFFECTS OF AUTHORIZED PREFERRED STOCK
 
     The Company's Restated Certificate of Incorporation authorizes the Board of
Directors to issue, without stockholder approval, one or more series of
preferred stock having such preferences, powers and relative, participating,
optional and other rights (including preferences over the Common Stock
respecting dividends and distributions and voting rights) as the Board of
Directors may determine. See "Description of Capital Stock -- Preferred
Stock."
 
POTENTIAL ANTI-TAKEOVER EFFECTS
 
     The Company has adopted a stockholder rights plan. This plan and provisions
of the Company's Restated Certificate of Incorporation and Bylaws and the DGCL
may have the effect of delaying, discouraging, inhibiting, preventing or
rendering more difficult an attempt to obtain control of the Company by means of
a tender offer, business combination, proxy contest or otherwise. These
provisions include the charter authorization of "blank check" preferred stock
and classification of the Board of Directors, a By-law restriction on the
ability of stockholders to take actions by written consent and a DGCL provision
imposing restrictions on business combinations with certain interested parties.
See "Description of Capital Stock."
 
                                       13
 
                                  THE COMPANY
 
     ARS:  ARS was founded in October 1995 to create a leading national provider
of residential services through the implementation of both an aggressive
acquisition program and a national operating strategy. Concurrently with and as
a condition to the closing of this Offering, ARS will acquire the seven Founding
Companies. For a description of the transactions pursuant to which these
businesses will be acquired, see "Certain Transactions -- Organization of the
Company."
 
     GENERAL HEATING:  General Heating Engineering Company, Inc., which does
business as "General Heating & Air Conditioning Co." ("General Heating"),
was founded in 1947 and is a leading installer of HVAC systems and equipment and
pre-fabricated gas and wood-burning fireplaces for residential and light
commercial construction markets in the Washington-Baltimore metropolitan area,
including northern Virginia, and Richmond. It also provides comprehensive HVAC
maintenance, repair and replacement services to the residential and light
commercial markets and sells and installs pre-fabricated gas and wood-burning
fireplaces. In recognition of its commitment to customer service, General
Heating has received CONTRACTING BUSINESS magazine's 1996 Residential Contractor
of the Year Award. It maintains its headquarters in Manassas, Virginia and has
branch facilities in Savage, Maryland and Richmond, Virginia. At its Manassas
location, General Heating operates a facility that fabricates and assembles
substantially all the sheet metal, duct work, fiberglass and flexible duct work
items used in its installation operations. During fiscal 1995, General Heating
had revenues of approximately $35.2 million.
 
     ATLAS:  Atlas Services, Inc. ("Atlas") was founded in 1976 and is a
leading provider of electric, HVAC and plumbing installation services to
residential and light commercial construction markets throughout South Carolina.
Atlas also provides comprehensive plumbing, HVAC and electrical, maintenance,
repair and replacement services and retails and installs pre-fabricated gas and
wood-burning fireplaces. It maintains its headquarters in Charleston, South
Carolina and has branch facilities in Columbia, Greenville, Hilton Head, Clemson
and Myrtle Beach, South Carolina. During fiscal 1995, Atlas had revenues of
approximately $22.0 million.
 
     CROWN:  Services Enterprises, Inc., which does business as "Crown
Services" ("Crown"), began operations in 1956 and is the largest single
provider of residential plumbing, HVAC and electrical maintenance, repair and
replacement services to the residential and light commercial markets in the
Houston metropolitan area. Crown does not provide new installation services. It
maintains its headquarters in Houston. In March 1996, Crown was acquired by EHC,
an affiliate of ARS, which will be acquired by the Company in one of the
Acquisitions. See "Certain Transactions -- EHC." During fiscal 1995, Crown had
revenues of approximately $19.1 million.
 
     FLORIDA HAC:  Florida Heating and Air Conditioning, Inc. (together with
three affiliated companies having common management, "Florida HAC") began
operations in 1970 and is a leading installer of HVAC systems and equipment for
the residential construction market, and a leading provider of HVAC maintenance,
repair and replacement services to the residential and light commercial markets,
in Southeast Florida, including Broward, Dade and Palm Beach counties. It
maintains its headquarters in Margate, Florida, a suburb of Ft. Lauderdale, and
has a sales office in West Palm Beach. At Margate, Florida HAC operates a
facility that fabricates substantially all fiberglass and flexible duct systems
used in its installation operations. During fiscal 1995, Florida HAC had
revenues of approximately $14.5 million.
 
     MERIDIAN & HOOSIER:  DIAL ONE Meridian and Hoosier, Inc. ("Meridian &
Hoosier") is the successor to a business founded in 1973 and is a leading
provider of HVAC maintenance, repair and replacement services to the residential
and light commercial markets, and also installs HVAC systems and equipment for
the residential construction market, in central Indiana, including Indianapolis.
Meridian & Hoosier is the only Founding Company that currently maintains,
repairs and replaces commercial heating and air conditioning units in large
commercial facilities. It maintains its headquarters in Indianapolis, a branch
facility in Lafayette, Indiana and a sales office in Crawfordsville, Indiana.
During fiscal 1995, Meridian & Hoosier had revenues of approximately $10.1
million.

                                       14

     A-ABC:  ADCOT, Inc., which does business as "A-ABC Appliance"
("A-ABC"), was founded in 1972 and is among the leading providers of home
appliance, HVAC and plumbing maintenance, repair and replacement services to the
residential and light commercial markets in the greater Houston and surrounding
areas. A-ABC does not provide new installation services. It maintains its
headquarters in Houston. In May 1996, A-ABC was acquired by EHC, which will be
acquired in one of the Acquisitions. In June 1996, EHC determined to discontinue
and hold for sale the retail appliance operations of A-ABC, which included eight
retail stores in the greater Houston area. See "Certain Transactions -- EHC."
During fiscal 1995, A-ABC had revenues of approximately $8.7 million (net of
discontinued appliance store revenues of $11.9 million).

     CLIMATIC:  Climatic Corporation of Vero Beach ("Climatic") is the
successor to a business founded in 1956 and is the leading provider of HVAC
maintenance, repair and replacement services (including internal air quality
("IAQ") services) to the residential and light commercial markets in the
four-county area in Florida known as the Treasure Coast region (Indian River,
St. Lucie, Martin and Palm Beach Counties). It also installs HVAC systems and
equipment for the residential and light commercial construction markets. It
maintains its headquarters in Vero Beach, Florida. During fiscal 1995, Climatic
had revenues of approximately $5.0 million.

     SUMMARY OF TERMS OF ACQUISITIONS:  The aggregate consideration that will be
paid by ARS to acquire the Founding Companies is approximately $76.9 million,
consisting of (i) approximately $34.8 million in cash and (ii) 3,236,613 shares
of Common Stock. The Company will also assume approximately $21.4 million of
indebtedness. In addition, the stockholders of each Founding Company will be
entitled to receive from such Founding Company (or be obligated to pay to it) an
amount equal to the increase (or decrease) in such Founding Company's net
working capital (as defined) from the date of a specified recent balance sheet
for such Founding Company through the closing of the Acquisitions. Prior to the
closing of the Acquisitions, General Heating, which is an S corporation, will
distribute cash and other current assets to its stockholders in an amount equal
to the balance of its Accumulated Adjustment Account ("AAA account") as of the
closing of the General Heating Acquisition (approximately $10 million as of
December 31, 1995). An AAA account generally represents undistributed retained
earnings of an S corporation, upon which taxes have been paid by the
stockholders. In addition, prior to the closing of the Acquisitions, certain
Founding Companies will make distributions to their stockholders of certain
assets and related liabilities. As of June 30, 1996, the net amount of these
distributions would have been approximately $     million. See "Certain
Transactions."

     The consideration being paid by ARS for each Founding Company other than
Crown and A-ABC was determined by arm's-length negotiations between ARS and a
representative of that Founding Company. The consideration being paid by ARS for
EHC (which previously acquired Crown and A-ABC) was determined using generally
the same valuation method ARS used to negotiate the consideration being paid to
the stockholders of the other Founding Companies. See "Certain Transactions."

     The closing of each Acquisition is subject to customary conditions. These
conditions include, among others: the accuracy on the closing date of the
Acquisitions of the representations and warranties made by the Founding
Companies, their principal stockholders and by ARS; the performance of each of
their respective covenants included in the agreements relating to the
Acquisitions; and the nonexistence of a material adverse change in the results
of operations, financial condition or business of each Founding Company.

     Any Founding Company's Acquisition agreement may be terminated, under
certain circumstances, prior to the closing of this Offering: (i) by the mutual
consent of the boards of directors of ARS and the Founding Company; (ii) if this
Offering and the acquisition of that Founding Company are not closed by December
31, 1996; (iii) by ARS if the schedules to the acquisition agreement are amended
to reflect a material adverse change in that Founding Company; or (iv) if a
material breach or default under the agreement by one party occurs and is not
waived.

     No assurance can be given that the conditions to the closing of all the
Acquisitions will be satisfied or waived or that each Acquisition will close.

                                       15

     For information regarding the employment agreements to be entered into by
the chief executive officer of each Founding Company other than A-ABC and Crown
(which include covenants not to compete), see "Management -- Employment
Agreements."

     American Residential Services, Inc. is a Delaware corporation. Its
executive offices are located at 5850 San Felipe, Suite 500, Houston, Texas
77057-8003, and its telephone number at that address is
(713) 706-6177.

                                USE OF PROCEEDS

     The net proceeds to the Company from the sale of the shares of Common Stock
offered hereby after deducting underwriting discounts and commissions and
estimated offering expenses payable by the Company are estimated to be
approximately $47.3 million, assuming an initial public offering price of $13.00
per share (the estimated initial public offering price). Of those net proceeds,
$34.8 million will be used to pay the cash portion of the purchase price for the
Acquisitions and the remaining approximately $12.5 million will be used to repay
outstanding indebtedness of the Founding Companies (some of which has been
guaranteed by stockholders of the Founding Companies) and ARS and to redeem the
preferred stock of EHC.

     On the closing of this Offering, the Company intends to repay an aggregate
of approximately $       million of indebtedness of the Founding Companies and
ARS, and to redeem, for $0.5 million, the preferred stock of EHC. To the extent
such repayment and redemption are not funded with proceeds from this Offering,
the Company intends to fund the repayment thereof through borrowings under a new
credit facility (the "New Credit Facility") which the Company intends to enter
into effective concurrently with the closing of this Offering. The Company has
initiated discussions with several financial institutions to establish the terms
of the New Credit Facility and, based on those discussions, the Company expects
the New Credit Facility will provide initial borrowing availability of at least
$50 million.

     The indebtedness to be repaid from the proceeds of this Offering and the
New Credit Facility bears interest at rates ranging from 5.9% to 13.3%. Such
indebtedness would otherwise mature at various dates through 2017.

                                       16

                                DIVIDEND POLICY

     It is the Company's current intention to retain earnings to finance the
expansion of its business. Any future dividends will be at the discretion of the
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 cash needs and expansion plans, the
income tax laws then in effect, the requirements of Delaware law and any
restrictions that may be imposed by the Company's future credit facilities. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."

                                 CAPITALIZATION

     The following table sets forth the current maturities of long-term
obligations and capitalization as of March 31, 1996 (April 30, 1996 in the case
of Climatic) of (i) the Company on a pro forma combined basis to give effect to
the Acquisitions and (ii) the Company, pro forma as adjusted, to give effect to
the Acquisitions, this Offering and the application of the estimated net
proceeds therefrom. See "Use of Proceeds." This table should be read in
conjunction with the Unaudited Pro Forma Financial Statements of the Company and
the related notes thereto included elsewhere in this Prospectus.

                                             MARCH 31, 1996
                                        -------------------------
                                        PRO FORMA    AS ADJUSTED
                                        ---------    ------------
                                             (IN THOUSANDS)
Current maturities of long-term
  obligations........................    $   805       $    805
                                         =======       ========
Long-term obligations, less current
  maturities.........................     20,341          9,330

Stockholders' equity:
     Preferred Stock: $0.001 par
      value, 10,000,000 shares
      authorized; none issued or
      outstanding....................      --            --

     Common Stock: $0.001 par value,
      50,000,000 shares authorized;
      4,795,564 shares issued and
      outstanding, pro forma; and
      8,995,564 shares issued and
      outstanding, pro forma as
      adjusted(1)....................          5              9

     Additional paid-in capital......     23,535         71,284

     Retained deficit................     (3,364)        (3,664)
                                         -------       --------
          Total stockholders'
             equity..................     20,176         67,629
                                         -------       --------
               Total
                  capitalization.....    $40,517       $ 76,959
                                         =======       ========
- ------------
(1) Excludes an aggregate of 1,345,000 shares of Common Stock subject to options
    granted pursuant to the Company's 1996 Incentive Plan. See
    "Management -- 1996 Incentive Plan."

                                       17

                                    DILUTION

     The deficit in pro forma net tangible book value of the Company as of March
31, 1996 was approximately $(41,793,000), or approximately $(8.71) per share,
after giving effect to the Acquisitions. The deficit in pro forma net tangible
book value per share represents the amount by which the Company's pro forma
total liabilities exceed the Company's pro forma net tangible assets as of March
31, 1996, divided by the number of shares to be outstanding after giving effect
to (i) the Acquisitions and (ii) the issuance of stock awards to employees of
the Company in connection with the acquisition of EHC, (iii) the conversion in
part of an ARS convertible note and EHC preferred stock held by Equus II and
(iv) the assumed exercise of a warrant held by a bank lender of EHC. After
giving effect to the sale of the 4,200,000 shares offered hereby and deducting
estimated underwriting discounts and commissions and estimated offering expenses
payable by the Company, the Company's pro forma net tangible book value as of
March 31, 1996 would have been approximately $5,660,000, or approximately $.63
per share, based on the estimated initial public offering price of $13.00 per
share. This represents an immediate increase in pro forma net tangible book
value of approximately $9.34 per share to existing stockholders and an immediate
dilution of approximately $12.37 per share to new investors purchasing shares in
this Offering. The following table illustrates this pro forma dilution:

<TABLE>
<S>                                                                                   <C>        <C>
Assumed initial public offering price per share.....................................             $   13.00
Pro forma deficit in net tangible book value per share before
  this Offering.....................................................................  $   (8.71)
Increase in pro forma net tangible value per share attributable to
  new investors.....................................................................       9.34
                                                                                      ---------
Pro forma net tangible book value per share after this Offering.....................                   .63
                                                                                                 ---------
Dilution per share to new investors.................................................             $   12.37
                                                                                                 =========
</TABLE>
     The following table sets forth, on a pro forma basis to give effect to the
Acquisitions as of March 31, 1996, 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 existing stockholders and the new
investors purchasing shares from the Company in this Offering (before deducting
underwriting discounts and commissions and estimated offering expenses):
<TABLE>
<CAPTION>
                                          SHARES PURCHASED        TOTAL CONSIDERATION(1)         AVERAGE
                                       ----------------------   --------------------------        PRICE
                                         NUMBER       PERCENT       AMOUNT         PERCENT      PER SHARE
                                       -----------    -------   ---------------    -------      ---------
<S>                                      <C>            <C>     <C>                 <C>          <C>     
Existing stockholders................    4,795,564      53.3%   $   (41,793,000)    (326.3)%     $ (8.71)
New investors........................    4,200,000      46.7         54,600,000      426.3         13.00
                                       -----------    -------   ---------------    -------
          Total......................    8,995,564     100.0%   $    12,807,000      100.0%
                                       ===========    =======   ===============    ======= 
</TABLE>
- ------------
(1) Total consideration paid by existing stockholders represents the combined
    stockholders' equity of the Founding Companies before this Offering,
    adjusted to reflect: (i) the payment of $34,800,000 in cash to the
    stockholders of the Founding Companies as part of the consideration for the
    Acquisitions; and (ii) the transfer of selected assets to and the assumption
    of certain liabilities by certain stockholders of the Founding Companies in
    the net amount of $.6 million in connection with the Acquisitions. See "Use
    of Proceeds" and "Capitalization."
 
                                       18
 
                            SELECTED FINANCIAL DATA
                 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
 
     ARS will acquire the Founding Companies simultaneously with and as a
condition to the consummation of this Offering. The Combined Founding Company
Statements of Operations data for fiscal 1993, 1994 and 1995 and for the three
months ended March 31, 1995 and 1996 represent the combined data of the Founding
Companies on an historical basis and exclude the effects of pro forma
adjustments. This 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 had different tax
structures (S corporations and C corporations) during the periods presented and
(ii) the Company will use the purchase method to establish a new basis of
accounting to record the Acquisitions. The following summary unaudited pro forma
financial data presents ARS, as adjusted for (i) the effects of the Acquisitions
on an historical basis, (ii) the effects of certain pro forma adjustments to the
historical financial statements and (iii) the consummation of this Offering. See
the Unaudited Pro Forma Combined Financial Statements and the notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
                                                                              THREE MONTHS
                                               FISCAL YEAR ENDED             ENDED MARCH 31
                                       ---------------------------------  --------------------
                                         1993        1994        1995       1995       1996
                                       ---------  ----------  ----------  ---------  ---------
<S>                                    <C>        <C>         <C>         <C>        <C>
COMBINED FOUNDING COMPANIES
  STATEMENTS OF OPERATIONS DATA
  (UNAUDITED):
     Revenues........................  $  94,263  $  105,610  $  114,636  $  23,727  $  26,076
     Gross profit....................     25,579      25,860      29,416      5,573      6,670
     Selling, general and
       administrative expenses(1)....     20,629      22,104      24,190      5,301      5,853
</TABLE>
                                                   PRO FORMA(2)
                                        -----------------------------------
                                                           THREE MONTHS
                                                          ENDED MARCH 31
                                                       --------------------
                                        FISCAL 1995      1995       1996
                                        ------------   ---------  ---------

ARS STATEMENTS OF OPERATIONS DATA
  (UNAUDITED):
     Revenues........................     $114,636     $  23,727  $  26,076
     Gross profit....................       29,643         5,630      6,739
     Selling, general and
       administrative expenses(1)....       22,321         4,776      5,670
     Goodwill amortization(3)........        1,549           387        387
     Operating income................        5,773           467        682
     Interest income and other
       expense, net(4)...............          613           152        174
     Interest expense................         (865)         (221)      (227)
     Net income from continuing
       operations....................     $  2,972     $     214  $     339
                                          ========     =========  =========
     Net income per share from
       continuing operations.........     $    .33     $     .02  $     .04
                                          ========     =========  =========
     Shares used in computing pro
       forma net income per share
       from continuing
       operations(4).................        8,996         8,996      8,996
                                          ========     =========  =========

                                              MARCH 31, 1996
                                        ---------------------------
                                          PRO
                                        FORMA(2)     AS ADJUSTED(5)
                                        --------     --------------
ARS BALANCE SHEET DATA (UNAUDITED):
     Working capital.................   $(33,873)       $  2,027
     Total assets....................     93,784          93,826
     Total debt, including current
      portion........................     22,546          10,435
     Stockholders' equity............     20,176          67,629

                                                   (FOOTNOTES ON FOLLOWING PAGE)

                                       19
- ------------
(1) The historical combined statements exclude, and the pro forma combined
    statements include, the effect of certain reductions in salary and benefits
    to the owners of six of the Founding Companies to which they have agreed, as
    follows: fiscal 1993, $998; fiscal 1994, $1,420; fiscal 1995, $1,808; and
    three months ended March 31, 1995 and 1996, $470 and $493, respectively.

(2) The pro forma statements of operations and the pro forma balance sheet
    assume that the Acquisitions were closed on January 1 of each period
    presented and March 31, 1996, respectively, and are not necessarily
    indicative of the results the Company would have obtained had these events
    actually then occurred or of the Company's future results. The pro forma
    combined financial information in these statements (i) is based on
    preliminary estimates, available information and certain assumptions that
    management deems appropriate and (ii) should be read in conjunction with the
    other financial statements and notes thereto included elsewhere in this
    Prospectus.
 
(3) Reflects amortization of the goodwill to be recorded as a result of the
    Acquisitions over a 40-year period.
 
(4) Computed on a basis described in Note 5 of Notes to Unaudited Pro Forma
    Combined Financial Statements.
 
(5) Reflects the closing of this Offering and the Company's application of the
    net proceeds therefrom. See "Use of Proceeds."
 
                                       20

          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                           AND RESULTS OF OPERATIONS
 
     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.
 
INTRODUCTION
 
     The Company's revenues are primarily derived from (i) owners and occupants
of homes and light commercial buildings and (ii) builders and developers of new
homes, residential developments and commercial buildings. Cost of services
consists primarily of salaries and benefits of service and installation
technicians, parts and materials, subcontracted services, depreciation,
maintenance, fuel and equipment rentals. 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.
 
     The Founding Companies have been managed throughout the periods presented
as independent private companies, and, as such, their results of operations
reflect different tax structures (S corporations and C corporations), which have
influenced, among other things, their historical levels of owners' compensation.
These owners and certain key employees have agreed to certain reductions in
their compensation and benefits in connection with the organization of the
Company.
 
     ARS, which has conducted no operations to date, intends to integrate these
businesses, their operations and administrative functions over a period of time.
This integration process may present opportunities to reduce costs through the
elimination of duplicative functions and through economies of scale,
particularly in obtaining additional contracts through shared customer lists and
greater volume discounts from material suppliers, but may necessitate additional
costs and expenditures for corporate management and administration, corporate
expenses related to being a public company, systems integration and facilities
expansion. These various costs and possible cost-savings may make comparison of
historical operating results not comparable to, or indicative of, future
performance. Accordingly, neither the anticipated savings nor the anticipated
costs have been included in the unaudited pro forma financial information
presented herein.
 
  COMBINED FOUNDING COMPANIES
 
RESULTS OF OPERATIONS -- COMBINED
 
     The Combined Founding Company Statements of Operations data (unaudited) for
fiscal 1993, 1994 and 1995 and for the three months ended March 31, 1995 and
1996 represents the combined data of the Founding Companies on a historical
basis and exclude the effects of pro forma adjustments. However, during the
periods presented, the Founding Companies were not under common control or
management and, as such, their results of operations reflect different tax
structures (S corporations and C corporations). In addition, a new basis of
accounting will be established as a result of the Acquisitions. Accordingly, the
data presented may not be comparable to or indicative of post-combination
results to be achieved by the Company. See "Risk Factors -- Absence of Combined
Operating History."
 
  COMBINED UNAUDITED INTERIM RESULTS
 
     REVENUES.  Revenues increased $2.4 million, or 10.1%, from $23.7 million
for the three months ended March 31, 1995 to $26.1 million for the three months
ended March 31, 1996. This increase was primarily due to an increase in Atlas
revenues of $1.7 million, or 34.7%, from $4.9 million for the three months ended
March 31, 1995 to $6.6 million for the three months ended March 31, 1996, due to
several large new installation projects added during the three months ended
March 31, 1996. The remaining increase in revenues was primarily attributable to
an increase in Crown's residential service revenues of $0.6 million resulting
from increased plumbing and renovation services, an increase in Meridian &
Hoosier's revenues of $0.6 million resulting from the acquisition of Sagamore
Heating and Cooling ("Sagamore") and increases in repair and replacement
services and an increase in A-ABC's revenues of $0.3 million. These increases
were partially offset by a $0.7 million decrease at General Heating reflecting
reduced new
 
                                       21
 
installation activity resulting from severe weather conditions encountered in
much of the northeast United States during the first quarter of 1996, and an
$0.2 million decrease at Florida HAC.
 
     COST OF SERVICES.  Cost of services increased $1.3 million, or 7.2%, from
$18.1 million for the three months ended March 31, 1995 to $19.4 million for the
three months ended March 31, 1996, but decreased as a percentage of revenues
from 76.5% for the three months ended March 31, 1995 to 74.4% for the three
months ended March 31, 1996. The dollar increase in cost of services was
primarily attributable to a $1.2 million increase at Atlas, from $4.0 million
for the three months ended March 31, 1995 to $5.2 million for the three months
ended March 31, 1996, which was attributable to the increase in revenue and an
increase in repair and maintenance expenditures. The remaining dollar increase
was primarily attributable to a $0.4 million increase at Crown resulting
primarily from lower-margin services and increased use of subcontractors and a
$0.4 million increase at Meridian & Hoosier resulting primarily from the
Sagamore acquisition. The increase was offset by a $0.5 million decrease at
General Heating as a result of adverse weather conditions and a $0.3 million
decrease at Florida HAC. The decrease in cost of services as a percentage of
sales was primarily attributable to increases in volume purchase discounts and
more effective employee utilization at A-ABC and changes in the mix of services
and increases in volume purchase discounts at Meridian & Hoosier.
 
     SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.  Selling, general and
administrative expenses increased $0.6 million, or 11.3%, from $5.3 million for
the three months ended March 31, 1995 to $5.9 million for the three months ended
March 31, 1996, and remained relatively constant as a percentage of revenues
between the two periods. The dollar increase in selling, general and
administrative expenses was primarily attributable to slight changes at all the
Founding Companies.
 
  COMBINED RESULTS FOR FISCAL 1995 COMPARED TO FISCAL 1994
 
     REVENUES.  Revenues increased $9.0 million, or 8.5%, from $105.6 million in
fiscal 1994 to $114.6 million in fiscal 1995. This increase was largely due to
(i) an increase in Atlas revenues of $6.4 million, or 41.0%, from $15.6 million
in fiscal 1994 to $22.0 million in fiscal 1995, primarily attributable to a
opening new operational facility in Hilton Head, South Carolina (opened in April
1994) and the addition of several new large home builder customers; (ii) an
increase in Crown's revenues of $2.3 million, or 13.7%, from $16.8 million in
fiscal 1994 to $19.1 million in fiscal 1995, primarily attributable to an
increase in plumbing and HVAC services; and (iii) an increase in Meridian &
Hoosier's revenue of $2.0 million, or 24.7%, from $8.1 million in fiscal 1994 to
$10.1 million in fiscal 1995, primarily attributable to increased residential
replacement sales. This increase was partially offset by a decrease in General
Heating of $1.1 million, or 3.0%, from $36.3 million in fiscal 1994 to $35.2
million in fiscal 1995 due to a reduction in new home starts in the
Washington-Baltimore metropolitan area, as well as a decrease in revenues of
Florida HAC of $1.3 million, or 8.2%, from $15.8 million in fiscal 1994 to $14.5
million in fiscal 1995 due to a reduction in new home starts.
 
     COST OF SERVICES.  Cost of services increased by $5.4 million, or 6.8%,
from $79.8 million in fiscal 1994 to $85.2 million in fiscal 1995, but decreased
as a percentage of revenues from 75.5% in fiscal 1994 to 74.3% in fiscal 1995.
The dollar increase in cost of services was primarily attributable to (i) a $5.1
million increase in Atlas, cost of services from $12.7 million in fiscal 1994 to
$17.8 million in fiscal 1995 consistent with the percentage increase in
revenues, (ii) a $1.0 million increase in Crown's cost of service from $10.3
million in fiscal 1994 to $11.3 million in fiscal 1995 as discussed below and
(iii) a $1.5 million increase in cost of services at Meridian & Hoosier from
$5.8 million in fiscal 1994 to $7.3 million in fiscal 1995 consistent with its
percentage increase in revenues. The increases were partially offset by a $1.0
million decrease in General Heating's cost of service from $29.9 million in
fiscal 1994 to $28.9 million in fiscal 1995 consistent with the percentage
decrease in revenues and a $1.6 million decrease in Florida HAC cost of service
from $12.1 million in fiscal 1994 to $10.5 million in fiscal 1995. The reduction
in cost of services as a percentage of revenues was primarily attributable to a
change in the mix of service from lower-margin home building to higher-margin
apartment complexes in fiscal 1995 and improvement in volume rebates at Florida
HAC and a change in the mix of services from lower-margin services to
higher-margin services and increased use of contractors at Crown.
 
                                       22
 
     SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.  Selling, general and
administrative expenses increased $2.1 million, or 9.5%, from $22.1 million in
fiscal 1994 to $24.2 million in fiscal 1995 and increased slightly as a
percentage of revenues from 20.9% in fiscal 1994 to 21.1% in fiscal 1995. The
increase in selling, general and administrative expenses was primarily
attributable to (i) a $0.6 million increase at Atlas resulting primarily from
the addition of an administrative infrastructure for the Hilton Head location
and other office expansions; (ii) a $0.4 million increase at Crown resulting
from increased advertising; (iii) a $0.3 million increase at Meridian & Hoosier
resulting from increased marketing efforts; and (iv) a $0.4 million increase at
Florida HAC resulting from a $0.2 million increase in owner compensation. This
increase was partially offset by a $0.2 million decrease at General Heating.
 
  COMBINED RESULTS FOR FISCAL 1994 COMPARED TO FISCAL 1993
 
     REVENUES.  Revenues increased $11.3 million, or 12.0%, from $94.3 million
in fiscal 1993 to $105.6 million in fiscal 1994. This increase was primarily due
to (i) an increase in Atlas revenues of $5.4 million, or 52.9% from $10.2
million in fiscal 1993 to $15.6 million in fiscal 1994, primarily due to the
opening of a new operation in Greenville, South Carolina and the addition of
several new home building customers, (ii) an increase of $2.7 million, or 20.7%,
at Florida HAC, as a result of an increase in the number of new home starts and
the addition of several large apartment complexes, (iii) an increase in General
Heating of $1.7 million, or 4.9%, resulting from an increase in new home
installation volume and replacement services; and (iv) an increase of $2.2
million, or 37.3%, at Meridian & Hoosier from $5.9 million in fiscal 1993 to
$8.1 million in fiscal 1994 primarily due to increased residential replacement
services and the start-up of a construction division. These increases were
partially offset by a decrease in revenues of $2.3 million, or 20.9%, at A-ABC
resulting from the elimination of certain plumbing services at A-ABC.
 
     COST OF SERVICES.  Cost of services increased $11.1 million, or 16.2%, from
$68.7 million in fiscal 1993 to $79.8 million in fiscal 1994 and increased as a
percentage of revenue for fiscal 1994 to 75.5% from 72.9% for fiscal 1993. The
dollar increase in cost of services was primarily attributable to (i) a $4.5
million increase at Atlas; (ii) a $2.2 million increase at Florida HAC, which is
consistent with its percentage increase in revenues; (iii) a $2.5 million
increase at General Heating; and (iv) a $1.7 million increase at Meridian &
Hoosier resulting from the start-up of the construction division. The increase
in cost of services as a percentage of revenues was primarily attributable to
(i) the elimination of certain high-margin plumbing services at A-ABC; (ii)
increased turnover and underutilized assets at Atlas; and (iii) increased truck
and delivery costs and payroll and related employee benefits at General Heating.
 
     SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.  Total selling, general and
administrative expenses increased $1.5 million, or 7.3% of revenues, from $20.6
million in fiscal 1993 to $22.1 million in fiscal 1994. The increase in selling,
general and administrative expenses was primarily attributable to (i) a $0.6
million increase at Atlas resulting from the addition of an administrative
infrastructure in Greenville and (ii) a $0.5 million increase at Meridian &
Hoosier resulting from increased sales commission and advertising costs.
 
LIQUIDITY AND CAPITAL RESOURCES -- COMBINED
 
     On a combined basis, the Founding Companies generated $6.8 million and $0.9
million of net cash from operating activities during fiscal 1995 and the three
months ended March 31, 1996, respectively. Net cash used in investing activities
by the Founding Companies on a combined basis was $1.9 million and $(0.5)
million during fiscal 1995 and the three months ended March 31, 1996,
respectively. Most of the cash used in investing activities during these periods
was used for purchases of property and equipment. Net cash used in financing
activities by the Founding Companies on a combined basis was $1.7 million and
$3.5 million during fiscal 1995 and the three months ended March 31, 1996,
respectively. Most of the cash used in financing activities during these periods
was used for net payments on long-term debt and distributions to stockholders.
The combined cash and cash equivalents of the Founding Companies decreased by
$2.4 million from $7.3 million at December 31, 1995 to $4.9 million at March 31,
1996, although one of the Founding Companies, A-ABC, had a working capital
deficit at March 31, 1996.

                                       23

     On the closing of this Offering, the Company intends to repay an aggregate
of approximately $12.1 million of indebtedness of the Founding Companies, ARS
and EHC and to redeem $0.5 million of preferred stock of EHC. The repayment of
the remaining approximately $10.4 million of indebtedness and other obligations
is expected to be funded through borrowings under a New Credit Facility.

     Prior to the closing of the Acquisitions, General Heating will make
distributions to its stockholders in respect of its estimated S corporation
Accumulated Adjustment Account as of the date of the closing. These
distributions (approximately $10 million as of December 31, 1995) are expected
to be funded primarily through working capital, cash provided by General
Heating's operating activities and, to the extent necessary, additional debt.

     The Company has initiated discussions with several financial institutions
to establish the terms of a New Credit Facility. Based on those discussions, the
Company expects a New Credit Facility will provide for initial borrowing
availability of at least $50 million. There is no assurance, however, that such
facility will be available in that amount or on terms acceptable to the Company.

     The Company anticipates that its cash flow from operations will provide
cash in excess of the Company's normal working capital needs, debt service
requirements and planned capital expenditures for property and equipment. On a
combined basis, the Founding Companies made capital expenditures of $2.6 million
and $1.0 million in fiscal 1995 and the three months ended March 31, 1996,
respectively.

     The Company intends to continue pursuing attractive acquisition
opportunities. The timing, size or success of any acquisition effort and the
associated potential capital commitments are unpredictable. The Company expects
to fund future acquisitions primarily through a combination of working capital,
cash flow from operations and borrowings, including the unborrowed portion of
the New Credit Facility, as well as issuances of additional equity.

     Due to the relatively low levels of inflation experienced in fiscal 1993,
1994 and 1995, inflation did not have a significant effect on the results of the
combined Founding Companies in those fiscal years.

SEASONALITY

     The Founding Companies have in the past experienced, and the Company
expects that it will in the future experience, quarterly fluctuations in
revenues, operating income and cash flows as a result of changes in weather
conditions. Except in Florida and South Carolina, the demand for new
installations is lower in the winter months because new construction activity is
lower as a result of colder weather. Demand for HVAC and plumbing services is
generally higher during periods of extreme cold and hot weather because of
greater demands placed on residential systems and lower in spring and early fall
when residential systems are not significantly burdened.

  INDIVIDUAL FOUNDING COMPANIES

     The selected historical financial information presented in the tables below
for the fiscal years of the individual Founding Companies is derived from the
respective audited financial statements of the individual Founding Companies
included elsewhere herein. The selected historical financial information
presented in the tables below for the quarterly periods of the Founding
Companies is derived from the respective unaudited interim financial statements
of the Founding Companies, which include all adjustments the Company considers
necessary for a fair presentation of the results of operations and cash flows of
those companies for those periods. The following discussion should be read in
conjunction with the "Summary Individual Founding Company Financial Data" and
the separate company financial statements and related notes thereto appearing
elsewhere in this Prospectus.

    GENERAL HEATING

     Founded in 1947, General Heating is a leading installer of HVAC systems and
equipment and pre-fabricated gas and wood-burning fireplaces for residential and
light commercial construction markets in the Washington-Baltimore metropolitan
area, including northern Virginia, and Richmond.

                                       24

RESULTS OF OPERATIONS -- GENERAL HEATING

     The following table sets forth certain historical selected financial data
and data as a percentage of revenues for the periods indicated (dollars in
thousands):

<TABLE>
<CAPTION>
                                                                                                THREE MONTHS ENDED
                                                    YEAR ENDED DECEMBER 31                            MARCH 31
                                       ------------------------------------------------  -----------------------------------
                                            1993            1994             1995             1995                1996
                                       --------------  ---------------  ---------------  ----------------    ---------------
                                                                                                      (UNAUDITED)
<S>                                   <C>       <C>    <C>       <C>    <C>       <C>    <C>        <C>      <C>      <C>

REVENUES ..........................   $34,642   100.0% $36,334   100.0% $35,159   100.0% $ 7,651    100.0%   $ 7,033   100.0%
COST OF SERVICES ..................    27,393    79.1   29,928    82.4   28,866    82.1    6,401     83.7      5,871    83.5
                                      -------   -----  -------   -----  -------   -----  -------    -----    -------  ------
GROSS PROFIT ......................     7,249    20.9    6,406    17.6    6,293    17.9    1,250     16.3      1,162    16.5
SELLING, GENERAL AND ADMINISTRATIVE
  EXPENSES ........................     5,011    14.5    5,245    14.4    5,280    15.0    1,351     17.7      1,186    16.9
                                      -------   -----  -------   -----  -------   -----  -------    -----    -------  ------
INCOME (LOSS) FROM OPERATIONS .....   $ 2,238     6.4  $ 1,161     3.2  $ 1,013     2.9  $  (101)    (1.4)   $   (24)   (0.4)
                                      =======   =====  =======   =====  =======   =====  =======    =====    =======  ======
</TABLE>

GENERAL HEATING -- UNAUDITED INTERIM RESULTS

     REVENUES -- Revenues decreased $0.7 million, or 9.1%, from $7.7 million for
the three months ended March 31, 1995, to $7.0 million for the three months
ended March 31, 1996. The decrease in revenues was attributable to reduced new
installation activity resulting from the severe weather conditions encountered
in much of the northeastern United States during the three months ended March
31, 1996.

     COST OF SERVICES -- Cost of services decreased $0.5 million, or 7.8%, from
$6.4 million for the three months ended March 31, 1995 to $5.9 million for the
three months ended March 31, 1996. The decrease in cost of services was
consistent with the percentage decrease in revenues.

     SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -- Selling, general and
administrative expenses decreased $0.2 million, or 14.3%, from $1.4 million for
the three months ended March 31, 1995 to $1.2 million for the three months ended
March 31, 1996. The decrease in general and administrative expenses was
attributable to reductions in variable administrative labor costs and reductions
in state unemployment taxes.

GENERAL HEATING -- 1995 COMPARED TO 1994

     REVENUES -- Revenues decreased $1.1 million, or 3.0%, from $36.3 million in
1994 to $35.2 million in 1995. The decrease in revenue was attributable to a
reduction in the number of new home starts in the Washington-Baltimore
metropolitan area.

     COST OF SERVICES -- Cost of services decreased $1.0 million, or 3.3%, from
$29.9 million in 1994 to $28.9 million in 1995. The decrease in cost of services
was consistent with the percentage decrease in revenues.

     SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -- Selling, general and
administrative expenses were unchanged at $5.3 million for 1994 and 1995.
 
GENERAL HEATING -- 1994 COMPARED TO 1993
 
     REVENUES -- Revenues increased $1.7 million, or 4.9%, from $34.6 million in
1993 to $36.3 million in 1994. The increase in revenue was attributable to a
$1.0 million increase in new installation volume and a $0.7 million increase in
HVAC System replacement services.
 
     COST OF SERVICES -- Cost of services increased $2.5 million, or 9.1%, from
$27.4 million in 1993 to $29.9 million in 1994. As a percentage of revenues,
cost of services increased to 82.4% in 1994 from 79.1% in 1993. The increase in
cost of sales in 1994 was primarily attributable to (i) an $0.5 million
adjustment to write off certain obsolete inventory; (ii) increased depreciation
on replacement of fully depreciated trucks; (iii) an increase in payroll and
related employee benefits; and (iv) an increase in the cost of delivery of parts
and materials, as the Company's operations were spread over a larger geographic
region.
 
     SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -- Selling, general and
administrative expenses increased $0.2 million, or 4.0%, from $5.0 million in
1993 to $5.2 million in 1994. The increase was 
 
                                       25

consistent with the percentage increase in revenues and was attributable to
increases in payroll and related employee benefits.
 
LIQUIDITY AND CAPITAL RESOURCES -- GENERAL HEATING

     The following table sets forth selected information from General Heating
statements of cash flows (dollars in thousands):

<TABLE>
<CAPTION>
                                                                            THREE MONTHS
                                                 YEAR ENDED                    ENDED
                                                 DECEMBER 31                  MARCH 31
                                       -------------------------------  --------------------
                                         1993       1994       1995       1995       1996
                                       ---------  ---------  ---------  ---------  ---------
                                                                            (UNAUDITED)
<S>                                    <C>        <C>        <C>        <C>        <C>
NET CASH PROVIDED BY (USED IN)
  OPERATING ACTIVITIES...............  $     0.9  $     2.1  $     2.9  $     0.9  $    (0.2)
NET CASH USED IN INVESTING
  ACTIVITIES.........................       (1.0)      (3.1)      (0.3)      (0.3)      (0.1)
NET CASH USED IN FINANCING
  ACTIVITIES.........................       (1.7)      (0.2)      (1.5)      (0.7)      (0.6)
                                       ---------  ---------  ---------  ---------  ---------
NET INCREASE (DECREASE) IN CASH AND
  CASH EQUIVALENTS...................  $    (1.8) $    (1.2) $     1.1  $    (0.1) $    (0.9)
                                       =========  =========  =========  =========  =========
</TABLE>

     From 1993 through the three months ended March 31, 1996, General Heating
generated $5.7 million in net cash from operating activities. During this
period, $6.9 million was generated from income plus non-cash charges, and was
reduced by $1.2 million of cash used to fund increases in working capital.

     Cash used in investment activities was primarily attributable to the
purchase and replacement of trucks within General Heating's fleet. In addition,
in 1994, General Heating invested approximately $2.5 million in short-term
investment securities.

     Cash used in financing activities consists primarily of S corporation
distributions to General Heating's stockholders.

     Prior to the closing of the Acquisitions, General Heating will make
distributions to its stockholders in respect of its estimated S corporation
Accumulated Adjustment Account as of the date of the closing. These
distributions (approximately $10 million as of December 31, 1995) are expected
to be funded primarily through working capital, cash provided by General
Heating's operating activities and, to the extent necessary, additional debt.
See "Certain Transactions -- Organization of the Company."

     General Heating had a working capital surplus of $7.0 million as of March
31, 1996. General Heating has historically funded its operations with cash flows
from operations. While there can be no assurance, management of General Heating
believes it has adequate cash flow to fund its operations through the second
quarter of 1997.

     ATLAS

     Founded in 1976, Atlas is a leading provider of electric, HVAC and plumbing
installation services to the residential and light commercial construction
markets throughout South Carolina. Atlas also provides comprehensive plumbing,
HVAC and electrical maintenance, repair and replacement services, and repairs
and installs pre-fabricated gas and wood-burning fireplaces.

                                       26

RESULTS OF OPERATIONS -- ATLAS

     The following table sets forth certain selected financial data and data as
a percentage of revenues for the periods indicated (dollars in thousands):

<TABLE>
<CAPTION>
                                                                                                         THREE MONTHS ENDED
                                                YEAR ENDED JUNE 30               YEAR ENDED                   MARCH 31
                                       -------------------------------------     DECEMBER 31,   -----------------------------------
                                              1993               1994               1995              1995               1996      
                                       ------------------  -----------------  ----------------  ----------------   ----------------
                                                                                                             (UNAUDITED)            
<S>                                    <C>        <C>      <C>       <C>      <C>       <C>     <C>       <C>      <C>      <C>   
REVENUES.............................  $  10,210    100.0% $ 15,625    100.0% $ 22,048   100.0% $  4,938   100.0%  $ 6,573    100.0%
COST OF SERVICES.....................      8,183     80.1    12,677     81.1    17,811    80.8     3,993    80.8     5,215     79.3 
                                       ---------  -------  --------  -------  --------  ------  --------  ------   -------  ------- 
GROSS PROFIT.........................      2,027     19.9     2,948     18.9     4,237    19.2       945    19.2     1,358     20.7 
SELLING, GENERAL AND ADMINISTRATIVE                                                                                                
  EXPENSES...........................      1,761     17.2     2,421     15.5     3,022    13.7       688    13.9       874     13.3 
                                       ---------  -------  --------  -------  --------  ------  --------  ------   -------  ------- 
INCOME FROM OPERATIONS...............  $     266      2.7  $    527      3.4  $  1,215     5.5  $    257     5.3   $   484      7.4 
                                       ---------  -------  --------  -------  --------  ------  --------  ------   -------  ------- 
</TABLE>
 
ATLAS -- UNAUDITED INTERIM RESULTS
 
     REVENUES -- Revenues increased $1.7 million, or 34.7%, from $4.9 million
for the three months ended March 31, 1995 to $6.6 million for the three months
ended March 31, 1996. The increase in revenues was attributable to several large
new installation projects.
 
     COST OF SERVICES -- Cost of services increased $1.2 million, or 30.0%, from
$4.0 million for the three months ended March 31, 1995 to $5.2 million for the
three months ended March 31, 1996, but decreased as a percentage of revenues
from 80.8% for the first quarter of 1995 to 79.3% for the first quarter of the
current year. The dollar increase was primarily attributable to the increase in
revenues in addition to an increase in repair and maintenance expenses on the
Atlas fleet of trucks.
 
     SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -- Selling, general and
administrative expenses increased $0.2 million, or 28.6%, from $0.7 million for
the three months ended March 31, 1995 to $0.9 million for the three months ended
March 31, 1996. The increase in selling, general and administrative expenses was
primarily attributable to added administrative staff at several operating
locations.
 
ATLAS -- YEAR ENDED DECEMBER 31, 1995, COMPARED TO YEAR ENDED JUNE 30, 1994
 
     REVENUES -- Revenues increased $6.4 million, or 41.0%, from $15.6 million
in 1994 to $22.0 million in 1995. Part of this increase was attributable to the
new operating facility in Hilton Head, South Carolina (opened in April 1994).
The addition of several large home builder customers accounted for the majority
of the remaining increase.
 
     COST OF SERVICES -- Cost of services increased $5.1 million, or 40.2%, from
$12.7 million in 1994 to $17.8 million in 1995. The increase in cost of services
resulted primarily from the increase in revenue.
 
     SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -- Selling, general and
administrative expenses increased $0.6 million, or 25.0%, from $2.4 million in
1994 to $3.0 million in 1995, but remained substantially constant as a
percentage of revenues. The dollar increase in selling, general and
administrative expense in 1995 was primarily attributable to the addition of an
administrative infrastructure in Hilton Head and the expansion of office space
at an additional location.
 
ATLAS -- YEAR ENDED JUNE 30, 1994 COMPARED TO YEAR ENDED JUNE 30, 1993
 
     REVENUES -- Revenues increased $5.4 million, or 52.9%, from $10.2 million
in 1993 to $15.6 million in 1994. $1.8 million, net of this increase in revenue
was attributable to the first full year of operations of the Greenville, South
Carolina location and the addition of several new large home builder customers
accounted for the majority of the remaining increase.
 
     COST OF SERVICES -- Cost of services increased $4.5 million, or 54.9%, from
$8.2 million in 1994 to $12.7 million in 1995. As a percentage of revenues, cost
of services increased from 80.1% in 1993 to 81.1% in 1994. The increase in cost
of services as a percentage of revenues was attributable to increased employee
turnover and under-utilization of assets at the Greenville location.
 
                                       27
 
     SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -- Selling, general and
administrative expenses increased $0.6 million, from $1.8 million in 1994 to
$2.4 million in 1995, but decreased as a percentage of revenues from 17.2% in
1993 to 15.5% in 1994. The dollar increase in selling, general and
administrative expenses was primarily attributable to the addition of an
administrative infrastructure in Greenville.
 
LIQUIDITY AND CAPITAL RESOURCES -- ATLAS
 
     The following table sets forth historical selected information from Atlas
statements of cash flows (in thousands):
 
<TABLE>
<CAPTION>
                                                                                  THREE MONTHS
                                            YEAR ENDED                               ENDED
                                             JUNE 30            YEAR ENDED          MARCH 31
                                       --------------------    DECEMBER 31,   --------------------
                                         1993       1994           1995         1995       1996
                                       ---------  ---------    ------------   ---------  ---------
                                                                                  (UNAUDITED)
<S>                                    <C>        <C>              <C>        <C>        <C>      
NET CASH PROVIDED BY OPERATING
  ACTIVITIES.........................  $     0.3  $     0.7        $0.8       $     0.2  $     0.4
NET CASH USED IN INVESTING
  ACTIVITIES.........................       (0.3)      (1.0)       (0.3)           (0.1)       0.0
NET CASH PROVIDED BY (USED IN)
  FINANCING ACTIVITIES...............        0.0        0.4        (0.4)           (0.1)      (0.1)
                                       ---------  ---------       -----       ---------  ---------
NET INCREASE IN CASH AND CASH
  EQUIVALENTS........................  $     0.0  $     0.1        $0.1       $     0.0  $     0.3
                                       =========  =========       =====       =========  =========
</TABLE>
 
     From 1993 through the three months ended March 31, 1996, Atlas generated
$2.2 million in net cash from operating activities, primarily generated from net
income plus depreciation and amortization, with little change in non-cash
working capital. Net cash used in investing activities was attributable to
purchases of property and equipment. Net cash used in financing activities was
attributable to net borrowings and repayments of short- and long-term debt
obligations.
 
     Atlas had a working capital surplus of $0.3 and had long-term debt of $2.0
million as of March 31, 1996. Atlas has historically funded its operations with
cash flows from operations and borrowings from lenders. While there can be no
assurance, management of Atlas believes it has adequate cash flow and financing
alternatives to fund its operations through the second quarter of 1997.
 
     CROWN
 
     Founded in 1956, Crown is the largest single provider of residential
plumbing, HVAC, electrical maintenance, repair and replacement services to the
residential and light commercial markets in the Houston metropolitan area.
 
RESULTS OF OPERATIONS -- CROWN
 
     The following table sets forth certain historical selected financial data
and data as a percentage of revenues for the periods indicated (dollars in
thousands):

<TABLE>
<CAPTION>
                                                                                                THREE MONTHS ENDED
                                                   YEAR ENDED DECEMBER 31                             MARCH 31
                                       ------------------------------------------------  --------------------------------
                                            1993             1994             1995            1995             1996               
                                       ---------------  ---------------  --------------  --------------  ---------------- 
                                                                                                   (UNAUDITED)                      
<S>                                   <C>       <C>     <C>       <C>    <C>      <C>    <C>      <C>    <C>        <C>   
REVENUES ..........................   $16,268   100.0%  $16,844   100.0% $19,124  100.0% $3,555   100.0% $ 4,152    100.0%
COST OF SERVICES ..................    10,332    63.5    10,314    61.2   11,333   59.3   2,155    60.6    2,643     63.7
                                      -------   -----   -------   -----  -------  -----  ------   -----  -------    -----
GROSS PROFIT ......................     5,936    36.5     6,530    38.8    7,791   40.7   1,400    39.4    1,509     36.3
SELLING, GENERAL AND ADMINISTRATIVE
  EXPENSES ........................     5,698    35.0     5,837    34.7    6,165   32.2   1,348    37.9    1,519     36.5
                                      -------   -----   -------   -----  ------   -----  ------   -----  -------    -----
INCOME (LOSS) FROM OPERATIONS .....   $   238     1.5   $   693     4.1  $ 1,626    8.5  $   52     1.5  $   (10)    (0.2)
                                      =======   =====   =======   =====  =======  =====  ======   =====  =======    =====
</TABLE>
 
CROWN -- UNAUDITED INTERIM RESULTS
 
     REVENUES -- Revenues increased $0.6 million, or 16.7%, from $3.6 million
for the three months ended March 31, 1995 to $4.2 million for the three months
ended March 31, 1996. The increase in revenues was primarily attributable to a
$0.3 million increase in plumbing services and a $0.3 million net increase in
Crown's other service lines.
 
                                       28
 
     COST OF SERVICES -- Cost of services increased $0.4 million, or 18.2%, from
$2.2 million for the three months ended March 31, 1995 to $2.6 million for the
three months ended March 31, 1996, and increased as a percentage of revenues
from 60.6% in the first quarter of 1995 to 63.7% in the first quarter of 1996.
 
     SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -- Selling, general and
administrative expenses increased $0.2 million, or 15.4%, from $1.3 million for
the three months ended March 31, 1995 to $1.5 million for the three months ended
March 31, 1996, but declined as a percentage of revenues from 37.9% in the first
quarter of 1995 to 36.5% in the first quarter of 1996.
 
CROWN -- 1995 COMPARED TO 1994
 
     REVENUES -- Revenues increased $2.3 million, or 13.7%, from $16.8 million
in 1994 to $19.1 million in 1995. The increase in revenues was primarily
attributable to a $1.3 million and $0.9 million increase in HVAC and plumbing
services, respectively.
 
     COST OF SERVICES -- Cost of services increased $1.0 million, or 9.7%, from
$10.3 million in 1994 to $11.3 million in 1995, but decreased as a percentage of
revenues from 61.2 percent in 1994 to 59.3% in 1995. The decrease in cost of
services as a percentage of revenue is attributable to a change in the mix of
services provided from lower-margin services to higher-margin services and an
increase in the use of contractors.
 
     SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -- Selling, general and
administrative expenses increased $0.4 million, or 6.9%, from $5.8 million in
1994 to $6.2 million in 1995, but decreased as a percentage of revenues from
34.7% in 1994 to 32.2% in 1995. The $0.4 million increase in selling, general
and administrative expenses was primarily attributable to increased advertising.
 
CROWN -- 1994 COMPARED TO 1993
 
     REVENUES -- Revenues increased $0.5 million, or 3.1%, from $16.3 million in
1993 to $16.8 million in 1994. The increase in revenues was attributable to a
$0.5 million increase in HVAC services.
 
     COST OF SERVICES -- Cost of services was unchanged at $10.3 million for
1993 and 1994, but decreased 2.3% as a percentage of sales from 63.5% in 1993 to
61.2% in 1994.
 
     SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -- Selling, general and
administrative expenses increased $0.1 million, or 1.8%, from $5.7 million in
1993 to $5.8 million in 1994.
 
LIQUIDITY AND CAPITAL RESOURCES -- CROWN
 
     The following table sets forth selected information from Crown statements
of cash flows (in thousands):
 
                                                                THREE MONTHS
                                             YEAR ENDED             ENDED
                                            DECEMBER 31           MARCH 31
                                       ----------------------  --------------
                                        1993    1994    1995    1995    1996
                                       ------  ------  ------  ------  ------
                                                                 (UNAUDITED)
Net cash provided by operating
  activities.........................  $ 0.5   $ 0.7   $ 1.3   $ 0.3   $  --
Net cash provided by (used in)
  investing activities...............   (0.7)    0.1    (0.6)    --      1.1
Net cash provided by (used in)
  financing activities...............    0.2     0.2     0.3    (0.3)   (2.8)
                                       -----   -----   -----   -----   -----
Net increase (decrease) in cash and
  cash equivalents...................  $ --    $ 1.0   $ 1.0   $ --    $(1.7)
                                       =====   =====   =====   =====   =====
 
     From 1993 through the three months ended March 31, 1996, Crown generated
$2.5 million in net cash from operating activities, primarily generated from net
income plus depreciation and amortization. For the year ended December 31, 1993,
Crown recorded a loss on the sale of certain assets of $0.5 million.
 
     The change in net cash provided by (used in) investing activities was
primarily attributable to advances/payments to/from the sole shareholder of
Crown and purchases from the sale of property and equipment.
 
                                       29
 
     The change in net cash provided by (used in) financing activities was
attributable to net borrowings and repayments of short-term and long-term debt
obligations.
 
     Crown had a working capital surplus of $3.1 as of March 31, 1996. Crown has
historically funded its operations with cash flows from operations and
borrowings from lenders and its sole shareholder. While there can be no
assurance, management of Crown believes it has adequate cash flows and financing
alternatives to fund its operations through the second quarter of 1997.
 
     MERIDIAN & HOOSIER
 
     Founded in 1973, Meridian & Hoosier is a leading provider of HVAC
maintenance, repair and replacement services to the residential and commercial
markets (including large commercial facilities) in central Indiana and
Indianapolis, and also installs HVAC systems and equipment for the residential
construction market in those areas. On January 1, 1996, Meridian & Hoosier
acquired Sagamore Heating and Cooling ("Sagamore"), which provides HVAC repair
and replacement services.
 
RESULTS OF OPERATIONS -- MERIDIAN & HOOSIER
 
     The following table sets forth certain historical selected financial data
and data as a percentage of revenues for the periods indicated (dollars in
thousands):

<TABLE>
<CAPTION>
                                                 YEAR ENDED DECEMBER 31                   THREE MONTHS ENDED MARCH 31
                                       ------------------------------------------  ------------------------------------------
                                               1994                  1995                  1995                  1996
                                       --------------------  --------------------  --------------------  --------------------
                                                                                                   (UNAUDITED)
<S>                                    <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>   
REVENUES.............................  $   8,066      100.0% $  10,133      100.0% $   1,959      100.0% $   2,638      100.0%
COST OF SERVICES.....................      5,797       71.9      7,281       71.9      1,422       72.6      1,767       67.0
                                       ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------
GROSS PROFIT.........................      2,269       28.1      2,852       28.1        537       27.4        871       33.0
SELLING, GENERAL AND ADMINISTRATIVE
  EXPENSES...........................      1,988       24.6      2,350       23.2        512       26.1        854       32.4
                                       ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------
INCOME FROM OPERATIONS...............        281        3.5        502        4.9         25        1.3         17        0.6
                                       =========  =========  =========  =========  =========  =========  =========  =========
</TABLE>
 
MERIDIAN & HOOSIER -- UNAUDITED INTERIM RESULTS
 
     REVENUES -- Revenues increased $0.6 million, or 30.0%, from $2.0 million
for the three months ended March 31, 1995, to $2.6 million for the three months
ended March 31, 1996. Part of this increase was attributable to the acquisition
of Sagamore and a majority of the remaining increase was due to increased sales
of residential replacement services.
 
     COST OF SERVICES -- Cost of services increased $0.4 million, or 28.6%, from
$1.4 million for the three months ended March 31, 1995 to $1.8 million for the
three months ended March 31, 1996, but declined 5.6% as a percentage of revenues
from 72.6% for the three months ended March 31, 1995 to 67.0% for the three
months ended March 31, 1996. The increase in cost of services was primarily
attributable to the increased sales for the three months ended March 31, 1996.
The decrease as a percentage of revenues was primarily attributable to
improvements in volume purchase rebates resulting from the Sagamore acquisition
and changes in the mix of services provided.
 
     SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -- Selling, general and
administrative expenses increased $0.4 million, or 80.0%, from $0.5 million for
the three months ended March 31, 1995 to $0.9 million for the three months ended
March 31, 1996. The increase in selling, general and administrative expenses was
primarily attributable to added administrative staff resulting from the
acquisition of Sagamore.
 
MERIDIAN & HOOSIER -- 1995 COMPARED TO 1994
 
     REVENUES -- Revenues increased $2.0 million, or 24.7%, from $8.1 million in
1994 to $10.1 million in 1995. The increase in revenues was primarily
attributable to increased residential equipment replacement sales of
approximately $1.2 million and the start-up of a new construction division.
 
                                       30
 
     COST OF SERVICES -- Cost of services increased $1.5 million, or 25.9%, from
$5.8 million in 1994 to $7.3 million in 1995 and was consistent with the
increase in sales.
 
     SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -- Selling, general and
administrative expenses increased $0.3 million, or 15.0%, from $2.0 million in
1994 to $2.3 million in 1995. The increase in selling, general and
administrative expenses resulted from increased marketing efforts to improve
market share.
 
LIQUIDITY AND CAPITAL RESOURCES -- MERIDIAN & HOOSIER
 
     The following table sets forth selected information from Meridian &
Hoosier's statements of cash flows (dollars in thousands):
 

                                                                THREE MONTHS
                                           YEAR ENDED              ENDED
                                          DECEMBER 31             MARCH 31
                                      --------------------  -------------------
                                        1994       1995       1995       1996
                                      ---------  ---------  ---------  --------
                                                                  (UNAUDITED)
Net cash provided by operating
  activities......................... $     0.4  $     0.7  $     0.1  $    0.1
Net cash used in investing
activities...........................      (0.5)      (0.2)      (0.1)     (0.8)
Net cash provided by (used in)
financing activities.................       0.3       (0.1)      (0.1)      0.8
                                      ---------  ---------  ---------  --------
Net increase (decrease) in cash and
  cash equivalents................... $     0.2  $     0.4  $    (0.1) $    0.1
                                      =========  =========  =========  ========
 
     Net cash provided by operating activities consisted primarily of net income
plus depreciation and amortization. Net cash used in investing activities
consisted of capital expenditures for property and equipment and the acquisition
of Sagamore in the three months ended March 31, 1996. Net cash provided by (used
in) financing activities resulted from borrowing and repayments of long-term
obligations and capital lease obligations.
 
     Meridian & Hoosier had a working capital surplus of $1.0 as of March 31,
1996. Meridian & Hoosier has historically funded its operations with cash flows
from operations and borrowings from lenders and its sole stockholder. While
there can be no assurance, management of Meridian & Hoosier believes it has
adequate cash flows and financing alternatives to fund its operations through
the second quarter of 1997.
 
     A-ABC
 
     Founded in 1972, A-ABC is among the leading providers of home appliances,
HVAC and plumbing maintenance, repair and replacement services to the
residential and light commercial markets in the Houston metropolitan area.
 
RESULTS OF OPERATIONS -- A-ABC
 
     The following table sets forth certain historical selected financial data
and data as a percentage of revenues for the periods indicated (dollars in
thousands):

<TABLE>
<CAPTION>
                                                                                                  THREE MONTHS
                                                 YEAR ENDED DECEMBER 31                          ENDED MARCH 31
                                       ------------------------------------------  ------------------------------------------
                                               1994                  1995                  1995                  1996
                                       --------------------  --------------------  --------------------  --------------------
                                                                                                  (UNAUDITED)
                                                                                            
<S>                                    <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>   
REVENUES.............................  $   8,676      100.0% $   8,707      100.0% $   1,704      100.0% $   2,022      100.0%
COST OF SERVICES.....................      5,574       64.2      5,709       65.6      1,192       70.0      1,236       61.1
                                       ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------
GROSS PROFIT.........................      3,102       35.8      2,998       34.4        512       30.0        786       38.9
SELLING, GENERAL AND ADMINISTRATIVE
  EXPENSES...........................      2,444       28.2      2,348       27.0        508       29.8        583       28.8
                                       ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------
INCOME FROM CONTINUING OPERATIONS....        658        7.6        650        7.6          4        0.2        203       10.1
                                       =========  =========  =========  =========  =========  =========  =========  =========
</TABLE>
 
A-ABC -- UNAUDITED INTERIM RESULTS
 
     REVENUES -- Revenues increased $0.3 million, or 17.6%, from $1.7 million
for the three months ended March 31, 1995 to $2.0 million for the three months
ended March 31, 1996.
 
     COST OF SERVICES -- Cost of services remained constant at $1.2 million for
the three months ended March 31, 1995 and 1996, but decreased as a percentage of
revenues from 70.0% to 61.1%, primarily as a result of an increase in volume
purchase discounts and better utilization of employees resulting in reduced
labor dollars as a percentage of sales during 1996.

                                       31

     SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -- Selling, general and
administrative expenses increased $0.1 million, or 20.0%, from $0.5 million for
the three months ended March 31, 1995 to $0.6 million for the three months ended
March 31, 1996.

A-ABC -- 1995 COMPARED TO 1994

     REVENUES -- Revenues remained constant at $8.7 million for 1994 and 1995.

     COST OF SERVICES -- Cost of services increased $0.1 million, or 2.0%, from
$5.6 million in 1994 to $5.7 million in 1995.

     SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -- Selling, general and
administrative expenses decreased $0.1 million, or 4.2%, from $2.4 million in
1994 to $2.3 million in 1995.

LIQUIDITY AND CAPITAL RESOURCES -- A-ABC

     The following table sets forth selected information from A-ABC's statements
of cash flows (in thousands):


                                           YEAR ENDED         THREE MONTHS
                                          DECEMBER 31,      ENDED MARCH 31,
                                        ----------------  --------------------
                                        1994     1995       1995       1996
                                        ----   ---------  ---------  ---------

                                                              (UNAUDITED)
NET CASH PROVIDED BY (USED IN) BY
  OPERATING ACTIVITIES...............   $0.3   $     0.6  $    (0.2) $     0.6
NET CASH PROVIDED BY (USED IN)
  INVESTING ACTIVITIES...............    0.2        (0.4)       0.1       (0.7)
NET CASH USED IN FINANCING
  ACTIVITIES.........................   (0.4)       (0.1)       0.0       (0.1)
                                        ----   ---------  ---------  ---------
NET INCREASE (DECREASE) IN CASH AND
  CASH EQUIVALENTS...................   $0.1   $    (0.1) $    (0.1) $    (0.2)
                                        ====   =========  =========  =========

     From 1994 through the three months ended March 31, 1996, A-ABC generated
$1.5 million in net cash from operating activities. During this period, $1.8
million was generated from income plus non-cash charges, partially offset by
$0.3 million of cash used to fund working capital.

     Cash used in investment activities was primarily attributable to purchasing
additional trucks and the net change in the cash provided by (used in)
discontinued operations.

     Cash used in financing activities consists primarily of S corporation
distributions to the Company's sole shareholder and net borrowings and
repayments of long-term obligations.

     A-ABC had a working capital deficit of $1.1 million at March 31, 1996.
A-ABC has historically funded its operations with cash flows from operations and
borrowings from lenders and its shareholder.

                                       32

                                    BUSINESS
 
GENERAL
 
     ARS was founded in October 1995 to create a leading national provider of
(i) comprehensive maintenance, repair and replacement services for HVAC systems,
including IAQ, and for plumbing, electrical and other systems in homes and
commercial buildings and (ii) new installation services of those systems in
homes and commercial facilities under construction (collectively, "residential
services"). To achieve this goal, the Company intends to implement an
aggressive acquisition program and a national operating strategy designed to
increase internal revenue growth and capitalize on cost efficiencies. During
fiscal 1995, the combined revenues of the Founding Companies totaled $114.6
million, of which maintenance, repair and replacement services accounted for
approximately 48% and new installation services accounted for approximately 52%.
The Company believes the profitability of its maintenance, repair and
replacement business benefits from its installation services operations as a
result of (i) the significant volume of purchases of HVAC systems for its
high-volume installation services and (ii) the addition of new customer and
equipment information in the Company's marketing database. This database
provides the Company with valuable information that can be used to expand the
Company's future residential services revenue base. In addition, new
installation services provide the Company with cooperative advertising credits
from the HVAC system manufacturers which it uses for promoting its maintenance,
repair and replacement services for residential HVAC systems. Through leveraging
these benefits, acquiring new service companies and internal development, the
Company intends to emphasize the growth of its higher-margin maintenance, repair
and replacement services business.
 
     ARS has definitive agreements to acquire the seven Founding Companies
simultaneously with the closing of this Offering. The Founding Companies have
been in business an average of 31 years and provide various residential services
in and around the Houston and Washington-Baltimore metropolitan areas, Richmond,
Virginia, throughout South Carolina, southeast Florida and central Indiana
(primarily Indianapolis). The Company is a leading provider of one or more
residential services in each region in which it operates. During fiscal 1995,
the Company's service and installation technicians (totaling approximately 930
as of March 31, 1996) responded to approximately 263,000 maintenance, repair and
replacement service calls and installed approximately 12,800 HVAC systems in
newly built homes, apartments and commercial buildings. Three of the largest
Founding Companies, representing approximately 63% of the Company's fiscal 1995
combined revenues, have been members of an industry-sponsored practice-sharing
group for the past six years. Through this arrangement, they have developed
common marketing plans, computer systems and other operational practices in
order to develop "best practices" in their respective markets. The Company
believes building upon this arrangement to include all of the Founding Companies
will aid in the initial integration of the Founding Companies following the
closing of this Offering.
 
INDUSTRY OVERVIEW
 
     The Company estimates that the HVAC, plumbing and electrical industries in
the United States represent an annual market in excess of $   billion, of which
maintenance, repair and replacement services account for in excess of $
billion. It believes this market is served by several thousand companies,
consisting predominantly of small, owner-operated businesses operating in single
local geographic areas and providing a limited range of services. It believes
the majority of owners in its industry have limited access to adequate capital
for modernization, training and expansion and limited opportunities for
liquidity in their businesses.
 
     The Company believes significant opportunities are available to a well
capitalized, national company employing professionally trained,
customer-oriented service technicians and providing a full complement of
high-quality residential services in an industry that has been characterized by
inconsistent quality, reliability and pricing. It also believes the highly
fragmented nature of the residential services industry will provide it with
significant opportunities to consolidate the capabilities and resources of a
large number of existing residential services businesses.
 
BUSINESS STRATEGY
 
     The Company plans to achieve its goal of becoming the leading national
provider of professional, high-quality residential services by emphasizing
growth through acquisitions and implementing a national operating strategy that
enhances internal revenue growth and achieves cost efficiencies.
 
                                       33
 
     GROWTH THROUGH ACQUISITION.  The Company intends to implement an aggressive
acquisition program targeting large metropolitan and high-growth suburban areas
with attractive residential demographics. The Company's acquisition strategy
involves entering new geographic markets and expanding within existing markets.
 
      o   ENTERING NEW GEOGRAPHIC MARKETS.  In each new market, the Company will
          initially target for acquisition one or more leading local or regional
          companies providing residential services and having the critical mass
          necessary to be a core business around which other residential service
          operations can be assembled. An important criterion for these
          acquisition candidates will be superior operational management
          personnel, whom the Company generally will seek to retain.
 
      o   EXPANDING WITHIN EXISTING MARKETS.  Once the Company has entered a
          market, it will seek to acquire other well-established service
          companies operating within that region, in order to expand its market
          penetration and expand the range of services it offers in that market.
          The Company also will pursue "tuck-in" acquisitions of smaller
          residential services companies whose operations can be incorporated
          into the Company's existing operations without any significant
          increase in infrastructure.
 
     IMPLEMENTATION OF A NATIONAL OPERATING STRATEGY.  The Company intends to
implement a national operating strategy employing "best practices" designed to
increase internal growth through enhanced operations and the achievement of cost
efficiencies.
 
      o   INTERNAL GROWTH.  The Company will review its operations at the local
          and regional operating levels (as well as examining practices in other
          service industries) in order to identify certain "best practices"
          that will be implemented throughout its operations. For example, the
          Company intends to provide 24-hour emergency service at each of its
          locations and to monitor service call quality by attempting to contact
          each of its service customers promptly following a service call. In
          addition, the Company intends to utilize a national training program
          to improve and keep current the technical, selling and customer
          relations skills of its service technicians and will use specialized
          computer technology at each of its locations to improve
          communications, vehicle dispatch and service quality and
          responsiveness. Management believes these practices will enable the
          Company to provide superior customer service and maximize sales
          opportunities. This service-oriented strategy will also allow the
          Company to reinforce its brand image at the local level while
          fostering its efforts to develop a national brand name.
 
      o   COST EFFICIENCIES.  The Company believes it should be able to reduce
          the total operating expenses of the Founding Companies and other
          acquired businesses by eliminating duplicative functions and
          consolidating certain functions performed separately by each company
          prior to its acquisition. In addition, the Company believes that, as a
          large, national residential services company, it should experience
          reduced costs compared to those of the individual Founding Companies
          and other acquired companies in such areas as: the purchase of
          equipment for resale, service vehicles, parts and tools; vehicle and
          equipment maintenance; financing arrangements; and insurance and
          bonding.
 
ACQUISITION STRATEGY
 
     Given the large size and fragmentation of the residential services
industry, the Company believes there are numerous potential acquisition
candidates both within the markets currently served by the Company and in other
large metropolitan and high-growth suburban markets. The Company intends to
implement an aggressive acquisition program to expand into these new markets and
to enhance its position in existing markets.
 
     In new markets, the Company will target for acquisition one or more leading
local or regional residential services companies. Generally, these companies
will be run by successful entrepreneurs whom the Company will endeavor to retain
and will be of sufficient size to provide the basis for future Company expansion
within a given market. Through implementation of its national operating
strategy, the Company will aid the acquired companies (operating on a
decentralized basis) in increasing their revenues and improving their
profitability. Once the Company has entered a market, it will seek to acquire
other residential services providers in order to expand its share of that market
and increase the range of services offered in that market. Some of the
acquisitions within existing markets will be large enough to warrant their own
operating and management structure while other acquisitions will be small enough
to be folded
 
                                       34
 
into an existing operation without significantly increasing the Company's
infrastructure. If an acquisition is large enough to warrant its own operating
structure, the Company will develop a regional operating plan whereby these
companies can benefit from regional operating efficiencies such as shared
marketing efforts, centralized maintenance, local purchasing power, expanded
service line management expertise and other economies of scale.
 
     Each of the Company's acquisition candidates will be expected to
demonstrate potential for revenue growth and profitability. The Company will
also evaluate certain qualitative characteristics of acquisition candidates,
including their reputations in their respective geographic regions, the size and
other characteristics of customer bases, the quality and experience levels of
operational management and service technicians, the amount, type and condition
of their equipment and facilities and their operating histories. The Company
believes there are numerous acquisition candidates that meet the Company's
acquisition criteria.
 
     The Company believes it will be regarded by many owners of residential
services businesses as an attractive acquirer because of: (i) the Company's
strategy for creating a large, professionally managed company with national name
recognition and a reputation for quality service and customer satisfaction; (ii)
management's experience in consolidations; (iii) the Company's decentralized
operating strategy; (iv) the Company's increased visibility and access to
financial resources as a public company; (v) the potential for increased
profitability due to centralized administrative functions, enhanced systems
capabilities and access to increased marketing resources; and (vi) depending on
the size of the acquisition, the ability of the business being acquired to
participate in the Company's growth and expansion, while realizing liquidity.
 
     The Company has analyzed various data on the residential services industry
and individual businesses within the industry and believes it is well positioned
to implement its acquisition program promptly following this Offering. Based on
the Company's experience in connection with the acquisitions of the Founding
Companies, the Company believes the senior executives of the Founding Companies
will be instrumental in identifying and completing future acquisitions. Several
of these executives have had leadership roles in both national and regional
residential services trade associations, which have allowed these principals to
become personally acquainted with other owners of residential services
businesses across the country. The Company believes that the visibility of these
individuals within these associations will increase the industry's awareness of
the Company and its acquisition program, thereby attracting interest from owners
of other residential services companies. In addition, several members of the
Company's executive management team have worked together for a number of years
and have significant experience in negotiating, closing and integrating
acquisitions in various industries. Within the past several months, the Company
has contacted the owners of a number of residential services businesses, several
of whom have expressed interest in having their businesses acquired by the
Company. The Company currently has no binding agreements to effect any
acquisition other than in connection with the Founding Companies. The timing,
size and success of the Company's acquisition efforts and the associated
potential capital commitments cannot be readily predicted.
 
     As consideration for future acquisitions, the Company intends to use
various combinations of its Common Stock, cash and notes. The consideration for
each future acquisition will vary on a case-by-case basis, with the major
factors being historical operating results, the future prospects of the business
to be acquired and the ability of that business to complement the services
offered by the Company. Within 60 days after completion of this Offering, the
Company intends to register 5,000,000 additional shares of Common Stock under
the Securities Act for use in connection with future acquisitions. See "Risk
Factors -- Dependence on Acquisitions for Growth," "-- Need for Additional
Financing" and "-- Potential Effect of Shares Eligible for Future Sale on
Price of Common Stock."
 
SERVICES PROVIDED
 
     The Company provides a variety of maintenance, repair and replacement
services for HVAC, plumbing, electrical and other systems in homes and
commercial buildings. It also installs such operating systems in new homes and
commercial buildings under construction. The Company's maintenance, repair and
replacement services include: checkups, cleaning, repair and replacement of HVAC
systems and associated parts; maintenance, repair and replacement of electrical
switches, outlets, lines, panels and fixtures; repair and replacement of
bathroom fixtures, water filters and water heaters; cleaning, repair and
replacement of pipes, sewer lines and residential sanitary systems; and
maintenance, repair and replacement
 
                                       35
 
of other residential systems, including home appliances and fireplaces. As a
subcontractor to builders, it installs complete central heating and air
conditioning systems, electrical systems, plumbing systems and other systems,
including fireplaces, in newly constructed homes and commercial buildings.
 
     The following table shows, by region, the approximate percentages of the
combined Founding Companies' revenue for fiscal 1995 represented by maintenance,
repair and replacement services and new installation services, respectively.
 

                                                                        OTHER
                                        HVAC   PLUMBING   ELECTRICAL   SERVICES
                                        ----   --------   ----------   --------
                                                                 
MAINTENANCE, REPAIR AND
  REPLACEMENT SERVICES:
     Houston Metropolitan Area.......    8%      10%          1%          6%
     Washington-Baltimore
       Metropolitan Area and
       Richmond, Virginia............    6        -           -           -
     South Carolina..................    3        -           -           -
     Southeast Florida...............    6        -           -           -
     Indianapolis and Central
       Indiana.......................    8        -           -           -
                                        ----   --------   ----------   --------
                                        31%      10%          1%          6%
                                        ====   ========   ==========   =======

NEW INSTALLATION SERVICES:
     Houston Metropolitan Area.......    -%       -%          -%          -%
     Washington-Baltimore
       Metropolitan Area and
       Richmond, Virginia............   20        -           -           5
     South Carolina..................    6        4           5           -
     Southeast Florida...............   11        -           -           -
     Indianapolis and Central
       Indiana.......................    1        -           -           -
                                        ----   --------   ----------   --------
                                        38%       4%          5%          5%
                                        ====   ========   ==========   ========
 
     An important element of the Company's growth strategy is to increase the
range of residential services it provides in each of its regions through
acquisitions and internally generated growth. In addition, the Company intends
to provide a full range of these services in new geographic areas into which it
will expand, principally by acquisitions. See "-- Business Strategy."
 
OPERATIONS
 
     The Company intends to operate on a decentralized basis, with the
management of each operating location responsible for its day-to-day operations,
profitability and growth. Local management will be supported by the Company's
marketing and advertising strategies and programs and will be provided
appropriate support in developing optimal pricing strategies. Financial
resources for improved systems and expansion of services, training programs,
financial controls, purchasing information and operating expertise will be
shared among locations to improve productivity, lower operating costs and
improve customer satisfaction to stimulate internal growth. While the local
management will operate with a high degree of autonomy and be empowered to make
the necessary operating decisions, adherence to Company training, safety,
customer satisfaction, accounting and internal control policies will be
required. Frequent communication with the Company's executive management team
will be integral to the Company's achieving the benefits that are anticipated by
the consolidation of these businesses into a single company.
 
     The Company's residential service operations are coordinated by local
operations centers, which are staffed by order entry and customer service
personnel, operations or service coordinators, and inventory, vehicle
maintenance and office personnel. All of these centers use specialized computer
and communications technology to process orders, arrange service calls, ensure
timely delivery of required repair parts or new equipment, communicate with
customers and service technicians, and invoice customers. A typical maintenance,
repair or replacement service call begins with either the customer telephoning a
local operations center and requesting an estimate or placing an order for
repair service or the Company calling the customer to make an appointment for
periodic service agreement maintenance. Coordination and deployment of service
technicians are managed by the operations center through communications systems
linked to the center's computer system, cellular telephone, pager or radio.
 
     Service personnel work out of service vehicles, which are equipped with an
inventory of equipment and commonly required tools, parts and supplies needed to
complete a variety of jobs. The service 
 
                                       36

technician assigned to a service call is generally responsible for driving to
the service location, initiating the customer contact, analyzing the problem and
job requirements, providing the price quotation, overseeing the work and
collecting payment for the service. Payment for maintenance, repair and
replacement services not covered by a service contract is generally made in cash
or by check or credit card at the job site, except for certain well-established
customers.
 
     During fiscal 1995, the Company's service technicians responded to
approximately 263,000 maintenance, repair and replacement service calls, of
which approximately 54,000 were requests for services under the Company's
monitoring service contracts; approximately 22,000 were requests for service
under the Company's warranty service contracts; and approximately 187,000 were
requests for emergency or other services not under contract. These calls covered
a wide variety of services including the replacement of approximately 9,000
heating and air conditioning units. Service histories on past customers are
generally available to the customer service representatives in a continuously
updated computer database matched to addresses in the local service area.
 
     The Company's new installation services are generally provided to builders
of new homes and small commercial facilities. During 1995, the Company was
involved in the installation of approximately 12,800 HVAC systems in new homes
and commercial facilities.
 
     Typically, new installation service begins with the customer providing the
architectural plans or mechanical drawings for the particular home or an entire
tract of homes or other facility to be constructed and either requesting a bid
or entering into direct negotiation for the work required. The Company's new
installation personnel analyze the plans to determine the labor, materials and
equipment type and size required for the installation of the system specified,
price the job and either bid for or negotiate the written contract for the job.
In HVAC installations, most of the required air ducts are fabricated and,
together with the other equipment to be installed, partially pre-assembled in
the Company's facilities and readied for delivery to the job site. The equipment
and supplies necessary for the particular job are ordered from the suppliers or
manufacturers, and delivery generally is timed according to the builder's
schedule. The installation work is coordinated with the builder's construction
supervisors. Scheduled draw payments for these services generally are obtained
within 30 days of completing the installation, at which time mechanics' and
materialmen's liens securing the rights to such payments are released. Interim
payments are often obtained to cover the Company's labor and materials costs on
large installation projects.
 
SALES AND MARKETING
 
     In the Founding Companies, the Company believes it has acquired well known
and established businesses that are leading providers of one or more residential
services in their geographic markets. The Company intends to build on this
foundation through the use of advertising to expand name recognition and the
adoption of best practices to increase the quality of services provided. For
example, the Company intends to implement the practice whereby the Company's
customers each receive prompt follow-up inquiries to determine
customer-satisfaction levels and to arrange for follow-up service calls if
necessary.
 
     In each of the market areas in which the Company provides residential
maintenance, repair and replacement services, vigorous advertising campaigns
have traditionally been emphasized by the Founding Companies. These campaigns
have used mailouts, yellow pages, newspapers, radio and television to promote
the services offered under their particular trade names or service marks. These
advertising campaigns have been effective in creating name recognition and
customer identification with the Founding Companies for the quality of the
services they offer in their local areas. The Company expects for the
foreseeable future to retain the trade names and service marks of the Founding
Companies in its advertising and promotional materials in their local areas, but
intends over time to promote and establish the Company's name and service marks
nationally. See "-- Intellectual Property."
 
     The Company also views its existing service contracts as an important way
of retaining its customer base. The Company has several general types of service
contracts: "maintenance and repair" contracts whereby the Company maintains
and repairs selected residential HVAC, plumbing, electrical and other systems
for a period of time for a fixed fee and "maintenance only" or "repair only"
contracts whereby the Company makes periodic inspections of a residential system
and provides certain preventative maintenance for a period of time for a fixed
fee. The Company had approximately 27,000 service contracts in
effect as of March 31, 1996, which generally have one-year terms. The Company
believes that such service contracts provide the Company with flexibility in
determining the timing for delivery of its services, thereby 
 
                                       37

generating greater stability in the level of demand for services throughout
different seasons of the year. See " -- Seasonality." Certain states regulate
the provision of service under residential services warranty contracts. See "--
Governmental Regulation and Environmental Matters."
 
     With respect to its new installation business, the Company's marketing
strategy focuses on cultivating long-term relationships with its national,
regional and local home builder and general contractor customers. The Company's
marketing efforts with these customers primarily involve direct sales contacts
emphasizing the Company's quality of services and reliability. In addition,
labels with the Company's name and phone number are applied to newly installed
equipment, and direct telemarketing sales efforts for service contracts are
timed to closely coincide with the expiration of manufacturer warranties on
Company installed equipment. Therefore, the Company believes new installation
business generally leads to maintenance, repair and replacement business.
 
     The Company has numerous customers. No single customer accounted for more
than 10% of the Company's revenues during fiscal 1995.
 
HIRING, TRAINING AND SAFETY
 
     The Company will seek to ensure through its hiring procedures and
continuous training programs that all service technicians it uses meet safety
standards established by the Company, its insurance carriers and federal, state
and local laws and regulations. The Company reviews prospective permanent
service technicians to ensure they are trained thoroughly in their trades, the
Company's procedures and customer satisfaction standards, possess the required
trade licenses and have acceptable driving records. In addition, the Company
intends to require certain employees to take a physical exam and pass periodic
drug tests.
 
     The Company intends to have continuous training programs in place to
provide initial, refresher and upgrade training programs to trainees,
apprentices and service and installation technicians. These programs typically
are presented by the Company's senior master plumbers, electricians, heating and
air conditioning service technicians and safety supervisors. For example, in
Houston, the Company operates a 150-seat classroom and training facility
incorporating "hands on" training stations where service personnel,
apprentices and new trainees can work on functioning HVAC, plumbing, electrical
and other systems under the supervision of skilled tradesmen. A safety
supervisor at this facility conducts both initial and continuous comprehensive
training classes for all personnel and works with operating management to
observe and evaluate safety procedures in an effort to constantly improve the
effectiveness of the Company's safety programs.
 
VEHICLES AND FACILITIES
 
     The Company operates a fleet of approximately 800 owned or leased service
trucks, vans and support vehicles in its operations. It believes these vehicles
generally are well-maintained, ordinary wear and tear excepted, and adequate for
the Company's current operations.
 
     The Company has 25 facilities for its service locations and operations, six
of which it owns and 19 of which are leased under leases with remaining terms
ranging from 18 months to 10 years from the date hereof on terms the Company
believes to be commercially reasonable. Some of these leases are with affiliates
of the Founding Companies. See "Certain Transactions -- Real Estate and Other
Transactions." Total rental expense for the Company's facilities leases in
fiscal 1995 (excluding certain discontinued retail appliance operations) was
approximately $1.4 million.
 
     The Company's facilities consist principally of offices, garages and
maintenance and warehouse facilities. The Company's principal operating
facilities include (i) a 60,000 square foot facility owned by the Company and
located in Houston, Texas, which is the operational base for Crown, (ii) a
36,000 square foot leased facility in Manassas, Virginia, which serves as the
principal fabrication and production facility for General Heating, (iii) a
36,000 square foot leased facility in Savage, Maryland, which serves as a
distribution, fabrication, production and administrative facility for General
Heating, (iv) a 62,500 square foot leased facility in Charleston, South
Carolina, which is the headquarters for Atlas and (v) a 29,000 square foot
leased facility in Margate, Florida, which serves as the principal office and
fabrication facility for Florida HAC. The Company believes its facilities are
well-maintained and adequate for the Company's existing and planned operations
at each operating location.
 
     After completion of this Offering, the Company will lease its principal
executive and administrative offices in Houston, Texas, and is currently in the
process of obtaining office space for this purpose.
 
                                       38
 
INTELLECTUAL PROPERTY
 
     The Company owns various trademarks, service marks and trade names, which
it uses in its local operations, advertising and promotions. Initially, the
Founding Companies and subsequently acquired businesses will continue to use
their respective trade names and service marks in their local areas. Meridian &
Hoosier currently is using the "DIAL ONE" name and related logos and marks
under a franchise agreement. See "Certain Transactions -- Real Estate and Other
Transactions." The Company intends to adopt and implement throughout its
operations uniform service names and markings for use on its vehicles and in its
advertising and promotional materials. See "Business -- Sales and Marketing."
 
EMPLOYEES
 
     As of March 31, 1996, the Company had approximately 1,300 employees
(excluding sales personnel from A-ABC's discontinued retail appliance
operations, see "The Company"), of which approximately 930 were service and
installation technicians, approximately 245 were clerical and administrative
personnel, approximately 45 were sales personnel and approximately 80 were
management personnel. The Company is not a party to any collective bargaining
agreements. The Company has not experienced any strikes or work stoppages and
believes its relationship with its employees is good.
 
     The residential services business is characterized by, among other things,
high turnover rates among service technicians. A substantial majority of the
service technician turnover experienced by the Founding Companies in recent
years has been during the extended screening period in the first year of
employment. The Company's future success will depend, in part, on its ability to
continue to attract, retain and motivate qualified service technicians and
operational management personnel. One way by which the Company hopes to attract,
retain and motivate such personnel is by offering them a more comprehensive
benefits package at less cost to the employee than is typical in the industry.
The Company expects to be able to offer such a package in a cost effective
manner because of the large number of persons it will employ on closing of this
Offering.
 
SOURCES OF SUPPLY
 
     The raw materials used in the Company's operations, such as HVAC system
components, sheet metal, electrical components and copper and PVC tubing, are
generally available from domestic suppliers at competitive prices. The Company
believes that the combined entity will be able to obtain a price savings on raw
materials through volume purchases. The Company does not currently have any
significant company-wide contracts relating to the supply of equipment or
materials. The Company has not experienced any significant difficulty in
obtaining adequate supplies to conduct its operations.
 
SEASONALITY
 
     The Company's installation, maintenance, repair and replacement operations
are subject to seasonal variations in the different lines of service. Except in
southeast Florida and South Carolina, the demand for new installations is lower
during the winter months because new construction activity is lower as a result
of colder weather. Demand for HVAC and plumbing services generally varies with
the weather; demand generally is higher during periods of extremely cold or hot
weather and lower in the spring and fall months. The Company expects its
revenues and operating results generally will be correspondingly lower in its
first and fourth quarters.
 
COMPETITION
 
     The market for residential services is highly competitive. The Company
believes that the principal competitive factors in the residential services
industry are (i) timeliness, reliability and quality of services provided, (ii)
range of services provided, (iii) market share and visibility and (iv) price.
The Company believes its strategy of creating a leading national provider of
comprehensive residential services directly addresses these factors. The ability
of the Company to recruit, train and retain highly motivated service technicians
to provide quality services should be enhanced by its ability to utilize
professionally managed recruiting and training programs. In addition, the
Company expects to offer compensation, health and savings benefits that are more
comprehensive than most offered in the industry. See "Business -- Hiring,
Training and Safety." Quality of service should be enhanced by the
implementation and continuous reinforcement of customer satisfaction policies,
retraining and follow-up with the customer. Competitive pricing is possible
through the implementation of the cost saving opportunities that exist across
each of the service lines offered and from productivity improvements.
 
                                       39

     Most of the Company's competitors are small, owner-operated companies that
typically operate in a single local geographic area. Certain of these smaller
competitors may have lower overhead cost structures and, consequently, may be
able to provide their services at lower rates. Moreover, many homeowners have
traditionally relied on individual persons or small repair service firms with
whom they have long-established relationships for a variety of home repairs. The
Company believes there are currently only two public companies, Roto-Rooter,
Inc. and Baltimore Gas & Electric Company (through a subsidiary), focused on
providing residential services in some of the same services lines provided by
the Company. There are a number of national chains, such as Home Depot, Sears
and Builders Square, that sell a variety of plumbing fixtures and equipment, and
heating and air conditioning equipment for residential use and offer, either
directly or through various subcontractors, installation, warranty and repair
services. Other companies or trade groups engage in franchising their names and
marketing programs in some residential services lines. In the future,
competition may be encountered from, among others, the unregulated business
segments of regulated gas and electric utilities or from newly deregulated
utilities in those industries entering into various residential service areas.
Certain of the Company's competitors and potential competitors have greater
financial resources than the Company to finance residential services acquisition
and development opportunities, to pay higher prices for the same opportunities
or to develop and support their own residential services operations if they
decide to enter the field.
 
GOVERNMENTAL REGULATION AND ENVIRONMENTAL MATTERS
 
     Many aspects of the Company's operations are subject to various federal,
state and local laws and regulations, including, among others, (i) permitting
and licensing requirements applicable to service technicians in their respective
trades, (ii) building, HVAC, plumbing and electrical codes and zoning
ordinances, (iii) laws and regulations relating to consumer protection,
including laws and regulations governing service contracts for residential
services, and (iv) laws and regulations relating to worker safety and protection
of the environment.
 
     The Company believes it has all required permits and licenses to conduct
its operations and is in substantial compliance with applicable regulatory
requirements relating to its operations. Failure of the Company to comply with
the applicable regulations could result in substantial fines or revocation of
the Company's operating permits.
 
     A large number of state and local regulations governing the residential
services trades require various 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 service
technicians who work in the geographic area covered by the permit or licenses.
The Company intends to implement a policy to ensure that, where allowed, 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 persons within that
region.
 
     The Company's operations are affected by numerous federal, state and local
environmental laws and regulations, including those governing vehicle emissions
and the use and handling of refrigerants. The technical requirements of these
laws and regulations are becoming increasingly expensive, complex and stringent.
Federal and state environmental laws include statutes intended to allocate the
cost of remedying contamination among specifically identified parties. The
Comprehensive Environmental Response, Compensation, and Liability Act
("CERCLA" or "Superfund") imposes strict, joint and several liability on
owners or operators of facilities at, from, or to which a release of hazardous
substances has occurred, on parties who generated hazardous substances that were
released at such facilities, and on parties who arranged for the transportation
of hazardous substances to such facilities. A majority of states have adopted
"Superfund" statutes comparable to and, in some cases, more stringent than
CERCLA. If the Company were to be found to be a responsible party under CERCLA
or a similar state statute, the Company could be held liable for all
investigative and remedial costs associated with addressing such contamination.
In addition, claims alleging personal injury or property damage may be brought
against the Company as a result of alleged exposure to hazardous substances
resulting from the Company's operations. None of the Founding Companies has been
notified that it is a potentially responsible party under CERCLA or any similar
state statute.
 
     The Company's operations are subject to the federal Clean Air Act, as
amended (the "Clean Air Act"), which governs air emissions and imposes
specific requirements on the use and handling of refrigerants. The Clean Air Act
requires all service technicians performing air conditioning maintenance, 
 
                                       40

repair and installation services to be licensed to perform those activities and
require the containment and recycling of certain refrigerants used in the
Company's operations.
 
     The Company's operations in certain geographic regions are subject to laws
that will, over the next few years, require specified percentages of vehicles in
large vehicle fleets to use "alternative fuels," such as compressed natural
gas ("CNG") or propane, and to meet reduced emissions standards. A significant
proportion of the vehicles in the Crown fleet that are currently in service have
been converted to use CNG. The Company does not anticipate that the cost of
additional fleet conversion that may be required under current laws will be
material. Future costs of compliance with these laws will be dependent upon the
number of vehicles purchased in the future for use in the covered geographic
regions, as well as the number and size of future business acquisitions by the
Company in these regions. The Company cannot determine to what extent its future
operations and earnings may be affected by new regulations or changes in
existing regulations relating to vehicle emissions.
 
     Prior to entering into the agreements relating to the Acquisitions, the
Company evaluated the properties to be acquired and property leases to be
assumed in the Acquisitions, and engaged an independent environmental consulting
firm to conduct or review assessments of environmental conditions at certain
properties owned or operated by the Founding Companies. No material
environmental problems were discovered in these reviews. The Company intends to
implement various programs to promote compliance with applicable health and
worker safety regulations and to increase employee safety awareness.
 
     Capital expenditures for property, plant and equipment for environmental
control facilities during fiscal 1995 were not material. The Company does not
currently anticipate any material adverse effect on its business or consolidated
financial position as a result of future compliance with existing environmental
laws and regulations controlling the discharge of materials into the
environment. Future events, however, such as changes in existing laws and
regulations or their interpretation, more vigorous enforcement policies of
regulatory agencies or stricter or different interpretations of existing laws
and regulations may require additional expenditures by the Company which may be
material.
 
LITIGATION AND INSURANCE
 
     The Company is, from time to time, a party to litigation arising in the
normal course of its business, most of which involves claims for personal injury
and property damage incurred in connection with its operations. The Company is
not currently involved in any litigation the Company believes will have a
material adverse effect on its financial condition or results of operations.
 
     The Company maintains various worker safety and quality control programs in
an attempt to reduce the risk of potential damage to persons and property. In
addition, the Company maintains insurance in such amounts and against such risks
as it deems prudent. No assurance can be given such insurance will be sufficient
under all circumstances to protect the Company against significant claims for
damages. The occurrence of a significant event not fully insured against could
materially and adversely affect the Company's financial condition and results of
operations. Moreover, no assurance can be given the Company will be able to
maintain adequate insurance in the future at commercially reasonable rates or on
acceptable terms.
 
                                       41

                                   MANAGEMENT
 
DIRECTORS AND EXECUTIVE OFFICERS
 
     The following table sets forth certain information concerning each of the
Company's current directors, the eight persons nominated to become directors on
closing of this Offering and the executive officers of the Company (ages are as
of June 30, 1996):
 
<TABLE>
<CAPTION>
                NAME                    AGE                                 POSITION
- -------------------------------------   ---   ---------------------------------------------------------------------
<S>                                     <C>   <C>
C. Clifford Wright, Jr...............   43    Director, President and Chief Executive Officer; President of EHC
Howard S. Hoover, Jr.................   57    Director, Chairman of the Board; Chairman of the Board of EHC
Gorden H. Timmons....................   47    Director* and Chief Operating Officer*; President of Atlas
William P. McCaughey.................   38    Director, Executive Vice President - Planning and Development
John D. Held.........................   34    Senior Vice President, General Counsel and Secretary
Frank N. Menditch....................   44    Director*; President of General Heating
Elliot Sokolow.......................   53    Director*; President of Florida HAC
A. Jefferson Walker..................   34    Treasurer
Michael Mamaux.......................   30    Controller
Thomas N. Amonett....................   53    Director*
Robert J. Cruikshank.................   65    Director*
Randall B. Hale......................   33    Director*
Nolan Lehmann........................   52    Director*
Don D. Sykora........................   65    Director*
- ------------
</TABLE>
* Appointment will become effective on closing of this Offering.
 
     C. CLIFFORD WRIGHT, JR. has been President and Chief Executive Officer and
a director of the Company since November 1995. Since March 1996, Mr. Wright has
also served as President and Chief Executive Officer of EHC. From 1991 to 1995,
Mr. Wright was Vice President and Chief Financial Officer of American Ecology
Corporation. From 1990 to 1991, Mr. Wright was a Director of Corporate Finance
with KPMG Peat Marwick. Prior thereto, he was a divisional vice president in
finance and planning of Browning-Ferris Industries, Inc. ("BFI"). Mr. Wright
is a Certified Public Accountant.
 
     HOWARD S. HOOVER, JR. has been Chairman of the Board of the Company since
November 1995. Since March 1996, Mr. Hoover has also served as Chairman of EHC.
From 1970 until 1991, Mr. Hoover was employed by BFI and served during his
tenure as a director and in various management capacities as a member of the
Senior Management Committee, Senior Vice President, General Counsel and
Secretary. From 1992 until 1995, Mr. Hoover was engaged in various business
development and consulting activities.
 
     GORDEN H. TIMMONS founded Atlas in 1976 and has served as its President
since that time. Mr. Timmons was a founder of the Charleston Chapter of the Air
Conditioning Contractors of America ("ACCA") and is a past President of that
Chapter. Mr. Timmons has been active in computer systems development for HVAC
companies and is a frequent speaker at national industry conventions.
 
     WILLIAM P. MCCAUGHEY has been Executive Vice President - Planning and
Development and a director of the Company since November 1995. Since March 1996,
Mr. McCaughey has also served as Executive Vice President of EHC. From 1992 to
1995, Mr. McCaughey was Treasurer of American Ecology Corporation. From 1991 to
1992, he was President of Environmental Financial Services, Inc., a research and
consulting firm. He served as Vice President and Corporate Treasurer of Republic
Waste Industries, Inc. from 1990 to 1991 and, prior thereto, was employed by BFI
in several financial positions from 1982 to 1990. Mr. McCaughey is a Chartered
Financial Analyst.
 
     JOHN D. HELD has been Senior Vice President, General Counsel and Secretary
of the Company since March 1996. Mr. Held also has served as Vice President and
Secretary of EHC since March 1996. From
 
                                       42
 
October 1995 to March 1996, he was an associate at the law firm of Liddell,
Sapp, Zivley, Hill and LaBoon, LLP. Mr. Held was Associate General Counsel of
American Ecology Corporation from 1994 to 1995 and was an associate at the law
firm of Baker & Botts, L.L.P. prior thereto.
 
     FRANK N. MENDITCH has been President of General Heating for more than the
past five years. Mr. Menditch is a past president of the National Capital
Chapter of ACCA and of the Metro Washington Heat Pump Association. Mr. Menditch
holds Master Air Conditioning licenses in various jurisdictions.
 
     ELLIOT SOKOLOW was a founder of Florida HAC in 1970 and has served as its
president since 1977. Mr. Sokolow served as national President of ACCA in 1992
and 1993, and is the President-Elect of the Florida Air Conditioning Contractors
Association.
 
     A. JEFFERSON WALKER joined the Company in April 1996 as Treasurer and was a
consultant to the Company from January 1996 to March 1996. Mr. Walker has also
served as Treasurer of EHC since March 1996. From 1993 to January 1996, he was
employed by American Ecology Corporation as a Manager-Financial Analysis and
Assistant Treasurer. From 1990 to 1993, Mr. Walker served as a Senior Financial
Analyst and Assistant Banking Officer of Mellon Bank Corporation in Houston,
Texas. Mr. Walker was a financial analyst at BFI from 1988 to 1989.
 
     MICHAEL MAMAUX joined the Company in April 1996 as Controller. From 1995
until April 1996, Mr. Mamaux was an assistant corporate controller at U.S.
Delivery Systems, Inc. Prior thereto, he was a Senior Auditor at Arthur Andersen
LLP. Mr. Mamaux is a Certified Public Accountant.
 
     THOMAS N. AMONETT has served as President and a director of Reunion
Resources Company (previously known as Buttes Gas and Oil Company), a
Houston-based company primarily engaged in manufacturing high volume, precision
plastic products; providing engineered plastic services; oil and gas
exploration, development and production; and wine grape vineyard development,
since 1992. Previously, he was Of Counsel with the law firm of Fulbright &
Jaworski L.L.P. from 1986 to 1992. Prior thereto, he was President and a
director of Houston Oil Fields Company, an oil and gas exploration and
production company, from 1982 to 1986. Mr. Amonett also currently serves as a
director of Air-Cure Technologies, Inc., PetroCorp Incorporated and Weatherford
Enterra, Inc.
 
     ROBERT J. CRUIKSHANK is primarily engaged in managing his personal
investments in Houston. Prior to his retirement in 1993, he was a Senior Partner
in the accounting firm of Deloitte & Touche. Mr. Cruikshank serves as a director
of Houston Industries Incorporated, MAXXAM Inc., Kaiser Aluminum Corporation,
Compass Bank-Houston and Texas Biotechnology Corporation.
 
     RANDALL B. HALE has been a Vice President of Equus Capital Management
Corporation ("ECMC") and Equus II (see "Certain Transactions" and "Security
Ownership of Certain Beneficial Owners and Management") since 1992 and a
director of ECMC since February 1996. Mr. Hale currently serves as an officer or
director of several private businesses in industries including investment
management, environmental services, oilfield and petrochemical services,
transportation, casual sportswear and specialty manufacturing. From 1985 to
1992, he was employed by Arthur Andersen LLP, where he served in an accounting
and financial advisory capacity to a number of publicly traded and private
companies in a variety of industries. Mr. Hale is a Certified Public Accountant.
Mr. Hale is being appointed to the Company's Board of Directors pursuant to the
provisions of a funding agreement between ARS and Equus II, which will terminate
pursuant to its terms upon completion of this Offering. See "Certain
Transactions -- Organization of the Company."
 
     NOLAN LEHMANN has been the President of ECMC since its formation in 1983
and of Equus II since its formation in 1991 (see "Certain Transactions" and
"Security Ownership of Certain Beneficial Owners and Management"). Prior
thereto, Mr. Lehmann was employed by Service Corporation International, where he
held various positions, including vice president - regional manager and vice
president - corporate development. Mr. Lehmann currently serves as a director of
a number of public and private companies, including Allied Waste Industries,
Inc., Champion Healthcare Corporation, Drypers Corporation and Garden Ridge
Corporation. Mr. Lehmann is a Certified Public Accountant. Mr. Lehmann is being
appointed to the Company's Board of Directors pursuant to the provisions of a
funding agreement between ARS and
 
                                       43
 
Equus II, which will terminate pursuant to its terms upon completion of this
Offering. See "Certain Transactions -- Organization of the Company."
 
     DON D. SYKORA is currently a consultant to Houston Industries Incorporated.
Prior to his retirement in 1995, he served as President and Chief Operating
Officer of Houston Industries Incorporated since 1993. From 1990 to 1993, Mr.
Sykora was President and Chief Operating Officer of Houston Industries
Incorporated's principal operating subsidiary, Houston Lighting & Power Company.
Mr. Sykora is currently serving as a director of each of Powell Industries,
Inc., Pool Oilfield Services, Inc. and TransTexas Gas Corp.
 
     On closing of this Offering, the Board of Directors will be divided into
three classes with staggered terms of office. The term of the Class I directors,
consisting of Messrs. Wright, Sokolow and Amonett, will expire at the annual
stockholders' meeting in 1997. The term of the Class II directors, consisting of
Messrs. Hoover, Menditch, Cruikshank and Hale, will expire at the annual
stockholders' meeting in 1998. The term of the Class III directors, consisting
of Messrs. Timmons, McCaughey, Lehmann and Sykora, will expire at the annual
stockholders' meeting in 1999. After 1997 for the Class I directors, after 1998
for the Class II directors and after 1999 for the Class III directors, each
class will hold office until the third annual stockholders' meeting following
the most recent election of such class. Classification of the Board could have
the effect of increasing the length of time necessary to change the composition
of a majority of the Board. In general, at least two annual meetings of
stockholders will be necessary for stockholders to effect a change in a majority
of the members of the Board. Executive officers serve at the discretion of the
Board.
 
     On closing of this Offering, there will be five committees of the Board:
Audit, Compensation, Executive, Nominating and Industry Relations. The initial
members of the Audit Committee will be Messrs. Cruikshank (chairman), Amonett
and Hale. The initial members of the Compensation Committee will be Messrs.
Amonett (chairman), Sykora and Lehmann. The initial members of the Executive
Committee will be Messrs. Wright (chairman), Hoover, Sykora and Timmons. The
initial members of the Nominating Committee will be Messrs. Hoover (chairman),
Wright, Cruikshank and McCaughey. The initial members of the Industry Relations
Committee will be Messrs. Sokolow (chairman), Hoover and Menditch. The members
of the Audit and Compensation Committees will not be employees of the Company.
 
DIRECTOR COMPENSATION
 
     Directors who are employees of the Company do not receive additional
compensation for serving as directors. Each director who is not an employee of
the Company (a "Nonemployee Director") initially will receive a fee of $1,500
for each Board meeting attended and $1,000 for each Board committee meeting
attended (unless held on the same day as a Board meeting) and will periodically
be granted options to purchase Common Stock pursuant to the Company's 1996
Incentive Plan (the "Incentive Plan"). See "-- 1996 Incentive
Plan -- Nonemployee Director Awards." All directors will be reimbursed for
out-of-pocket expenses incurred in attending meetings of the Board or Board
committees and for other expenses incurred in their capacity as directors.
 
EXECUTIVE COMPENSATION
 
     The Company was incorporated in October 1995 and, prior to this Offering,
has not conducted any operations other than activities related to the
Acquisitions and this Offering. The Company did not pay any compensation to its
senior executive officers in 1995. In March 1996, the Company paid Mr. Wright
50% of his annual base salary accrued from November 1, 1995 to March 1, 1996 at
the annual rate of $175,000. The Company anticipates that during 1996 its most
highly compensated executive officers and their annualized base salaries will
be: Mr. Wright -- $175,000; Mr. Hoover -- $160,000; Mr. Timmons -- $150,000; Mr.
Menditch -- $150,000; and Mr. Sokolow -- $150,000. On the closing of this
Offering, Mr. Wright will be paid the balance of his accrued 1995 and 1996
compensation, while Mr. Hoover will be paid his accrued 1995 and 1996
compensation through a series of payments beginning on October 1, 1996. Pursuant
to the terms of their employment agreements with ARS, the annual base salaries
of each of the executive officers named above are subject to upward adjustment
effective one year from the effective date of his employment agreement. The
effective date of the employment agreements of Messrs. Wright and Hoover is
November 1,
 
                                       44
 
1995 and of Messrs. Timmons, Menditch and Sokolow is the date this Offering
closes. See "-- Employment Agreements." Each of the executive officers named
above is eligible to earn additional performance-based incentive compensation
for 1996. See "-- 1996 Incentive Plan."
 
EMPLOYMENT AGREEMENTS
 
     The Company has entered into employment agreements with Messrs. Wright,
Hoover, McCaughey, Held and the current chief executive officer of each of the
Founding Companies other than Crown and A-ABC, which generally will continue
their existing employment arrangements with operational management. The
following summary of these agreements, which will be effective on the closing of
the Acquisitions and this Offering, does not purport to be complete and is
qualified by reference to them, copies of which have been filed as exhibits to
the Registration Statement of which this Prospectus is a part. Each of these
agreements provides for an annual base salary in an amount not less than the
initial specified amount and entitles the employee to participate in all the
Company's compensation plans (as defined) in which other executive officers of
the Company participate. Each of these agreements also has a continuous
three-year term subject to the right of the Company and the employee to
terminate the employee's employment at any time. If the employee's employment is
terminated by the Company without cause (as defined) or by the employee with
good reason (as defined), the employee will be entitled, during each of the
years in the three-year period beginning on the termination date, to (i)
periodic payments equal to his average annual cash compensation (as defined)
from the Company, including bonuses, if any, during the two years (or such
shorter period of employment) preceding the termination date, and (ii) continued
participation in all the Company's compensation plans (other than the granting
of new awards under the Incentive Plan or any other performance-based plan).
Except in the case of a termination for cause, any stock options previously
granted to the employee under the Incentive Plan that have not been exercised
and are outstanding as of the time immediately prior to the date of his
termination will remain outstanding (and continue to become exercisable pursuant
to their respective terms) until exercised or the expiration of their term,
whichever is earlier. If a change of control (as defined) of the Company occurs,
the employee will be entitled to terminate his employment at any time during the
365-day period following that change of control and receive a lump sum payment
equal to three times his highest annual base salary under the agreement (plus
such amounts as may be necessary to hold the employee harmless from the
consequences of any resulting excise or other similar purpose tax relating to
"parachute payments" under the Internal Revenue Code of 1986, as amended (the
"Code"). Each employment agreement contains or will contain a covenant
limiting competition with the Company for a period of one year following
termination of employment.
 
     The Company also has entered into employment agreements with Messrs. Walker
and Mamaux.
 
                                       45
 
OPTION GRANTS
 
     Pursuant to the Company's previous stock option plan, the Company has
granted to its directors, officers and certain key employees (including officers
of the Founding Companies) 10-year options to purchase 1,345,000 shares of
Common Stock. Certain of these options will be exchanged for identical options
under the Incentive Plan. The following table sets forth certain information
concerning the options granted and to be granted to the following individuals
and groups:
 
<TABLE>
<CAPTION>
                                                                NUMBER OF        PERCENT OF TOTAL
                                                            SHARES UNDERLYING        OPTIONS
                                                             OPTIONS GRANTED      OUTSTANDING OR
                NAME                     DATE OF GRANT      OR TO BE GRANTED      TO BE GRANTED          EXERCISE PRICE
- -------------------------------------   ----------------    -----------------    ----------------    -----------------------
<S>                                     <C>                      <C>                   <C>                    <C>  
C. Clifford Wright, Jr...............   January 31, 1996         200,000               14.9%                  $8.00
Howard S. Hoover, Jr.................   January 31, 1996         150,000               11.2%                  $8.00
William P. McCaughey.................   January 31, 1996         120,000                8.9%                  $8.00
A. Jefferson Walker III..............   January 31, 1996          25,000                1.8%                  $8.00
Certain other officers and key
  employees..........................   March-April 1996         150,000               11.2%              $9.60-$10.80
All other officers, outside directors
  and officers of Founding Companies,
  as a group*........................   June 1996                700,000               52.0%         Initial public offering
- ------------
</TABLE>
* Conditioned on the closing of the Acquisitions and this Offering.
 
     The options granted to Messrs. Wright, Hoover, McCaughey, Walker and one
other executive officer are exercisable in 50% increments six and 18 months,
respectively after the closing of this Offering. Other than the options for
outside directors which are exercisable as set forth in "-- Director
Compensation," the other outstanding options generally are exercisable in 20%
increments six months after the date this Offering closes and thereafter on each
of the first four anniversaries of that date.
 
BONUS AWARDS
 
     In June 1996, the Board of Directors granted Messrs. Wright, Hoover,
McCaughey and Held incentive cash bonus awards for 1996 which are based, subject
to the overall performance of the Company, on the performance of the Common
Stock after the Offering as compared to the performance of each of the stocks
included in the Standard & Poor's 500 Stock Index (the "S&P 500"). The amount
of each award will be determined by multiplying the officer's salary earned
between the closing of this Offering and December 31, 1996 by a percentage
determined by ranking the Common Stock's price performance including reinvested
dividends, if any ("Total Stockholder Return"), among Total Stockholder
Returns of all the stocks in the S&P 500, as follows:

        PERCENTILE RANKING OF                       PERCENTAGE OF BASE
           COMPANY'S TOTAL                               SALARY AS
         STOCKHOLDER RETURN                             BONUS AWARD
- -------------------------------------               ------------------
            50% or less..........................            0%
            51% -  65%...........................           50%
            66% -  74%...........................          100%
            75% -  89%...........................          150%
            90% -  95%...........................          200%
            96% - 100%...........................          250%
 
     For 1996, the incentive bonus award calculation will be made from the
closing of this Offering through December 31. The officers granted these will
not be eligible to participate in any other Company cash bonus award program in
1996. The 1996 bonus for Mr. Timmons, if any, will be determined in accordance
with
 
                                       46
 
50% of the above formula and paid in January 1997 and the balance of such
officer's 1996 bonus award, if any, will be based upon performance standards
established by the Compensation Committee of the Board of Directors. The 1996
bonuses for other officers and key employees of the Company will be based upon
the performance standards established by the Compensation Committee. The Company
expects the Compensation Committee to establish such performance standards for
the remainder of the 1996 year following the closing of this Offering.
 
1996 INCENTIVE PLAN
 
     The description set forth below summarizes the principal terms and
conditions of the Incentive Plan, does not purport to be complete and is
qualified in its entirety by reference to the Incentive Plan, a copy of which
has been filed as an exhibit to the Registration Statement of which this
Prospectus is a part.
 
     GENERAL. The objectives of the Incentive Plan, which was approved by the
Company's Board of Directors and stockholders, are to (i) attract and retain the
services of key employees, qualified independent directors and qualified
consultants and other independent contractors and (ii) encourage the sense of
proprietorship in and stimulate the active interest of those persons in the
development and financial success of the Company by making awards ("Awards")
designed to provide participants in the Incentive Plan with a proprietary
interest in the growth and performance of the Company.
 
     The Company has reserved 1,500,000 shares of Common Stock for use in
connection with the Plan. Beginning with the Company's first fiscal quarter
after the closing of this Offering and continuing each fiscal quarter
thereafter, the number of shares available for use in connection with the
Incentive Plan will be the greater of 1,500,000 or 15% of the number of shares
of Common Stock outstanding on the last day of the preceding calendar quarter.
Shares subject to Awards that are forfeited or terminated, exchanged for Awards
that do not involve Common Stock or expire unexercised, or are settled in cash
in lieu of Common Stock, or otherwise such that the shares covered thereby are
not issued, again become available for Awards.
 
     Persons eligible for Awards are (i) employees holding positions of
responsibility with the Company or any of its subsidiaries and whose performance
can have a significant effect on the success of the Company as well as
individuals who have agreed to become employees within six months of the date of
grant ("Employees"), (ii) Nonemployee Directors and (iii) nonemployee
consultants and other independent contractors providing, or who will provide,
services to the Company or any of its subsidiaries ("Independent
Contractors"). Awards to Employees ("Employee Awards") and Awards to
Independent Contractors ("Independent Contractor Awards") generally are
treated alike under the Incentive Plan, and the following discussion of Employee
Awards applies, except as noted, equally to Independent Contractor Awards. For
purposes of Section 16(b) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), which could impose so-called short-swing trading
liabilities on the directors and executive officers of the Company in connection
with their purchases and sales of Common Stock within any six-month period, the
Incentive Plan is intended to qualify for the exemptions from that Section which
are provided by Rule 16b-3 under the Exchange Act ("Rule 16b-3").
 
     The Compensation Committee of the Company's Board of Directors (the
"Committee") will administer the Incentive Plan, except as it applies to
Nonemployee Directors, and, to the extent required for the Rule 16b-3
exemptions, the Committee will at all times consist of at least two Nonemployee
Directors. The Committee has the exclusive power to administer the Incentive
Plan and take all actions specifically contemplated thereby or necessary or
appropriate in connection with the administration thereof. Except insofar as the
Incentive Plan relates to Nonemployee Directors, the Committee also has the
exclusive power to interpret the Incentive Plan and to adopt such rules,
regulations and guidelines for carrying out its purposes as the Committee may
deem necessary or proper in keeping with the objectives thereof. The Committee
may, in its discretion, extend or accelerate the exercisability of, accelerate
the vesting of or eliminate or make less restrictive any restrictions contained
in any Employee Award, waive any restriction or other provision of the Incentive
Plan or in any Employee Award or otherwise amend or modify any Employee Award in
any manner that is either (i) not adverse to that Employee holding the Employee
Award or (ii) consented to by that Employee. The Committee also may delegate to
the chief executive officer and other senior officers of the Company its duties
under the Incentive Plan, except that no such delegation may be made in the case
of actions respecting participants subject to Section 16 of the Exchange Act.
 
     EMPLOYEE AWARDS. Employee Awards may be in the form of (i) rights to
purchase a specified number of shares of Common Stock at a specified price
("Options") which may be denominated in one or both of Common Stock or units
denominated in Common Stock, (ii) rights to receive a payment, in cash or 
 
                                       47

Common Stock, equal to the fair market value or other specified value of a
number of shares of Common Stock on the rights exercise date over a specified
strike price ("SARs"), (iii) restricted or unrestricted grants of Common Stock
or units denominated in Common Stock ("Stock Awards"), (iv) grants denominated
in cash ("Cash Awards") and (v) grants denominated in cash, Common Stock, units
denominated in Common Stock or any other property which are made subject to the
attainment of one or more performance goals ("Performance Awards"). Subject to
the limitations described below, the Committee will determine the recipients of
Employee Awards and the terms, conditions and limitations applicable to each
Employee Award, which conditions may, but need not, include continuous service
with the Company, achievement of specific business objectives or goals,
increases in specified indices or other comparable measures of performance. The
Committee may grant Employee Awards (i) singly, (ii) in combination or tandem
with other Employee Awards, (iii) in replacement of or as alternatives to prior
Employee Awards or (iv) in combination or tandem with, in replacement of or as
alternatives to rights under any other employee plan of the Company or any
acquired entity. The exercise price of an Option may be paid with cash or,
according to methods determined by the Committee, with Common Stock or any other
Employee Award the exerciser has owned for at least six months. Performance
Awards may include more than one performance goal, and a performance goal may be
based on one or more business criteria applicable to the grantee, the Company as
a whole or one or more of the Company's business units and may include any of
the following: increased revenue, net income, stock price, market share,
earnings per share, return on equity or assets or decreased costs or other
liabilities.
 
     The Incentive Plan contains limitations respecting Employee Awards,
including the following:
 
          (i) an Option may be either an incentive stock option ("ISO") that
     qualifies, or a nonqualified stock option ("NSO") that does not qualify,
     with the requirements of Section 422 of the Code, and must have an exercise
     price of not less than the fair market value of a Common Stock share on the
     date of grant;
 
          (ii) the Committee must establish the performance goal or goals for
     each Performance Award prior to the earlier to occur of (a) 90 days after
     the commencement of the performance measurement period for that Award and
     (b) the lapse of 25% of that period, and in any event while it is
     substantially uncertain whether the goal or goals will be met;
 
          (iii) no employee may be granted, during any one-year period, (a)
     Options or SARs covering more than 150,000 shares of Common Stock or (b)
     Stock Awards covering or relating to more than 10,000 shares of Common
     Stock (the limitations referred to in this clause (iii) being the
     "Stock-based Awards Limitations"); and
 
          (iv) no Employee may be granted Cash Awards (including Performance
     Awards denominated in cash) having a value determined on the date of grant
     in excess of $1 million.
 
Only the limitations described in clause (i) above apply to Independent
Contractor Awards.
 
     NONEMPLOYEE DIRECTOR AWARDS. Nonemployee Director Awards will be granted
either automatically or at the option of Nonemployee Directors in lieu of
director's fees, as described below.
 
     On the date this Offering closes, each Nonemployee Director automatically
will be granted NSOs to purchase 10,000 shares of Common Stock. In addition, on
the first business day of the month following the date on which each annual
meeting of the Company's stockholders is held (each an "Annual Director Award
Date"), each Nonemployee Director automatically will be granted NSOs to purchase
5,000 shares of Common Stock. The Board may increase subsequent annual Director
Awards to not more than 15,000 shares. Any person who first becomes a
Nonemployee Director after the date this Offering closes otherwise than by
election at an annual meeting of stockholders automatically will be granted, on
the date of his or her election, NSOs to purchase the number of shares of Common
Stock equal to the product of (i) 10,000 and (ii) a fraction, the numerator of
which is the number of days between the election of that Nonemployee Director
and the next scheduled Annual Director Award Date (or, if that date then has not
been scheduled, the date that is the first anniversary of the then immediately
preceding Annual Director Award Date, if any) and the denominator of which is
365. For purposes of any Director Awards granted prior to the scheduling of the
1997 annual meeting of stockholders, June 1, 1997 will be deemed the initial
Annual Director Award

                                       48
 
Date. Each NSO granted to Nonemployee Directors will (i) have a 10-year term,
(ii) have an exercise price per share equal to the fair market value of a Common
Stock share on the date of grant (the initial public offering price in the case
of NSOs granted on the closing of this Offering) which must be paid in full in
cash at the time of exercise to the extent exercised and (iii) become
exercisable in increments of one-third of the total number of shares of Common
Stock subject thereto on the first, second and third anniversaries of the date
of grant. If a Nonemployee Director resigns from the Board without the consent
of a majority of the other directors, his or her NSOs may be exercised only to
the extent they were exercisable on the resignation date.
 
     A Nonemployee Director may make an annual election to receive, in lieu of
all or any portion of the director's fees he or she would otherwise receive in
the next year (including both annual retainer fees, if any, and meeting fees), a
restricted Stock Award covering a number of shares of Common Stock having a fair
market value equal to the quotient obtained by dividing (i) the dollar amount of
fees the Nonemployee Director elects to forego in the next year in exchange for
restricted Stock Awards by (ii) the fair market value of a Common Stock share on
the date of the election.
 
     OTHER PROVISIONS. With the approval of the Committee, payments in respect
of Employee Awards may be deferred, either in the form of installments or a
future lump sum payment, by any Employee. At the discretion of the Committee, an
Employee may be offered an election to substitute an Award for another Award or
Awards of the same or different type.
 
     The Company will have the right to deduct applicable taxes from any
Employee Award payment and withhold, at the time of delivery or vesting of cash
or shares of Common Stock under the Incentive Plan, an appropriate amount of
cash or number of shares of Common Stock, or combination thereof, for the
payment of taxes. The Committee may (i) permit withholding to be satisfied by
the transfer to the Company of shares of Common Stock previously owned by the
holder of the Employee Award for which withholding is required and (ii) cause
the Company to make a short-term or demand loan to any Employee or Independent
Contractor to permit the payment of taxes required by law.
 
     The Board of Directors may amend, modify, suspend or terminate the
Incentive Plan for the purpose of addressing any changes in legal requirements
or for any other lawful purpose, except that (i) no change that would impair the
rights of any holder of an Award with respect to that Award may be made without
the consent of that holder and (ii) no change requiring stockholder approval to
maintain the Rule l6b-3 exemptions will be effective until that approval has
been obtained.
 
     If any subdivision, split or consolidation of outstanding shares of Common
Stock, or any declaration of a stock dividend payable in shares of Common Stock,
occurs, the Board will make appropriate adjustments to (i) the number of shares
of Common Stock reserved under the Incentive Plan, (ii) the number of shares of
Common Stock covered by outstanding Awards in the form of Common Stock or units
denominated in Common Stock, (iii) the exercise or other price in respect of
such Awards, (iv) the appropriate fair market value and other price
determinations for Awards in order to reflect such transactions, (v) the number
of shares of Common Stock covered by Options automatically granted to
Nonemployee Directors, (vi) the number of shares covered by restricted Stock
Awards automatically granted to Nonemployee Directors and (vii) the Stock Based
Awards Limitations. If any recapitalization or capital reorganization of the
Company, any consolidation or merger of the Company with another corporation or
entity, any adoption by the Company of any plan of exchange affecting the Common
Stock or any distribution to holders of Common Stock of securities or property
(other than normal cash dividends) occurs, the Board will make appropriate
adjustments to the amounts or other items referred to in clauses (ii), (iii),
(iv), (v), (vi) and (vii) above to give effect to such transactions, but only to
the extent necessary to maintain the proportionate interest of the holders of
the Awards and to preserve, without exceeding, the value thereof.
 
     TAX IMPLICATIONS OF AWARDS. The following summarizes the United States
federal income tax consequences to Employees, Nonemployee Directors and the
Company as a result of the grant and exercise of Awards under the Incentive
Plan. It does not address the consequences of the Incentive Plan under any other
tax laws.
 
     No grant of any Option or SAR will constitute realized taxable income to
the grantee. Each exerciser of an SAR or NSO will (i) recognize ordinary income
in an amount equal to the excess of (a) the amount of
 
                                       49
 

cash and the fair market value of the Common Stock received over (b) the
exercise price (if any) paid therefor and (ii) generally have a tax basis in any
shares of Common Stock received pursuant to the exercise of an SAR or the cash
exercise of an NSO which equals the fair market value of those shares on the
date of exercise.
 
     An Employee will not have taxable income as a result of exercising an ISO,
but the excess of the fair market value of the shares of Common Stock received
on that exercise ("ISO Stock") over the exercise price may cause the Employee
to incur alternative minimum tax ("AMT"). The payment of AMT by an Employee
attributable to an ISO exercise would be allowed as a credit against his regular
tax liability in a later year to the extent his regular tax liability exceeds
his AMT for that year.
 
     On the disposition of ISO Stock that has been held for the requisite
holding period (generally, at least two years from the date of grant and one
year from the date of exercise of the ISO), the Employee generally will
recognize capital gain (or loss) equal to the difference between the amount
received in the disposition and the exercise price paid by the Employee for the
ISO Stock. If an Employee disposes of ISO Stock he has not held for the
requisite holding period (a "disqualifying disposition"), he will (i)
recognize ordinary income to the extent that the fair market value of the ISO
Stock at the time of exercise of the ISO (or, if less, the amount realized in
the case of an arm's-length disqualifying disposition to an unrelated party)
exceeds the exercise price paid by the Employee for such ISO Stock and (ii)
recognize capital gain to the extent the amount realized in the disqualifying
disposition exceeds the fair market value of the ISO Stock on the exercise date.
If the exercise price paid for the ISO Stock exceeds the amount realized in the
disqualifying disposition (in the case of an arm's-length disposition to an
unrelated party), that excess generally would constitute a capital loss.
 
     Under current rulings, if a holder of an Option uses shares of Common Stock
he already owns (other than ISO Stock that has not been held for the requisite
holding period) to pay all or any part of the exercise price of that Option, (i)
he will recognize income respecting the Common Stock received in the manner
described above, (ii) no additional gain will be recognized as a result of the
transfer of shares used as payment and (iii) shares so received, up to the
number of shares so used, will have a tax basis that equals, and a holding
period that includes, the tax basis and holding period of the shares of Common
Stock surrendered in satisfaction of that exercise price. Any additional shares
of Common Stock received on exercise will have a tax basis that equals the
amount of cash (if any) paid by the exerciser.
 
     When cash is paid or first made available to the recipient of a Cash Award
or Performance Award, that cash will constitute ordinary compensation income to
the recipient which is taxable at that time. When Common Stock is delivered
pursuant to a Stock Award or a Performance Award, or when Common Stock or cash
is delivered pursuant to a Stock Award denominated in units of Common Stock, the
recipient generally will recognize ordinary compensation income at that time
which is equal to the amount received (that amount being, in the case of Common
Stock, its fair market value when received), except that: if an Incentive Plan
participant receives Common Stock pursuant to a Stock Award or Performance Award
and that stock then is both nontransferable and subject to a substantial risk of
forfeiture, the participant may elect to recognize ordinary compensation income
equal to the then fair market value of the stock received or to defer such
recognition until such time, if ever, as the stock received first becomes both
transferable and no longer subject to a substantial risk of forfeiture, at which
time the participant would recognize ordinary compensation income equal to the
fair market value at that time of the stock previously received. If dividends
are paid or accrued on Common Stock included in a Stock Award or Performance
Award prior to the time the recipient of that Award recognizes ordinary
compensation income in respect of that stock, those dividends will be taxable as
compensation income rather than as dividend income. The tax basis of Common
Stock received by an Incentive Plan participant pursuant to a Stock Award or
Performance Award will be the amount the participant recognizes as compensation
income in respect of that stock, and the holding period of that stock will begin
on the date of that recognition.
 
     When an Employee recognizes compensation income from the exercise of an SAR
or NSO or in respect of Common Stock, cash or other property received pursuant
to a Cash Award, Performance Award or Stock Award, he will be subject to
withholding by the Company for federal (and generally for state and local)
income tax at that time.
 
                                       50
 
     Subject to the Code limitations described below, the Company (or a
subsidiary) generally will be entitled to a deduction for federal income tax
purposes which corresponds as to amount and timing with the compensation income
realized by Incentive Plan participants in respect of Awards made to them. The
Code limits deductions to amounts constituting both reasonable compensation for
services rendered or to be rendered and ordinary, necessary business expenses.
Code Sections 280G, which disallows deductions of amounts constituting excess
parachute payments made or deemed made in connection with a change in control of
an employer, and 162(m), which generally limits to $1 million the deductibility
of compensation paid to certain employees of the Company in any one taxable
year, could limit the ability of the Company (or a subsidiary) to deduct amounts
taxable as compensation income to Incentive Plan participants. In the case of
performance-based compensation, exceptions to Code Section 162(m) currently
apply if certain requirements are met. The Company intends generally to satisfy
these requirements in connection with the grant and payment of performance-based
Awards (including certain Options and SARs), but no assurance can be given the
Company will be able to satisfy these requirements in all cases and the Company
may, in its sole discretion, determine in one or more cases that it is in its
best interests not to satisfy these requirements even if it is able to do so.
 
OTHER PLANS

     The Company has adopted or intends to adopt deferred compensation,
supplemental disability, supplemental life and retirement or other benefit or
welfare plans in which executive officers of the Company will be eligible to
participate. Copies of the plans that have been adopted as of the date of this
Prospectus are filed as exhibits to the Registration Statement of which this
Prospectus is a part.

                              CERTAIN TRANSACTIONS

ORGANIZATION OF THE COMPANY

     START-UP FUNDING.  ARS was initially capitalized in October 1995 with
$1,000 provided by Messrs. Wright, Hoover and McCaughey. As a result of
subsequent stock splits, the 1,000 shares initially issued by ARS to its
founders now total 449,778 shares. Since early 1996, Equus II has advanced funds
to ARS pursuant to a $1.6 million commitment to enable ARS to pay various
expenses incurred in connection with its efforts to create the Company and
effect this Offering. The Equus II advances are evidenced by an ARS convertible
note under which $0.5 million was outstanding at March 31, 1996 and the entire
$1.6 million is expected to be outstanding prior to the closing of this
Offering. On the closing of this Offering, $0.5 million of this note will be
converted into 899,556 shares of Common Stock, and ARS will pay the balance of
the note with proceeds from this Offering. As a part of its funding arrangements
with Equus II, ARS issued a warrant to Equus II in March 1996 that will become
exercisable in whole on the closing of this Offering to purchase up to 100,000
shares of Common Stock at the initial public offering price per share. This
warrant will expire in 2001 to the extent not exercised.

     Simultaneously with the closing of this Offering, ARS will acquire by
merger all of the issued and outstanding capital stock of the Founding
Companies, at which time each Founding Company will become a wholly owned
subsidiary of the Company. The aggregate consideration that will be paid by ARS
to acquire the Founding Companies is approximately $76.9 million, consisting of
(i) approximately $34.8 million in cash and (ii) 3,236,613 shares of Common
Stock. In addition, the stockholders of each Founding Company will be entitled
to receive from such Founding Company (or be obligated to pay to it) an amount
equal to the increase (or decrease) in such Founding Company's net working
capital (as defined) from the date of a specified recent balance sheet for such
Founding Company through the closing of the Acquisitions. The Company will also
assume approximately $21.4 million of indebtedness. In addition, the Company
consented to the distribution of cash and certain receivables to stockholders of
General Heating, which is an S corporation, in an amount equal to the balance of
its Accumulated Adjustment Account ("AAA account") as of the closing of the
General Heating Acquisition (approximately $10 million as of December 31, 1995).
An AAA account generally represents undistributed retained earnings of an S
corporation, upon which taxes have been paid by the stockholders. In addition,
prior to the

                                       51

closing of the Acquisitions, certain Founding Companies will make distributions
to their stockholders of certain assets and related liabilities. As of June 30,
1996, the aggregate amount of these distributions would have been approximately
$ million.

     The following table sets forth for each Founding Company the consideration
to be paid its common stockholders (i) in cash and (ii) in shares of Common
Stock. For a description of the merger consideration to be provided to Equus II
in the EHC Acquisition in respect of convertible preferred stock of EHC held by
it, see "-- EHC."

                                                         COMMON STOCK
                                                    -----------------------
                                                                   VALUE OF
                                        CASH(1)      SHARES         SHARES
                                        -------     ---------      --------
                                              (DOLLARS IN THOUSANDS)
General Heating......................   $15,000       769,230      $ 10,000
Atlas................................     5,000     1,230,769        16,000
EHC (including Crown and A-ABC)......     --          436,615         5,676
Florida HAC..........................    11,000       384,615         5,000
Meridian & Hoosier...................     3,250       288,461         3,750
Climatic.............................       550       126,923         1,650
                                        -------     ---------      --------
     Total...........................   $34,800     3,236,613      $ 42,076
                                        =======     =========      ========
- ------------
(1) Excluding possible increases or decreases for changes in working capital (as
    defined).
 
     The consummation of each Acquisition is subject to customary conditions.
These conditions include, among others, the accuracy on the closing date of the
Acquisitions of the representations and warranties by the Founding Companies,
their principal stockholders and by ARS; the performance of each of their
respective covenants included in the agreements relating to the Acquisitions;
and the nonexistence of a material adverse change in the results of operations,
financial condition or business of each Founding Company.
 
     The agreements relating to the Acquisitions may be terminated, under
certain circumstances, prior to the consummation of this Offering. Specifically,
the agreements may be terminated (i) by the mutual consent of the board of
directors of the Company and each Founding Company; (ii) if this Offering and
the Acquisitions are not consummated by December 31, 1996; (iii) if the
schedules to any acquisition agreement are amended to reflect a material adverse
change in a Founding Company; or (iv) if a material breach or default under the
agreements shall exist and is not waived.
 
     There can be no assurance that the conditions to the closing of the
Acquisitions will be satisfied or waived or that the agreements relating to the
Acquisitions will not be terminated prior to closing.

     Pursuant to the agreements relating to the Acquisitions, all stockholders
of each of the Founding Companies (other than minority interest owners in Atlas)
have agreed not to compete with the Company for a period of three years
commencing on the date of closing of the Acquisitions.

                                       52

ACQUISITIONS INVOLVING CERTAIN OFFICERS, DIRECTORS AND STOCKHOLDERS

     Individuals who are or will become directors of the Company will receive
the following consideration in the Acquisitions for their interests in the
Founding Companies, subject to upward or downward adjustment for changes in
working capital.

                                                          COMMON STOCK
                                                     ----------------------
                                                                   VALUE OF
                                            CASH      SHARES        SHARES
                                          ---------  ---------     --------
                                               (DOLLARS IN THOUSANDS)
General Heating:
  Frank N. Menditch.....................  $   5,000      256,410    $3,334
Atlas:
  Gorden H. Timmons.....................      2,940      489,929     6,369
EHC:
  C. Clifford Wright, Jr. ..............       --         60,346       785
  Howard S. Hoover, Jr. ................       --         28,966       377
  William P. McCaughey..................       --         60,346       785
Florida HAC:
  Elliot Sokolow........................      6,500      307,692     4,000
- ------------
(1) In addition, a Timmons family trust will receive approximately $1,960 in
    cash and 429,094 shares of Common Stock.

     Equus will receive 153,846 shares of Common Stock, $500,000 in cash and
accrued cash dividends in exchange for its EHC preferred stock.

EHC

     EHC was organized in February 1996 for the purpose of acquiring, for a
total purchase price of $17.5 million, all of the capital stock of Crown and
certain real estate used in its business. The purchase price was funded by a
loan from NationsBank of Texas, N.A. ("NationsBank") secured by the capital
stock and certain assets of Crown, by a loan from Equus II, credit enhancements
provided to NationsBank by Equus II secured by all of the capital stock of ARS
and through the purchase by Equus II of $2.5 million of EHC preferred stock. In
May 1996, EHC acquired all of the capital stock of A-ABC for a total purchase
price of $2.0 million, which was provided by borrowings from NationsBank, which
are secured by the capital stock of A-ABC and credit enhancements provided by
Equus II, and the assumption of certain liabilities. See "The Company." EHC is
being acquired by the Company for a total consideration of $21.4 million,
consisting of 436,615 shares of Common Stock and the assumption and/or repayment
of approximately $15.7 million of indebtedness and other obligations (including
$0.5 million of EHC preferred stock), approximately $14.5 million of which will
be repaid either out of a portion of the net proceeds of this Offering or
through bank borrowings. The consideration being paid by ARS for EHC (which
previously acquired Crown and A-ABC) was determined using generally the same
valuation method ARS used to negotiate the consideration being paid to the
stockholders of the other Founding Companies. Messrs. Wright, Hoover and
McCaughey, who, prior to the completion of this Offering are the sole
stockholders of ARS, and Equus II are the sole stockholders of EHC.

     Simultaneously with the closing of the Acquisitions, the Company will issue
shares of its Common Stock in the following amounts: (i) as part of the
acquisition of EHC, 153,846 shares to Equus II in exchange for $2.0 million of
EHC preferred stock; and (ii) 46,156 shares to employees, three officers (other
than Messrs. Wright, Hoover and McCaughey) and consultants of ARS and its
affiliates.

REAL ESTATE AND OTHER TRANSACTIONS

     Atlas leases office and warehouse space in Hilton Head and Greenville,
South Carolina from a company in which Gorden H. Timmons has a 50% ownership
interest. One lease extends to May 2005 and

                                       53

currently provides for total annual rentals of $105,000. The other lease has a
10-year term when Atlas takes possession of the leased property in mid-1996 and
provides for initial total annual rentals of $73,800. Rentals under both leases
will increase if a specified prime interest rate increases to 11% or above.
Atlas also leases office and warehouse space in Clemson, South Carolina from a
partnership in which members of Mr. Timmons' immediate family have a 50%
ownership interest. This lease extends to February 2006 and provides for total
annual rentals of $42,000. A realtor of which Mr. Timmons is a 75% owner and the
broker-in-charge acts as leasing agent of a portion of Atlas's office and
warehouse space in North Charleston, South Carolina. During the five years ended
December 31, 1995, Atlas paid this company an average annual amount of
approximately $2,000.
 
     In November 1995, Mr. Timmons purchased the capital stock of Golden
Triangle Mechanical, Inc. from a third party for approximately $85,000. In
January 1996, Mr. Timmons conveyed that stock to Atlas for the same purchase
price.
 
     Atlas has a receivable from Mr. Timmons, its majority shareholder, in the
amount of approximately $195,000 as of December 31, 1995. See Note 9 to "Notes
to Consolidated Financial Statements" of Atlas.
 
     General Heating leases office and warehouse space in Manassas, Virginia and
Laurel, Maryland under four leases from a limited partnership owned by Frank N.
Menditch, his brothers and trusts for the benefit of their children. Annual
rentals under the leases, which expire at the end of 2005, currently total
$491,373 and will increase a minimum of 4% each year.
 
     General Heating has receivables from Frank Menditch in the aggregate amount
of approximately $308,139 as of December 31, 1995. See Note 7 to "Notes to
Financial Statements" of General Heating.
 
     Florida HAC leases its principal office and warehouse space in Margate,
Florida from a limited partnership 80% owned by Elliot Sokolow. ARS and Mr.
Sokolow have agreed to extend the lease term by five years to May 31, 2005. The
annual rental currently is $127,233 and will increase 5% each year.
 
     Florida HAC has borrowings outstanding from Mr. Sokolow in the aggregate
amount of approximately $641,804 as of December 31, 1995. See Note 8 to "Notes
to Combined Financial Statements" of Florida HAC.
 
     Meridian & Hoosier leases its principal office and warehouse space in
Indianapolis from Gary Daymon and his wife. The annual rental currently is
$90,000 and will increase 5% annually. The lease expires in 2001, and the
Company has obtained an option to purchase the building at its appraised fair
market value. Meridian & Hoosier leases office space in Indianapolis to DIAL ONE
of Central Indiana, Inc., a corporation wholly owned by Mr. Daymon ("DOCI").
This lease extends to June 30, 1997 and provides for total annual rentals of
$24,000.
 
     In October 1993, Meridian & Hoosier renewed a four-year franchise agreement
with DOCI under which Meridian & Hoosier uses the "DIAL ONE" name, logo and
various materials in its business within a designated franchise territory it
shares with other DOCI franchisees that also provide various residential
services under the "DIAL ONE" name. DOCI provides its franchisees a common
telephone number for customer calls, as well as promotional and training
materials and training seminars. Meridian & Hoosier's current annual payment
obligation under its franchise agreement is $60,000, and Meridian & Hoosier may
terminate the agreement at any time. If it does so, it will owe DOCI the balance
of the payments due to the end of the agreement's stated term and must cease
using the "DIAL ONE" name and materials.
 
     Meridian & Hoosier shares certain costs with DOCI for personnel and
overhead, for which it bills DOCI monthly based on DOCI's pro rata share of
those expenses.
 
     The Company believes the rentals provided under the leases described above
are fair market rentals. It also believes the other agreements described above
are fair to the Company.

                                       54
 
COMPANY POLICY
 
     In the future, any transactions with directors, officers, employees or
affiliates of the Company are anticipated to be minimal and will, in any case,
be approved in advance by a majority of the Board of Directors, including a
majority of disinterested members of the Board of Directors.
 
                SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
                                 AND MANAGEMENT
 
     The following table shows, as of June 12, 1996, information respecting the
then "beneficial owners" (as defined by the SEC) of more than 5% of the Common
Stock:

                                        SHARES BENEFICIALLY
                                               OWNED
                                       ----------------------
                NAME                    NUMBER       PERCENT
- -------------------------------------  ---------     --------
C. Clifford Wright, Jr...............    168,667     37.5%
Howard S. Hoover, Jr.................    112,444     25.0%
William P. McCaughey.................    168,667     37.5%
 
     The following table shows, immediately after giving effect to the closing
of the Acquisitions and this Offering, the then "beneficial ownership" of the
Common Stock of (i) Equus II, (ii) each director and person nominated to become
a director on closing of this Offering; (iii) each executive officer; (iv)
certain executive officers of each of the Founding Companies; and (v) all
executive officers and directors of the Company as a group.


                                         SHARES BENEFICIALLY
                                                OWNED
                                          AFTER OFFERING(1)
                                        ----------------------
                NAME                     NUMBER        PERCENT
- -------------------------------------   ---------      -------
Equus II Incorporated(2).............   1,429,094        15.7%

  2929 Allen Parkway, 25th Floor
  Houston, Texas 77019
Gorden H. Timmons(3).................     946,186        10.5%
Gorden H. Timmons, as Trustee under
  Gorden H. Timmons
  Retained Annuity Trust.............     456,257         5.1%
Elliot Sokolow.......................     307,692         3.4%
Gary Daymon..........................     288,461         3.2%
Frank N. Menditch....................     256,410         2.9%
Howard C. Menditch...................     256,410         2.9%
Bruce L. Menditch....................     256,410         2.9%
C. Clifford Wright, Jr...............     229,012         2.5%
William P. McCaughey.................     229,012         2.5%
Howard S. Hoover, Jr.(4).............     151,410         1.7%
 Howard W. Hauser....................     126,923         1.4%
All executive officers and
  directors as a group (9 persons)...   2,131,644        23.7%
- ------------

(1) Shares shown do not include shares that could be acquired upon exercise of
    currently outstanding stock options which do not vest within 60 days hereof.

(2) Shares shown include 100,000 shares obtainable on exercise of a warrant
    exercisable at the IPO price per share. See "Certain Transactions --
    Organization of the Company." Nolan Lehmann, who will become a director of
    the Company on closing of this Offering, is the President of Equus II and
    thus may be deemed to be the beneficial owner of shares held by Equus II.
    Mr. Lehmann disclaims beneficial ownership of all those shares.

(3) As Trustee under the Gorden H. Timmons Retained Annuity Trust, Mr. Timmons
    may be deemed the beneficial owner of the shares held by that trust.

                                       55

(4) Shares shown include 10,000 shares that Mr. Hoover intends to acquire
    directly from the Underwriters in connection with this Offering. The table
    assumes no other person listed intends to acquire shares from the
    Underwriters.
 
     Except as otherwise indicated, the address of each person listed in the
above tables is c/o American Residential Services, Inc., 5850 San Felipe, Suite
500, Houston, Texas 77057. All persons listed have sole voting and investment
power with respect to their shares unless otherwise indicated.
 
                        SHARES ELIGIBLE FOR FUTURE SALE
 
     On closing of the Acquisitions and this Offering, 8,995,564 shares of
Common Stock will be outstanding. The shares sold in this Offering (other than
to affiliates of the Company) will be freely tradable by the public. The
remaining outstanding shares of Common Stock (collectively, the "Restricted
Shares") have not been registered under the Securities Act and may be resold
publicly only following their effective registration under that act or pursuant
to an available exemption from the registration requirements of that act (such
as Rule 144 thereunder).
 
     The Company intends to file a registration statement on Form S-8 under the
Securities Act to register the shares of Common Stock reserved or to be
available for issuance pursuant to the Incentive Plan. Shares of Common Stock
issued pursuant to the Incentive Plan after the effective date of that
registration statement generally will be available for sale in the open market
by holders who are not affiliates of the Company and, subject to the volume and
other limitations of Rule 144, by holders who are affiliates of the Company.
 
     In general, under Rule 144 as currently in effect, if a minimum of two
years has elapsed since the later of the date of acquisition of the restricted
securities from the issuer or from an affiliate of the issuer, a person (or
persons whose shares of Common Stock are aggregated), including persons who may
be deemed "affiliates" of the Company, would be entitled to sell within any
three-month period a number of shares of Common Stock that does not exceed the
greater of (i) 1% of the then outstanding shares of Common Stock (I.E., 89,955
shares immediately on closing of this Offering) and (ii) the average weekly
trading volume during a preceding period of four calendar weeks. Sales under
Rule 144 are also subject to certain provisions as to the manner of sale, notice
requirements and the availability of current public information about the
Company. In addition, under Rule 144(k), if a period of at least three years has
elapsed since the later of the date restricted securities were acquired from the
Company or the date they were acquired from an affiliate of the Company, a
stockholder who is not an affiliate of the Company at the time of sale and has
not been an affiliate for at least three months prior to the sale would be
entitled to sell shares of Common Stock in the public market immediately without
compliance with the foregoing requirements under Rule 144. Rule 144 does not
require the same person to have held the securities for the applicable periods.
The foregoing summary of Rule 144 is not intended to be a complete description
thereof. The Commission has proposed an amendment to Rule 144 that would shorten
the three- and two-year holding periods described above to two years and one
year, respectively.
 
     The Company has agreed not to offer or sell any shares of Common Stock for
a period of 180 days (the "Lockup Period") following the date of this Prospectus
without the prior written consent of Smith Barney Inc., except that the Company
may issue Common Stock in connection with acquisitions or on the exercise of
options or warrants outstanding as of the closing of this Offering. Further, all
the current stockholders of ARS, including the former owners of the Founding
Companies and Equus II, will be contractually prohibited from selling the shares
they own for a period of 180 days following the consummation of the
Acquisitions. The Company has agreed that it will not waive such prohibition
during the Lock-up Period without the prior written consent of Smith Barney Inc.
of the Underwriters. In addition, the holders of the shares of Common Stock
acquired in connection with the Acquisitions have agreed with the Company that
they will not sell, transfer or otherwise dispose of any of their shares for two
years following the closing of this Offering (or for such shorter period as the
SEC may prescribe as the holding period for restricted securities under Rule
144).
 
     In connection with the Acquisitions, the Company will enter into a
registration rights agreement with former stockholders of the Founding Companies
(the "Registration Rights Agreement"), which will 
 
                                       56

provide certain registration rights with respect to the Common Stock issued to
such stockholders in the Acquisitions. The Registration Rights Agreement will
provide for a single demand registration right, exercisable by the holders of a
majority of the shares of Common Stock subject to the agreement, pursuant to
which the Company will file a registration statement under the Securities Act to
register the sale of shares by those requesting stockholders and any other
holders of Common Stock subject to the agreement who desire to sell pursuant to
such registration statement. The demand request may not be made until the
expiration of two years after the date of this Prospectus (subject to a
corresponding reduction if the two-year holding period for restricted securities
under Rule 144 is reduced by the Commission). In addition, subject to certain
conditions and limitations, the Registration Rights Agreement will provide the
holders of Common Stock subject to the agreement with the right to participate
in registrations by the Company of its equity securities in underwritten
offerings. The registration rights conferred by the Registration Rights
Agreement will terminate on December 31, 2000. In addition, pursuant to separate
registration rights agreements with Equus II and NationsBank, both Equus II and
NationsBank have the right, in the event the Company proposes to register under
the Securities Act any Common Stock for its own account or for the account of
others, subject to certain exceptions, to require the Company to include shares
owned by them (or, in the case of NationsBank, issuable to it pursuant to a
warrant that was originally issued by EHC) in the registration.
 
     In the case of each registration rights agreement described above, the
Company is generally required to pay the costs associated with such an offering
other than underwriting discounts and commissions and transfer taxes
attritubable to the shares sold on behalf of the selling stockholders. In
addition, in the case of the registration rights agreements with Equus II and
NationsBank, the Company is obligated to pay the fees and expenses of legal
counsel for the selling stockholders thereunder. Each registration rights
agreement provides that the number of shares of Common Stock that must be
registered on behalf of the selling stockholders is subject to limitation if the
managing underwriter determines that market conditions require such a
limitation. Under each agreement, the Company will indemnify the selling
stockholders thereunder, and such stockholders will indemnify the Company,
against certain liabilities in respect of any registration statement or offering
covered by the registration rights agreement.
 
     Within 60 days after the closing of this Offering, the Company intends to
register 5,000,000 shares of Common Stock under the Securities Act for use in
connection with future acquisitions. These shares generally will be freely
tradable after their issuance by persons not affiliated with the Company unless
the Company contractually restricts their sale, and sales of these shares during
the Lockup Period would require the prior written consent of Smith Barney Inc.
 
                          DESCRIPTION OF CAPITAL STOCK
 
     The Company's authorized capital stock consists of 50,000,000 shares of
Common Stock, par value $.001 per share, and 10,000,000 shares of preferred
stock, par value $.001 per share (the "Preferred Stock"). At June 14, 1996,
449,778 shares of Common Stock were issued and outstanding. On closing of the
Acquisitions and this Offering, the Company will have outstanding 8,995,564
shares of Common Stock (9,625,564 if the Underwriters' over-allotment option is
exercised in full) and no shares of Preferred Stock. The following summary is
qualified in its entirety by reference to the Company's Restated Certificate of
Incorporation (the "Certificate of Incorporation"), which is filed as an
exhibit to the Registration Statement of which this Prospectus is a part.
 
COMMON STOCK
 
     The Common Stock possesses ordinary voting rights for the election of
directors and in respect of other corporate matters, and each share has one
vote. The Common Stock affords no cumulative voting rights, and the holders of a
majority of the shares voting for the election of directors can elect all the
directors if they choose to do so. The Common Stock carries no preemptive
rights, is not convertible, redeemable, assessable or entitled to the benefits
of any sinking fund. The holders of Common Stock are entitled to dividends in
such amounts and at such times as may be declared by the Board of Directors out
of funds legally available therefor. See "Dividend Policy" for information
regarding dividend policy.
 
                                       57
 
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 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, 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 holders
of Common Stock.
 
     Although the Company has no present intention to issue shares of Preferred
Stock, the issuance of shares of Preferred Stock, or the issuance of rights to
purchase such shares, could be used to discourage an unsolicited acquisition
proposal. For example, the issuance of a series of Preferred Stock might impede
a business combination by including class voting rights that would enable the
holders to block such a transaction; or such issuance might facilitate a
business combination by including voting rights that would provide a required
percentage vote of the stockholders. In addition, under certain circumstances,
the issuance of Preferred Stock could adversely affect the voting power of the
holders of the Common Stock. Although the Board of Directors is required to make
any determination to issue such stock based on its judgment as to the best
interests of the stockholders of the Company, the Board of Directors could act
in a manner that would discourage an acquisition attempt or other transaction
that some or a majority of the stockholders might believe to be in their best
interests or in which stockholders might receive a premium for their stock over
the then-market price of such stock. The Board of Directors does not at present
intend to seek stockholder approval prior to any issuance of currently
authorized stock, unless otherwise required by law or the rules of any market on
which the Company's securities are traded.
 
STOCKHOLDER RIGHTS PLAN
 
     Each share of Common Stock offered hereby includes one right ("Right") to
purchase from the Company a unit consisting of one one-hundredth of a share (a
"Unit") of Series A Junior Participating Preferred Stock, par value $.001 per
share (the "Series A Preferred Stock"), at a purchase price of $40.00 per
Unit, subject to adjustment in certain events (the "Purchase Price"). The
following summary description of the Rights does not purport to be complete and
is qualified in its entirety by reference to the Rights Agreement between the
Company and a Rights Agent (the "Rights Agreement"), the form of which is
filed as an exhibit to the Registration Statement of which this Prospectus is a
part and is incorporated herein by reference.
 
     Initially, the Rights will attach to all certificates representing
outstanding shares of Common Stock, including the shares of Common Stock offered
hereby, and no separate certificates for the Rights ("Rights Certificates") will
be distributed. The Rights will separate from the Common Stock and a
"Distribution Date" will occur upon the earlier of (i) 10 days following a
public announcement that a person or group of affiliated or associated persons
(an "Acquiring Person") has acquired, or obtained the right to acquire,
beneficial ownership of 15% or more of the outstanding shares of Common Stock
(the date of the announcement being the "Stock Acquisition Date") or (ii) 10
business days (or such later date as may be determined by the Board of Directors
before the Distribution Date occurs) following the commencement of a tender
offer or exchange offer that would result in a person's becoming an Acquiring
Person. Notwithstanding the foregoing, so long as Equus II, together with all
affiliates and associates thereof, remains the beneficial owner of 15% or more
of the outstanding shares of Common Stock, Equus II shall not be or become an
Acquiring Person unless and until it, together with all affiliates and
associates thereof, becomes the beneficial owner of additional shares of Common
Stock constituting 1% or more of the then-outstanding shares of Common Stock or
any other person who is the beneficial owner of at least 1% of the then
outstanding shares of Common Stock shall become an affiliate or associate of
Equus II. In certain circumstances the Distribution Date may be deferred by the
Board of Directors. Certain inadvertent 
 
                                       58
 
acquisitions will not result in a person's becoming an Acquiring Person if the
person promptly divests itself of sufficient Common Stock. Until the
Distribution Date, (a) the Rights will be evidenced by the Common Stock
certificates and will be transferred with and only with those certificates, (b)
Common Stock certificates will contain a notation incorporating the Rights
Agreement by reference and (c) the surrender for transfer of any certificate for
Common Stock also will constitute the transfer of the Rights associated with the
stock represented by such certificate.
 
     The Rights are not exercisable until the Distribution Date and will expire
at the close of business on December 1, 2002, unless earlier redeemed or
exchanged by the Company as described below.
 
     As soon as practicable after the Distribution Date, Rights Certificates
will be mailed to holders of record of Common Stock as of the close of business
on the Distribution Date and, from and after the Distribution Date, the separate
Rights Certificates alone will represent the Rights.
 
     In the event (a "Flip-In Event") that a person becomes an Acquiring
Person (except pursuant to a tender or exchange offer for all outstanding shares
of Common Stock at a price and on terms that the Board of Directors determines
to be fair to and otherwise in the best interests of the Company and its
stockholders (a "Permitted Offer")), each holder of a Right will thereafter
have the right to receive, on exercise of that Right, a number of shares of
Common Stock (or, in certain circumstances, cash, property or other securities
of the Company) having a Current Market Price (as defined in the Rights
Agreement) equal to two times the exercise price of the Right. Notwithstanding
the foregoing, following the occurrence of any Flip-In Event, all Rights that
are, or (under certain circumstances specified in the Rights Agreement) were,
beneficially owned by any Acquiring Person (or by certain related parties) will
be null and void in the circumstances set forth in the Rights Agreement. Rights
are not exercisable following the occurrence of any Flip-In Event until such
time as the Rights are no longer redeemable by the Company as set forth below.
 
     In the event (a "Flip-Over Event") that, at any time on or after the
Stock Acquisition Date, (i) the Company is acquired in a merger or other
business combination transaction (other than certain mergers that follow a
Permitted Offer) or (ii) 50% or more of the Company's assets or earning power is
sold or transferred, each holder of a Right (except Rights that previously have
been voided as set forth above) shall thereafter have the right to receive, on
exercise of such Right, a number of shares of common stock of the acquiring
company having a Current Market Price equal to two times the exercise price of
the Right. Flip-In Events and Flip-Over Events are collectively referred to as
"Triggering Events."
 
     The Purchase Price payable, and the number of Units of Series A Preferred
Stock or other securities or property issuable, on exercise of the Rights are
subject to adjustment from time to time to prevent dilution (i) in the event of
a stock dividend on, or a subdivision, combination or reclassification of, the
Series A Preferred Stock, (ii) if holders of the Series A Preferred Stock are
granted certain rights or warrants to subscribe for Series A Preferred Stock or
certain convertible securities at less than the current market price of the
Series A Preferred Stock or (iii) on the distribution to holders of the Series A
Preferred Stock of evidences of indebtedness or assets (excluding regular
quarterly cash dividends) or of subscription rights or warrants (other than
those referred to above).
 
     With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments amount to at least 1% of the Purchase
Price. No fractional Units will be issued and, in lieu thereof, an adjustment in
cash will be made based on the market price of the Series A Preferred Stock on
the last trading date prior to the date of exercise. Pursuant to the Rights
Agreement, the Company reserves the right to require prior to the occurrence of
a Triggering Event that, on any exercise of Rights, a number of Rights be
exercised so that only whole shares of Series A Preferred Stock will be issued.
 
     At any time until 10 days following the Stock Acquisition Date, the Company
may redeem the Rights in whole, but not in part, at a price of $.01 per Right,
payable, at the option of the Company, in cash, shares of the Common Stock or
such other consideration as the Board of Directors of the Company may determine.
After the redemption period has expired, the Company's right of redemption may
be reinstated prior to the occurrence of any Triggering Event if (i) an
Acquiring Person reduces its beneficial ownership to 10% or less of the
outstanding shares of Common Stock in a transaction or series of transactions
not involving the 
 
                                       59

Company and (ii) there are no other Acquiring Persons. Immediately upon the
effectiveness of the action of the Board of Directors ordering redemption of the
Rights, the Rights will terminate and the only right of the holders of Rights
will be to receive the $.01 redemption price.
 
     At any time after the occurrence of a Flip-In Event and prior to a person's
becoming the beneficial owner of 50% or more of the shares of Common Stock then
outstanding, the Company may, at its option, exchange the Rights (other than
Rights owned by an Acquiring Person or an affiliate or an associate of an
Acquiring Person, which will have become void), in whole or in part, at an
exchange ratio of one share of Common Stock, and/or other equity securities
deemed to have the same value as one share of Common Stock, per Right, subject
to adjustment.
 
     Other than certain provisions relating to the principal economic terms of
the Rights, any of the provisions of the Rights Agreement may be amended by the
Board of Directors prior to the Distribution Date. Thereafter, the provisions of
the Rights Agreement may be amended by the Board of Directors only in order to
cure any ambiguity, defect or inconsistency, to make changes that do not
materially adversely affect the interests of holders of Rights (excluding the
interests of any Acquiring Person), or to shorten or lengthen any time period
under the Rights Agreement; provided, however, that no amendment to lengthen the
time period governing redemption shall be made at such time as the Rights are
not redeemable. Until a Right is exercised, the holder thereof, as such, will
have no rights to vote or to receive dividends or any other rights as a
stockholder of the Company.
 
     The Rights will have certain antitakeover effects. They will cause
substantial dilution to any person or group that attempts to acquire the Company
without the approval of the Company's Board of Directors. As a result, the
overall effect of the Rights may be to render more difficult or discourage any
attempt to acquire the Company, even if such acquisition may be favorable to the
interests of the Company's stockholders. Because the Board of Directors can
redeem the Rights or approve a Permitted Offer, the Rights should not interfere
with a merger or other business combination approved by the Board. The Rights
have been distributed prior to the completion of this Offering to protect the
Company's stockholders from coercive or abusive takeover tactics and to afford
the Company's Board of Directors more negotiating leverage in dealing with
prospective acquirers.
 
STATUTORY BUSINESS COMBINATION PROVISION
 
     The Company is a Delaware corporation and is subject to Section 203 of the
DGCL. In general, Section 203 prevents an "interested stockholder" (defined
generally as a person owning 15% or more of a corporation's outstanding voting
stock) from engaging in a "business combination" (as defined) with a Delaware
corporation for three years following the date such person became an interested
stockholder unless: (i) before such person became an interested stockholder, the
board of directors of the corporation approved the transaction in which the
interested stockholder became an interested stockholder or approved the business
combination; (ii) upon consummation of the transaction that resulted in the
interested stockholder's becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced (excluding stock held by
directors who are also officers of the corporation and by employee stock plans
that do not provide employees with the rights to determine confidentially
whether shares held subject to the plan will be tendered in a tender or exchange
offer); or (iii) following the transaction in which such person became an
interested stockholder, the business combination was approved by the board of
directors of the corporation and authorized at a meeting of stockholders by the
affirmative vote of the holders of 66 2/3% of the outstanding voting stock of
the corporation not owned by the interested stockholder. Under Section 203, the
restrictions described above also do not apply to certain business combinations
proposed by an interested stockholder following the announcement or notification
of one of certain extraordinary transactions involving the corporation and a
person who had not been an interested stockholder during the previous three
years or who became an interested stockholder with the approval of a majority of
the corporation's directors, if such extraordinary transaction is approved or
not opposed by a majority of the directors who were directors prior to any
person becoming an interested stockholder during the previous three years or
were recommended for election or elected to succeed such directors by a majority
of such directors.
 
                                       60
 
OTHER MATTERS
 
     Delaware law authorizes corporations to limit or eliminate the personal
liability of directors to corporations and their stockholders for monetary
damages for breach of a director's fiduciary duty of care. The duty of care
requires that, when acting on behalf of the corporation, directors' must
exercise an informed business judgment based on all material information
reasonably available to them. Absent the limitations authorized by Delaware law,
directors are accountable to corporations and their stockholders for monetary
damages for conduct constituting gross negligence in the exercise of their duty
of care. Delaware law enables corporations to limit available relief to
equitable remedies such as injunction or rescission. The Certificate of
Incorporation limits the liability of directors of the Company to the Company or
its stockholders to the fullest extent permitted by Delaware law. Specifically,
directors of the Company will not be personally liable for monetary damages for
breach of a director's fiduciary duty as a director, except for liability (i)
for any breach of the director's duty of loyalty to the Company or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) for unlawful
payments of dividends or unlawful stock repurchases or redemptions as provided
in Section 174 of the DGCL or (iv) for any transaction from which the director
derived an improper personal benefit.
 
     The inclusion of this provision in the Certificate of Incorporation may
have the effect of reducing the likelihood of derivative litigation against
directors and may discourage or deter stockholders or management from bringing a
lawsuit against directors for breach of their duty of care, even though such an
action, if successful, might otherwise have benefited the Company and its
stockholders. The Company's Bylaws provide indemnification to the Company's
officers and directors and certain other persons with respect to certain
matters, and the Company has entered into agreements with each of its directors
and executive officers providing for indemnification with respect to certain
matters.
 
     The Certificate of Incorporation provides that stockholders may act only at
an annual or special meeting of stockholders and may not act by written consent.
The Bylaws provide that special meetings of the stockholders can be called only
by the Chairman of the Board, the President or a majority of the Board of
Directors.
 
     The Certificate of Incorporation provides that the Board of Directors shall
consist of three classes of directors serving for staggered terms. As a result,
it is currently contemplated that approximately one-third of the Company's Board
of Directors will be elected each year. The classified board provision could
prevent a party who acquires control of a majority of the outstanding voting
stock of the Company from obtaining control of the Board of Directors until the
second annual stockholders meeting following the date the acquirer obtains the
controlling interest. See "Management -- Directors and Executive Officers."
 
     The Certificate of Incorporation provides that the number of directors
shall be as determined by the Board of Directors from time to time, but shall
not be less than three. It also provides that directors may be removed only for
cause, and then only by the affirmative vote of the holders of at least a
majority of all outstanding voting stock entitled to vote. This provision, in
conjunction with the provisions of the Certificate of Incorporation authorizing
the Board of Directors to fill vacant directorships, will prevent stockholders
from removing incumbent directors without cause and filling the resulting
vacancies with their own nominees.
 
STOCKHOLDER PROPOSALS
 
     The Company's Bylaws contain provisions (i) requiring that advance notice
be delivered to the Company of any business to be brought by a stockholder
before an annual meeting of stockholders and (ii) establishing certain
procedures to be followed by stockholders in nominating persons for election to
the Board of Directors. Generally, such advance notice provisions provide that
written notice must be given to the Secretary of the Company by a stockholder
(i) in the event of business to be brought by a stockholder before an annual
meeting, not less than 90 days prior to the anniversary date of the immediately
preceding annual meeting of stockholders (with certain exceptions if the date of
the annual meeting is different by more than specified amounts from the
anniversary date), and (ii) in the event of nominations of persons for election
to the Board of Directors by any stockholder, (a) with respect to an election to
be held at the annual meeting of stockholders, not less than 90 days prior to
the anniversary date of the immediately preceding 
 
                                       61

annual meeting of stockholders (with certain exceptions if the date of the
annual meeting is different by more than specified amounts from the anniversary
date), and (b) with respect to an election to be held at a special meeting of
stockholders for the election of directors, not later than the close of business
on the 10th day following the day on which notice of the date of the special
meeting was mailed to stockholders or public disclosure of the date of the
special meeting was made, whichever first occurs. Such notice must set forth
specific information regarding such stockholder and such business or director
nominee, as described in the Company's Bylaws. The foregoing summary is
qualified in its entirety by reference to the Company's Bylaws, which are filed
as an exhibit to the Registration Statement of which this Prospectus is a part.
 
TRANSFER AGENT AND REGISTRAR
 
     The transfer agent and registrar for the Common Stock is Chemical Mellon
Shareholder Services, L.L.C.
 
                                       62
 
                                  UNDERWRITING
 
     Subject to the terms and conditions of the Underwriting Agreement, each of
the Underwriters named below has severally agreed to purchase from the Company,
and the Company has agreed to sell to such Underwriter, the respective number of
shares of Common Stock set forth opposite the name of such Underwriter.

                                                      NUMBER OF
     UNDERWRITER                                       SHARES
- ---------------------                               -------------
Smith Barney Inc................................
Montgomery Securities...........................
 
                                                    -------------
          Total.................................      4,200,000
                                                    =============
 
     The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock are
subject to approval of certain legal matters by their counsel and to certain
other conditions. The Underwriters are obligated to take and pay for all shares
of Common Stock offered hereby (other than those covered by the over-allotment
option described below) if any such shares are taken.
 
     The Underwriters, for whom Smith Barney Inc. and Montgomery Securities are
acting as representatives (the "Representatives"), propose to offer part of
the shares of Common Stock directly to the public at the offering price set
forth on the cover page of this Prospectus and part of the shares to certain
dealers at a price which represents a concession not in excess of $   per share
under the public offering price. The Underwriters may allow, and such dealers
may reallow, a concession not in excess of $   per share to certain other
dealers. The Representatives of the Underwriters have advised the Company that
the Underwriters do not intend to confirm any shares to any accounts over which
they exercise discretionary authority. After the initial public offering, the
offering price and other selling terms may be changed by the Representatives.
 
     The Company has granted to the Underwriters an option, exercisable for 30
days from the date of this Prospectus, to purchase up to an additional 630,000
shares of Common Stock at the price to the public set forth on the cover page of
this Prospectus, minus the underwriting discounts and commissions. The
Underwriters may exercise such option solely for the purpose of covering
over-allotments, if any, in connection with this Offering. To the extent such
option is exercised, each Underwriter will be obligated, subject to certain
conditions, to purchase approximately the same percentage of such additional
shares as the number of shares set forth opposite each Underwriter's name in the
preceding table bears to the total number of shares listed in such table.
 
     The Company, its officers and directors, and certain stockholders of the
Company designated by the Representatives have agreed that, for a period of 180
days from the date of this Prospectus, they will not, without the prior written
consent of Smith Barney Inc., offer, sell, contract to sell or otherwise dispose
of any shares of Common Stock of the Company or any securities convertible into,
or exercisable or exchangeable for, Common Stock of the Company, except that the
Company may issue shares of Common Stock (i) in connection with acquisitions,
(ii) pursuant to exercise of options granted under the Incentive Plan and (iii)
pursuant to the exercise of warrants outstanding as of the closing of this
Offering.
 
                                       63
 
     Prior to this Offering, there has not been any public market for the Common
Stock of the Company. Consequently, the initial public offering price for the
shares of Common Stock included in this Offering will be determined by
negotiations between the Company and the Representatives. Among the factors to
be considered in determining such price are the history of and prospects for the
Company's business and the industry in which it competes, an assessment of the
Company's management and the present state of the Company's development, the
past and present revenues and earnings of the Company, the prospects for the
growth of the Company's revenues and earnings, the current state of the economy
in the United States and the current level of economic activity in the industry
in which the Company competes and in related or comparable industries, and
currently prevailing conditions in the securities markets, including current
market valuations of publicly traded companies that are comparable to the
Company.
 
     The Company has agreed to indemnify the Underwriters and certain related
persons against certain liabilities, including liabilities under the Securities
Act, or to contribute to payments that the Underwriters may be required to make
in respect thereof.
 
     At the request of the Company, the Underwriters have reserved up to 210,000
of the shares of Common Stock offered hereby for sale at the initial public
offering price to certain employees of the Company (including Howard S. Hoover,
Jr.) and certain other persons designated by the Company who have expressed an
interest in purchasing Common Stock. The number of shares of Common Stock
available to the general public will be reduced to the extent these persons
purchase the reserved shares. Any reserved shares which are not purchased by
such persons will be offered by the Underwriters to the general public on the
same basis as the other shares offered hereby.
 
                                 LEGAL MATTERS
 
     Certain legal matters in connection with the sale of the Common Stock
offered hereby are being passed upon for the Company by Baker & Botts, L.L.P.,
3000 One Shell Plaza, Houston, Texas 77002, and for the Underwriters by Morgan,
Lewis & Bockius LLP, 101 Park Avenue, New York, New York 10178.
 
                                    EXPERTS
 
     The audited financial statements 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 giving said reports.

                             ADDITIONAL INFORMATION

     The Company has not previously been subject to the reporting requirements
of the Securities Exchange Act of 1934, as amended. The Company has filed a
Registration Statement on Form S-1 (the "Registration Statement") under the
Securities Act with the SEC with respect to this Offering. This Prospectus,
filed as a part of the Registration Statement, does not contain all of the
information set forth in the Registration Statement, or the exhibits and
schedules thereto, in accordance with the rules and regulations of the SEC, and
reference is hereby made to such omitted information. Each statement made in
this Prospectus concerning a document filed as an exhibit to the Registration
Statement is qualified in its entirety by reference to such exhibit for a
complete statement of its provisions. The Registration Statement and the
exhibits and schedules thereto may be inspected, without charge, at the public
reference facilities of the SEC at its principal office at Judiciary Plaza, 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and its regional offices
at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661, and at 7 World Trade Center, 13th Floor, New York, New York 10048. Copies
of all or any portion of the Registration Statement can be obtained at
prescribed rates from the Public Reference Section of the SEC at its principal
office at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C.
20549. The SEC maintains an Internet web site that contains reports, proxy and
information statements and other information regarding issuers that file
electronically with the SEC. The address of that site is http://www.sec.gov.

                                       64

                         INDEX TO FINANCIAL STATEMENTS

                                        PAGE
                                        ----
Unaudited Pro Forma Combined
  Financial Statements
     Basis of Presentation...........   F-3
     Pro Forma Combined Balance Sheet
      as of March 31, 1996
      (unaudited)....................   F-4
     Pro Forma Combined Statement of
      Operations for the Year Ended
      December 31, 1995
      (unaudited)....................   F-5
     Pro Forma Combined Statement of
      Operations for the Three Months
      Ended March 31, 1995
      (unaudited)....................   F-6
     Pro Forma Combined Statement of
      Operations for the Three Months
      Ended March 31, 1996
      (unaudited)....................   F-7
     Notes to Unaudited Pro Forma
      Combined Financial
      Statements.....................   F-8

Historical Financial Statements

     American Residential Services,
      Inc.
          Report of Independent
          Public Accountants.........   F-11
          Balance Sheets.............   F-12
          Statements of Operations...   F-13
          Statements of Shareholders'
          Deficit....................   F-14
          Statements of Cash Flows...   F-15
          Notes to Financial
          Statements.................   F-16

     General Heating Engineering
      Company, Inc.
          Report of Independent
          Public Accountants.........   F-19
          Balance Sheets.............   F-20
          Statements of Operations...   F-21
          Statements of Shareholders'
          Equity.....................   F-22
          Statements of Cash Flows...   F-23
          Notes to Financial
          Statements.................   F-24

     Atlas Services, Inc., and
      Subsidary
          Report of Independent
          Public Accountants.........   F-29
          Consolidated Balance
          Sheets.....................   F-30
          Consolidated Statements of
          Operations.................   F-31
          Consolidated Statements of
          Shareholders' Equity.......   F-32
          Consolidated Statements of
          Cash Flows.................   F-33
          Notes to Consolidated
          Financial Statements.......   F-34

     Service Enterprises, Inc., and
      Subsidiaries
          Report of Independent
          Public Accountants.........   F-41
          Consolidated Balance
          Sheets.....................   F-42
          Consolidated Statements of
          Operations.................   F-43
          Consolidated Statements of
          Shareholder's Equity.......   F-44
          Consolidated Statements of
          Cash Flows.................   F-45
          Notes to Consolidated
          Financial Statements.......   F-46

                                      F-1

                                        PAGE
                                        ----
     Florida Heating and Air
      Conditioning, Inc. and Related
      Companies
          Report of Independent
          Public Accountants.........   F-52
          Combined Balance Sheets....   F-53
          Combined Statements of
          Operations.................   F-54
          Combined Statements of
          Shareholders' Equity.......   F-55
          Combined Statements of Cash
          Flows......................   F-56
          Notes to Combined Financial
          Statements.................   F-57

     DIAL ONE Meridian and Hoosier,
      Inc.
          Report of Independent
          Public Accountants.........   F-63
          Balance Sheets.............   F-64
          Statements of Operations...   F-65
          Statements of Shareholder's
          Equity.....................   F-66
          Statements of Cash Flows...   F-67
          Notes to Financial
          Statements.................   F-68

     ADCOT, Inc.
          Report of Independent
          Public Accountants.........   F-75
          Balance Sheets.............   F-76
          Statements of Operations...   F-77
          Statements of Shareholder's
          Deficit....................   F-78
          Statements of Cash Flows...   F-79
          Notes to Financial
          Statements.................   F-80

                                      F-2

          AMERICAN RESIDENTIAL SERVICES, INC., AND FOUNDING COMPANIES
               UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
                             BASIS OF PRESENTATION
                                  (UNAUDITED)

     The following unaudited pro forma combined financial statements give effect
to the acquisitions by American Residential Services, Inc. (ARS), of
substantially all of the net assets of (a) General Heating Engineering Company,
Inc. (General Heating), (b) Atlas Services, Inc. and subsidiary (Atlas), (c)
Service Enterprises, Inc. and subsidiaries (Crown), (d) Florida Heating and Air
Conditioning, Inc. and Related Companies (Florida HAC), (e) DIAL ONE Meridian
and Hoosier, Inc. (Meridian & Hoosier), (f) ADCOT, Inc. (A-ABC), and (g)
Climatic Corporation of Vero Beach (Climatic), (together, the Founding
Companies). ARS and the Founding Companies are hereinafter referred to as the
Company. These acquisitions (the Acquisitions) will occur simultaneously with
the closing of ARS's initial public offering (the Offering) and will be
accounted for using the purchase method of accounting. The unaudited pro forma
combined financial statements also give effect to the issuance of Common Stock,
which will be issued by ARS to the Sellers of the Founding Companies upon the
effectiveness of the Offering. These statements are based on the historical
financial statements of the Founding Companies included elsewhere in this
Prospectus (except Climatic) and the estimates and assumptions set forth below
and in the notes to the unaudited pro forma combined financial statements.

     The unaudited pro forma combined balance sheet gives effect to these
transactions (the Acquisitions and the Offering) as if they had occurred on
March 31, 1996. The unaudited pro forma combined statements of operations give
effect to these transactions as if they had occurred at the beginning of each
period presented.

     The pro forma adjustments are based on preliminary estimates, available
information and certain assumptions that management deems appropriate. The pro
forma adjustments do not reflect amounts related to the working capital
adjustments, which may effect goodwill and debt. The unaudited pro forma
combined financial data presented herein do not purport to represent what the
Company's financial position or results of operations would have actually been
had such events occurred at the beginning of the periods presented, as assumed,
or to project the Company's financial position or results of operations for any
future period or the future results of the Founding Companies. The unaudited pro
forma combined financial statements should be read in conjunction with the other
financial statements and notes thereto included elsewhere in this Prospectus.
Also see "Risk Factors" included elsewhere herein.

                                      F-3
<PAGE>
               AMERICAN RESIDENTIAL SERVICES, INC., AND FOUNDING COMPANIES
                            PRO FORMA COMBINED BALANCE SHEET
                                     MARCH 31, 1996
                                       (UNAUDITED)
                                     (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                  GENERAL                          FLORIDA   MERIDIAN
                                          ARS     HEATING      ATLAS      CROWN      HAC     & HOOSIER   A-ABC    CLIMATIC
                                       ---------  --------   ---------  ---------  -------   ---------   ------   ---------

<S>                                    <C>        <C>        <C>        <C>        <C>        <C>        <C>       <C>
               ASSETS
CURRENT ASSETS:
  Cash and cash equivalents..........  $     103  $ 2,474    $     534  $     372  $  422     $   957    $  49     $    96
  Investments........................     --        2,000       --         --        --         --        --         --
  Accounts receivable --
    Trade, net of allowance..........     --        3,329        2,400        363   1,426       1,036       28         774
    Shareholder and affiliates.......     --        --             226      2,124    --            22       11       --
    Other receivables................     --          106       --             74     324       --        --         --
  Notes receivable --
    Shareholders.....................     --          348       --         --        --         --        --         --
    Other............................     --           40       --         --        --         --        --         --
  Inventories........................     --        2,613          781        832     347         323      644          50
  Prepaid expenses and other current
    assets...........................         60      181          144        249     112          81       50       --
  Costs and estimated earnings in
    excess of billings on uncompleted
    contracts........................     --        --             274     --        --            19     --         --
                                       ---------  --------   ---------  ---------  -------   ---------   ------   ---------
      Total current assets...........        163   11,091        4,359      4,014   2,631       2,438      782         920
                                       ---------  --------   ---------  ---------  -------   ---------   ------   ---------
PROPERTY AND EQUIPMENT, net..........         12    2,098        3,066      1,184     626       1,563      355         179
OTHER NONCURRENT ASSETS..............        122      484          426        195      38         145       32          71
GOODWILL.............................     --        --          --         --        --         --        --         --
NET ASSETS OF DISCONTINUED
  OPERATIONS.........................     --        --          --         --        --         --         510       --
                                       ---------  --------   ---------  ---------  -------   ---------   ------   ---------
      Total assets...................  $     297  $13,673    $   7,851  $   5,393  $3,295     $ 4,146    $1,679    $ 1,170
                                       =========  ========   =========  =========  =======   =========   ======   =========
LIABILITIES AND SHAREHOLDERS' EQUITY
  (DEFICIT):
  Current maturities of long-term
    debt.............................  $  --      $ --       $     170  $  --      $  232     $   275    $  83     $    45
  Short-term debt....................        500    --             300     --        --         --        --         --
  Accounts payable and accrued
    expenses.........................        321    3,131        2,916        904   1,512         654    1,448         590
  Payable to shareholder and
    affiliates.......................     --        --          --         --          81       --        --         --
  Unearned revenue on service and
    warranty contracts, current......     --          848          165     --        --           407      318       --
  Billings in excess of cost and
    estimated earnings on uncompleted
    contracts........................     --          145          468     --         346         113     --            36
  Deferred income taxes..............     --        --          --         --         287       --        --         --
  Pro forma cash consideration due to
    Founding Companies...............     --        --          --         --        --         --        --         --
                                       ---------  --------   ---------  ---------  -------   ---------   ------   ---------
      Total current liabilities......        821    4,124        4,019        904   2,458       1,449    1,849         671
                                       ---------  --------   ---------  ---------  -------   ---------   ------   ---------
LONG-TERM DEBT, net of current
  maturities.........................     --        --           1,845     --        --         1,335      143          51
UNEARNED REVENUE ON EXTENDED WARRANTY
  CONTRACTS NONCURRENT...............     --        --          --         --        --         --         613       --
DEFERRED INCOME TAXES................     --        --             194        114      42          18     --            17
OTHER NONCURRENT LIABILITIES.........     --        --          --         --        --            74     --         --
  Preferred stock....................     --        --          --         --        --         --        --         --
SHAREHOLDERS' EQUITY (DEFICIT):
  Common stock.......................          1       55           24        140       9           7       10           4
  Additional paid-in capital.........          1      667          105      1,086       4          35     --            46
  Retained earnings (deficit)........       (526)  10,420        1,664      3,149     782       1,228     (936)        381
  Treasury stock.....................     --       (1,593)      --         --        --         --        --         --
                                       ---------  --------   ---------  ---------  -------   ---------   ------   ---------
      Total shareholders' equity
        (deficit)....................       (524)   9,549        1,793      4,375     795       1,270     (926)        431
                                       ---------  --------   ---------  ---------  -------   ---------   ------   ---------
      Total liabilities and
        shareholders' equity
        (deficit)....................  $     297  $13,673    $   7,851  $   5,393  $3,295     $ 4,146    $1,679    $ 1,170
                                       =========  ========   =========  =========  =======   =========   ======   =========
</TABLE>
<TABLE>
                                                                     POST
                                        PRO FORMA                   MERGER          AS
                                       ADJUSTMENTS    PRO FORMA   ADJUSTMENTS    ADJUSTED
                                       -----------    ---------   -----------    --------
<S>                                      <C>           <C>         <C>           <C>
               ASSETS
CURRENT ASSETS:
  Cash and cash equivalents..........    $(1,374)      $ 3,633     $  --         $ 3,633
  Investments........................     (2,000)        --           --           --
  Accounts receivable --
    Trade, net of allowance..........     (3,329)        6,027        --           6,027
    Shareholder and affiliates.......     (2,124)          259        --             259
    Other receivables................     --               504        --             504
  Notes receivable --
    Shareholders.....................     --               348        --             348
    Other............................     --                40        --              40
  Inventories........................     --             5,590        --           5,590
  Prepaid expenses and other current
    assets...........................        251         1,128        --           1,128
  Costs and estimated earnings in
    excess of billings on uncompleted
    contracts........................     --               293        --             293
                                       -----------    ---------   -----------    --------
      Total current assets...........     (8,576)       17,822        --          17,822
                                       -----------    ---------   -----------    --------
PROPERTY AND EQUIPMENT, net..........      3,430        12,513        --          12,513
OTHER NONCURRENT ASSETS..............       (543)          970            42       1,012
GOODWILL.............................     61,969        61,969        --          61,969
NET ASSETS OF DISCONTINUED
  OPERATIONS.........................     --               510        --             510
                                       -----------    ---------   -----------    --------
      Total assets...................    $56,280       $93,784     $      42     $93,826
                                       ===========    =========   ===========    ========
LIABILITIES AND SHAREHOLDERS' EQUITY
  (DEFICIT):
  Current maturities of long-term
    debt.............................    $--           $   805     $  --         $   805
  Short-term debt....................        600         1,400        (1,100)        300
  Accounts payable and accrued
    expenses.........................     --            11,476        --          11,476
  Payable to shareholder and
    affiliates.......................     --                81        --              81
  Unearned revenue on service and
    warranty contracts, current......     --             1,738        --           1,738
  Billings in excess of cost and
    estimated earnings on uncompleted
    contracts........................     --             1,108        --           1,108
  Deferred income taxes..............     --               287        --             287
  Pro forma cash consideration due to
    Founding Companies...............     34,800        34,800       (34,800)      --
                                       -----------    ---------   -----------    --------
      Total current liabilities......     35,400        51,695       (35,900)     15,795
                                       -----------    ---------   -----------    --------
LONG-TERM DEBT, net of current
  maturities.........................     16,967        20,341       (11,011)      9,330
UNEARNED REVENUE ON EXTENDED WARRANTY
  CONTRACTS NONCURRENT...............     --               613        --             613
DEFERRED INCOME TAXES................     --               385        --             385
OTHER NONCURRENT LIABILITIES.........     --                74        --              74
  Preferred stock....................        500           500          (500)      --
SHAREHOLDERS' EQUITY (DEFICIT):
  Common stock.......................       (245)            5             4           9
  Additional paid-in capital.........     21,591        23,535        47,749      71,284
  Retained earnings (deficit)........    (19,526)       (3,364)         (300)     (3,664)
  Treasury stock.....................      1,593         --           --           --
                                       -----------    ---------   -----------    --------
      Total shareholders' equity
        (deficit)....................      3,413        20,176        47,453      67,629
                                       -----------    ---------   -----------    --------
      Total liabilities and
        shareholders' equity
        (deficit)....................    $56,280       $93,784     $      42     $93,826
                                       ===========    =========   ===========    ========
</TABLE>
  See accompanying notes to unaudited pro forma combined financial statements.

                                      F-4
<PAGE>
          AMERICAN RESIDENTIAL SERVICES, INC., AND FOUNDING COMPANIES
                   PRO FORMA COMBINED STATEMENT OF OPERATIONS
                          YEAR ENDED DECEMBER 31, 1995
                                  (UNAUDITED)
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
                                                   GENERAL                          FLORIDA    MERIDIAN
                                          ARS      HEATING     ATLAS      CROWN       HAC      & HOOSIER    A-ABC     CLIMATIC
                                       ---------   -------    -------    -------    -------    ---------    ------    --------
<S>                                    <C>        <C>         <C>        <C>        <C>         <C>        <C>         <C>
REVENUES.............................  $  --      $35,159     $22,048    $19,124    $14,510     $10,133    $8,707      $4,955
COST OF SERVICES.....................     --       28,866      17,811     11,333     10,541       7,281     5,709       3,679
                                       ---------   -------    -------    -------    -------    ---------    ------    --------
    Gross profit.....................     --        6,293       4,237      7,791      3,969       2,852     2,998       1,276
SELLING, GENERAL AND ADMINISTRATIVE
  EXPENSES...........................        159    5,280       3,022      6,165      3,738       2,350     2,348       1,287
GOODWILL AMORTIZATION................     --         --         --         --         --          --         --         --
                                       ---------   -------    -------    -------    -------    ---------    ------    --------
INCOME (LOSS) FROM OPERATIONS........       (159)   1,013       1,215      1,626        231         502       650         (11)
OTHER INCOME (EXPENSE):
    Interest Income..................     --          299          17        119      --             24      --             3
    Interest Expense.................     --         --          (134)       (58)       (12)        (86)      (84)      --
    Other............................     --           58          20        (10)        (8)         10        66          15
                                       ---------   -------    -------    -------    -------    ---------    ------    --------
INCOME (LOSS) FROM CONTINUING
  OPERATIONS BEFORE INCOME TAXES.....       (159)   1,370       1,118      1,677        211         450       632           7
PROVISION FOR INCOME TAXES...........     --         --           434        630         14         179        43       --
                                       ---------   -------    -------    -------    -------    ---------    ------    --------
NET INCOME (LOSS) FROM CONTINUING
  OPERATIONS.........................  $    (159)  $1,370     $   684    $ 1,047    $   197     $   271     $ 589      $    7
                                       =========   =======    =======    =======    =======    =========    ======    ========
</TABLE>
                                        PRO FORMA
                                       ADJUSTMENTS    PRO FORMA
                                       -----------    ---------

REVENUES.............................    $--          $114,636
COST OF SERVICES.....................       (227)(l)    84,993
                                       -----------    ---------
    Gross profit.....................        227        29,643
SELLING, GENERAL AND ADMINISTRATIVE
  EXPENSES...........................     (1,808)(m)    22,321
                                            (220)(n)
GOODWILL AMORTIZATION................      1,549(o)      1,549
                                       -----------    ---------
INCOME (LOSS) FROM OPERATIONS........        706         5,773
OTHER INCOME (EXPENSE):
    Interest Income..................     --               462
    Interest Expense.................       (491)         (865)
    Other............................     --               151
                                       -----------    ---------
INCOME (LOSS) FROM CONTINUING
  OPERATIONS BEFORE INCOME TAXES.....        215         5,521
PROVISION FOR INCOME TAXES...........      1,249(p)      2,549
                                       -----------    ---------
NET INCOME (LOSS) FROM CONTINUING
  OPERATIONS.........................    $(1,034)     $  2,972
                                       ===========    =========
PRO FORMA NET INCOME PER SHARE FROM
  CONTINUING OPERATIONS..............                 $    .33
                                                      =========
SHARES USED IN COMPUTING PRO FORMA
  NET INCOME PER SHARE FROM
  CONTINUING OPERATIONS..............                    8,996 (q)
                                                      =========

  See accompanying notes to unaudited pro forma combined financial statements.

                                      F-5
<PAGE>
          AMERICAN RESIDENTIAL SERVICES, INC., AND FOUNDING COMPANIES
                   PRO FORMA COMBINED STATEMENT OF OPERATIONS
                       THREE MONTHS ENDED MARCH 31, 1995
                                  (UNAUDITED)
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
                                                   GENERAL                        FLORIDA    MERIDIAN
                                          ARS      HEATING    ATLAS     CROWN       HAC      & HOOSIER    A-ABC     CLIMATIC
                                       ---------   -------    ------    ------    -------    ---------    ------    --------
<S>                                    <C>         <C>        <C>      <C>        <C>         <C>        <C>         <C>
REVENUES.............................  $  --       $7,651     $4,939   $3,555     $3,919      $ 1,959    $1,704      $--
COST OF SERVICES.....................     --        6,401      3,994    2,155      2,990        1,422     1,192       --
                                       ---------   -------    ------    ------    -------    ---------    ------    --------
    Gross profit.....................     --        1,250        945    1,400        929          537       512       --
SELLING, GENERAL AND ADMINISTRATIVE
  EXPENSES...........................     --        1,351        688    1,348        894          512       508       --
GOODWILL AMORTIZATION................     --         --          --       --         --
                                       ---------   -------    ------    ------    -------    ---------    ------    --------
INCOME (LOSS) FROM OPERATIONS........     --         (101)       257       52         35           25         4       --
                                       ---------   -------    ------    ------    -------    ---------    ------    --------
OTHER INCOME (EXPENSE):
    Interest Income..................     --           21        --         24       --          --         --        --
    Interest Expense.................     --         --          (54)     (14)        (1)         (22)       (7)      --
    Other............................     --           33         47       (2)      --             13        16       --
                                       ---------   -------    ------    ------    -------    ---------    ------    --------
INCOME (LOSS) FROM CONTINUING
  OPERATIONS BEFORE
  INCOME TAXES.......................     --          (47)       250       60         34           16        13       --
PROVISION FOR INCOME TAXES...........     --         --          104       23          2            6         1       --
                                       ---------   -------    ------    ------    -------    ---------    ------    --------
NET INCOME (LOSS) FROM
  CONTINUING OPERATIONS..............  $  --       $  (47)    $  146    $  37     $   32      $    10     $  12      $--
                                       =========   =======    ======    ======    =======    =========    ======    ========
</TABLE>
                                        PRO FORMA
                                       ADJUSTMENTS    PRO FORMA
                                       -----------    ---------

REVENUES.............................     $--          $23,727
COST OF SERVICES.....................       (57)(l)     18,097
                                       -----------    ---------
    Gross profit.....................        57          5,630
SELLING, GENERAL AND ADMINISTRATIVE
  EXPENSES...........................      (470)(m)      4,776
                                            (55)(n)
GOODWILL AMORTIZATION................       387(o)         387
                                       -----------    ---------
INCOME (LOSS) FROM OPERATIONS........       195            467
                                       -----------    ---------
OTHER INCOME (EXPENSE):
    Interest Income..................     --                45
    Interest Expense.................      (123)(p)       (221)
    Other............................     --               107
                                       -----------    ---------
INCOME (LOSS) FROM CONTINUING
  OPERATIONS BEFORE
  INCOME TAXES.......................        72            398
PROVISION FOR INCOME TAXES...........        48(q)         184
                                       -----------    ---------
NET INCOME (LOSS) FROM
  CONTINUING OPERATIONS..............     $  24        $   214
                                       ===========    =========
PRO FORMA NET INCOME PER SHARE FROM
  CONTINUING OPERATIONS..............                  $   .02
                                                      =========
SHARES USED IN COMPUTING PRO FORMA
  NET INCOME PER
  SHARE FROM CONTINUING OPERATIONS...                    8,996(r)
                                                      =========

  See accompanying notes to unaudited pro forma combined financial statements.

                                      F-6
<PAGE>
          AMERICAN RESIDENTIAL SERVICES, INC., AND FOUNDING COMPANIES
                   PRO FORMA COMBINED STATEMENT OF OPERATIONS
                       THREE MONTHS ENDED MARCH 31, 1996
                                  (UNAUDITED)
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
                                                   GENERAL                         FLORIDA     MERIDIAN
                                          ARS      HEATING     ATLAS     CROWN       HAC      & HOOSIER     A-ABC     CLIMATIC
                                       ---------   -------   ---------   ------    -------    ----------    ------    --------
<S>                                    <C>         <C>       <C>        <C>        <C>          <C>         <C>        <C>
REVENUES.............................  $  --       $7,033    $   6,573  $4,152     $3,658       $2,638      $2,022     $--
COST OF SERVICES.....................     --        5,871        5,215   2,643      2,674        1,767       1,236      --
                                       ---------   -------   ---------   ------    -------    ----------    ------    --------
    Gross profit.....................     --        1,162        1,358   1,509        984          871        786       --
SELLING, GENERAL AND ADMINISTRATIVE
  EXPENSES...........................        365    1,186          874   1,519        837          854        583       --
GOODWILL AMORTIZATION................     --         --         --        --         --          --          --         --
                                       ---------   -------   ---------   ------    -------    ----------    ------    --------
INCOME (LOSS) FROM OPERATIONS........       (365)     (24)         484     (10)       147           17        203       --
                                       ---------   -------   ---------   ------    -------    ----------    ------    --------
OTHER INCOME (EXPENSE):
    Interest Income..................     --           78       --          15       --              9       --         --
    Interest Expense.................     --         --            (42)    (16)        (8)         (29)        (9)      --
    Other............................     --           17           42      (9)      --              3         19       --
                                       ---------   -------   ---------   ------    -------    ----------    ------    --------
INCOME (LOSS) FROM CONTINUING
  OPERATIONS BEFORE INCOME TAXES.....       (365)      71          484     (20)       139        --           213       --
PROVISION (BENEFIT) FOR INCOME
  TAXES..............................     --         --            195      (4)         9        --             3       --
                                       ---------   -------   ---------   ------    -------    ----------    ------    --------
NET INCOME (LOSS) FROM CONTINUING
  OPERATIONS.........................  $    (365)  $   71    $     289   $ (16)    $  130       $--         $ 210      $--
                                       =========   =======   =========   ======    =======    ==========    ======    ========
</TABLE>
                                        PRO FORMA
                                       ADJUSTMENTS    PRO FORMA
                                       -----------    ---------

REVENUES.............................    $--           $26,076
COST OF SERVICES.....................        (69)(l)    19,337
                                       -----------    ---------
    Gross profit.....................         69         6,739
SELLING, GENERAL AND ADMINISTRATIVE
  EXPENSES...........................       (493)(m)     5,670
                                             (55)(n)
GOODWILL AMORTIZATION................        387(o)        387
                                       -----------    ---------
INCOME (LOSS) FROM OPERATIONS........        230           682
                                       -----------    ---------
OTHER INCOME (EXPENSE):
    Interest Income..................     --               102
    Interest Expense.................       (123)(p)      (227)
    Other............................     --                72
                                       -----------    ---------
INCOME (LOSS) FROM CONTINUING
  OPERATIONS BEFORE INCOME TAXES.....        107           629
PROVISION (BENEFIT) FOR INCOME
  TAXES..............................         87(q)        290
                                       -----------    ---------
NET INCOME (LOSS) FROM CONTINUING
  OPERATIONS.........................    $    20       $   339
                                       ===========    =========
PRO FORMA NET INCOME PER SHARE FROM
  CONTINUING OPERATIONS..............                  $   .04
                                                      =========
SHARES USED IN COMPUTING PRO FORMA
  NET INCOME PER SHARE FROM
  CONTINUING OPERATIONS..............                    8,996 (r)
                                                      =========

  See accompanying notes to unaudited pro forma combined financial statements.

                                      F-7

          AMERICAN RESIDENTIAL SERVICES, INC., AND FOUNDING COMPANIES
           NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
                                  (UNAUDITED)

1.  AMERICAN RESIDENTIAL SERVICES, INC. BACKGROUND:

     American Residential Services, Inc. (ARS) was formed to create a leading
national provider of (i) comprehensive maintenance, repair and replacement
services for heating, ventilating and air conditioning, plumbing, electrical and
other systems in homes and commercial buildings and (ii) new installation
services of those systems in homes and commercial facilities under construction.
ARS has conducted no operations to date and will acquire the Founding Companies
simultaneously with the consummation of the Offering.

2.  HISTORICAL FINANCIAL STATEMENTS:

     The historical financial statements represent the financial position and
results of operations of the Founding Companies and were derived from the
respective financial statements where indicated. All Founding Companies have a
December 31, 1995, year-end or they have been converted to a December 31, 1995,
year-end, except for Climatic which has an April 30 year-end, therefore,
quarterly statements of operations for Climatic are not included in the three
months ended March 31, 1995 and 1996. The audited historical financial
statements included elsewhere in this Prospectus have been included in
accordance with Securities and Exchange Commission (SEC) Staff Accounting
Bulletin No. 80.

3.  ACQUISITION OF FOUNDING COMPANIES:

     Concurrent with the closing of the Offering, ARS will acquire substantially
all of the net assets of the Founding Companies. The Acquisitions will be
accounted for using the purchase method of accounting, with ARS being treated as
the acquirer. The total estimated purchase price is $76.9 million, which
consists of (i) $34.8 million of cash to be paid to the Sellers upon the
consummation of the Offering and (ii) $42.1 million of shares (based on the
estimated initial offering price) of ARS Common Stock (3,236,613 shares) to be
issued to the Sellers ($21 million estimated fair value). The estimated purchase
price for the Acquisitions is subject to certain purchase price adjustments at
closing. See "Certain Relationships and Related-Party Transactions."

     The holders of 3.2 million shares of Common Stock issued in partial payment
of the Acquisitions have agreed not to offer, sell or otherwise dispose of any
of those shares for a period of two years after the Offering (or for such
shorter period as the SEC may prescribe as the holding period for registered
securities under Rule 144). The fair value of these shares reflects this
restriction.

     Of the estimated total purchase price of $55.8 million (based on the fair
value of the shares to be issued) of the Acquisitions, $53 million has been
allocated to the assets acquired and liabilities assumed. The remaining amount
of $2.8 million represents the purchase price paid to Enterprises Holding
Company, Inc. (EHC) in excess of its cost of Crown and A-ABC. As EHC is under
common control with ARS, such amount has been considered a distribution and
recorded as a reduction in shareholders' equity in the accompanying pro forma
balance sheet. Based upon management's preliminary analysis, it is anticipated
that the historical carrying value of the Founding Companies' assets and
liabilities will approximate fair value. The amount allocated to goodwill is
$61.9 million. Management of ARS has not identified any other material tangible
or identifiable intangible assets of the Founding Companies to which a portion
of the purchased price could reasonably be allocated.

4.  UNAUDITED PRO FORMA COMBINED BALANCE SHEET ADJUSTMENTS:

          (a)   Records the additional cash to be borrowed from a bank.

          (b)   Records distribution of a Founding Company's S Corporation
     Accumulated Adjustment Accounts.

                                      F-8

          AMERICAN RESIDENTIAL SERVICES, INC., AND FOUNDING COMPANIES
   NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

          (c)   Records the distribution of General's and Atlas' cash surrender
     value of life insurance policies in the amounts of $462,000 and $124,000,
     respectively to shareholders and the distribution of certain equipment and
     the related obligations to certain shareholders of the Founding Companies.

          (d)   Records the purchase of Crown and A-ABC by EHC.

          (e)   Records the purchase of the Founding Companies (excluding Crown
     and A-ABC), including the cash consideration due to the Founding Companies
     and Common Stock portions and the related deferred income tax assets.

          (f)   Records the purchase of EHC by ARS.

          (g)   Records the proceeds from the issuance of 4,200,000 shares of
     ARS Common Stock, net of estimated offering costs (based on the estimated
     intitial public offering price of $13 per share). Offering costs primarily
     consist of underwriting discounts and commissions, accounting fees, legal
     fees and printing expenses.

          (h)   Records the repayment of certain debt obligations with proceeds
     from the Offering.

          (i)   Records the cash portion to be paid to the Founding Companies in
     connection with the Acquisitions.

          (j)   Records the retirement of EHC's preferred stock.

          (k)   Records the exercise of a warrant held by a bank lender of EHC
     and the issuance of shares to employees, three officers and certain
     consultants of ARS and its affiliates.

     The following tables summarize unaudited pro forma combined balance sheet
adjustments:
<TABLE>
<CAPTION>
                                                                                                          PRO FORMA
                                          (A)        (B)        (C)        (D)        (E)        (F)     ADJUSTMENTS
                                       ---------  ---------  ---------  ---------  ---------  ---------  -----------
<S>                                    <C>        <C>        <C>        <C>        <C>        <C>         <C>
Cash and cash equivalents............  $   3,122  $  (4,496) $          $          $          $           $  (1,374)
Investments..........................                (2,000)                                                 (2,000)
Accounts receivable - trade..........                (3,329)                                                 (3,329)
Accounts receivable - shareholder and
  affiliates.........................                                      (2,124)                           (2,124)
Prepaid expenses and other current
  assets.............................                                                    251                    251
Property and equipment, net..........                              (70)     3,500                             3,430
Other noncurrent assets..............                             (586)                   43                   (543)
Goodwill.............................                                      12,676     49,293                 61,969
Short-term debt......................     (1,100)                                                   500        (600)
Pro forma cash consideration due to
  Founding Companies.................                                                (34,800)               (34,800)
Long-term debt, net of current
  maturities.........................     (2,022)                   56    (15,001)                          (16,967)
Preferred stock......................                                      (2,500)                2,000        (500)
Common stock.........................                                         150         97         (2)        245
Additional paid-in capital...........                 9,825        600      1,086    (27,766)    (5,336)    (21,591)
Retained earnings (deficit)..........                                       2,213     14,475      2,838      19,526
Treasury stock.......................                                                 (1,593)                (1,593)
                                       ---------  ---------  ---------  ---------  ---------  ---------  -----------
                                       $       0  $       0  $       0  $       0  $       0  $       0   $       0
                                       =========  =========  =========  =========  =========  =========  ===========
</TABLE>
                                      F-9
 
          AMERICAN RESIDENTIAL SERVICES, INC., AND FOUNDING COMPANIES
   NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
                                                                                                 POST
                                                                                                MERGER
                                          (G)        (H)        (I)        (J)        (K)     ADJUSTMENTS
                                       ---------  ---------  ---------  ---------  ---------  -----------

<S>                                    <C>        <C>        <C>        <C>        <C>         <C>
Cash and cash equivalents............  $  47,411  $ (12,111) $ (34,800) $    (500) $           $       0
Other noncurrent assets..............        (83)                                        125          42
Short-term debt......................                 1,100                                        1,100
Pro forma cash consideration due to
  Founding Companies.................                           34,800                            34,800
Long-term debt, net of current
  maturities.........................                11,011                                       11,011
Preferred stock......................                                         500                    500
Common stock.........................         (4)                                                     (4)
Additional paid-in capital...........    (47,324)                                       (425)    (47,749)
Retained earnings (deficit)..........                                                    300         300
Treasury stock.......................                                                                  0
                                       ---------  ---------  ---------  ---------  ---------  -----------
                                       $       0  $       0  $       0  $       0  $       0   $       0
                                       =========  =========  =========  =========  =========  ===========
</TABLE>
 
5.  UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS ADJUSTMENTS:
 
          (l)   Adjusts rent expense incurred due to the purchase of the
     facility used by Crown, net of pro forma depreciation expense.
 
          (m)   Adjusts compensation to the level the owners of certain of the
     Founding Companies have agreed to receive subsequent to Acquisition.
 
          (n)   Adjusts for the effect of assets distributed to and the costs of
     certain leases assumed by the owners of certain Founding Companies.
 
          (o)   Records the pro forma goodwill amortization expense using a 40
     year estimated life.
 
          (p)   Records pro forma interest expense for debt incurred in the
     purchase of EHC net of pro forma debt reductions.
 
          (q)   Records the incremental provision for federal and state income
     taxes relating to the Compensation Differential, S Corporation income and
     other pro forma adjustments.
 
          (r)   The number of shares estimated to be outstanding on completion
     of the Offering (i) includes shares issued as consideration in the
     Acquisitions or on conversion in part of an ARS convertible note issued in
     the organizational financing of ARS and (ii) includes 46,156 shares to be
     awarded under the Company's 1996 Incentive Plan to certain employees of the
     Company on the closing of one of the Acquisitions, but (iii) excludes an
     aggregate 1,345,000 shares subject to options granted under the Company's
     1996 Incentive Plan as the effect of such options is less than three
     percent of total shares outstanding.
 
                                      F-10

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
 
To American Residential Services, Inc.:
 
     We have audited the accompanying balance sheet of American Residential
Services, Inc. (a Delaware corporation), as of December 31, 1995, and the
related statements of operations, shareholders' deficit and cash flows from
Inception (October 24, 1995) through December 31, 1995. 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 American Residential
Services, Inc. as of December 31, 1995 and the results of its operations and its
cash flows from Inception through December 31, 1995 in conformity with generally
accepted accounting principles.
 
ARTHUR ANDERSEN LLP
 
Houston, Texas
June 14, 1996
                                      F-11
<PAGE>
                      AMERICAN RESIDENTIAL SERVICES, INC.
                                 BALANCE SHEETS

                                        DECEMBER 31,       MARCH 31,
                                            1995              1996
                                        ------------      ------------
                                                          (UNAUDITED)
               ASSETS
CURRENT ASSETS:
     Cash and cash equivalents.......     $  9,784          $102,541
     Prepaid expenses and other
      current assets.................        3,327            60,210
                                        ------------      ------------
          Total current assets.......       13,111           162,751
PROPERTY AND EQUIPMENT, net..........       --                12,327
OTHER NONCURRENT ASSETS..............       19,325           121,517
                                        ------------      ------------
          Total assets...............     $ 32,436          $296,595
                                        ============      ============
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
     Short-term debt.................     $ 50,000          $500,000
     Accounts payable and accrued
      expenses.......................      141,077           320,760
                                        ------------      ------------
          Total current
              liabilities............      191,077           820,760
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' DEFICIT:
     Preferred Stock: $.001 par
      value, 10,000,000 shares
      authorized; none issued or
      outstanding....................       --                --
     Common stock, $.001 par,
      50,000,000 shares authorized,
      449,778 shares issued and
      outstanding....................          450               450
     Additional paid-in capital......          550               550
     Deficit.........................     (159,641)         (525,165)
                                        ------------      ------------
          Total shareholders'
              deficit................     (158,641)         (524,165)
                                        ------------      ------------
          Total liabilities and
              shareholders'
              deficit................     $ 32,436          $296,595
                                        ============      ============

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

                                      F-12
<PAGE>
                      AMERICAN RESIDENTIAL SERVICES, INC.
                            STATEMENTS OF OPERATIONS


                                             INCEPTION             THREE
                                        (OCTOBER 24, 1995)        MONTHS
                                              THROUGH              ENDED
                                           DECEMBER 31,          MARCH 31,
                                               1995                1996
                                        -------------------     -----------
                                                                (UNAUDITED)
REVENUES.............................        $--                 $  --
COST OF SERVICES.....................         --                    --
                                        -------------------     -----------
          Gross profit...............         --                    --
SELLING, GENERAL AND ADMINISTRATIVE
  EXPENSES...........................          159,641              365,524
                                        -------------------     -----------
NET LOSS.............................        $(159,641)          $ (365,524)
                                        ===================     ===========
 
   The accompanying notes are an integral part of these financial statements.
 
                                      F-13
 
                      AMERICAN RESIDENTIAL SERVICES, INC.
                      STATEMENTS OF SHAREHOLDERS' DEFICIT
<TABLE>
<CAPTION>
                                          COMMON STOCK       ADDITIONAL                     TOTAL
                                        -----------------     PAID-IN                   SHAREHOLDERS'
                                        SHARES     AMOUNT     CAPITAL       DEFICIT        DEFICIT
                                        -------    ------    ----------    ---------    --------------
<S>                                     <C>        <C>         <C>         <C>            <C>  
BALANCE, Inception, October 24,
  1995...............................     --       $  --       $   --      $  --          $  --
     Stock Issuance..................   449,778      450          550         --               1,000
     Net loss........................     --          --           --       (159,641)       (159,641)
                                        -------    ------    ----------    ---------    --------------
BALANCE, December 31, 1995...........   449,778      450          550       (159,641)       (158,641)
     Net loss (unaudited)............     --          --           --       (365,524)       (365,524)
                                        -------    ------    ----------    ---------    --------------
BALANCE, March 31, 1996
  (unaudited)........................   449,778    $ 450       $  550      $(525,165)     $ (524,165)
                                        =======    ======    ==========    =========    ==============
</TABLE>
   The accompanying notes are an integral part of these financial statements.
 
                                      F-14
<PAGE>
                      AMERICAN RESIDENTIAL SERVICES, INC.
                            STATEMENTS OF CASH FLOWS

                                            INCEPTION
                                        (OCTOBER 24, 1995)      THREE MONTHS
                                             THROUGH                ENDED
                                           DECEMBER 31,           MARCH 31,
                                               1995                 1996
                                        ------------------      -------------
                                                          
                                                                 (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss...........................       $ (159,641)           $(365,524)
  Adjustments to reconcile net loss
     to net cash used in operating
     activities --
     Changes in operating assets and
       liabilities --
     Increase in --
       Prepaid expenses and other
          current assets.............           (3,327)             (56,883)
       Other noncurrent assets.......          (19,325)            (102,192)
     Increase in --
       Accounts payable and accrued
          expenses...................          141,077              179,683
                                        ------------------      -------------
     Net cash used in operating
       activities....................          (41,216)            (344,916)
                                        ------------------      -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Additions of property and
     equipment.......................         --                    (12,327)
                                        ------------------      -------------
     Net cash used in investing
       activities....................         --                    (12,327)
                                        ------------------      -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Borrowings of short-term debt......           50,000              450,000
  Proceeds from issuance of common
     stock...........................            1,000              --
                                        ------------------      -------------
     Net cash provided by financing
       activities....................           51,000              450,000
                                        ------------------      -------------
NET INCREASE IN CASH AND CASH
  EQUIVALENTS........................            9,784               92,757
CASH AND CASH EQUIVALENTS, beginning
  of period..........................         --                      9,784
                                        ------------------      -------------
CASH AND CASH EQUIVALENTS, end of
  period.............................       $    9,784            $ 102,541
                                        ==================      =============
 
   The accompanying notes are an integral part of these financial statements.
 
                                      F-15
 
                      AMERICAN RESIDENTIAL SERVICES, INC.
                         NOTES TO FINANCIAL STATEMENTS
 
1.  BUSINESS AND ORGANIZATION:
 
     American Residential Services, Inc. (ARS or the Company), was founded on
October 24, 1995 to create a leading national provider of (i) comprehensive
maintenance, repair and replacement services for heating, ventilating and air
conditioning, plumbing, electrical, and other systems in homes and commercial
buildings and (ii) new installation services of those systems in homes and
commercial facilities under construction. ARS intends to acquire seven local and
regional residential services companies (the Acquisitions), complete an initial
public offering (the Offering) of its common stock and, subsequent to the
Offering, continue to acquire, through merger or purchase, similar companies to
expand its national and regional operations.
 
     ARS's primary assets at December 31, 1995, are cash and deferred offering
costs. ARS has not conducted any operations, and all activities to date have
related to the Acquisitions and the Offering. Cash of $1,000 was generated from
the initial capitalization of the Company (see Note 4). There is no assurance
that the Acquisitions discussed below will be completed and that ARS will be
able to generate future operating revenues. Funding for the deferred offering
costs has been provided by Equus II Incorporated (Equus II). ARS is dependent
upon the Offering to fund the amounts due to Equus II, the pending acquisitions
and future operations.
 
2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
 
  INTERIM FINANCIAL INFORMATION
 
     The interim financial statements as of March 31, 1996, and for the three
months ended March 31, 1996, are unaudited, and certain information and footnote
disclosures, normally included in financial statements prepared in accordance
with generally accepted accounting principles, have been omitted. In the opinion
of management, all adjustments, consisting only of normal recurring adjustments,
necessary to fairly present the financial position, results of operations and
cash flows with respect to the interim financial statements, have been included.
The results of operations for the interim periods are not necessarily indicative
of the results for the entire fiscal year.
 
  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.
 
     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.
 
  INCOME TAXES
 
     The Company follows the liability method of accounting for income taxes in
accordance with Statement of Financial Accounting Standards (SFAS) No. 109.
Under this method, deferred income taxes are recorded based upon differences
between the financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
underlying assets or liabilities are received or settled.
 
     The Company has recorded a full valuation allowance against all deferred
tax assets due to the uncertainty of ultimate realizability. Accordingly, no
income tax benefit has been recorded for current year losses.
 
                                      F-16
 
                      AMERICAN RESIDENTIAL SERVICES, INC.
                  NOTES TO 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 and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
 
  CASH AND CASH EQUIVALENTS
 
     The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.
 
  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, and
intangible or other assets, may be impaired, an evaluation of recoverability
would be performed. If an evaluation is required, the estimated future cash
flows associated with the asset is compared to the asset's carrying amount to
determine if a write-down to market value or discounted cash flow value was
necessary. Adoption of this standard did not have a material effect on the
financial position or results of operations of the Company.
 
3.  DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
 
     Accounts payable and accrued expenses consist of the following:

                                        DECEMBER 31,
                                            1995
                                        ------------
Accrued compensation and benefits....     $ 79,167
                                     
Other accrued expenses...............       61,910
                                        ------------
                                          $141,077
                                        ============
 
     Short-term debt:
 
     The Company had borrowings from Equus II under a $1.6 million credit
facility totaling $50,000 at December 31, 1995. The borrowings are unsecured,
bear interest at prime (8.25 percent at December 31, 1995) and mature December
31, 1996. A portion of this facility is convertible into 10 percent of the
outstanding common stock of ARS upon completion of the Offering.
 
4.  SHAREHOLDERS' DEFICIT:
 
     In connection with the organization and initial capitalization of ARS, the
Company issued 1,000 shares of common stock for $1,000 (see Note 6).
 
5.  COMMITMENTS AND CONTINGENCIES:
 
  BONUS AWARDS
 
     In June 1996, the Board of Directors granted certain key employees
incentive cash bonus awards for 1996 which are based on the performance of the
Common Stock after the Offering as compared to the performance of each of the
stocks included in the Standard & Poor's 500 Stock Index (the S&P 500). The
amount of each award will be determined by multiplying the officer's annual base
salary by a percentage determined by ranking the Common Stock's price
performance, including reinvested dividends, if any

                                      F-17

                      AMERICAN RESIDENTIAL SERVICES, INC.
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

(Total Stockholder Return), among Total Stockholder Returns of all the stocks in
the S&P 500, as provided in the agreement.

6.  SUBSEQUENT EVENTS:

     ARS effected a 333-for-one-stock split on February 2, 1996, and an
approximately 1.35 for-one-stock split on June 14, 1996 of its common stock for
each share of common stock then outstanding. In addition, on February 2, 1996,
authorized shares were increased from 1,000 to 50,000,000. The effects of the
common stock dividends have been retroactively reflected on the balance sheet
and in the accompanying notes.

     Pursuant to the Company's previous stock option plan, the Company has
granted to its directors, officers and certain key employees (including officers
of the Founding Companies) 10-year options to purchase 645,000 shares of Common
Stock. The Company intends to issue an additional 700,000 options upon
completion of the Offering. Certain of these options will be exchanged for
identical Options under the 1996 Incentive Plan.

     ARS and separate wholly owned subsidiaries have signed definitive
agreements to acquire by merger seven companies (the Founding Companies) to be
effective with the Offering. The companies to be acquired are General Heating
Engineering Company, Inc.; Atlas Services, Inc., and Subsidiary; Enterprise
Holding Company; Florida Heating and Air Conditioning, Inc., and Related
Companies; DIAL ONE Meridian and Hoosier, Inc.; and Climatic Corporation of Vero
Beach. The aggregate consideration that will be paid by ARS to acquire the
Founding Companies is approximately $76.9 million (unaudited) based upon an
estimated offering price of $13 per share (unaudited) consisting of a
combination of cash and common stock.

     On March 19, 1996, the Company issued to Equus II Incorporated a warrant to
purchase 100,000 shares of Common Stock exercisable at the Offering price. The
warrants are exercisable at any time after the closing of the Offering of the
Company until five years from such date. The number of shares represented by the
warrant is subject to adjustment for stock dividends and stock splits.

     Subsequent to December 31, 1995, the Company has incurred additional costs,
including professional fees and travel, associated with the acquisition of the
Founding Companies and the Offering. Accordingly, accrued liabilities and
amounts due to Equus II have increased to approximately $1.0 million as of May
31, 1996. This note and any additional amounts advanced under this note will be
converted into 899,556 shares of ARS Common Stock in connection with the
Offering.

7.  EVENTS SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
    (UNAUDITED):

     The Company has approved the 1996 Incentive Plan (the Plan) which provides
for the granting or awarding of stock options and stock appreciation rights to
officers and other key employees. The number of shares authorized and reserved
for issuance under the Plan is limited to 1,500,000 shares or 15 percent of the
number of shares of Common Stock outstanding on the last day of the preceding
calendar quarter. In general, the terms of the option awards (including vesting
schedules) will be established by the Compensation Committee of the Company's
Board of Directors. In connection with the Offering, the Company intends to
grant options covering an aggregate of 1,345,000 shares of common stock.

     In June 1996, ARS filed a registration statement on Form S-1 for the sale
of its common stock.

                                      F-18

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To General Heating Engineering Company, Inc.:

     We have audited the accompanying balance sheets of General Heating
Engineering Company, Inc. (a Delaware corporation), as of December 31, 1994 and
1995, and the related statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1995. 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 General Heating Engineering
Company, Inc., as of December 31, 1994 and 1995, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Houston, Texas
May 24, 1996

                                      F-19
<PAGE>
                   GENERAL HEATING ENGINEERING COMPANY, INC.
                                 BALANCE SHEETS
<TABLE>
<CAPTION>
                                                DECEMBER 31
                                       ------------------------------    MARCH 31,
                                            1994            1995           1996
                                       --------------  --------------   -----------
                                                                        (UNAUDITED)
<S>                                    <C>             <C>              <C>
               ASSETS
CURRENT ASSETS:
     Cash and cash equivalents.......  $    2,258,467  $    3,369,929   $ 2,474,430
     Investments.....................       2,475,000       2,000,000     2,000,000
     Accounts receivable --
          Trade, net of allowance of
             $159,910, $126,650 and
             $138,169................       4,129,536       3,740,406     3,328,535
          Other receivables..........         129,308          47,588       105,560
     Notes receivable --
          Shareholders...............          92,500         308,139       348,139
          Other......................        --                39,870        39,870
     Inventories.....................       2,375,590       2,215,659     2,613,425
     Prepaid expenses and other
       current assets................          17,331          13,871       181,267
                                       --------------  --------------   -----------
               Total current
                  assets.............      11,477,732      11,735,462    11,091,226
PROPERTY AND EQUIPMENT, net..........       1,941,076       2,100,638     2,097,986
OTHER NONCURRENT ASSETS..............         376,017         483,014       483,669
                                       --------------  --------------   -----------
               Total assets..........  $   13,794,825  $   14,319,114   $13,672,881
                                       ==============  ==============   ===========

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
     Accounts payable and accrued
       expenses......................  $    2,736,479  $    3,248,968   $ 3,130,336
     Unearned revenue on service and
       warranty contracts............         797,820         894,766       848,446
     Billings in excess of costs and
       estimated earnings on
       uncompleted contracts.........         319,323         139,764       145,088
                                       --------------  --------------   -----------
               Total current
                  liabilities........       3,853,622       4,283,498     4,123,870
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
     Common stock, $20 par value,
       5,000 shares authorized, 2,752
       shares issued, 462 shares
       outstanding...................          55,040          55,040        55,040
     Additional paid-in capital......         666,913         666,913       666,913
     Retained earnings...............      10,811,994      10,906,407    10,419,802
     Treasury stock, 2,290 shares at
       cost..........................      (1,592,744)     (1,592,744)   (1,592,744)
                                       --------------  --------------   -----------
               Total shareholders'
                  equity.............       9,941,203      10,035,616     9,549,011
                                       --------------  --------------   -----------
               Total liabilities and
                  shareholders'
                  equity.............  $   13,794,825  $   14,319,114   $13,672,881
                                       ==============  ==============   ===========
</TABLE>
   The accompanying notes are an integral part of these financial statements.
 
                                      F-20
<PAGE>
                   GENERAL HEATING ENGINEERING COMPANY, INC.
                            STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
                                                                                                THREE MONTHS ENDED
                                                    YEAR ENDED DECEMBER 31                           MARCH 31
                                       -------------------------------------------------  ------------------------------
                                            1993             1994             1995             1995            1996
                                       ---------------  ---------------  ---------------  --------------  --------------
                                                                                                   (UNAUDITED)
<S>                                    <C>              <C>              <C>              <C>             <C>           
REVENUES.............................  $    34,642,267  $    36,333,827  $    35,159,389  $    7,650,560  $    7,032,972
COST OF SERVICES.....................       27,393,298       29,927,352       28,866,207       6,400,539       5,871,056
                                       ---------------  ---------------  ---------------  --------------  --------------
     Gross profit....................        7,248,969        6,406,475        6,293,182       1,250,021       1,161,916
SELLING, GENERAL AND ADMINISTRATIVE
  EXPENSES...........................        5,011,270        5,244,776        5,280,402       1,351,114       1,186,344
                                       ---------------  ---------------  ---------------  --------------  --------------
     Income (loss) from operations...        2,237,699        1,161,699        1,012,780        (101,093)        (24,428)
OTHER INCOME:
     Interest income.................          189,223          177,149          299,116          20,613          77,956
     Other...........................            7,891           66,724           58,517          33,336          17,867
                                       ---------------  ---------------  ---------------  --------------  --------------
NET INCOME (LOSS)....................  $     2,434,813  $     1,405,572  $     1,370,413  $      (47,144) $       71,395
                                       ===============  ===============  ===============  ==============  ==============
</TABLE>
   The accompanying notes are an integral part of these financial statements.
 
                                      F-21
<PAGE>
                   GENERAL HEATING ENGINEERING COMPANY, INC.
                       STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
                                         COMMON STOCK       ADDITIONAL                        TREASURY STOCK           TOTAL
                                       -----------------     PAID-IN        RETAINED      -----------------------   SHAREHOLDERS'
                                       SHARES    AMOUNT      CAPITAL        EARNINGS      SHARES       AMOUNT          EQUITY
                                       ------    -------    ----------   --------------   ------   --------------   ------------
<S>                                     <C>      <C>         <C>         <C>              <C>      <C>              <C>         
BALANCE, January 1, 1993.............   2,752    $55,040     $ 648,912   $    9,811,451   (2,290)  $   (1,592,744)  $  8,922,659
     Dividends.......................    --        --           --           (1,744,798)    --           --           (1,744,798)
     Net income......................    --        --           --            2,434,813     --           --            2,434,813
                                       ------    -------    ----------   --------------   ------   --------------   ------------
BALANCE, December 31, 1993...........   2,752     55,040       648,912       10,501,466   (2,290)      (1,592,744)     9,612,674
     Capital contributions...........    --        --           18,001         --           --           --               18,001
     Dividends.......................    --        --           --           (1,095,044)    --           --           (1,095,044)
     Net income......................    --        --           --            1,405,572     --           --            1,405,572
                                       ------    -------    ----------   --------------   ------   --------------   ------------
BALANCE, December 31, 1994...........   2,752     55,040       666,913       10,811,994   (2,290)      (1,592,744)     9,941,203
     Dividends.......................    --        --           --           (1,276,000)    --           --           (1,276,000)
     Net income......................    --        --           --            1,370,413     --           --            1,370,413
                                       ------    -------    ----------   --------------   ------   --------------   ------------
BALANCE, December 31, 1995...........   2,752     55,040       666,913       10,906,407   (2,290)      (1,592,744)    10,035,616
     Dividends (unaudited)...........    --        --           --             (558,000)    --           --             (558,000)
     Net income (unaudited)..........    --        --           --               71,395     --           --               71,395
                                       ------    -------    ----------   --------------   ------   --------------   ------------
BALANCE, March 31, 1996
     (unaudited).....................   2,752    $55,040     $ 666,913   $   10,419,802   (2,290)  $   (1,592,744)  $  9,549,011
                                       ======    =======    ==========   ==============   ======   ==============   ============
</TABLE>
   The accompanying notes are an integral part of these financial statements.
 
                                      F-22
<PAGE>
                   GENERAL HEATING ENGINEERING COMPANY, INC.
                            STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
                                                                                     THREE MONTHS ENDED
                                                YEAR ENDED DECEMBER 31                    MARCH 31
                                       ----------------------------------------  --------------------------
                                           1993          1994          1995          1995          1996
                                       ------------  ------------  ------------  ------------  ------------
                                                                                        (UNAUDITED)
<S>                                    <C>           <C>           <C>           <C>           <C>         
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income (loss)..................  $  2,434,813  $  1,405,572  $  1,370,413  $    (47,144) $     71,395
  Adjustments to reconcile net income
    (loss) to net cash provided by
    (used in) operating activities --
    Depreciation and amortization....       465,076       495,396       508,497       150,000       119,999
    Loss on sale of investments......       --            --             13,626       --            --
    (Gain) loss on sale of property
      and equipment..................         4,811       (38,978)       56,152       --            --
    Changes in operating assets and
      liabilities --
      (Increase) decrease in --
         Accounts receivable.........    (1,427,017)      210,329       470,850       749,377       353,899
         Inventories.................      (416,216)       49,258       159,931      (452,362)     (397,766)
         Prepaid expenses and other
           current assets............       (37,843)       (1,907)        3,460       --           (167,396)
         Other noncurrent assets.....       (83,112)      (22,741)     (106,997)        9,865          (655)
      Increase (decrease) in --
         Accounts payable and accrued
           expenses..................       631,061       143,263       512,489       436,097      (118,632)
         Unearned revenue on service
           and warranty contracts....        17,782        31,739        96,946        23,534       (46,320)
         Billings in excess of costs
           and estimated earnings on
           uncompleted contracts.....      (732,654)     (152,605)     (179,559)      --              5,324
                                       ------------  ------------  ------------  ------------  ------------
           Net cash provided by (used
             in) operating
             activities..............       856,701     2,119,326     2,905,808       869,367      (180,152)
                                       ------------  ------------  ------------  ------------  ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Proceeds from sale of property and
    equipment........................         5,000       112,530        42,533        10,633       --
  Additions of property and
    equipment........................      (941,748)     (786,863)     (766,744)     (293,071)     (117,347)
  Purchase of investments............       --         (2,475,000)   (4,193,948)      --            --
  Proceeds from sale of
    investments......................       --            --          4,655,322       --            --
                                       ------------  ------------  ------------  ------------  ------------
           Net cash used in investing
             activities..............      (936,748)   (3,149,333)     (262,837)     (282,438)     (117,347)
                                       ------------  ------------  ------------  ------------  ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
  (Increase) decrease in notes
  receivable.........................       --            882,500      (255,509)     (166,435)      (40,000)
  Dividends..........................    (1,744,798)   (1,095,044)   (1,276,000)     (514,000)     (558,000)
  Capital contributions..............       --             18,001       --            --            --
                                       ------------  ------------  ------------  ------------  ------------
           Net cash used in financing
             activities..............    (1,744,798)     (194,543)   (1,531,509)     (680,435)     (598,000)
                                       ------------  ------------  ------------  ------------  ------------
NET INCREASE (DECREASE) IN CASH AND
  CASH EQUIVALENTS...................    (1,824,845)   (1,224,550)    1,111,462       (93,506)     (895,499)
CASH AND CASH EQUIVALENTS, beginning
  of period..........................     5,307,862     3,483,017     2,258,467     2,258,467     3,369,929
                                       ------------  ------------  ------------  ------------  ------------
CASH AND CASH EQUIVALENTS, end of
  period.............................  $  3,483,017  $  2,258,467  $  3,369,929  $  2,164,961  $  2,474,430
                                       ============  ============  ============  ============  ============
</TABLE>
   The accompanying notes are an integral part of these financial statements.
 
                                      F-23
 
                   GENERAL HEATING ENGINEERING COMPANY, INC.
                         NOTES TO FINANCIAL STATEMENTS
 
1.  BUSINESS AND ORGANIZATION:
 
     General Heating Engineering Company, Inc. (a Delaware corporation) (the
Company), is primarily engaged in the installation and maintenance, repair and
replacement of air conditioning, heating and fireplace systems in new and
preexisting residential and commercial buildings in Washington, D.C. and the
surrounding area.
 
     The Company and its shareholders intend to enter into a definitive
agreement with American Residential Services, Inc. (ARS), pursuant to which all
outstanding shares of the Company's common stock will be exchanged for cash and
shares of ARS's common stock concurrent with the consummation of the initial
public offering (the Offering) of the common stock of ARS.
 
2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
 
  INTERIM FINANCIAL INFORMATION
 
     The interim financial statements as of March 31, 1996, and for the three
months ended March 31, 1995 and 1996, are unaudited, and certain information and
footnote disclosures, normally included in financial statements prepared in
accordance with generally accepted accounting principles, have been omitted. In
the opinion of management, all adjustments, consisting only of normal recurring
adjustments, necessary to fairly present the financial position, results of
operations and cash flows with respect to the interim financial statements, have
been included. The results of operations for the interim periods are not
necessarily indicative of the results for the entire fiscal year.

  INVENTORIES
 
     Inventories consist of duct materials, air conditioning equipment,
refrigeration supplies and accessories held for use in the ordinary course of
business and are valued at the lower of cost or market using the average cost
method.
 
  PROPERTY AND EQUIPMENT
 
     Property and equipment are recorded at cost, and depreciation is computed
using the straight-line method over the estimated useful lives of assets.
Leasehold improvements are capitalized and amortized over the lesser of the life
of the lease or the estimated useful life of the asset.
 
     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 the services are performed except when
work is being performed under a construction contract. Revenues from the sale of
residential and commercial service and maintenance contracts are recognized over
the life of the contract on a straight-line basis.
 
     Revenues from construction contracts are recognized on the
percentage-of-completion method measured by the percentage of costs incurred to
total estimated costs for each contract. 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
are recognized in the period in which the revisions are determined.
 
                                      F-24
 
                   GENERAL HEATING ENGINEERING COMPANY, INC.
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
 
  WARRANTY COSTS
 
     The Company warrants labor for the first year after installation on new air
conditioning and heating units. A reserve for warranty costs is recorded upon
completion of installation or service.
 
  INCOME TAXES
 
     The Company has elected S Corporation status as defined by the Internal
Revenue Code, whereby the Company is not subject to taxation for federal
purposes. Under S Corporation status, each shareholder reports his share of the
Company's taxable earnings or losses in his personal federal and state tax
returns.
 
  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 assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
 
  CASH AND CASH EQUIVALENTS
 
     The Company considers all highly liquid debt instruments purchased with
original maturities of three months or less to be cash equivalents.

  NEW ACCOUNTING PRONOUNCEMENT

     Effective January 1, 1995, 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, and
intangible 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 is compared to the asset's
carrying amount to determine if a write-down to market value or discounted cash
flow value was necessary. 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 consist of the following:

                                        ESTIMATED            DECEMBER 31
                                       USEFUL LIVES   --------------------------
                                         IN YEARS         1994          1995
                                       ------------   ------------  ------------
Transportation equipment.............     7           $  3,258,907  $  3,376,461
Furniture and fixtures...............     7                159,227       169,453
Leasehold improvements...............     20               800,370       879,938
Machinery and equipment..............     10               858,033       919,393
Computer and telephone equipment.....     5                442,853       467,219
                                                      ------------  ------------
                                                         5,519,390     5,812,464
Less -- Accumulated depreciation and
  amortization.......................                    3,578,314     3,711,826
                                                      ------------  ------------
               Property and
                  equipment, net.....                 $  1,941,076  $  2,100,638
                                                      ============  ============

                                      F-25
<PAGE>
                   GENERAL HEATING ENGINEERING COMPANY, INC.
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

4.  DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:

     Effective January 1, 1994, the Company adopted the provisions of SFAS No.
115, "Accounting for Certain Investments in Debt and Equity Securities."
Adoption of this standard did not materially impact the Company's financial
statements. The following is a summary of investment securities:

                                              DECEMBER 31
                                       --------------------------
                                           1994          1995
                                       ------------  ------------
Certificates of deposit..............  $    --       $  2,000,000
U.S. Treasury notes..................     2,475,000       --
                                       ------------  ------------
                                       $  2,475,000  $  2,000,000
                                       ============  ============

     Activity in the Company's allowance for doubtful accounts consist of the
following:

                                                  DECEMBER 31
                                       ----------------------------------
                                          1993        1994        1995
                                       ----------  ----------  ----------

Balance at beginning of year.........  $  146,848  $  127,443  $  159,910
Additions charged to costs and
expenses.............................      45,996     104,613      71,930
Deductions for uncollectible
  receivables written off............     (67,954)   (103,848)   (127,810)
Bad debt recoveries..................       2,553      31,702      22,620
                                       ----------  ----------  ----------
                                       $  127,443  $  159,910  $  126,650
                                       ==========  ==========  ==========

     Accounts payable and accrued expenses consist of the following:

                                              DECEMBER 31
                                       --------------------------
                                           1994          1995
                                       ------------  ------------
Accounts payable, trade..............  $  1,586,930  $  1,998,941
Accrued compensation and benefits....       823,476       916,013
Warranty accrual.....................       292,895       292,895
Other accrued expenses...............        33,178        41,119
                                       ------------  ------------
                                       $  2,736,479  $  3,248,968
                                       ============  ============

     Installation contracts in progress are as follows:

                                                DECEMBER 31
                                       ------------------------------
                                            1994            1995
                                       --------------  --------------
Costs incurred on contracts in
progress.............................  $   19,975,656  $   18,705,791
Estimated earnings, net of losses....       9,912,429       8,989,404
                                       --------------  --------------
                                           29,888,085      27,695,195
Less -- Billings to date.............      30,207,408      27,834,959
                                       --------------  --------------
Billings in excess of costs and
  estimated earnings on uncompleted
  contracts..........................  $     (319,323) $     (139,764)
                                       ==============  ==============

5.  EMPLOYEE BENEFIT PLANS:

     The Company has adopted a retirement plan which qualifies under Section
401(k) of the Internal Revenue Code. The plan provides for 50 percent matching
contributions by the Company, up to a maximum liability of 1 percent of each
participating employee's annual compensation. The Company has the right to make
additional discretionary contributions. Total contributions by the Company under
this plan to provide

                                      F-26

                   GENERAL HEATING ENGINEERING COMPANY, INC.
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

contributions and pay expenses were approximately $42,000, $67,000 and $78,000
during 1993, 1994 and 1995, respectively. Amounts due to this plan were
approximately $50,000 and $30,000 for the years ended December 31, 1994 and
1995, respectively.

     The Company has also adopted a cafeteria plan pursuant to Section 125 of
the Internal Revenue Code that covers all employees from 90 days after the
commencement of employment. Under this plan, the employees may reduce their
compensation to fund medical or life insurance, dental and short-term disability
benefits. The funds withheld are used to pay actual claims, administrative
expenses and stop-loss insurance protection premiums. Such stop-loss insurance
covers claims to a maximum aggregate liability of $1,000,000 and $35,000 per
participant. For the years ended December 31, 1993, 1994 and 1995, the Company
contributed approximately $57,000, $91,000 and $129,000, respectively, to this
plan in addition to amounts withheld from employees. Contributions due to this
plan were approximately $91,000 and $216,000 for the years ended December 31,
1994 and 1995, respectively.

6.  LEASES:

     The Company conducts a portion of its operations in leased facilities under
operating lease agreements with a company primarily owned by the shareholders.
Total amounts paid under these related-party leases were approximately $261,000,
$387,000 and $384,000 for the years ended December 31, 1993, 1994 and 1995,
respectively. In January 1996, the Company extended each of these leases,
commencing January 1, 1996, for 10 years. The following schedule shows the
future minimum rentals to be made under these leases:

Year ending December 31 --
     1996............................  $    517,281
     1997............................       517,505
     1998............................       531,468
     1999............................       552,728
     2000............................       574,837
     Thereafter......................     3,367,564
                                       ------------
                                       $  6,061,383
                                       ============

7.  RELATED-PARTY TRANSACTIONS:

     The Company has notes receivable from its shareholders in the amounts of
$92,500 and $308,139 as of December 31, 1994 and 1995, respectively. These notes
are unsecured, bear interest at 7 percent per annum and are due upon demand.
Interest income recognized by the Company on these notes during the years ended
December 31, 1994 and 1995, was approximately $1,000 and $12,000, respectively.

8.  COMMITMENTS AND CONTINGENCIES:

  LITIGATION

     The Company is involved in various legal actions arising in the ordinary
course of business. Management does not believe that 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 general
and business auto liability, commercial property, workers' compensation and a
general umbrella policy. The Company has not incurred significant claims or
losses on any of its insurance policies.

  LETTER OF CREDIT

     At December 31, 1995, the Company had an outstanding letter of credit of
$75,000 to secure the purchase of certain inventories.

                                      F-27

                   GENERAL HEATING ENGINEERING COMPANY, INC.
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

9.  SALES TO SIGNIFICANT CUSTOMERS:

     During 1993, 1994 and 1995, one customer accounted for approximately 13
percent, 16 percent and 21 percent, respectively, of the Company's revenue.

10.  EVENTS SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
     (UNAUDITED):

     In June 1996, the Company and its shareholders entered into a definitive
agreement with ARS, providing for the acquisition of the Company by ARS.

     In connection with the acquisition, the Company will distribute certain
assets to the shareholders, consisting of the cash surrender value of life
insurance, with a total carrying value of approximately $462,000, as of March
31, 1996. In addition, prior to the closing of the acquisition, the Company will
make distributions in respect of the Company's estimated S Corporation
accumulated adjustment account at the time of closing. Had these transactions
been recorded at March 31, 1996, the effect on the accompanying balance sheet
would be a decrease in assets of approximately $8,265,000, an increase in
liabilities of $2,022,000 and a decrease in shareholders' equity of $10,287,000.

                                      F-28

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Atlas Services, Inc.:

     We have audited the accompanying consolidated balance sheets of Atlas
Services, Inc. (a South Carolina corporation), and subsidiary as of June 30,
1994 and 1995, and December 31, 1995, and the related consolidated statements of
operations, shareholders' equity and cash flows for each of the three years in
the period ended June 30, 1995, and the year ended December 31, 1995. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

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

     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Atlas Services, Inc., and subsidiary as of June 30, 1994 and 1995, and December
31, 1995, and the consolidated results of their operations and their cash flows
for each of the three years in the period ended June 30, 1995, and the year
ended December 31, 1995, in conformity with generally accepted accounting
principles.

ARTHUR ANDERSEN LLP

Houston, Texas
May 24, 1996

                                      F-29
<PAGE>
                      ATLAS SERVICES, INC., AND SUBSIDIARY
                          CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
                                                JUNE 30
                                       --------------------------   DECEMBER 31,     MARCH 31,
                                           1994          1995           1995            1996
                                       ------------  ------------   ------------    ------------
                                                                                    (UNAUDITED)
<S>                                    <C>           <C>             <C>             <C>
               ASSETS
CURRENT ASSETS:
  Cash and cash equivalents..........  $    204,883  $    383,190    $  241,263      $   533,732
  Accounts receivable --
     Trade, net of allowance of
       $29,989, $39,866, $39,866 and
       $39,866.......................     1,634,219     2,098,213     2,163,990        2,400,744
     Affiliates......................       188,829       178,554       211,939          225,997
  Inventories........................       478,447       474,093       531,819          780,623
  Prepaid expenses and other current
     assets..........................        20,763       112,207       146,283          144,481
  Costs and estimated earnings in
     excess of billings on
     uncompleted contracts...........       323,901       382,653       254,039          273,709
                                       ------------  ------------   ------------    ------------
          Total current assets.......     2,851,042     3,628,910     3,549,333        4,359,286
PROPERTY AND EQUIPMENT, net..........     3,203,143     3,169,128     3,136,363        3,066,004
OTHER NONCURRENT ASSETS..............       280,321       342,776       406,316          425,875
                                       ------------  ------------   ------------    ------------
          Total assets...............  $  6,334,506  $  7,140,814    $7,092,012      $ 7,851,165
                                       ============  ============   ============    ============
       LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
  Current maturities of long-term
     debt............................  $    577,545  $    619,851    $  596,941      $   170,202
  Short-term debt....................       220,807       207,335       209,948          300,000
  Accounts payable and accrued
     expenses........................     2,328,709     2,859,998     2,391,955        2,916,489
  Unearned revenue on service and
     warranty contracts..............       135,487       150,628       162,755          164,492
  Billings in excess of costs and
     estimated earnings on
     uncompleted contracts...........       192,408       355,186       475,731          468,242
                                       ------------  ------------   ------------    ------------
          Total current
             liabilities.............     3,454,956     4,192,998     3,837,330        4,019,425
LONG-TERM DEBT, net of current
  maturities.........................     2,047,763     1,702,324     1,564,309        1,845,054
DEFERRED INCOME TAXES................       150,506       187,806       187,237          193,961
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
  Common stock, $1 par value; 100,000
     shares authorized, 2,254, 2,345
     and 24,303 shares issued and
     outstanding.....................         2,254         2,345        24,303           24,303
  Additional paid-in capital.........        48,011        81,877       105,040          105,040
  Retained earnings..................       631,016       973,464     1,373,793        1,663,382
                                       ------------  ------------   ------------    ------------
          Total shareholders'
             equity..................       681,281     1,057,686     1,503,136        1,792,725
                                       ------------  ------------   ------------    ------------
          Total liabilities and
             shareholders'
             equity..................  $  6,334,506  $  7,140,814    $7,092,012      $ 7,851,165
                                       ============  ============   ============    ============
</TABLE>
  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                      F-30
<PAGE>
                      ATLAS SERVICES, INC., AND SUBSIDIARY
                     CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
                                                                                                    THREE MONTHS ENDED
                                                  YEAR ENDED JUNE 30               YEAR ENDED            MARCH 31
                                       ----------------------------------------   DECEMBER 31,   ------------------------
                                           1993          1994          1995           1995          1995         1996
                                       ------------  ------------  ------------   ------------   -----------  -----------
                                                                                                       (UNAUDITED)
<S>                                    <C>           <C>           <C>            <C>            <C>          <C>
REVENUES.............................  $ 10,209,885  $ 15,625,211  $ 21,228,756   $22,048,103    $ 4,938,607  $ 6,573,201
COST OF SERVICES.....................     8,182,867    12,676,789    17,714,515    17,810,928      3,993,389    5,215,134
                                       ------------  ------------  ------------   ------------   -----------  -----------
    Gross profit.....................     2,027,018     2,948,422     3,514,241     4,237,175        945,218    1,358,067
SELLING, GENERAL AND ADMINISTRATIVE
  EXPENSES...........................     1,760,805     2,421,016     2,985,258     3,021,692        688,215      873,864
                                       ------------  ------------  ------------   ------------   -----------  -----------
    Income from operations...........       266,213       527,406       528,983     1,215,483        257,003      484,203
OTHER INCOME (EXPENSE):
    Interest income..................        12,086        12,742        13,004        16,671        --           --
    Interest expense.................      (189,927)     (129,303)     (143,123)     (134,236)       (53,867)     (41,635)
    Other............................       (27,690)       26,814       165,821        20,327         47,213       42,343
                                       ------------  ------------  ------------   ------------   -----------  -----------
INCOME BEFORE INCOME TAXES...........        60,682       437,659       564,685     1,118,245        250,349      484,911
PROVISION FOR INCOME TAXES...........        24,914       170,478       222,237       434,258        103,720      195,322
                                       ------------  ------------  ------------   ------------   -----------  -----------
NET INCOME...........................  $     35,768  $    267,181  $    342,448    $  683,987    $   146,629  $   289,589
                                       ============  ============  ============   ============   ===========  ===========
</TABLE>
  The accompanying notes are an integral part of these consolidated financial
                                  statements.
<PAGE>
                                      F-31

                      ATLAS SERVICES, INC., AND SUBSIDIARY
                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
                                          COMMON STOCK       ADDITIONAL                      TOTAL
                                        -----------------     PAID-IN       RETAINED     SHAREHOLDERS'
                                        SHARES    AMOUNT      CAPITAL       EARNINGS         EQUITY
                                        ------    -------    ----------    ----------    --------------
<S>                                      <C>      <C>         <C>          <C>             <C>
BALANCE, June 30, 1992...............    2,191    $ 2,191     $  32,611    $  328,067      $  362,869

     Stock issuance..................       30         30         6,850        --               6,880
     Net income......................     --        --           --            35,768          35,768
                                        ------    -------    ----------    ----------    --------------
BALANCE, June 30, 1993...............    2,221      2,221        39,461       363,835         405,517
     Stock issuance..................       33         33         8,550        --               8,583
     Net income......................     --        --           --           267,181         267,181
                                        ------    -------    ----------    ----------    --------------
BALANCE, June 30, 1994...............    2,254      2,254        48,011       631,016         681,281
     Stock issuance..................       91         91        33,866        --              33,957
     Net income......................     --        --           --           342,448         342,448
                                        ------    -------    ----------    ----------    --------------
BALANCE, June 30, 1995...............    2,345    $ 2,345     $  81,877    $  973,464      $1,057,686
                                        ======    =======    ==========    ==========    ==============
BALANCE, December 31, 1994...........    2,345    $ 2,345     $  81,877    $  689,806      $  774,028
     Stock split (10 for 1)..........   21,105     21,105       (21,105)       --             --
     Stock issuance..................      853        853        44,268        --              45,121
     Net income......................     --        --           --           683,987         683,987
                                        ------    -------    ----------    ----------    --------------
BALANCE, December 31, 1995...........   24,303     24,303       105,040     1,373,793       1,503,136
     Net income (unaudited)..........     --        --           --           289,589         289,589
                                        ------    -------    ----------    ----------    --------------
BALANCE, March 31, 1996
  (unaudited)........................   24,303    $24,303     $ 105,040    $1,663,382      $1,792,725
                                        ======    =======    ==========    ==========    ==============
</TABLE>
  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                      F-32
<PAGE>
                      ATLAS SERVICES, INC., AND SUBSIDIARY
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
                                                                                             THREE MONTHS ENDED
                                               YEAR ENDED JUNE 30            YEAR ENDED           MARCH 31
                                       ----------------------------------   DECEMBER 31,   ----------------------
                                          1993        1994        1995          1995          1995        1996
                                       ----------  ----------  ----------   ------------   ----------  ----------
                                                                                                (UNAUDITED)
<S>                                    <C>         <C>         <C>           <C>           <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income.........................  $   35,768  $  267,181  $  342,448    $  683,987    $  146,629  $  289,589
  Adjustments to reconcile net income
   to net cash provided by operating
   activities --
    Depreciation and amortization....     271,683     375,186     501,796       490,554       111,549     128,012
    Deferred income taxes
     (benefit).......................      (1,144)     20,022     (22,265)      (50,894)       (7,432)      6,544
    Loss on sale of property and
     equipment.......................      54,786      --          --           --
    Changes in operating assets and
     liabilities --
      (Increase) decrease in --
         Accounts receivable.........     (13,227)   (822,197)   (453,719)     (505,195)     (168,834)   (250,812)
         Inventories.................    (175,733)   (134,837)      4,354      (139,118)     (182,283)   (248,804)
         Prepaid expenses and other
          current assets.............      13,350      (1,800)    (31,878)        7,150       (40,367)      1,802
         Costs and estimated earnings
          in excess of billings on
          uncompleted contracts......     (27,506)   (276,261)    (58,752)      539,181       292,941     (19,670)
         Other noncurrent assets.....     (62,020)    (63,362)   (101,110)      (66,703)       26,094     (27,571)
      Increase (decrease) in --
         Accounts payable and accrued
          expenses...................     211,091   1,233,347     531,289      (219,215)      241,646     524,534
         Unearned revenue on service
          and warranty contracts.....      49,963      53,271      15,141       (10,274)      (76,399)      1,737
         Billings in excess of costs
          and estimated earnings on
          uncompleted contracts......     (10,909)     51,603     162,778        52,327      (147,461)     (7,489)
                                       ----------  ----------  ----------   ------------   ----------  ----------
             Net cash provided by
              operating activities...     346,102     702,153     890,082       781,800       196,083     397,872
                                       ----------  ----------  ----------   ------------   ----------  ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Proceeds from sale of property and
   equipment.........................     173,037      --          --           --             --          --
  Additions to property and
   equipment.........................    (439,920)   (980,761)   (429,127)     (258,257)     (104,133)    (49,461)
                                       ----------  ----------  ----------   ------------   ----------  ----------
             Net cash used in
              investing activities...    (266,883)   (980,761)   (429,127)     (258,257)     (104,133)    (49,461)
                                       ----------  ----------  ----------   ------------   ----------  ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds of long- and short-term
   debt..............................     478,187     887,990     347,001       442,394        85,205     120,014
  Principal payments of long- and
   short-term debt...................    (513,870)   (529,624)   (663,606)     (843,201)     (202,561)   (175,956)
  Proceeds from stock issuance.......       6,880       8,583      33,957        45,121        --          --
                                       ----------  ----------  ----------   ------------   ----------  ----------
             Net cash provided by
              (used in) financing
              activities.............     (28,803)    366,949    (282,648)     (355,686)     (117,356)    (55,942)
                                       ----------  ----------  ----------   ------------   ----------  ----------
NET INCREASE (DECREASE) IN CASH AND
 CASH EQUIVALENTS....................      50,416      88,341     178,307       167,857       (25,406)    292,469
CASH AND CASH EQUIVALENTS, beginning
 of period...........................      66,126     116,542     204,883        73,406        73,406     241,263
                                       ----------  ----------  ----------   ------------   ----------  ----------
CASH AND CASH EQUIVALENTS, end of
 period..............................  $  116,542  $  204,883  $  383,190    $  241,263    $   48,000  $  533,732
                                       ==========  ==========  ==========   ============   ==========  ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
 INFORMATION:
  Cash paid for --
    Interest.........................  $  286,112  $  210,549  $  225,374    $  177,031    $   50,498  $   41,635
    Income taxes.....................  $   --      $   56,477  $  271,924    $  251,750    $   32,248  $  150,000
</TABLE>
  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                      F-33

                      ATLAS SERVICES, INC., AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
1.  BUSINESS AND ORGANIZATION:
 
     Atlas Services, Inc., (a South Carolina corporation) and subsidiary (the
Company), are primarily engaged in the installation and maintenance, repair and
replacement of plumbing, air conditioning and heating and electrical systems in
new and preexisting residential and commercial buildings throughout South
Carolina.
 
     The Company and its shareholders intend to enter into a definitive
agreement with American Residential Services, Inc. (ARS), pursuant to which all
outstanding shares of the Company's common stock will be exchanged for cash and
shares of ARS's common stock concurrent with the consummation of the initial
public offering (the Offering) of the common stock of ARS.
 
2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
 
  BASIS OF PRESENTATION
 
     The consolidated financial statements include the accounts and results of
operations of Atlas Services, Inc., and its wholly owned subsidiary. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
 
  INTERIM FINANCIAL INFORMATION

     The interim consolidated financial statements as of March 31, 1996, and for
the three months ended March 31, 1995 and 1996, are unaudited, and certain
information and footnote disclosures, normally included in financial statements
prepared in accordance with generally accepted accounting principles, have been
omitted. In the opinion of management, all adjustments, consisting only of
normal recurring adjustments, necessary to fairly present the financial
position, results of operations and cash flows with respect to the consolidated
interim financial statements, have been included. The results of operations for
the interim periods are not necessarily indicative of the results for the entire
fiscal year.
 
  INVENTORIES
 
     Inventories consist of parts and supplies held for use in the ordinary
course of business and are valued at the lower of cost or market using the
weighted-average method.
 
  PROPERTY AND EQUIPMENT
 
     Property and equipment are recorded 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.
 
     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 or 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.
 
     Included in property and equipment are certain assets subject to capital
leases. These assets are amortized using the straight-line method over the
lesser of the life of the leases or the estimated useful life of the asset.
 
  REVENUE RECOGNITION
 
     The Company recognizes revenue when the services are performed except when
work is being performed under a construction contract. Revenues on residential
and commercial service and maintenance contracts are recorded and collected
monthly. Revenues from sales of extended warranties are recognized over the life
of the contract on a straight-line basis.
 
                                      F-34

                      ATLAS SERVICES, INC., AND SUBSIDIARY
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     Revenues from construction contracts are recognized on the
percentage-of-completion method measured by the percentage of costs incurred to
total estimated costs for each contract. 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
are recognized in the period in which the revisions are determined.
 
  WARRANTY COSTS
 
     The Company warrants labor for the first year after installation on new air
conditioning and heating units. The Company generally warrants labor for 30 days
after servicing of existing air conditioning and heating units. A reserve for
warranty costs is recorded upon completion of installation or service.
 
  INCOME TAXES
 
     The Company follows the liability method of accounting for income taxes in
accordance with Statement of Financial Accounting Standards (SFAS) No. 109.
Under this method, deferred income taxes are recorded based upon differences
between the financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
underlying assets or liabilities are recovered or settled.
 
  STOCK-SPLIT
 
     During 1995, the Company effected a ten-for-one stock split of the
Company's Common Stock.
 
  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 assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
 
  CASH AND CASH EQUIVALENTS
 
     The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.
 
  NEW ACCOUNTING PRONOUNCEMENT
 
     Effective January 1, 1995, 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, and intangible 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 is
compared to the asset's carrying amount to determine if a write-down to market
value or discounted cash flow value was necessary. Adoption of this standard did
not have a material effect on the financial position or results of operations of
the Company.
 
                                      F-35
 
                      ATLAS SERVICES, INC., AND SUBSIDIARY
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
3.  PROPERTY AND EQUIPMENT:
 
     Property and equipment consist of the following:
<TABLE>
<CAPTION>
                                         ESTIMATED              JUNE 30
                                        USEFUL LIVES   --------------------------   DECEMBER 31,
                                          IN YEARS         1994          1995           1995
                                        ------------   ------------  ------------   ------------
<S>                                        <C>         <C>           <C>             <C>        
Land and land improvements...........        --        $    508,129  $    508,129    $   508,129
Buildings and leasehold
improvements.........................        40           1,387,578     1,396,235      1,387,599
Transportation equipment.............        5            1,703,373     1,955,070      2,068,795
Machinery and equipment..............      5 - 7            591,299       666,548        738,347
Furniture and fixtures...............      5 - 10           233,373       290,961        313,025
                                                       ------------  ------------   ------------
                                                          4,423,752     4,816,943      5,015,895
Less -- Accumulated depreciation.....                     1,220,609     1,647,815      1,879,532
                                                       ------------  ------------   ------------
          Property and equipment,
             net.....................                  $  3,203,143  $  3,169,128    $ 3,136,363
                                                       ============  ============   ============
</TABLE>
 
4.  DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
 
     Activity in the Company's allowance for doubtful accounts consist of the
following:
<TABLE>
<CAPTION>
                                                    JUNE 30
                                       ----------------------------------   DECEMBER 31,
                                          1993        1994        1995          1995
                                       ----------  ----------  ----------   ------------
                                                                
<S>                                    <C>         <C>         <C>            <C>     
Balance at beginning of year.........  $        0  $        0  $   29,989     $ 29,989
Additions charged to costs and
  expenses...........................      79,128      84,119      45,952       40,381
Deductions for uncollectible
  receivables
  written off........................     (79,128)    (54,130)    (36,075)     (30,504)
                                       ----------  ----------  ----------   ------------
                                       $        0  $   29,989  $   39,866     $ 39,866
                                       ==========  ==========  ==========   ============
</TABLE>
     Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
                                                JUNE 30
                                       --------------------------     DECEMBER 31,
                                           1994          1995             1995
                                       ------------  ------------     ------------
<S>                                    <C>           <C>               <C>       
Accounts payable, trade..............  $  1,707,084  $  2,113,376      $1,600,736
Accrued compensation and benefits....       369,780       236,780         224,767
Accrued insurance....................        98,456       257,741         269,135
Other accrued expenses...............       153,389       252,101         297,317
                                       ------------  ------------     ------------
                                       $  2,328,709  $  2,859,998      $2,391,955
                                       ============  ============     ============
</TABLE>
     Installation contracts in progress are as follows:
<TABLE>
<CAPTION>
                                                JUNE 30
                                       --------------------------     DECEMBER 31,
                                           1994          1995             1995
                                       ------------  ------------     ------------
<S>                                    <C>           <C>               <C>
Costs incurred on contracts in
  progress...........................  $  1,293,427  $  2,592,291      $2,411,212
Estimated earnings, net of losses....       586,972       719,579       1,077,841
                                       ------------  ------------     ------------
                                          1,880,399     3,311,870       3,489,053
Less -- Billings to date.............     1,748,906     3,284,403       3,710,745
                                       ------------  ------------     ------------
                                       $    131,493  $     27,467      $ (221,692)
                                       ============  ============     ============
</TABLE>
                                      F-36
 
                      ATLAS SERVICES, INC., AND SUBSIDIARY
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     The following are included in the accompanying balance sheets under the
following captions:
                                               JUNE 30
                                       ------------------------   DECEMBER 31,
                                          1994         1995           1995
                                       -----------  -----------   ------------
                                                         
Costs and estimated earnings in
  excess of billings on uncompleted
  contracts..........................  $   323,901  $   382,653    $  254,039
Billings in excess of costs and
  estimated earnings on uncompleted
  contracts..........................     (192,408)    (355,186)     (475,731)
                                       -----------  -----------   ------------
                                       $   131,493  $    27,467    $ (221,692)
                                       ===========  ===========   ============

5.  SHORT- AND LONG-TERM DEBT:
 
     Short-term debt consists of a revolving line of credit payable to a bank,
due July 21, 1996, with interest due monthly at 9.375 percent and is secured by
accounts receivable and inventory. The amounts outstanding as of June 30, 1994
and 1995, and December 31, 1995, are $220,807, $207,335 and $209,948,
respectively.
 
     Long-term debt consists of the following:

                                                JUNE 30
                                       --------------------------   DECEMBER 31,
                                           1994          1995           1995
                                       ------------  ------------   ------------
Mortgage note payable to a bank, with
  monthly installments of $8,056
  principal plus interest at 7.25%,
  secured by real estate and life
  insurance policies, due December
  1998...............................  $  1,401,667  $  1,305,000    $1,256,666

Mortgage note payable to a bank, with
  monthly installments of $1,000
  principal plus interest at prime
  plus 1.25% (9.75% at December 31,
  1995), secured by real estate, due
  May 1997...........................       103,400        93,400        87,977

Mortgage note payable to a bank, with
  monthly installments of $581,
  bearing interest at 9.5%, secured
  by real estate, due June 2017......        56,775        56,173        53,185

Transportation equipment notes
  payable and capitalized leases,
  with monthly installments totaling
  $48,255, due from July 1994 to
  January 1998, bearing interest from
  5.9% to 13.3%, secured by
  transportation equipment...........       816,486       675,929       574,953

Note payable on equipment, with
  monthly installments of $2,083
  principal plus interest at prime
  plus 1.50% (10% at December 31,
  1995), secured by equipment, due
  June 1998..........................       100,000        75,000        62,500

Other................................       146,980       116,673       125,969
                                       ------------  ------------   ------------
                                          2,625,308     2,322,175     2,161,250
Less -- Current maturities...........       577,545       619,851       596,941
                                       ------------  ------------   ------------
                                       $  2,047,763  $  1,702,324    $1,564,309
                                       ============  ============   ============
 
                                      F-37

                      ATLAS SERVICES, INC., AND SUBSIDIARY
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     The aggregate maturities of long-term debt as of December 31, 1995, are as
follows:
                                   
Year ending December 31 --
     1996............................  $     596,941
     1997............................        334,907
     1998............................        158,688
     1999............................        110,343
     2000............................        109,567
     Thereafter......................        850,804
                                       -------------
                                       $   2,161,250
                                       =============

     Management estimates that the fair value of its debt obligations
approximates the historical value of $2,371,198 at December 31, 1995.
 
6.  RETIREMENT PLANS:
 
     The Company has a defined contribution profit-sharing plan covering
substantially all employees. The Company's contribution for each of the years
ended June 30, 1993, 1994 and 1995, and December 31, 1995, amounted to
approximately $25,000, $35,000, $30,000 and $21,000, respectively.
 
7.  LEASES:
 
     The Company leases four facilities under noncancelable leases, which expire
in January 1998, January 2005, May 2005 and February 2006. Rental expense for
the years ended June 30, 1993, 1994 and 1995, and December 31, 1995, was
approximately $44,000, $72,000, $127,000 and $174,000, respectively. Included in
these amounts are rent expenses and commissions paid to related parties of $0,
$2,000, $39,000 and $82,000 for the years ended June 30, 1993, 1994 and 1995,
and December 31, 1995, respectively. The following represents future minimum
rental payments under noncancelable operating leases:
                                    
Year ending December 31 --
     1996............................  $     259,577
     1997............................        266,680
     1998............................        230,187
     1999............................        228,600
     2000............................        228,600
     Thereafter......................      1,045,550
                                       -------------
                                       $   2,259,194
                                       =============
 
     The Company leases certain owned facilities under three noncancelable
leases to third parties, which expire in September 1997, October 1998 and
November 2000. The following represents future minimum rental income under
noncancelable leases:
                                    
Year ending December 31 --
     1996............................  $     167,250
     1997............................        148,500
     1998............................         83,875
     1999............................         42,000
     2000............................         38,500
                                       -------------
                                       $     480,125
                                       =============
 
                                      F-38
 
                      ATLAS SERVICES, INC., AND SUBSIDIARY
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
8.  INCOME TAXES:
 
     Federal and state income taxes are as follows:
<TABLE>
<CAPTION>
                                               YEAR ENDED JUNE 30              YEAR ENDED
                                       -----------------------------------    DECEMBER 31,
                                         1993        1994         1995            1995
                                       ---------  -----------  -----------    ------------
<S>                                    <C>        <C>          <C>              <C>     
Federal --
     Current.........................  $  23,106  $   129,390  $   215,040      $419,486
     Deferred........................     (3,107)      18,236      (19,913)      (43,440)
State --
     Current.........................      2,952       21,066       29,462        65,666
     Deferred........................      1,963        1,786       (2,352)       (7,454)
                                       ---------  -----------  -----------    ------------
                                       $  24,914  $   170,478  $   222,237      $434,258
                                       =========  ===========  ===========    ============
</TABLE>
     Actual income tax expense differs from income tax expense computed by
applying the U.S. federal statutory corporate tax rate of 34 percent to income
before income tax as follows:
<TABLE>
<CAPTION>
                                               YEAR ENDED JUNE 30              YEAR ENDED
                                       -----------------------------------    DECEMBER 31,
                                         1993        1994         1995            1995
                                       ---------  -----------  -----------    ------------
<S>                                    <C>        <C>          <C>              <C>     
Tax provision at the statutory
  rate...............................  $  20,632  $   148,804  $   191,993      $380,203
Increase (decrease) resulting from --
     State income tax, net of benefit
        for federal deduction........      3,244       15,081       17,892        38,420
     Nondeductible expenses..........      5,272       14,264       33,308        29,088
     Other...........................     (4,234)      (7,671)     (20,956)      (13,453)
                                       ---------  -----------  -----------    ------------
                                       $  24,914  $   170,478  $   222,237      $434,258
                                       =========  ===========  ===========    ============
</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:

                                                JUNE 30
                                       --------------------------   DECEMBER 31,
                                          1994          1995            1995
                                       -----------  -------------   ------------
                                                           
Accruals and reserves not deductible
  until paid.........................  $   (65,224) $    (127,289)   $ (180,124)
Depreciation and amortization........      157,365        196,365       195,771
Other................................       42,609         43,409        45,944
                                       -----------  -------------   ------------
           Total deferred income tax
             liabilities.............  $   134,750  $     112,485    $   61,591
                                       ===========  =============   ============
 
                                      F-39
 
                      ATLAS SERVICES, INC., AND SUBSIDIARY
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     The net deferred tax assets and liabilities are comprised of the following:

                                                JUNE 30
                                       --------------------------   DECEMBER 31,
                                          1994          1995            1995
                                       -----------  -------------   ------------
                                                           
Deferred tax assets --
     Current.........................  $   (79,907) $    (163,948)   $ (235,433)
     Long-term.......................       (1,865)        (1,865)       (6,723)
                                       -----------  -------------   ------------
           Total.....................      (81,772)      (165,813)     (242,156)
                                       -----------  -------------   ------------
Deferred tax liabilities --
     Current.........................       64,151         88,627       109,787
     Long-term.......................      152,371        189,671       193,960
                                       -----------  -------------   ------------
           Total.....................      216,522        278,298       303,747
                                       -----------  -------------   ------------
           Net deferred income tax
             liabilities.............  $   134,750  $     112,485    $   61,591
                                       ===========  =============   ============

9.  RELATED-PARTY TRANSACTIONS:
 
     The Company has a receivable from its majority shareholder in the amount of
approximately $172,000, $171,000 and $195,000 as of June 30, 1994 and 1995, and
December 31, 1995, respectively. This receivable accrues interest at 8 percent.
Interest income recognized during the years ended June 30, 1993, 1994 and 1995,
and December 31, 1995, was approximately $10,000, $13,000, $13,000 and $17,000,
respectively.
 
10.  COMMITMENTS AND CONTINGENCIES:
 
  LITIGATION
 
     The Company is involved in legal actions arising in the ordinary course of
business. Management does not believe that the outcome of such legal actions
will have a material adverse effect on the Company's financial position or
consolidated results of operations.
 
  INSURANCE

     The Company carries a broad range of insurance coverage, including general
and business auto liability, commercial property, workers' compensation and a
general umbrella policy. The Company has not incurred significant claims or
losses on any of its insurance policies.
 
11.  SALES TO SIGNIFICANT CUSTOMERS:
 
     During the years ended June 30, 1993 and 1995, one customer accounted for
approximately 11 percent, and 11 percent, respectively, of the Company's
revenue.
 
12.  EVENTS SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
     (UNAUDITED):
 
     In June 1996, the Company and its shareholders entered into a definitive
agreement with ARS, providing for the acquisition of the Company by ARS.
 
     In connection with the acquisition, the Company will distribute certain
assets to the shareholders, consisting of cash surrender value of life insurance
and equipment net of distributed liabilities, with a total net carrying value of
approximately $124,000 and $14,000 as of March 31, 1996. Had these transactions
been recorded at March 31, 1996, the effect on the accompanying balance sheet
would be a decrease in assets of appproximately $194,000, liabilities of $56,000
and shareholders' equity of $138,000.
 
                                      F-40

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
 
To Service Enterprises, Inc.:
 
     We have audited the accompanying consolidated balance sheets of Service
Enterprises, Inc. (a Texas corporation), and subsidiaries as of December 31,
1994 and 1995, and the related consolidated statements of operations,
shareholder's equity and cash flows for each of the three years in the period
ended December 31, 1995. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
 
     We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
 
     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Service Enterprises, Inc., and subsidiaries as of December 31, 1994 and 1995,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles.
 
ARTHUR ANDERSEN LLP
 
Houston, Texas
May 24, 1996
 
                                      F-41
 
                  SERVICE ENTERPRISES, INC., AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS

                                              DECEMBER 31
                                       --------------------------    MARCH 31,
                                           1994          1995          1996
                                       ------------  ------------   -----------
                                                                    (UNAUDITED)
               ASSETS
                                                           
CURRENT ASSETS:
     Cash and cash equivalents.......  $  1,093,394  $  2,100,996   $   372,144
     Certificates of deposit.........     1,100,000     1,100,000       --
     Accounts receivable --
          Trade, net of allowance of
             $53,257, $58,575 and
             $58,575.................       340,961       411,139       363,323
          Shareholder and
             affiliates..............       278,187        10,308     2,123,616
          Other receivables..........        53,780        59,737        73,391
     Inventories.....................       632,614       737,495       832,141
     Prepaid expenses and other
       current assets................       194,038       251,941       249,442
                                       ------------  ------------   -----------
               Total current
                  assets.............     3,692,974     4,671,616     4,014,057
PROPERTY AND EQUIPMENT, net..........       988,147     1,277,677     1,184,145
OTHER NONCURRENT ASSETS..............       185,333       193,333       195,333
                                       ------------  ------------   -----------
               Total assets..........  $  4,866,454  $  6,142,626   $ 5,393,535
                                       ============  ============   ===========
 
LIABILITIES AND SHAREHOLDER'S EQUITY
                                                           
CURRENT LIABILITIES:
     Current maturities of long-term
       debt..........................       --            129,000       --
     Short-term debt.................  $    620,312  $    251,562   $   --
     Accounts payable and accrued
       expenses......................       672,082       890,945       904,443
                                       ------------  ------------   -----------
               Total current
                  liabilities........     1,292,394     1,271,507       904,443
LONG-TERM DEBT, net of current
  maturities.........................       --            366,451       --
DEFERRED INCOME TAXES................       130,367       114,133       114,133
COMMITMENTS AND CONTINGENCIES
SHAREHOLDER'S EQUITY:
     Preferred stock, $.01 par;
       1,000,000 shares authorized,
       none issued...................       --            --            --
     Common stock, $.01 stated value;
       2,000,000, 50,000,000 and
       50,000,000 shares authorized,
       2,000,000, 14,000,000 and
       14,000,000 issued and
       outstanding...................        20,000       140,000       140,000
     Additional paid-in capital......     1,205,760     1,085,760     1,085,760
     Retained earnings...............     2,217,933     3,164,775     3,149,199
                                       ------------  ------------   -----------
               Total shareholder's
                  equity.............     3,443,693     4,390,535     4,374,959
                                       ------------  ------------   -----------
               Total liabilities and
                  shareholder's
                  equity.............  $  4,866,454  $  6,142,626   $ 5,393,535
                                       ============  ============   ===========
 
  The accompanying notes are an integral part of these consolidated financial
                                  statements.
 
                                      F-42
 
                  SERVICE ENTERPRISES, INC., AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
                                                                                               THREE MONTHS
                                                   YEAR ENDED DECEMBER 31                     ENDED MARCH 31
                                       ----------------------------------------------   --------------------------
                                            1993            1994            1995           1995           1996
                                       --------------  --------------  --------------   -----------    -----------
                                                                                                (UNAUDITED)
<S>                                    <C>             <C>             <C>              <C>            <C>        
REVENUES.............................  $   16,268,452  $   16,843,520  $   19,123,858   $ 3,555,446    $ 4,152,017
COST OF SERVICES.....................      10,331,520      10,314,231      11,333,228     2,155,171      2,643,026
                                       --------------  --------------  --------------   -----------    -----------
     Gross profit....................       5,936,932       6,529,289       7,790,630     1,400,275      1,508,991
SELLING, GENERAL AND ADMINISTRATIVE
  EXPENSES...........................       5,698,182       5,836,643       6,164,598     1,347,708      1,519,226
                                       --------------  --------------  --------------   -----------    -----------
     Income (loss) from operations...         238,750         692,646       1,626,032        52,567        (10,235)
OTHER INCOME (EXPENSE):
     Interest income.................         149,124          93,370         119,074        23,506         15,957
     Interest expense................        (158,943)        (76,544)        (58,065)      (14,401)       (16,248)
     Equity in losses of
       unconsolidated affiliate......        (130,022)        (61,751)       --             --             --
     Other...........................        (661,414)        156,796         (10,546)       (1,490)        (9,220)
                                       --------------  --------------  --------------   -----------    -----------
INCOME (LOSS) BEFORE INCOME TAXES....        (562,505)        804,517       1,676,495        60,182        (19,746)
PROVISION (BENEFIT) FOR INCOME
  TAXES..............................        (215,106)        589,241         629,653        23,298         (4,170)
                                       --------------  --------------  --------------   -----------    -----------
NET INCOME (LOSS)....................  $     (347,399) $      215,276  $    1,046,842   $    36,884    $   (15,576)
                                       ==============  ==============  ==============   ===========    ===========
</TABLE>
  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                      F-43

                  SERVICE ENTERPRISES, INC., AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
                                             COMMON STOCK         ADDITIONAL                      TOTAL
                                        ----------------------     PAID-IN       RETAINED     SHAREHOLDER'S
                                          SHARES       AMOUNT      CAPITAL       EARNINGS         EQUITY
                                        ----------    --------    ----------    ----------    --------------
<S>                                     <C>           <C>         <C>           <C>             <C>
BALANCE, December 31, 1992...........    2,000,000    $ 20,000    $  982,010    $2,650,056      $3,652,066

     Net loss........................       --           --           --          (347,399)       (347,399)
                                        ----------    --------    ----------    ----------    --------------
BALANCE, December 31, 1993...........    2,000,000      20,000       982,010     2,302,657       3,304,667
     Capital contribution............       --           --          223,750        --             223,750
     Dividend........................       --           --           --          (300,000)       (300,000)
     Net income......................       --           --           --           215,276         215,276
                                        ----------    --------    ----------    ----------    --------------
BALANCE, December 31, 1994...........    2,000,000      20,000     1,205,760     2,217,933       3,443,693
     Dividend........................       --           --           --          (100,000)       (100,000)
     Stock split (7 for 1)...........   12,000,000     120,000      (120,000)       --             --
     Net income......................       --           --           --         1,046,842       1,046,842
                                        ----------    --------    ----------    ----------    --------------
BALANCE, December 31, 1995...........   14,000,000     140,000     1,085,760     3,164,775       4,390,535
     Net loss (unaudited)............       --           --           --           (15,576)        (15,576)
                                        ----------    --------    ----------    ----------    --------------
BALANCE, March 31, 1996
  (unaudited)........................   14,000,000    $140,000    $1,085,760    $3,149,199      $4,374,959
                                        ==========    ========    ==========    ==========    ==============
</TABLE>
  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                      F-44

                  SERVICE ENTERPRISES, INC., AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
                                                                                      THREE MONTHS
                                               YEAR ENDED DECEMBER 31                ENDED MARCH 31
                                       ---------------------------------------   -----------------------
                                           1993          1994         1995         1995          1996
                                       ------------  ------------  -----------   ---------    ----------
                                                                                       (UNAUDITED)
<S>                                    <C>           <C>           <C>           <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income (loss)..................  $   (347,399) $    215,276  $ 1,046,842   $  36,884    $  (15,576)
  Adjustments to reconcile net income
    (loss) to net cash provided by
    operating activities --
    Depreciation and amortization....       328,882       364,708      371,402      82,558        93,532
    Deferred income taxes
    (benefit)........................      (233,911)       55,319        7,309      --            --
    Equity in losses of
      unconsolidated affiliate.......       130,022        61,751      --           --            --
    Loss on sale of real estate......       475,159        18,114      --           --            --
    Gain on sale of property and
      equipment......................       (99,629)      (21,069)     (13,699)     --            --
    Gain on sale of investment.......       --           (219,125)     --           --            --
    Changes in operating assets and
      liabilities --
      (Increase) decrease in --
         Accounts receivable.........        59,245       (51,248)     (76,135)     98,071        34,162
         Inventories.................         3,113       158,356     (104,881)   (153,073)      (94,646)
         Prepaid expenses and other
           current assets............        50,525        72,648      (89,446)   (240,528)          499
      Increase (decrease) in --
         Accounts payable and accrued
           expenses..................        85,821        11,014      218,863     469,611        13,498
                                       ------------  ------------  -----------   ---------    ----------
           Net cash provided by
             operating activities....       451,828       665,744    1,360,255     293,523        31,469
                                       ------------  ------------  -----------   ---------    ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Proceeds from sale of real
    estate...........................       --            978,727      --           --            --
  Proceeds from sale of property and
    equipment........................       115,906        38,628       24,793      --            --
  Additions of property and
    equipment........................      (861,640)     (233,903)    (672,026)     --            --
  (Purchase) sale of certificates of
    deposit..........................       --         (1,100,000)     --           --         1,100,000
  Proceeds from sale of investment...       --            450,961      --           --
  Purchase of marketable
    securities.......................       --           (110,188)     --           --            --
  Proceeds from note receivable......       --            100,000      --           --            --
                                       ------------  ------------  -----------   ---------    ----------
           Net cash provided by (used
             in) investing
             activities..............      (745,734)      124,225     (647,233)     --         1,100,000
                                       ------------  ------------  -----------   ---------    ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
  (Advances) payments of receivable
    from shareholder and
    affiliates.......................      (558,319)    1,636,469      267,879    (184,852)   (2,113,308)
  Borrowings of long- and short-term
    debt.............................     1,804,649       137,500      495,451      --            --
  Principal payments of long- and
    short-term debt..................    (1,006,266)   (1,495,266)    (368,750)    (97,187)     (747,013)
  Dividends..........................       --           (300,000)    (100,000)     --            --
  Capital contribution...............       --            223,750      --           --            --
                                       ------------  ------------  -----------   ---------    ----------
           Net cash provided by (used
             in) financing
             activities..............       240,064       202,453      294,580    (282,039)   (2,860,321)
                                       ------------  ------------  -----------   ---------    ----------
NET INCREASE (DECREASE) IN CASH AND
  CASH EQUIVALENTS...................       (53,842)      992,422    1,007,602      11,484    (1,728,852)
CASH AND CASH EQUIVALENTS, beginning
  of period..........................       154,814       100,972    1,093,394   1,093,394     2,100,996
                                       ------------  ------------  -----------   ---------    ----------
CASH AND CASH EQUIVALENTS, end of
  period.............................  $    100,972  $  1,093,394  $ 2,100,996   $1,104,878   $  372,144
                                       ============  ============  ===========   =========    ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
  INFORMATION:
  Cash paid for --
    Interest.........................  $     98,522  $     78,294  $    61,230   $  14,401    $   23,399
    Income taxes.....................  $    135,000  $    220,951  $   540,000   $  --        $   10,000
</TABLE>
  The accompanying notes are an integral part of these consolidated financial
                                  statements.
 
                                      F-45
 
                  SERVICE ENTERPRISES, INC., AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
1.  BUSINESS AND ORGANIZATION:
 
     Service Enterprises, Inc. (SEI) (a Texas corporation), and subsidiaries
(the Company) are primarily engaged in the maintenance, repair and replacement
service-related activities of plumbing, air conditioning, electrical repair and
other home improvement services in Houston and the surrounding areas.
 
     On March 19, 1996, all of the outstanding stock of SEI and certain real
estate owned by the former shareholder of SEI was acquired by Enterprise Holding
Company (EHC) for $17,500,000. EHC was formed solely for the purpose of
acquiring the Company and has no other operations. The accompanying unaudited
financial statements of the Company for the quarter ended March 31, 1996, do not
reflect the effect of the purchase of the Company by EHC.
 
     In April 1996, the Company entered into a stock purchase agreement with
ADCOT, Inc. (ADCOT), to purchase all of the outstanding common stock of ADCOT
for $2,000,000. (See ADCOT's financial statements included elsewhere herein.)
EHC intends to enter into a definitive agreement with American Residential
Services, Inc. (ARS), pursuant to which EHC will be acquired by ARS. All
outstanding shares of EHC's common stock and a portion of EHC's preferred stock
will be exchanged for cash and shares of ARS's common stock concurrent with the
consummation of the initial public offering of the common stock of ARS.
 
2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
 
  BASIS OF PRESENTATION
 
     The consolidated financial statements include the accounts and results of
operations of Service Enterprises, Inc., and its wholly owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
 
  INTERIM FINANCIAL INFORMATION
 
     The interim consolidated financial statements as of March 31, 1996, and for
the three months ended March 31, 1995 and 1996, are unaudited, and certain
information and footnote disclosures, normally included in financial statements
prepared in accordance with generally accepted accounting principles, have been
omitted. In the opinion of management, all adjustments, consisting only of
normal recurring adjustments, necessary to fairly present the financial
position, results of operations and cash flows with respect to the consolidated
interim financial statements, have been included. The results of operations for
the interim periods are not necessarily indicative of the results for the entire
fiscal year.
 
  INVENTORIES
 
     Inventories consist of parts and supplies held for use in the ordinary
course of business and are valued at the lower of cost or market using the
first-in, first-out (FIFO) method.
 
  PROPERTY AND EQUIPMENT
 
     Property and equipment are recorded 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
lease life or the estimated useful life of the asset.
 
     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.
 
                                      F-46
 
                  SERVICE ENTERPRISES, INC., AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
  REVENUE RECOGNITION
 
     The Company recognizes revenues when services are performed.
 
  INCOME TAXES
 
     The Company follows the liability method of accounting for income taxes in
accordance with Statement of Financial Accounting Standards (SFAS) No. 109.
Under this method, deferred income taxes are recorded based upon differences
between the financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
underlying assets or liabilities are recovered or settled.
 
  STOCK SPLIT
 
     During 1994, the Company effected a seven-for-one stock split of Company
Common Stock.
 
  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 assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
 
  CASH AND CASH EQUIVALENTS
 
     The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.
 
  NEW ACCOUNTING PRONOUNCEMENT
 
     Effective January 1, 1995, 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, and intangible 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 is
compared to the asset's carrying amount to determine if a write-down to market
value or discounted cash flow value is necessary. Adoption of this standard did
not have a material effect on the financial position or consolidated results of
operations of the Company.
 
3.  PROPERTY AND EQUIPMENT:
 
     Property and equipment consist of the following:
<TABLE>
<CAPTION>
                                          ESTIMATED            DECEMBER 31
                                        USEFUL LIVES    --------------------------
                                          IN YEARS          1994          1995
                                        -------------   ------------  ------------
<S>                                        <C>          <C>           <C>         
Leasehold improvements...............      5 - 10       $    140,983  $    140,333
Transportation equipment.............         5            1,357,588     1,930,724
Tools and equipment..................       3 - 7            182,797       181,893
Telephone equipment..................       5 - 7            230,582       181,886
Furniture and fixtures...............       3 - 7            509,423       453,034
                                                        ------------  ------------
                                                           2,421,373     2,887,870
Less -- Accumulated depreciation and
amortization.........................                      1,433,226     1,610,193
                                                        ------------  ------------
          Property and equipment,
             net.....................                   $    988,147  $  1,277,677
                                                        ============  ============
</TABLE>
 
4.  INVESTMENT IN AFFILIATED COMPANY:
 
     During July 1994, the Company sold a portion of its investment in American
Natural Gas Power, Inc. (ANGP), for $225,000 and an unsecured
noninterest-bearing note receivable for $35,000 due on demand or, if no demand
is made, due in June 1996. After the sale, the Company's interest in ANGP
decreased from approximately 33 percent at December 31, 1993, to approximately 8
percent at December 31, 1994, and
 
                                      F-47
 
                  SERVICE ENTERPRISES, INC., AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
accordingly is no longer accounted for under the equity method. Included in
other income is a net realized gain on sale of $228,353 for the year ended
December 31, 1994.
 
5.  NOTE RECEIVABLE:
 
     In January 1994, the Company sold an investment in real estate to an
individual. The consideration included a note receivable for $300,000,
collateralized by a second lien on the real estate, which bears interest at 4
percent, payable monthly, with principal due January 1999.
 
     In the event that the aggregate of all principal payments made on or before
the third anniversary of this note, January 25, 1997, equals $200,000, this note
shall be discounted such that the note is fully discharged by the prepayment of
such $200,000 within the initial three-year period. This note has been recorded
at its prepayment value of $200,000, discounted to a market rate of interest,
and is included in other noncurrent assets on the accompanying consolidated
balance sheet.
 
     Management estimates that the fair value of its note receivable
approximates its discounted historical carrying value of $193,000 at December
31, 1995.
 
6.  DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
 
     Activity in the Company's allowance for doubtful accounts consist of the
following:
                                                 DECEMBER 31
                                       -------------------------------
                                         1993       1994       1995
                                       ---------  ---------  ---------
                                                    
Balance at beginning of year.........     22,000  $  38,080  $  53,257
Additions charged to costs and
  expenses...........................     36,429     55,407     46,996
Deductions for uncollectible
  receivables written off............    (24,118)   (54,212)   (53,495)
Bad debt recoveries..................      3,769     13,982     11,817
                                       ---------  ---------  ---------
                                       $  38,080  $  53,257  $  58,575
                                       =========  =========  =========

     Accounts payable and accrued expenses consist of the following:
 
                                            DECEMBER 31
                                       ----------------------
                                          1994        1995
                                       ----------  ----------
                                             
Accounts payable, trade..............  $  303,280  $  507,810
Accrued compensation and benefits....     120,501     143,708
Accrued income taxes.................      29,809      71,781
Accrued taxes other than income
taxes................................     146,389     131,388
Other accrued expenses...............      72,103      36,258
                                       ----------  ----------
                                       $  672,082  $  890,945
                                       ==========  ==========
 
7.  SHORT- AND LONG-TERM DEBT:
 
     Short-term debt consists of the following:

                                            DECEMBER 31
                                       ----------------------
                                          1994        1995
                                       ----------  ----------
$850,000 demand line of credit with
  bank; collateralized by
  transportation equipment, accounts
  receivable and inventory, interest
  at prime plus 1% (9.5% at December
  31, 1995), payable monthly,
  principal due June 1996............  $  200,000  $  200,000
Demand note payable to bank;
  cross-collateralized with the line
  of credit, bearing interest at
  prime plus 1%, principal of $25,000
  plus interest, payable in monthly
  installments through January
  1996...............................     300,000      --
Demand note payable to bank;
  cross-collateralized with the line
  of credit, interest at prime plus
  1%, payable monthly, principal due
  September 1996.....................     120,312      51,562
                                       ----------  ----------
                                       $  620,312  $  251,562
                                       ==========  ==========
 
                                      F-48
 
                  SERVICE ENTERPRISES, INC., AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     Long-term debt consists of the following:

                                            DECEMBER 31
                                       ----------------------
                                          1994        1995
                                       ----------  ----------
Note payable to bank;
  cross-collateralized with the line
  of credit, interest at prime plus
  1%, interest only through June
  1996, payable monthly, then
  principal of $21,500, plus
  interest, payable in monthly
  installments through June 1998.....  $   --      $  495,451
     Less -- Current portion.........      --         129,000
                                       ----------  ----------
                                       $   --      $  366,451
                                       ==========  ==========
 
     The aggregate maturities of long-term debt are as follows:
 
                                    
Year ending December 31 --
     1996............................  $  129,000
     1997............................     258,000
     1998............................     108,451
                                       ----------
                                       $  495,451
                                       ==========
 
     In connection with the bank indebtedness, the Company has entered into an
agreement which provides for certain affirmative covenants and restrictions,
including certain required financial ratios and restrictions on retained
earnings. As of December 31, 1995, the Company was in compliance with these
covenants.
 
     The notes payable have been personally guaranteed by the Company's
shareholder.
 
     Management estimates that the fair value of its debt obligations
approximates the historical value of $747,013 at December 31, 1995.
 
8.  LEASES:
 
     The Company operates in leased facilities under an agreement with its
shareholder and affiliates. The amount paid under these leases was $291,600,
$291,600 and $301,600 in 1993, 1994 and 1995, respectively. These leases were
canceled concurrent with the purchase of the Company and the leased facilities
by EHC.
 
     During 1994, the Company renewed a parking lot lease agreement with an
affiliated company, which expired September 30, 1995. The Company continued its
lease on a month-to-month basis. Amounts paid under this lease in 1993, 1994 and
1995 totaled $22,500, $30,000 and $25,000, respectively.
 
     The Company has entered into two operating sublease agreements with a
company at its facilities, and these agreements expire in June 1997 and November
1998, respectively. Rental income recognized during 1993, 1994 and 1995 was
approximately $13,650, $11,400 and $16,400, respectively.
 
     Future minimum rental income under the sublease agreements is as follows:
 
Year ending December 31 --
     1996............................  $   41,400
     1997............................      35,700
     1998............................      25,000
                                       ----------
                                       $  102,100
                                       ==========
 
                                      F-49
 
                  SERVICE ENTERPRISES, INC., AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
9.  INCOME TAXES:
 
     Federal and state income taxes are as follows:
 

                                              YEAR ENDED DECEMBER 31
                                       ------------------------------------
                                           1993         1994        1995
                                       ------------  ----------  ----------
Federal --
                                                        
     Current.........................  $     18,602  $  466,159  $  553,973
     Deferred........................      (205,440)     48,585       6,419
State --
     Current.........................           203      67,764      68,371
     Deferred........................       (28,471)      6,733         890
                                       ------------  ----------  ----------
                                       $   (215,106) $  589,241  $  629,653
                                       ============  ==========  ==========
 
     Actual income tax expense differs from income tax expense computed by
applying the U.S. federal statutory corporate tax rate of 34 percent to income
before income taxes as follows:

                                              YEAR ENDED DECEMBER 31
                                       ------------------------------------
                                           1993         1994        1995
                                       ------------  ----------  ----------
Provision (benefit) at the statutory
  rate...............................  $   (191,252) $  273,536  $  570,008
                                                        
Increase (decrease) resulting from --
     State income tax, net of benefit
       for federal deduction.........       (18,657)     49,169      45,713
     Nondeductible expenses..........         6,553     184,418      18,743
     Related-party gain on sale......       --           76,075      --
Other................................       (11,750)      6,043      (4,811)
                                       ------------  ----------  ----------
                                       $   (215,106) $  589,241  $  629,653
                                       ============  ==========  ==========
 
     Deferred income tax provision results 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:

                                            DECEMBER 31
                                       ----------------------
                                          1994        1995
                                       ----------  ----------
Depreciation and amortization........  $   56,200  $   36,213

Net operating loss carryforward......     (33,098)    (33,098)
Accruals and reserves not deductible
  until paid.........................     (65,203)    (40,685)
Other................................     109,857     112,635
                                       ----------  ----------
               Net deferred income
                  tax liabilities....  $   67,756  $   75,065
                                       ==========  ==========
 
     The net deferred tax assets and liabilities are comprised of the following:
 
                                            DECEMBER 31
                                       ----------------------
                                          1994        1995
                                       ----------  ----------
Deferred tax assets --
                                             
     Current.........................  $   62,611  $   39,068
     Long-term.......................     103,598     100,640
                                       ----------  ----------
               Total.................     166,209     139,708
Deferred tax liabilities,
  long-term..........................     233,965     214,773
                                       ----------  ----------
               Net deferred income
                  tax liabilities....  $   67,756  $   75,065
                                       ==========  ==========
 
                                      F-50
 
                  SERVICE ENTERPRISES, INC., AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
10.  RELATED-PARTY TRANSACTIONS:
 
     The Company has receivables from its shareholder and from certain
affiliated entities related through common ownership and control in the amount
of $278,187 and $10,308 at December 31, 1994 and 1995, respectively. Receivables
from shareholder accrue interest at 5 1/2 percent. Interest income recognized
during 1993, 1994 and 1995 was approximately $147,800, $54,000 and $27,000,
respectively.
 
     The Company acquired an investment in real estate held for sale from its
shareholder for $1,750,000 in January 1993. In January 1994, the investment was
sold for approximately $1,275,000, net of closing costs. At December 31, 1993,
the investment was written down to its net realizable value resulting in an
unrealized loss of approximately $475,000 included in other income (expense) on
the consolidated statement of operations.
 
     In 1991, the Company received 250,000 shares of registered Exploration
Company of Louisiana (Exploration) common stock valued at $125,000 from its
shareholder in exchange for shares of stock in ANGP. During March 1994, the
Company sold the 250,000 shares of common stock of Exploration to its
shareholder for $348,750 resulting in a gain of $223,750 which has been
accounted for as additional paid-in capital.
 
11.  COMMITMENTS AND CONTINGENCIES:
 
  LITIGATION
 
     The Company is involved in legal actions arising in the ordinary course of
business. Management does not believe that the outcome of such legal action 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 general
and business auto liability, commercial property, workers' compensation and a
general umbrella policy. The Company has not incurred significant claims or
losses on any of its insurance policies.
 
  GUARANTEES
 
     The Company's former shareholder is required to make seven annual payments
of $75,000 each under a lawsuit settlement. The Company's former shareholder is
also required under this settlement to make four annual payments of $20,000
each, beginning in 2003. The Company has guaranteed these settlement payments.
 
12.  EVENTS SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
     (UNAUDITED):
 
     In June 1996, the Company and its shareholder entered into a definitive
agreement with ARS, providing for the acquisition of the Company by ARS.
Additionally, on May 28, 1996, the Company completed its acquisition of ADCOT.
 
                                      F-51

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Florida Heating and Air Conditioning, Inc.:
 
     We have audited the accompanying combined balance sheet of Florida Heating
and Air Conditioning, Inc. (a Florida corporation), and related companies as of
December 31, 1995, and the related combined statements of operations,
shareholders' equity and cash flows for the year then ended. 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 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 combined financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the combined 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 combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Florida
Heating and Air Conditioning, Inc., and related companies as of December 31,
1995, and the combined results of their operations and their cash flows for the
year then ended in conformity with generally accepted accounting principles.
 
ARTHUR ANDERSEN LLP
 
Houston, Texas
May 24, 1996

                                      F-52
 
                  FLORIDA HEATING AND AIR CONDITIONING, INC.,
                             AND RELATED COMPANIES
                            COMBINED BALANCE SHEETS

                                        DECEMBER 31,     MARCH 31,
                                            1995           1996
                                        ------------    -----------
                                                        (UNAUDITED)
               ASSETS
                                                  
CURRENT ASSETS:
     Cash and cash equivalents.......    $1,022,154     $   421,590
     Accounts receivable --
          Trade, net of allowance of
             $41,305 and $41,305.....     1,394,895       1,426,487
          Other receivables..........       444,680         324,257
     Inventories.....................       306,523         346,608
     Prepaid expenses and other
      current assets.................        52,992         112,086
                                        ------------    -----------
               Total current
                   assets............     3,221,244       2,631,028
PROPERTY AND EQUIPMENT, net..........       495,110         626,144
OTHER NONCURRENT ASSETS..............        38,509          38,421
                                        ------------    -----------
               Total assets..........    $3,754,863     $ 3,295,593
                                        ============    ===========
 
LIABILITIES AND SHAREHOLDERS' EQUITY
                                                  
CURRENT LIABILITIES:
     Current maturities of long-term
      debt...........................    $  100,166     $   232,366
     Accounts payable and accrued
      expenses.......................     1,626,569       1,511,732
     Payable to shareholder..........       641,804          80,804
     Billings in excess of costs and
      estimated earnings on
      uncompleted contracts..........       367,519         345,673
     Deferred income taxes...........       287,454         287,454
                                        ------------    -----------
               Total current
                   liabilities.......     3,023,512       2,458,029
LONG-TERM DEBT, net of current
  maturities.........................        18,017         --
DEFERRED INCOME TAXES................        42,339          42,339
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
     Common stock....................         8,850           8,850
     Additional paid-in capital......         4,000           4,000
     Retained earnings...............       658,145         782,375
                                        ------------    -----------
               Total shareholders'
                   equity............       670,995         795,225
                                        ------------    -----------
               Total liabilities and
                   shareholders'
                   equity............    $3,754,863     $ 3,295,593
                                        ============    ===========
 
    The accompanying notes are an integral part of these combined financial
                                  statements.
 
                                      F-53
 
                  FLORIDA HEATING AND AIR CONDITIONING, INC.,
                             AND RELATED COMPANIES
                       COMBINED STATEMENTS OF OPERATIONS
 

                                                         THREE MONTHS ENDED
                                       YEAR ENDED             MARCH 31
                                      DECEMBER 31,   --------------------------
                                          1995           1995          1996
                                      ------------   ------------  ------------
                                                            (UNAUDITED)
                                                          
 
REVENUES............................. $ 14,510,455   $  3,919,169  $  3,658,439
 
COST OF SERVICES.....................   10,541,122      2,990,025     2,674,081
                                      ------------   ------------  ------------
     Gross profit....................    3,969,333        929,144       984,358
 
SELLING, GENERAL AND ADMINISTRATIVE
  EXPENSES...........................    3,738,253        894,415       837,485
                                      ------------   ------------  ------------
     Income from operations..........      231,080         34,729       146,873
 
OTHER INCOME (EXPENSE):
 
     Interest expense................      (11,743)        (1,275)       (7,534)
 
     Other...........................       (8,238)           258            94
                                      ------------   ------------  ------------
INCOME BEFORE INCOME TAXES...........      211,099         33,712       139,433
 
PROVISION FOR INCOME TAXES...........       13,966          2,225         9,203
                                      ------------   ------------  ------------
NET INCOME........................... $    197,133   $     31,487  $    130,230
                                      ============   ============  ============

    The accompanying notes are an integral part of these combined financial
                                  statements.
 
                                      F-54
 
                  FLORIDA HEATING AND AIR CONDITIONING, INC.,
                             AND RELATED COMPANIES
                  COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
                                          COMMON STOCK      ADDITIONAL                     TOTAL
                                        ----------------     PAID-IN      RETAINED     SHAREHOLDERS'
                                        SHARES    AMOUNT     CAPITAL      EARNINGS         EQUITY
                                        ------    ------    ----------    ---------    --------------
<S>                                      <C>      <C>         <C>         <C>             <C>     
BALANCE, December 31, 1994...........    1,700    $8,850      $4,000      $ 467,012       $479,862
     Dividend........................     --        --         --            (6,000)        (6,000)
     Net income......................     --        --         --           197,133        197,133
                                        ------    ------    ----------    ---------    --------------
BALANCE, December 31, 1995...........    1,700     8,850       4,000        658,145        670,995
     Dividend (unaudited)............     --        --         --            (6,000)        (6,000)
     Net income (unaudited)..........     --        --         --           130,230        130,230
                                        ------    ------    ----------    ---------    --------------
BALANCE, March 31, 1996
  (unaudited)........................    1,700    $8,850      $4,000      $ 782,375       $795,225
                                        ======    ======    ==========    =========    ==============
</TABLE>
    The accompanying notes are an integral part of these combined financial
                                  statements.
 
                                      F-55
 
                  FLORIDA HEATING AND AIR CONDITIONING, INC.,
                             AND RELATED COMPANIES
                       COMBINED STATEMENTS OF CASH FLOWS

                                                         THREE MONTHS ENDED
                                       YEAR ENDED             MARCH 31
                                      DECEMBER 31,   --------------------------
                                          1995           1995          1996
                                      ------------   ------------  ------------
                                                            (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income.........................  $  197,133    $     31,487  $    130,230
  Adjustments to reconcile net income
     to net cash provided by (used
     in) operating activities --
     Depreciation and amortization...     195,662          45,393        45,804
     Deferred income taxes...........       5,756         --            --
     Gain on sale of property and
       equipment.....................     (12,303)         (4,819)       (4,117)
     Changes in operating assets and
       liabilities --
     (Increase) decrease in --
       Accounts receivable...........     (45,342)         60,456        88,831
       Inventories...................     (37,228)        (32,636)      (40,085)
       Prepaid expenses and other
          current assets.............       8,064          (5,168)      (59,094)
       Other noncurrent assets.......     (10,613)        (51,906)           88
     Increase (decrease) in --
       Accounts payable and accrued
          expenses...................     330,097         105,815      (114,837)
       Billings in excess of costs
          and estimated earnings on
          uncompleted contracts......    (140,690)       (195,999)      (21,846)
                                      ------------   ------------  ------------
     Net cash provided by (used in)
       operating activities..........     490,536         (47,377)       24,974
                                      ------------   ------------  ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Proceeds from sale of property and
     equipment.......................      16,704           8,494         7,499
  Additions of property and
     equipment.......................    (236,209)       (178,901)     (180,220)
                                      ------------   ------------  ------------
     Net cash used in investing
       activities....................    (219,505)       (170,407)     (172,721)
                                      ------------   ------------  ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Increase (decrease) in payable to
     shareholders....................       1,357        (248,000)     (561,000)
  Borrowings of long-term debt.......     185,511         162,080       157,240
  Principal payments of long-term
     debt............................    (165,494)        (54,193)      (43,057)
  Dividends..........................      (6,000)        --             (6,000)
                                      ------------   ------------  ------------
     Net cash provided by (used in)
       financing activities..........      15,374        (140,113)     (452,817)
                                      ------------   ------------  ------------
NET INCREASE (DECREASE) IN CASH AND
  CASH EQUIVALENTS...................     286,405        (357,897)     (600,564)
CASH AND CASH EQUIVALENTS, beginning
  of period..........................     735,749         735,749     1,022,154
                                      ------------   ------------  ------------
CASH AND CASH EQUIVALENTS, end of
  period.............................  $1,022,154    $    377,852  $    421,590
                                      ============   ============  ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
  INFORMATION:
  Cash paid for --
     Interest........................  $   11,743    $      1,275  $      7,534
     Income taxes....................  $  --         $    --       $      2,279
 
    The accompanying notes are an integral part of these combined financial
                                  statements.
 
                                      F-56
 
                  FLORIDA HEATING AND AIR CONDITIONING, INC.,
                             AND RELATED COMPANIES
                     NOTES TO COMBINED FINANCIAL STATEMENTS
 
1.  BUSINESS AND ORGANIZATION:
 
     Florida Heating and Air Conditioning, Inc. (a Florida corporation) and its
three affiliated companies (collectively, the Company), are primarily engaged in
the installation and maintenance, repair and replacement of air conditioning and
heating systems in new and preexisting residential and commercial buildings in
Southeast Florida.
 
     The Company and its shareholders intend to enter into a definitive
agreement with American Residential Services, Inc. (ARS), pursuant to which all
outstanding shares of the Company's common stock will be exchanged for cash and
shares of ARS's common stock concurrent with the consummation of the initial
public offering (the Offering) of the common stock of ARS.
 
2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
 
  BASIS OF PRESENTATION
 
     The combined financial statements include the accounts and results of
operations of Florida Heating and Air Conditioning, Inc., and its affiliated
companies (see Note 11) which are under common control and management of two
individuals. All significant intercompany transactions and balances have been
eliminated in combination.
 
  INTERIM FINANCIAL INFORMATION
 
     The interim combined financial statements as of March 31, 1996, and for the
three months ended March 31, 1995 and 1996, are unaudited, and certain
information and footnote disclosures, normally included in financial statements
prepared in accordance with generally accepted accounting principles, have been
omitted. In the opinion of management, all adjustments, consisting only of
normal recurring adjustments, necessary to fairly present the financial
position, results of operations and cash flows with respect to the interim
combined financial statements, have been included. The results of operations for
the interim periods are not necessarily indicative of the results for the entire
fiscal year.
 
  INVENTORIES
 
     Inventories consist of duct materials, air conditioning equipment,
refrigeration supplies and accessories 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 lesser of the life
of the lease or the estimated useful life of the asset.
 
     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 the services are performed except when
work is being performed under a construction contract. Revenues on residential
and commercial service and maintenance contracts are recorded and collected
monthly.
 
                                      F-57
 
       FLORIDA HEATING AND AIR CONDITIONING, INC., AND RELATED COMPANIES
             NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
 
     Revenues from construction contracts are recognized on the
percentage-of-completion method measured by the percentage of costs incurred to
total estimated costs for each contract. 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
are recognized in the period in which the revisions are determined.
 
  WARRANTY COSTS
 
     The Company warrants labor for the first year after installation on new air
conditioning and heating units. The Company generally warrants labor for 30 days
after servicing of existing air conditioning and heating units. A reserve for
warranty costs is recorded upon completion of installation or service.
 
  INCOME TAXES
 
     The Company follows the liability method of accounting for income taxes in
accordance with Statement of Financial Accounting Standards (SFAS) No. 109.
Under this method, deferred income taxes are recorded based upon differences
between the financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
underlying assets or liabilities are recovered or settled.
 
     Certain of the companies in the affiliated group have elected S Corporation
status as defined by the Internal Revenue Code, whereby the Company is not
subject to taxation for federal purposes. Under S Corporation status, the
shareholders report their share of the Company's taxable earnings or losses in
their personal tax returns.
 
  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 assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
 
  CASH AND CASH EQUIVALENTS
 
     The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.
 
  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, and intangible 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 is
compared to the asset's carrying amount to determine if a write-down to market
value or discounted cash flow value was necessary. Adoption of this standard did
not have a material effect on the financial position or results of operations of
the Company.
 
                                      F-58
 
       FLORIDA HEATING AND AIR CONDITIONING, INC., AND RELATED COMPANIES
             NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
 
3.  PROPERTY AND EQUIPMENT:
 
     Property and equipment consist of the following:
 
                                         ESTIMATED
                                        USEFUL LIVES    DECEMBER 31,
                                          IN YEARS          1995
                                        ------------    ------------
Transportation equipment.............       5            $1,051,880
                                                  
Machinery and equipment..............       7               115,774
Computer and telephone equipment.....     5 - 7             354,674
Leasehold improvements...............       7                57,151
Furniture and fixtures...............       7                39,308
                                                        ------------
                                                          1,618,787
Less -- Accumulated depreciation and
  amortization.......................                     1,123,677
                                                        ------------
               Property and
                  equipment, net.....                    $  495,110
                                                        ============
 
4.  DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
 
     Activity in the Company's allowance for doubtful accounts consist of the
following:
                                        DECEMBER 31,
                                            1995
                                        ------------
                                     
Balance at beginning of year.........     $ 41,305
Additions to costs and expenses......       25,038
Deductions for uncollectible
  receivables written off............      (25,038)
                                        ------------
                                          $ 41,305
                                        ============
 
     Accounts payable and accrued expenses consist of the following:
 
                                        DECEMBER 31,
                                            1995
                                        ------------
Accounts payable, trade..............    $1,283,034
                                     
Accrued compensation and benefits....       198,175
Other accrued expenses...............       145,360
                                        ------------
                                         $1,626,569
                                        ============
 
     Installation contracts in progress are as follows:

                                        DECEMBER 31,
                                            1995
                                        ------------
Costs incurred on contracts in
  progress...........................    $  985,003
                                     
Estimated earnings, net of losses....       351,711
                                        ------------
                                          1,336,714
Less -- Billings to date.............     1,704,233
                                        ------------
Billings in excess of costs and
  estimated earnings on uncompleted
  contracts..........................    $ (367,519)
                                        ============
 
5.  LONG-TERM DEBT:
 
     Long-term debt consists of installment notes payable for transportation
equipment. The debt is secured by the related transportation equipment. The
terms of the notes range from 24 months to 36 months with monthly payments of
principal and interest of approximately $10,500. The notes bear interest at
rates ranging from 7 percent to 9 percent.
 
                                      F-59
 
       FLORIDA HEATING AND AIR CONDITIONING, INC., AND RELATED COMPANIES
             NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
 
     The aggregate maturities of long-term debt as of December 31, 1995, are as
follows:
                                    
Year ending December 31 --
     1996............................  $  100,166
     1997............................      18,017
                                       ----------
                                       $  118,183
                                       ==========
 
     Management estimates that the fair value of its debt obligations
approximates the historical value of $118,183 at December 31, 1995.
 
     The Company has a $200,000 line of credit with a financial services
company. The line of credit expires August 31, 1996, and bears interest at prime
plus 1 percent per annum. The line of credit is secured by a lien on accounts
receivable and inventory and is guaranteed by the shareholders. There was no
balance outstanding under this line of credit at December 31, 1995.
 
6.  LEASES:
 
     The Company leases facilities from a company which is owned by the
shareholders. The lease expires in 2000 and provides for rents increasing at 5
percent per year. The rent paid under this related-party lease was approximately
$198,000 for the year ended December 31, 1995. The Company also leases a
facility from a third party, which expires in 1997. The rent paid under this
lease was approximately $15,000 for the year ended December 31, 1995. The leases
provide for the Company to pay taxes, maintenance, insurance and certain other
operating costs of the leased property. The leases contain renewal provisions.
 
     The Company leases vehicles for a shareholder and affiliates. The lease
payments under these vehicle leases was approximately $45,000 for the year ended
December 31, 1995.
 
     Future minimum lease payments for operating leases are as follows:
                                    
Year ending December 31 --
     1996............................  $   234,897
     1997............................      204,438
     1998............................      184,252
     1999............................      193,465
     2000............................       82,242
                                       -----------
                                       $   899,294
                                       ===========
 
                                      F-60
 
       FLORIDA HEATING AND AIR CONDITIONING, INC., AND RELATED COMPANIES
             NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
 
7.  INCOME TAXES:
 
     The S Corporation in the affiliated group will terminate its S Corporation
status concurrent with the effective date of the Offering. The Company is
subject to taxation in certain states based upon the jurisdiction in which
revenues are earned.
 
     Federal and state income taxes are as follows:
 
                                         YEAR ENDED
                                        DECEMBER 31,
                                            1995
                                        ------------
Federal --
                                     
     Current.........................     $  6,733
     Deferred........................        4,915
State --
     Current.........................        1,477
     Deferred........................          841
                                        ------------
                                          $ 13,966
                                        ============
 
     Actual income tax expense differs from income tax expense computed by
applying the U.S. federal statutory corporate tax rate of 34 percent to income
before income taxes as follows:
 
                                         YEAR ENDED
                                        DECEMBER 31,
                                            1995
                                        ------------
Provision at the statutory rate......     $ 71,774
                                     
Increase (decrease) resulting from --
     Income of S Corporation.........      (59,557)
     State income tax, net of benefit
       for federal deduction.........        1,398
     Other...........................          351
                                        ------------
                                          $ 13,966
                                        ============
 
     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:

                                        DECEMBER 31, 1995
                                        -----------------
                                     
Loss from limited partnership
  investment.........................       $ 230,844
Cash to accrual adjustment...........         136,674
Other................................         (37,725)
                                        -----------------
Net deferred income tax
liabilities..........................       $ 329,793
                                        =================
 
                                      F-61
 
       FLORIDA HEATING AND AIR CONDITIONING, INC., AND RELATED COMPANIES
             NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
 
     The net deferred tax assets and liabilities are comprised of the following:
 
                                        DECEMBER 31, 1995
                                        -----------------
Deferred tax assets --
     Current.........................       $  11,972
     Long-term.......................          25,998
                                        -----------------
          Total......................          37,970
Deferred tax liabilities --
     Current.........................         299,426
     Long-term.......................          68,337
                                        -----------------
          Total......................         367,763
                                        -----------------
          Net deferred income tax
             liabilities.............       $ 329,793
                                        =================
 
8.  RELATED-PARTY TRANSACTIONS:
 
     One of the shareholders loans the Company funds as needed. The loans are
payable on demand and, under certain conditions, bear interest at prime plus 1
percent. The amount payable to the shareholder is $641,804 at December 31, 1995.
No interest was incurred or paid during the year ended December 31, 1995,
related to these loans.
 
9.  COMMITMENTS AND CONTINGENCIES:
 
  LITIGATION
 
     The Company is involved in legal actions arising in the ordinary course of
business. Management does not believe the outcome of such legal action will have
a material adverse effect on the Company's financial position or combined
results of operations.

  INSURANCE

     The Company carries a broad range of insurance coverage, including general
and business auto liability, commercial property, workers' compensation and a
general umbrella policy. The Company has not incurred significant claims or
losses on any of its insurance policies.

10.  SALES TO SIGNIFICANT CUSTOMER:

     During 1995, one customer accounted for approximately 14 percent of the
Company's sales.

11.  SHAREHOLDERS' EQUITY:

     The common stock ownership of the corporate entities is as follows:

                                          SHARES         SHARES        PAR
                                        AUTHORIZED     OUTSTANDING    VALUE
                                        -----------    -----------    ------
Florida Heating and Air Conditioning,
  Inc. ..............................       1,000           800       $10.00
Florida Heating and Air Conditioning
  Service, Inc. .....................         600           600         1.00
Florida Heating and Air Duct, Inc....      10,000           100          .50
Bullseye Air Conditioning, Inc. .....         600           200         1.00

12.  EVENTS SUBSEQUENT TO DATE OF AUDITORS' REPORT OF
     INDEPENDENT PUBLIC ACCOUNTANTS (UNAUDITED):

     In June 1996, the Company and its shareholders entered into a definitive
agreement with ARS, providing for the acquisition of the Company by ARS.

     Concurrent with the acquisition, the Company will enter into agreements
with the shareholders to lease land and buildings used in the Company's
operations for a negotiated amount and term.

                                      F-62

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To DIAL ONE Meridian and Hoosier, Inc.:

     We have audited the accompanying balance sheets of DIAL ONE Meridian and
Hoosier, Inc. (an Indiana corporation), as of December 31, 1994 and 1995, and
the related statements of operations, shareholder's equity and cash flows 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.

     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 DIAL ONE Meridian and
Hoosier, Inc., as of December 31, 1994 and 1995, 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
May 24, 1996

                                      F-63

                      DIAL ONE MERIDIAN AND HOOSIER, INC.
                                 BALANCE SHEETS

                                              DECEMBER 31
                                       --------------------------    MARCH 31,
                                           1994          1995          1996
                                       ------------  ------------   -----------
                                                                    (UNAUDITED)
               ASSETS
CURRENT ASSETS:
  Cash and cash equivalents..........  $    427,005  $    856,754   $   957,275
  Investments........................       150,000       --            --
  Accounts receivable --
     Trade, net of allowance of
       $41,595, $54,050 and
       $59,725.......................       869,316       989,963     1,035,645
     Shareholder and affiliates......         6,316        14,261        21,487
     Other receivables...............        19,098        26,459       --
  Inventories........................       345,934       249,773       322,995
  Prepaid expenses and other current
     assets..........................        72,239        96,545        81,441
  Costs and estimated earnings in
     excess of billings on
     uncompleted contracts...........        42,717        16,825        18,778
                                       ------------  ------------   -----------
          Total current assets.......     1,932,625     2,250,580     2,437,621
PROPERTY AND EQUIPMENT, net..........       829,316       919,238     1,563,545
OTHER NONCURRENT ASSETS..............        28,567        18,819       145,332
                                       ------------  ------------   -----------
          Total assets...............  $  2,790,508  $  3,188,637   $ 4,146,498
                                       ============  ============   ===========
       LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES:
  Current maturities of long-term
     debt............................  $    262,046  $    266,830   $   275,358
  Accounts payable and accrued
     expenses........................       488,197       638,224       654,091
  Unearned revenue on service
     contracts.......................       353,045       423,259       406,612
  Billings in excess of costs and
     estimated earnings on
     uncompleted contracts...........        78,049        32,131       112,691
                                       ------------  ------------   -----------
          Total current
             liabilities.............     1,181,337     1,360,444     1,448,752
LONG-TERM DEBT, net of current
  maturities.........................       610,180       544,483     1,334,898
DEFERRED INCOME TAXES................       --             13,309        18,517
OTHER NONCURRENT LIABILITIES.........       --            --             73,909
COMMITMENTS AND CONTINGENCIES
SHAREHOLDER'S EQUITY:
  Common stock, no par value; 1,000
     shares authorized,
     598 shares issued and 588
     outstanding.....................         7,201         7,201         7,201
  Additional paid-in capital.........        35,000        35,000        35,000
  Retained earnings..................       956,890     1,228,300     1,228,321
  Treasury stock, 10 shares at
     cost............................          (100)         (100)         (100)
                                       ------------  ------------   -----------
          Total shareholder's
             equity..................       998,991     1,270,401     1,270,422
                                       ------------  ------------   -----------
          Total liabilities and
             shareholder's equity....  $  2,790,508  $  3,188,637   $ 4,146,498
                                       ============  ============   ===========

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

                                      F-64

                      DIAL ONE MERIDIAN AND HOOSIER, INC.
                            STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
                                                YEAR ENDED                  THREE MONTHS
                                               DECEMBER 31                 ENDED MARCH 31
                                       ----------------------------  --------------------------
                                           1994           1995           1995          1996
                                       ------------  --------------  ------------  ------------
                                                                            (UNAUDITED)
<S>                                    <C>           <C>             <C>           <C>
REVENUES.............................  $  8,066,155  $   10,132,706  $  1,958,498  $  2,638,043
COST OF SERVICES.....................     5,797,066       7,280,888     1,421,980     1,767,046
                                       ------------  --------------  ------------  ------------
          Gross profit...............     2,269,089       2,851,818       536,518       870,997
SELLING, GENERAL AND ADMINISTRATIVE
  EXPENSES...........................     1,988,791       2,349,482       511,719       854,416
                                       ------------  --------------  ------------  ------------
          Income from operations.....       280,298         502,336        24,799        16,581
OTHER INCOME (EXPENSE):
     Interest income.................         8,517          23,399       --              8,637
     Interest expense................       (56,585)        (86,097)      (21,818)      (28,500)
     Other...........................        36,817          10,259        12,732         3,318
                                       ------------  --------------  ------------  ------------
INCOME BEFORE INCOME TAXES...........       269,047         449,897        15,713            36
PROVISION FOR INCOME TAXES...........       110,365         178,487         5,793            15
                                       ------------  --------------  ------------  ------------
NET INCOME...........................  $    158,682  $      271,410  $      9,920  $         21
                                       ============  ==============  ============  ============
</TABLE>
 
   The accompanying notes are an integral part of these financial statements.
 
                                      F-65
 
                      DIAL ONE MERIDIAN AND HOOSIER, INC.
                       STATEMENTS OF SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
                                          COMMON STOCK      ADDITIONAL                                  TOTAL
                                        ----------------     PAID-IN       RETAINED     TREASURY    SHAREHOLDER'S
                                        SHARES    AMOUNT     CAPITAL       EARNINGS      STOCK          EQUITY
                                        ------    ------    ----------    ----------    --------    --------------
<S>                                     <C>       <C>        <C>          <C>            <C>          <C>
BALANCE, December 31, 1993...........     588     $7,201     $ 35,000     $  798,208     $ (100)      $  840,309

     Net income......................    --         --         --            158,682      --             158,682
                                        ------    ------    ----------    ----------    --------    --------------
BALANCE, December 31, 1994...........     588      7,201       35,000        956,890       (100)         998,991
     Net income......................    --         --         --            271,410      --             271,410
                                        ------    ------    ----------    ----------    --------    --------------
BALANCE, December 31, 1995...........     588      7,201       35,000      1,228,300       (100)       1,270,401
     Net income (unaudited)..........    --         --         --                 21      --                  21
                                        ------    ------    ----------    ----------    --------    --------------
BALANCE, March 31, 1996
  (unaudited)........................     588     $7,201     $ 35,000     $1,228,321     $ (100)      $1,270,422
                                        ======    ======    ==========    ==========    ========    ==============
</TABLE>

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

                                      F-66

                      DIAL ONE MERIDIAN AND HOOSIER, INC.
                            STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                               YEAR ENDED                THREE MONTHS
                                              DECEMBER 31               ENDED MARCH 31
                                       --------------------------  ------------------------
                                           1994          1995         1995         1996
                                       ------------  ------------  ----------  ------------
                                                                         (UNAUDITED)
<S>                                    <C>           <C>           <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income.........................  $    158,682  $    271,410  $    9,920  $         21
  Adjustments to reconcile net income
     to net cash provided by
     operating activities --
     Depreciation and amortization...       205,310       245,028      61,070        70,870
     Deferred income taxes
       (benefit).....................       108,303        45,302      --           (45,800)
     Changes in operating assets and
       liabilities --
       (Increase) decrease in --
          Accounts receivables.......      (183,259)     (128,008)    (25,367)      131,261
          Inventories................      (129,922)       96,161      48,989        34,066
          Prepaid expenses and other
             current assets..........       (14,768)      (29,873)    (16,122)       37,918
          Costs and estimated
             earnings in excess of
             billings on uncompleted
             contracts...............        29,530        25,892      42,717        17,721
          Other noncurrent assets....         2,606       (16,678)     (5,397)      (62,643)
       Increase (decrease) in --
          Accounts payable and
             accrued expenses........        86,294       150,027     (74,932)     (131,315)
          Unearned revenue on service
             contracts...............        60,469        70,214      (7,854)      (16,647)
          Billings in excess of costs
             and estimated earnings
             on uncompleted
             contracts...............        27,852       (45,918)     18,752        18,292
          Other noncurrent
             liabilities.............       --            --           --            73,909
                                       ------------  ------------  ----------  ------------
       Net cash provided by operating
          activities.................       351,097       683,557      51,776       127,653
                                       ------------  ------------  ----------  ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
     Additions of property and
       equipment.....................      (318,444)     (334,950)    (59,008)     (534,680)
     Purchase of investment..........      (150,000)      --           --           --
     Proceeds from sale of
       investment....................       --            150,000      --           --
     Cash paid for acquisition, net
       of cash acquired..............       --            --           --          (259,533)
                                       ------------  ------------  ----------  ------------
       Net cash used in investing
          activities.................      (468,444)     (184,950)    (59,008)     (794,213)
                                       ------------  ------------  ----------  ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
     Borrowings of long-term debt....       451,815       200,639      17,783       849,273
     Principal payments of long-term
       debt..........................      (183,134)     (261,552)    (65,686)      (74,966)
     (Advances) payments of
       receivable from shareholder
       and affiliates................        17,940        (7,945)       (184)       (7,226)
                                       ------------  ------------  ----------  ------------
       Net cash provided by (used in)
          financing activities.......       286,621       (68,858)    (48,087)      767,081
                                       ------------  ------------  ----------  ------------
NET INCREASE (DECREASE) IN CASH AND
  CASH EQUIVALENTS...................       169,274       429,749     (55,319)      100,521
CASH AND CASH EQUIVALENTS, beginning
  of period..........................       257,731       427,005     427,005       856,754
                                       ------------  ------------  ----------  ------------
CASH AND CASH EQUIVALENTS, end of
  period.............................  $    427,005  $    856,754  $  371,686  $    957,275
                                       ============  ============  ==========  ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
  INFORMATION:
     Cash paid for --
          Interest...................  $     56,585  $     86,097  $   21,818  $     28,500
          Income taxes...............  $     20,000  $    126,137  $   --      $     32,167
</TABLE>

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

                                      F-67

                      DIAL ONE MERIDIAN AND HOOSIER, INC.
                         NOTES TO FINANCIAL STATEMENTS

1.  BUSINESS AND ORGANIZATION:

     DIAL ONE Meridian and Hoosier, Inc., (an Indiana corporation) (the
Company), is primarily engaged in the installation and maintenance, repair and
replacement of residential and commercial air conditioning and heating systems
in Indianapolis and the surrounding areas.

     The Company and its shareholder intend to enter into a definitive agreement
with American Residential Services, Inc. (ARS), pursuant to which all
outstanding shares of the Company's common stock will be exchanged for cash and
shares of ARS's common stock concurrent with the consummation of the initial
public offering (the Offering) of the common stock of ARS.

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

  INTERIM FINANCIAL INFORMATION

     The interim financial statements as of March 31, 1996, and for the three
months ended March 31, 1995 and 1996, are unaudited, and certain information and
footnote disclosures, normally included in financial statements prepared in
accordance with generally accepted accounting principles, have been omitted. In
the opinion of management, all adjustments, consisting only of normal recurring
adjustments, necessary to fairly present the financial position, results of
operations and cash flows with respect to the interim financial statements, have
been included. The results of operations for the interim periods are not
necessarily indicative of the results for the entire fiscal year.

  INVENTORIES

     Inventories consist of parts and supplies for use in the ordinary course of
business and are valued 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.

     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.

     Included in property and equipment are certain assets subject to capital
leases. These assets are amortized using the straight-line method over the
lesser of the life of the leases or the estimated useful life of the asset.

  REVENUE RECOGNITION

     The Company recognizes revenue when the services are performed except when
work is being performed under a construction contract. Revenues on residential
and commercial service and maintenance contracts are recorded and collected
monthly.

     Revenues from construction contracts are recognized on the
percentage-of-completion method measured by the percentage of costs incurred to
total estimated costs for each contract. 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
are recognized in the period in which the revisions are determined.

                                      F-68

                      DIAL ONE MERIDIAN AND HOOSIER, INC.
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

  WARRANTY COSTS

     The Company warrants labor for one or five years after installation on new
air conditioning and heating units. The Company generally warrants labor for 30
days after servicing of existing air conditioning and heating units. A reserve
for warranty costs is recorded upon completion of installation or service.

  INCOME TAXES

     The Company follows the liability method of accounting for income taxes in
accordance with Statement of Financial Accounting Standards (SFAS) No. 109.
Under this method, deferred income taxes are recorded based upon differences
between the financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
underlying assets or liabilities are received or settled.

  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 assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

  CASH AND CASH EQUIVALENTS

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

  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, and intangible 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 is
compared to the asset's carrying amount to determine if a write-down to market
value or discounted cash flow value was necessary. 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 consist of the following:

                                       ESTIMATED            DECEMBER 31
                                      USEFUL LIVES   --------------------------
                                        IN YEARS         1994          1995
                                      ------------   ------------  ------------

Land and building....................      30        $    145,920  $    183,320
Leasehold improvements...............      10             191,823       212,461
Transportation equipment.............    3 - 4            827,628       950,262
Machinery and equipment..............      7              162,243       165,367
Furniture and fixtures...............      5              280,527       369,956
Telephone equipment..................    7 - 10            47,291       109,016
                                                     ------------  ------------
                                                        1,655,432     1,990,382
Less -- Accumulated depreciation and
amortization.........................                     826,116     1,071,144
                                                     ------------  ------------
          Property and equipment,
             net.....................                $    829,316  $    919,238
                                                     ============  ============

                                      F-69

                      DIAL ONE MERIDIAN AND HOOSIER, INC.
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

4.  DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:

     Activity in the Company's allowance for doubtful accounts consist of the
following:
                                                               DECEMBER 31
                                                           --------------------
                                                             1994        1995
                                                           --------    --------

Balance at beginning of year............................... $13,609     $41,595
Additions charged to costs and expenses....................  43,451      32,071
Deductions for uncollectible receivables written off....... (15,465)    (19,616)
                                                           --------    --------
                                                            $41,595     $54,050
                                                           ========    ========

     Accounts payable and accrued expenses consist of the following:

                                                               DECEMBER 31
                                                           --------------------
                                                             1994        1995
                                                          ---------   ---------
Accounts payable, trade..............................     $ 128,155   $ 185,409
Accrued compensation and benefits....................       228,886     254,393
Warranty accrual.....................................        60,754      79,102
Other accrued expenses...............................        70,402     119,320
                                                          ---------   ---------
                                                          $ 488,197   $ 638,224
                                                          =========   =========

     Installation contracts in progress are as follows:

                                                               DECEMBER 31
                                                           --------------------
                                                             1994        1995
                                                          ---------   ---------
Costs incurred on contracts in progress................  $  195,350  $  243,727
Estimated earnings, net of losses......................      93,439      96,263
                                                          ---------   ---------
                                                            288,789     339,990
Less -- Billings to date...............................     324,121     355,296
                                                          ---------   ---------
                                                         $  (35,332) $  (15,306)
                                                          =========   =========

     The following are included in the accompanying balance sheets under the
following captions:

                                                               DECEMBER 31
                                                           --------------------
                                                             1994        1995
                                                          ---------   ---------
Costs and estimated earnings in excess of billings
  on uncompleted contracts..........................     $   42,717  $   16,825
Billings in excess of costs and estimated earnings
  on uncompleted contracts..........................        (78,049)    (32,131)
                                                         ----------  ----------
                                                         $  (35,332) $  (15,306)
                                                         ==========  ==========

                                      F-70

                      DIAL ONE MERIDIAN AND HOOSIER, INC.
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

5.  LONG-TERM DEBT AND CAPITAL LEASES:

Long-term debt and capital leases consists of the following:

                                                               DECEMBER 31
                                                         ----------------------
                                                            1994        1995
                                                         ----------  ----------
Note payable, due in monthly installments of
  $4,167 plus interest at prime plus 1.25%
  (9.75% at December 31, 1995) and secured by
  accounts receivable, inventory and equipment,
  matures November 30, 1999............................  $  245,837  $  195,833
Land contract, maturing in November 2003, due in
  monthly installments of $1,456 including interest
  at 8%, collateralized with the related property deed
  held in escrow.......................................     111,123     102,238
Note payable, due in monthly installments of $2,500
  plus interest at prime plus 1.25% and secured by
  accounts receivable, inventory and equipment, matures
  July 31, 1998........................................     107,500      77,500
Capital leases, maturing from 1996 to 2000, interest
  ranging from 8.94% to 10%, secured by transportation
  equipment............................................     403,057     420,536
Other..................................................       4,709      15,206
                                                         ----------  ----------
                                                            872,226     811,313
Less -- Current maturities.............................     262,046     266,830
                                                         ----------  ----------
                                                         $  610,180  $  544,483
                                                         ==========  ==========

     The Company has a $250,000 bank line of credit expiring July 31, 1996, with
interest payable monthly at prime plus .75 percent. As of December 31, 1995,
there were no borrowings on this agreement. In addition, the Company has a
$100,000 bank lease line of credit expiring January 2, 2000, with interest at
8.94 percent payable monthly. As of December 31, 1995, borrowings on the lease
line were $23,214 and are included in capital leases.

     The notes payable contain covenants which require the Company to maintain
specified financial covenants. As of December 31, 1995, the Company was in
compliance with these covenants.

     The aggregate maturities of long-term debt as of December 31, 1995, are as
follows:

Year ending December 31 --
     1996............................  $   93,071
     1997............................      94,220
     1998............................      83,015
     1999............................      61,867
     2000............................      13,263
     Thereafter......................      45,341
                                       ----------
                                       $  390,777
                                       ==========

                                      F-71

                      DIAL ONE MERIDIAN AND HOOSIER, INC.
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

     The future minimum lease payments under capital leases are as follows:

Year ending December 31 --
     1996............................  $  219,291
     1997............................     159,026
     1998............................      95,352
     1999............................      23,855
     2000............................      --
                                       ----------
          Total minimum lease
             payments................     497,524
Less -- Amounts representing
interest.............................     (76,988)
                                       ----------
          Net minimum lease
             payments................     420,536
Less -- Current portion of
  obligations under capital leases...     173,759
                                       ----------
          Long-term portion of
             obligations under
             capital leases..........  $  246,777
                                       ==========

     Management estimates that the fair value of its debt obligations
approximates the historical value of $811,313 at December 31, 1995.

6.  LEASES:

     The Company leases a facility from its shareholder. The lease was renewed
on January 1, 1995, and expires on December 31, 1999. The lease requires monthly
payments of $7,500. The amount paid under this lease in 1994 and 1995 was
approximately $76,000 and $90,000, respectively.

7.  INCOME TAX:

     Federal and state income taxes are as follows:

                                             YEAR ENDED
                                            DECEMBER 31
                                       ----------------------
                                          1994        1995
                                       ----------  ----------
Federal --
     Current.........................  $   --      $   97,907
     Deferred........................      85,943      39,549
State --
     Current.........................       2,062      35,278
     Deferred........................      22,360       5,753
                                       ----------  ----------
                                       $  110,365  $  178,487
                                       ==========  ==========

     Actual income tax expense differs from income tax expense computed by
applying the U.S. federal statutory corporate tax rate of 34 percent to income
before income tax as follows:

Tax provision at the statutory
rate.................................  $   91,476  $  152,965
Increase (decrease) resulting from --
     State income taxes, net of
       related tax effect............      16,118      27,080
     Nondeductible expenses..........       3,080         321
     Other...........................        (309)     (1,879)
                                       ----------  ----------
                                       $  110,365  $  178,487
                                       ==========  ==========

                                      F-72

                      DIAL ONE MERIDIAN AND HOOSIER, 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 and liabilities result principally from the following:

                                            DECEMBER 31
                                       ----------------------
                                          1994        1995
                                       ----------  ----------
Depreciation and amortization........  $    4,675  $   13,859
Accruals and reserves not deductible
  until paid.........................     (50,724)    (43,433)
Other................................     (27,652)      1,175
                                       ----------  ----------
          Total deferred income tax
             assets..................  $  (73,701) $  (28,399)
                                       ==========  ==========

The net deferred tax assets and liabilities are comprised of the following:

                                            DECEMBER 31
                                       ----------------------
                                          1994        1995
                                       ----------  ----------
Deferred tax assets --
     Current.........................  $  (47,275) $  (41,708)
     Long-term.......................     (26,426)     --
                                       ----------  ----------
          Total......................     (73,701)    (41,708)
Deferred tax liabilities,
  long-term..........................      --          13,309
                                       ----------  ----------
          Net deferred income tax
             assets..................  $  (73,701) $  (28,399)
                                       ==========  ==========

8.  FRANCHISE AGREEMENTS:

     In October 1993, the Company renewed a four-year franchise agreement with
DIAL ONE of Central Indiana, Inc. (DIAL ONE), a company wholly owned by the
shareholder of the Company. The Company pays $15,000 annually plus a royalty fee
of 3 percent of gross sales in excess of a predefined base. Total amounts
incurred in 1994 and 1995 under this agreement were approximately $92,000 and
$56,000, respectively.

     The Company pays the LINC Corporation for consulting services under a
franchise agreement through its commercial division. Fees are based on a royalty
fee on gross revenues with a minimum payment of $15,000 a year. In 1994 and
1995, the Company incurred approximately $58,000 and $61,000, respectively,
under the terms of the agreement.

9.  EMPLOYEE BENEFIT PLANS:

     The Company has adopted a retirement plan which qualifies under Section
401(k) of the Internal Revenue Code. The plan provides for 50 percent matching
contributions by the Company for the first $200 of each participant's
contribution. The Company has the right to make additional discretionary
contributions. Total contributions by the Company under this plan were
approximately $64,000 and $86,000 for 1994 and 1995, respectively.

10.  RELATED-PARTY TRANSACTIONS:

     The Company is a DIAL ONE franchise (see Note 8) under an agreement with
DIAL ONE. The Company also shares certain costs with DIAL ONE for personnel and
overhead, which are billed monthly to DIAL ONE, based on that company's pro rata
share of those expenses. In 1995, the Company received $24,000 in rental income
from DIAL ONE for space occupied in the building that the Company owns. At
December 31, 1994 and 1995, the Company had a balance due from DIAL ONE of
approximately $6,000 and $14,000, respectively.

                                      F-73

                      DIAL ONE MERIDIAN AND HOOSIER, INC.
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

11.  COMMITMENTS AND CONTINGENCIES:

  LITIGATION

     The Company is involved in legal actions arising in the ordinary course of
business. Management does not believe that 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 general
and business auto liability, commercial property, workers' compensation and a
general umbrella policy. The Company has not incurred significant claims or
losses on any of its insurance policies.

12.  SUBSEQUENT EVENT:

     Effective January 1, 1996, the Company acquired 100 percent of the
outstanding shares of stock in Sagamore Heating & Cooling, Inc. (Sagamore) for
$281,000. Consideration paid by the Company included $100,000 in cash and a
$181,000 note payable to the former owner. The Company consolidated Sagamore
effective as of the date of acquisition.

13.  EVENTS SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
     (UNAUDITED):

     In June 1996, the Company and its shareholder entered into a definitive
agreement with ARS, providing for the acquisition of the Company by ARS.

     Concurrent with the acquisition, the Company will enter into agreements
with the shareholder to lease land and buildings used in the Company's
operations for a negotiated amount and term.

                                      F-74

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To ADCOT, Inc.:

     We have audited the accompanying balance sheets of ADCOT, Inc. (a Texas
corporation), as of December 31, 1994 and 1995, and the related statements of
operations, shareholder's deficit and cash flows 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.

     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 ADCOT, Inc., as of December
31, 1994 and 1995, 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
May 24, 1996 (except with respect to
  the matter discussed in Note 4, as to
  which the date is June 5, 1996)

                                      F-75

                                  ADCOT, INC.
                                 BALANCE SHEETS

                                               DECEMBER 31
                                       ----------------------------   MARCH 31,
                                            1994           1995          1996
                                       -------------   ------------  -----------
                                                                     (UNAUDITED)
               ASSETS
CURRENT ASSETS:
     Cash and cash equivalents.......  $     122,966  $    256,104  $    48,788
     Accounts receivable --
          Trade......................          3,132       --            28,113
          Shareholder and
             affiliates..............         10,476        11,968       10,725
     Inventories.....................        416,332       411,892      644,623
     Prepaid expenses and other
       current assets................        --              23,607       49,944
                                       -------------  ------------  -----------
               Total current
                  assets.............        552,906       703,571      782,193
PROPERTY AND EQUIPMENT, net..........        294,820       299,757      355,242
OTHER NONCURRENT ASSETS..............        --                 999       31,345
NET ASSETS OF DISCONTINUED
  OPERATIONS.........................         34,065       123,494      510,235
                                       -------------  ------------  -----------
               Total assets..........  $     881,791  $  1,127,821  $ 1,679,015
                                       =============  ============  ===========
LIABILITIES AND SHAREHOLDER'S DEFICIT
CURRENT LIABILITIES:
     Current maturities of long-term
       debt..........................  $      15,692  $     77,263  $    83,138
     Accounts payable and accrued
       expenses......................        770,780       754,768    1,447,989
     Payable to shareholders and
       affiliates....................        266,297       241,008       --
     Unearned revenue on extended
       warranty contracts, current...        375,668       351,514      317,881
                                       -------------  ------------  -----------
               Total current
                  liabilities........      1,428,437     1,424,553    1,849,008
LONG-TERM DEBT, net of current
  maturities.........................        --              96,277      142,789
UNEARNED REVENUE ON EXTENDED WARRANTY
  CONTRACTS, noncurrent..............        637,614       579,307      612,942
OTHER LONG-TERM LIABILITIES..........         39,014       --            --
COMMITMENTS AND CONTINGENCIES
SHAREHOLDER'S DEFICIT:
     Common stock, $1 par value;
       100,000 shares authorized,
       10,000 issued and
       outstanding...................         10,000        10,000       10,000
     Deficit.........................     (1,233,274)     (982,316)    (935,724)
                                       -------------  ------------  -----------
               Total shareholder's
                  deficit............     (1,223,274)     (972,316)    (925,724)
                                       -------------  ------------  -----------
               Total liabilities and
                  shareholder's
                  deficit............  $     881,791  $  1,127,821  $ 1,679,015
                                       =============  ============  ===========

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

                                      F-76

                                  ADCOT, INC.
                            STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                               YEAR ENDED              THREE MONTHS ENDED
                                              DECEMBER 31                   MARCH 31
                                       --------------------------  --------------------------
                                           1994          1995          1995          1996
                                       ------------  ------------  ------------  ------------
                                                                          (UNAUDITED)
<S>                                    <C>           <C>           <C>           <C>
REVENUES.............................  $  8,675,616  $  8,707,403  $  1,704,276  $  2,022,260
COST OF SERVICES.....................     5,574,296     5,709,114     1,191,947     1,236,174
                                       ------------  ------------  ------------  ------------
     Gross profit....................     3,101,320     2,998,289       512,329       786,086
SELLING, GENERAL AND ADMINISTRATIVE
  EXPENSES...........................     2,443,678     2,347,954       508,333       582,837
                                       ------------  ------------  ------------  ------------
     Income from operations..........       657,642       650,335         3,996       203,249
OTHER INCOME (EXPENSE):
     Interest expense................       (36,224)      (83,754)       (6,591)       (9,207)
     Other...........................        24,430        65,530        15,908        19,241
                                       ------------  ------------  ------------  ------------
INCOME FROM CONTINUING OPERATIONS
  BEFORE STATE INCOME TAXES..........       645,848       632,111        13,313       213,283
PROVISION FOR STATE INCOME TAXES.....       --             43,165           660         3,558
                                       ------------  ------------  ------------  ------------
NET INCOME FROM CONTINUING
  OPERATIONS.........................       645,848       588,946        12,653       209,725
INCOME (LOSS) FROM DISCONTINUED
  OPERATIONS, net of applicable state
  income taxes.......................      (141,923)     (114,900)        3,207       (76,012)
                                       ------------  ------------  ------------  ------------
NET INCOME...........................  $    503,925  $    474,046  $     15,860  $    133,713
                                       ============  ============  ============  ============
</TABLE>
   The accompanying notes are an integral part of these financial statements.

                                      F-77

                                  ADCOT, INC.
                      STATEMENTS OF SHAREHOLDER'S DEFICIT
<TABLE>
<CAPTION>
                                           COMMON STOCK                             TOTAL
                                       --------------------                     SHAREHOLDER'S
                                        SHARES      AMOUNT       DEFICIT           DEFICIT
                                       ---------    -------   --------------    -------------

<S>                                    <C>          <C>       <C>                <C>
BALANCE, December 31, 1993...........     10,000    $10,000   $   (1,737,199)    $ (1,727,199)
     Net income......................     --          --             503,925          503,925
                                       ---------    -------   --------------    -------------
BALANCE, December 31, 1994...........     10,000     10,000       (1,233,274)      (1,223,274)
     Dividends.......................     --          --            (223,088)        (223,088)
     Net income......................     --          --             474,046          474,046
                                       ---------    -------   --------------    -------------
BALANCE, December 31, 1995...........     10,000     10,000         (982,316)        (972,316)
     Dividends (unaudited)...........     --          --             (87,121)         (87,121)
     Net income (unaudited)..........     --          --             133,713          133,713
                                       ---------    -------   --------------    -------------
BALANCE, March 31, 1996
  (unaudited)........................     10,000    $10,000   $     (935,724)    $   (925,724)
                                       =========    =======   ==============    =============
</TABLE>
   The accompanying notes are an integral part of these financial statements.

                                      F-78

                                  ADCOT, INC.
                            STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
                                               YEAR ENDED              THREE MONTHS ENDED
                                              DECEMBER 31                   MARCH 31
                                       --------------------------  --------------------------
                                           1994          1995          1995          1996
                                       ------------  ------------  ------------  ------------
                                                                          (UNAUDITED)
<S>                                    <C>           <C>           <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income.........................  $    503,925  $    474,046  $     15,860  $    133,713
  Adjustments to reconcile net income
     to net cash provided by (used
     in) operating activities --
     Depreciation and amortization...       271,420       261,704        60,063        49,976
     Gain on sale of property and
       equipment.....................       (18,251)      (19,519)      (16,963)      --
     Write-off of property and
       equipment.....................       --             26,118       --            --
     Changes in operating assets and
       liabilities -- (Increase)
       decrease in --
       Accounts receivable...........        (6,318)        1,640           471       (26,870)
       Inventories...................       225,814         4,440      (212,987)     (232,731)
       Prepaid expenses and other
          current assets.............       127,891       (23,607)      (51,407)      (26,337)
       Other noncurrent assets.......        10,369          (999)      --            (30,346)
     Increase (decrease) in --
       Accounts payable and accrued
          expenses...................      (786,089)      (16,012)       (7,835)      693,221
       Unearned revenue on extended
          warranty contracts.........        (8,288)      (82,461)      (20,615)            2
                                       ------------  ------------  ------------  ------------
          Net cash provided by (used
             in) operating
             activities..............       320,473       625,350      (233,413)      560,628
                                       ------------  ------------  ------------  ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Proceeds from sale of property and
     equipment.......................        19,503        21,188        17,625       --
  Additions to property and
     equipment.......................       (49,403)     (294,428)      (84,798)     (105,461)
  Cash provided by (used in)
     discontinued operations.........       188,714       (89,429)      181,904      (386,741)
                                       ------------  ------------  ------------  ------------
          Net cash provided by (used
             in) investing
             activities..............       158,814      (362,669)      114,731      (492,202)
                                       ------------  ------------  ------------  ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Decrease in payable to shareholder
     and affiliates..................      (314,134)      (25,289)      --           (241,008)
  Borrowings of long-term debt.......       --            214,553        57,100        98,809
  Principal payments of long-term
     debt............................      (106,035)      (56,705)       (9,759)      (46,422)
  Increase (decrease) in other
     long-term liabilities...........        39,014       (39,014)      (27,480)      --
  Dividends..........................       --           (223,088)      --            (87,121)
                                       ------------  ------------  ------------  ------------
          Net cash provided by (used
             in) financing
             activities..............      (381,155)     (129,543)       19,861      (275,742)
                                       ------------  ------------  ------------  ------------
NET INCREASE (DECREASE) IN CASH AND
  CASH EQUIVALENTS...................        98,132       133,138       (98,821)     (207,316)
CASH AND CASH EQUIVALENTS, beginning
  of period..........................        24,834       122,966       122,966       256,104
                                       ------------  ------------  ------------  ------------
CASH AND CASH EQUIVALENTS, end of
  period.............................  $    122,966  $    256,104  $     24,145  $     48,788
                                       ============  ============  ============  ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
  INFORMATION:
  Cash paid for --
     Interest........................  $     79,658  $    111,536  $      8,788  $     12,413
</TABLE>
   The accompanying notes are an integral part of these financial statements.

                                      F-79

                                  ADCOT, INC.
                         NOTES TO FINANCIAL STATEMENTS

1.  BUSINESS AND ORGANIZATION:

     ADCOT, Inc. (a Texas corporation) (the Company) (d.b.a. A-ABC Appliance),
is primarily engaged in the sales of consumer appliances and the service-related
activities of plumbing, air conditioning, appliance and electrical repair and
other home improvement services in Houston and the surrounding areas.

     In April 1996, the Company and its shareholder entered into a stock
purchase agreement with Service Enterprises, Inc. (SEI) to sell all of its
outstanding common stock for $2,000,000 to SEI.

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

  INTERIM FINANCIAL INFORMATION

     The interim financial statements as of March 31, 1996, and for the three
months ended March 31, 1995 and 1996, are unaudited, and certain information and
footnote disclosures, normally included in financial statements prepared in
accordance with generally accepted accounting principles, have been omitted. In
the opinion of management, all adjustments, consisting only of normal recurring
adjustments, necessary to fairly present the financial position, results of
operations and cash flows with respect to the interim financial statements, have
been included. The results of operations for the interim periods are not
necessarily indicative of the results for the entire fiscal year.

  INVENTORIES

     Inventories consist of appliances and service-related parts and supplies
held for use in the ordinary course of business and are valued at the lower of
cost or market using the weighted-average cost method.

  PROPERTY AND EQUIPMENT

     Property and equipment are recorded 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.

     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 or 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.

  INCOME TAXES

     The Company has elected S Corporation status as defined by the Internal
Revenue Code, whereby the Company is not subject to taxation for federal
purposes. Under S Corporation status, the shareholder reports his share of the
Company's taxable earnings or losses in his personal tax return.

     The Company is subject to Texas franchise tax which is an income-based tax.
Accordingly, the Company has recorded a provision for this tax in the
accompanying statement of operations for 1995. No provision for franchise taxes
was recorded in the 1994 statement of operations as the Company's franchise tax
was offset by a business loss carryover.

  REVENUE RECOGNITION

     The Company recognizes service revenue and parts sales revenue when a
product is delivered or the services are performed. Revenues from sales of
extended warranties are recognized over the life of the contract on a
straight-line basis.

                                      F-80

                                  ADCOT, INC.
                  NOTES TO 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 and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

  CASH AND CASH EQUIVALENTS

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

  NEW ACCOUNTING PRONOUNCEMENTS

     Effective January 1, 1995, 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, and
intangible 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 is compared to the asset's
carrying amount to determine if a write-down to market value or discounted cash
flow value was necessary. 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 consist of the following:

                                                            DECEMBER 31
                                      USEFUL LIVES   --------------------------
                                        IN YEARS         1994          1995
                                      ------------   ------------  ------------
Leasehold improvements...............    5 - 15      $    221,120  $    256,245
Transportation equipment.............      5              815,190       849,183
Computer and telephone equipment.....    5 - 7            351,383       --
Furniture and fixtures...............    5 - 7          1,053,293     1,109,215
                                                     ------------  ------------
                                                        2,440,986     2,214,643
Less -- Accumulated depreciation and
  amortization.......................                   2,146,166     1,914,886
                                                     ------------  ------------
          Property and equipment,
             net.....................                $    294,820  $    299,757
                                                     ============  ============

4.  DISCONTINUED OPERATIONS:

     Subsequent to the purchase of the Company by SEI, the board of directors of
SEI's parent company (Enterprise Holding Company) approved the disposition of
the Company's retail appliance sales division. The allocation of purchase price
to the fair market value of the net assets of the Company acquired by SEI will
be based on preliminary estimates of fair value and may be revised when
additional information concerning asset and liability valuations is obtained.
Accordingly, any gain or loss on the sale of the appliance sales division will
be considered an adjustment of purchase price.

     The net losses of these operations prior to April 1, 1996, are included in
the statements of operations under discontinued operations. Revenues, cost of
sales, selling, general and administrative expenses, other income and expense,
and income taxes for fiscal years 1994 and 1995 exclude amounts associated with
the discontinued division. Revenues from such operations were approximately
$12,101,000 and $11,915,000 for the years ended December 31, 1994 and 1995,
respectively. Certain expenses have been allocated to

                                      F-81

                                  ADCOT, INC.
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
discontinued operations, which were allocated based upon estimated divisional
usage. All assets of the operations are expected to be sold in 1996.

     The components of net assets of discontinued operations included in the
balance sheets are as follows:


                                            DECEMBER 31
                                       ----------------------
                                          1994        1995
                                       ----------  ----------

Net working capital (deficit)........  $  (64,208) $   55,667
Property and equipment, net..........      98,273      99,919
Other liabilities....................      --         (32,092)
                                       ----------  ----------
                                       $   34,065  $  123,494
                                       ==========  ==========

5.  DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:

     Accounts payable and accrued expenses consist of the following:

                                            DECEMBER 31
                                       ----------------------
                                          1994        1995
                                       ----------  ----------
Accounts payable, trade..............  $  488,819  $  495,031
Accrued compensation and benefits....      93,193      87,725
Accrued taxes, other than income.....     147,066     101,383
Other accrued expenses...............      41,702      70,629
                                       ----------  ----------
                                       $  770,780  $  754,768
                                       ==========  ==========

6.  INVENTORY FLOOR PLAN LIABILITY:

     The Company maintains certain inventories on a floor plan financing method
with General Electric Capital Corporation (GECC) in connection with its
discontinued retail appliance sales division. The terms of the floor plan allow
an interest-free period of 90 days after purchase followed by interest accruing
at a rate of prime plus 2.5 percent on the remaining unpaid balance. Payment is
due as the inventory is sold.

     The Company also has floor plan financing available from three other
companies with similar terms. However, the Company does not utilize these, and
had no balances outstanding at December 31, 1994 and 1995.

     The inventory floor plan facilities are personally guaranteed by the sole
shareholder and/or an officer of the Company.

7.  LONG-TERM DEBT:

     Long-term debt consists of the installment notes payable for transportation
equipment. The debt is secured by the related transportation equipment. The
terms of the notes are 36 months with monthly payments of principal and interest
of approximately $9,000. The notes bear interest at rates ranging from 8.25
percent to 11 percent.

     The aggregate maturities of long-term debt as of December 31, 1995, are as
follows:


Year ending December 31 --
     1996............................  $   77,263
     1997............................      67,241
     1998............................      29,036
                                       ----------
                                       $  173,540
                                       ==========

                                      F-82

                                  ADCOT, INC.
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

     Management estimates that the fair value of its debt obligations
approximates the historical value of $173,540 at December 31, 1995.

8.  LEASES:

  OPERATING LEASES

     The Company leases certain facilities from its sole shareholder and his
affiliates. The leases expire from 1997 through 2010. The rent paid under these
related-party leases was approximately $305,000 and $370,000 in 1994 and 1995,
respectively.

     Other nonrelated-party leases for retail facilities expire in 1997. The
rent paid under nonrelated-party leases was approximately $183,000 and $162,000
in 1994 and 1995, respectively.

     The lease terms generally range from five to 15 years. The leases generally
provide for the Company to pay taxes, maintenance, insurance and certain other
operating costs of the leased property. The leases on most of the properties
contain renewal provisions.

     Future minimum lease payments for operating leases are as follows:


Year ending December 31 --
     1996............................  $    558,140
     1997............................       430,034
     1998............................       330,288
     1999............................       292,848
     2000............................       240,432
     Thereafter......................       725,820
                                       ------------
                                       $  2,577,562
                                       ============

9.  RELATED-PARTY TRANSACTIONS:

     The Company has payables to its sole shareholder and certain other related
parties in the amounts of $266,297 and $241,008 at December 31, 1994 and 1995,
respectively. Interest accrues on these payables at 8 percent per annum.

10.  COMMITMENTS AND CONTINGENCIES:

  LITIGATION

     The Company is involved in legal actions arising in the ordinary course of
business. Management does not believe that 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 general
and business auto liability, commercial property, workers' compensation and a
general umbrella policy. The Company has not incurred significant claims or
losses on any of its insurance policies.

11.  EVENT SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
     (UNAUDITED):

     In June 1996, the Company and its shareholder entered into a definitive
agreement with ARS, providing for the acquisition of the Company by ARS.

                                      F-83



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

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

                               TABLE OF CONTENTS

                                                                            PAGE
                                                                            ----
Prospectus Summary ........................................................   3
Risk Factors ..............................................................  10
The Company ...............................................................  14
Use of Proceeds ...........................................................  16
Dividend Policy ...........................................................  17
Capitalization ............................................................  17
Dilution ..................................................................  18
Selected Financial Data ...................................................  19
Management's Discussion and Analysis
  of Financial Condition and Results
  of Operations ...........................................................  21
Business ..................................................................  33
Management ................................................................  42
Certain Transactions ......................................................  51
Security Ownership of Certain
  Beneficial Owners and Management ........................................  55
Shares Eligible for Future Sale ...........................................  56
Description of Capital Stock ..............................................  57
Underwriting ..............................................................  63
Legal Matters .............................................................  64
Experts ...................................................................  64
Additional Information ....................................................  64
Index to Financial Statements ............................................. F-1

Until                , 1996 (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 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.

                                4,200,000 SHARES

                                      LOGO

                                  COMMON STOCK
                                  ------------
                                   PROSPECTUS
                                AUGUST    , 1996
                                  ------------

                                SMITH BARNEY INC.

                                   MONTGOMERY
                                   SECURITIES


                                    PART II

                     INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13.  OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

     The following table sets forth the expenses (other than underwriting
discounts and commissions) in connection with the offering described in this
Registration Statement, all of which shall be paid by the Company. All of such
amounts (except the SEC Registration Fee, the NASD Filing Fee and the New York
Stock Exchange Listing Fee) are estimated.


SEC Registration Fee.................  $     21,652
NASD Filing Fee......................         6,779
NYSE Filing Fee......................       *
Blue Sky Fees and Expenses...........       *
Printing and Engraving Costs.........       *
Legal Fees and Expenses..............       *
Accounting Fees and Expenses.........       *
Transfer Agent and Registrar Fees and
  Expenses...........................       *
Miscellaneous........................       *
                                       ------------
          Total......................  $    *
                                       ============

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

* To be provided by amendment.

ITEM 14.  INDEMNIFICATION OF DIRECTORS AND OFFICERS.

  DELAWARE GENERAL CORPORATION LAW

     Section 145(a) of the General Corporation Law of the State of Delaware (the
"DGCL") provides that a corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgements, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of NOLO CONTENDERE or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.

     Section 145(b) of the DGCL states that a corporation may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that he is
or was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit if he acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Court of Chancery or the

                                      II-1

court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper.

     Section 145(c) of the DGCL provides that to the extent that a director,
officer, employee or agent of a corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in
subsections (a) and (b) of Section 145, or in defense of any claim, issue or
matter therein, he shall be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection therewith.

     Section 145(d) of the DGCL states that any indemnification under
subsections (a) and (b) of Section 145 (unless ordered by a court) shall be made
by the corporation only as authorized in the specific case upon a determination
that indemnification of the director, officer, employee or agent is proper in
the circumstances because he has met the applicable standard of conduct set
forth in subsections (a) and (b). Such determination shall be made (1) by the
board of directors by a majority vote of a quorum consisting of directors who
were not parties to such action, suit or proceeding, or (2) if such a quorum is
not obtainable, or, even if obtainable, a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or (3) by the
stockholders.
 
     Section 145(e) of the DGCL provides that expenses (including attorneys'
fees) incurred by an officer or director in defending any civil, criminal,
administrative or investigative action, suit or proceeding may be paid by the
corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it shall ultimately be determined that he is not
entitled to be indemnified by the corporation as authorized in Section 145. Such
expenses (including attorneys' fees) incurred by other employees and agents may
be so paid upon such terms and conditions, if any, as the board of directors
deems appropriate.
 
     Section 145(f) of the DGCL states that the indemnification and advancement
of expenses provided by, or granted pursuant to, the other subsections of
Section 145 shall not be deemed exclusive of any other rights to which those
seeking indemnification or advancement of expenses may be entitled under any
bylaw, agreement, vote of stockholders or disinterested directors or otherwise,
both as to action in his official capacity and as to action in another capacity
while holding such office.
 
     Section 145(g) of the DGCL provides that a corporation shall have the power
to purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the corporation
would have the power to indemnify him against such liability under the
provisions of Section 145.
 
     Section 145(j) of the DGCL states that the indemnification and advancement
of expenses provided by, or granted pursuant to, Section 145 shall, unless
otherwise provided when authorized or ratified, continue as to a person who has
ceased to be a director, officer, employee or agent, and shall inure to the
benefit of the heirs, executors and administrators of such a person.
 
  CERTIFICATE OF INCORPORATION

     The Restated Certificate of Incorporation of the Company provides that a
director of the Company shall not be personally liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to the
Company or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the DGCL or (iv) for any transaction from which the director
derived an improper personal benefit. If the DGCL is amended to authorize the
further elimination or limitation of the liability of directors, then the
liability of a director of the Company, in addition to the limitation on
personal liability described above, shall be limited to the fullest extent
permitted by the amended DGCL. Further, any repeal or modification of such
provision of the Restated Certificate of Incorporation by the stockholders of
the Company shall be prospective only, and shall not
 
                                      II-2
 
adversely affect any limitation on the personal liability of a director of the
Company existing at the time of such repeal or modification.
 
  BYLAWS
 
     The Bylaws of the Company provide that each person who was or is made a
party or is threatened to be made a party to or is involved in any action, suit
or proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that he or she, or a person of whom he or she is the legal
representative, is or was or has agreed to become a director or officer of the
Company or is or was serving or has agreed to serve at the request of the
Company as a director, officer, employee or agent of another corporation or of a
partnership, joint venture, trust or other enterprise, including service with
respect to employee benefit plans, whether the basis of such proceeding is
alleged action in an official capacity as a director or officer or in any other
capacity while serving or having agreed to serve as a director or officer, shall
be indemnified and held harmless by the Company to the fullest extent authorized
by the DGCL, as the same exists or may thereafter be amended (but, in the case
of any such amendment, only to the extent that such amendment permits the
Company to provide broader indemnification rights than said law permitted the
Company to provide prior to such amendment) against all expense, liability and
loss (including, without limitation, attorneys' fees, judgments, fines, ERISA
excise taxes or penalties and amounts paid or to be paid in settlement)
reasonably incurred or suffered by such person in connection therewith, and such
indemnification shall continue as to a person who has ceased to serve in the
capacity which initially entitled such person to indemnity thereunder and shall
inure to the benefit of his or her heirs, executors and administrators;
provided, however, that the Company shall indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such person only if such proceeding (or part thereof) was authorized by the
board of directors of the Company. The Bylaws further provide that the right to
indemnification conferred thereby shall be a contract right and shall include
the right to be paid by the Company the expenses incurred in defending any such
proceeding in advance of its final disposition; provided, however, that, if the
DGCL requires, the payment of such expenses incurred by a current, former or
proposed director or officer in his or her capacity as a director or officer or
proposed director or officer (and not in any other capacity in which service was
or is or has been agreed to be rendered by such person while a director or
officer, including, without limitation, service to an employee benefit plan) in
advance of the final disposition of a proceeding, shall be made only upon
delivery to the Company of an undertaking, by or on behalf of such indemnified
person, to repay all amounts so advanced if it shall ultimately be determined
that such indemnified person is not entitled to be indemnified under the Bylaws
or otherwise. In addition, the Bylaws provide that the Company may, by action of
its board of directors, provide indemnification to employees and agents of the
Company, individually or as a group, with the same scope and effect as the
indemnification of directors and officers provided for in the Bylaws.
 
  INDEMNIFICATION AGREEMENTS
 
     The Company has entered into Indemnification Agreements with each of its
directors. The Indemnification Agreements provide that the Company shall
indemnify the director and hold him harmless from any losses and expenses which,
in type or amount, are not insured under the directors and officers' liability
insurance maintained by the Company, and generally indemnifies the director
against losses and expenses as a result of a claim or claims made against him
for any breach of duty, neglect, error, misstatement, misleading statement,
omission or other act done or wrongfully attempted by the director or any of the
foregoing alleged by any claimant or any claim against the director solely by
reason of his being a director or officer of the Company, subject to certain
exclusions. The Indemnification Agreements also provide certain procedures
regarding the right to indemnification and for the advancement of expenses.
 
  UNDERWRITING AGREEMENT
 
     The Underwriting Agreement provides for the indemnification of the
directors and officers of the Company in certain circumstances.
 
                                      II-3
 
  INSURANCE
 
     The Company intends to maintain liability insurance for the benefit of its
directors and officers.
 
ITEM 15.  RECENT SALES OF UNREGISTERED SECURITIES.
 
     The following information relates to securities of the Company issued or
sold within the past three years which were not registered under the Securities
Act:
 
     On November 8, 1996, the Company issued 168,666, 168,666 and 112,445 shares
of Common Stock to C. Clifford Wright, William P. McCaughey and Howard S.
Hoover, Jr., respectively, the founders of the Company, for $1.00 per share.
Such issuances were exempt from the registration requirements of the Securities
Act by virtue of Section 4(2) thereof as transactions not involving any public
offering.
 
     On February 2, 1996, each outstanding share of Common Stock was
reclassified into 333 shares of Common Stock (the "First Stock Split"). All
share amounts reflected in the previous paragraph of this item 15 have been
adjusted to reflect the First Stock Split (and the Second Stock Split referred
to below). The First Stock Split was exempt from the registration requirements
of the Securities Act as it did not involve a "sale," as defined in Section
2(3) of the Securities Act.
 
     On March 19, 1996, the Company issued to Equus II Incorporated a revolving
convertible note with a maximum principal amount of $1.6 million. Of the amount
outstanding under such convertible note, $0.5 million in principal amount is
convertible into a number of shares of Common Stock equal to 10% of the shares
of Common Stock outstanding upon consummation of the Company's initial public
offering. Such issuance was exempt from the registration requirements of the
Securities Act by virtue of Section 4(2) thereof as a transaction not involving
any public offering.
 
     On March 19, 1996, the Company issued to Equus II Incorporated a warrant to
purchase 100,000 shares of Common Stock exercisable at the initial per share
public offering price. The warrants are exercisable at any time after the
closing of the initial public offering of the Company until five years from such
date. The number of shares represented by the warrant is subject to adjustment
for stock dividends and stock splits after the closing of the Company's initial
public offering. Such issuance was exempt from the registration requirements of
the Securities Act by virtue of Section 4(2) thereof as a transaction not
involving any public offering.
 
     On June 14, 1996, each outstanding share of Common Stock was reclassified
into 1.350685 shares of Common Stock (the "Second Stock Split"). Except where
the context otherwise requires, all share amounts reflected in the preceding
paragraphs of this item 15 have been adjusted to reflect the Second Stock Split.
The Second Stock Split was exempt from the registration requirements of the
Securities Act as it did not involve a "sale," as defined in Section 2(3) of
the Securities Act.
 
     Simultaneously with the completion of this Offering, the Company will issue
4,336,171 shares of Common Stock in connection with the acquisition of the
Founding Companies. Such issuances will be exempt from the registration
requirements of Section 4(2) thereof as transactions not involving any public
offering.
 
ITEM 16.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
 
     (a)  Exhibits.
 

    EXHIBIT
    NUMBER                          DESCRIPTION
    -------                         -----------
    *1.1       -- Form of Underwriting Agreement.
               
     2.1       -- Agreement and Plan of Reorganization dated as of June 13, 1996
                  by and among the Company, ARS Climatic Inc., Climatic
                  Corporation of Vero Beach and the stockholders named therein.

     2.2       -- Agreement and Plan of Reorganization dated as of June 13, 1996
                  by and among the Company, ARS FHAC Inc., Florida Heating and
                  Air Conditioning, Inc. and the stockholders named therein.

                                      II-4


     2.3       -- Agreement and Plan of Reorganization dated as of June 13, 1996
                  by and among the Company, ARS Atlas Inc., Atlas Services, Inc.
                  and the stockholders named therein.

     2.4       -- Agreement and Plan of Reorganization dated as of June 13, 1996
                  by and among the Company, ARS DIAL Inc., DIAL ONE Meridian and
                  Hoosier, Inc. and the stockholders named therein.

     2.5       -- Agreement and Plan of Reorganization dated as of June 13, 1996
                  by and among the Company, ARS Bullseye Inc., Bullseye Air
                  Conditioning, Inc. and the stockholders named therein.

     2.6       -- Agreement and Plan of Reorganization dated as of June 13, 1996
                  by and among the Company, ARS Duct Inc., Florida Heating and
                  Air Conditioning Duct, Inc. and the stockholders named
                  therein.

     2.7       -- Agreement and Plan of Reorganization dated as of June 13, 1996
                  by and among the Company, ARS Services Inc., Florida Heating
                  and Air Conditioning Service, Inc. and the stockholders named
                  therein.

     2.8       -- Agreement and Plan of Reorganization dated as of June 13, 1996
                  by and among the Company, ARS General Inc., General Heating
                  Engineering Company, Inc. and the stockholders named therein.

     2.9       -- Agreement and Plan of Reorganization dated as of June 13, 1996
                  by and among the Company, ARS Acquisition Inc., Enterprises
                  Holding Company and the stockholders named therein.

     2.10      -- Form of Uniform Provisions for the Acquisition of Founding
                  Companies.

    *3.1       -- Restated Certificate of Incorporation of the Company.

    *3.2       -- Bylaws of the Company.

    *3.3       -- Certificate of Designations of Series A Junior Participating
                  Preferred Stock.

    *4.1       -- Form of Certificate representing Common Stock.

    *4.2       -- Form of Rights Agreement of the Company, including form of
                  Rights Certificate as Exhibit B thereto.

     4.3       -- Form of Registration Rights Agreement among the Company and
                  the stockholders listed on the signature pages thereto.

     4.4       -- Stock Registration Agreement dated as of March 6, 1996 between
                  American Residential Services, Inc. and Equus II Incorporated.

     4.5       -- Stock Piggyback Registration Agreement dated as of 
                  March 19, 1996 between Enterprises Holding Company and
                  NationsBank of Texas, N.A.

    *5.1       -- Opinion of Baker & Botts, L.L.P.

   *10.1       -- American Residential Services, Inc. 1996 Incentive Plan.

   *10.2       -- Employment Agreement dated as of November 1, 1995 between the 
                  Company and Howard S. Hoover, Jr., as amended.

   *10.3       -- Employment Agreement dated as of November 1, 1995 between the 
                  Company and C. Clifford Wright, Jr., as amended.

   *10.4       -- Employment Agreement dated as of November 1, 1995 between the 
                  Company and William P. McCaughey, as amended.

   *10.5       -- Employment Agreement dated as of March 6, 1996 between the 
                  Company and John D. Held, as amended.

    10.6       -- Employment Agreement dated as of March 6, 1996 between the 
                  Company and A. Jefferson Walker, III.

    10.7       -- Employment Agreement dated as of April 15, 1996 between the 
                  Company and Michael Mamaux.

   *10.8       -- Employment Agreement dated as of June 13, 1996 between the
                  Company and Elliot Sokolow.

                                      II-5

   *10.9       -- Employment Agreement dated as of June 13, 1996 between the
                  Company and Howard W. Hauser.

   *10.10      -- Employment Agreement dated as of June 13, 1996 between the
                  Company and Gorden H. Timmons.

   *10.11      -- Employment Agreement dated as of June 13, 1996 between the 
                  Company and Gary Daymon.

   *10.12      -- Employment Agreement dated as of June 13, 1996 between the 
                  Company and Frank N. Menditch.

   *10.13      -- Employment Agreement dated as of June 13, 1996 between the 
                  Company and Howard C. Menditch.

   *10.14      -- Employment Agreement dated as of June 13, 1996 between the 
                  Company and Bruce L. Menditch.

   *10.15      -- Form of Indemnification Agreement between the Company and each
                  of its directors and officers.

   *21.1       -- Subsidiaries of the Company.

    23.1       -- Consent of Arthur Andersen LLP.

   *23.2       -- Consent of Baker & Botts, L.L.P.
                  (contained in Exhibit 5.1)

    23.3       -- Consent of Gorden H. Timmons, as a nominee for directorship.

    23.4       -- Consent of Elliot Sokolow, as a nominee for directorship.

    23.5       -- Consent of Nolan Lehmann, as a nominee for directorship.

    23.6       -- Consent of Randall B. Hale, as a nominee for directorship.

    23.7       -- Consent of Robert J. Cruikshank, as a nominee for 
                  directorship.

    23.8       -- Consent of Don D. Sykora, as a nominee for directorship.

    23.9       -- Consent of Frank N. Menditch, as a nominee for directorship.

    23.10      -- Consent of Thomas Amonett, as a nominee for directorship.

    24.1       -- Power of Attorney (included on the signature page of this 
                  Registration Statement).

   *27.1       -- Financial Data Schedule.
- ------------
 
* To be filed by amendment.
 
     (b)  Financial Statement Schedules.
 
     All schedules are omitted because they are not applicable or because the
required information is contained in the Financial Statements or Notes thereto.
 
ITEM 17.  UNDERTAKINGS.
 
     The undersigned registrant hereby undertakes to provide to the
Underwriters, at the closing specified in the Purchase Agreement, certificates
representing the shares of Common Stock offered hereby in such denominations and
registered in such names as required by the Underwriters to permit prompt
delivery to each purchaser.
 
     Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in
 
                                      II-6

the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
 
     The undersigned registrant hereby undertakes that:
 
          (1)  For the purposes of determining any liability under the
     Securities Act of 1933, the information omitted from the form of prospectus
     filed as a part of this registration statement in reliance upon Rule 430A
     and contained in a form of prospectus filed by the registrant pursuant to
     Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to
     be part of this registration statement as of the time it was declared
     effective.
 
          (2)  For the purpose of determining any liability under the Securities
     Act of 1933, each post-effective amendment that contains a form of
     prospectus shall be deemed to be a new registration statement relating to
     the securities offered therein, and the offering of such securities at that
     time shall be deemed to be the initial bona fide offering thereof.
 
                                      II-7
 
                                   SIGNATURES
 
     PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF HOUSTON, STATE OF TEXAS,
ON JUNE 17, 1996.
 
                                           AMERICAN RESIDENTIAL SERVICES, INC.
                                             By: /s/ C. CLIFFORD WRIGHT, JR.
                                                     C. CLIFFORD WRIGHT, JR.
                                                PRESIDENT AND CHIEF EXECUTIVE
                                                         OFFICER
 
     EACH PERSON WHOSE SIGNATURE APPEARS BELOW HEREBY APPOINTS C. CLIFFORD
WRIGHT, JR. AND HOWARD S. HOOVER, JR., AND BOTH OF THEM, EITHER OF WHOM MAY ACT
WITHOUT THE JOINDER OF THE OTHER, AS HIS TRUE AND LAWFUL ATTORNEYS-IN-FACT AND
AGENTS, WITH FULL POWER OF SUBSTITUTION AND RESUBSTITUTION, FOR HIM AND IN HIS
NAME, PLACE AND STEAD, IN ANY AND ALL CAPACITIES, TO SIGN ANY AND ALL AMENDMENTS
(INCLUDING POST-EFFECTIVE AMENDMENTS) TO THIS REGISTRATION STATEMENT AND ANY
REGISTRATION STATEMENT FOR THE SAME OFFERING FILED PURSUANT TO RULE 462 UNDER
THE SECURITIES ACT OF 1933, AND TO FILE THE SAME, WITH ALL EXHIBITS THERETO AND
ALL OTHER DOCUMENTS IN CONNECTION THEREWITH, WITH THE COMMISSION, GRANTING UNTO
SAID ATTORNEYS-IN-FACT AND AGENTS FULL POWER AND AUTHORITY TO DO AND PERFORM
EACH AND EVERY ACT AND THING APPROPRIATE OR NECESSARY TO BE DONE, AS FULLY AND
FOR ALL INTENTS AND PURPOSES AS HE MIGHT OR COULD DO IN PERSON, HEREBY RATIFYING
AND CONFIRMING ALL THAT SAID ATTORNEYS-IN-FACT AND AGENTS OR THEIR SUBSTITUTE OR
SUBSTITUTES MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.
 
     PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
 

                                    CAPACITY IN
        SIGNATURES                  WHICH SIGNED                       DATE
- ---------------------------  --------------------------------     --------------
                                                                             
/s/  C. CLIFFORD WRIGHT, JR.   President, Chief Executive          June 17, 1996
     C. CLIFFORD WRIGHT, JR.   Officer, and Director
                               (Principal Executive Officer and
                               Principal Financial Officer)

/s/  HOWARD S. HOOVER, JR.     Chairman of the Board               June 17, 1996
     HOWARD S. HOOVER, JR.

/s/  MICHAEL MAMAUX            Controller                          June 17, 1996
     MICHAEL MAMAUX            (Principal Accounting Officer)

/s/  WILLIAM P. MCCAUGHEY      Executive Vice President            June 17, 1996
     WILLIAM P. MCCAUGHEY      and Director
 
                                      II-8
[{"type": "S-1", "sequence": "1", "description": "REGISTRATION STATEMENT", "secsgml_size_bytes": 599952}]
{"company-data": {"conformed-name": "AMERICAN RESIDENTIAL SERVICES INC", "cik": "0001014187", "assigned-sic": "0000", "state-of-incorporation": "DE", "fiscal-year-end": "1231"}, "filing-values": {"form-type": "S-1", "act": "33", "file-number": "333-06195", "film-number": "96582467"}, "business-address": {"street1": "5850 SAN FELIPE", "street2": "SUITE 500", "city": "HOUSTON", "state": "TX", "zip": "77057", "phone": "7137066177"}}
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 18, 1996
                                                     REGISTRATION NO. 333-
================================================================================
                       SECURITIES AND EXCHANGE COMMISSION

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

                                    FORM S-1

            REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

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

                      AMERICAN RESIDENTIAL SERVICES, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE                             1711                                76-0484996
(STATE OR OTHER JURISDICTION OF    (PRIMARY STANDARD INDUSTRIAL      (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
 INCORPORATION OR ORGANIZATION      CLASSIFICATION CODE NUMBER)
5850 SAN FELIPE -- SUITE 500
                           HOUSTON, TEXAS 77057-8003
                                 (713) 706-6177

              (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
       INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
                            ------------------------

                               JOHN D. HELD, ESQ.
              SENIOR VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
                      AMERICAN RESIDENTIAL SERVICES, INC.
                          5850 SAN FELIPE -- SUITE 500
                           HOUSTON, TEXAS 77057-8003
                                 (713) 706-6177
               (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE
               NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE)

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

                                   COPIES TO:

      JAMES L. LEADER, ESQ.                 STEPHEN P. FARRELL, ESQ.
      BAKER & BOTTS, L.L.P.                MORGAN, LEWIS & BOCKIUS LLP
      3000 ONE SHELL PLAZA                       101 PARK AVENUE
    HOUSTON, TEXAS 77002-4995               NEW YORK, NEW YORK 10178
         (713) 229-1234                          (212) 309-6000

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

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

     If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box.  [ ]

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

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

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

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

                        CALCULATION OF REGISTRATION FEE
=========================================================================================================================
                                                             PROPOSED MAXIMUM     PROPOSED MAXIMUM
  TITLE OF EACH CLASS OF SECURITIES       AMOUNT TO BE        OFFERING PRICE     AGGREGATE OFFERING        AMOUNT OF
          TO BE REGISTERED                REGISTERED(1)        PER SHARE(2)           PRICE(2)         REGISTRATION FEE
- -------------------------------------------------------------------------------------------------------------------------
Common Stock, par value
  $.001 per share(3).................       4,830,000             $13.00             $62,790,000            $21,652
=========================================================================================================================
(1) Includes 630,000 shares subject to an option granted to the Underwriters to
    cover over-allotments, if any.

(2) Estimated solely for the purpose of calculating the registration fee.

(3) Includes the associated rights to purchase preferred stock.

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

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

                      AMERICAN RESIDENTIAL SERVICES, INC.

                             CROSS-REFERENCE SHEET
                   PURSUANT TO ITEM 501(B) OF REGULATION S-K
ITEM NUMBER AND CAPTION IN FORM S-1                          LOCATION OR CAPTION IN PROSPECTUS
- -----------------------------------------------------------------  ----------------------------------------------------
1.  Forepart of the Registration Statement and
             Outside Front Cover Page of Prospectus..............  Outside Front Cover Page of Prospectus

       2.  Inside Front and Outside Back Cover Pages
             of Prospectus.......................................  Inside Front and Outside Back Cover Pages
                                                                   of Prospectus
       3.  Summary Information, Risk Factors and Ratio
             of Earnings to Fixed Charges........................  Prospectus Summary; Risk Factors; The Company

       4.  Use of Proceeds.......................................  Prospectus Summary; Use of Proceeds; Business

       5.  Determination of Offering Price.......................  Outside Front Cover Page of Prospectus; Risk
                                                                   Factors; Underwriting

       6.  Dilution..............................................  Dilution

       7.  Selling Security Holders..............................  Not Applicable

       8.  Plan of Distribution..................................  Outside Front Cover Page of Prospectus; Underwriting

       9.  Description of Securities to be Registered............  Prospectus Summary; Capitalization; Description of
                                                                   Capital Stock

      10.  Interests of Named Experts and Counsel................  Not Applicable

      11.  Information with Respect to the Registrant............  Outside Front Cover Page of Prospectus; Prospectus
                                                                   Summary; Risk Factors; The Company; Use of Proceeds;
                                                                   Dividend Policy; Capitalization; Dilution; Selected
                                                                   Financial Data; Management's Discussion and Analysis
                                                                   of Financial Condition and Results of Operations;
                                                                   Business; Management; Certain Transactions; Security
                                                                   Ownership of Certain Beneficial Owners and
                                                                   Management; Shares Eligible for Future Sale;
                                                                   Description of Capital Stock; Financial Statements

      12.  Disclosure of Commission Position on
             Indemnification for Securities Act Liabilities......  Not Applicable
*******************************************************************************
*    INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A    *
*    REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED       *
*    WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT    *
*    BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE          *
*    REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT      *
*    CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR   *
*    SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH   *
*    OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR   *
*    QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.               *
*******************************************************************************

                 SUBJECT TO COMPLETION, DATED JUNE 18, 1996
PROSPECTUS

                              4,200,000 Shares

                    AMERICAN RESIDENTIAL SERVICES, INC.

                                Common Stock

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

     All the shares of common stock, $.001 par value per share (the "Common
Stock"), offered hereby are being sold by American Residential Services, Inc.
("ARS"). Prior to this offering, there has not been a public market for the
Common Stock of ARS. It is currently estimated that the initial public offering
price will be $13.00 per share. See "Underwriting" for information relating to
the factors to be considered in determining the initial public offering price.
Application has been made to have the Common Stock listed on the New York Stock
Exchange under the symbol "ARS."

     SEE "RISK FACTORS" ON PAGE 10 OF THIS PROSPECTUS FOR A DISCUSSION OF
CERTAIN RISK FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE
COMMON STOCK OFFERED HEREBY.
                               ------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
     EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
   SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
        PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
           REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
==================================================================================================================
                                                                       UNDERWRITING
                                               PRICE TO               DISCOUNTS AND              PROCEEDS TO
                                                PUBLIC                COMMISSIONS(1)              COMPANY(2)
- ------------------------------------------------------------------------------------------------------------------
Per Share............................            $                         $                         $
- ------------------------------------------------------------------------------------------------------------------
Total(3).............................          $                         $                         $
==================================================================================================================
(1) For information regarding indemnification of the several Underwriters,
       see "Underwriting."

   (2) Before deducting expenses estimated at $      payable by ARS.

   (3) ARS has granted the several Underwriters a 30-day option to purchase up
       to 630,000 additional shares of Common Stock solely to cover
       over-allotments, if any. See "Underwriting." If such option is
       exercised in full, the total Price to Public, Underwriting Discounts and
       Commissions and Proceeds to Company will be $       , $       and
       $       , respectively.

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

     The shares of Common Stock are being offered by the several Underwriters
named herein, subject to prior sale, when, as and if accepted by them and
subject to certain conditions. It is expected that certificates for the shares
of Common Stock offered hereby will be available for delivery on or about August
  , 1996 at the office of Smith Barney Inc., 333 West 34th Street, New York, New
York 10001.

Smith Barney Inc.                                          Montgomery Securities

August   , 1996
[graphics -- gatefold, showing service vehicles,
            facilities and personnel of the Founding Companies]

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

     IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
 
                                       2

                               PROSPECTUS SUMMARY

     CONCURRENTLY WITH THE CLOSING OF THE OFFERING MADE HEREBY (THE
"OFFERING"), ARS PLANS TO ACQUIRE, IN SEPARATE TRANSACTIONS (COLLECTIVELY, THE
"ACQUISITIONS"), IN EXCHANGE FOR CONSIDERATION INCLUDING SHARES OF ITS COMMON
STOCK, SEVEN RESIDENTIAL SERVICES BUSINESSES (COLLECTIVELY, THE "FOUNDING
COMPANIES"), TWO OF WHICH ALREADY HAVE BEEN ACQUIRED BY AN AFFILIATE OF ARS.
SEE "THE COMPANY." THE NUMBER OF SHARES OF COMMON STOCK TO BE ISSUED IN EACH
ACQUISITION WILL DEPEND ON THE INITIAL PUBLIC OFFERING PRICE OF THE COMMON
STOCK. ACCORDINGLY, THE DISCLOSURES HEREIN RELATING TO THE SHARES OF COMMON
STOCK TO BE ISSUED IN CONNECTION WITH THE ACQUISITIONS ARE ESTIMATED, BASED ON
AN ASSUMED INITIAL PUBLIC OFFERING PRICE OF $13.00 PER SHARE. UNLESS OTHERWISE
INDICATED BY THE CONTEXT, REFERENCES HEREIN TO (I) "ARS" MEAN AMERICAN
RESIDENTIAL SERVICES, INC., (II) THE "COMPANY" MEAN ARS AND THE FOUNDING
COMPANIES AND (III) "FISCAL 1993," "FISCAL 1994" AND "FISCAL 1995" MEAN,
RESPECTIVELY, THE YEAR ENDED DECEMBER 31, 1993, 1994 AND 1995 WITH RESPECT TO
THE COMPANY AND FIVE FOUNDING COMPANIES, JUNE 30, 1993 AND 1994 AND DECEMBER 31,
1995 WITH RESPECT TO ONE FOUNDING COMPANY AND APRIL 30, 1994, 1995 AND 1996 WITH
RESPECT TO ONE OTHER FOUNDING COMPANY.

     THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED
INFORMATION AND FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, APPEARING
ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, THE INFORMATION AND
SHARE AND PER SHARE DATA IN THIS PROSPECTUS (I) GIVE EFFECT TO THE ACQUISITIONS,
(II) ASSUME THE UNDERWRITERS' OVER-ALLOTMENT OPTION IS NOT EXERCISED AND (III)
GIVE EFFECT TO AN APPROXIMATE 1.35-FOR-1 STOCK SPLIT OF THE COMMON STOCK AND THE
CONVERSION OF A CONVERTIBLE NOTE INTO COMMON STOCK.

                                  THE COMPANY
 
     ARS was founded in October 1995 to create a leading national provider of
(i) comprehensive maintenance, repair and replacement services for heating,
ventilating and air conditioning ("HVAC") systems, including indoor air
quality services, and for plumbing, electrical and other systems in homes and
commercial buildings and (ii) new installation services of those systems in
homes and commercial facilities under construction (collectively, "residential
services"). To achieve this goal, the Company intends to implement an
aggressive acquisition program and a national operating strategy designed to
increase internal revenue growth and capitalize on cost efficiencies. During
fiscal 1995, the combined revenues of the Founding Companies totaled $114.6
million, of which maintenance, repair and replacement services accounted for
approximately 48% and new installation services accounted for approximately 52%.
The Company believes the profitability of its maintenance, repair and
replacement business benefits from its installation services operations as a
result of (i) the significant volume of purchases of HVAC systems for its
high-volume installation services and (ii) the addition of new customer and
equipment information to the Company's marketing database. This database
provides the Company with valuable information that can be used to expand the
Company's future residential services revenue base. In addition, new
installation services provide the Company with cooperative advertising credits
from HVAC system manufacturers which it uses for promoting its maintenance,
repair and replacement services for residential HVAC systems. Through leveraging
these benefits, acquiring new service companies and internal development, the
Company intends to emphasize the growth of its higher-margin maintenance, repair
and replacement services business.
 
     ARS has definitive agreements to acquire the seven Founding Companies
simultaneously with the closing of this Offering. The Founding Companies have
been in business an average of 31 years and provide various residential services
in and around the Houston and Washington-Baltimore metropolitan areas, Richmond,
Virginia, throughout South Carolina, southeast Florida and central Indiana
(primarily Indianapolis). The Company is a leading provider of one or more
residential services in each region in which it operates. During fiscal 1995,
the Company's service and installation technicians (totaling approximately 930
as of March 31, 1996) responded to approximately 263,000 maintenance, repair and
replacement service calls and installed approximately 12,800 HVAC systems in
newly built homes, 

                                     3

apartments and small commercial buildings. Three of the largest Founding
Companies, representing approximately 63% of the Company's fiscal 1995 combined
revenues, have been members of an industry-sponsored practice-sharing group for
the past six years. Through this arrangement, they have developed common
marketing plans, computer systems and other operational practices in order to
develop "best practices" in their respective markets. The Company believes
building upon this arrangement to include all the Founding Companies will aid in
the initial integration of the Founding Companies following the closing of this
Offering.
 
     The Company estimates that the HVAC, plumbing and electrical industries in
the United States represent an annual market in excess of $  billion, of which
maintenance, repair and replacement services account for in excess of $
billion. It believes this market is served by several thousand companies,
consisting predominantly of small, owner-operated businesses operating in single
local geographic areas and providing a limited range of services. For example,
the Company estimates there are more than 500 companies serving this market in
Houston. It believes the majority of owners in its industry have limited access
to adequate capital for modernization, training and expansion and limited
opportunities for liquidity in their businesses.
 
     The Company believes significant opportunities are available to a well
capitalized, national company employing professionally trained,
customer-oriented service technicians and providing a full complement of
high-quality residential services in an industry that has been characterized by
inconsistent quality, reliability and pricing. It also believes the highly
fragmented nature of the residential services industry will provide it with
significant opportunities to consolidate the capabilities and resources of a
large number of existing residential services businesses.
 
BUSINESS STRATEGY
 
     The Company plans to achieve its goal of becoming the leading national
provider of professional, high-quality residential services by emphasizing
growth through acquisitions and implementing a national operating strategy that
enhances internal revenue growth and achieves cost efficiencies.
 
     GROWTH THROUGH ACQUISITION.  The Company intends to implement an aggressive
acquisition program targeting large metropolitan and high-growth suburban areas
with attractive residential demographics. The Company's acquisition strategy
involves entering new geographic markets and expanding within existing markets.
 
      o   ENTERING NEW GEOGRAPHIC MARKETS.  In each new market, the Company will
          initially target for acquisition one or more leading local or regional
          companies providing residential services and having the critical mass
          necessary to be a core business around which other residential service
          operations can be assembled. An important criterion for these
          acquisition candidates will be superior operational management
          personnel, whom the Company generally will seek to retain.
 
      o   EXPANDING WITHIN EXISTING MARKETS.  Once the Company has entered a
          market, it will seek to acquire other well-established service
          companies operating within that region, in order to expand its market
          penetration and expand the range of services it offers in that market.
          The Company also will pursue "tuck-in" acquisitions of smaller
          residential services companies whose operations can be incorporated
          into the Company's existing operations without a significant increase
          in infrastructure.
 
     IMPLEMENTATION OF A NATIONAL OPERATING STRATEGY.  The Company intends to
implement a national operating strategy employing "best practices" designed to
increase internal growth through enhanced operations and the achievement of cost
efficiencies.
 
      o   INTERNAL GROWTH.  The Company will review its operations at the local
          and regional operating levels (as well as examine other service
          industry practices) in order to identify certain "best practices"
          that will be implemented throughout its operations. For example, the
          Company intends 

                                       4

          to provide 24-hour emergency service at each of its locations and to
          monitor service call quality by attempting to contact each of its
          service customers promptly following a service call. In addition, the
          Company intends to utilize a national training program to improve and
          keep current the technical, selling and customer relations skills of
          its service technicians and will use specialized computer technology
          at each of its locations to improve communications, vehicle dispatch
          and service quality and responsiveness. Management believes these
          practices will enable the Company to provide superior customer service
          and maximize sales opportunities. This service-oriented strategy will
          also allow the Company to reinforce its brand images at the local
          level while fostering its efforts to develop a national brand name.
 
      o   COST EFFICIENCIES.  The Company believes it should be able to reduce
          the total operating expenses of the Founding Companies and other
          acquired businesses by eliminating duplicative functions and
          consolidating certain functions performed separately by each company
          prior to its acquisition. In addition, the Company believes that, as a
          large, national residential services company, it should experience
          reduced costs compared to those of the individual Founding Companies
          and other acquired companies in such areas as: the purchase of
          equipment for resale, service vehicles, parts and tools; vehicle and
          equipment maintenance; financing arrangements; and insurance and
          bonding.
 
                                 THIS OFFERING
 
                                    
Common Stock offered by the Company..  4,200,000

Common Stock to be outstanding after
  this Offering(1)...................  8,995,564

Use of Proceeds......................  To pay the cash portion of the purchase 
                                       price for the Founding Companies and to 
                                       repay indebtedness of the Founding 
                                       Companies. See "Use of Proceeds."

Proposed NYSE symbol.................  ARS
- ------------
(1) The number of shares estimated to be outstanding on completion of this
    Offering (i) includes shares issued as consideration in the Acquisitions or
    on conversion in part of an ARS convertible note issued in the
    organizational financing of ARS and (ii) includes 46,156 shares to be
    awarded under the Company's 1996 Incentive Plan to certain employees of the
    Company on the closing of one of the Acquisitions, but (iii) excludes an
    aggregate of 1,345,000 shares subject to options granted under the Company's
    1996 Incentive Plan. See "Certain Transactions -- Organization of the
    Company" and "Management -- Option Grants."
 
                            ------------------------
 
                                  RISK FACTORS
 
   The Common Stock offered hereby involves a high degree of risk. See "Risk
                                   Factors."
 
                            ------------------------

                                       5
 
                             SUMMARY FINANCIAL DATA
                 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
 
     ARS will acquire the Founding Companies simultaneously with and as a
condition to the consummation of this Offering. The Combined Founding Company
Statements of Operations data for fiscal 1993, 1994, and 1995 and for the three
months ended March 31, 1995 and 1996 represent the combined data of the Founding
Companies on an historical basis and exclude the effects of pro forma
adjustments. This 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 had different tax
structures (S corporations and C corporations) during the periods presented and
(ii) the Company will use the purchase method to establish a new basis of
accounting to record the Acquisitions. The following summary unaudited pro forma
financial data presents ARS, as adjusted for (i) the effects of the Acquisitions
on an historical basis, (ii) the effects of certain pro forma adjustments to the
historical financial statements and (iii) the consummation of this Offering. See
"Selected Financial Data" and the Unaudited Pro Forma Combined Financial
Statements and the notes thereto included elsewhere in this Prospectus.
THREE MONTHS
                                               FISCAL YEAR ENDED             ENDED MARCH 31
                                       ---------------------------------  --------------------
                                         1993        1994        1995       1995       1996
                                       ---------  ----------  ----------  ---------  ---------
COMBINED FOUNDING COMPANIES
  STATEMENTS OF OPERATIONS DATA
  (UNAUDITED):
     Revenues........................  $  94,263  $  105,610  $  114,636  $  23,727  $  26,076
     Gross profit....................     25,579      25,860      29,416      5,573      6,670
     Selling, general and
       administrative expenses(1)....     20,629      22,104      24,190      5,301      5,853
PRO FORMA(2)
                                        -----------------------------------
                                                           THREE MONTHS
                                                          ENDED MARCH 31
                                                       --------------------
                                        FISCAL 1995      1995       1996
                                        ------------   ---------  ---------
ARS STATEMENTS OF OPERATIONS DATA
  (UNAUDITED):
     Revenues........................     $114,636     $  23,727  $  26,076
     Gross profit....................       29,643         5,630      6,739
     Selling, general and
       administrative expenses(1)....       22,321         4,776      5,670
     Goodwill amortization(3)........        1,549           387        387
     Operating income................        5,773           467        682
     Interest income and other
       expense, net(4)...............          613           152        174
     Interest expense................         (865)         (221)      (227)
     Net income from continuing
       operations....................     $  2,972     $     214  $     339
                                          ========     =========  =========
     Net income per share from
       continuing operations.........     $    .33     $     .02  $     .04
                                          ========     =========  =========
     Shares used in computing pro
       forma net income per share
       from continuing
       operations(4).................        8,996         8,996      8,996
                                          ========     =========  =========

                                              MARCH 31, 1996
                                        ---------------------------
                                          PRO
                                        FORMA(2)     AS ADJUSTED(5)
                                        --------     --------------

ARS BALANCE SHEET DATA (UNAUDITED):
     Working capital.................   $(33,873)       $  2,027
     Total assets....................     93,784          93,826
     Total debt, including current
      portion........................     22,546          10,435
     Stockholders' equity............     20,176          67,629

                                                   (FOOTNOTES ON FOLLOWING PAGE)
                                       6
- ------------
(1) The historical combined statements exclude, and the pro forma combined
    statements include, the effect of certain reductions in salary and benefits
    to the owners of six of the Founding Companies to which they have agreed, as
    follows: fiscal 1993, $998; fiscal 1994, $1,420; fiscal 1995, $1,808; and
    three months ended March 31, 1995 and 1996, $470 and $493, respectively.

(2) The pro forma statements of operations and the pro forma balance sheet
    assume that the Acquisitions were closed on January 1 of each period
    presented and March 31, 1996, respectively, and are not necessarily
    indicative of the results the Company would have obtained had these events
    actually then occurred or of the Company's future results. The pro forma
    combined financial information in these statements (i) is based on
    preliminary estimates, available information and certain assumptions that
    management deems appropriate and (ii) should be read in conjunction with the
    other financial statements and notes thereto included elsewhere in this
    Prospectus.

(3) Reflects amortization of the goodwill to be recorded as a result of the
    Acquisitions over a 40-year period.

(4) Computed on a basis described in Note 5 of Notes to Unaudited Pro Forma
    Combined Financial Statements.

(5) Reflects the closing of this Offering and the Company's application of the
    net proceeds therefrom. See "Use of Proceeds."

                                       7

               SUMMARY INDIVIDUAL FOUNDING COMPANY FINANCIAL DATA
                                 (IN THOUSANDS)

     The following table presents summary data for each Founding Company for its
three most recent fiscal years as well as the most recent interim period and
comparative period of the prior year, as applicable.
THREE MONTHS ENDED
                                                   FISCAL                     MARCH 31
                                       -------------------------------  --------------------
                                         1993       1994       1995       1995       1996
                                       ---------  ---------  ---------  ---------  ---------
                                                                            (UNAUDITED)
GENERAL HEATING:

     Revenues........................  $  34,642  $  36,334  $  35,159  $   7,651  $   7,033
     Gross profit....................      7,249      6,406      6,293      1,250      1,162
     Selling, general and
       administrative expenses(1)....      5,011      5,245      5,280      1,351      1,186
ATLAS(2):
     Revenues........................  $  10,210  $  15,625  $  22,048  $   4,939  $   6,573
     Gross profit....................      2,027      2,948      4,237        945      1,358
     Selling, general and
       administrative expenses(1)....      1,761      2,421      3,022        688        874
CROWN:
     Revenues........................  $  16,268  $  16,844  $  19,124  $   3,555  $   4,152
     Gross profit....................      5,937      6,529      7,791      1,400      1,509
     Selling, general and
       administrative expenses(1)....      5,698      5,837      6,165      1,348      1,519
FLORIDA HAC(3):
     Revenues........................  $  13,123  $  15,845  $  14,510  $   3,919  $   3,658
     Gross profit....................      3,217      3,766      3,969        929        984
     Selling, general and
       administrative expenses(1)....      2,807      3,321      3,738        894        837
MERIDIAN & HOOSIER(3):
     Revenues........................  $   5,864  $   8,066  $  10,133  $   1,959  $   2,638
     Gross profit....................      1,800      2,269      2,852        537        871
     Selling, general and
       administrative expenses(1)....      1,454      1,989      2,350        512        854
A-ABC(3):
     Revenues........................  $  10,979  $   8,676  $   8,707  $   1,704  $   2,022
     Gross profit....................      4,584      3,101      2,998        512        786
     Selling, general and
       administrative expenses(1)....      3,159      2,444      2,348        508        583
CLIMATIC:(3)
     Revenues........................  $   3,177  $   4,220  $   4,955
     Gross profit....................        765        841      1,276
     Selling, general and
       administrative
       expenses......................        739        847      1,287
(FOOTNOTES ON FOLLOWING PAGE)
                                       8

 (1) Excludes the effects of certain reductions in salaries and benefits to the
     owners of six of the Founding Companies, as follows:
THREE MONTHS ENDED
                                                      FISCAL                     MARCH 31
                                          -------------------------------  --------------------
                                            1993       1994       1995       1995       1996
                                          ---------  ---------  ---------  ---------  ---------
General Heating.........................  $      39  $      31  $      41  $      10  $      10
Atlas...................................         88        123        210         52         52
Crown...................................        729        402        449        110        115
Florida HAC.............................         58        712        868        245        266
Meridian & Hoosier......................          8         42        104         19         16
A-ABC...................................         76        110        136         34         34
- ------------
 (2) Results for fiscal years ended June 30, 1993 and 1994 and December 31,
     1995.

 (3) The following summary financial data is unaudited: Florida HAC, fiscal 1993
     and 1994; Meridian & Hoosier and A-ABC, fiscal 1993; and Climatic, all
     fiscal years.

                                        9

                                  RISK FACTORS

     PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS, AS
WELL AS THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS. THIS PROSPECTUS
CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS. ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE PROJECTED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF
ANY NUMBER OF FACTORS, INCLUDING THE RISK FACTORS SET FORTH BELOW AND ELSEWHERE
IN THIS PROSPECTUS.

ABSENCE OF COMBINED OPERATING HISTORY
 
     ARS, incorporated in Delaware in October 1995, has conducted no operations
to date other than in connection with its pending acquisitions in separate
transactions (the "Acquisitions") of seven businesses (the "Founding
Companies"), two of which already have been acquired by an affiliate of ARS,
and this Offering. See "The Company." The Founding Companies have operated,
and will continue to operate prior to the closing of the Acquisitions, as
separate, independent businesses, and the Company will use the purchase method
of accounting to record the Acquisitions. Consequently, the pro forma financial
information herein may not be indicative of the Company's future operating
results and financial condition. Until the Company establishes centralized
accounting and other administrative systems, it will rely on the separate
systems of the Founding Companies. The success of the Company will depend, in
part, on the extent to which the Company is able to centralize these functions,
eliminate the unnecessary duplication of other functions and otherwise integrate
the Founding Companies and such additional businesses as the Company may acquire
into a cohesive, efficient enterprise. No assurance can be given the Company's
management group will be able to manage effectively the combined entity or
implement the Company's acquisition or national operating strategy.
 
DEPENDENCE ON ACQUISITIONS FOR GROWTH
 
     The Company intends to grow primarily by acquiring residential services
businesses that maintain, repair, replace and install heating, ventilating and
air conditioning ("HVAC"), plumbing, electrical and other systems and
equipment in homes and small commercial buildings in its existing and in new
markets. Its acquisition strategy presents risks that, singly or in any
combination, could materially adversely affect the Company's business and
financial performance. These risks include the possibility of the adverse effect
on existing operations of the Company from the diversion of management attention
and resources to acquisitions, the possible loss of acquired customer bases and
key personnel, including service technicians, and the contingent and latent
risks associated with the past operations and other unanticipated problems
arising in the acquired businesses. The success of the Company's acquisition
strategy will depend on the extent to which it is able to acquire, successfully
absorb and profitably manage additional businesses, and no assurance can be
given the Company's strategy will succeed. In this connection, if competition
for acquisition candidates develops, the cost of acquiring businesses could
increase materially. See "Business -- Business Strategy."

NEED FOR ADDITIONAL FINANCING

     The Company currently intends to use shares of its Common Stock in making
future acquisitions. The extent to which the Company will be able or willing to
use the Common Stock for this purpose will depend on its market value from time
to time and the willingness of potential sellers to accept it as full or partial
payment. To the extent the Company is unable to use its Common Stock to make
future acquisitions, its ability to grow may be limited by the extent to which
it is able to raise capital for this purpose, as well as to expand existing
operations, through debt or additional equity financings. The Company is
currently pursuing the establishment of a line of credit of at least $50 million
from one or more financial institutions to be used for acquisitions, working
capital and other corporate purposes. In addition, the Company plans to use a
portion of this facility (presently estimated to be approximately $10 million)
to refinance indebtedness of the Founding Companies. No assurance can be given
the Company will be able to obtain a line of credit of that size on terms it
considers acceptable or that it will otherwise be able to obtain the capital it
would need to finance a successful acquisition program and its other cash needs.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."

                                       10

DEPENDENCE ON HOUSING STARTS

     The extent to which the Company is able to maintain or increase revenues
from new installation services for homebuilders will depend on the levels of
housing starts from time to time in the markets in which it operates and likely
will reflect the cyclical nature of the homebuilding industry. That industry is
affected significantly 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 interest in
determining federal income tax), consumer confidence and housing demand. Unless
and until the Company is able through implementation of its growth strategy to
reduce the relative importance of new installation services to its overall
operating results, downturns in the levels of housing starts could have a
material adverse effect on its results of operations.

FACTORS AFFECTING INTERNAL GROWTH
 
     The factors affecting the Company's ability to generate internal growth
will include the extent to which it is able to expand the range of services
offered to customers, increase existing customer bases through the development
and implementation of cost-effective advertising and other marketing programs
and reduce operating and overhead costs of acquired businesses. Factors
affecting the ability of the Founding Companies to expand services will include
the extent to which they are able to attract and retain qualified operational
management and service and installation technicians in new areas of operation
and leverage their relationships with existing customers to provide them
services they currently obtain from others.
 
PROCEEDS OF OFFERING PAYABLE TO AFFILIATES AND ASSOCIATES
 
     ARS will use the net proceeds of this Offering, an anticipated new credit
facility and cash available from the Founding Companies to meet its cash
requirements relating to the closing of the Acquisitions, and no portion of the
net proceeds of this Offering should be considered available to meet the
Company's cash requirements following closing of the Acquisitions and this
Offering. In connection with the closing of the Acquisitions, ARS will pay,
subject to upward and possible downward working capital and other adjustments,
approximately $30.2 million in cash for stock of the Founding Companies which is
beneficially owned by individuals who will become directors of the Company
and/or executive officers of subsidiaries of the Company and approximately
$     million to pay or refinance debt of or relating to the Founding Companies,
including approximately $14.5 million of debt of Enterprises Holding Company
("EHC"), an affiliate of ARS and the owner of two of the Founding Companies.
See "Use of Proceeds" and "Certain Transactions."
 
COMPETITION
 
     The markets for the residential services the Company provides are highly
competitive and are served principally by small, owner-operated private
companies. Certain of these smaller competitors may have lower overhead cost
structures and, consequently, may be able to provide their services at lower
rates than the Company. The Company believes the residential services industry
is subject to rapid consolidation on both a national and a regional scale. Other
companies, including unregulated affiliates of electric and gas public
utilities, which have objectives the same as or similar to the Company's
objectives, may enter the industry. These entrants 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 opportunities. Consequently, the Company may encounter significant
competition in its efforts to achieve its growth objectives. See
"Business -- Competition."
 
SEASONALITY
 
     The Company's installation, maintenance, repair and replacement operations
are subject to seasonal variations in the different lines of service. Except in
southeast Florida and South Carolina, the demand for new installations can be
substantially lower during the winter months. Demand for HVAC and plumbing
services generally varies with the weather; demand generally is higher during
periods of extremely cold or hot weather and lower in the spring and fall
months. The Company expects its revenues and operating
 
                                       11
 
results generally will be lower in its first and fourth quarters. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Seasonality."
 
DEPENDENCE ON KEY PERSONNEL
 
     The Company's operations depend on the continuing efforts of its executive
officers and the senior management of the Founding Companies, and the Company
likely will depend on the senior management of any significant businesses it
acquires in the future. The business or prospects of the Company could be
affected adversely if any of these persons does not continue in his or her
management role after joining the Company and the Company is unable to attract
and retain qualified replacements. The success of the Company's growth strategy,
as well as the Company's current operations, will depend on the extent to which
the Company is able to retain, recruit and train qualified service and
installation technicians who meet the Company's standards of conduct and service
to its customers. See "Business -- Hiring, Training and Safety."
 
CONTROL BY EXISTING MANAGEMENT AND STOCKHOLDERS
 
     On closing of the Acquisitions and this Offering, 10 former owners of the
Founding Companies, including the principal venture-capital financing source of
ARS (Equus II Incorporated ("Equus II")) and three executive officers of ARS,
will beneficially own in the aggregate approximately 49% of the outstanding
Common Stock. If these persons were to act in concert, they would, as a
practical matter, be able to exercise control over the Company's affairs,
including the election of the entire Board of Directors and (subject to Section
203 of the Delaware General Corporation Law (the "DGCL")) any matter submitted
to a vote of stockholders. See "Security Ownership of Certain Beneficial Owners
and Management."

POTENTIAL EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE ON PRICE OF COMMON STOCK
 
     On closing of the Acquisitions and this Offering, 8,995,564 shares of
Common Stock will be outstanding. The 4,200,000 shares sold in this Offering
(other than shares that may be purchased by affiliates of the Company) will be
freely tradable. The remaining shares outstanding may be resold publicly only
following their effective registration under the Securities Act of 1933, as
amended (the "Securities Act"), or pursuant to an available exemption (such as
provided by Rule 144 following a holding period for previously unregistered
shares) from the registration requirements of that Act. The holders of those
remaining shares have certain rights to have their shares registered in the
future under the Securities Act (see "Shares Eligible for Future Sale"), but
may not exercise such registration rights, and have agreed with ARS that they
will not sell, transfer or otherwise dispose of any of their shares, for two
years following the closing of this Offering (or for such shorter period as the
Securities and Exchange Commission (the "SEC") may prescribe as the holding
period for restricted securities under Rule 144). Sales made pursuant to Rule
144 must comply with its applicable volume limitations and other requirements.
 
     On closing of this Offering, the Company also will have outstanding options
and warrants to purchase up to a total of 1,454,615 shares of Common Stock, of
which only warrants to purchase 109,615 shares will become exercisable
immediately after the Closing. The Company intends to register all the shares
subject to these options and warrants under the Securities Act for public
resale.
 
     The Company and its directors and executive officers, Equus II and all
persons who acquire shares of Common Stock in connection with the Acquisitions
have agreed not to offer or sell any shares for a period of 180 days following
the date of this Prospectus (the "Lockup Period") without the prior written
consent of Smith Barney Inc., except that the Company may issue Common Stock in
connection with acquisitions, pursuant to the Company's 1996 Incentive Plan (see
"Management -- 1996 Incentive Plan") and pursuant to the exercise of warrants
outstanding as of the closing of this Offering.
 
     Within 60 days after the closing of this Offering, the Company intends to
register 5,000,000 additional shares of Common Stock under the Securities Act
for its use in connection with future acquisitions. These shares generally will
be freely tradable after their issuance by persons not affiliated with the
Company unless the Company contractually restricts their resale.
 
                                       12
 
     The effect, if any, the availability for sale, or sale, of the shares of
Common Stock eligible for future sale will have on the market price of the
Common Stock prevailing from time to time is unpredictable, and no assurance can
be given that the effect will not be adverse.
 
NO PRIOR MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
 
     Prior to this Offering, no public market for the Common Stock has existed,
and the initial public offering price, which will be determined by negotiation
between the Company and representatives of the Underwriters, may not be
indicative of the price at which the Common Stock will trade after this
Offering. See "Underwriting" for the factors to be considered in determining
the initial public offering price. Application has been made to list the Common
Stock on the New York Stock Exchange, but no assurance can be given an active
trading market for the Common Stock will develop or, if developed, continue
after this Offering. The market price of the Common Stock after this Offering
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 Company's
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 at that
time.
 
IMMEDIATE, SUBSTANTIAL DILUTION
 
     Purchasers of Common Stock in this Offering (i) will experience immediate,
substantial dilution in the net tangible book value of their stock of $12.37 per
share (see "Dilution") and (ii) may experience further dilution in that value
from issuances of Common Stock in connection with future acquisitions.
 
POTENTIAL ADVERSE EFFECTS OF AUTHORIZED PREFERRED STOCK
 
     The Company's Restated Certificate of Incorporation authorizes the Board of
Directors to issue, without stockholder approval, one or more series of
preferred stock having such preferences, powers and relative, participating,
optional and other rights (including preferences over the Common Stock
respecting dividends and distributions and voting rights) as the Board of
Directors may determine. See "Description of Capital Stock -- Preferred
Stock."
 
POTENTIAL ANTI-TAKEOVER EFFECTS
 
     The Company has adopted a stockholder rights plan. This plan and provisions
of the Company's Restated Certificate of Incorporation and Bylaws and the DGCL
may have the effect of delaying, discouraging, inhibiting, preventing or
rendering more difficult an attempt to obtain control of the Company by means of
a tender offer, business combination, proxy contest or otherwise. These
provisions include the charter authorization of "blank check" preferred stock
and classification of the Board of Directors, a By-law restriction on the
ability of stockholders to take actions by written consent and a DGCL provision
imposing restrictions on business combinations with certain interested parties.
See "Description of Capital Stock."
 
                                       13
 
                                  THE COMPANY
 
     ARS:  ARS was founded in October 1995 to create a leading national provider
of residential services through the implementation of both an aggressive
acquisition program and a national operating strategy. Concurrently with and as
a condition to the closing of this Offering, ARS will acquire the seven Founding
Companies. For a description of the transactions pursuant to which these
businesses will be acquired, see "Certain Transactions -- Organization of the
Company."
 
     GENERAL HEATING:  General Heating Engineering Company, Inc., which does
business as "General Heating & Air Conditioning Co." ("General Heating"),
was founded in 1947 and is a leading installer of HVAC systems and equipment and
pre-fabricated gas and wood-burning fireplaces for residential and light
commercial construction markets in the Washington-Baltimore metropolitan area,
including northern Virginia, and Richmond. It also provides comprehensive HVAC
maintenance, repair and replacement services to the residential and light
commercial markets and sells and installs pre-fabricated gas and wood-burning
fireplaces. In recognition of its commitment to customer service, General
Heating has received CONTRACTING BUSINESS magazine's 1996 Residential Contractor
of the Year Award. It maintains its headquarters in Manassas, Virginia and has
branch facilities in Savage, Maryland and Richmond, Virginia. At its Manassas
location, General Heating operates a facility that fabricates and assembles
substantially all the sheet metal, duct work, fiberglass and flexible duct work
items used in its installation operations. During fiscal 1995, General Heating
had revenues of approximately $35.2 million.
 
     ATLAS:  Atlas Services, Inc. ("Atlas") was founded in 1976 and is a
leading provider of electric, HVAC and plumbing installation services to
residential and light commercial construction markets throughout South Carolina.
Atlas also provides comprehensive plumbing, HVAC and electrical, maintenance,
repair and replacement services and retails and installs pre-fabricated gas and
wood-burning fireplaces. It maintains its headquarters in Charleston, South
Carolina and has branch facilities in Columbia, Greenville, Hilton Head, Clemson
and Myrtle Beach, South Carolina. During fiscal 1995, Atlas had revenues of
approximately $22.0 million.
 
     CROWN:  Services Enterprises, Inc., which does business as "Crown
Services" ("Crown"), began operations in 1956 and is the largest single
provider of residential plumbing, HVAC and electrical maintenance, repair and
replacement services to the residential and light commercial markets in the
Houston metropolitan area. Crown does not provide new installation services. It
maintains its headquarters in Houston. In March 1996, Crown was acquired by EHC,
an affiliate of ARS, which will be acquired by the Company in one of the
Acquisitions. See "Certain Transactions -- EHC." During fiscal 1995, Crown had
revenues of approximately $19.1 million.
 
     FLORIDA HAC:  Florida Heating and Air Conditioning, Inc. (together with
three affiliated companies having common management, "Florida HAC") began
operations in 1970 and is a leading installer of HVAC systems and equipment for
the residential construction market, and a leading provider of HVAC maintenance,
repair and replacement services to the residential and light commercial markets,
in Southeast Florida, including Broward, Dade and Palm Beach counties. It
maintains its headquarters in Margate, Florida, a suburb of Ft. Lauderdale, and
has a sales office in West Palm Beach. At Margate, Florida HAC operates a
facility that fabricates substantially all fiberglass and flexible duct systems
used in its installation operations. During fiscal 1995, Florida HAC had
revenues of approximately $14.5 million.
 
     MERIDIAN & HOOSIER:  DIAL ONE Meridian and Hoosier, Inc. ("Meridian &
Hoosier") is the successor to a business founded in 1973 and is a leading
provider of HVAC maintenance, repair and replacement services to the residential
and light commercial markets, and also installs HVAC systems and equipment for
the residential construction market, in central Indiana, including Indianapolis.
Meridian & Hoosier is the only Founding Company that currently maintains,
repairs and replaces commercial heating and air conditioning units in large
commercial facilities. It maintains its headquarters in Indianapolis, a branch
facility in Lafayette, Indiana and a sales office in Crawfordsville, Indiana.
During fiscal 1995, Meridian & Hoosier had revenues of approximately $10.1
million.

                                       14

     A-ABC:  ADCOT, Inc., which does business as "A-ABC Appliance"
("A-ABC"), was founded in 1972 and is among the leading providers of home
appliance, HVAC and plumbing maintenance, repair and replacement services to the
residential and light commercial markets in the greater Houston and surrounding
areas. A-ABC does not provide new installation services. It maintains its
headquarters in Houston. In May 1996, A-ABC was acquired by EHC, which will be
acquired in one of the Acquisitions. In June 1996, EHC determined to discontinue
and hold for sale the retail appliance operations of A-ABC, which included eight
retail stores in the greater Houston area. See "Certain Transactions -- EHC."
During fiscal 1995, A-ABC had revenues of approximately $8.7 million (net of
discontinued appliance store revenues of $11.9 million).

     CLIMATIC:  Climatic Corporation of Vero Beach ("Climatic") is the
successor to a business founded in 1956 and is the leading provider of HVAC
maintenance, repair and replacement services (including internal air quality
("IAQ") services) to the residential and light commercial markets in the
four-county area in Florida known as the Treasure Coast region (Indian River,
St. Lucie, Martin and Palm Beach Counties). It also installs HVAC systems and
equipment for the residential and light commercial construction markets. It
maintains its headquarters in Vero Beach, Florida. During fiscal 1995, Climatic
had revenues of approximately $5.0 million.

     SUMMARY OF TERMS OF ACQUISITIONS:  The aggregate consideration that will be
paid by ARS to acquire the Founding Companies is approximately $76.9 million,
consisting of (i) approximately $34.8 million in cash and (ii) 3,236,613 shares
of Common Stock. The Company will also assume approximately $21.4 million of
indebtedness. In addition, the stockholders of each Founding Company will be
entitled to receive from such Founding Company (or be obligated to pay to it) an
amount equal to the increase (or decrease) in such Founding Company's net
working capital (as defined) from the date of a specified recent balance sheet
for such Founding Company through the closing of the Acquisitions. Prior to the
closing of the Acquisitions, General Heating, which is an S corporation, will
distribute cash and other current assets to its stockholders in an amount equal
to the balance of its Accumulated Adjustment Account ("AAA account") as of the
closing of the General Heating Acquisition (approximately $10 million as of
December 31, 1995). An AAA account generally represents undistributed retained
earnings of an S corporation, upon which taxes have been paid by the
stockholders. In addition, prior to the closing of the Acquisitions, certain
Founding Companies will make distributions to their stockholders of certain
assets and related liabilities. As of June 30, 1996, the net amount of these
distributions would have been approximately $     million. See "Certain
Transactions."

     The consideration being paid by ARS for each Founding Company other than
Crown and A-ABC was determined by arm's-length negotiations between ARS and a
representative of that Founding Company. The consideration being paid by ARS for
EHC (which previously acquired Crown and A-ABC) was determined using generally
the same valuation method ARS used to negotiate the consideration being paid to
the stockholders of the other Founding Companies. See "Certain Transactions."

     The closing of each Acquisition is subject to customary conditions. These
conditions include, among others: the accuracy on the closing date of the
Acquisitions of the representations and warranties made by the Founding
Companies, their principal stockholders and by ARS; the performance of each of
their respective covenants included in the agreements relating to the
Acquisitions; and the nonexistence of a material adverse change in the results
of operations, financial condition or business of each Founding Company.

     Any Founding Company's Acquisition agreement may be terminated, under
certain circumstances, prior to the closing of this Offering: (i) by the mutual
consent of the boards of directors of ARS and the Founding Company; (ii) if this
Offering and the acquisition of that Founding Company are not closed by December
31, 1996; (iii) by ARS if the schedules to the acquisition agreement are amended
to reflect a material adverse change in that Founding Company; or (iv) if a
material breach or default under the agreement by one party occurs and is not
waived.

     No assurance can be given that the conditions to the closing of all the
Acquisitions will be satisfied or waived or that each Acquisition will close.

                                       15

     For information regarding the employment agreements to be entered into by
the chief executive officer of each Founding Company other than A-ABC and Crown
(which include covenants not to compete), see "Management -- Employment
Agreements."

     American Residential Services, Inc. is a Delaware corporation. Its
executive offices are located at 5850 San Felipe, Suite 500, Houston, Texas
77057-8003, and its telephone number at that address is
(713) 706-6177.

                                USE OF PROCEEDS

     The net proceeds to the Company from the sale of the shares of Common Stock
offered hereby after deducting underwriting discounts and commissions and
estimated offering expenses payable by the Company are estimated to be
approximately $47.3 million, assuming an initial public offering price of $13.00
per share (the estimated initial public offering price). Of those net proceeds,
$34.8 million will be used to pay the cash portion of the purchase price for the
Acquisitions and the remaining approximately $12.5 million will be used to repay
outstanding indebtedness of the Founding Companies (some of which has been
guaranteed by stockholders of the Founding Companies) and ARS and to redeem the
preferred stock of EHC.

     On the closing of this Offering, the Company intends to repay an aggregate
of approximately $       million of indebtedness of the Founding Companies and
ARS, and to redeem, for $0.5 million, the preferred stock of EHC. To the extent
such repayment and redemption are not funded with proceeds from this Offering,
the Company intends to fund the repayment thereof through borrowings under a new
credit facility (the "New Credit Facility") which the Company intends to enter
into effective concurrently with the closing of this Offering. The Company has
initiated discussions with several financial institutions to establish the terms
of the New Credit Facility and, based on those discussions, the Company expects
the New Credit Facility will provide initial borrowing availability of at least
$50 million.

     The indebtedness to be repaid from the proceeds of this Offering and the
New Credit Facility bears interest at rates ranging from 5.9% to 13.3%. Such
indebtedness would otherwise mature at various dates through 2017.

                                       16

                                DIVIDEND POLICY

     It is the Company's current intention to retain earnings to finance the
expansion of its business. Any future dividends will be at the discretion of the
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 cash needs and expansion plans, the
income tax laws then in effect, the requirements of Delaware law and any
restrictions that may be imposed by the Company's future credit facilities. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."

                                 CAPITALIZATION

     The following table sets forth the current maturities of long-term
obligations and capitalization as of March 31, 1996 (April 30, 1996 in the case
of Climatic) of (i) the Company on a pro forma combined basis to give effect to
the Acquisitions and (ii) the Company, pro forma as adjusted, to give effect to
the Acquisitions, this Offering and the application of the estimated net
proceeds therefrom. See "Use of Proceeds." This table should be read in
conjunction with the Unaudited Pro Forma Financial Statements of the Company and
the related notes thereto included elsewhere in this Prospectus.

                                             MARCH 31, 1996
                                        -------------------------
                                        PRO FORMA    AS ADJUSTED
                                        ---------    ------------
                                             (IN THOUSANDS)
Current maturities of long-term
  obligations........................    $   805       $    805
                                         =======       ========
Long-term obligations, less current
  maturities.........................     20,341          9,330

Stockholders' equity:
     Preferred Stock: $0.001 par
      value, 10,000,000 shares
      authorized; none issued or
      outstanding....................      --            --

     Common Stock: $0.001 par value,
      50,000,000 shares authorized;
      4,795,564 shares issued and
      outstanding, pro forma; and
      8,995,564 shares issued and
      outstanding, pro forma as
      adjusted(1)....................          5              9

     Additional paid-in capital......     23,535         71,284

     Retained deficit................     (3,364)        (3,664)
                                         -------       --------
          Total stockholders'
             equity..................     20,176         67,629
                                         -------       --------
               Total
                  capitalization.....    $40,517       $ 76,959
                                         =======       ========
- ------------
(1) Excludes an aggregate of 1,345,000 shares of Common Stock subject to options
    granted pursuant to the Company's 1996 Incentive Plan. See
    "Management -- 1996 Incentive Plan."

                                       17

                                    DILUTION

     The deficit in pro forma net tangible book value of the Company as of March
31, 1996 was approximately $(41,793,000), or approximately $(8.71) per share,
after giving effect to the Acquisitions. The deficit in pro forma net tangible
book value per share represents the amount by which the Company's pro forma
total liabilities exceed the Company's pro forma net tangible assets as of March
31, 1996, divided by the number of shares to be outstanding after giving effect
to (i) the Acquisitions and (ii) the issuance of stock awards to employees of
the Company in connection with the acquisition of EHC, (iii) the conversion in
part of an ARS convertible note and EHC preferred stock held by Equus II and
(iv) the assumed exercise of a warrant held by a bank lender of EHC. After
giving effect to the sale of the 4,200,000 shares offered hereby and deducting
estimated underwriting discounts and commissions and estimated offering expenses
payable by the Company, the Company's pro forma net tangible book value as of
March 31, 1996 would have been approximately $5,660,000, or approximately $.63
per share, based on the estimated initial public offering price of $13.00 per
share. This represents an immediate increase in pro forma net tangible book
value of approximately $9.34 per share to existing stockholders and an immediate
dilution of approximately $12.37 per share to new investors purchasing shares in
this Offering. The following table illustrates this pro forma dilution:
Assumed initial public offering price per share.....................................             $   13.00
Pro forma deficit in net tangible book value per share before
  this Offering.....................................................................  $   (8.71)
Increase in pro forma net tangible value per share attributable to
  new investors.....................................................................       9.34
                                                                                      ---------
Pro forma net tangible book value per share after this Offering.....................                   .63
                                                                                                 ---------
Dilution per share to new investors.................................................             $   12.37
                                                                                                 =========
The following table sets forth, on a pro forma basis to give effect to the
Acquisitions as of March 31, 1996, 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 existing stockholders and the new
investors purchasing shares from the Company in this Offering (before deducting
underwriting discounts and commissions and estimated offering expenses):
SHARES PURCHASED        TOTAL CONSIDERATION(1)         AVERAGE
                                       ----------------------   --------------------------        PRICE
                                         NUMBER       PERCENT       AMOUNT         PERCENT      PER SHARE
                                       -----------    -------   ---------------    -------      ---------
Existing stockholders................    4,795,564      53.3%   $   (41,793,000)    (326.3)%     $ (8.71)
New investors........................    4,200,000      46.7         54,600,000      426.3         13.00
                                       -----------    -------   ---------------    -------
          Total......................    8,995,564     100.0%   $    12,807,000      100.0%
                                       ===========    =======   ===============    =======
- ------------
(1) Total consideration paid by existing stockholders represents the combined
    stockholders' equity of the Founding Companies before this Offering,
    adjusted to reflect: (i) the payment of $34,800,000 in cash to the
    stockholders of the Founding Companies as part of the consideration for the
    Acquisitions; and (ii) the transfer of selected assets to and the assumption
    of certain liabilities by certain stockholders of the Founding Companies in
    the net amount of $.6 million in connection with the Acquisitions. See "Use
    of Proceeds" and "Capitalization."
 
                                       18
 
                            SELECTED FINANCIAL DATA
                 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
 
     ARS will acquire the Founding Companies simultaneously with and as a
condition to the consummation of this Offering. The Combined Founding Company
Statements of Operations data for fiscal 1993, 1994 and 1995 and for the three
months ended March 31, 1995 and 1996 represent the combined data of the Founding
Companies on an historical basis and exclude the effects of pro forma
adjustments. This 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 had different tax
structures (S corporations and C corporations) during the periods presented and
(ii) the Company will use the purchase method to establish a new basis of
accounting to record the Acquisitions. The following summary unaudited pro forma
financial data presents ARS, as adjusted for (i) the effects of the Acquisitions
on an historical basis, (ii) the effects of certain pro forma adjustments to the
historical financial statements and (iii) the consummation of this Offering. See
the Unaudited Pro Forma Combined Financial Statements and the notes thereto
included elsewhere in this Prospectus.
THREE MONTHS
                                               FISCAL YEAR ENDED             ENDED MARCH 31
                                       ---------------------------------  --------------------
                                         1993        1994        1995       1995       1996
                                       ---------  ----------  ----------  ---------  ---------
COMBINED FOUNDING COMPANIES
  STATEMENTS OF OPERATIONS DATA
  (UNAUDITED):
     Revenues........................  $  94,263  $  105,610  $  114,636  $  23,727  $  26,076
     Gross profit....................     25,579      25,860      29,416      5,573      6,670
     Selling, general and
       administrative expenses(1)....     20,629      22,104      24,190      5,301      5,853
PRO FORMA(2)
                                        -----------------------------------
                                                           THREE MONTHS
                                                          ENDED MARCH 31
                                                       --------------------
                                        FISCAL 1995      1995       1996
                                        ------------   ---------  ---------

ARS STATEMENTS OF OPERATIONS DATA
  (UNAUDITED):
     Revenues........................     $114,636     $  23,727  $  26,076
     Gross profit....................       29,643         5,630      6,739
     Selling, general and
       administrative expenses(1)....       22,321         4,776      5,670
     Goodwill amortization(3)........        1,549           387        387
     Operating income................        5,773           467        682
     Interest income and other
       expense, net(4)...............          613           152        174
     Interest expense................         (865)         (221)      (227)
     Net income from continuing
       operations....................     $  2,972     $     214  $     339
                                          ========     =========  =========
     Net income per share from
       continuing operations.........     $    .33     $     .02  $     .04
                                          ========     =========  =========
     Shares used in computing pro
       forma net income per share
       from continuing
       operations(4).................        8,996         8,996      8,996
                                          ========     =========  =========

                                              MARCH 31, 1996
                                        ---------------------------
                                          PRO
                                        FORMA(2)     AS ADJUSTED(5)
                                        --------     --------------
ARS BALANCE SHEET DATA (UNAUDITED):
     Working capital.................   $(33,873)       $  2,027
     Total assets....................     93,784          93,826
     Total debt, including current
      portion........................     22,546          10,435
     Stockholders' equity............     20,176          67,629

                                                   (FOOTNOTES ON FOLLOWING PAGE)

                                       19
- ------------
(1) The historical combined statements exclude, and the pro forma combined
    statements include, the effect of certain reductions in salary and benefits
    to the owners of six of the Founding Companies to which they have agreed, as
    follows: fiscal 1993, $998; fiscal 1994, $1,420; fiscal 1995, $1,808; and
    three months ended March 31, 1995 and 1996, $470 and $493, respectively.

(2) The pro forma statements of operations and the pro forma balance sheet
    assume that the Acquisitions were closed on January 1 of each period
    presented and March 31, 1996, respectively, and are not necessarily
    indicative of the results the Company would have obtained had these events
    actually then occurred or of the Company's future results. The pro forma
    combined financial information in these statements (i) is based on
    preliminary estimates, available information and certain assumptions that
    management deems appropriate and (ii) should be read in conjunction with the
    other financial statements and notes thereto included elsewhere in this
    Prospectus.
 
(3) Reflects amortization of the goodwill to be recorded as a result of the
    Acquisitions over a 40-year period.
 
(4) Computed on a basis described in Note 5 of Notes to Unaudited Pro Forma
    Combined Financial Statements.
 
(5) Reflects the closing of this Offering and the Company's application of the
    net proceeds therefrom. See "Use of Proceeds."
 
                                       20

          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                           AND RESULTS OF OPERATIONS
 
     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.
 
INTRODUCTION
 
     The Company's revenues are primarily derived from (i) owners and occupants
of homes and light commercial buildings and (ii) builders and developers of new
homes, residential developments and commercial buildings. Cost of services
consists primarily of salaries and benefits of service and installation
technicians, parts and materials, subcontracted services, depreciation,
maintenance, fuel and equipment rentals. 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.
 
     The Founding Companies have been managed throughout the periods presented
as independent private companies, and, as such, their results of operations
reflect different tax structures (S corporations and C corporations), which have
influenced, among other things, their historical levels of owners' compensation.
These owners and certain key employees have agreed to certain reductions in
their compensation and benefits in connection with the organization of the
Company.
 
     ARS, which has conducted no operations to date, intends to integrate these
businesses, their operations and administrative functions over a period of time.
This integration process may present opportunities to reduce costs through the
elimination of duplicative functions and through economies of scale,
particularly in obtaining additional contracts through shared customer lists and
greater volume discounts from material suppliers, but may necessitate additional
costs and expenditures for corporate management and administration, corporate
expenses related to being a public company, systems integration and facilities
expansion. These various costs and possible cost-savings may make comparison of
historical operating results not comparable to, or indicative of, future
performance. Accordingly, neither the anticipated savings nor the anticipated
costs have been included in the unaudited pro forma financial information
presented herein.
 
  COMBINED FOUNDING COMPANIES
 
RESULTS OF OPERATIONS -- COMBINED
 
     The Combined Founding Company Statements of Operations data (unaudited) for
fiscal 1993, 1994 and 1995 and for the three months ended March 31, 1995 and
1996 represents the combined data of the Founding Companies on a historical
basis and exclude the effects of pro forma adjustments. However, during the
periods presented, the Founding Companies were not under common control or
management and, as such, their results of operations reflect different tax
structures (S corporations and C corporations). In addition, a new basis of
accounting will be established as a result of the Acquisitions. Accordingly, the
data presented may not be comparable to or indicative of post-combination
results to be achieved by the Company. See "Risk Factors -- Absence of Combined
Operating History."
 
  COMBINED UNAUDITED INTERIM RESULTS
 
     REVENUES.  Revenues increased $2.4 million, or 10.1%, from $23.7 million
for the three months ended March 31, 1995 to $26.1 million for the three months
ended March 31, 1996. This increase was primarily due to an increase in Atlas
revenues of $1.7 million, or 34.7%, from $4.9 million for the three months ended
March 31, 1995 to $6.6 million for the three months ended March 31, 1996, due to
several large new installation projects added during the three months ended
March 31, 1996. The remaining increase in revenues was primarily attributable to
an increase in Crown's residential service revenues of $0.6 million resulting
from increased plumbing and renovation services, an increase in Meridian &
Hoosier's revenues of $0.6 million resulting from the acquisition of Sagamore
Heating and Cooling ("Sagamore") and increases in repair and replacement
services and an increase in A-ABC's revenues of $0.3 million. These increases
were partially offset by a $0.7 million decrease at General Heating reflecting
reduced new
 
                                       21
 
installation activity resulting from severe weather conditions encountered in
much of the northeast United States during the first quarter of 1996, and an
$0.2 million decrease at Florida HAC.
 
     COST OF SERVICES.  Cost of services increased $1.3 million, or 7.2%, from
$18.1 million for the three months ended March 31, 1995 to $19.4 million for the
three months ended March 31, 1996, but decreased as a percentage of revenues
from 76.5% for the three months ended March 31, 1995 to 74.4% for the three
months ended March 31, 1996. The dollar increase in cost of services was
primarily attributable to a $1.2 million increase at Atlas, from $4.0 million
for the three months ended March 31, 1995 to $5.2 million for the three months
ended March 31, 1996, which was attributable to the increase in revenue and an
increase in repair and maintenance expenditures. The remaining dollar increase
was primarily attributable to a $0.4 million increase at Crown resulting
primarily from lower-margin services and increased use of subcontractors and a
$0.4 million increase at Meridian & Hoosier resulting primarily from the
Sagamore acquisition. The increase was offset by a $0.5 million decrease at
General Heating as a result of adverse weather conditions and a $0.3 million
decrease at Florida HAC. The decrease in cost of services as a percentage of
sales was primarily attributable to increases in volume purchase discounts and
more effective employee utilization at A-ABC and changes in the mix of services
and increases in volume purchase discounts at Meridian & Hoosier.
 
     SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.  Selling, general and
administrative expenses increased $0.6 million, or 11.3%, from $5.3 million for
the three months ended March 31, 1995 to $5.9 million for the three months ended
March 31, 1996, and remained relatively constant as a percentage of revenues
between the two periods. The dollar increase in selling, general and
administrative expenses was primarily attributable to slight changes at all the
Founding Companies.
 
  COMBINED RESULTS FOR FISCAL 1995 COMPARED TO FISCAL 1994
 
     REVENUES.  Revenues increased $9.0 million, or 8.5%, from $105.6 million in
fiscal 1994 to $114.6 million in fiscal 1995. This increase was largely due to
(i) an increase in Atlas revenues of $6.4 million, or 41.0%, from $15.6 million
in fiscal 1994 to $22.0 million in fiscal 1995, primarily attributable to a
opening new operational facility in Hilton Head, South Carolina (opened in April
1994) and the addition of several new large home builder customers; (ii) an
increase in Crown's revenues of $2.3 million, or 13.7%, from $16.8 million in
fiscal 1994 to $19.1 million in fiscal 1995, primarily attributable to an
increase in plumbing and HVAC services; and (iii) an increase in Meridian &
Hoosier's revenue of $2.0 million, or 24.7%, from $8.1 million in fiscal 1994 to
$10.1 million in fiscal 1995, primarily attributable to increased residential
replacement sales. This increase was partially offset by a decrease in General
Heating of $1.1 million, or 3.0%, from $36.3 million in fiscal 1994 to $35.2
million in fiscal 1995 due to a reduction in new home starts in the
Washington-Baltimore metropolitan area, as well as a decrease in revenues of
Florida HAC of $1.3 million, or 8.2%, from $15.8 million in fiscal 1994 to $14.5
million in fiscal 1995 due to a reduction in new home starts.
 
     COST OF SERVICES.  Cost of services increased by $5.4 million, or 6.8%,
from $79.8 million in fiscal 1994 to $85.2 million in fiscal 1995, but decreased
as a percentage of revenues from 75.5% in fiscal 1994 to 74.3% in fiscal 1995.
The dollar increase in cost of services was primarily attributable to (i) a $5.1
million increase in Atlas, cost of services from $12.7 million in fiscal 1994 to
$17.8 million in fiscal 1995 consistent with the percentage increase in
revenues, (ii) a $1.0 million increase in Crown's cost of service from $10.3
million in fiscal 1994 to $11.3 million in fiscal 1995 as discussed below and
(iii) a $1.5 million increase in cost of services at Meridian & Hoosier from
$5.8 million in fiscal 1994 to $7.3 million in fiscal 1995 consistent with its
percentage increase in revenues. The increases were partially offset by a $1.0
million decrease in General Heating's cost of service from $29.9 million in
fiscal 1994 to $28.9 million in fiscal 1995 consistent with the percentage
decrease in revenues and a $1.6 million decrease in Florida HAC cost of service
from $12.1 million in fiscal 1994 to $10.5 million in fiscal 1995. The reduction
in cost of services as a percentage of revenues was primarily attributable to a
change in the mix of service from lower-margin home building to higher-margin
apartment complexes in fiscal 1995 and improvement in volume rebates at Florida
HAC and a change in the mix of services from lower-margin services to
higher-margin services and increased use of contractors at Crown.
 
                                       22
 
     SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.  Selling, general and
administrative expenses increased $2.1 million, or 9.5%, from $22.1 million in
fiscal 1994 to $24.2 million in fiscal 1995 and increased slightly as a
percentage of revenues from 20.9% in fiscal 1994 to 21.1% in fiscal 1995. The
increase in selling, general and administrative expenses was primarily
attributable to (i) a $0.6 million increase at Atlas resulting primarily from
the addition of an administrative infrastructure for the Hilton Head location
and other office expansions; (ii) a $0.4 million increase at Crown resulting
from increased advertising; (iii) a $0.3 million increase at Meridian & Hoosier
resulting from increased marketing efforts; and (iv) a $0.4 million increase at
Florida HAC resulting from a $0.2 million increase in owner compensation. This
increase was partially offset by a $0.2 million decrease at General Heating.
 
  COMBINED RESULTS FOR FISCAL 1994 COMPARED TO FISCAL 1993
 
     REVENUES.  Revenues increased $11.3 million, or 12.0%, from $94.3 million
in fiscal 1993 to $105.6 million in fiscal 1994. This increase was primarily due
to (i) an increase in Atlas revenues of $5.4 million, or 52.9% from $10.2
million in fiscal 1993 to $15.6 million in fiscal 1994, primarily due to the
opening of a new operation in Greenville, South Carolina and the addition of
several new home building customers, (ii) an increase of $2.7 million, or 20.7%,
at Florida HAC, as a result of an increase in the number of new home starts and
the addition of several large apartment complexes, (iii) an increase in General
Heating of $1.7 million, or 4.9%, resulting from an increase in new home
installation volume and replacement services; and (iv) an increase of $2.2
million, or 37.3%, at Meridian & Hoosier from $5.9 million in fiscal 1993 to
$8.1 million in fiscal 1994 primarily due to increased residential replacement
services and the start-up of a construction division. These increases were
partially offset by a decrease in revenues of $2.3 million, or 20.9%, at A-ABC
resulting from the elimination of certain plumbing services at A-ABC.
 
     COST OF SERVICES.  Cost of services increased $11.1 million, or 16.2%, from
$68.7 million in fiscal 1993 to $79.8 million in fiscal 1994 and increased as a
percentage of revenue for fiscal 1994 to 75.5% from 72.9% for fiscal 1993. The
dollar increase in cost of services was primarily attributable to (i) a $4.5
million increase at Atlas; (ii) a $2.2 million increase at Florida HAC, which is
consistent with its percentage increase in revenues; (iii) a $2.5 million
increase at General Heating; and (iv) a $1.7 million increase at Meridian &
Hoosier resulting from the start-up of the construction division. The increase
in cost of services as a percentage of revenues was primarily attributable to
(i) the elimination of certain high-margin plumbing services at A-ABC; (ii)
increased turnover and underutilized assets at Atlas; and (iii) increased truck
and delivery costs and payroll and related employee benefits at General Heating.
 
     SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.  Total selling, general and
administrative expenses increased $1.5 million, or 7.3% of revenues, from $20.6
million in fiscal 1993 to $22.1 million in fiscal 1994. The increase in selling,
general and administrative expenses was primarily attributable to (i) a $0.6
million increase at Atlas resulting from the addition of an administrative
infrastructure in Greenville and (ii) a $0.5 million increase at Meridian &
Hoosier resulting from increased sales commission and advertising costs.
 
LIQUIDITY AND CAPITAL RESOURCES -- COMBINED
 
     On a combined basis, the Founding Companies generated $6.8 million and $0.9
million of net cash from operating activities during fiscal 1995 and the three
months ended March 31, 1996, respectively. Net cash used in investing activities
by the Founding Companies on a combined basis was $1.9 million and $(0.5)
million during fiscal 1995 and the three months ended March 31, 1996,
respectively. Most of the cash used in investing activities during these periods
was used for purchases of property and equipment. Net cash used in financing
activities by the Founding Companies on a combined basis was $1.7 million and
$3.5 million during fiscal 1995 and the three months ended March 31, 1996,
respectively. Most of the cash used in financing activities during these periods
was used for net payments on long-term debt and distributions to stockholders.
The combined cash and cash equivalents of the Founding Companies decreased by
$2.4 million from $7.3 million at December 31, 1995 to $4.9 million at March 31,
1996, although one of the Founding Companies, A-ABC, had a working capital
deficit at March 31, 1996.

                                       23

     On the closing of this Offering, the Company intends to repay an aggregate
of approximately $12.1 million of indebtedness of the Founding Companies, ARS
and EHC and to redeem $0.5 million of preferred stock of EHC. The repayment of
the remaining approximately $10.4 million of indebtedness and other obligations
is expected to be funded through borrowings under a New Credit Facility.

     Prior to the closing of the Acquisitions, General Heating will make
distributions to its stockholders in respect of its estimated S corporation
Accumulated Adjustment Account as of the date of the closing. These
distributions (approximately $10 million as of December 31, 1995) are expected
to be funded primarily through working capital, cash provided by General
Heating's operating activities and, to the extent necessary, additional debt.

     The Company has initiated discussions with several financial institutions
to establish the terms of a New Credit Facility. Based on those discussions, the
Company expects a New Credit Facility will provide for initial borrowing
availability of at least $50 million. There is no assurance, however, that such
facility will be available in that amount or on terms acceptable to the Company.

     The Company anticipates that its cash flow from operations will provide
cash in excess of the Company's normal working capital needs, debt service
requirements and planned capital expenditures for property and equipment. On a
combined basis, the Founding Companies made capital expenditures of $2.6 million
and $1.0 million in fiscal 1995 and the three months ended March 31, 1996,
respectively.

     The Company intends to continue pursuing attractive acquisition
opportunities. The timing, size or success of any acquisition effort and the
associated potential capital commitments are unpredictable. The Company expects
to fund future acquisitions primarily through a combination of working capital,
cash flow from operations and borrowings, including the unborrowed portion of
the New Credit Facility, as well as issuances of additional equity.

     Due to the relatively low levels of inflation experienced in fiscal 1993,
1994 and 1995, inflation did not have a significant effect on the results of the
combined Founding Companies in those fiscal years.

SEASONALITY

     The Founding Companies have in the past experienced, and the Company
expects that it will in the future experience, quarterly fluctuations in
revenues, operating income and cash flows as a result of changes in weather
conditions. Except in Florida and South Carolina, the demand for new
installations is lower in the winter months because new construction activity is
lower as a result of colder weather. Demand for HVAC and plumbing services is
generally higher during periods of extreme cold and hot weather because of
greater demands placed on residential systems and lower in spring and early fall
when residential systems are not significantly burdened.

  INDIVIDUAL FOUNDING COMPANIES

     The selected historical financial information presented in the tables below
for the fiscal years of the individual Founding Companies is derived from the
respective audited financial statements of the individual Founding Companies
included elsewhere herein. The selected historical financial information
presented in the tables below for the quarterly periods of the Founding
Companies is derived from the respective unaudited interim financial statements
of the Founding Companies, which include all adjustments the Company considers
necessary for a fair presentation of the results of operations and cash flows of
those companies for those periods. The following discussion should be read in
conjunction with the "Summary Individual Founding Company Financial Data" and
the separate company financial statements and related notes thereto appearing
elsewhere in this Prospectus.

    GENERAL HEATING

     Founded in 1947, General Heating is a leading installer of HVAC systems and
equipment and pre-fabricated gas and wood-burning fireplaces for residential and
light commercial construction markets in the Washington-Baltimore metropolitan
area, including northern Virginia, and Richmond.

                                       24

RESULTS OF OPERATIONS -- GENERAL HEATING

     The following table sets forth certain historical selected financial data
and data as a percentage of revenues for the periods indicated (dollars in
thousands):
THREE MONTHS ENDED
                                                    YEAR ENDED DECEMBER 31                            MARCH 31
                                       ------------------------------------------------  -----------------------------------
                                            1993            1994             1995             1995                1996
                                       --------------  ---------------  ---------------  ----------------    ---------------
                                                                                                      (UNAUDITED)
REVENUES ..........................   $34,642   100.0% $36,334   100.0% $35,159   100.0% $ 7,651    100.0%   $ 7,033   100.0%
COST OF SERVICES ..................    27,393    79.1   29,928    82.4   28,866    82.1    6,401     83.7      5,871    83.5
                                      -------   -----  -------   -----  -------   -----  -------    -----    -------  ------
GROSS PROFIT ......................     7,249    20.9    6,406    17.6    6,293    17.9    1,250     16.3      1,162    16.5
SELLING, GENERAL AND ADMINISTRATIVE
  EXPENSES ........................     5,011    14.5    5,245    14.4    5,280    15.0    1,351     17.7      1,186    16.9
                                      -------   -----  -------   -----  -------   -----  -------    -----    -------  ------
INCOME (LOSS) FROM OPERATIONS .....   $ 2,238     6.4  $ 1,161     3.2  $ 1,013     2.9  $  (101)    (1.4)   $   (24)   (0.4)
                                      =======   =====  =======   =====  =======   =====  =======    =====    =======  ======
GENERAL HEATING -- UNAUDITED INTERIM RESULTS

     REVENUES -- Revenues decreased $0.7 million, or 9.1%, from $7.7 million for
the three months ended March 31, 1995, to $7.0 million for the three months
ended March 31, 1996. The decrease in revenues was attributable to reduced new
installation activity resulting from the severe weather conditions encountered
in much of the northeastern United States during the three months ended March
31, 1996.

     COST OF SERVICES -- Cost of services decreased $0.5 million, or 7.8%, from
$6.4 million for the three months ended March 31, 1995 to $5.9 million for the
three months ended March 31, 1996. The decrease in cost of services was
consistent with the percentage decrease in revenues.

     SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -- Selling, general and
administrative expenses decreased $0.2 million, or 14.3%, from $1.4 million for
the three months ended March 31, 1995 to $1.2 million for the three months ended
March 31, 1996. The decrease in general and administrative expenses was
attributable to reductions in variable administrative labor costs and reductions
in state unemployment taxes.

GENERAL HEATING -- 1995 COMPARED TO 1994

     REVENUES -- Revenues decreased $1.1 million, or 3.0%, from $36.3 million in
1994 to $35.2 million in 1995. The decrease in revenue was attributable to a
reduction in the number of new home starts in the Washington-Baltimore
metropolitan area.

     COST OF SERVICES -- Cost of services decreased $1.0 million, or 3.3%, from
$29.9 million in 1994 to $28.9 million in 1995. The decrease in cost of services
was consistent with the percentage decrease in revenues.

     SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -- Selling, general and
administrative expenses were unchanged at $5.3 million for 1994 and 1995.
 
GENERAL HEATING -- 1994 COMPARED TO 1993
 
     REVENUES -- Revenues increased $1.7 million, or 4.9%, from $34.6 million in
1993 to $36.3 million in 1994. The increase in revenue was attributable to a
$1.0 million increase in new installation volume and a $0.7 million increase in
HVAC System replacement services.
 
     COST OF SERVICES -- Cost of services increased $2.5 million, or 9.1%, from
$27.4 million in 1993 to $29.9 million in 1994. As a percentage of revenues,
cost of services increased to 82.4% in 1994 from 79.1% in 1993. The increase in
cost of sales in 1994 was primarily attributable to (i) an $0.5 million
adjustment to write off certain obsolete inventory; (ii) increased depreciation
on replacement of fully depreciated trucks; (iii) an increase in payroll and
related employee benefits; and (iv) an increase in the cost of delivery of parts
and materials, as the Company's operations were spread over a larger geographic
region.
 
     SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -- Selling, general and
administrative expenses increased $0.2 million, or 4.0%, from $5.0 million in
1993 to $5.2 million in 1994. The increase was 
 
                                       25

consistent with the percentage increase in revenues and was attributable to
increases in payroll and related employee benefits.
 
LIQUIDITY AND CAPITAL RESOURCES -- GENERAL HEATING

     The following table sets forth selected information from General Heating
statements of cash flows (dollars in thousands):
THREE MONTHS
                                                 YEAR ENDED                    ENDED
                                                 DECEMBER 31                  MARCH 31
                                       -------------------------------  --------------------
                                         1993       1994       1995       1995       1996
                                       ---------  ---------  ---------  ---------  ---------
                                                                            (UNAUDITED)
NET CASH PROVIDED BY (USED IN)
  OPERATING ACTIVITIES...............  $     0.9  $     2.1  $     2.9  $     0.9  $    (0.2)
NET CASH USED IN INVESTING
  ACTIVITIES.........................       (1.0)      (3.1)      (0.3)      (0.3)      (0.1)
NET CASH USED IN FINANCING
  ACTIVITIES.........................       (1.7)      (0.2)      (1.5)      (0.7)      (0.6)
                                       ---------  ---------  ---------  ---------  ---------
NET INCREASE (DECREASE) IN CASH AND
  CASH EQUIVALENTS...................  $    (1.8) $    (1.2) $     1.1  $    (0.1) $    (0.9)
                                       =========  =========  =========  =========  =========
From 1993 through the three months ended March 31, 1996, General Heating
generated $5.7 million in net cash from operating activities. During this
period, $6.9 million was generated from income plus non-cash charges, and was
reduced by $1.2 million of cash used to fund increases in working capital.

     Cash used in investment activities was primarily attributable to the
purchase and replacement of trucks within General Heating's fleet. In addition,
in 1994, General Heating invested approximately $2.5 million in short-term
investment securities.

     Cash used in financing activities consists primarily of S corporation
distributions to General Heating's stockholders.

     Prior to the closing of the Acquisitions, General Heating will make
distributions to its stockholders in respect of its estimated S corporation
Accumulated Adjustment Account as of the date of the closing. These
distributions (approximately $10 million as of December 31, 1995) are expected
to be funded primarily through working capital, cash provided by General
Heating's operating activities and, to the extent necessary, additional debt.
See "Certain Transactions -- Organization of the Company."

     General Heating had a working capital surplus of $7.0 million as of March
31, 1996. General Heating has historically funded its operations with cash flows
from operations. While there can be no assurance, management of General Heating
believes it has adequate cash flow to fund its operations through the second
quarter of 1997.

     ATLAS

     Founded in 1976, Atlas is a leading provider of electric, HVAC and plumbing
installation services to the residential and light commercial construction
markets throughout South Carolina. Atlas also provides comprehensive plumbing,
HVAC and electrical maintenance, repair and replacement services, and repairs
and installs pre-fabricated gas and wood-burning fireplaces.

                                       26

RESULTS OF OPERATIONS -- ATLAS

     The following table sets forth certain selected financial data and data as
a percentage of revenues for the periods indicated (dollars in thousands):
THREE MONTHS ENDED
                                                YEAR ENDED JUNE 30               YEAR ENDED                   MARCH 31
                                       -------------------------------------     DECEMBER 31,   -----------------------------------
                                              1993               1994               1995              1995               1996      
                                       ------------------  -----------------  ----------------  ----------------   ----------------
                                                                                                             (UNAUDITED)
REVENUES.............................  $  10,210    100.0% $ 15,625    100.0% $ 22,048   100.0% $  4,938   100.0%  $ 6,573    100.0%
COST OF SERVICES.....................      8,183     80.1    12,677     81.1    17,811    80.8     3,993    80.8     5,215     79.3 
                                       ---------  -------  --------  -------  --------  ------  --------  ------   -------  ------- 
GROSS PROFIT.........................      2,027     19.9     2,948     18.9     4,237    19.2       945    19.2     1,358     20.7 
SELLING, GENERAL AND ADMINISTRATIVE                                                                                                
  EXPENSES...........................      1,761     17.2     2,421     15.5     3,022    13.7       688    13.9       874     13.3 
                                       ---------  -------  --------  -------  --------  ------  --------  ------   -------  ------- 
INCOME FROM OPERATIONS...............  $     266      2.7  $    527      3.4  $  1,215     5.5  $    257     5.3   $   484      7.4 
                                       ---------  -------  --------  -------  --------  ------  --------  ------   -------  -------
ATLAS -- UNAUDITED INTERIM RESULTS
 
     REVENUES -- Revenues increased $1.7 million, or 34.7%, from $4.9 million
for the three months ended March 31, 1995 to $6.6 million for the three months
ended March 31, 1996. The increase in revenues was attributable to several large
new installation projects.
 
     COST OF SERVICES -- Cost of services increased $1.2 million, or 30.0%, from
$4.0 million for the three months ended March 31, 1995 to $5.2 million for the
three months ended March 31, 1996, but decreased as a percentage of revenues
from 80.8% for the first quarter of 1995 to 79.3% for the first quarter of the
current year. The dollar increase was primarily attributable to the increase in
revenues in addition to an increase in repair and maintenance expenses on the
Atlas fleet of trucks.
 
     SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -- Selling, general and
administrative expenses increased $0.2 million, or 28.6%, from $0.7 million for
the three months ended March 31, 1995 to $0.9 million for the three months ended
March 31, 1996. The increase in selling, general and administrative expenses was
primarily attributable to added administrative staff at several operating
locations.
 
ATLAS -- YEAR ENDED DECEMBER 31, 1995, COMPARED TO YEAR ENDED JUNE 30, 1994
 
     REVENUES -- Revenues increased $6.4 million, or 41.0%, from $15.6 million
in 1994 to $22.0 million in 1995. Part of this increase was attributable to the
new operating facility in Hilton Head, South Carolina (opened in April 1994).
The addition of several large home builder customers accounted for the majority
of the remaining increase.
 
     COST OF SERVICES -- Cost of services increased $5.1 million, or 40.2%, from
$12.7 million in 1994 to $17.8 million in 1995. The increase in cost of services
resulted primarily from the increase in revenue.
 
     SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -- Selling, general and
administrative expenses increased $0.6 million, or 25.0%, from $2.4 million in
1994 to $3.0 million in 1995, but remained substantially constant as a
percentage of revenues. The dollar increase in selling, general and
administrative expense in 1995 was primarily attributable to the addition of an
administrative infrastructure in Hilton Head and the expansion of office space
at an additional location.
 
ATLAS -- YEAR ENDED JUNE 30, 1994 COMPARED TO YEAR ENDED JUNE 30, 1993
 
     REVENUES -- Revenues increased $5.4 million, or 52.9%, from $10.2 million
in 1993 to $15.6 million in 1994. $1.8 million, net of this increase in revenue
was attributable to the first full year of operations of the Greenville, South
Carolina location and the addition of several new large home builder customers
accounted for the majority of the remaining increase.
 
     COST OF SERVICES -- Cost of services increased $4.5 million, or 54.9%, from
$8.2 million in 1994 to $12.7 million in 1995. As a percentage of revenues, cost
of services increased from 80.1% in 1993 to 81.1% in 1994. The increase in cost
of services as a percentage of revenues was attributable to increased employee
turnover and under-utilization of assets at the Greenville location.
 
                                       27
 
     SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -- Selling, general and
administrative expenses increased $0.6 million, from $1.8 million in 1994 to
$2.4 million in 1995, but decreased as a percentage of revenues from 17.2% in
1993 to 15.5% in 1994. The dollar increase in selling, general and
administrative expenses was primarily attributable to the addition of an
administrative infrastructure in Greenville.
 
LIQUIDITY AND CAPITAL RESOURCES -- ATLAS
 
     The following table sets forth historical selected information from Atlas
statements of cash flows (in thousands):
THREE MONTHS
                                            YEAR ENDED                               ENDED
                                             JUNE 30            YEAR ENDED          MARCH 31
                                       --------------------    DECEMBER 31,   --------------------
                                         1993       1994           1995         1995       1996
                                       ---------  ---------    ------------   ---------  ---------
                                                                                  (UNAUDITED)
NET CASH PROVIDED BY OPERATING
  ACTIVITIES.........................  $     0.3  $     0.7        $0.8       $     0.2  $     0.4
NET CASH USED IN INVESTING
  ACTIVITIES.........................       (0.3)      (1.0)       (0.3)           (0.1)       0.0
NET CASH PROVIDED BY (USED IN)
  FINANCING ACTIVITIES...............        0.0        0.4        (0.4)           (0.1)      (0.1)
                                       ---------  ---------       -----       ---------  ---------
NET INCREASE IN CASH AND CASH
  EQUIVALENTS........................  $     0.0  $     0.1        $0.1       $     0.0  $     0.3
                                       =========  =========       =====       =========  =========
From 1993 through the three months ended March 31, 1996, Atlas generated
$2.2 million in net cash from operating activities, primarily generated from net
income plus depreciation and amortization, with little change in non-cash
working capital. Net cash used in investing activities was attributable to
purchases of property and equipment. Net cash used in financing activities was
attributable to net borrowings and repayments of short- and long-term debt
obligations.
 
     Atlas had a working capital surplus of $0.3 and had long-term debt of $2.0
million as of March 31, 1996. Atlas has historically funded its operations with
cash flows from operations and borrowings from lenders. While there can be no
assurance, management of Atlas believes it has adequate cash flow and financing
alternatives to fund its operations through the second quarter of 1997.
 
     CROWN
 
     Founded in 1956, Crown is the largest single provider of residential
plumbing, HVAC, electrical maintenance, repair and replacement services to the
residential and light commercial markets in the Houston metropolitan area.
 
RESULTS OF OPERATIONS -- CROWN
 
     The following table sets forth certain historical selected financial data
and data as a percentage of revenues for the periods indicated (dollars in
thousands):
THREE MONTHS ENDED
                                                   YEAR ENDED DECEMBER 31                             MARCH 31
                                       ------------------------------------------------  --------------------------------
                                            1993             1994             1995            1995             1996               
                                       ---------------  ---------------  --------------  --------------  ---------------- 
                                                                                                   (UNAUDITED)
REVENUES ..........................   $16,268   100.0%  $16,844   100.0% $19,124  100.0% $3,555   100.0% $ 4,152    100.0%
COST OF SERVICES ..................    10,332    63.5    10,314    61.2   11,333   59.3   2,155    60.6    2,643     63.7
                                      -------   -----   -------   -----  -------  -----  ------   -----  -------    -----
GROSS PROFIT ......................     5,936    36.5     6,530    38.8    7,791   40.7   1,400    39.4    1,509     36.3
SELLING, GENERAL AND ADMINISTRATIVE
  EXPENSES ........................     5,698    35.0     5,837    34.7    6,165   32.2   1,348    37.9    1,519     36.5
                                      -------   -----   -------   -----  ------   -----  ------   -----  -------    -----
INCOME (LOSS) FROM OPERATIONS .....   $   238     1.5   $   693     4.1  $ 1,626    8.5  $   52     1.5  $   (10)    (0.2)
                                      =======   =====   =======   =====  =======  =====  ======   =====  =======    =====
CROWN -- UNAUDITED INTERIM RESULTS
 
     REVENUES -- Revenues increased $0.6 million, or 16.7%, from $3.6 million
for the three months ended March 31, 1995 to $4.2 million for the three months
ended March 31, 1996. The increase in revenues was primarily attributable to a
$0.3 million increase in plumbing services and a $0.3 million net increase in
Crown's other service lines.
 
                                       28
 
     COST OF SERVICES -- Cost of services increased $0.4 million, or 18.2%, from
$2.2 million for the three months ended March 31, 1995 to $2.6 million for the
three months ended March 31, 1996, and increased as a percentage of revenues
from 60.6% in the first quarter of 1995 to 63.7% in the first quarter of 1996.
 
     SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -- Selling, general and
administrative expenses increased $0.2 million, or 15.4%, from $1.3 million for
the three months ended March 31, 1995 to $1.5 million for the three months ended
March 31, 1996, but declined as a percentage of revenues from 37.9% in the first
quarter of 1995 to 36.5% in the first quarter of 1996.
 
CROWN -- 1995 COMPARED TO 1994
 
     REVENUES -- Revenues increased $2.3 million, or 13.7%, from $16.8 million
in 1994 to $19.1 million in 1995. The increase in revenues was primarily
attributable to a $1.3 million and $0.9 million increase in HVAC and plumbing
services, respectively.
 
     COST OF SERVICES -- Cost of services increased $1.0 million, or 9.7%, from
$10.3 million in 1994 to $11.3 million in 1995, but decreased as a percentage of
revenues from 61.2 percent in 1994 to 59.3% in 1995. The decrease in cost of
services as a percentage of revenue is attributable to a change in the mix of
services provided from lower-margin services to higher-margin services and an
increase in the use of contractors.
 
     SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -- Selling, general and
administrative expenses increased $0.4 million, or 6.9%, from $5.8 million in
1994 to $6.2 million in 1995, but decreased as a percentage of revenues from
34.7% in 1994 to 32.2% in 1995. The $0.4 million increase in selling, general
and administrative expenses was primarily attributable to increased advertising.
 
CROWN -- 1994 COMPARED TO 1993
 
     REVENUES -- Revenues increased $0.5 million, or 3.1%, from $16.3 million in
1993 to $16.8 million in 1994. The increase in revenues was attributable to a
$0.5 million increase in HVAC services.
 
     COST OF SERVICES -- Cost of services was unchanged at $10.3 million for
1993 and 1994, but decreased 2.3% as a percentage of sales from 63.5% in 1993 to
61.2% in 1994.
 
     SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -- Selling, general and
administrative expenses increased $0.1 million, or 1.8%, from $5.7 million in
1993 to $5.8 million in 1994.
 
LIQUIDITY AND CAPITAL RESOURCES -- CROWN
 
     The following table sets forth selected information from Crown statements
of cash flows (in thousands):
 
                                                                THREE MONTHS
                                             YEAR ENDED             ENDED
                                            DECEMBER 31           MARCH 31
                                       ----------------------  --------------
                                        1993    1994    1995    1995    1996
                                       ------  ------  ------  ------  ------
                                                                 (UNAUDITED)
Net cash provided by operating
  activities.........................  $ 0.5   $ 0.7   $ 1.3   $ 0.3   $  --
Net cash provided by (used in)
  investing activities...............   (0.7)    0.1    (0.6)    --      1.1
Net cash provided by (used in)
  financing activities...............    0.2     0.2     0.3    (0.3)   (2.8)
                                       -----   -----   -----   -----   -----
Net increase (decrease) in cash and
  cash equivalents...................  $ --    $ 1.0   $ 1.0   $ --    $(1.7)
                                       =====   =====   =====   =====   =====
 
     From 1993 through the three months ended March 31, 1996, Crown generated
$2.5 million in net cash from operating activities, primarily generated from net
income plus depreciation and amortization. For the year ended December 31, 1993,
Crown recorded a loss on the sale of certain assets of $0.5 million.
 
     The change in net cash provided by (used in) investing activities was
primarily attributable to advances/payments to/from the sole shareholder of
Crown and purchases from the sale of property and equipment.
 
                                       29
 
     The change in net cash provided by (used in) financing activities was
attributable to net borrowings and repayments of short-term and long-term debt
obligations.
 
     Crown had a working capital surplus of $3.1 as of March 31, 1996. Crown has
historically funded its operations with cash flows from operations and
borrowings from lenders and its sole shareholder. While there can be no
assurance, management of Crown believes it has adequate cash flows and financing
alternatives to fund its operations through the second quarter of 1997.
 
     MERIDIAN & HOOSIER
 
     Founded in 1973, Meridian & Hoosier is a leading provider of HVAC
maintenance, repair and replacement services to the residential and commercial
markets (including large commercial facilities) in central Indiana and
Indianapolis, and also installs HVAC systems and equipment for the residential
construction market in those areas. On January 1, 1996, Meridian & Hoosier
acquired Sagamore Heating and Cooling ("Sagamore"), which provides HVAC repair
and replacement services.
 
RESULTS OF OPERATIONS -- MERIDIAN & HOOSIER
 
     The following table sets forth certain historical selected financial data
and data as a percentage of revenues for the periods indicated (dollars in
thousands):
YEAR ENDED DECEMBER 31                   THREE MONTHS ENDED MARCH 31
                                       ------------------------------------------  ------------------------------------------
                                               1994                  1995                  1995                  1996
                                       --------------------  --------------------  --------------------  --------------------
                                                                                                   (UNAUDITED)
REVENUES.............................  $   8,066      100.0% $  10,133      100.0% $   1,959      100.0% $   2,638      100.0%
COST OF SERVICES.....................      5,797       71.9      7,281       71.9      1,422       72.6      1,767       67.0
                                       ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------
GROSS PROFIT.........................      2,269       28.1      2,852       28.1        537       27.4        871       33.0
SELLING, GENERAL AND ADMINISTRATIVE
  EXPENSES...........................      1,988       24.6      2,350       23.2        512       26.1        854       32.4
                                       ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------
INCOME FROM OPERATIONS...............        281        3.5        502        4.9         25        1.3         17        0.6
                                       =========  =========  =========  =========  =========  =========  =========  =========
MERIDIAN & HOOSIER -- UNAUDITED INTERIM RESULTS
 
     REVENUES -- Revenues increased $0.6 million, or 30.0%, from $2.0 million
for the three months ended March 31, 1995, to $2.6 million for the three months
ended March 31, 1996. Part of this increase was attributable to the acquisition
of Sagamore and a majority of the remaining increase was due to increased sales
of residential replacement services.
 
     COST OF SERVICES -- Cost of services increased $0.4 million, or 28.6%, from
$1.4 million for the three months ended March 31, 1995 to $1.8 million for the
three months ended March 31, 1996, but declined 5.6% as a percentage of revenues
from 72.6% for the three months ended March 31, 1995 to 67.0% for the three
months ended March 31, 1996. The increase in cost of services was primarily
attributable to the increased sales for the three months ended March 31, 1996.
The decrease as a percentage of revenues was primarily attributable to
improvements in volume purchase rebates resulting from the Sagamore acquisition
and changes in the mix of services provided.
 
     SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -- Selling, general and
administrative expenses increased $0.4 million, or 80.0%, from $0.5 million for
the three months ended March 31, 1995 to $0.9 million for the three months ended
March 31, 1996. The increase in selling, general and administrative expenses was
primarily attributable to added administrative staff resulting from the
acquisition of Sagamore.
 
MERIDIAN & HOOSIER -- 1995 COMPARED TO 1994
 
     REVENUES -- Revenues increased $2.0 million, or 24.7%, from $8.1 million in
1994 to $10.1 million in 1995. The increase in revenues was primarily
attributable to increased residential equipment replacement sales of
approximately $1.2 million and the start-up of a new construction division.
 
                                       30
 
     COST OF SERVICES -- Cost of services increased $1.5 million, or 25.9%, from
$5.8 million in 1994 to $7.3 million in 1995 and was consistent with the
increase in sales.
 
     SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -- Selling, general and
administrative expenses increased $0.3 million, or 15.0%, from $2.0 million in
1994 to $2.3 million in 1995. The increase in selling, general and
administrative expenses resulted from increased marketing efforts to improve
market share.
 
LIQUIDITY AND CAPITAL RESOURCES -- MERIDIAN & HOOSIER
 
     The following table sets forth selected information from Meridian &
Hoosier's statements of cash flows (dollars in thousands):
 

                                                                THREE MONTHS
                                           YEAR ENDED              ENDED
                                          DECEMBER 31             MARCH 31
                                      --------------------  -------------------
                                        1994       1995       1995       1996
                                      ---------  ---------  ---------  --------
                                                                  (UNAUDITED)
Net cash provided by operating
  activities......................... $     0.4  $     0.7  $     0.1  $    0.1
Net cash used in investing
activities...........................      (0.5)      (0.2)      (0.1)     (0.8)
Net cash provided by (used in)
financing activities.................       0.3       (0.1)      (0.1)      0.8
                                      ---------  ---------  ---------  --------
Net increase (decrease) in cash and
  cash equivalents................... $     0.2  $     0.4  $    (0.1) $    0.1
                                      =========  =========  =========  ========
 
     Net cash provided by operating activities consisted primarily of net income
plus depreciation and amortization. Net cash used in investing activities
consisted of capital expenditures for property and equipment and the acquisition
of Sagamore in the three months ended March 31, 1996. Net cash provided by (used
in) financing activities resulted from borrowing and repayments of long-term
obligations and capital lease obligations.
 
     Meridian & Hoosier had a working capital surplus of $1.0 as of March 31,
1996. Meridian & Hoosier has historically funded its operations with cash flows
from operations and borrowings from lenders and its sole stockholder. While
there can be no assurance, management of Meridian & Hoosier believes it has
adequate cash flows and financing alternatives to fund its operations through
the second quarter of 1997.
 
     A-ABC
 
     Founded in 1972, A-ABC is among the leading providers of home appliances,
HVAC and plumbing maintenance, repair and replacement services to the
residential and light commercial markets in the Houston metropolitan area.
 
RESULTS OF OPERATIONS -- A-ABC
 
     The following table sets forth certain historical selected financial data
and data as a percentage of revenues for the periods indicated (dollars in
thousands):
THREE MONTHS
                                                 YEAR ENDED DECEMBER 31                          ENDED MARCH 31
                                       ------------------------------------------  ------------------------------------------
                                               1994                  1995                  1995                  1996
                                       --------------------  --------------------  --------------------  --------------------
                                                                                                  (UNAUDITED)
REVENUES.............................  $   8,676      100.0% $   8,707      100.0% $   1,704      100.0% $   2,022      100.0%
COST OF SERVICES.....................      5,574       64.2      5,709       65.6      1,192       70.0      1,236       61.1
                                       ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------
GROSS PROFIT.........................      3,102       35.8      2,998       34.4        512       30.0        786       38.9
SELLING, GENERAL AND ADMINISTRATIVE
  EXPENSES...........................      2,444       28.2      2,348       27.0        508       29.8        583       28.8
                                       ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------
INCOME FROM CONTINUING OPERATIONS....        658        7.6        650        7.6          4        0.2        203       10.1
                                       =========  =========  =========  =========  =========  =========  =========  =========
A-ABC -- UNAUDITED INTERIM RESULTS
 
     REVENUES -- Revenues increased $0.3 million, or 17.6%, from $1.7 million
for the three months ended March 31, 1995 to $2.0 million for the three months
ended March 31, 1996.
 
     COST OF SERVICES -- Cost of services remained constant at $1.2 million for
the three months ended March 31, 1995 and 1996, but decreased as a percentage of
revenues from 70.0% to 61.1%, primarily as a result of an increase in volume
purchase discounts and better utilization of employees resulting in reduced
labor dollars as a percentage of sales during 1996.

                                       31

     SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -- Selling, general and
administrative expenses increased $0.1 million, or 20.0%, from $0.5 million for
the three months ended March 31, 1995 to $0.6 million for the three months ended
March 31, 1996.

A-ABC -- 1995 COMPARED TO 1994

     REVENUES -- Revenues remained constant at $8.7 million for 1994 and 1995.

     COST OF SERVICES -- Cost of services increased $0.1 million, or 2.0%, from
$5.6 million in 1994 to $5.7 million in 1995.

     SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -- Selling, general and
administrative expenses decreased $0.1 million, or 4.2%, from $2.4 million in
1994 to $2.3 million in 1995.

LIQUIDITY AND CAPITAL RESOURCES -- A-ABC

     The following table sets forth selected information from A-ABC's statements
of cash flows (in thousands):

                                           YEAR ENDED         THREE MONTHS
                                          DECEMBER 31,      ENDED MARCH 31,
                                        ----------------  --------------------
                                        1994     1995       1995       1996
                                        ----   ---------  ---------  ---------

                                                              (UNAUDITED)
NET CASH PROVIDED BY (USED IN) BY
  OPERATING ACTIVITIES...............   $0.3   $     0.6  $    (0.2) $     0.6
NET CASH PROVIDED BY (USED IN)
  INVESTING ACTIVITIES...............    0.2        (0.4)       0.1       (0.7)
NET CASH USED IN FINANCING
  ACTIVITIES.........................   (0.4)       (0.1)       0.0       (0.1)
                                        ----   ---------  ---------  ---------
NET INCREASE (DECREASE) IN CASH AND
  CASH EQUIVALENTS...................   $0.1   $    (0.1) $    (0.1) $    (0.2)
                                        ====   =========  =========  =========

     From 1994 through the three months ended March 31, 1996, A-ABC generated
$1.5 million in net cash from operating activities. During this period, $1.8
million was generated from income plus non-cash charges, partially offset by
$0.3 million of cash used to fund working capital.

     Cash used in investment activities was primarily attributable to purchasing
additional trucks and the net change in the cash provided by (used in)
discontinued operations.

     Cash used in financing activities consists primarily of S corporation
distributions to the Company's sole shareholder and net borrowings and
repayments of long-term obligations.

     A-ABC had a working capital deficit of $1.1 million at March 31, 1996.
A-ABC has historically funded its operations with cash flows from operations and
borrowings from lenders and its shareholder.

                                       32

                                    BUSINESS
 
GENERAL
 
     ARS was founded in October 1995 to create a leading national provider of
(i) comprehensive maintenance, repair and replacement services for HVAC systems,
including IAQ, and for plumbing, electrical and other systems in homes and
commercial buildings and (ii) new installation services of those systems in
homes and commercial facilities under construction (collectively, "residential
services"). To achieve this goal, the Company intends to implement an
aggressive acquisition program and a national operating strategy designed to
increase internal revenue growth and capitalize on cost efficiencies. During
fiscal 1995, the combined revenues of the Founding Companies totaled $114.6
million, of which maintenance, repair and replacement services accounted for
approximately 48% and new installation services accounted for approximately 52%.
The Company believes the profitability of its maintenance, repair and
replacement business benefits from its installation services operations as a
result of (i) the significant volume of purchases of HVAC systems for its
high-volume installation services and (ii) the addition of new customer and
equipment information in the Company's marketing database. This database
provides the Company with valuable information that can be used to expand the
Company's future residential services revenue base. In addition, new
installation services provide the Company with cooperative advertising credits
from the HVAC system manufacturers which it uses for promoting its maintenance,
repair and replacement services for residential HVAC systems. Through leveraging
these benefits, acquiring new service companies and internal development, the
Company intends to emphasize the growth of its higher-margin maintenance, repair
and replacement services business.
 
     ARS has definitive agreements to acquire the seven Founding Companies
simultaneously with the closing of this Offering. The Founding Companies have
been in business an average of 31 years and provide various residential services
in and around the Houston and Washington-Baltimore metropolitan areas, Richmond,
Virginia, throughout South Carolina, southeast Florida and central Indiana
(primarily Indianapolis). The Company is a leading provider of one or more
residential services in each region in which it operates. During fiscal 1995,
the Company's service and installation technicians (totaling approximately 930
as of March 31, 1996) responded to approximately 263,000 maintenance, repair and
replacement service calls and installed approximately 12,800 HVAC systems in
newly built homes, apartments and commercial buildings. Three of the largest
Founding Companies, representing approximately 63% of the Company's fiscal 1995
combined revenues, have been members of an industry-sponsored practice-sharing
group for the past six years. Through this arrangement, they have developed
common marketing plans, computer systems and other operational practices in
order to develop "best practices" in their respective markets. The Company
believes building upon this arrangement to include all of the Founding Companies
will aid in the initial integration of the Founding Companies following the
closing of this Offering.
 
INDUSTRY OVERVIEW
 
     The Company estimates that the HVAC, plumbing and electrical industries in
the United States represent an annual market in excess of $   billion, of which
maintenance, repair and replacement services account for in excess of $
billion. It believes this market is served by several thousand companies,
consisting predominantly of small, owner-operated businesses operating in single
local geographic areas and providing a limited range of services. It believes
the majority of owners in its industry have limited access to adequate capital
for modernization, training and expansion and limited opportunities for
liquidity in their businesses.
 
     The Company believes significant opportunities are available to a well
capitalized, national company employing professionally trained,
customer-oriented service technicians and providing a full complement of
high-quality residential services in an industry that has been characterized by
inconsistent quality, reliability and pricing. It also believes the highly
fragmented nature of the residential services industry will provide it with
significant opportunities to consolidate the capabilities and resources of a
large number of existing residential services businesses.
 
BUSINESS STRATEGY
 
     The Company plans to achieve its goal of becoming the leading national
provider of professional, high-quality residential services by emphasizing
growth through acquisitions and implementing a national operating strategy that
enhances internal revenue growth and achieves cost efficiencies.
 
                                       33
 
     GROWTH THROUGH ACQUISITION.  The Company intends to implement an aggressive
acquisition program targeting large metropolitan and high-growth suburban areas
with attractive residential demographics. The Company's acquisition strategy
involves entering new geographic markets and expanding within existing markets.
 
      o   ENTERING NEW GEOGRAPHIC MARKETS.  In each new market, the Company will
          initially target for acquisition one or more leading local or regional
          companies providing residential services and having the critical mass
          necessary to be a core business around which other residential service
          operations can be assembled. An important criterion for these
          acquisition candidates will be superior operational management
          personnel, whom the Company generally will seek to retain.
 
      o   EXPANDING WITHIN EXISTING MARKETS.  Once the Company has entered a
          market, it will seek to acquire other well-established service
          companies operating within that region, in order to expand its market
          penetration and expand the range of services it offers in that market.
          The Company also will pursue "tuck-in" acquisitions of smaller
          residential services companies whose operations can be incorporated
          into the Company's existing operations without any significant
          increase in infrastructure.
 
     IMPLEMENTATION OF A NATIONAL OPERATING STRATEGY.  The Company intends to
implement a national operating strategy employing "best practices" designed to
increase internal growth through enhanced operations and the achievement of cost
efficiencies.
 
      o   INTERNAL GROWTH.  The Company will review its operations at the local
          and regional operating levels (as well as examining practices in other
          service industries) in order to identify certain "best practices"
          that will be implemented throughout its operations. For example, the
          Company intends to provide 24-hour emergency service at each of its
          locations and to monitor service call quality by attempting to contact
          each of its service customers promptly following a service call. In
          addition, the Company intends to utilize a national training program
          to improve and keep current the technical, selling and customer
          relations skills of its service technicians and will use specialized
          computer technology at each of its locations to improve
          communications, vehicle dispatch and service quality and
          responsiveness. Management believes these practices will enable the
          Company to provide superior customer service and maximize sales
          opportunities. This service-oriented strategy will also allow the
          Company to reinforce its brand image at the local level while
          fostering its efforts to develop a national brand name.
 
      o   COST EFFICIENCIES.  The Company believes it should be able to reduce
          the total operating expenses of the Founding Companies and other
          acquired businesses by eliminating duplicative functions and
          consolidating certain functions performed separately by each company
          prior to its acquisition. In addition, the Company believes that, as a
          large, national residential services company, it should experience
          reduced costs compared to those of the individual Founding Companies
          and other acquired companies in such areas as: the purchase of
          equipment for resale, service vehicles, parts and tools; vehicle and
          equipment maintenance; financing arrangements; and insurance and
          bonding.
 
ACQUISITION STRATEGY
 
     Given the large size and fragmentation of the residential services
industry, the Company believes there are numerous potential acquisition
candidates both within the markets currently served by the Company and in other
large metropolitan and high-growth suburban markets. The Company intends to
implement an aggressive acquisition program to expand into these new markets and
to enhance its position in existing markets.
 
     In new markets, the Company will target for acquisition one or more leading
local or regional residential services companies. Generally, these companies
will be run by successful entrepreneurs whom the Company will endeavor to retain
and will be of sufficient size to provide the basis for future Company expansion
within a given market. Through implementation of its national operating
strategy, the Company will aid the acquired companies (operating on a
decentralized basis) in increasing their revenues and improving their
profitability. Once the Company has entered a market, it will seek to acquire
other residential services providers in order to expand its share of that market
and increase the range of services offered in that market. Some of the
acquisitions within existing markets will be large enough to warrant their own
operating and management structure while other acquisitions will be small enough
to be folded
 
                                       34
 
into an existing operation without significantly increasing the Company's
infrastructure. If an acquisition is large enough to warrant its own operating
structure, the Company will develop a regional operating plan whereby these
companies can benefit from regional operating efficiencies such as shared
marketing efforts, centralized maintenance, local purchasing power, expanded
service line management expertise and other economies of scale.
 
     Each of the Company's acquisition candidates will be expected to
demonstrate potential for revenue growth and profitability. The Company will
also evaluate certain qualitative characteristics of acquisition candidates,
including their reputations in their respective geographic regions, the size and
other characteristics of customer bases, the quality and experience levels of
operational management and service technicians, the amount, type and condition
of their equipment and facilities and their operating histories. The Company
believes there are numerous acquisition candidates that meet the Company's
acquisition criteria.
 
     The Company believes it will be regarded by many owners of residential
services businesses as an attractive acquirer because of: (i) the Company's
strategy for creating a large, professionally managed company with national name
recognition and a reputation for quality service and customer satisfaction; (ii)
management's experience in consolidations; (iii) the Company's decentralized
operating strategy; (iv) the Company's increased visibility and access to
financial resources as a public company; (v) the potential for increased
profitability due to centralized administrative functions, enhanced systems
capabilities and access to increased marketing resources; and (vi) depending on
the size of the acquisition, the ability of the business being acquired to
participate in the Company's growth and expansion, while realizing liquidity.
 
     The Company has analyzed various data on the residential services industry
and individual businesses within the industry and believes it is well positioned
to implement its acquisition program promptly following this Offering. Based on
the Company's experience in connection with the acquisitions of the Founding
Companies, the Company believes the senior executives of the Founding Companies
will be instrumental in identifying and completing future acquisitions. Several
of these executives have had leadership roles in both national and regional
residential services trade associations, which have allowed these principals to
become personally acquainted with other owners of residential services
businesses across the country. The Company believes that the visibility of these
individuals within these associations will increase the industry's awareness of
the Company and its acquisition program, thereby attracting interest from owners
of other residential services companies. In addition, several members of the
Company's executive management team have worked together for a number of years
and have significant experience in negotiating, closing and integrating
acquisitions in various industries. Within the past several months, the Company
has contacted the owners of a number of residential services businesses, several
of whom have expressed interest in having their businesses acquired by the
Company. The Company currently has no binding agreements to effect any
acquisition other than in connection with the Founding Companies. The timing,
size and success of the Company's acquisition efforts and the associated
potential capital commitments cannot be readily predicted.
 
     As consideration for future acquisitions, the Company intends to use
various combinations of its Common Stock, cash and notes. The consideration for
each future acquisition will vary on a case-by-case basis, with the major
factors being historical operating results, the future prospects of the business
to be acquired and the ability of that business to complement the services
offered by the Company. Within 60 days after completion of this Offering, the
Company intends to register 5,000,000 additional shares of Common Stock under
the Securities Act for use in connection with future acquisitions. See "Risk
Factors -- Dependence on Acquisitions for Growth," "-- Need for Additional
Financing" and "-- Potential Effect of Shares Eligible for Future Sale on
Price of Common Stock."
 
SERVICES PROVIDED
 
     The Company provides a variety of maintenance, repair and replacement
services for HVAC, plumbing, electrical and other systems in homes and
commercial buildings. It also installs such operating systems in new homes and
commercial buildings under construction. The Company's maintenance, repair and
replacement services include: checkups, cleaning, repair and replacement of HVAC
systems and associated parts; maintenance, repair and replacement of electrical
switches, outlets, lines, panels and fixtures; repair and replacement of
bathroom fixtures, water filters and water heaters; cleaning, repair and
replacement of pipes, sewer lines and residential sanitary systems; and
maintenance, repair and replacement
 
                                       35
 
of other residential systems, including home appliances and fireplaces. As a
subcontractor to builders, it installs complete central heating and air
conditioning systems, electrical systems, plumbing systems and other systems,
including fireplaces, in newly constructed homes and commercial buildings.
 
     The following table shows, by region, the approximate percentages of the
combined Founding Companies' revenue for fiscal 1995 represented by maintenance,
repair and replacement services and new installation services, respectively.
 

                                                                        OTHER
                                        HVAC   PLUMBING   ELECTRICAL   SERVICES
                                        ----   --------   ----------   --------
                                                                 
MAINTENANCE, REPAIR AND
  REPLACEMENT SERVICES:
     Houston Metropolitan Area.......    8%      10%          1%          6%
     Washington-Baltimore
       Metropolitan Area and
       Richmond, Virginia............    6        -           -           -
     South Carolina..................    3        -           -           -
     Southeast Florida...............    6        -           -           -
     Indianapolis and Central
       Indiana.......................    8        -           -           -
                                        ----   --------   ----------   --------
                                        31%      10%          1%          6%
                                        ====   ========   ==========   =======

NEW INSTALLATION SERVICES:
     Houston Metropolitan Area.......    -%       -%          -%          -%
     Washington-Baltimore
       Metropolitan Area and
       Richmond, Virginia............   20        -           -           5
     South Carolina..................    6        4           5           -
     Southeast Florida...............   11        -           -           -
     Indianapolis and Central
       Indiana.......................    1        -           -           -
                                        ----   --------   ----------   --------
                                        38%       4%          5%          5%
                                        ====   ========   ==========   ========
 
     An important element of the Company's growth strategy is to increase the
range of residential services it provides in each of its regions through
acquisitions and internally generated growth. In addition, the Company intends
to provide a full range of these services in new geographic areas into which it
will expand, principally by acquisitions. See "-- Business Strategy."
 
OPERATIONS
 
     The Company intends to operate on a decentralized basis, with the
management of each operating location responsible for its day-to-day operations,
profitability and growth. Local management will be supported by the Company's
marketing and advertising strategies and programs and will be provided
appropriate support in developing optimal pricing strategies. Financial
resources for improved systems and expansion of services, training programs,
financial controls, purchasing information and operating expertise will be
shared among locations to improve productivity, lower operating costs and
improve customer satisfaction to stimulate internal growth. While the local
management will operate with a high degree of autonomy and be empowered to make
the necessary operating decisions, adherence to Company training, safety,
customer satisfaction, accounting and internal control policies will be
required. Frequent communication with the Company's executive management team
will be integral to the Company's achieving the benefits that are anticipated by
the consolidation of these businesses into a single company.
 
     The Company's residential service operations are coordinated by local
operations centers, which are staffed by order entry and customer service
personnel, operations or service coordinators, and inventory, vehicle
maintenance and office personnel. All of these centers use specialized computer
and communications technology to process orders, arrange service calls, ensure
timely delivery of required repair parts or new equipment, communicate with
customers and service technicians, and invoice customers. A typical maintenance,
repair or replacement service call begins with either the customer telephoning a
local operations center and requesting an estimate or placing an order for
repair service or the Company calling the customer to make an appointment for
periodic service agreement maintenance. Coordination and deployment of service
technicians are managed by the operations center through communications systems
linked to the center's computer system, cellular telephone, pager or radio.
 
     Service personnel work out of service vehicles, which are equipped with an
inventory of equipment and commonly required tools, parts and supplies needed to
complete a variety of jobs. The service 
 
                                       36

technician assigned to a service call is generally responsible for driving to
the service location, initiating the customer contact, analyzing the problem and
job requirements, providing the price quotation, overseeing the work and
collecting payment for the service. Payment for maintenance, repair and
replacement services not covered by a service contract is generally made in cash
or by check or credit card at the job site, except for certain well-established
customers.
 
     During fiscal 1995, the Company's service technicians responded to
approximately 263,000 maintenance, repair and replacement service calls, of
which approximately 54,000 were requests for services under the Company's
monitoring service contracts; approximately 22,000 were requests for service
under the Company's warranty service contracts; and approximately 187,000 were
requests for emergency or other services not under contract. These calls covered
a wide variety of services including the replacement of approximately 9,000
heating and air conditioning units. Service histories on past customers are
generally available to the customer service representatives in a continuously
updated computer database matched to addresses in the local service area.
 
     The Company's new installation services are generally provided to builders
of new homes and small commercial facilities. During 1995, the Company was
involved in the installation of approximately 12,800 HVAC systems in new homes
and commercial facilities.
 
     Typically, new installation service begins with the customer providing the
architectural plans or mechanical drawings for the particular home or an entire
tract of homes or other facility to be constructed and either requesting a bid
or entering into direct negotiation for the work required. The Company's new
installation personnel analyze the plans to determine the labor, materials and
equipment type and size required for the installation of the system specified,
price the job and either bid for or negotiate the written contract for the job.
In HVAC installations, most of the required air ducts are fabricated and,
together with the other equipment to be installed, partially pre-assembled in
the Company's facilities and readied for delivery to the job site. The equipment
and supplies necessary for the particular job are ordered from the suppliers or
manufacturers, and delivery generally is timed according to the builder's
schedule. The installation work is coordinated with the builder's construction
supervisors. Scheduled draw payments for these services generally are obtained
within 30 days of completing the installation, at which time mechanics' and
materialmen's liens securing the rights to such payments are released. Interim
payments are often obtained to cover the Company's labor and materials costs on
large installation projects.
 
SALES AND MARKETING
 
     In the Founding Companies, the Company believes it has acquired well known
and established businesses that are leading providers of one or more residential
services in their geographic markets. The Company intends to build on this
foundation through the use of advertising to expand name recognition and the
adoption of best practices to increase the quality of services provided. For
example, the Company intends to implement the practice whereby the Company's
customers each receive prompt follow-up inquiries to determine
customer-satisfaction levels and to arrange for follow-up service calls if
necessary.
 
     In each of the market areas in which the Company provides residential
maintenance, repair and replacement services, vigorous advertising campaigns
have traditionally been emphasized by the Founding Companies. These campaigns
have used mailouts, yellow pages, newspapers, radio and television to promote
the services offered under their particular trade names or service marks. These
advertising campaigns have been effective in creating name recognition and
customer identification with the Founding Companies for the quality of the
services they offer in their local areas. The Company expects for the
foreseeable future to retain the trade names and service marks of the Founding
Companies in its advertising and promotional materials in their local areas, but
intends over time to promote and establish the Company's name and service marks
nationally. See "-- Intellectual Property."
 
     The Company also views its existing service contracts as an important way
of retaining its customer base. The Company has several general types of service
contracts: "maintenance and repair" contracts whereby the Company maintains
and repairs selected residential HVAC, plumbing, electrical and other systems
for a period of time for a fixed fee and "maintenance only" or "repair only"
contracts whereby the Company makes periodic inspections of a residential system
and provides certain preventative maintenance for a period of time for a fixed
fee. The Company had approximately 27,000 service contracts in
effect as of March 31, 1996, which generally have one-year terms. The Company
believes that such service contracts provide the Company with flexibility in
determining the timing for delivery of its services, thereby 
 
                                       37

generating greater stability in the level of demand for services throughout
different seasons of the year. See " -- Seasonality." Certain states regulate
the provision of service under residential services warranty contracts. See "--
Governmental Regulation and Environmental Matters."
 
     With respect to its new installation business, the Company's marketing
strategy focuses on cultivating long-term relationships with its national,
regional and local home builder and general contractor customers. The Company's
marketing efforts with these customers primarily involve direct sales contacts
emphasizing the Company's quality of services and reliability. In addition,
labels with the Company's name and phone number are applied to newly installed
equipment, and direct telemarketing sales efforts for service contracts are
timed to closely coincide with the expiration of manufacturer warranties on
Company installed equipment. Therefore, the Company believes new installation
business generally leads to maintenance, repair and replacement business.
 
     The Company has numerous customers. No single customer accounted for more
than 10% of the Company's revenues during fiscal 1995.
 
HIRING, TRAINING AND SAFETY
 
     The Company will seek to ensure through its hiring procedures and
continuous training programs that all service technicians it uses meet safety
standards established by the Company, its insurance carriers and federal, state
and local laws and regulations. The Company reviews prospective permanent
service technicians to ensure they are trained thoroughly in their trades, the
Company's procedures and customer satisfaction standards, possess the required
trade licenses and have acceptable driving records. In addition, the Company
intends to require certain employees to take a physical exam and pass periodic
drug tests.
 
     The Company intends to have continuous training programs in place to
provide initial, refresher and upgrade training programs to trainees,
apprentices and service and installation technicians. These programs typically
are presented by the Company's senior master plumbers, electricians, heating and
air conditioning service technicians and safety supervisors. For example, in
Houston, the Company operates a 150-seat classroom and training facility
incorporating "hands on" training stations where service personnel,
apprentices and new trainees can work on functioning HVAC, plumbing, electrical
and other systems under the supervision of skilled tradesmen. A safety
supervisor at this facility conducts both initial and continuous comprehensive
training classes for all personnel and works with operating management to
observe and evaluate safety procedures in an effort to constantly improve the
effectiveness of the Company's safety programs.
 
VEHICLES AND FACILITIES
 
     The Company operates a fleet of approximately 800 owned or leased service
trucks, vans and support vehicles in its operations. It believes these vehicles
generally are well-maintained, ordinary wear and tear excepted, and adequate for
the Company's current operations.
 
     The Company has 25 facilities for its service locations and operations, six
of which it owns and 19 of which are leased under leases with remaining terms
ranging from 18 months to 10 years from the date hereof on terms the Company
believes to be commercially reasonable. Some of these leases are with affiliates
of the Founding Companies. See "Certain Transactions -- Real Estate and Other
Transactions." Total rental expense for the Company's facilities leases in
fiscal 1995 (excluding certain discontinued retail appliance operations) was
approximately $1.4 million.
 
     The Company's facilities consist principally of offices, garages and
maintenance and warehouse facilities. The Company's principal operating
facilities include (i) a 60,000 square foot facility owned by the Company and
located in Houston, Texas, which is the operational base for Crown, (ii) a
36,000 square foot leased facility in Manassas, Virginia, which serves as the
principal fabrication and production facility for General Heating, (iii) a
36,000 square foot leased facility in Savage, Maryland, which serves as a
distribution, fabrication, production and administrative facility for General
Heating, (iv) a 62,500 square foot leased facility in Charleston, South
Carolina, which is the headquarters for Atlas and (v) a 29,000 square foot
leased facility in Margate, Florida, which serves as the principal office and
fabrication facility for Florida HAC. The Company believes its facilities are
well-maintained and adequate for the Company's existing and planned operations
at each operating location.
 
     After completion of this Offering, the Company will lease its principal
executive and administrative offices in Houston, Texas, and is currently in the
process of obtaining office space for this purpose.
 
                                       38
 
INTELLECTUAL PROPERTY
 
     The Company owns various trademarks, service marks and trade names, which
it uses in its local operations, advertising and promotions. Initially, the
Founding Companies and subsequently acquired businesses will continue to use
their respective trade names and service marks in their local areas. Meridian &
Hoosier currently is using the "DIAL ONE" name and related logos and marks
under a franchise agreement. See "Certain Transactions -- Real Estate and Other
Transactions." The Company intends to adopt and implement throughout its
operations uniform service names and markings for use on its vehicles and in its
advertising and promotional materials. See "Business -- Sales and Marketing."
 
EMPLOYEES
 
     As of March 31, 1996, the Company had approximately 1,300 employees
(excluding sales personnel from A-ABC's discontinued retail appliance
operations, see "The Company"), of which approximately 930 were service and
installation technicians, approximately 245 were clerical and administrative
personnel, approximately 45 were sales personnel and approximately 80 were
management personnel. The Company is not a party to any collective bargaining
agreements. The Company has not experienced any strikes or work stoppages and
believes its relationship with its employees is good.
 
     The residential services business is characterized by, among other things,
high turnover rates among service technicians. A substantial majority of the
service technician turnover experienced by the Founding Companies in recent
years has been during the extended screening period in the first year of
employment. The Company's future success will depend, in part, on its ability to
continue to attract, retain and motivate qualified service technicians and
operational management personnel. One way by which the Company hopes to attract,
retain and motivate such personnel is by offering them a more comprehensive
benefits package at less cost to the employee than is typical in the industry.
The Company expects to be able to offer such a package in a cost effective
manner because of the large number of persons it will employ on closing of this
Offering.
 
SOURCES OF SUPPLY
 
     The raw materials used in the Company's operations, such as HVAC system
components, sheet metal, electrical components and copper and PVC tubing, are
generally available from domestic suppliers at competitive prices. The Company
believes that the combined entity will be able to obtain a price savings on raw
materials through volume purchases. The Company does not currently have any
significant company-wide contracts relating to the supply of equipment or
materials. The Company has not experienced any significant difficulty in
obtaining adequate supplies to conduct its operations.
 
SEASONALITY
 
     The Company's installation, maintenance, repair and replacement operations
are subject to seasonal variations in the different lines of service. Except in
southeast Florida and South Carolina, the demand for new installations is lower
during the winter months because new construction activity is lower as a result
of colder weather. Demand for HVAC and plumbing services generally varies with
the weather; demand generally is higher during periods of extremely cold or hot
weather and lower in the spring and fall months. The Company expects its
revenues and operating results generally will be correspondingly lower in its
first and fourth quarters.
 
COMPETITION
 
     The market for residential services is highly competitive. The Company
believes that the principal competitive factors in the residential services
industry are (i) timeliness, reliability and quality of services provided, (ii)
range of services provided, (iii) market share and visibility and (iv) price.
The Company believes its strategy of creating a leading national provider of
comprehensive residential services directly addresses these factors. The ability
of the Company to recruit, train and retain highly motivated service technicians
to provide quality services should be enhanced by its ability to utilize
professionally managed recruiting and training programs. In addition, the
Company expects to offer compensation, health and savings benefits that are more
comprehensive than most offered in the industry. See "Business -- Hiring,
Training and Safety." Quality of service should be enhanced by the
implementation and continuous reinforcement of customer satisfaction policies,
retraining and follow-up with the customer. Competitive pricing is possible
through the implementation of the cost saving opportunities that exist across
each of the service lines offered and from productivity improvements.
 
                                       39

     Most of the Company's competitors are small, owner-operated companies that
typically operate in a single local geographic area. Certain of these smaller
competitors may have lower overhead cost structures and, consequently, may be
able to provide their services at lower rates. Moreover, many homeowners have
traditionally relied on individual persons or small repair service firms with
whom they have long-established relationships for a variety of home repairs. The
Company believes there are currently only two public companies, Roto-Rooter,
Inc. and Baltimore Gas & Electric Company (through a subsidiary), focused on
providing residential services in some of the same services lines provided by
the Company. There are a number of national chains, such as Home Depot, Sears
and Builders Square, that sell a variety of plumbing fixtures and equipment, and
heating and air conditioning equipment for residential use and offer, either
directly or through various subcontractors, installation, warranty and repair
services. Other companies or trade groups engage in franchising their names and
marketing programs in some residential services lines. In the future,
competition may be encountered from, among others, the unregulated business
segments of regulated gas and electric utilities or from newly deregulated
utilities in those industries entering into various residential service areas.
Certain of the Company's competitors and potential competitors have greater
financial resources than the Company to finance residential services acquisition
and development opportunities, to pay higher prices for the same opportunities
or to develop and support their own residential services operations if they
decide to enter the field.
 
GOVERNMENTAL REGULATION AND ENVIRONMENTAL MATTERS
 
     Many aspects of the Company's operations are subject to various federal,
state and local laws and regulations, including, among others, (i) permitting
and licensing requirements applicable to service technicians in their respective
trades, (ii) building, HVAC, plumbing and electrical codes and zoning
ordinances, (iii) laws and regulations relating to consumer protection,
including laws and regulations governing service contracts for residential
services, and (iv) laws and regulations relating to worker safety and protection
of the environment.
 
     The Company believes it has all required permits and licenses to conduct
its operations and is in substantial compliance with applicable regulatory
requirements relating to its operations. Failure of the Company to comply with
the applicable regulations could result in substantial fines or revocation of
the Company's operating permits.
 
     A large number of state and local regulations governing the residential
services trades require various 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 service
technicians who work in the geographic area covered by the permit or licenses.
The Company intends to implement a policy to ensure that, where allowed, 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 persons within that
region.
 
     The Company's operations are affected by numerous federal, state and local
environmental laws and regulations, including those governing vehicle emissions
and the use and handling of refrigerants. The technical requirements of these
laws and regulations are becoming increasingly expensive, complex and stringent.
Federal and state environmental laws include statutes intended to allocate the
cost of remedying contamination among specifically identified parties. The
Comprehensive Environmental Response, Compensation, and Liability Act
("CERCLA" or "Superfund") imposes strict, joint and several liability on
owners or operators of facilities at, from, or to which a release of hazardous
substances has occurred, on parties who generated hazardous substances that were
released at such facilities, and on parties who arranged for the transportation
of hazardous substances to such facilities. A majority of states have adopted
"Superfund" statutes comparable to and, in some cases, more stringent than
CERCLA. If the Company were to be found to be a responsible party under CERCLA
or a similar state statute, the Company could be held liable for all
investigative and remedial costs associated with addressing such contamination.
In addition, claims alleging personal injury or property damage may be brought
against the Company as a result of alleged exposure to hazardous substances
resulting from the Company's operations. None of the Founding Companies has been
notified that it is a potentially responsible party under CERCLA or any similar
state statute.
 
     The Company's operations are subject to the federal Clean Air Act, as
amended (the "Clean Air Act"), which governs air emissions and imposes
specific requirements on the use and handling of refrigerants. The Clean Air Act
requires all service technicians performing air conditioning maintenance, 
 
                                       40

repair and installation services to be licensed to perform those activities and
require the containment and recycling of certain refrigerants used in the
Company's operations.
 
     The Company's operations in certain geographic regions are subject to laws
that will, over the next few years, require specified percentages of vehicles in
large vehicle fleets to use "alternative fuels," such as compressed natural
gas ("CNG") or propane, and to meet reduced emissions standards. A significant
proportion of the vehicles in the Crown fleet that are currently in service have
been converted to use CNG. The Company does not anticipate that the cost of
additional fleet conversion that may be required under current laws will be
material. Future costs of compliance with these laws will be dependent upon the
number of vehicles purchased in the future for use in the covered geographic
regions, as well as the number and size of future business acquisitions by the
Company in these regions. The Company cannot determine to what extent its future
operations and earnings may be affected by new regulations or changes in
existing regulations relating to vehicle emissions.
 
     Prior to entering into the agreements relating to the Acquisitions, the
Company evaluated the properties to be acquired and property leases to be
assumed in the Acquisitions, and engaged an independent environmental consulting
firm to conduct or review assessments of environmental conditions at certain
properties owned or operated by the Founding Companies. No material
environmental problems were discovered in these reviews. The Company intends to
implement various programs to promote compliance with applicable health and
worker safety regulations and to increase employee safety awareness.
 
     Capital expenditures for property, plant and equipment for environmental
control facilities during fiscal 1995 were not material. The Company does not
currently anticipate any material adverse effect on its business or consolidated
financial position as a result of future compliance with existing environmental
laws and regulations controlling the discharge of materials into the
environment. Future events, however, such as changes in existing laws and
regulations or their interpretation, more vigorous enforcement policies of
regulatory agencies or stricter or different interpretations of existing laws
and regulations may require additional expenditures by the Company which may be
material.
 
LITIGATION AND INSURANCE
 
     The Company is, from time to time, a party to litigation arising in the
normal course of its business, most of which involves claims for personal injury
and property damage incurred in connection with its operations. The Company is
not currently involved in any litigation the Company believes will have a
material adverse effect on its financial condition or results of operations.
 
     The Company maintains various worker safety and quality control programs in
an attempt to reduce the risk of potential damage to persons and property. In
addition, the Company maintains insurance in such amounts and against such risks
as it deems prudent. No assurance can be given such insurance will be sufficient
under all circumstances to protect the Company against significant claims for
damages. The occurrence of a significant event not fully insured against could
materially and adversely affect the Company's financial condition and results of
operations. Moreover, no assurance can be given the Company will be able to
maintain adequate insurance in the future at commercially reasonable rates or on
acceptable terms.
 
                                       41

                                   MANAGEMENT
 
DIRECTORS AND EXECUTIVE OFFICERS
 
     The following table sets forth certain information concerning each of the
Company's current directors, the eight persons nominated to become directors on
closing of this Offering and the executive officers of the Company (ages are as
of June 30, 1996):
NAME                    AGE                                 POSITION
- -------------------------------------   ---   ---------------------------------------------------------------------
C. Clifford Wright, Jr...............   43    Director, President and Chief Executive Officer; President of EHC
Howard S. Hoover, Jr.................   57    Director, Chairman of the Board; Chairman of the Board of EHC
Gorden H. Timmons....................   47    Director* and Chief Operating Officer*; President of Atlas
William P. McCaughey.................   38    Director, Executive Vice President - Planning and Development
John D. Held.........................   34    Senior Vice President, General Counsel and Secretary
Frank N. Menditch....................   44    Director*; President of General Heating
Elliot Sokolow.......................   53    Director*; President of Florida HAC
A. Jefferson Walker..................   34    Treasurer
Michael Mamaux.......................   30    Controller
Thomas N. Amonett....................   53    Director*
Robert J. Cruikshank.................   65    Director*
Randall B. Hale......................   33    Director*
Nolan Lehmann........................   52    Director*
Don D. Sykora........................   65    Director*
- ------------
* Appointment will become effective on closing of this Offering.
 
     C. CLIFFORD WRIGHT, JR. has been President and Chief Executive Officer and
a director of the Company since November 1995. Since March 1996, Mr. Wright has
also served as President and Chief Executive Officer of EHC. From 1991 to 1995,
Mr. Wright was Vice President and Chief Financial Officer of American Ecology
Corporation. From 1990 to 1991, Mr. Wright was a Director of Corporate Finance
with KPMG Peat Marwick. Prior thereto, he was a divisional vice president in
finance and planning of Browning-Ferris Industries, Inc. ("BFI"). Mr. Wright
is a Certified Public Accountant.
 
     HOWARD S. HOOVER, JR. has been Chairman of the Board of the Company since
November 1995. Since March 1996, Mr. Hoover has also served as Chairman of EHC.
From 1970 until 1991, Mr. Hoover was employed by BFI and served during his
tenure as a director and in various management capacities as a member of the
Senior Management Committee, Senior Vice President, General Counsel and
Secretary. From 1992 until 1995, Mr. Hoover was engaged in various business
development and consulting activities.
 
     GORDEN H. TIMMONS founded Atlas in 1976 and has served as its President
since that time. Mr. Timmons was a founder of the Charleston Chapter of the Air
Conditioning Contractors of America ("ACCA") and is a past President of that
Chapter. Mr. Timmons has been active in computer systems development for HVAC
companies and is a frequent speaker at national industry conventions.
 
     WILLIAM P. MCCAUGHEY has been Executive Vice President - Planning and
Development and a director of the Company since November 1995. Since March 1996,
Mr. McCaughey has also served as Executive Vice President of EHC. From 1992 to
1995, Mr. McCaughey was Treasurer of American Ecology Corporation. From 1991 to
1992, he was President of Environmental Financial Services, Inc., a research and
consulting firm. He served as Vice President and Corporate Treasurer of Republic
Waste Industries, Inc. from 1990 to 1991 and, prior thereto, was employed by BFI
in several financial positions from 1982 to 1990. Mr. McCaughey is a Chartered
Financial Analyst.
 
     JOHN D. HELD has been Senior Vice President, General Counsel and Secretary
of the Company since March 1996. Mr. Held also has served as Vice President and
Secretary of EHC since March 1996. From
 
                                       42
 
October 1995 to March 1996, he was an associate at the law firm of Liddell,
Sapp, Zivley, Hill and LaBoon, LLP. Mr. Held was Associate General Counsel of
American Ecology Corporation from 1994 to 1995 and was an associate at the law
firm of Baker & Botts, L.L.P. prior thereto.
 
     FRANK N. MENDITCH has been President of General Heating for more than the
past five years. Mr. Menditch is a past president of the National Capital
Chapter of ACCA and of the Metro Washington Heat Pump Association. Mr. Menditch
holds Master Air Conditioning licenses in various jurisdictions.
 
     ELLIOT SOKOLOW was a founder of Florida HAC in 1970 and has served as its
president since 1977. Mr. Sokolow served as national President of ACCA in 1992
and 1993, and is the President-Elect of the Florida Air Conditioning Contractors
Association.
 
     A. JEFFERSON WALKER joined the Company in April 1996 as Treasurer and was a
consultant to the Company from January 1996 to March 1996. Mr. Walker has also
served as Treasurer of EHC since March 1996. From 1993 to January 1996, he was
employed by American Ecology Corporation as a Manager-Financial Analysis and
Assistant Treasurer. From 1990 to 1993, Mr. Walker served as a Senior Financial
Analyst and Assistant Banking Officer of Mellon Bank Corporation in Houston,
Texas. Mr. Walker was a financial analyst at BFI from 1988 to 1989.
 
     MICHAEL MAMAUX joined the Company in April 1996 as Controller. From 1995
until April 1996, Mr. Mamaux was an assistant corporate controller at U.S.
Delivery Systems, Inc. Prior thereto, he was a Senior Auditor at Arthur Andersen
LLP. Mr. Mamaux is a Certified Public Accountant.
 
     THOMAS N. AMONETT has served as President and a director of Reunion
Resources Company (previously known as Buttes Gas and Oil Company), a
Houston-based company primarily engaged in manufacturing high volume, precision
plastic products; providing engineered plastic services; oil and gas
exploration, development and production; and wine grape vineyard development,
since 1992. Previously, he was Of Counsel with the law firm of Fulbright &
Jaworski L.L.P. from 1986 to 1992. Prior thereto, he was President and a
director of Houston Oil Fields Company, an oil and gas exploration and
production company, from 1982 to 1986. Mr. Amonett also currently serves as a
director of Air-Cure Technologies, Inc., PetroCorp Incorporated and Weatherford
Enterra, Inc.
 
     ROBERT J. CRUIKSHANK is primarily engaged in managing his personal
investments in Houston. Prior to his retirement in 1993, he was a Senior Partner
in the accounting firm of Deloitte & Touche. Mr. Cruikshank serves as a director
of Houston Industries Incorporated, MAXXAM Inc., Kaiser Aluminum Corporation,
Compass Bank-Houston and Texas Biotechnology Corporation.
 
     RANDALL B. HALE has been a Vice President of Equus Capital Management
Corporation ("ECMC") and Equus II (see "Certain Transactions" and "Security
Ownership of Certain Beneficial Owners and Management") since 1992 and a
director of ECMC since February 1996. Mr. Hale currently serves as an officer or
director of several private businesses in industries including investment
management, environmental services, oilfield and petrochemical services,
transportation, casual sportswear and specialty manufacturing. From 1985 to
1992, he was employed by Arthur Andersen LLP, where he served in an accounting
and financial advisory capacity to a number of publicly traded and private
companies in a variety of industries. Mr. Hale is a Certified Public Accountant.
Mr. Hale is being appointed to the Company's Board of Directors pursuant to the
provisions of a funding agreement between ARS and Equus II, which will terminate
pursuant to its terms upon completion of this Offering. See "Certain
Transactions -- Organization of the Company."
 
     NOLAN LEHMANN has been the President of ECMC since its formation in 1983
and of Equus II since its formation in 1991 (see "Certain Transactions" and
"Security Ownership of Certain Beneficial Owners and Management"). Prior
thereto, Mr. Lehmann was employed by Service Corporation International, where he
held various positions, including vice president - regional manager and vice
president - corporate development. Mr. Lehmann currently serves as a director of
a number of public and private companies, including Allied Waste Industries,
Inc., Champion Healthcare Corporation, Drypers Corporation and Garden Ridge
Corporation. Mr. Lehmann is a Certified Public Accountant. Mr. Lehmann is being
appointed to the Company's Board of Directors pursuant to the provisions of a
funding agreement between ARS and
 
                                       43
 
Equus II, which will terminate pursuant to its terms upon completion of this
Offering. See "Certain Transactions -- Organization of the Company."
 
     DON D. SYKORA is currently a consultant to Houston Industries Incorporated.
Prior to his retirement in 1995, he served as President and Chief Operating
Officer of Houston Industries Incorporated since 1993. From 1990 to 1993, Mr.
Sykora was President and Chief Operating Officer of Houston Industries
Incorporated's principal operating subsidiary, Houston Lighting & Power Company.
Mr. Sykora is currently serving as a director of each of Powell Industries,
Inc., Pool Oilfield Services, Inc. and TransTexas Gas Corp.
 
     On closing of this Offering, the Board of Directors will be divided into
three classes with staggered terms of office. The term of the Class I directors,
consisting of Messrs. Wright, Sokolow and Amonett, will expire at the annual
stockholders' meeting in 1997. The term of the Class II directors, consisting of
Messrs. Hoover, Menditch, Cruikshank and Hale, will expire at the annual
stockholders' meeting in 1998. The term of the Class III directors, consisting
of Messrs. Timmons, McCaughey, Lehmann and Sykora, will expire at the annual
stockholders' meeting in 1999. After 1997 for the Class I directors, after 1998
for the Class II directors and after 1999 for the Class III directors, each
class will hold office until the third annual stockholders' meeting following
the most recent election of such class. Classification of the Board could have
the effect of increasing the length of time necessary to change the composition
of a majority of the Board. In general, at least two annual meetings of
stockholders will be necessary for stockholders to effect a change in a majority
of the members of the Board. Executive officers serve at the discretion of the
Board.
 
     On closing of this Offering, there will be five committees of the Board:
Audit, Compensation, Executive, Nominating and Industry Relations. The initial
members of the Audit Committee will be Messrs. Cruikshank (chairman), Amonett
and Hale. The initial members of the Compensation Committee will be Messrs.
Amonett (chairman), Sykora and Lehmann. The initial members of the Executive
Committee will be Messrs. Wright (chairman), Hoover, Sykora and Timmons. The
initial members of the Nominating Committee will be Messrs. Hoover (chairman),
Wright, Cruikshank and McCaughey. The initial members of the Industry Relations
Committee will be Messrs. Sokolow (chairman), Hoover and Menditch. The members
of the Audit and Compensation Committees will not be employees of the Company.
 
DIRECTOR COMPENSATION
 
     Directors who are employees of the Company do not receive additional
compensation for serving as directors. Each director who is not an employee of
the Company (a "Nonemployee Director") initially will receive a fee of $1,500
for each Board meeting attended and $1,000 for each Board committee meeting
attended (unless held on the same day as a Board meeting) and will periodically
be granted options to purchase Common Stock pursuant to the Company's 1996
Incentive Plan (the "Incentive Plan"). See "-- 1996 Incentive
Plan -- Nonemployee Director Awards." All directors will be reimbursed for
out-of-pocket expenses incurred in attending meetings of the Board or Board
committees and for other expenses incurred in their capacity as directors.
 
EXECUTIVE COMPENSATION
 
     The Company was incorporated in October 1995 and, prior to this Offering,
has not conducted any operations other than activities related to the
Acquisitions and this Offering. The Company did not pay any compensation to its
senior executive officers in 1995. In March 1996, the Company paid Mr. Wright
50% of his annual base salary accrued from November 1, 1995 to March 1, 1996 at
the annual rate of $175,000. The Company anticipates that during 1996 its most
highly compensated executive officers and their annualized base salaries will
be: Mr. Wright -- $175,000; Mr. Hoover -- $160,000; Mr. Timmons -- $150,000; Mr.
Menditch -- $150,000; and Mr. Sokolow -- $150,000. On the closing of this
Offering, Mr. Wright will be paid the balance of his accrued 1995 and 1996
compensation, while Mr. Hoover will be paid his accrued 1995 and 1996
compensation through a series of payments beginning on October 1, 1996. Pursuant
to the terms of their employment agreements with ARS, the annual base salaries
of each of the executive officers named above are subject to upward adjustment
effective one year from the effective date of his employment agreement. The
effective date of the employment agreements of Messrs. Wright and Hoover is
November 1,
 
                                       44
 
1995 and of Messrs. Timmons, Menditch and Sokolow is the date this Offering
closes. See "-- Employment Agreements." Each of the executive officers named
above is eligible to earn additional performance-based incentive compensation
for 1996. See "-- 1996 Incentive Plan."
 
EMPLOYMENT AGREEMENTS
 
     The Company has entered into employment agreements with Messrs. Wright,
Hoover, McCaughey, Held and the current chief executive officer of each of the
Founding Companies other than Crown and A-ABC, which generally will continue
their existing employment arrangements with operational management. The
following summary of these agreements, which will be effective on the closing of
the Acquisitions and this Offering, does not purport to be complete and is
qualified by reference to them, copies of which have been filed as exhibits to
the Registration Statement of which this Prospectus is a part. Each of these
agreements provides for an annual base salary in an amount not less than the
initial specified amount and entitles the employee to participate in all the
Company's compensation plans (as defined) in which other executive officers of
the Company participate. Each of these agreements also has a continuous
three-year term subject to the right of the Company and the employee to
terminate the employee's employment at any time. If the employee's employment is
terminated by the Company without cause (as defined) or by the employee with
good reason (as defined), the employee will be entitled, during each of the
years in the three-year period beginning on the termination date, to (i)
periodic payments equal to his average annual cash compensation (as defined)
from the Company, including bonuses, if any, during the two years (or such
shorter period of employment) preceding the termination date, and (ii) continued
participation in all the Company's compensation plans (other than the granting
of new awards under the Incentive Plan or any other performance-based plan).
Except in the case of a termination for cause, any stock options previously
granted to the employee under the Incentive Plan that have not been exercised
and are outstanding as of the time immediately prior to the date of his
termination will remain outstanding (and continue to become exercisable pursuant
to their respective terms) until exercised or the expiration of their term,
whichever is earlier. If a change of control (as defined) of the Company occurs,
the employee will be entitled to terminate his employment at any time during the
365-day period following that change of control and receive a lump sum payment
equal to three times his highest annual base salary under the agreement (plus
such amounts as may be necessary to hold the employee harmless from the
consequences of any resulting excise or other similar purpose tax relating to
"parachute payments" under the Internal Revenue Code of 1986, as amended (the
"Code"). Each employment agreement contains or will contain a covenant
limiting competition with the Company for a period of one year following
termination of employment.
 
     The Company also has entered into employment agreements with Messrs. Walker
and Mamaux.
 
                                       45
 
OPTION GRANTS
 
     Pursuant to the Company's previous stock option plan, the Company has
granted to its directors, officers and certain key employees (including officers
of the Founding Companies) 10-year options to purchase 1,345,000 shares of
Common Stock. Certain of these options will be exchanged for identical options
under the Incentive Plan. The following table sets forth certain information
concerning the options granted and to be granted to the following individuals
and groups:
NUMBER OF        PERCENT OF TOTAL
                                                            SHARES UNDERLYING        OPTIONS
                                                             OPTIONS GRANTED      OUTSTANDING OR
                NAME                     DATE OF GRANT      OR TO BE GRANTED      TO BE GRANTED          EXERCISE PRICE
- -------------------------------------   ----------------    -----------------    ----------------    -----------------------
C. Clifford Wright, Jr...............   January 31, 1996         200,000               14.9%                  $8.00
Howard S. Hoover, Jr.................   January 31, 1996         150,000               11.2%                  $8.00
William P. McCaughey.................   January 31, 1996         120,000                8.9%                  $8.00
A. Jefferson Walker III..............   January 31, 1996          25,000                1.8%                  $8.00
Certain other officers and key
  employees..........................   March-April 1996         150,000               11.2%              $9.60-$10.80
All other officers, outside directors
  and officers of Founding Companies,
  as a group*........................   June 1996                700,000               52.0%         Initial public offering
- ------------
* Conditioned on the closing of the Acquisitions and this Offering.
 
     The options granted to Messrs. Wright, Hoover, McCaughey, Walker and one
other executive officer are exercisable in 50% increments six and 18 months,
respectively after the closing of this Offering. Other than the options for
outside directors which are exercisable as set forth in "-- Director
Compensation," the other outstanding options generally are exercisable in 20%
increments six months after the date this Offering closes and thereafter on each
of the first four anniversaries of that date.
 
BONUS AWARDS
 
     In June 1996, the Board of Directors granted Messrs. Wright, Hoover,
McCaughey and Held incentive cash bonus awards for 1996 which are based, subject
to the overall performance of the Company, on the performance of the Common
Stock after the Offering as compared to the performance of each of the stocks
included in the Standard & Poor's 500 Stock Index (the "S&P 500"). The amount
of each award will be determined by multiplying the officer's salary earned
between the closing of this Offering and December 31, 1996 by a percentage
determined by ranking the Common Stock's price performance including reinvested
dividends, if any ("Total Stockholder Return"), among Total Stockholder
Returns of all the stocks in the S&P 500, as follows:

        PERCENTILE RANKING OF                       PERCENTAGE OF BASE
           COMPANY'S TOTAL                               SALARY AS
         STOCKHOLDER RETURN                             BONUS AWARD
- -------------------------------------               ------------------
            50% or less..........................            0%
            51% -  65%...........................           50%
            66% -  74%...........................          100%
            75% -  89%...........................          150%
            90% -  95%...........................          200%
            96% - 100%...........................          250%
 
     For 1996, the incentive bonus award calculation will be made from the
closing of this Offering through December 31. The officers granted these will
not be eligible to participate in any other Company cash bonus award program in
1996. The 1996 bonus for Mr. Timmons, if any, will be determined in accordance
with
 
                                       46
 
50% of the above formula and paid in January 1997 and the balance of such
officer's 1996 bonus award, if any, will be based upon performance standards
established by the Compensation Committee of the Board of Directors. The 1996
bonuses for other officers and key employees of the Company will be based upon
the performance standards established by the Compensation Committee. The Company
expects the Compensation Committee to establish such performance standards for
the remainder of the 1996 year following the closing of this Offering.
 
1996 INCENTIVE PLAN
 
     The description set forth below summarizes the principal terms and
conditions of the Incentive Plan, does not purport to be complete and is
qualified in its entirety by reference to the Incentive Plan, a copy of which
has been filed as an exhibit to the Registration Statement of which this
Prospectus is a part.
 
     GENERAL. The objectives of the Incentive Plan, which was approved by the
Company's Board of Directors and stockholders, are to (i) attract and retain the
services of key employees, qualified independent directors and qualified
consultants and other independent contractors and (ii) encourage the sense of
proprietorship in and stimulate the active interest of those persons in the
development and financial success of the Company by making awards ("Awards")
designed to provide participants in the Incentive Plan with a proprietary
interest in the growth and performance of the Company.
 
     The Company has reserved 1,500,000 shares of Common Stock for use in
connection with the Plan. Beginning with the Company's first fiscal quarter
after the closing of this Offering and continuing each fiscal quarter
thereafter, the number of shares available for use in connection with the
Incentive Plan will be the greater of 1,500,000 or 15% of the number of shares
of Common Stock outstanding on the last day of the preceding calendar quarter.
Shares subject to Awards that are forfeited or terminated, exchanged for Awards
that do not involve Common Stock or expire unexercised, or are settled in cash
in lieu of Common Stock, or otherwise such that the shares covered thereby are
not issued, again become available for Awards.
 
     Persons eligible for Awards are (i) employees holding positions of
responsibility with the Company or any of its subsidiaries and whose performance
can have a significant effect on the success of the Company as well as
individuals who have agreed to become employees within six months of the date of
grant ("Employees"), (ii) Nonemployee Directors and (iii) nonemployee
consultants and other independent contractors providing, or who will provide,
services to the Company or any of its subsidiaries ("Independent
Contractors"). Awards to Employees ("Employee Awards") and Awards to
Independent Contractors ("Independent Contractor Awards") generally are
treated alike under the Incentive Plan, and the following discussion of Employee
Awards applies, except as noted, equally to Independent Contractor Awards. For
purposes of Section 16(b) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), which could impose so-called short-swing trading
liabilities on the directors and executive officers of the Company in connection
with their purchases and sales of Common Stock within any six-month period, the
Incentive Plan is intended to qualify for the exemptions from that Section which
are provided by Rule 16b-3 under the Exchange Act ("Rule 16b-3").
 
     The Compensation Committee of the Company's Board of Directors (the
"Committee") will administer the Incentive Plan, except as it applies to
Nonemployee Directors, and, to the extent required for the Rule 16b-3
exemptions, the Committee will at all times consist of at least two Nonemployee
Directors. The Committee has the exclusive power to administer the Incentive
Plan and take all actions specifically contemplated thereby or necessary or
appropriate in connection with the administration thereof. Except insofar as the
Incentive Plan relates to Nonemployee Directors, the Committee also has the
exclusive power to interpret the Incentive Plan and to adopt such rules,
regulations and guidelines for carrying out its purposes as the Committee may
deem necessary or proper in keeping with the objectives thereof. The Committee
may, in its discretion, extend or accelerate the exercisability of, accelerate
the vesting of or eliminate or make less restrictive any restrictions contained
in any Employee Award, waive any restriction or other provision of the Incentive
Plan or in any Employee Award or otherwise amend or modify any Employee Award in
any manner that is either (i) not adverse to that Employee holding the Employee
Award or (ii) consented to by that Employee. The Committee also may delegate to
the chief executive officer and other senior officers of the Company its duties
under the Incentive Plan, except that no such delegation may be made in the case
of actions respecting participants subject to Section 16 of the Exchange Act.
 
     EMPLOYEE AWARDS. Employee Awards may be in the form of (i) rights to
purchase a specified number of shares of Common Stock at a specified price
("Options") which may be denominated in one or both of Common Stock or units
denominated in Common Stock, (ii) rights to receive a payment, in cash or 
 
                                       47

Common Stock, equal to the fair market value or other specified value of a
number of shares of Common Stock on the rights exercise date over a specified
strike price ("SARs"), (iii) restricted or unrestricted grants of Common Stock
or units denominated in Common Stock ("Stock Awards"), (iv) grants denominated
in cash ("Cash Awards") and (v) grants denominated in cash, Common Stock, units
denominated in Common Stock or any other property which are made subject to the
attainment of one or more performance goals ("Performance Awards"). Subject to
the limitations described below, the Committee will determine the recipients of
Employee Awards and the terms, conditions and limitations applicable to each
Employee Award, which conditions may, but need not, include continuous service
with the Company, achievement of specific business objectives or goals,
increases in specified indices or other comparable measures of performance. The
Committee may grant Employee Awards (i) singly, (ii) in combination or tandem
with other Employee Awards, (iii) in replacement of or as alternatives to prior
Employee Awards or (iv) in combination or tandem with, in replacement of or as
alternatives to rights under any other employee plan of the Company or any
acquired entity. The exercise price of an Option may be paid with cash or,
according to methods determined by the Committee, with Common Stock or any other
Employee Award the exerciser has owned for at least six months. Performance
Awards may include more than one performance goal, and a performance goal may be
based on one or more business criteria applicable to the grantee, the Company as
a whole or one or more of the Company's business units and may include any of
the following: increased revenue, net income, stock price, market share,
earnings per share, return on equity or assets or decreased costs or other
liabilities.
 
     The Incentive Plan contains limitations respecting Employee Awards,
including the following:
 
          (i) an Option may be either an incentive stock option ("ISO") that
     qualifies, or a nonqualified stock option ("NSO") that does not qualify,
     with the requirements of Section 422 of the Code, and must have an exercise
     price of not less than the fair market value of a Common Stock share on the
     date of grant;
 
          (ii) the Committee must establish the performance goal or goals for
     each Performance Award prior to the earlier to occur of (a) 90 days after
     the commencement of the performance measurement period for that Award and
     (b) the lapse of 25% of that period, and in any event while it is
     substantially uncertain whether the goal or goals will be met;
 
          (iii) no employee may be granted, during any one-year period, (a)
     Options or SARs covering more than 150,000 shares of Common Stock or (b)
     Stock Awards covering or relating to more than 10,000 shares of Common
     Stock (the limitations referred to in this clause (iii) being the
     "Stock-based Awards Limitations"); and
 
          (iv) no Employee may be granted Cash Awards (including Performance
     Awards denominated in cash) having a value determined on the date of grant
     in excess of $1 million.
 
Only the limitations described in clause (i) above apply to Independent
Contractor Awards.
 
     NONEMPLOYEE DIRECTOR AWARDS. Nonemployee Director Awards will be granted
either automatically or at the option of Nonemployee Directors in lieu of
director's fees, as described below.
 
     On the date this Offering closes, each Nonemployee Director automatically
will be granted NSOs to purchase 10,000 shares of Common Stock. In addition, on
the first business day of the month following the date on which each annual
meeting of the Company's stockholders is held (each an "Annual Director Award
Date"), each Nonemployee Director automatically will be granted NSOs to purchase
5,000 shares of Common Stock. The Board may increase subsequent annual Director
Awards to not more than 15,000 shares. Any person who first becomes a
Nonemployee Director after the date this Offering closes otherwise than by
election at an annual meeting of stockholders automatically will be granted, on
the date of his or her election, NSOs to purchase the number of shares of Common
Stock equal to the product of (i) 10,000 and (ii) a fraction, the numerator of
which is the number of days between the election of that Nonemployee Director
and the next scheduled Annual Director Award Date (or, if that date then has not
been scheduled, the date that is the first anniversary of the then immediately
preceding Annual Director Award Date, if any) and the denominator of which is
365. For purposes of any Director Awards granted prior to the scheduling of the
1997 annual meeting of stockholders, June 1, 1997 will be deemed the initial
Annual Director Award

                                       48
 
Date. Each NSO granted to Nonemployee Directors will (i) have a 10-year term,
(ii) have an exercise price per share equal to the fair market value of a Common
Stock share on the date of grant (the initial public offering price in the case
of NSOs granted on the closing of this Offering) which must be paid in full in
cash at the time of exercise to the extent exercised and (iii) become
exercisable in increments of one-third of the total number of shares of Common
Stock subject thereto on the first, second and third anniversaries of the date
of grant. If a Nonemployee Director resigns from the Board without the consent
of a majority of the other directors, his or her NSOs may be exercised only to
the extent they were exercisable on the resignation date.
 
     A Nonemployee Director may make an annual election to receive, in lieu of
all or any portion of the director's fees he or she would otherwise receive in
the next year (including both annual retainer fees, if any, and meeting fees), a
restricted Stock Award covering a number of shares of Common Stock having a fair
market value equal to the quotient obtained by dividing (i) the dollar amount of
fees the Nonemployee Director elects to forego in the next year in exchange for
restricted Stock Awards by (ii) the fair market value of a Common Stock share on
the date of the election.
 
     OTHER PROVISIONS. With the approval of the Committee, payments in respect
of Employee Awards may be deferred, either in the form of installments or a
future lump sum payment, by any Employee. At the discretion of the Committee, an
Employee may be offered an election to substitute an Award for another Award or
Awards of the same or different type.
 
     The Company will have the right to deduct applicable taxes from any
Employee Award payment and withhold, at the time of delivery or vesting of cash
or shares of Common Stock under the Incentive Plan, an appropriate amount of
cash or number of shares of Common Stock, or combination thereof, for the
payment of taxes. The Committee may (i) permit withholding to be satisfied by
the transfer to the Company of shares of Common Stock previously owned by the
holder of the Employee Award for which withholding is required and (ii) cause
the Company to make a short-term or demand loan to any Employee or Independent
Contractor to permit the payment of taxes required by law.
 
     The Board of Directors may amend, modify, suspend or terminate the
Incentive Plan for the purpose of addressing any changes in legal requirements
or for any other lawful purpose, except that (i) no change that would impair the
rights of any holder of an Award with respect to that Award may be made without
the consent of that holder and (ii) no change requiring stockholder approval to
maintain the Rule l6b-3 exemptions will be effective until that approval has
been obtained.
 
     If any subdivision, split or consolidation of outstanding shares of Common
Stock, or any declaration of a stock dividend payable in shares of Common Stock,
occurs, the Board will make appropriate adjustments to (i) the number of shares
of Common Stock reserved under the Incentive Plan, (ii) the number of shares of
Common Stock covered by outstanding Awards in the form of Common Stock or units
denominated in Common Stock, (iii) the exercise or other price in respect of
such Awards, (iv) the appropriate fair market value and other price
determinations for Awards in order to reflect such transactions, (v) the number
of shares of Common Stock covered by Options automatically granted to
Nonemployee Directors, (vi) the number of shares covered by restricted Stock
Awards automatically granted to Nonemployee Directors and (vii) the Stock Based
Awards Limitations. If any recapitalization or capital reorganization of the
Company, any consolidation or merger of the Company with another corporation or
entity, any adoption by the Company of any plan of exchange affecting the Common
Stock or any distribution to holders of Common Stock of securities or property
(other than normal cash dividends) occurs, the Board will make appropriate
adjustments to the amounts or other items referred to in clauses (ii), (iii),
(iv), (v), (vi) and (vii) above to give effect to such transactions, but only to
the extent necessary to maintain the proportionate interest of the holders of
the Awards and to preserve, without exceeding, the value thereof.
 
     TAX IMPLICATIONS OF AWARDS. The following summarizes the United States
federal income tax consequences to Employees, Nonemployee Directors and the
Company as a result of the grant and exercise of Awards under the Incentive
Plan. It does not address the consequences of the Incentive Plan under any other
tax laws.
 
     No grant of any Option or SAR will constitute realized taxable income to
the grantee. Each exerciser of an SAR or NSO will (i) recognize ordinary income
in an amount equal to the excess of (a) the amount of
 
                                       49
 

cash and the fair market value of the Common Stock received over (b) the
exercise price (if any) paid therefor and (ii) generally have a tax basis in any
shares of Common Stock received pursuant to the exercise of an SAR or the cash
exercise of an NSO which equals the fair market value of those shares on the
date of exercise.
 
     An Employee will not have taxable income as a result of exercising an ISO,
but the excess of the fair market value of the shares of Common Stock received
on that exercise ("ISO Stock") over the exercise price may cause the Employee
to incur alternative minimum tax ("AMT"). The payment of AMT by an Employee
attributable to an ISO exercise would be allowed as a credit against his regular
tax liability in a later year to the extent his regular tax liability exceeds
his AMT for that year.
 
     On the disposition of ISO Stock that has been held for the requisite
holding period (generally, at least two years from the date of grant and one
year from the date of exercise of the ISO), the Employee generally will
recognize capital gain (or loss) equal to the difference between the amount
received in the disposition and the exercise price paid by the Employee for the
ISO Stock. If an Employee disposes of ISO Stock he has not held for the
requisite holding period (a "disqualifying disposition"), he will (i)
recognize ordinary income to the extent that the fair market value of the ISO
Stock at the time of exercise of the ISO (or, if less, the amount realized in
the case of an arm's-length disqualifying disposition to an unrelated party)
exceeds the exercise price paid by the Employee for such ISO Stock and (ii)
recognize capital gain to the extent the amount realized in the disqualifying
disposition exceeds the fair market value of the ISO Stock on the exercise date.
If the exercise price paid for the ISO Stock exceeds the amount realized in the
disqualifying disposition (in the case of an arm's-length disposition to an
unrelated party), that excess generally would constitute a capital loss.
 
     Under current rulings, if a holder of an Option uses shares of Common Stock
he already owns (other than ISO Stock that has not been held for the requisite
holding period) to pay all or any part of the exercise price of that Option, (i)
he will recognize income respecting the Common Stock received in the manner
described above, (ii) no additional gain will be recognized as a result of the
transfer of shares used as payment and (iii) shares so received, up to the
number of shares so used, will have a tax basis that equals, and a holding
period that includes, the tax basis and holding period of the shares of Common
Stock surrendered in satisfaction of that exercise price. Any additional shares
of Common Stock received on exercise will have a tax basis that equals the
amount of cash (if any) paid by the exerciser.
 
     When cash is paid or first made available to the recipient of a Cash Award
or Performance Award, that cash will constitute ordinary compensation income to
the recipient which is taxable at that time. When Common Stock is delivered
pursuant to a Stock Award or a Performance Award, or when Common Stock or cash
is delivered pursuant to a Stock Award denominated in units of Common Stock, the
recipient generally will recognize ordinary compensation income at that time
which is equal to the amount received (that amount being, in the case of Common
Stock, its fair market value when received), except that: if an Incentive Plan
participant receives Common Stock pursuant to a Stock Award or Performance Award
and that stock then is both nontransferable and subject to a substantial risk of
forfeiture, the participant may elect to recognize ordinary compensation income
equal to the then fair market value of the stock received or to defer such
recognition until such time, if ever, as the stock received first becomes both
transferable and no longer subject to a substantial risk of forfeiture, at which
time the participant would recognize ordinary compensation income equal to the
fair market value at that time of the stock previously received. If dividends
are paid or accrued on Common Stock included in a Stock Award or Performance
Award prior to the time the recipient of that Award recognizes ordinary
compensation income in respect of that stock, those dividends will be taxable as
compensation income rather than as dividend income. The tax basis of Common
Stock received by an Incentive Plan participant pursuant to a Stock Award or
Performance Award will be the amount the participant recognizes as compensation
income in respect of that stock, and the holding period of that stock will begin
on the date of that recognition.
 
     When an Employee recognizes compensation income from the exercise of an SAR
or NSO or in respect of Common Stock, cash or other property received pursuant
to a Cash Award, Performance Award or Stock Award, he will be subject to
withholding by the Company for federal (and generally for state and local)
income tax at that time.
 
                                       50
 
     Subject to the Code limitations described below, the Company (or a
subsidiary) generally will be entitled to a deduction for federal income tax
purposes which corresponds as to amount and timing with the compensation income
realized by Incentive Plan participants in respect of Awards made to them. The
Code limits deductions to amounts constituting both reasonable compensation for
services rendered or to be rendered and ordinary, necessary business expenses.
Code Sections 280G, which disallows deductions of amounts constituting excess
parachute payments made or deemed made in connection with a change in control of
an employer, and 162(m), which generally limits to $1 million the deductibility
of compensation paid to certain employees of the Company in any one taxable
year, could limit the ability of the Company (or a subsidiary) to deduct amounts
taxable as compensation income to Incentive Plan participants. In the case of
performance-based compensation, exceptions to Code Section 162(m) currently
apply if certain requirements are met. The Company intends generally to satisfy
these requirements in connection with the grant and payment of performance-based
Awards (including certain Options and SARs), but no assurance can be given the
Company will be able to satisfy these requirements in all cases and the Company
may, in its sole discretion, determine in one or more cases that it is in its
best interests not to satisfy these requirements even if it is able to do so.
 
OTHER PLANS

     The Company has adopted or intends to adopt deferred compensation,
supplemental disability, supplemental life and retirement or other benefit or
welfare plans in which executive officers of the Company will be eligible to
participate. Copies of the plans that have been adopted as of the date of this
Prospectus are filed as exhibits to the Registration Statement of which this
Prospectus is a part.

                              CERTAIN TRANSACTIONS

ORGANIZATION OF THE COMPANY

     START-UP FUNDING.  ARS was initially capitalized in October 1995 with
$1,000 provided by Messrs. Wright, Hoover and McCaughey. As a result of
subsequent stock splits, the 1,000 shares initially issued by ARS to its
founders now total 449,778 shares. Since early 1996, Equus II has advanced funds
to ARS pursuant to a $1.6 million commitment to enable ARS to pay various
expenses incurred in connection with its efforts to create the Company and
effect this Offering. The Equus II advances are evidenced by an ARS convertible
note under which $0.5 million was outstanding at March 31, 1996 and the entire
$1.6 million is expected to be outstanding prior to the closing of this
Offering. On the closing of this Offering, $0.5 million of this note will be
converted into 899,556 shares of Common Stock, and ARS will pay the balance of
the note with proceeds from this Offering. As a part of its funding arrangements
with Equus II, ARS issued a warrant to Equus II in March 1996 that will become
exercisable in whole on the closing of this Offering to purchase up to 100,000
shares of Common Stock at the initial public offering price per share. This
warrant will expire in 2001 to the extent not exercised.

     Simultaneously with the closing of this Offering, ARS will acquire by
merger all of the issued and outstanding capital stock of the Founding
Companies, at which time each Founding Company will become a wholly owned
subsidiary of the Company. The aggregate consideration that will be paid by ARS
to acquire the Founding Companies is approximately $76.9 million, consisting of
(i) approximately $34.8 million in cash and (ii) 3,236,613 shares of Common
Stock. In addition, the stockholders of each Founding Company will be entitled
to receive from such Founding Company (or be obligated to pay to it) an amount
equal to the increase (or decrease) in such Founding Company's net working
capital (as defined) from the date of a specified recent balance sheet for such
Founding Company through the closing of the Acquisitions. The Company will also
assume approximately $21.4 million of indebtedness. In addition, the Company
consented to the distribution of cash and certain receivables to stockholders of
General Heating, which is an S corporation, in an amount equal to the balance of
its Accumulated Adjustment Account ("AAA account") as of the closing of the
General Heating Acquisition (approximately $10 million as of December 31, 1995).
An AAA account generally represents undistributed retained earnings of an S
corporation, upon which taxes have been paid by the stockholders. In addition,
prior to the

                                       51

closing of the Acquisitions, certain Founding Companies will make distributions
to their stockholders of certain assets and related liabilities. As of June 30,
1996, the aggregate amount of these distributions would have been approximately
$ million.

     The following table sets forth for each Founding Company the consideration
to be paid its common stockholders (i) in cash and (ii) in shares of Common
Stock. For a description of the merger consideration to be provided to Equus II
in the EHC Acquisition in respect of convertible preferred stock of EHC held by
it, see "-- EHC."

                                                         COMMON STOCK
                                                    -----------------------
                                                                   VALUE OF
                                        CASH(1)      SHARES         SHARES
                                        -------     ---------      --------
                                              (DOLLARS IN THOUSANDS)
General Heating......................   $15,000       769,230      $ 10,000
Atlas................................     5,000     1,230,769        16,000
EHC (including Crown and A-ABC)......     --          436,615         5,676
Florida HAC..........................    11,000       384,615         5,000
Meridian & Hoosier...................     3,250       288,461         3,750
Climatic.............................       550       126,923         1,650
                                        -------     ---------      --------
     Total...........................   $34,800     3,236,613      $ 42,076
                                        =======     =========      ========
- ------------
(1) Excluding possible increases or decreases for changes in working capital (as
    defined).
 
     The consummation of each Acquisition is subject to customary conditions.
These conditions include, among others, the accuracy on the closing date of the
Acquisitions of the representations and warranties by the Founding Companies,
their principal stockholders and by ARS; the performance of each of their
respective covenants included in the agreements relating to the Acquisitions;
and the nonexistence of a material adverse change in the results of operations,
financial condition or business of each Founding Company.
 
     The agreements relating to the Acquisitions may be terminated, under
certain circumstances, prior to the consummation of this Offering. Specifically,
the agreements may be terminated (i) by the mutual consent of the board of
directors of the Company and each Founding Company; (ii) if this Offering and
the Acquisitions are not consummated by December 31, 1996; (iii) if the
schedules to any acquisition agreement are amended to reflect a material adverse
change in a Founding Company; or (iv) if a material breach or default under the
agreements shall exist and is not waived.
 
     There can be no assurance that the conditions to the closing of the
Acquisitions will be satisfied or waived or that the agreements relating to the
Acquisitions will not be terminated prior to closing.

     Pursuant to the agreements relating to the Acquisitions, all stockholders
of each of the Founding Companies (other than minority interest owners in Atlas)
have agreed not to compete with the Company for a period of three years
commencing on the date of closing of the Acquisitions.

                                       52

ACQUISITIONS INVOLVING CERTAIN OFFICERS, DIRECTORS AND STOCKHOLDERS

     Individuals who are or will become directors of the Company will receive
the following consideration in the Acquisitions for their interests in the
Founding Companies, subject to upward or downward adjustment for changes in
working capital.

                                                          COMMON STOCK
                                                     ----------------------
                                                                   VALUE OF
                                            CASH      SHARES        SHARES
                                          ---------  ---------     --------
                                               (DOLLARS IN THOUSANDS)
General Heating:
  Frank N. Menditch.....................  $   5,000      256,410    $3,334
Atlas:
  Gorden H. Timmons.....................      2,940      489,929     6,369
EHC:
  C. Clifford Wright, Jr. ..............       --         60,346       785
  Howard S. Hoover, Jr. ................       --         28,966       377
  William P. McCaughey..................       --         60,346       785
Florida HAC:
  Elliot Sokolow........................      6,500      307,692     4,000
- ------------
(1) In addition, a Timmons family trust will receive approximately $1,960 in
    cash and 429,094 shares of Common Stock.

     Equus will receive 153,846 shares of Common Stock, $500,000 in cash and
accrued cash dividends in exchange for its EHC preferred stock.

EHC

     EHC was organized in February 1996 for the purpose of acquiring, for a
total purchase price of $17.5 million, all of the capital stock of Crown and
certain real estate used in its business. The purchase price was funded by a
loan from NationsBank of Texas, N.A. ("NationsBank") secured by the capital
stock and certain assets of Crown, by a loan from Equus II, credit enhancements
provided to NationsBank by Equus II secured by all of the capital stock of ARS
and through the purchase by Equus II of $2.5 million of EHC preferred stock. In
May 1996, EHC acquired all of the capital stock of A-ABC for a total purchase
price of $2.0 million, which was provided by borrowings from NationsBank, which
are secured by the capital stock of A-ABC and credit enhancements provided by
Equus II, and the assumption of certain liabilities. See "The Company." EHC is
being acquired by the Company for a total consideration of $21.4 million,
consisting of 436,615 shares of Common Stock and the assumption and/or repayment
of approximately $15.7 million of indebtedness and other obligations (including
$0.5 million of EHC preferred stock), approximately $14.5 million of which will
be repaid either out of a portion of the net proceeds of this Offering or
through bank borrowings. The consideration being paid by ARS for EHC (which
previously acquired Crown and A-ABC) was determined using generally the same
valuation method ARS used to negotiate the consideration being paid to the
stockholders of the other Founding Companies. Messrs. Wright, Hoover and
McCaughey, who, prior to the completion of this Offering are the sole
stockholders of ARS, and Equus II are the sole stockholders of EHC.

     Simultaneously with the closing of the Acquisitions, the Company will issue
shares of its Common Stock in the following amounts: (i) as part of the
acquisition of EHC, 153,846 shares to Equus II in exchange for $2.0 million of
EHC preferred stock; and (ii) 46,156 shares to employees, three officers (other
than Messrs. Wright, Hoover and McCaughey) and consultants of ARS and its
affiliates.

REAL ESTATE AND OTHER TRANSACTIONS

     Atlas leases office and warehouse space in Hilton Head and Greenville,
South Carolina from a company in which Gorden H. Timmons has a 50% ownership
interest. One lease extends to May 2005 and

                                       53

currently provides for total annual rentals of $105,000. The other lease has a
10-year term when Atlas takes possession of the leased property in mid-1996 and
provides for initial total annual rentals of $73,800. Rentals under both leases
will increase if a specified prime interest rate increases to 11% or above.
Atlas also leases office and warehouse space in Clemson, South Carolina from a
partnership in which members of Mr. Timmons' immediate family have a 50%
ownership interest. This lease extends to February 2006 and provides for total
annual rentals of $42,000. A realtor of which Mr. Timmons is a 75% owner and the
broker-in-charge acts as leasing agent of a portion of Atlas's office and
warehouse space in North Charleston, South Carolina. During the five years ended
December 31, 1995, Atlas paid this company an average annual amount of
approximately $2,000.
 
     In November 1995, Mr. Timmons purchased the capital stock of Golden
Triangle Mechanical, Inc. from a third party for approximately $85,000. In
January 1996, Mr. Timmons conveyed that stock to Atlas for the same purchase
price.
 
     Atlas has a receivable from Mr. Timmons, its majority shareholder, in the
amount of approximately $195,000 as of December 31, 1995. See Note 9 to "Notes
to Consolidated Financial Statements" of Atlas.
 
     General Heating leases office and warehouse space in Manassas, Virginia and
Laurel, Maryland under four leases from a limited partnership owned by Frank N.
Menditch, his brothers and trusts for the benefit of their children. Annual
rentals under the leases, which expire at the end of 2005, currently total
$491,373 and will increase a minimum of 4% each year.
 
     General Heating has receivables from Frank Menditch in the aggregate amount
of approximately $308,139 as of December 31, 1995. See Note 7 to "Notes to
Financial Statements" of General Heating.
 
     Florida HAC leases its principal office and warehouse space in Margate,
Florida from a limited partnership 80% owned by Elliot Sokolow. ARS and Mr.
Sokolow have agreed to extend the lease term by five years to May 31, 2005. The
annual rental currently is $127,233 and will increase 5% each year.
 
     Florida HAC has borrowings outstanding from Mr. Sokolow in the aggregate
amount of approximately $641,804 as of December 31, 1995. See Note 8 to "Notes
to Combined Financial Statements" of Florida HAC.
 
     Meridian & Hoosier leases its principal office and warehouse space in
Indianapolis from Gary Daymon and his wife. The annual rental currently is
$90,000 and will increase 5% annually. The lease expires in 2001, and the
Company has obtained an option to purchase the building at its appraised fair
market value. Meridian & Hoosier leases office space in Indianapolis to DIAL ONE
of Central Indiana, Inc., a corporation wholly owned by Mr. Daymon ("DOCI").
This lease extends to June 30, 1997 and provides for total annual rentals of
$24,000.
 
     In October 1993, Meridian & Hoosier renewed a four-year franchise agreement
with DOCI under which Meridian & Hoosier uses the "DIAL ONE" name, logo and
various materials in its business within a designated franchise territory it
shares with other DOCI franchisees that also provide various residential
services under the "DIAL ONE" name. DOCI provides its franchisees a common
telephone number for customer calls, as well as promotional and training
materials and training seminars. Meridian & Hoosier's current annual payment
obligation under its franchise agreement is $60,000, and Meridian & Hoosier may
terminate the agreement at any time. If it does so, it will owe DOCI the balance
of the payments due to the end of the agreement's stated term and must cease
using the "DIAL ONE" name and materials.
 
     Meridian & Hoosier shares certain costs with DOCI for personnel and
overhead, for which it bills DOCI monthly based on DOCI's pro rata share of
those expenses.
 
     The Company believes the rentals provided under the leases described above
are fair market rentals. It also believes the other agreements described above
are fair to the Company.

                                       54
 
COMPANY POLICY
 
     In the future, any transactions with directors, officers, employees or
affiliates of the Company are anticipated to be minimal and will, in any case,
be approved in advance by a majority of the Board of Directors, including a
majority of disinterested members of the Board of Directors.
 
                SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
                                 AND MANAGEMENT
 
     The following table shows, as of June 12, 1996, information respecting the
then "beneficial owners" (as defined by the SEC) of more than 5% of the Common
Stock:

                                        SHARES BENEFICIALLY
                                               OWNED
                                       ----------------------
                NAME                    NUMBER       PERCENT
- -------------------------------------  ---------     --------
C. Clifford Wright, Jr...............    168,667     37.5%
Howard S. Hoover, Jr.................    112,444     25.0%
William P. McCaughey.................    168,667     37.5%
 
     The following table shows, immediately after giving effect to the closing
of the Acquisitions and this Offering, the then "beneficial ownership" of the
Common Stock of (i) Equus II, (ii) each director and person nominated to become
a director on closing of this Offering; (iii) each executive officer; (iv)
certain executive officers of each of the Founding Companies; and (v) all
executive officers and directors of the Company as a group.

                                         SHARES BENEFICIALLY
                                                OWNED
                                          AFTER OFFERING(1)
                                        ----------------------
                NAME                     NUMBER        PERCENT
- -------------------------------------   ---------      -------
Equus II Incorporated(2).............   1,429,094        15.7%

  2929 Allen Parkway, 25th Floor
  Houston, Texas 77019
Gorden H. Timmons(3).................     946,186        10.5%
Gorden H. Timmons, as Trustee under
  Gorden H. Timmons
  Retained Annuity Trust.............     456,257         5.1%
Elliot Sokolow.......................     307,692         3.4%
Gary Daymon..........................     288,461         3.2%
Frank N. Menditch....................     256,410         2.9%
Howard C. Menditch...................     256,410         2.9%
Bruce L. Menditch....................     256,410         2.9%
C. Clifford Wright, Jr...............     229,012         2.5%
William P. McCaughey.................     229,012         2.5%
Howard S. Hoover, Jr.(4).............     151,410         1.7%
 Howard W. Hauser....................     126,923         1.4%
All executive officers and
  directors as a group (9 persons)...   2,131,644        23.7%
- ------------

(1) Shares shown do not include shares that could be acquired upon exercise of
    currently outstanding stock options which do not vest within 60 days hereof.

(2) Shares shown include 100,000 shares obtainable on exercise of a warrant
    exercisable at the IPO price per share. See "Certain Transactions --
    Organization of the Company." Nolan Lehmann, who will become a director of
    the Company on closing of this Offering, is the President of Equus II and
    thus may be deemed to be the beneficial owner of shares held by Equus II.
    Mr. Lehmann disclaims beneficial ownership of all those shares.

(3) As Trustee under the Gorden H. Timmons Retained Annuity Trust, Mr. Timmons
    may be deemed the beneficial owner of the shares held by that trust.

                                       55

(4) Shares shown include 10,000 shares that Mr. Hoover intends to acquire
    directly from the Underwriters in connection with this Offering. The table
    assumes no other person listed intends to acquire shares from the
    Underwriters.
 
     Except as otherwise indicated, the address of each person listed in the
above tables is c/o American Residential Services, Inc., 5850 San Felipe, Suite
500, Houston, Texas 77057. All persons listed have sole voting and investment
power with respect to their shares unless otherwise indicated.
 
                        SHARES ELIGIBLE FOR FUTURE SALE
 
     On closing of the Acquisitions and this Offering, 8,995,564 shares of
Common Stock will be outstanding. The shares sold in this Offering (other than
to affiliates of the Company) will be freely tradable by the public. The
remaining outstanding shares of Common Stock (collectively, the "Restricted
Shares") have not been registered under the Securities Act and may be resold
publicly only following their effective registration under that act or pursuant
to an available exemption from the registration requirements of that act (such
as Rule 144 thereunder).
 
     The Company intends to file a registration statement on Form S-8 under the
Securities Act to register the shares of Common Stock reserved or to be
available for issuance pursuant to the Incentive Plan. Shares of Common Stock
issued pursuant to the Incentive Plan after the effective date of that
registration statement generally will be available for sale in the open market
by holders who are not affiliates of the Company and, subject to the volume and
other limitations of Rule 144, by holders who are affiliates of the Company.
 
     In general, under Rule 144 as currently in effect, if a minimum of two
years has elapsed since the later of the date of acquisition of the restricted
securities from the issuer or from an affiliate of the issuer, a person (or
persons whose shares of Common Stock are aggregated), including persons who may
be deemed "affiliates" of the Company, would be entitled to sell within any
three-month period a number of shares of Common Stock that does not exceed the
greater of (i) 1% of the then outstanding shares of Common Stock (I.E., 89,955
shares immediately on closing of this Offering) and (ii) the average weekly
trading volume during a preceding period of four calendar weeks. Sales under
Rule 144 are also subject to certain provisions as to the manner of sale, notice
requirements and the availability of current public information about the
Company. In addition, under Rule 144(k), if a period of at least three years has
elapsed since the later of the date restricted securities were acquired from the
Company or the date they were acquired from an affiliate of the Company, a
stockholder who is not an affiliate of the Company at the time of sale and has
not been an affiliate for at least three months prior to the sale would be
entitled to sell shares of Common Stock in the public market immediately without
compliance with the foregoing requirements under Rule 144. Rule 144 does not
require the same person to have held the securities for the applicable periods.
The foregoing summary of Rule 144 is not intended to be a complete description
thereof. The Commission has proposed an amendment to Rule 144 that would shorten
the three- and two-year holding periods described above to two years and one
year, respectively.
 
     The Company has agreed not to offer or sell any shares of Common Stock for
a period of 180 days (the "Lockup Period") following the date of this Prospectus
without the prior written consent of Smith Barney Inc., except that the Company
may issue Common Stock in connection with acquisitions or on the exercise of
options or warrants outstanding as of the closing of this Offering. Further, all
the current stockholders of ARS, including the former owners of the Founding
Companies and Equus II, will be contractually prohibited from selling the shares
they own for a period of 180 days following the consummation of the
Acquisitions. The Company has agreed that it will not waive such prohibition
during the Lock-up Period without the prior written consent of Smith Barney Inc.
of the Underwriters. In addition, the holders of the shares of Common Stock
acquired in connection with the Acquisitions have agreed with the Company that
they will not sell, transfer or otherwise dispose of any of their shares for two
years following the closing of this Offering (or for such shorter period as the
SEC may prescribe as the holding period for restricted securities under Rule
144).
 
     In connection with the Acquisitions, the Company will enter into a
registration rights agreement with former stockholders of the Founding Companies
(the "Registration Rights Agreement"), which will 
 
                                       56

provide certain registration rights with respect to the Common Stock issued to
such stockholders in the Acquisitions. The Registration Rights Agreement will
provide for a single demand registration right, exercisable by the holders of a
majority of the shares of Common Stock subject to the agreement, pursuant to
which the Company will file a registration statement under the Securities Act to
register the sale of shares by those requesting stockholders and any other
holders of Common Stock subject to the agreement who desire to sell pursuant to
such registration statement. The demand request may not be made until the
expiration of two years after the date of this Prospectus (subject to a
corresponding reduction if the two-year holding period for restricted securities
under Rule 144 is reduced by the Commission). In addition, subject to certain
conditions and limitations, the Registration Rights Agreement will provide the
holders of Common Stock subject to the agreement with the right to participate
in registrations by the Company of its equity securities in underwritten
offerings. The registration rights conferred by the Registration Rights
Agreement will terminate on December 31, 2000. In addition, pursuant to separate
registration rights agreements with Equus II and NationsBank, both Equus II and
NationsBank have the right, in the event the Company proposes to register under
the Securities Act any Common Stock for its own account or for the account of
others, subject to certain exceptions, to require the Company to include shares
owned by them (or, in the case of NationsBank, issuable to it pursuant to a
warrant that was originally issued by EHC) in the registration.
 
     In the case of each registration rights agreement described above, the
Company is generally required to pay the costs associated with such an offering
other than underwriting discounts and commissions and transfer taxes
attritubable to the shares sold on behalf of the selling stockholders. In
addition, in the case of the registration rights agreements with Equus II and
NationsBank, the Company is obligated to pay the fees and expenses of legal
counsel for the selling stockholders thereunder. Each registration rights
agreement provides that the number of shares of Common Stock that must be
registered on behalf of the selling stockholders is subject to limitation if the
managing underwriter determines that market conditions require such a
limitation. Under each agreement, the Company will indemnify the selling
stockholders thereunder, and such stockholders will indemnify the Company,
against certain liabilities in respect of any registration statement or offering
covered by the registration rights agreement.
 
     Within 60 days after the closing of this Offering, the Company intends to
register 5,000,000 shares of Common Stock under the Securities Act for use in
connection with future acquisitions. These shares generally will be freely
tradable after their issuance by persons not affiliated with the Company unless
the Company contractually restricts their sale, and sales of these shares during
the Lockup Period would require the prior written consent of Smith Barney Inc.
 
                          DESCRIPTION OF CAPITAL STOCK
 
     The Company's authorized capital stock consists of 50,000,000 shares of
Common Stock, par value $.001 per share, and 10,000,000 shares of preferred
stock, par value $.001 per share (the "Preferred Stock"). At June 14, 1996,
449,778 shares of Common Stock were issued and outstanding. On closing of the
Acquisitions and this Offering, the Company will have outstanding 8,995,564
shares of Common Stock (9,625,564 if the Underwriters' over-allotment option is
exercised in full) and no shares of Preferred Stock. The following summary is
qualified in its entirety by reference to the Company's Restated Certificate of
Incorporation (the "Certificate of Incorporation"), which is filed as an
exhibit to the Registration Statement of which this Prospectus is a part.
 
COMMON STOCK
 
     The Common Stock possesses ordinary voting rights for the election of
directors and in respect of other corporate matters, and each share has one
vote. The Common Stock affords no cumulative voting rights, and the holders of a
majority of the shares voting for the election of directors can elect all the
directors if they choose to do so. The Common Stock carries no preemptive
rights, is not convertible, redeemable, assessable or entitled to the benefits
of any sinking fund. The holders of Common Stock are entitled to dividends in
such amounts and at such times as may be declared by the Board of Directors out
of funds legally available therefor. See "Dividend Policy" for information
regarding dividend policy.
 
                                       57
 
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 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, 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 holders
of Common Stock.
 
     Although the Company has no present intention to issue shares of Preferred
Stock, the issuance of shares of Preferred Stock, or the issuance of rights to
purchase such shares, could be used to discourage an unsolicited acquisition
proposal. For example, the issuance of a series of Preferred Stock might impede
a business combination by including class voting rights that would enable the
holders to block such a transaction; or such issuance might facilitate a
business combination by including voting rights that would provide a required
percentage vote of the stockholders. In addition, under certain circumstances,
the issuance of Preferred Stock could adversely affect the voting power of the
holders of the Common Stock. Although the Board of Directors is required to make
any determination to issue such stock based on its judgment as to the best
interests of the stockholders of the Company, the Board of Directors could act
in a manner that would discourage an acquisition attempt or other transaction
that some or a majority of the stockholders might believe to be in their best
interests or in which stockholders might receive a premium for their stock over
the then-market price of such stock. The Board of Directors does not at present
intend to seek stockholder approval prior to any issuance of currently
authorized stock, unless otherwise required by law or the rules of any market on
which the Company's securities are traded.
 
STOCKHOLDER RIGHTS PLAN
 
     Each share of Common Stock offered hereby includes one right ("Right") to
purchase from the Company a unit consisting of one one-hundredth of a share (a
"Unit") of Series A Junior Participating Preferred Stock, par value $.001 per
share (the "Series A Preferred Stock"), at a purchase price of $40.00 per
Unit, subject to adjustment in certain events (the "Purchase Price"). The
following summary description of the Rights does not purport to be complete and
is qualified in its entirety by reference to the Rights Agreement between the
Company and a Rights Agent (the "Rights Agreement"), the form of which is
filed as an exhibit to the Registration Statement of which this Prospectus is a
part and is incorporated herein by reference.
 
     Initially, the Rights will attach to all certificates representing
outstanding shares of Common Stock, including the shares of Common Stock offered
hereby, and no separate certificates for the Rights ("Rights Certificates") will
be distributed. The Rights will separate from the Common Stock and a
"Distribution Date" will occur upon the earlier of (i) 10 days following a
public announcement that a person or group of affiliated or associated persons
(an "Acquiring Person") has acquired, or obtained the right to acquire,
beneficial ownership of 15% or more of the outstanding shares of Common Stock
(the date of the announcement being the "Stock Acquisition Date") or (ii) 10
business days (or such later date as may be determined by the Board of Directors
before the Distribution Date occurs) following the commencement of a tender
offer or exchange offer that would result in a person's becoming an Acquiring
Person. Notwithstanding the foregoing, so long as Equus II, together with all
affiliates and associates thereof, remains the beneficial owner of 15% or more
of the outstanding shares of Common Stock, Equus II shall not be or become an
Acquiring Person unless and until it, together with all affiliates and
associates thereof, becomes the beneficial owner of additional shares of Common
Stock constituting 1% or more of the then-outstanding shares of Common Stock or
any other person who is the beneficial owner of at least 1% of the then
outstanding shares of Common Stock shall become an affiliate or associate of
Equus II. In certain circumstances the Distribution Date may be deferred by the
Board of Directors. Certain inadvertent 
 
                                       58
 
acquisitions will not result in a person's becoming an Acquiring Person if the
person promptly divests itself of sufficient Common Stock. Until the
Distribution Date, (a) the Rights will be evidenced by the Common Stock
certificates and will be transferred with and only with those certificates, (b)
Common Stock certificates will contain a notation incorporating the Rights
Agreement by reference and (c) the surrender for transfer of any certificate for
Common Stock also will constitute the transfer of the Rights associated with the
stock represented by such certificate.
 
     The Rights are not exercisable until the Distribution Date and will expire
at the close of business on December 1, 2002, unless earlier redeemed or
exchanged by the Company as described below.
 
     As soon as practicable after the Distribution Date, Rights Certificates
will be mailed to holders of record of Common Stock as of the close of business
on the Distribution Date and, from and after the Distribution Date, the separate
Rights Certificates alone will represent the Rights.
 
     In the event (a "Flip-In Event") that a person becomes an Acquiring
Person (except pursuant to a tender or exchange offer for all outstanding shares
of Common Stock at a price and on terms that the Board of Directors determines
to be fair to and otherwise in the best interests of the Company and its
stockholders (a "Permitted Offer")), each holder of a Right will thereafter
have the right to receive, on exercise of that Right, a number of shares of
Common Stock (or, in certain circumstances, cash, property or other securities
of the Company) having a Current Market Price (as defined in the Rights
Agreement) equal to two times the exercise price of the Right. Notwithstanding
the foregoing, following the occurrence of any Flip-In Event, all Rights that
are, or (under certain circumstances specified in the Rights Agreement) were,
beneficially owned by any Acquiring Person (or by certain related parties) will
be null and void in the circumstances set forth in the Rights Agreement. Rights
are not exercisable following the occurrence of any Flip-In Event until such
time as the Rights are no longer redeemable by the Company as set forth below.
 
     In the event (a "Flip-Over Event") that, at any time on or after the
Stock Acquisition Date, (i) the Company is acquired in a merger or other
business combination transaction (other than certain mergers that follow a
Permitted Offer) or (ii) 50% or more of the Company's assets or earning power is
sold or transferred, each holder of a Right (except Rights that previously have
been voided as set forth above) shall thereafter have the right to receive, on
exercise of such Right, a number of shares of common stock of the acquiring
company having a Current Market Price equal to two times the exercise price of
the Right. Flip-In Events and Flip-Over Events are collectively referred to as
"Triggering Events."
 
     The Purchase Price payable, and the number of Units of Series A Preferred
Stock or other securities or property issuable, on exercise of the Rights are
subject to adjustment from time to time to prevent dilution (i) in the event of
a stock dividend on, or a subdivision, combination or reclassification of, the
Series A Preferred Stock, (ii) if holders of the Series A Preferred Stock are
granted certain rights or warrants to subscribe for Series A Preferred Stock or
certain convertible securities at less than the current market price of the
Series A Preferred Stock or (iii) on the distribution to holders of the Series A
Preferred Stock of evidences of indebtedness or assets (excluding regular
quarterly cash dividends) or of subscription rights or warrants (other than
those referred to above).
 
     With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments amount to at least 1% of the Purchase
Price. No fractional Units will be issued and, in lieu thereof, an adjustment in
cash will be made based on the market price of the Series A Preferred Stock on
the last trading date prior to the date of exercise. Pursuant to the Rights
Agreement, the Company reserves the right to require prior to the occurrence of
a Triggering Event that, on any exercise of Rights, a number of Rights be
exercised so that only whole shares of Series A Preferred Stock will be issued.
 
     At any time until 10 days following the Stock Acquisition Date, the Company
may redeem the Rights in whole, but not in part, at a price of $.01 per Right,
payable, at the option of the Company, in cash, shares of the Common Stock or
such other consideration as the Board of Directors of the Company may determine.
After the redemption period has expired, the Company's right of redemption may
be reinstated prior to the occurrence of any Triggering Event if (i) an
Acquiring Person reduces its beneficial ownership to 10% or less of the
outstanding shares of Common Stock in a transaction or series of transactions
not involving the 
 
                                       59

Company and (ii) there are no other Acquiring Persons. Immediately upon the
effectiveness of the action of the Board of Directors ordering redemption of the
Rights, the Rights will terminate and the only right of the holders of Rights
will be to receive the $.01 redemption price.
 
     At any time after the occurrence of a Flip-In Event and prior to a person's
becoming the beneficial owner of 50% or more of the shares of Common Stock then
outstanding, the Company may, at its option, exchange the Rights (other than
Rights owned by an Acquiring Person or an affiliate or an associate of an
Acquiring Person, which will have become void), in whole or in part, at an
exchange ratio of one share of Common Stock, and/or other equity securities
deemed to have the same value as one share of Common Stock, per Right, subject
to adjustment.
 
     Other than certain provisions relating to the principal economic terms of
the Rights, any of the provisions of the Rights Agreement may be amended by the
Board of Directors prior to the Distribution Date. Thereafter, the provisions of
the Rights Agreement may be amended by the Board of Directors only in order to
cure any ambiguity, defect or inconsistency, to make changes that do not
materially adversely affect the interests of holders of Rights (excluding the
interests of any Acquiring Person), or to shorten or lengthen any time period
under the Rights Agreement; provided, however, that no amendment to lengthen the
time period governing redemption shall be made at such time as the Rights are
not redeemable. Until a Right is exercised, the holder thereof, as such, will
have no rights to vote or to receive dividends or any other rights as a
stockholder of the Company.
 
     The Rights will have certain antitakeover effects. They will cause
substantial dilution to any person or group that attempts to acquire the Company
without the approval of the Company's Board of Directors. As a result, the
overall effect of the Rights may be to render more difficult or discourage any
attempt to acquire the Company, even if such acquisition may be favorable to the
interests of the Company's stockholders. Because the Board of Directors can
redeem the Rights or approve a Permitted Offer, the Rights should not interfere
with a merger or other business combination approved by the Board. The Rights
have been distributed prior to the completion of this Offering to protect the
Company's stockholders from coercive or abusive takeover tactics and to afford
the Company's Board of Directors more negotiating leverage in dealing with
prospective acquirers.
 
STATUTORY BUSINESS COMBINATION PROVISION
 
     The Company is a Delaware corporation and is subject to Section 203 of the
DGCL. In general, Section 203 prevents an "interested stockholder" (defined
generally as a person owning 15% or more of a corporation's outstanding voting
stock) from engaging in a "business combination" (as defined) with a Delaware
corporation for three years following the date such person became an interested
stockholder unless: (i) before such person became an interested stockholder, the
board of directors of the corporation approved the transaction in which the
interested stockholder became an interested stockholder or approved the business
combination; (ii) upon consummation of the transaction that resulted in the
interested stockholder's becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced (excluding stock held by
directors who are also officers of the corporation and by employee stock plans
that do not provide employees with the rights to determine confidentially
whether shares held subject to the plan will be tendered in a tender or exchange
offer); or (iii) following the transaction in which such person became an
interested stockholder, the business combination was approved by the board of
directors of the corporation and authorized at a meeting of stockholders by the
affirmative vote of the holders of 66 2/3% of the outstanding voting stock of
the corporation not owned by the interested stockholder. Under Section 203, the
restrictions described above also do not apply to certain business combinations
proposed by an interested stockholder following the announcement or notification
of one of certain extraordinary transactions involving the corporation and a
person who had not been an interested stockholder during the previous three
years or who became an interested stockholder with the approval of a majority of
the corporation's directors, if such extraordinary transaction is approved or
not opposed by a majority of the directors who were directors prior to any
person becoming an interested stockholder during the previous three years or
were recommended for election or elected to succeed such directors by a majority
of such directors.
 
                                       60
 
OTHER MATTERS
 
     Delaware law authorizes corporations to limit or eliminate the personal
liability of directors to corporations and their stockholders for monetary
damages for breach of a director's fiduciary duty of care. The duty of care
requires that, when acting on behalf of the corporation, directors' must
exercise an informed business judgment based on all material information
reasonably available to them. Absent the limitations authorized by Delaware law,
directors are accountable to corporations and their stockholders for monetary
damages for conduct constituting gross negligence in the exercise of their duty
of care. Delaware law enables corporations to limit available relief to
equitable remedies such as injunction or rescission. The Certificate of
Incorporation limits the liability of directors of the Company to the Company or
its stockholders to the fullest extent permitted by Delaware law. Specifically,
directors of the Company will not be personally liable for monetary damages for
breach of a director's fiduciary duty as a director, except for liability (i)
for any breach of the director's duty of loyalty to the Company or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) for unlawful
payments of dividends or unlawful stock repurchases or redemptions as provided
in Section 174 of the DGCL or (iv) for any transaction from which the director
derived an improper personal benefit.
 
     The inclusion of this provision in the Certificate of Incorporation may
have the effect of reducing the likelihood of derivative litigation against
directors and may discourage or deter stockholders or management from bringing a
lawsuit against directors for breach of their duty of care, even though such an
action, if successful, might otherwise have benefited the Company and its
stockholders. The Company's Bylaws provide indemnification to the Company's
officers and directors and certain other persons with respect to certain
matters, and the Company has entered into agreements with each of its directors
and executive officers providing for indemnification with respect to certain
matters.
 
     The Certificate of Incorporation provides that stockholders may act only at
an annual or special meeting of stockholders and may not act by written consent.
The Bylaws provide that special meetings of the stockholders can be called only
by the Chairman of the Board, the President or a majority of the Board of
Directors.
 
     The Certificate of Incorporation provides that the Board of Directors shall
consist of three classes of directors serving for staggered terms. As a result,
it is currently contemplated that approximately one-third of the Company's Board
of Directors will be elected each year. The classified board provision could
prevent a party who acquires control of a majority of the outstanding voting
stock of the Company from obtaining control of the Board of Directors until the
second annual stockholders meeting following the date the acquirer obtains the
controlling interest. See "Management -- Directors and Executive Officers."
 
     The Certificate of Incorporation provides that the number of directors
shall be as determined by the Board of Directors from time to time, but shall
not be less than three. It also provides that directors may be removed only for
cause, and then only by the affirmative vote of the holders of at least a
majority of all outstanding voting stock entitled to vote. This provision, in
conjunction with the provisions of the Certificate of Incorporation authorizing
the Board of Directors to fill vacant directorships, will prevent stockholders
from removing incumbent directors without cause and filling the resulting
vacancies with their own nominees.
 
STOCKHOLDER PROPOSALS
 
     The Company's Bylaws contain provisions (i) requiring that advance notice
be delivered to the Company of any business to be brought by a stockholder
before an annual meeting of stockholders and (ii) establishing certain
procedures to be followed by stockholders in nominating persons for election to
the Board of Directors. Generally, such advance notice provisions provide that
written notice must be given to the Secretary of the Company by a stockholder
(i) in the event of business to be brought by a stockholder before an annual
meeting, not less than 90 days prior to the anniversary date of the immediately
preceding annual meeting of stockholders (with certain exceptions if the date of
the annual meeting is different by more than specified amounts from the
anniversary date), and (ii) in the event of nominations of persons for election
to the Board of Directors by any stockholder, (a) with respect to an election to
be held at the annual meeting of stockholders, not less than 90 days prior to
the anniversary date of the immediately preceding 
 
                                       61

annual meeting of stockholders (with certain exceptions if the date of the
annual meeting is different by more than specified amounts from the anniversary
date), and (b) with respect to an election to be held at a special meeting of
stockholders for the election of directors, not later than the close of business
on the 10th day following the day on which notice of the date of the special
meeting was mailed to stockholders or public disclosure of the date of the
special meeting was made, whichever first occurs. Such notice must set forth
specific information regarding such stockholder and such business or director
nominee, as described in the Company's Bylaws. The foregoing summary is
qualified in its entirety by reference to the Company's Bylaws, which are filed
as an exhibit to the Registration Statement of which this Prospectus is a part.
 
TRANSFER AGENT AND REGISTRAR
 
     The transfer agent and registrar for the Common Stock is Chemical Mellon
Shareholder Services, L.L.C.
 
                                       62
 
                                  UNDERWRITING
 
     Subject to the terms and conditions of the Underwriting Agreement, each of
the Underwriters named below has severally agreed to purchase from the Company,
and the Company has agreed to sell to such Underwriter, the respective number of
shares of Common Stock set forth opposite the name of such Underwriter.

                                                      NUMBER OF
     UNDERWRITER                                       SHARES
- ---------------------                               -------------
Smith Barney Inc................................
Montgomery Securities...........................
 
                                                    -------------
          Total.................................      4,200,000
                                                    =============
 
     The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock are
subject to approval of certain legal matters by their counsel and to certain
other conditions. The Underwriters are obligated to take and pay for all shares
of Common Stock offered hereby (other than those covered by the over-allotment
option described below) if any such shares are taken.
 
     The Underwriters, for whom Smith Barney Inc. and Montgomery Securities are
acting as representatives (the "Representatives"), propose to offer part of
the shares of Common Stock directly to the public at the offering price set
forth on the cover page of this Prospectus and part of the shares to certain
dealers at a price which represents a concession not in excess of $   per share
under the public offering price. The Underwriters may allow, and such dealers
may reallow, a concession not in excess of $   per share to certain other
dealers. The Representatives of the Underwriters have advised the Company that
the Underwriters do not intend to confirm any shares to any accounts over which
they exercise discretionary authority. After the initial public offering, the
offering price and other selling terms may be changed by the Representatives.
 
     The Company has granted to the Underwriters an option, exercisable for 30
days from the date of this Prospectus, to purchase up to an additional 630,000
shares of Common Stock at the price to the public set forth on the cover page of
this Prospectus, minus the underwriting discounts and commissions. The
Underwriters may exercise such option solely for the purpose of covering
over-allotments, if any, in connection with this Offering. To the extent such
option is exercised, each Underwriter will be obligated, subject to certain
conditions, to purchase approximately the same percentage of such additional
shares as the number of shares set forth opposite each Underwriter's name in the
preceding table bears to the total number of shares listed in such table.
 
     The Company, its officers and directors, and certain stockholders of the
Company designated by the Representatives have agreed that, for a period of 180
days from the date of this Prospectus, they will not, without the prior written
consent of Smith Barney Inc., offer, sell, contract to sell or otherwise dispose
of any shares of Common Stock of the Company or any securities convertible into,
or exercisable or exchangeable for, Common Stock of the Company, except that the
Company may issue shares of Common Stock (i) in connection with acquisitions,
(ii) pursuant to exercise of options granted under the Incentive Plan and (iii)
pursuant to the exercise of warrants outstanding as of the closing of this
Offering.
 
                                       63
 
     Prior to this Offering, there has not been any public market for the Common
Stock of the Company. Consequently, the initial public offering price for the
shares of Common Stock included in this Offering will be determined by
negotiations between the Company and the Representatives. Among the factors to
be considered in determining such price are the history of and prospects for the
Company's business and the industry in which it competes, an assessment of the
Company's management and the present state of the Company's development, the
past and present revenues and earnings of the Company, the prospects for the
growth of the Company's revenues and earnings, the current state of the economy
in the United States and the current level of economic activity in the industry
in which the Company competes and in related or comparable industries, and
currently prevailing conditions in the securities markets, including current
market valuations of publicly traded companies that are comparable to the
Company.
 
     The Company has agreed to indemnify the Underwriters and certain related
persons against certain liabilities, including liabilities under the Securities
Act, or to contribute to payments that the Underwriters may be required to make
in respect thereof.
 
     At the request of the Company, the Underwriters have reserved up to 210,000
of the shares of Common Stock offered hereby for sale at the initial public
offering price to certain employees of the Company (including Howard S. Hoover,
Jr.) and certain other persons designated by the Company who have expressed an
interest in purchasing Common Stock. The number of shares of Common Stock
available to the general public will be reduced to the extent these persons
purchase the reserved shares. Any reserved shares which are not purchased by
such persons will be offered by the Underwriters to the general public on the
same basis as the other shares offered hereby.
 
                                 LEGAL MATTERS
 
     Certain legal matters in connection with the sale of the Common Stock
offered hereby are being passed upon for the Company by Baker & Botts, L.L.P.,
3000 One Shell Plaza, Houston, Texas 77002, and for the Underwriters by Morgan,
Lewis & Bockius LLP, 101 Park Avenue, New York, New York 10178.
 
                                    EXPERTS
 
     The audited financial statements 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 giving said reports.

                             ADDITIONAL INFORMATION

     The Company has not previously been subject to the reporting requirements
of the Securities Exchange Act of 1934, as amended. The Company has filed a
Registration Statement on Form S-1 (the "Registration Statement") under the
Securities Act with the SEC with respect to this Offering. This Prospectus,
filed as a part of the Registration Statement, does not contain all of the
information set forth in the Registration Statement, or the exhibits and
schedules thereto, in accordance with the rules and regulations of the SEC, and
reference is hereby made to such omitted information. Each statement made in
this Prospectus concerning a document filed as an exhibit to the Registration
Statement is qualified in its entirety by reference to such exhibit for a
complete statement of its provisions. The Registration Statement and the
exhibits and schedules thereto may be inspected, without charge, at the public
reference facilities of the SEC at its principal office at Judiciary Plaza, 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and its regional offices
at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661, and at 7 World Trade Center, 13th Floor, New York, New York 10048. Copies
of all or any portion of the Registration Statement can be obtained at
prescribed rates from the Public Reference Section of the SEC at its principal
office at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C.
20549. The SEC maintains an Internet web site that contains reports, proxy and
information statements and other information regarding issuers that file
electronically with the SEC. The address of that site is http://www.sec.gov.

                                       64

                         INDEX TO FINANCIAL STATEMENTS

                                        PAGE
                                        ----
Unaudited Pro Forma Combined
  Financial Statements
     Basis of Presentation...........   F-3
     Pro Forma Combined Balance Sheet
      as of March 31, 1996
      (unaudited)....................   F-4
     Pro Forma Combined Statement of
      Operations for the Year Ended
      December 31, 1995
      (unaudited)....................   F-5
     Pro Forma Combined Statement of
      Operations for the Three Months
      Ended March 31, 1995
      (unaudited)....................   F-6
     Pro Forma Combined Statement of
      Operations for the Three Months
      Ended March 31, 1996
      (unaudited)....................   F-7
     Notes to Unaudited Pro Forma
      Combined Financial
      Statements.....................   F-8

Historical Financial Statements

     American Residential Services,
      Inc.
          Report of Independent
          Public Accountants.........   F-11
          Balance Sheets.............   F-12
          Statements of Operations...   F-13
          Statements of Shareholders'
          Deficit....................   F-14
          Statements of Cash Flows...   F-15
          Notes to Financial
          Statements.................   F-16

     General Heating Engineering
      Company, Inc.
          Report of Independent
          Public Accountants.........   F-19
          Balance Sheets.............   F-20
          Statements of Operations...   F-21
          Statements of Shareholders'
          Equity.....................   F-22
          Statements of Cash Flows...   F-23
          Notes to Financial
          Statements.................   F-24

     Atlas Services, Inc., and
      Subsidary
          Report of Independent
          Public Accountants.........   F-29
          Consolidated Balance
          Sheets.....................   F-30
          Consolidated Statements of
          Operations.................   F-31
          Consolidated Statements of
          Shareholders' Equity.......   F-32
          Consolidated Statements of
          Cash Flows.................   F-33
          Notes to Consolidated
          Financial Statements.......   F-34

     Service Enterprises, Inc., and
      Subsidiaries
          Report of Independent
          Public Accountants.........   F-41
          Consolidated Balance
          Sheets.....................   F-42
          Consolidated Statements of
          Operations.................   F-43
          Consolidated Statements of
          Shareholder's Equity.......   F-44
          Consolidated Statements of
          Cash Flows.................   F-45
          Notes to Consolidated
          Financial Statements.......   F-46

                                      F-1

                                        PAGE
                                        ----
     Florida Heating and Air
      Conditioning, Inc. and Related
      Companies
          Report of Independent
          Public Accountants.........   F-52
          Combined Balance Sheets....   F-53
          Combined Statements of
          Operations.................   F-54
          Combined Statements of
          Shareholders' Equity.......   F-55
          Combined Statements of Cash
          Flows......................   F-56
          Notes to Combined Financial
          Statements.................   F-57

     DIAL ONE Meridian and Hoosier,
      Inc.
          Report of Independent
          Public Accountants.........   F-63
          Balance Sheets.............   F-64
          Statements of Operations...   F-65
          Statements of Shareholder's
          Equity.....................   F-66
          Statements of Cash Flows...   F-67
          Notes to Financial
          Statements.................   F-68

     ADCOT, Inc.
          Report of Independent
          Public Accountants.........   F-75
          Balance Sheets.............   F-76
          Statements of Operations...   F-77
          Statements of Shareholder's
          Deficit....................   F-78
          Statements of Cash Flows...   F-79
          Notes to Financial
          Statements.................   F-80

                                      F-2

          AMERICAN RESIDENTIAL SERVICES, INC., AND FOUNDING COMPANIES
               UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
                             BASIS OF PRESENTATION
                                  (UNAUDITED)

     The following unaudited pro forma combined financial statements give effect
to the acquisitions by American Residential Services, Inc. (ARS), of
substantially all of the net assets of (a) General Heating Engineering Company,
Inc. (General Heating), (b) Atlas Services, Inc. and subsidiary (Atlas), (c)
Service Enterprises, Inc. and subsidiaries (Crown), (d) Florida Heating and Air
Conditioning, Inc. and Related Companies (Florida HAC), (e) DIAL ONE Meridian
and Hoosier, Inc. (Meridian & Hoosier), (f) ADCOT, Inc. (A-ABC), and (g)
Climatic Corporation of Vero Beach (Climatic), (together, the Founding
Companies). ARS and the Founding Companies are hereinafter referred to as the
Company. These acquisitions (the Acquisitions) will occur simultaneously with
the closing of ARS's initial public offering (the Offering) and will be
accounted for using the purchase method of accounting. The unaudited pro forma
combined financial statements also give effect to the issuance of Common Stock,
which will be issued by ARS to the Sellers of the Founding Companies upon the
effectiveness of the Offering. These statements are based on the historical
financial statements of the Founding Companies included elsewhere in this
Prospectus (except Climatic) and the estimates and assumptions set forth below
and in the notes to the unaudited pro forma combined financial statements.

     The unaudited pro forma combined balance sheet gives effect to these
transactions (the Acquisitions and the Offering) as if they had occurred on
March 31, 1996. The unaudited pro forma combined statements of operations give
effect to these transactions as if they had occurred at the beginning of each
period presented.

     The pro forma adjustments are based on preliminary estimates, available
information and certain assumptions that management deems appropriate. The pro
forma adjustments do not reflect amounts related to the working capital
adjustments, which may effect goodwill and debt. The unaudited pro forma
combined financial data presented herein do not purport to represent what the
Company's financial position or results of operations would have actually been
had such events occurred at the beginning of the periods presented, as assumed,
or to project the Company's financial position or results of operations for any
future period or the future results of the Founding Companies. The unaudited pro
forma combined financial statements should be read in conjunction with the other
financial statements and notes thereto included elsewhere in this Prospectus.
Also see "Risk Factors" included elsewhere herein.

                                      F-3
AMERICAN RESIDENTIAL SERVICES, INC., AND FOUNDING COMPANIES
                            PRO FORMA COMBINED BALANCE SHEET
                                     MARCH 31, 1996
                                       (UNAUDITED)
                                     (IN THOUSANDS)
GENERAL                          FLORIDA   MERIDIAN
                                          ARS     HEATING      ATLAS      CROWN      HAC     & HOOSIER   A-ABC    CLIMATIC
                                       ---------  --------   ---------  ---------  -------   ---------   ------   ---------
ASSETS
CURRENT ASSETS:
  Cash and cash equivalents..........  $     103  $ 2,474    $     534  $     372  $  422     $   957    $  49     $    96
  Investments........................     --        2,000       --         --        --         --        --         --
  Accounts receivable --
    Trade, net of allowance..........     --        3,329        2,400        363   1,426       1,036       28         774
    Shareholder and affiliates.......     --        --             226      2,124    --            22       11       --
    Other receivables................     --          106       --             74     324       --        --         --
  Notes receivable --
    Shareholders.....................     --          348       --         --        --         --        --         --
    Other............................     --           40       --         --        --         --        --         --
  Inventories........................     --        2,613          781        832     347         323      644          50
  Prepaid expenses and other current
    assets...........................         60      181          144        249     112          81       50       --
  Costs and estimated earnings in
    excess of billings on uncompleted
    contracts........................     --        --             274     --        --            19     --         --
                                       ---------  --------   ---------  ---------  -------   ---------   ------   ---------
      Total current assets...........        163   11,091        4,359      4,014   2,631       2,438      782         920
                                       ---------  --------   ---------  ---------  -------   ---------   ------   ---------
PROPERTY AND EQUIPMENT, net..........         12    2,098        3,066      1,184     626       1,563      355         179
OTHER NONCURRENT ASSETS..............        122      484          426        195      38         145       32          71
GOODWILL.............................     --        --          --         --        --         --        --         --
NET ASSETS OF DISCONTINUED
  OPERATIONS.........................     --        --          --         --        --         --         510       --
                                       ---------  --------   ---------  ---------  -------   ---------   ------   ---------
      Total assets...................  $     297  $13,673    $   7,851  $   5,393  $3,295     $ 4,146    $1,679    $ 1,170
                                       =========  ========   =========  =========  =======   =========   ======   =========
LIABILITIES AND SHAREHOLDERS' EQUITY
  (DEFICIT):
  Current maturities of long-term
    debt.............................  $  --      $ --       $     170  $  --      $  232     $   275    $  83     $    45
  Short-term debt....................        500    --             300     --        --         --        --         --
  Accounts payable and accrued
    expenses.........................        321    3,131        2,916        904   1,512         654    1,448         590
  Payable to shareholder and
    affiliates.......................     --        --          --         --          81       --        --         --
  Unearned revenue on service and
    warranty contracts, current......     --          848          165     --        --           407      318       --
  Billings in excess of cost and
    estimated earnings on uncompleted
    contracts........................     --          145          468     --         346         113     --            36
  Deferred income taxes..............     --        --          --         --         287       --        --         --
  Pro forma cash consideration due to
    Founding Companies...............     --        --          --         --        --         --        --         --
                                       ---------  --------   ---------  ---------  -------   ---------   ------   ---------
      Total current liabilities......        821    4,124        4,019        904   2,458       1,449    1,849         671
                                       ---------  --------   ---------  ---------  -------   ---------   ------   ---------
LONG-TERM DEBT, net of current
  maturities.........................     --        --           1,845     --        --         1,335      143          51
UNEARNED REVENUE ON EXTENDED WARRANTY
  CONTRACTS NONCURRENT...............     --        --          --         --        --         --         613       --
DEFERRED INCOME TAXES................     --        --             194        114      42          18     --            17
OTHER NONCURRENT LIABILITIES.........     --        --          --         --        --            74     --         --
  Preferred stock....................     --        --          --         --        --         --        --         --
SHAREHOLDERS' EQUITY (DEFICIT):
  Common stock.......................          1       55           24        140       9           7       10           4
  Additional paid-in capital.........          1      667          105      1,086       4          35     --            46
  Retained earnings (deficit)........       (526)  10,420        1,664      3,149     782       1,228     (936)        381
  Treasury stock.....................     --       (1,593)      --         --        --         --        --         --
                                       ---------  --------   ---------  ---------  -------   ---------   ------   ---------
      Total shareholders' equity
        (deficit)....................       (524)   9,549        1,793      4,375     795       1,270     (926)        431
                                       ---------  --------   ---------  ---------  -------   ---------   ------   ---------
      Total liabilities and
        shareholders' equity
        (deficit)....................  $     297  $13,673    $   7,851  $   5,393  $3,295     $ 4,146    $1,679    $ 1,170
                                       =========  ========   =========  =========  =======   =========   ======   =========
POST
                                        PRO FORMA                   MERGER          AS
                                       ADJUSTMENTS    PRO FORMA   ADJUSTMENTS    ADJUSTED
                                       -----------    ---------   -----------    --------
ASSETS
CURRENT ASSETS:
  Cash and cash equivalents..........    $(1,374)      $ 3,633     $  --         $ 3,633
  Investments........................     (2,000)        --           --           --
  Accounts receivable --
    Trade, net of allowance..........     (3,329)        6,027        --           6,027
    Shareholder and affiliates.......     (2,124)          259        --             259
    Other receivables................     --               504        --             504
  Notes receivable --
    Shareholders.....................     --               348        --             348
    Other............................     --                40        --              40
  Inventories........................     --             5,590        --           5,590
  Prepaid expenses and other current
    assets...........................        251         1,128        --           1,128
  Costs and estimated earnings in
    excess of billings on uncompleted
    contracts........................     --               293        --             293
                                       -----------    ---------   -----------    --------
      Total current assets...........     (8,576)       17,822        --          17,822
                                       -----------    ---------   -----------    --------
PROPERTY AND EQUIPMENT, net..........      3,430        12,513        --          12,513
OTHER NONCURRENT ASSETS..............       (543)          970            42       1,012
GOODWILL.............................     61,969        61,969        --          61,969
NET ASSETS OF DISCONTINUED
  OPERATIONS.........................     --               510        --             510
                                       -----------    ---------   -----------    --------
      Total assets...................    $56,280       $93,784     $      42     $93,826
                                       ===========    =========   ===========    ========
LIABILITIES AND SHAREHOLDERS' EQUITY
  (DEFICIT):
  Current maturities of long-term
    debt.............................    $--           $   805     $  --         $   805
  Short-term debt....................        600         1,400        (1,100)        300
  Accounts payable and accrued
    expenses.........................     --            11,476        --          11,476
  Payable to shareholder and
    affiliates.......................     --                81        --              81
  Unearned revenue on service and
    warranty contracts, current......     --             1,738        --           1,738
  Billings in excess of cost and
    estimated earnings on uncompleted
    contracts........................     --             1,108        --           1,108
  Deferred income taxes..............     --               287        --             287
  Pro forma cash consideration due to
    Founding Companies...............     34,800        34,800       (34,800)      --
                                       -----------    ---------   -----------    --------
      Total current liabilities......     35,400        51,695       (35,900)     15,795
                                       -----------    ---------   -----------    --------
LONG-TERM DEBT, net of current
  maturities.........................     16,967        20,341       (11,011)      9,330
UNEARNED REVENUE ON EXTENDED WARRANTY
  CONTRACTS NONCURRENT...............     --               613        --             613
DEFERRED INCOME TAXES................     --               385        --             385
OTHER NONCURRENT LIABILITIES.........     --                74        --              74
  Preferred stock....................        500           500          (500)      --
SHAREHOLDERS' EQUITY (DEFICIT):
  Common stock.......................       (245)            5             4           9
  Additional paid-in capital.........     21,591        23,535        47,749      71,284
  Retained earnings (deficit)........    (19,526)       (3,364)         (300)     (3,664)
  Treasury stock.....................      1,593         --           --           --
                                       -----------    ---------   -----------    --------
      Total shareholders' equity
        (deficit)....................      3,413        20,176        47,453      67,629
                                       -----------    ---------   -----------    --------
      Total liabilities and
        shareholders' equity
        (deficit)....................    $56,280       $93,784     $      42     $93,826
                                       ===========    =========   ===========    ========
See accompanying notes to unaudited pro forma combined financial statements.

                                      F-4
AMERICAN RESIDENTIAL SERVICES, INC., AND FOUNDING COMPANIES
                   PRO FORMA COMBINED STATEMENT OF OPERATIONS
                          YEAR ENDED DECEMBER 31, 1995
                                  (UNAUDITED)
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
GENERAL                          FLORIDA    MERIDIAN
                                          ARS      HEATING     ATLAS      CROWN       HAC      & HOOSIER    A-ABC     CLIMATIC
                                       ---------   -------    -------    -------    -------    ---------    ------    --------
REVENUES.............................  $  --      $35,159     $22,048    $19,124    $14,510     $10,133    $8,707      $4,955
COST OF SERVICES.....................     --       28,866      17,811     11,333     10,541       7,281     5,709       3,679
                                       ---------   -------    -------    -------    -------    ---------    ------    --------
    Gross profit.....................     --        6,293       4,237      7,791      3,969       2,852     2,998       1,276
SELLING, GENERAL AND ADMINISTRATIVE
  EXPENSES...........................        159    5,280       3,022      6,165      3,738       2,350     2,348       1,287
GOODWILL AMORTIZATION................     --         --         --         --         --          --         --         --
                                       ---------   -------    -------    -------    -------    ---------    ------    --------
INCOME (LOSS) FROM OPERATIONS........       (159)   1,013       1,215      1,626        231         502       650         (11)
OTHER INCOME (EXPENSE):
    Interest Income..................     --          299          17        119      --             24      --             3
    Interest Expense.................     --         --          (134)       (58)       (12)        (86)      (84)      --
    Other............................     --           58          20        (10)        (8)         10        66          15
                                       ---------   -------    -------    -------    -------    ---------    ------    --------
INCOME (LOSS) FROM CONTINUING
  OPERATIONS BEFORE INCOME TAXES.....       (159)   1,370       1,118      1,677        211         450       632           7
PROVISION FOR INCOME TAXES...........     --         --           434        630         14         179        43       --
                                       ---------   -------    -------    -------    -------    ---------    ------    --------
NET INCOME (LOSS) FROM CONTINUING
  OPERATIONS.........................  $    (159)  $1,370     $   684    $ 1,047    $   197     $   271     $ 589      $    7
                                       =========   =======    =======    =======    =======    =========    ======    ========
PRO FORMA
                                       ADJUSTMENTS    PRO FORMA
                                       -----------    ---------

REVENUES.............................    $--          $114,636
COST OF SERVICES.....................       (227)(l)    84,993
                                       -----------    ---------
    Gross profit.....................        227        29,643
SELLING, GENERAL AND ADMINISTRATIVE
  EXPENSES...........................     (1,808)(m)    22,321
                                            (220)(n)
GOODWILL AMORTIZATION................      1,549(o)      1,549
                                       -----------    ---------
INCOME (LOSS) FROM OPERATIONS........        706         5,773
OTHER INCOME (EXPENSE):
    Interest Income..................     --               462
    Interest Expense.................       (491)         (865)
    Other............................     --               151
                                       -----------    ---------
INCOME (LOSS) FROM CONTINUING
  OPERATIONS BEFORE INCOME TAXES.....        215         5,521
PROVISION FOR INCOME TAXES...........      1,249(p)      2,549
                                       -----------    ---------
NET INCOME (LOSS) FROM CONTINUING
  OPERATIONS.........................    $(1,034)     $  2,972
                                       ===========    =========
PRO FORMA NET INCOME PER SHARE FROM
  CONTINUING OPERATIONS..............                 $    .33
                                                      =========
SHARES USED IN COMPUTING PRO FORMA
  NET INCOME PER SHARE FROM
  CONTINUING OPERATIONS..............                    8,996 (q)
                                                      =========

  See accompanying notes to unaudited pro forma combined financial statements.

                                      F-5
AMERICAN RESIDENTIAL SERVICES, INC., AND FOUNDING COMPANIES
                   PRO FORMA COMBINED STATEMENT OF OPERATIONS
                       THREE MONTHS ENDED MARCH 31, 1995
                                  (UNAUDITED)
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
GENERAL                        FLORIDA    MERIDIAN
                                          ARS      HEATING    ATLAS     CROWN       HAC      & HOOSIER    A-ABC     CLIMATIC
                                       ---------   -------    ------    ------    -------    ---------    ------    --------
REVENUES.............................  $  --       $7,651     $4,939   $3,555     $3,919      $ 1,959    $1,704      $--
COST OF SERVICES.....................     --        6,401      3,994    2,155      2,990        1,422     1,192       --
                                       ---------   -------    ------    ------    -------    ---------    ------    --------
    Gross profit.....................     --        1,250        945    1,400        929          537       512       --
SELLING, GENERAL AND ADMINISTRATIVE
  EXPENSES...........................     --        1,351        688    1,348        894          512       508       --
GOODWILL AMORTIZATION................     --         --          --       --         --
                                       ---------   -------    ------    ------    -------    ---------    ------    --------
INCOME (LOSS) FROM OPERATIONS........     --         (101)       257       52         35           25         4       --
                                       ---------   -------    ------    ------    -------    ---------    ------    --------
OTHER INCOME (EXPENSE):
    Interest Income..................     --           21        --         24       --          --         --        --
    Interest Expense.................     --         --          (54)     (14)        (1)         (22)       (7)      --
    Other............................     --           33         47       (2)      --             13        16       --
                                       ---------   -------    ------    ------    -------    ---------    ------    --------
INCOME (LOSS) FROM CONTINUING
  OPERATIONS BEFORE
  INCOME TAXES.......................     --          (47)       250       60         34           16        13       --
PROVISION FOR INCOME TAXES...........     --         --          104       23          2            6         1       --
                                       ---------   -------    ------    ------    -------    ---------    ------    --------
NET INCOME (LOSS) FROM
  CONTINUING OPERATIONS..............  $  --       $  (47)    $  146    $  37     $   32      $    10     $  12      $--
                                       =========   =======    ======    ======    =======    =========    ======    ========
PRO FORMA
                                       ADJUSTMENTS    PRO FORMA
                                       -----------    ---------

REVENUES.............................     $--          $23,727
COST OF SERVICES.....................       (57)(l)     18,097
                                       -----------    ---------
    Gross profit.....................        57          5,630
SELLING, GENERAL AND ADMINISTRATIVE
  EXPENSES...........................      (470)(m)      4,776
                                            (55)(n)
GOODWILL AMORTIZATION................       387(o)         387
                                       -----------    ---------
INCOME (LOSS) FROM OPERATIONS........       195            467
                                       -----------    ---------
OTHER INCOME (EXPENSE):
    Interest Income..................     --                45
    Interest Expense.................      (123)(p)       (221)
    Other............................     --               107
                                       -----------    ---------
INCOME (LOSS) FROM CONTINUING
  OPERATIONS BEFORE
  INCOME TAXES.......................        72            398
PROVISION FOR INCOME TAXES...........        48(q)         184
                                       -----------    ---------
NET INCOME (LOSS) FROM
  CONTINUING OPERATIONS..............     $  24        $   214
                                       ===========    =========
PRO FORMA NET INCOME PER SHARE FROM
  CONTINUING OPERATIONS..............                  $   .02
                                                      =========
SHARES USED IN COMPUTING PRO FORMA
  NET INCOME PER
  SHARE FROM CONTINUING OPERATIONS...                    8,996(r)
                                                      =========

  See accompanying notes to unaudited pro forma combined financial statements.

                                      F-6
AMERICAN RESIDENTIAL SERVICES, INC., AND FOUNDING COMPANIES
                   PRO FORMA COMBINED STATEMENT OF OPERATIONS
                       THREE MONTHS ENDED MARCH 31, 1996
                                  (UNAUDITED)
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
GENERAL                         FLORIDA     MERIDIAN
                                          ARS      HEATING     ATLAS     CROWN       HAC      & HOOSIER     A-ABC     CLIMATIC
                                       ---------   -------   ---------   ------    -------    ----------    ------    --------
REVENUES.............................  $  --       $7,033    $   6,573  $4,152     $3,658       $2,638      $2,022     $--
COST OF SERVICES.....................     --        5,871        5,215   2,643      2,674        1,767       1,236      --
                                       ---------   -------   ---------   ------    -------    ----------    ------    --------
    Gross profit.....................     --        1,162        1,358   1,509        984          871        786       --
SELLING, GENERAL AND ADMINISTRATIVE
  EXPENSES...........................        365    1,186          874   1,519        837          854        583       --
GOODWILL AMORTIZATION................     --         --         --        --         --          --          --         --
                                       ---------   -------   ---------   ------    -------    ----------    ------    --------
INCOME (LOSS) FROM OPERATIONS........       (365)     (24)         484     (10)       147           17        203       --
                                       ---------   -------   ---------   ------    -------    ----------    ------    --------
OTHER INCOME (EXPENSE):
    Interest Income..................     --           78       --          15       --              9       --         --
    Interest Expense.................     --         --            (42)    (16)        (8)         (29)        (9)      --
    Other............................     --           17           42      (9)      --              3         19       --
                                       ---------   -------   ---------   ------    -------    ----------    ------    --------
INCOME (LOSS) FROM CONTINUING
  OPERATIONS BEFORE INCOME TAXES.....       (365)      71          484     (20)       139        --           213       --
PROVISION (BENEFIT) FOR INCOME
  TAXES..............................     --         --            195      (4)         9        --             3       --
                                       ---------   -------   ---------   ------    -------    ----------    ------    --------
NET INCOME (LOSS) FROM CONTINUING
  OPERATIONS.........................  $    (365)  $   71    $     289   $ (16)    $  130       $--         $ 210      $--
                                       =========   =======   =========   ======    =======    ==========    ======    ========
PRO FORMA
                                       ADJUSTMENTS    PRO FORMA
                                       -----------    ---------

REVENUES.............................    $--           $26,076
COST OF SERVICES.....................        (69)(l)    19,337
                                       -----------    ---------
    Gross profit.....................         69         6,739
SELLING, GENERAL AND ADMINISTRATIVE
  EXPENSES...........................       (493)(m)     5,670
                                             (55)(n)
GOODWILL AMORTIZATION................        387(o)        387
                                       -----------    ---------
INCOME (LOSS) FROM OPERATIONS........        230           682
                                       -----------    ---------
OTHER INCOME (EXPENSE):
    Interest Income..................     --               102
    Interest Expense.................       (123)(p)      (227)
    Other............................     --                72
                                       -----------    ---------
INCOME (LOSS) FROM CONTINUING
  OPERATIONS BEFORE INCOME TAXES.....        107           629
PROVISION (BENEFIT) FOR INCOME
  TAXES..............................         87(q)        290
                                       -----------    ---------
NET INCOME (LOSS) FROM CONTINUING
  OPERATIONS.........................    $    20       $   339
                                       ===========    =========
PRO FORMA NET INCOME PER SHARE FROM
  CONTINUING OPERATIONS..............                  $   .04
                                                      =========
SHARES USED IN COMPUTING PRO FORMA
  NET INCOME PER SHARE FROM
  CONTINUING OPERATIONS..............                    8,996 (r)
                                                      =========

  See accompanying notes to unaudited pro forma combined financial statements.

                                      F-7

          AMERICAN RESIDENTIAL SERVICES, INC., AND FOUNDING COMPANIES
           NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
                                  (UNAUDITED)

1.  AMERICAN RESIDENTIAL SERVICES, INC. BACKGROUND:

     American Residential Services, Inc. (ARS) was formed to create a leading
national provider of (i) comprehensive maintenance, repair and replacement
services for heating, ventilating and air conditioning, plumbing, electrical and
other systems in homes and commercial buildings and (ii) new installation
services of those systems in homes and commercial facilities under construction.
ARS has conducted no operations to date and will acquire the Founding Companies
simultaneously with the consummation of the Offering.

2.  HISTORICAL FINANCIAL STATEMENTS:

     The historical financial statements represent the financial position and
results of operations of the Founding Companies and were derived from the
respective financial statements where indicated. All Founding Companies have a
December 31, 1995, year-end or they have been converted to a December 31, 1995,
year-end, except for Climatic which has an April 30 year-end, therefore,
quarterly statements of operations for Climatic are not included in the three
months ended March 31, 1995 and 1996. The audited historical financial
statements included elsewhere in this Prospectus have been included in
accordance with Securities and Exchange Commission (SEC) Staff Accounting
Bulletin No. 80.

3.  ACQUISITION OF FOUNDING COMPANIES:

     Concurrent with the closing of the Offering, ARS will acquire substantially
all of the net assets of the Founding Companies. The Acquisitions will be
accounted for using the purchase method of accounting, with ARS being treated as
the acquirer. The total estimated purchase price is $76.9 million, which
consists of (i) $34.8 million of cash to be paid to the Sellers upon the
consummation of the Offering and (ii) $42.1 million of shares (based on the
estimated initial offering price) of ARS Common Stock (3,236,613 shares) to be
issued to the Sellers ($21 million estimated fair value). The estimated purchase
price for the Acquisitions is subject to certain purchase price adjustments at
closing. See "Certain Relationships and Related-Party Transactions."

     The holders of 3.2 million shares of Common Stock issued in partial payment
of the Acquisitions have agreed not to offer, sell or otherwise dispose of any
of those shares for a period of two years after the Offering (or for such
shorter period as the SEC may prescribe as the holding period for registered
securities under Rule 144). The fair value of these shares reflects this
restriction.

     Of the estimated total purchase price of $55.8 million (based on the fair
value of the shares to be issued) of the Acquisitions, $53 million has been
allocated to the assets acquired and liabilities assumed. The remaining amount
of $2.8 million represents the purchase price paid to Enterprises Holding
Company, Inc. (EHC) in excess of its cost of Crown and A-ABC. As EHC is under
common control with ARS, such amount has been considered a distribution and
recorded as a reduction in shareholders' equity in the accompanying pro forma
balance sheet. Based upon management's preliminary analysis, it is anticipated
that the historical carrying value of the Founding Companies' assets and
liabilities will approximate fair value. The amount allocated to goodwill is
$61.9 million. Management of ARS has not identified any other material tangible
or identifiable intangible assets of the Founding Companies to which a portion
of the purchased price could reasonably be allocated.

4.  UNAUDITED PRO FORMA COMBINED BALANCE SHEET ADJUSTMENTS:

          (a)   Records the additional cash to be borrowed from a bank.

          (b)   Records distribution of a Founding Company's S Corporation
     Accumulated Adjustment Accounts.

                                      F-8

          AMERICAN RESIDENTIAL SERVICES, INC., AND FOUNDING COMPANIES
   NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

          (c)   Records the distribution of General's and Atlas' cash surrender
     value of life insurance policies in the amounts of $462,000 and $124,000,
     respectively to shareholders and the distribution of certain equipment and
     the related obligations to certain shareholders of the Founding Companies.

          (d)   Records the purchase of Crown and A-ABC by EHC.

          (e)   Records the purchase of the Founding Companies (excluding Crown
     and A-ABC), including the cash consideration due to the Founding Companies
     and Common Stock portions and the related deferred income tax assets.

          (f)   Records the purchase of EHC by ARS.

          (g)   Records the proceeds from the issuance of 4,200,000 shares of
     ARS Common Stock, net of estimated offering costs (based on the estimated
     intitial public offering price of $13 per share). Offering costs primarily
     consist of underwriting discounts and commissions, accounting fees, legal
     fees and printing expenses.

          (h)   Records the repayment of certain debt obligations with proceeds
     from the Offering.

          (i)   Records the cash portion to be paid to the Founding Companies in
     connection with the Acquisitions.

          (j)   Records the retirement of EHC's preferred stock.

          (k)   Records the exercise of a warrant held by a bank lender of EHC
     and the issuance of shares to employees, three officers and certain
     consultants of ARS and its affiliates.

     The following tables summarize unaudited pro forma combined balance sheet
adjustments:
PRO FORMA
                                          (A)        (B)        (C)        (D)        (E)        (F)     ADJUSTMENTS
                                       ---------  ---------  ---------  ---------  ---------  ---------  -----------
Cash and cash equivalents............  $   3,122  $  (4,496) $          $          $          $           $  (1,374)
Investments..........................                (2,000)                                                 (2,000)
Accounts receivable - trade..........                (3,329)                                                 (3,329)
Accounts receivable - shareholder and
  affiliates.........................                                      (2,124)                           (2,124)
Prepaid expenses and other current
  assets.............................                                                    251                    251
Property and equipment, net..........                              (70)     3,500                             3,430
Other noncurrent assets..............                             (586)                   43                   (543)
Goodwill.............................                                      12,676     49,293                 61,969
Short-term debt......................     (1,100)                                                   500        (600)
Pro forma cash consideration due to
  Founding Companies.................                                                (34,800)               (34,800)
Long-term debt, net of current
  maturities.........................     (2,022)                   56    (15,001)                          (16,967)
Preferred stock......................                                      (2,500)                2,000        (500)
Common stock.........................                                         150         97         (2)        245
Additional paid-in capital...........                 9,825        600      1,086    (27,766)    (5,336)    (21,591)
Retained earnings (deficit)..........                                       2,213     14,475      2,838      19,526
Treasury stock.......................                                                 (1,593)                (1,593)
                                       ---------  ---------  ---------  ---------  ---------  ---------  -----------
                                       $       0  $       0  $       0  $       0  $       0  $       0   $       0
                                       =========  =========  =========  =========  =========  =========  ===========
F-9
 
          AMERICAN RESIDENTIAL SERVICES, INC., AND FOUNDING COMPANIES
   NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
POST
                                                                                                MERGER
                                          (G)        (H)        (I)        (J)        (K)     ADJUSTMENTS
                                       ---------  ---------  ---------  ---------  ---------  -----------
Cash and cash equivalents............  $  47,411  $ (12,111) $ (34,800) $    (500) $           $       0
Other noncurrent assets..............        (83)                                        125          42
Short-term debt......................                 1,100                                        1,100
Pro forma cash consideration due to
  Founding Companies.................                           34,800                            34,800
Long-term debt, net of current
  maturities.........................                11,011                                       11,011
Preferred stock......................                                         500                    500
Common stock.........................         (4)                                                     (4)
Additional paid-in capital...........    (47,324)                                       (425)    (47,749)
Retained earnings (deficit)..........                                                    300         300
Treasury stock.......................                                                                  0
                                       ---------  ---------  ---------  ---------  ---------  -----------
                                       $       0  $       0  $       0  $       0  $       0   $       0
                                       =========  =========  =========  =========  =========  ===========
5.  UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS ADJUSTMENTS:
 
          (l)   Adjusts rent expense incurred due to the purchase of the
     facility used by Crown, net of pro forma depreciation expense.
 
          (m)   Adjusts compensation to the level the owners of certain of the
     Founding Companies have agreed to receive subsequent to Acquisition.
 
          (n)   Adjusts for the effect of assets distributed to and the costs of
     certain leases assumed by the owners of certain Founding Companies.
 
          (o)   Records the pro forma goodwill amortization expense using a 40
     year estimated life.
 
          (p)   Records pro forma interest expense for debt incurred in the
     purchase of EHC net of pro forma debt reductions.
 
          (q)   Records the incremental provision for federal and state income
     taxes relating to the Compensation Differential, S Corporation income and
     other pro forma adjustments.
 
          (r)   The number of shares estimated to be outstanding on completion
     of the Offering (i) includes shares issued as consideration in the
     Acquisitions or on conversion in part of an ARS convertible note issued in
     the organizational financing of ARS and (ii) includes 46,156 shares to be
     awarded under the Company's 1996 Incentive Plan to certain employees of the
     Company on the closing of one of the Acquisitions, but (iii) excludes an
     aggregate 1,345,000 shares subject to options granted under the Company's
     1996 Incentive Plan as the effect of such options is less than three
     percent of total shares outstanding.
 
                                      F-10

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
 
To American Residential Services, Inc.:
 
     We have audited the accompanying balance sheet of American Residential
Services, Inc. (a Delaware corporation), as of December 31, 1995, and the
related statements of operations, shareholders' deficit and cash flows from
Inception (October 24, 1995) through December 31, 1995. 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 American Residential
Services, Inc. as of December 31, 1995 and the results of its operations and its
cash flows from Inception through December 31, 1995 in conformity with generally
accepted accounting principles.
 
ARTHUR ANDERSEN LLP
 
Houston, Texas
June 14, 1996
                                      F-11
AMERICAN RESIDENTIAL SERVICES, INC.
                                 BALANCE SHEETS

                                        DECEMBER 31,       MARCH 31,
                                            1995              1996
                                        ------------      ------------
                                                          (UNAUDITED)
               ASSETS
CURRENT ASSETS:
     Cash and cash equivalents.......     $  9,784          $102,541
     Prepaid expenses and other
      current assets.................        3,327            60,210
                                        ------------      ------------
          Total current assets.......       13,111           162,751
PROPERTY AND EQUIPMENT, net..........       --                12,327
OTHER NONCURRENT ASSETS..............       19,325           121,517
                                        ------------      ------------
          Total assets...............     $ 32,436          $296,595
                                        ============      ============
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
     Short-term debt.................     $ 50,000          $500,000
     Accounts payable and accrued
      expenses.......................      141,077           320,760
                                        ------------      ------------
          Total current
              liabilities............      191,077           820,760
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' DEFICIT:
     Preferred Stock: $.001 par
      value, 10,000,000 shares
      authorized; none issued or
      outstanding....................       --                --
     Common stock, $.001 par,
      50,000,000 shares authorized,
      449,778 shares issued and
      outstanding....................          450               450
     Additional paid-in capital......          550               550
     Deficit.........................     (159,641)         (525,165)
                                        ------------      ------------
          Total shareholders'
              deficit................     (158,641)         (524,165)
                                        ------------      ------------
          Total liabilities and
              shareholders'
              deficit................     $ 32,436          $296,595
                                        ============      ============

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

                                      F-12
AMERICAN RESIDENTIAL SERVICES, INC.
                            STATEMENTS OF OPERATIONS

                                             INCEPTION             THREE
                                        (OCTOBER 24, 1995)        MONTHS
                                              THROUGH              ENDED
                                           DECEMBER 31,          MARCH 31,
                                               1995                1996
                                        -------------------     -----------
                                                                (UNAUDITED)
REVENUES.............................        $--                 $  --
COST OF SERVICES.....................         --                    --
                                        -------------------     -----------
          Gross profit...............         --                    --
SELLING, GENERAL AND ADMINISTRATIVE
  EXPENSES...........................          159,641              365,524
                                        -------------------     -----------
NET LOSS.............................        $(159,641)          $ (365,524)
                                        ===================     ===========
 
   The accompanying notes are an integral part of these financial statements.
 
                                      F-13
 
                      AMERICAN RESIDENTIAL SERVICES, INC.
                      STATEMENTS OF SHAREHOLDERS' DEFICIT
COMMON STOCK       ADDITIONAL                     TOTAL
                                        -----------------     PAID-IN                   SHAREHOLDERS'
                                        SHARES     AMOUNT     CAPITAL       DEFICIT        DEFICIT
                                        -------    ------    ----------    ---------    --------------
BALANCE, Inception, October 24,
  1995...............................     --       $  --       $   --      $  --          $  --
     Stock Issuance..................   449,778      450          550         --               1,000
     Net loss........................     --          --           --       (159,641)       (159,641)
                                        -------    ------    ----------    ---------    --------------
BALANCE, December 31, 1995...........   449,778      450          550       (159,641)       (158,641)
     Net loss (unaudited)............     --          --           --       (365,524)       (365,524)
                                        -------    ------    ----------    ---------    --------------
BALANCE, March 31, 1996
  (unaudited)........................   449,778    $ 450       $  550      $(525,165)     $ (524,165)
                                        =======    ======    ==========    =========    ==============
The accompanying notes are an integral part of these financial statements.
 
                                      F-14
AMERICAN RESIDENTIAL SERVICES, INC.
                            STATEMENTS OF CASH FLOWS

                                            INCEPTION
                                        (OCTOBER 24, 1995)      THREE MONTHS
                                             THROUGH                ENDED
                                           DECEMBER 31,           MARCH 31,
                                               1995                 1996
                                        ------------------      -------------
                                                          
                                                                 (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss...........................       $ (159,641)           $(365,524)
  Adjustments to reconcile net loss
     to net cash used in operating
     activities --
     Changes in operating assets and
       liabilities --
     Increase in --
       Prepaid expenses and other
          current assets.............           (3,327)             (56,883)
       Other noncurrent assets.......          (19,325)            (102,192)
     Increase in --
       Accounts payable and accrued
          expenses...................          141,077              179,683
                                        ------------------      -------------
     Net cash used in operating
       activities....................          (41,216)            (344,916)
                                        ------------------      -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Additions of property and
     equipment.......................         --                    (12,327)
                                        ------------------      -------------
     Net cash used in investing
       activities....................         --                    (12,327)
                                        ------------------      -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Borrowings of short-term debt......           50,000              450,000
  Proceeds from issuance of common
     stock...........................            1,000              --
                                        ------------------      -------------
     Net cash provided by financing
       activities....................           51,000              450,000
                                        ------------------      -------------
NET INCREASE IN CASH AND CASH
  EQUIVALENTS........................            9,784               92,757
CASH AND CASH EQUIVALENTS, beginning
  of period..........................         --                      9,784
                                        ------------------      -------------
CASH AND CASH EQUIVALENTS, end of
  period.............................       $    9,784            $ 102,541
                                        ==================      =============
 
   The accompanying notes are an integral part of these financial statements.
 
                                      F-15
 
                      AMERICAN RESIDENTIAL SERVICES, INC.
                         NOTES TO FINANCIAL STATEMENTS
 
1.  BUSINESS AND ORGANIZATION:
 
     American Residential Services, Inc. (ARS or the Company), was founded on
October 24, 1995 to create a leading national provider of (i) comprehensive
maintenance, repair and replacement services for heating, ventilating and air
conditioning, plumbing, electrical, and other systems in homes and commercial
buildings and (ii) new installation services of those systems in homes and
commercial facilities under construction. ARS intends to acquire seven local and
regional residential services companies (the Acquisitions), complete an initial
public offering (the Offering) of its common stock and, subsequent to the
Offering, continue to acquire, through merger or purchase, similar companies to
expand its national and regional operations.
 
     ARS's primary assets at December 31, 1995, are cash and deferred offering
costs. ARS has not conducted any operations, and all activities to date have
related to the Acquisitions and the Offering. Cash of $1,000 was generated from
the initial capitalization of the Company (see Note 4). There is no assurance
that the Acquisitions discussed below will be completed and that ARS will be
able to generate future operating revenues. Funding for the deferred offering
costs has been provided by Equus II Incorporated (Equus II). ARS is dependent
upon the Offering to fund the amounts due to Equus II, the pending acquisitions
and future operations.
 
2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
 
  INTERIM FINANCIAL INFORMATION
 
     The interim financial statements as of March 31, 1996, and for the three
months ended March 31, 1996, are unaudited, and certain information and footnote
disclosures, normally included in financial statements prepared in accordance
with generally accepted accounting principles, have been omitted. In the opinion
of management, all adjustments, consisting only of normal recurring adjustments,
necessary to fairly present the financial position, results of operations and
cash flows with respect to the interim financial statements, have been included.
The results of operations for the interim periods are not necessarily indicative
of the results for the entire fiscal year.
 
  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.
 
     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.
 
  INCOME TAXES
 
     The Company follows the liability method of accounting for income taxes in
accordance with Statement of Financial Accounting Standards (SFAS) No. 109.
Under this method, deferred income taxes are recorded based upon differences
between the financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
underlying assets or liabilities are received or settled.
 
     The Company has recorded a full valuation allowance against all deferred
tax assets due to the uncertainty of ultimate realizability. Accordingly, no
income tax benefit has been recorded for current year losses.
 
                                      F-16
 
                      AMERICAN RESIDENTIAL SERVICES, INC.
                  NOTES TO 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 and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
 
  CASH AND CASH EQUIVALENTS
 
     The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.
 
  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, and
intangible or other assets, may be impaired, an evaluation of recoverability
would be performed. If an evaluation is required, the estimated future cash
flows associated with the asset is compared to the asset's carrying amount to
determine if a write-down to market value or discounted cash flow value was
necessary. Adoption of this standard did not have a material effect on the
financial position or results of operations of the Company.
 
3.  DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
 
     Accounts payable and accrued expenses consist of the following:

                                        DECEMBER 31,
                                            1995
                                        ------------
Accrued compensation and benefits....     $ 79,167
                                     
Other accrued expenses...............       61,910
                                        ------------
                                          $141,077
                                        ============
 
     Short-term debt:
 
     The Company had borrowings from Equus II under a $1.6 million credit
facility totaling $50,000 at December 31, 1995. The borrowings are unsecured,
bear interest at prime (8.25 percent at December 31, 1995) and mature December
31, 1996. A portion of this facility is convertible into 10 percent of the
outstanding common stock of ARS upon completion of the Offering.
 
4.  SHAREHOLDERS' DEFICIT:
 
     In connection with the organization and initial capitalization of ARS, the
Company issued 1,000 shares of common stock for $1,000 (see Note 6).
 
5.  COMMITMENTS AND CONTINGENCIES:
 
  BONUS AWARDS
 
     In June 1996, the Board of Directors granted certain key employees
incentive cash bonus awards for 1996 which are based on the performance of the
Common Stock after the Offering as compared to the performance of each of the
stocks included in the Standard & Poor's 500 Stock Index (the S&P 500). The
amount of each award will be determined by multiplying the officer's annual base
salary by a percentage determined by ranking the Common Stock's price
performance, including reinvested dividends, if any

                                      F-17

                      AMERICAN RESIDENTIAL SERVICES, INC.
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

(Total Stockholder Return), among Total Stockholder Returns of all the stocks in
the S&P 500, as provided in the agreement.

6.  SUBSEQUENT EVENTS:

     ARS effected a 333-for-one-stock split on February 2, 1996, and an
approximately 1.35 for-one-stock split on June 14, 1996 of its common stock for
each share of common stock then outstanding. In addition, on February 2, 1996,
authorized shares were increased from 1,000 to 50,000,000. The effects of the
common stock dividends have been retroactively reflected on the balance sheet
and in the accompanying notes.

     Pursuant to the Company's previous stock option plan, the Company has
granted to its directors, officers and certain key employees (including officers
of the Founding Companies) 10-year options to purchase 645,000 shares of Common
Stock. The Company intends to issue an additional 700,000 options upon
completion of the Offering. Certain of these options will be exchanged for
identical Options under the 1996 Incentive Plan.

     ARS and separate wholly owned subsidiaries have signed definitive
agreements to acquire by merger seven companies (the Founding Companies) to be
effective with the Offering. The companies to be acquired are General Heating
Engineering Company, Inc.; Atlas Services, Inc., and Subsidiary; Enterprise
Holding Company; Florida Heating and Air Conditioning, Inc., and Related
Companies; DIAL ONE Meridian and Hoosier, Inc.; and Climatic Corporation of Vero
Beach. The aggregate consideration that will be paid by ARS to acquire the
Founding Companies is approximately $76.9 million (unaudited) based upon an
estimated offering price of $13 per share (unaudited) consisting of a
combination of cash and common stock.

     On March 19, 1996, the Company issued to Equus II Incorporated a warrant to
purchase 100,000 shares of Common Stock exercisable at the Offering price. The
warrants are exercisable at any time after the closing of the Offering of the
Company until five years from such date. The number of shares represented by the
warrant is subject to adjustment for stock dividends and stock splits.

     Subsequent to December 31, 1995, the Company has incurred additional costs,
including professional fees and travel, associated with the acquisition of the
Founding Companies and the Offering. Accordingly, accrued liabilities and
amounts due to Equus II have increased to approximately $1.0 million as of May
31, 1996. This note and any additional amounts advanced under this note will be
converted into 899,556 shares of ARS Common Stock in connection with the
Offering.

7.  EVENTS SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
    (UNAUDITED):

     The Company has approved the 1996 Incentive Plan (the Plan) which provides
for the granting or awarding of stock options and stock appreciation rights to
officers and other key employees. The number of shares authorized and reserved
for issuance under the Plan is limited to 1,500,000 shares or 15 percent of the
number of shares of Common Stock outstanding on the last day of the preceding
calendar quarter. In general, the terms of the option awards (including vesting
schedules) will be established by the Compensation Committee of the Company's
Board of Directors. In connection with the Offering, the Company intends to
grant options covering an aggregate of 1,345,000 shares of common stock.

     In June 1996, ARS filed a registration statement on Form S-1 for the sale
of its common stock.

                                      F-18

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To General Heating Engineering Company, Inc.:

     We have audited the accompanying balance sheets of General Heating
Engineering Company, Inc. (a Delaware corporation), as of December 31, 1994 and
1995, and the related statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1995. 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 General Heating Engineering
Company, Inc., as of December 31, 1994 and 1995, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Houston, Texas
May 24, 1996

                                      F-19
GENERAL HEATING ENGINEERING COMPANY, INC.
                                 BALANCE SHEETS
DECEMBER 31
                                       ------------------------------    MARCH 31,
                                            1994            1995           1996
                                       --------------  --------------   -----------
                                                                        (UNAUDITED)
ASSETS
CURRENT ASSETS:
     Cash and cash equivalents.......  $    2,258,467  $    3,369,929   $ 2,474,430
     Investments.....................       2,475,000       2,000,000     2,000,000
     Accounts receivable --
          Trade, net of allowance of
             $159,910, $126,650 and
             $138,169................       4,129,536       3,740,406     3,328,535
          Other receivables..........         129,308          47,588       105,560
     Notes receivable --
          Shareholders...............          92,500         308,139       348,139
          Other......................        --                39,870        39,870
     Inventories.....................       2,375,590       2,215,659     2,613,425
     Prepaid expenses and other
       current assets................          17,331          13,871       181,267
                                       --------------  --------------   -----------
               Total current
                  assets.............      11,477,732      11,735,462    11,091,226
PROPERTY AND EQUIPMENT, net..........       1,941,076       2,100,638     2,097,986
OTHER NONCURRENT ASSETS..............         376,017         483,014       483,669
                                       --------------  --------------   -----------
               Total assets..........  $   13,794,825  $   14,319,114   $13,672,881
                                       ==============  ==============   ===========

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
     Accounts payable and accrued
       expenses......................  $    2,736,479  $    3,248,968   $ 3,130,336
     Unearned revenue on service and
       warranty contracts............         797,820         894,766       848,446
     Billings in excess of costs and
       estimated earnings on
       uncompleted contracts.........         319,323         139,764       145,088
                                       --------------  --------------   -----------
               Total current
                  liabilities........       3,853,622       4,283,498     4,123,870
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
     Common stock, $20 par value,
       5,000 shares authorized, 2,752
       shares issued, 462 shares
       outstanding...................          55,040          55,040        55,040
     Additional paid-in capital......         666,913         666,913       666,913
     Retained earnings...............      10,811,994      10,906,407    10,419,802
     Treasury stock, 2,290 shares at
       cost..........................      (1,592,744)     (1,592,744)   (1,592,744)
                                       --------------  --------------   -----------
               Total shareholders'
                  equity.............       9,941,203      10,035,616     9,549,011
                                       --------------  --------------   -----------
               Total liabilities and
                  shareholders'
                  equity.............  $   13,794,825  $   14,319,114   $13,672,881
                                       ==============  ==============   ===========
The accompanying notes are an integral part of these financial statements.
 
                                      F-20
GENERAL HEATING ENGINEERING COMPANY, INC.
                            STATEMENTS OF OPERATIONS
THREE MONTHS ENDED
                                                    YEAR ENDED DECEMBER 31                           MARCH 31
                                       -------------------------------------------------  ------------------------------
                                            1993             1994             1995             1995            1996
                                       ---------------  ---------------  ---------------  --------------  --------------
                                                                                                   (UNAUDITED)
REVENUES.............................  $    34,642,267  $    36,333,827  $    35,159,389  $    7,650,560  $    7,032,972
COST OF SERVICES.....................       27,393,298       29,927,352       28,866,207       6,400,539       5,871,056
                                       ---------------  ---------------  ---------------  --------------  --------------
     Gross profit....................        7,248,969        6,406,475        6,293,182       1,250,021       1,161,916
SELLING, GENERAL AND ADMINISTRATIVE
  EXPENSES...........................        5,011,270        5,244,776        5,280,402       1,351,114       1,186,344
                                       ---------------  ---------------  ---------------  --------------  --------------
     Income (loss) from operations...        2,237,699        1,161,699        1,012,780        (101,093)        (24,428)
OTHER INCOME:
     Interest income.................          189,223          177,149          299,116          20,613          77,956
     Other...........................            7,891           66,724           58,517          33,336          17,867
                                       ---------------  ---------------  ---------------  --------------  --------------
NET INCOME (LOSS)....................  $     2,434,813  $     1,405,572  $     1,370,413  $      (47,144) $       71,395
                                       ===============  ===============  ===============  ==============  ==============
The accompanying notes are an integral part of these financial statements.
 
                                      F-21
GENERAL HEATING ENGINEERING COMPANY, INC.
                       STATEMENTS OF SHAREHOLDERS' EQUITY
COMMON STOCK       ADDITIONAL                        TREASURY STOCK           TOTAL
                                       -----------------     PAID-IN        RETAINED      -----------------------   SHAREHOLDERS'
                                       SHARES    AMOUNT      CAPITAL        EARNINGS      SHARES       AMOUNT          EQUITY
                                       ------    -------    ----------   --------------   ------   --------------   ------------
BALANCE, January 1, 1993.............   2,752    $55,040     $ 648,912   $    9,811,451   (2,290)  $   (1,592,744)  $  8,922,659
     Dividends.......................    --        --           --           (1,744,798)    --           --           (1,744,798)
     Net income......................    --        --           --            2,434,813     --           --            2,434,813
                                       ------    -------    ----------   --------------   ------   --------------   ------------
BALANCE, December 31, 1993...........   2,752     55,040       648,912       10,501,466   (2,290)      (1,592,744)     9,612,674
     Capital contributions...........    --        --           18,001         --           --           --               18,001
     Dividends.......................    --        --           --           (1,095,044)    --           --           (1,095,044)
     Net income......................    --        --           --            1,405,572     --           --            1,405,572
                                       ------    -------    ----------   --------------   ------   --------------   ------------
BALANCE, December 31, 1994...........   2,752     55,040       666,913       10,811,994   (2,290)      (1,592,744)     9,941,203
     Dividends.......................    --        --           --           (1,276,000)    --           --           (1,276,000)
     Net income......................    --        --           --            1,370,413     --           --            1,370,413
                                       ------    -------    ----------   --------------   ------   --------------   ------------
BALANCE, December 31, 1995...........   2,752     55,040       666,913       10,906,407   (2,290)      (1,592,744)    10,035,616
     Dividends (unaudited)...........    --        --           --             (558,000)    --           --             (558,000)
     Net income (unaudited)..........    --        --           --               71,395     --           --               71,395
                                       ------    -------    ----------   --------------   ------   --------------   ------------
BALANCE, March 31, 1996
     (unaudited).....................   2,752    $55,040     $ 666,913   $   10,419,802   (2,290)  $   (1,592,744)  $  9,549,011
                                       ======    =======    ==========   ==============   ======   ==============   ============
The accompanying notes are an integral part of these financial statements.
 
                                      F-22
GENERAL HEATING ENGINEERING COMPANY, INC.
                            STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED
                                                YEAR ENDED DECEMBER 31                    MARCH 31
                                       ----------------------------------------  --------------------------
                                           1993          1994          1995          1995          1996
                                       ------------  ------------  ------------  ------------  ------------
                                                                                        (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income (loss)..................  $  2,434,813  $  1,405,572  $  1,370,413  $    (47,144) $     71,395
  Adjustments to reconcile net income
    (loss) to net cash provided by
    (used in) operating activities --
    Depreciation and amortization....       465,076       495,396       508,497       150,000       119,999
    Loss on sale of investments......       --            --             13,626       --            --
    (Gain) loss on sale of property
      and equipment..................         4,811       (38,978)       56,152       --            --
    Changes in operating assets and
      liabilities --
      (Increase) decrease in --
         Accounts receivable.........    (1,427,017)      210,329       470,850       749,377       353,899
         Inventories.................      (416,216)       49,258       159,931      (452,362)     (397,766)
         Prepaid expenses and other
           current assets............       (37,843)       (1,907)        3,460       --           (167,396)
         Other noncurrent assets.....       (83,112)      (22,741)     (106,997)        9,865          (655)
      Increase (decrease) in --
         Accounts payable and accrued
           expenses..................       631,061       143,263       512,489       436,097      (118,632)
         Unearned revenue on service
           and warranty contracts....        17,782        31,739        96,946        23,534       (46,320)
         Billings in excess of costs
           and estimated earnings on
           uncompleted contracts.....      (732,654)     (152,605)     (179,559)      --              5,324
                                       ------------  ------------  ------------  ------------  ------------
           Net cash provided by (used
             in) operating
             activities..............       856,701     2,119,326     2,905,808       869,367      (180,152)
                                       ------------  ------------  ------------  ------------  ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Proceeds from sale of property and
    equipment........................         5,000       112,530        42,533        10,633       --
  Additions of property and
    equipment........................      (941,748)     (786,863)     (766,744)     (293,071)     (117,347)
  Purchase of investments............       --         (2,475,000)   (4,193,948)      --            --
  Proceeds from sale of
    investments......................       --            --          4,655,322       --            --
                                       ------------  ------------  ------------  ------------  ------------
           Net cash used in investing
             activities..............      (936,748)   (3,149,333)     (262,837)     (282,438)     (117,347)
                                       ------------  ------------  ------------  ------------  ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
  (Increase) decrease in notes
  receivable.........................       --            882,500      (255,509)     (166,435)      (40,000)
  Dividends..........................    (1,744,798)   (1,095,044)   (1,276,000)     (514,000)     (558,000)
  Capital contributions..............       --             18,001       --            --            --
                                       ------------  ------------  ------------  ------------  ------------
           Net cash used in financing
             activities..............    (1,744,798)     (194,543)   (1,531,509)     (680,435)     (598,000)
                                       ------------  ------------  ------------  ------------  ------------
NET INCREASE (DECREASE) IN CASH AND
  CASH EQUIVALENTS...................    (1,824,845)   (1,224,550)    1,111,462       (93,506)     (895,499)
CASH AND CASH EQUIVALENTS, beginning
  of period..........................     5,307,862     3,483,017     2,258,467     2,258,467     3,369,929
                                       ------------  ------------  ------------  ------------  ------------
CASH AND CASH EQUIVALENTS, end of
  period.............................  $  3,483,017  $  2,258,467  $  3,369,929  $  2,164,961  $  2,474,430
                                       ============  ============  ============  ============  ============
The accompanying notes are an integral part of these financial statements.
 
                                      F-23
 
                   GENERAL HEATING ENGINEERING COMPANY, INC.
                         NOTES TO FINANCIAL STATEMENTS
 
1.  BUSINESS AND ORGANIZATION:
 
     General Heating Engineering Company, Inc. (a Delaware corporation) (the
Company), is primarily engaged in the installation and maintenance, repair and
replacement of air conditioning, heating and fireplace systems in new and
preexisting residential and commercial buildings in Washington, D.C. and the
surrounding area.
 
     The Company and its shareholders intend to enter into a definitive
agreement with American Residential Services, Inc. (ARS), pursuant to which all
outstanding shares of the Company's common stock will be exchanged for cash and
shares of ARS's common stock concurrent with the consummation of the initial
public offering (the Offering) of the common stock of ARS.
 
2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
 
  INTERIM FINANCIAL INFORMATION
 
     The interim financial statements as of March 31, 1996, and for the three
months ended March 31, 1995 and 1996, are unaudited, and certain information and
footnote disclosures, normally included in financial statements prepared in
accordance with generally accepted accounting principles, have been omitted. In
the opinion of management, all adjustments, consisting only of normal recurring
adjustments, necessary to fairly present the financial position, results of
operations and cash flows with respect to the interim financial statements, have
been included. The results of operations for the interim periods are not
necessarily indicative of the results for the entire fiscal year.

  INVENTORIES
 
     Inventories consist of duct materials, air conditioning equipment,
refrigeration supplies and accessories held for use in the ordinary course of
business and are valued at the lower of cost or market using the average cost
method.
 
  PROPERTY AND EQUIPMENT
 
     Property and equipment are recorded at cost, and depreciation is computed
using the straight-line method over the estimated useful lives of assets.
Leasehold improvements are capitalized and amortized over the lesser of the life
of the lease or the estimated useful life of the asset.
 
     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 the services are performed except when
work is being performed under a construction contract. Revenues from the sale of
residential and commercial service and maintenance contracts are recognized over
the life of the contract on a straight-line basis.
 
     Revenues from construction contracts are recognized on the
percentage-of-completion method measured by the percentage of costs incurred to
total estimated costs for each contract. 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
are recognized in the period in which the revisions are determined.
 
                                      F-24
 
                   GENERAL HEATING ENGINEERING COMPANY, INC.
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
 
  WARRANTY COSTS
 
     The Company warrants labor for the first year after installation on new air
conditioning and heating units. A reserve for warranty costs is recorded upon
completion of installation or service.
 
  INCOME TAXES
 
     The Company has elected S Corporation status as defined by the Internal
Revenue Code, whereby the Company is not subject to taxation for federal
purposes. Under S Corporation status, each shareholder reports his share of the
Company's taxable earnings or losses in his personal federal and state tax
returns.
 
  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 assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
 
  CASH AND CASH EQUIVALENTS
 
     The Company considers all highly liquid debt instruments purchased with
original maturities of three months or less to be cash equivalents.

  NEW ACCOUNTING PRONOUNCEMENT

     Effective January 1, 1995, 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, and
intangible 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 is compared to the asset's
carrying amount to determine if a write-down to market value or discounted cash
flow value was necessary. 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 consist of the following:

                                        ESTIMATED            DECEMBER 31
                                       USEFUL LIVES   --------------------------
                                         IN YEARS         1994          1995
                                       ------------   ------------  ------------
Transportation equipment.............     7           $  3,258,907  $  3,376,461
Furniture and fixtures...............     7                159,227       169,453
Leasehold improvements...............     20               800,370       879,938
Machinery and equipment..............     10               858,033       919,393
Computer and telephone equipment.....     5                442,853       467,219
                                                      ------------  ------------
                                                         5,519,390     5,812,464
Less -- Accumulated depreciation and
  amortization.......................                    3,578,314     3,711,826
                                                      ------------  ------------
               Property and
                  equipment, net.....                 $  1,941,076  $  2,100,638
                                                      ============  ============

                                      F-25
GENERAL HEATING ENGINEERING COMPANY, INC.
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

4.  DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:

     Effective January 1, 1994, the Company adopted the provisions of SFAS No.
115, "Accounting for Certain Investments in Debt and Equity Securities."
Adoption of this standard did not materially impact the Company's financial
statements. The following is a summary of investment securities:

                                              DECEMBER 31
                                       --------------------------
                                           1994          1995
                                       ------------  ------------
Certificates of deposit..............  $    --       $  2,000,000
U.S. Treasury notes..................     2,475,000       --
                                       ------------  ------------
                                       $  2,475,000  $  2,000,000
                                       ============  ============

     Activity in the Company's allowance for doubtful accounts consist of the
following:

                                                  DECEMBER 31
                                       ----------------------------------
                                          1993        1994        1995
                                       ----------  ----------  ----------

Balance at beginning of year.........  $  146,848  $  127,443  $  159,910
Additions charged to costs and
expenses.............................      45,996     104,613      71,930
Deductions for uncollectible
  receivables written off............     (67,954)   (103,848)   (127,810)
Bad debt recoveries..................       2,553      31,702      22,620
                                       ----------  ----------  ----------
                                       $  127,443  $  159,910  $  126,650
                                       ==========  ==========  ==========

     Accounts payable and accrued expenses consist of the following:

                                              DECEMBER 31
                                       --------------------------
                                           1994          1995
                                       ------------  ------------
Accounts payable, trade..............  $  1,586,930  $  1,998,941
Accrued compensation and benefits....       823,476       916,013
Warranty accrual.....................       292,895       292,895
Other accrued expenses...............        33,178        41,119
                                       ------------  ------------
                                       $  2,736,479  $  3,248,968
                                       ============  ============

     Installation contracts in progress are as follows:

                                                DECEMBER 31
                                       ------------------------------
                                            1994            1995
                                       --------------  --------------
Costs incurred on contracts in
progress.............................  $   19,975,656  $   18,705,791
Estimated earnings, net of losses....       9,912,429       8,989,404
                                       --------------  --------------
                                           29,888,085      27,695,195
Less -- Billings to date.............      30,207,408      27,834,959
                                       --------------  --------------
Billings in excess of costs and
  estimated earnings on uncompleted
  contracts..........................  $     (319,323) $     (139,764)
                                       ==============  ==============

5.  EMPLOYEE BENEFIT PLANS:

     The Company has adopted a retirement plan which qualifies under Section
401(k) of the Internal Revenue Code. The plan provides for 50 percent matching
contributions by the Company, up to a maximum liability of 1 percent of each
participating employee's annual compensation. The Company has the right to make
additional discretionary contributions. Total contributions by the Company under
this plan to provide

                                      F-26

                   GENERAL HEATING ENGINEERING COMPANY, INC.
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

contributions and pay expenses were approximately $42,000, $67,000 and $78,000
during 1993, 1994 and 1995, respectively. Amounts due to this plan were
approximately $50,000 and $30,000 for the years ended December 31, 1994 and
1995, respectively.

     The Company has also adopted a cafeteria plan pursuant to Section 125 of
the Internal Revenue Code that covers all employees from 90 days after the
commencement of employment. Under this plan, the employees may reduce their
compensation to fund medical or life insurance, dental and short-term disability
benefits. The funds withheld are used to pay actual claims, administrative
expenses and stop-loss insurance protection premiums. Such stop-loss insurance
covers claims to a maximum aggregate liability of $1,000,000 and $35,000 per
participant. For the years ended December 31, 1993, 1994 and 1995, the Company
contributed approximately $57,000, $91,000 and $129,000, respectively, to this
plan in addition to amounts withheld from employees. Contributions due to this
plan were approximately $91,000 and $216,000 for the years ended December 31,
1994 and 1995, respectively.

6.  LEASES:

     The Company conducts a portion of its operations in leased facilities under
operating lease agreements with a company primarily owned by the shareholders.
Total amounts paid under these related-party leases were approximately $261,000,
$387,000 and $384,000 for the years ended December 31, 1993, 1994 and 1995,
respectively. In January 1996, the Company extended each of these leases,
commencing January 1, 1996, for 10 years. The following schedule shows the
future minimum rentals to be made under these leases:

Year ending December 31 --
     1996............................  $    517,281
     1997............................       517,505
     1998............................       531,468
     1999............................       552,728
     2000............................       574,837
     Thereafter......................     3,367,564
                                       ------------
                                       $  6,061,383
                                       ============

7.  RELATED-PARTY TRANSACTIONS:

     The Company has notes receivable from its shareholders in the amounts of
$92,500 and $308,139 as of December 31, 1994 and 1995, respectively. These notes
are unsecured, bear interest at 7 percent per annum and are due upon demand.
Interest income recognized by the Company on these notes during the years ended
December 31, 1994 and 1995, was approximately $1,000 and $12,000, respectively.

8.  COMMITMENTS AND CONTINGENCIES:

  LITIGATION

     The Company is involved in various legal actions arising in the ordinary
course of business. Management does not believe that 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 general
and business auto liability, commercial property, workers' compensation and a
general umbrella policy. The Company has not incurred significant claims or
losses on any of its insurance policies.

  LETTER OF CREDIT

     At December 31, 1995, the Company had an outstanding letter of credit of
$75,000 to secure the purchase of certain inventories.

                                      F-27

                   GENERAL HEATING ENGINEERING COMPANY, INC.
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

9.  SALES TO SIGNIFICANT CUSTOMERS:

     During 1993, 1994 and 1995, one customer accounted for approximately 13
percent, 16 percent and 21 percent, respectively, of the Company's revenue.

10.  EVENTS SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
     (UNAUDITED):

     In June 1996, the Company and its shareholders entered into a definitive
agreement with ARS, providing for the acquisition of the Company by ARS.

     In connection with the acquisition, the Company will distribute certain
assets to the shareholders, consisting of the cash surrender value of life
insurance, with a total carrying value of approximately $462,000, as of March
31, 1996. In addition, prior to the closing of the acquisition, the Company will
make distributions in respect of the Company's estimated S Corporation
accumulated adjustment account at the time of closing. Had these transactions
been recorded at March 31, 1996, the effect on the accompanying balance sheet
would be a decrease in assets of approximately $8,265,000, an increase in
liabilities of $2,022,000 and a decrease in shareholders' equity of $10,287,000.

                                      F-28

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Atlas Services, Inc.:

     We have audited the accompanying consolidated balance sheets of Atlas
Services, Inc. (a South Carolina corporation), and subsidiary as of June 30,
1994 and 1995, and December 31, 1995, and the related consolidated statements of
operations, shareholders' equity and cash flows for each of the three years in
the period ended June 30, 1995, and the year ended December 31, 1995. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

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

     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Atlas Services, Inc., and subsidiary as of June 30, 1994 and 1995, and December
31, 1995, and the consolidated results of their operations and their cash flows
for each of the three years in the period ended June 30, 1995, and the year
ended December 31, 1995, in conformity with generally accepted accounting
principles.

ARTHUR ANDERSEN LLP

Houston, Texas
May 24, 1996

                                      F-29
ATLAS SERVICES, INC., AND SUBSIDIARY
                          CONSOLIDATED BALANCE SHEETS
JUNE 30
                                       --------------------------   DECEMBER 31,     MARCH 31,
                                           1994          1995           1995            1996
                                       ------------  ------------   ------------    ------------
                                                                                    (UNAUDITED)
ASSETS
CURRENT ASSETS:
  Cash and cash equivalents..........  $    204,883  $    383,190    $  241,263      $   533,732
  Accounts receivable --
     Trade, net of allowance of
       $29,989, $39,866, $39,866 and
       $39,866.......................     1,634,219     2,098,213     2,163,990        2,400,744
     Affiliates......................       188,829       178,554       211,939          225,997
  Inventories........................       478,447       474,093       531,819          780,623
  Prepaid expenses and other current
     assets..........................        20,763       112,207       146,283          144,481
  Costs and estimated earnings in
     excess of billings on
     uncompleted contracts...........       323,901       382,653       254,039          273,709
                                       ------------  ------------   ------------    ------------
          Total current assets.......     2,851,042     3,628,910     3,549,333        4,359,286
PROPERTY AND EQUIPMENT, net..........     3,203,143     3,169,128     3,136,363        3,066,004
OTHER NONCURRENT ASSETS..............       280,321       342,776       406,316          425,875
                                       ------------  ------------   ------------    ------------
          Total assets...............  $  6,334,506  $  7,140,814    $7,092,012      $ 7,851,165
                                       ============  ============   ============    ============
       LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
  Current maturities of long-term
     debt............................  $    577,545  $    619,851    $  596,941      $   170,202
  Short-term debt....................       220,807       207,335       209,948          300,000
  Accounts payable and accrued
     expenses........................     2,328,709     2,859,998     2,391,955        2,916,489
  Unearned revenue on service and
     warranty contracts..............       135,487       150,628       162,755          164,492
  Billings in excess of costs and
     estimated earnings on
     uncompleted contracts...........       192,408       355,186       475,731          468,242
                                       ------------  ------------   ------------    ------------
          Total current
             liabilities.............     3,454,956     4,192,998     3,837,330        4,019,425
LONG-TERM DEBT, net of current
  maturities.........................     2,047,763     1,702,324     1,564,309        1,845,054
DEFERRED INCOME TAXES................       150,506       187,806       187,237          193,961
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
  Common stock, $1 par value; 100,000
     shares authorized, 2,254, 2,345
     and 24,303 shares issued and
     outstanding.....................         2,254         2,345        24,303           24,303
  Additional paid-in capital.........        48,011        81,877       105,040          105,040
  Retained earnings..................       631,016       973,464     1,373,793        1,663,382
                                       ------------  ------------   ------------    ------------
          Total shareholders'
             equity..................       681,281     1,057,686     1,503,136        1,792,725
                                       ------------  ------------   ------------    ------------
          Total liabilities and
             shareholders'
             equity..................  $  6,334,506  $  7,140,814    $7,092,012      $ 7,851,165
                                       ============  ============   ============    ============
The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                      F-30
ATLAS SERVICES, INC., AND SUBSIDIARY
                     CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED
                                                  YEAR ENDED JUNE 30               YEAR ENDED            MARCH 31
                                       ----------------------------------------   DECEMBER 31,   ------------------------
                                           1993          1994          1995           1995          1995         1996
                                       ------------  ------------  ------------   ------------   -----------  -----------
                                                                                                       (UNAUDITED)
REVENUES.............................  $ 10,209,885  $ 15,625,211  $ 21,228,756   $22,048,103    $ 4,938,607  $ 6,573,201
COST OF SERVICES.....................     8,182,867    12,676,789    17,714,515    17,810,928      3,993,389    5,215,134
                                       ------------  ------------  ------------   ------------   -----------  -----------
    Gross profit.....................     2,027,018     2,948,422     3,514,241     4,237,175        945,218    1,358,067
SELLING, GENERAL AND ADMINISTRATIVE
  EXPENSES...........................     1,760,805     2,421,016     2,985,258     3,021,692        688,215      873,864
                                       ------------  ------------  ------------   ------------   -----------  -----------
    Income from operations...........       266,213       527,406       528,983     1,215,483        257,003      484,203
OTHER INCOME (EXPENSE):
    Interest income..................        12,086        12,742        13,004        16,671        --           --
    Interest expense.................      (189,927)     (129,303)     (143,123)     (134,236)       (53,867)     (41,635)
    Other............................       (27,690)       26,814       165,821        20,327         47,213       42,343
                                       ------------  ------------  ------------   ------------   -----------  -----------
INCOME BEFORE INCOME TAXES...........        60,682       437,659       564,685     1,118,245        250,349      484,911
PROVISION FOR INCOME TAXES...........        24,914       170,478       222,237       434,258        103,720      195,322
                                       ------------  ------------  ------------   ------------   -----------  -----------
NET INCOME...........................  $     35,768  $    267,181  $    342,448    $  683,987    $   146,629  $   289,589
                                       ============  ============  ============   ============   ===========  ===========
The accompanying notes are an integral part of these consolidated financial
                                  statements.
F-31

                      ATLAS SERVICES, INC., AND SUBSIDIARY
                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
COMMON STOCK       ADDITIONAL                      TOTAL
                                        -----------------     PAID-IN       RETAINED     SHAREHOLDERS'
                                        SHARES    AMOUNT      CAPITAL       EARNINGS         EQUITY
                                        ------    -------    ----------    ----------    --------------
BALANCE, June 30, 1992...............    2,191    $ 2,191     $  32,611    $  328,067      $  362,869

     Stock issuance..................       30         30         6,850        --               6,880
     Net income......................     --        --           --            35,768          35,768
                                        ------    -------    ----------    ----------    --------------
BALANCE, June 30, 1993...............    2,221      2,221        39,461       363,835         405,517
     Stock issuance..................       33         33         8,550        --               8,583
     Net income......................     --        --           --           267,181         267,181
                                        ------    -------    ----------    ----------    --------------
BALANCE, June 30, 1994...............    2,254      2,254        48,011       631,016         681,281
     Stock issuance..................       91         91        33,866        --              33,957
     Net income......................     --        --           --           342,448         342,448
                                        ------    -------    ----------    ----------    --------------
BALANCE, June 30, 1995...............    2,345    $ 2,345     $  81,877    $  973,464      $1,057,686
                                        ======    =======    ==========    ==========    ==============
BALANCE, December 31, 1994...........    2,345    $ 2,345     $  81,877    $  689,806      $  774,028
     Stock split (10 for 1)..........   21,105     21,105       (21,105)       --             --
     Stock issuance..................      853        853        44,268        --              45,121
     Net income......................     --        --           --           683,987         683,987
                                        ------    -------    ----------    ----------    --------------
BALANCE, December 31, 1995...........   24,303     24,303       105,040     1,373,793       1,503,136
     Net income (unaudited)..........     --        --           --           289,589         289,589
                                        ------    -------    ----------    ----------    --------------
BALANCE, March 31, 1996
  (unaudited)........................   24,303    $24,303     $ 105,040    $1,663,382      $1,792,725
                                        ======    =======    ==========    ==========    ==============
The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                      F-32
ATLAS SERVICES, INC., AND SUBSIDIARY
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED
                                               YEAR ENDED JUNE 30            YEAR ENDED           MARCH 31
                                       ----------------------------------   DECEMBER 31,   ----------------------
                                          1993        1994        1995          1995          1995        1996
                                       ----------  ----------  ----------   ------------   ----------  ----------
                                                                                                (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income.........................  $   35,768  $  267,181  $  342,448    $  683,987    $  146,629  $  289,589
  Adjustments to reconcile net income
   to net cash provided by operating
   activities --
    Depreciation and amortization....     271,683     375,186     501,796       490,554       111,549     128,012
    Deferred income taxes
     (benefit).......................      (1,144)     20,022     (22,265)      (50,894)       (7,432)      6,544
    Loss on sale of property and
     equipment.......................      54,786      --          --           --
    Changes in operating assets and
     liabilities --
      (Increase) decrease in --
         Accounts receivable.........     (13,227)   (822,197)   (453,719)     (505,195)     (168,834)   (250,812)
         Inventories.................    (175,733)   (134,837)      4,354      (139,118)     (182,283)   (248,804)
         Prepaid expenses and other
          current assets.............      13,350      (1,800)    (31,878)        7,150       (40,367)      1,802
         Costs and estimated earnings
          in excess of billings on
          uncompleted contracts......     (27,506)   (276,261)    (58,752)      539,181       292,941     (19,670)
         Other noncurrent assets.....     (62,020)    (63,362)   (101,110)      (66,703)       26,094     (27,571)
      Increase (decrease) in --
         Accounts payable and accrued
          expenses...................     211,091   1,233,347     531,289      (219,215)      241,646     524,534
         Unearned revenue on service
          and warranty contracts.....      49,963      53,271      15,141       (10,274)      (76,399)      1,737
         Billings in excess of costs
          and estimated earnings on
          uncompleted contracts......     (10,909)     51,603     162,778        52,327      (147,461)     (7,489)
                                       ----------  ----------  ----------   ------------   ----------  ----------
             Net cash provided by
              operating activities...     346,102     702,153     890,082       781,800       196,083     397,872
                                       ----------  ----------  ----------   ------------   ----------  ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Proceeds from sale of property and
   equipment.........................     173,037      --          --           --             --          --
  Additions to property and
   equipment.........................    (439,920)   (980,761)   (429,127)     (258,257)     (104,133)    (49,461)
                                       ----------  ----------  ----------   ------------   ----------  ----------
             Net cash used in
              investing activities...    (266,883)   (980,761)   (429,127)     (258,257)     (104,133)    (49,461)
                                       ----------  ----------  ----------   ------------   ----------  ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds of long- and short-term
   debt..............................     478,187     887,990     347,001       442,394        85,205     120,014
  Principal payments of long- and
   short-term debt...................    (513,870)   (529,624)   (663,606)     (843,201)     (202,561)   (175,956)
  Proceeds from stock issuance.......       6,880       8,583      33,957        45,121        --          --
                                       ----------  ----------  ----------   ------------   ----------  ----------
             Net cash provided by
              (used in) financing
              activities.............     (28,803)    366,949    (282,648)     (355,686)     (117,356)    (55,942)
                                       ----------  ----------  ----------   ------------   ----------  ----------
NET INCREASE (DECREASE) IN CASH AND
 CASH EQUIVALENTS....................      50,416      88,341     178,307       167,857       (25,406)    292,469
CASH AND CASH EQUIVALENTS, beginning
 of period...........................      66,126     116,542     204,883        73,406        73,406     241,263
                                       ----------  ----------  ----------   ------------   ----------  ----------
CASH AND CASH EQUIVALENTS, end of
 period..............................  $  116,542  $  204,883  $  383,190    $  241,263    $   48,000  $  533,732
                                       ==========  ==========  ==========   ============   ==========  ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
 INFORMATION:
  Cash paid for --
    Interest.........................  $  286,112  $  210,549  $  225,374    $  177,031    $   50,498  $   41,635
    Income taxes.....................  $   --      $   56,477  $  271,924    $  251,750    $   32,248  $  150,000
The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                      F-33

                      ATLAS SERVICES, INC., AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
1.  BUSINESS AND ORGANIZATION:
 
     Atlas Services, Inc., (a South Carolina corporation) and subsidiary (the
Company), are primarily engaged in the installation and maintenance, repair and
replacement of plumbing, air conditioning and heating and electrical systems in
new and preexisting residential and commercial buildings throughout South
Carolina.
 
     The Company and its shareholders intend to enter into a definitive
agreement with American Residential Services, Inc. (ARS), pursuant to which all
outstanding shares of the Company's common stock will be exchanged for cash and
shares of ARS's common stock concurrent with the consummation of the initial
public offering (the Offering) of the common stock of ARS.
 
2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
 
  BASIS OF PRESENTATION
 
     The consolidated financial statements include the accounts and results of
operations of Atlas Services, Inc., and its wholly owned subsidiary. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
 
  INTERIM FINANCIAL INFORMATION

     The interim consolidated financial statements as of March 31, 1996, and for
the three months ended March 31, 1995 and 1996, are unaudited, and certain
information and footnote disclosures, normally included in financial statements
prepared in accordance with generally accepted accounting principles, have been
omitted. In the opinion of management, all adjustments, consisting only of
normal recurring adjustments, necessary to fairly present the financial
position, results of operations and cash flows with respect to the consolidated
interim financial statements, have been included. The results of operations for
the interim periods are not necessarily indicative of the results for the entire
fiscal year.
 
  INVENTORIES
 
     Inventories consist of parts and supplies held for use in the ordinary
course of business and are valued at the lower of cost or market using the
weighted-average method.
 
  PROPERTY AND EQUIPMENT
 
     Property and equipment are recorded 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.
 
     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 or 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.
 
     Included in property and equipment are certain assets subject to capital
leases. These assets are amortized using the straight-line method over the
lesser of the life of the leases or the estimated useful life of the asset.
 
  REVENUE RECOGNITION
 
     The Company recognizes revenue when the services are performed except when
work is being performed under a construction contract. Revenues on residential
and commercial service and maintenance contracts are recorded and collected
monthly. Revenues from sales of extended warranties are recognized over the life
of the contract on a straight-line basis.
 
                                      F-34

                      ATLAS SERVICES, INC., AND SUBSIDIARY
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     Revenues from construction contracts are recognized on the
percentage-of-completion method measured by the percentage of costs incurred to
total estimated costs for each contract. 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
are recognized in the period in which the revisions are determined.
 
  WARRANTY COSTS
 
     The Company warrants labor for the first year after installation on new air
conditioning and heating units. The Company generally warrants labor for 30 days
after servicing of existing air conditioning and heating units. A reserve for
warranty costs is recorded upon completion of installation or service.
 
  INCOME TAXES
 
     The Company follows the liability method of accounting for income taxes in
accordance with Statement of Financial Accounting Standards (SFAS) No. 109.
Under this method, deferred income taxes are recorded based upon differences
between the financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
underlying assets or liabilities are recovered or settled.
 
  STOCK-SPLIT
 
     During 1995, the Company effected a ten-for-one stock split of the
Company's Common Stock.
 
  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 assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
 
  CASH AND CASH EQUIVALENTS
 
     The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.
 
  NEW ACCOUNTING PRONOUNCEMENT
 
     Effective January 1, 1995, 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, and intangible 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 is
compared to the asset's carrying amount to determine if a write-down to market
value or discounted cash flow value was necessary. Adoption of this standard did
not have a material effect on the financial position or results of operations of
the Company.
 
                                      F-35
 
                      ATLAS SERVICES, INC., AND SUBSIDIARY
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
3.  PROPERTY AND EQUIPMENT:
 
     Property and equipment consist of the following:
ESTIMATED              JUNE 30
                                        USEFUL LIVES   --------------------------   DECEMBER 31,
                                          IN YEARS         1994          1995           1995
                                        ------------   ------------  ------------   ------------
Land and land improvements...........        --        $    508,129  $    508,129    $   508,129
Buildings and leasehold
improvements.........................        40           1,387,578     1,396,235      1,387,599
Transportation equipment.............        5            1,703,373     1,955,070      2,068,795
Machinery and equipment..............      5 - 7            591,299       666,548        738,347
Furniture and fixtures...............      5 - 10           233,373       290,961        313,025
                                                       ------------  ------------   ------------
                                                          4,423,752     4,816,943      5,015,895
Less -- Accumulated depreciation.....                     1,220,609     1,647,815      1,879,532
                                                       ------------  ------------   ------------
          Property and equipment,
             net.....................                  $  3,203,143  $  3,169,128    $ 3,136,363
                                                       ============  ============   ============
4.  DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
 
     Activity in the Company's allowance for doubtful accounts consist of the
following:
JUNE 30
                                       ----------------------------------   DECEMBER 31,
                                          1993        1994        1995          1995
                                       ----------  ----------  ----------   ------------
Balance at beginning of year.........  $        0  $        0  $   29,989     $ 29,989
Additions charged to costs and
  expenses...........................      79,128      84,119      45,952       40,381
Deductions for uncollectible
  receivables
  written off........................     (79,128)    (54,130)    (36,075)     (30,504)
                                       ----------  ----------  ----------   ------------
                                       $        0  $   29,989  $   39,866     $ 39,866
                                       ==========  ==========  ==========   ============
Accounts payable and accrued expenses consist of the following:
JUNE 30
                                       --------------------------     DECEMBER 31,
                                           1994          1995             1995
                                       ------------  ------------     ------------
Accounts payable, trade..............  $  1,707,084  $  2,113,376      $1,600,736
Accrued compensation and benefits....       369,780       236,780         224,767
Accrued insurance....................        98,456       257,741         269,135
Other accrued expenses...............       153,389       252,101         297,317
                                       ------------  ------------     ------------
                                       $  2,328,709  $  2,859,998      $2,391,955
                                       ============  ============     ============
Installation contracts in progress are as follows:
JUNE 30
                                       --------------------------     DECEMBER 31,
                                           1994          1995             1995
                                       ------------  ------------     ------------
Costs incurred on contracts in
  progress...........................  $  1,293,427  $  2,592,291      $2,411,212
Estimated earnings, net of losses....       586,972       719,579       1,077,841
                                       ------------  ------------     ------------
                                          1,880,399     3,311,870       3,489,053
Less -- Billings to date.............     1,748,906     3,284,403       3,710,745
                                       ------------  ------------     ------------
                                       $    131,493  $     27,467      $ (221,692)
                                       ============  ============     ============
F-36
 
                      ATLAS SERVICES, INC., AND SUBSIDIARY
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     The following are included in the accompanying balance sheets under the
following captions:
                                               JUNE 30
                                       ------------------------   DECEMBER 31,
                                          1994         1995           1995
                                       -----------  -----------   ------------
                                                         
Costs and estimated earnings in
  excess of billings on uncompleted
  contracts..........................  $   323,901  $   382,653    $  254,039
Billings in excess of costs and
  estimated earnings on uncompleted
  contracts..........................     (192,408)    (355,186)     (475,731)
                                       -----------  -----------   ------------
                                       $   131,493  $    27,467    $ (221,692)
                                       ===========  ===========   ============

5.  SHORT- AND LONG-TERM DEBT:
 
     Short-term debt consists of a revolving line of credit payable to a bank,
due July 21, 1996, with interest due monthly at 9.375 percent and is secured by
accounts receivable and inventory. The amounts outstanding as of June 30, 1994
and 1995, and December 31, 1995, are $220,807, $207,335 and $209,948,
respectively.
 
     Long-term debt consists of the following:

                                                JUNE 30
                                       --------------------------   DECEMBER 31,
                                           1994          1995           1995
                                       ------------  ------------   ------------
Mortgage note payable to a bank, with
  monthly installments of $8,056
  principal plus interest at 7.25%,
  secured by real estate and life
  insurance policies, due December
  1998...............................  $  1,401,667  $  1,305,000    $1,256,666

Mortgage note payable to a bank, with
  monthly installments of $1,000
  principal plus interest at prime
  plus 1.25% (9.75% at December 31,
  1995), secured by real estate, due
  May 1997...........................       103,400        93,400        87,977

Mortgage note payable to a bank, with
  monthly installments of $581,
  bearing interest at 9.5%, secured
  by real estate, due June 2017......        56,775        56,173        53,185

Transportation equipment notes
  payable and capitalized leases,
  with monthly installments totaling
  $48,255, due from July 1994 to
  January 1998, bearing interest from
  5.9% to 13.3%, secured by
  transportation equipment...........       816,486       675,929       574,953

Note payable on equipment, with
  monthly installments of $2,083
  principal plus interest at prime
  plus 1.50% (10% at December 31,
  1995), secured by equipment, due
  June 1998..........................       100,000        75,000        62,500

Other................................       146,980       116,673       125,969
                                       ------------  ------------   ------------
                                          2,625,308     2,322,175     2,161,250
Less -- Current maturities...........       577,545       619,851       596,941
                                       ------------  ------------   ------------
                                       $  2,047,763  $  1,702,324    $1,564,309
                                       ============  ============   ============
 
                                      F-37

                      ATLAS SERVICES, INC., AND SUBSIDIARY
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     The aggregate maturities of long-term debt as of December 31, 1995, are as
follows:
                                   
Year ending December 31 --
     1996............................  $     596,941
     1997............................        334,907
     1998............................        158,688
     1999............................        110,343
     2000............................        109,567
     Thereafter......................        850,804
                                       -------------
                                       $   2,161,250
                                       =============

     Management estimates that the fair value of its debt obligations
approximates the historical value of $2,371,198 at December 31, 1995.
 
6.  RETIREMENT PLANS:
 
     The Company has a defined contribution profit-sharing plan covering
substantially all employees. The Company's contribution for each of the years
ended June 30, 1993, 1994 and 1995, and December 31, 1995, amounted to
approximately $25,000, $35,000, $30,000 and $21,000, respectively.
 
7.  LEASES:
 
     The Company leases four facilities under noncancelable leases, which expire
in January 1998, January 2005, May 2005 and February 2006. Rental expense for
the years ended June 30, 1993, 1994 and 1995, and December 31, 1995, was
approximately $44,000, $72,000, $127,000 and $174,000, respectively. Included in
these amounts are rent expenses and commissions paid to related parties of $0,
$2,000, $39,000 and $82,000 for the years ended June 30, 1993, 1994 and 1995,
and December 31, 1995, respectively. The following represents future minimum
rental payments under noncancelable operating leases:
                                    
Year ending December 31 --
     1996............................  $     259,577
     1997............................        266,680
     1998............................        230,187
     1999............................        228,600
     2000............................        228,600
     Thereafter......................      1,045,550
                                       -------------
                                       $   2,259,194
                                       =============
 
     The Company leases certain owned facilities under three noncancelable
leases to third parties, which expire in September 1997, October 1998 and
November 2000. The following represents future minimum rental income under
noncancelable leases:
                                    
Year ending December 31 --
     1996............................  $     167,250
     1997............................        148,500
     1998............................         83,875
     1999............................         42,000
     2000............................         38,500
                                       -------------
                                       $     480,125
                                       =============
 
                                      F-38
 
                      ATLAS SERVICES, INC., AND SUBSIDIARY
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
8.  INCOME TAXES:
 
     Federal and state income taxes are as follows:
YEAR ENDED JUNE 30              YEAR ENDED
                                       -----------------------------------    DECEMBER 31,
                                         1993        1994         1995            1995
                                       ---------  -----------  -----------    ------------
Federal --
     Current.........................  $  23,106  $   129,390  $   215,040      $419,486
     Deferred........................     (3,107)      18,236      (19,913)      (43,440)
State --
     Current.........................      2,952       21,066       29,462        65,666
     Deferred........................      1,963        1,786       (2,352)       (7,454)
                                       ---------  -----------  -----------    ------------
                                       $  24,914  $   170,478  $   222,237      $434,258
                                       =========  ===========  ===========    ============
Actual income tax expense differs from income tax expense computed by
applying the U.S. federal statutory corporate tax rate of 34 percent to income
before income tax as follows:
YEAR ENDED JUNE 30              YEAR ENDED
                                       -----------------------------------    DECEMBER 31,
                                         1993        1994         1995            1995
                                       ---------  -----------  -----------    ------------
Tax provision at the statutory
  rate...............................  $  20,632  $   148,804  $   191,993      $380,203
Increase (decrease) resulting from --
     State income tax, net of benefit
        for federal deduction........      3,244       15,081       17,892        38,420
     Nondeductible expenses..........      5,272       14,264       33,308        29,088
     Other...........................     (4,234)      (7,671)     (20,956)      (13,453)
                                       ---------  -----------  -----------    ------------
                                       $  24,914  $   170,478  $   222,237      $434,258
                                       =========  ===========  ===========    ============
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:

                                                JUNE 30
                                       --------------------------   DECEMBER 31,
                                          1994          1995            1995
                                       -----------  -------------   ------------
                                                           
Accruals and reserves not deductible
  until paid.........................  $   (65,224) $    (127,289)   $ (180,124)
Depreciation and amortization........      157,365        196,365       195,771
Other................................       42,609         43,409        45,944
                                       -----------  -------------   ------------
           Total deferred income tax
             liabilities.............  $   134,750  $     112,485    $   61,591
                                       ===========  =============   ============
 
                                      F-39
 
                      ATLAS SERVICES, INC., AND SUBSIDIARY
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     The net deferred tax assets and liabilities are comprised of the following:

                                                JUNE 30
                                       --------------------------   DECEMBER 31,
                                          1994          1995            1995
                                       -----------  -------------   ------------
                                                           
Deferred tax assets --
     Current.........................  $   (79,907) $    (163,948)   $ (235,433)
     Long-term.......................       (1,865)        (1,865)       (6,723)
                                       -----------  -------------   ------------
           Total.....................      (81,772)      (165,813)     (242,156)
                                       -----------  -------------   ------------
Deferred tax liabilities --
     Current.........................       64,151         88,627       109,787
     Long-term.......................      152,371        189,671       193,960
                                       -----------  -------------   ------------
           Total.....................      216,522        278,298       303,747
                                       -----------  -------------   ------------
           Net deferred income tax
             liabilities.............  $   134,750  $     112,485    $   61,591
                                       ===========  =============   ============

9.  RELATED-PARTY TRANSACTIONS:
 
     The Company has a receivable from its majority shareholder in the amount of
approximately $172,000, $171,000 and $195,000 as of June 30, 1994 and 1995, and
December 31, 1995, respectively. This receivable accrues interest at 8 percent.
Interest income recognized during the years ended June 30, 1993, 1994 and 1995,
and December 31, 1995, was approximately $10,000, $13,000, $13,000 and $17,000,
respectively.
 
10.  COMMITMENTS AND CONTINGENCIES:
 
  LITIGATION
 
     The Company is involved in legal actions arising in the ordinary course of
business. Management does not believe that the outcome of such legal actions
will have a material adverse effect on the Company's financial position or
consolidated results of operations.
 
  INSURANCE

     The Company carries a broad range of insurance coverage, including general
and business auto liability, commercial property, workers' compensation and a
general umbrella policy. The Company has not incurred significant claims or
losses on any of its insurance policies.
 
11.  SALES TO SIGNIFICANT CUSTOMERS:
 
     During the years ended June 30, 1993 and 1995, one customer accounted for
approximately 11 percent, and 11 percent, respectively, of the Company's
revenue.
 
12.  EVENTS SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
     (UNAUDITED):
 
     In June 1996, the Company and its shareholders entered into a definitive
agreement with ARS, providing for the acquisition of the Company by ARS.
 
     In connection with the acquisition, the Company will distribute certain
assets to the shareholders, consisting of cash surrender value of life insurance
and equipment net of distributed liabilities, with a total net carrying value of
approximately $124,000 and $14,000 as of March 31, 1996. Had these transactions
been recorded at March 31, 1996, the effect on the accompanying balance sheet
would be a decrease in assets of appproximately $194,000, liabilities of $56,000
and shareholders' equity of $138,000.
 
                                      F-40

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
 
To Service Enterprises, Inc.:
 
     We have audited the accompanying consolidated balance sheets of Service
Enterprises, Inc. (a Texas corporation), and subsidiaries as of December 31,
1994 and 1995, and the related consolidated statements of operations,
shareholder's equity and cash flows for each of the three years in the period
ended December 31, 1995. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
 
     We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
 
     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Service Enterprises, Inc., and subsidiaries as of December 31, 1994 and 1995,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles.
 
ARTHUR ANDERSEN LLP
 
Houston, Texas
May 24, 1996
 
                                      F-41
 
                  SERVICE ENTERPRISES, INC., AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS

                                              DECEMBER 31
                                       --------------------------    MARCH 31,
                                           1994          1995          1996
                                       ------------  ------------   -----------
                                                                    (UNAUDITED)
               ASSETS
                                                           
CURRENT ASSETS:
     Cash and cash equivalents.......  $  1,093,394  $  2,100,996   $   372,144
     Certificates of deposit.........     1,100,000     1,100,000       --
     Accounts receivable --
          Trade, net of allowance of
             $53,257, $58,575 and
             $58,575.................       340,961       411,139       363,323
          Shareholder and
             affiliates..............       278,187        10,308     2,123,616
          Other receivables..........        53,780        59,737        73,391
     Inventories.....................       632,614       737,495       832,141
     Prepaid expenses and other
       current assets................       194,038       251,941       249,442
                                       ------------  ------------   -----------
               Total current
                  assets.............     3,692,974     4,671,616     4,014,057
PROPERTY AND EQUIPMENT, net..........       988,147     1,277,677     1,184,145
OTHER NONCURRENT ASSETS..............       185,333       193,333       195,333
                                       ------------  ------------   -----------
               Total assets..........  $  4,866,454  $  6,142,626   $ 5,393,535
                                       ============  ============   ===========
 
LIABILITIES AND SHAREHOLDER'S EQUITY
                                                           
CURRENT LIABILITIES:
     Current maturities of long-term
       debt..........................       --            129,000       --
     Short-term debt.................  $    620,312  $    251,562   $   --
     Accounts payable and accrued
       expenses......................       672,082       890,945       904,443
                                       ------------  ------------   -----------
               Total current
                  liabilities........     1,292,394     1,271,507       904,443
LONG-TERM DEBT, net of current
  maturities.........................       --            366,451       --
DEFERRED INCOME TAXES................       130,367       114,133       114,133
COMMITMENTS AND CONTINGENCIES
SHAREHOLDER'S EQUITY:
     Preferred stock, $.01 par;
       1,000,000 shares authorized,
       none issued...................       --            --            --
     Common stock, $.01 stated value;
       2,000,000, 50,000,000 and
       50,000,000 shares authorized,
       2,000,000, 14,000,000 and
       14,000,000 issued and
       outstanding...................        20,000       140,000       140,000
     Additional paid-in capital......     1,205,760     1,085,760     1,085,760
     Retained earnings...............     2,217,933     3,164,775     3,149,199
                                       ------------  ------------   -----------
               Total shareholder's
                  equity.............     3,443,693     4,390,535     4,374,959
                                       ------------  ------------   -----------
               Total liabilities and
                  shareholder's
                  equity.............  $  4,866,454  $  6,142,626   $ 5,393,535
                                       ============  ============   ===========
 
  The accompanying notes are an integral part of these consolidated financial
                                  statements.
 
                                      F-42
 
                  SERVICE ENTERPRISES, INC., AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS
                                                   YEAR ENDED DECEMBER 31                     ENDED MARCH 31
                                       ----------------------------------------------   --------------------------
                                            1993            1994            1995           1995           1996
                                       --------------  --------------  --------------   -----------    -----------
                                                                                                (UNAUDITED)
REVENUES.............................  $   16,268,452  $   16,843,520  $   19,123,858   $ 3,555,446    $ 4,152,017
COST OF SERVICES.....................      10,331,520      10,314,231      11,333,228     2,155,171      2,643,026
                                       --------------  --------------  --------------   -----------    -----------
     Gross profit....................       5,936,932       6,529,289       7,790,630     1,400,275      1,508,991
SELLING, GENERAL AND ADMINISTRATIVE
  EXPENSES...........................       5,698,182       5,836,643       6,164,598     1,347,708      1,519,226
                                       --------------  --------------  --------------   -----------    -----------
     Income (loss) from operations...         238,750         692,646       1,626,032        52,567        (10,235)
OTHER INCOME (EXPENSE):
     Interest income.................         149,124          93,370         119,074        23,506         15,957
     Interest expense................        (158,943)        (76,544)        (58,065)      (14,401)       (16,248)
     Equity in losses of
       unconsolidated affiliate......        (130,022)        (61,751)       --             --             --
     Other...........................        (661,414)        156,796         (10,546)       (1,490)        (9,220)
                                       --------------  --------------  --------------   -----------    -----------
INCOME (LOSS) BEFORE INCOME TAXES....        (562,505)        804,517       1,676,495        60,182        (19,746)
PROVISION (BENEFIT) FOR INCOME
  TAXES..............................        (215,106)        589,241         629,653        23,298         (4,170)
                                       --------------  --------------  --------------   -----------    -----------
NET INCOME (LOSS)....................  $     (347,399) $      215,276  $    1,046,842   $    36,884    $   (15,576)
                                       ==============  ==============  ==============   ===========    ===========
The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                      F-43

                  SERVICE ENTERPRISES, INC., AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
COMMON STOCK         ADDITIONAL                      TOTAL
                                        ----------------------     PAID-IN       RETAINED     SHAREHOLDER'S
                                          SHARES       AMOUNT      CAPITAL       EARNINGS         EQUITY
                                        ----------    --------    ----------    ----------    --------------
BALANCE, December 31, 1992...........    2,000,000    $ 20,000    $  982,010    $2,650,056      $3,652,066

     Net loss........................       --           --           --          (347,399)       (347,399)
                                        ----------    --------    ----------    ----------    --------------
BALANCE, December 31, 1993...........    2,000,000      20,000       982,010     2,302,657       3,304,667
     Capital contribution............       --           --          223,750        --             223,750
     Dividend........................       --           --           --          (300,000)       (300,000)
     Net income......................       --           --           --           215,276         215,276
                                        ----------    --------    ----------    ----------    --------------
BALANCE, December 31, 1994...........    2,000,000      20,000     1,205,760     2,217,933       3,443,693
     Dividend........................       --           --           --          (100,000)       (100,000)
     Stock split (7 for 1)...........   12,000,000     120,000      (120,000)       --             --
     Net income......................       --           --           --         1,046,842       1,046,842
                                        ----------    --------    ----------    ----------    --------------
BALANCE, December 31, 1995...........   14,000,000     140,000     1,085,760     3,164,775       4,390,535
     Net loss (unaudited)............       --           --           --           (15,576)        (15,576)
                                        ----------    --------    ----------    ----------    --------------
BALANCE, March 31, 1996
  (unaudited)........................   14,000,000    $140,000    $1,085,760    $3,149,199      $4,374,959
                                        ==========    ========    ==========    ==========    ==============
The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                      F-44

                  SERVICE ENTERPRISES, INC., AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS
                                               YEAR ENDED DECEMBER 31                ENDED MARCH 31
                                       ---------------------------------------   -----------------------
                                           1993          1994         1995         1995          1996
                                       ------------  ------------  -----------   ---------    ----------
                                                                                       (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income (loss)..................  $   (347,399) $    215,276  $ 1,046,842   $  36,884    $  (15,576)
  Adjustments to reconcile net income
    (loss) to net cash provided by
    operating activities --
    Depreciation and amortization....       328,882       364,708      371,402      82,558        93,532
    Deferred income taxes
    (benefit)........................      (233,911)       55,319        7,309      --            --
    Equity in losses of
      unconsolidated affiliate.......       130,022        61,751      --           --            --
    Loss on sale of real estate......       475,159        18,114      --           --            --
    Gain on sale of property and
      equipment......................       (99,629)      (21,069)     (13,699)     --            --
    Gain on sale of investment.......       --           (219,125)     --           --            --
    Changes in operating assets and
      liabilities --
      (Increase) decrease in --
         Accounts receivable.........        59,245       (51,248)     (76,135)     98,071        34,162
         Inventories.................         3,113       158,356     (104,881)   (153,073)      (94,646)
         Prepaid expenses and other
           current assets............        50,525        72,648      (89,446)   (240,528)          499
      Increase (decrease) in --
         Accounts payable and accrued
           expenses..................        85,821        11,014      218,863     469,611        13,498
                                       ------------  ------------  -----------   ---------    ----------
           Net cash provided by
             operating activities....       451,828       665,744    1,360,255     293,523        31,469
                                       ------------  ------------  -----------   ---------    ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Proceeds from sale of real
    estate...........................       --            978,727      --           --            --
  Proceeds from sale of property and
    equipment........................       115,906        38,628       24,793      --            --
  Additions of property and
    equipment........................      (861,640)     (233,903)    (672,026)     --            --
  (Purchase) sale of certificates of
    deposit..........................       --         (1,100,000)     --           --         1,100,000
  Proceeds from sale of investment...       --            450,961      --           --
  Purchase of marketable
    securities.......................       --           (110,188)     --           --            --
  Proceeds from note receivable......       --            100,000      --           --            --
                                       ------------  ------------  -----------   ---------    ----------
           Net cash provided by (used
             in) investing
             activities..............      (745,734)      124,225     (647,233)     --         1,100,000
                                       ------------  ------------  -----------   ---------    ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
  (Advances) payments of receivable
    from shareholder and
    affiliates.......................      (558,319)    1,636,469      267,879    (184,852)   (2,113,308)
  Borrowings of long- and short-term
    debt.............................     1,804,649       137,500      495,451      --            --
  Principal payments of long- and
    short-term debt..................    (1,006,266)   (1,495,266)    (368,750)    (97,187)     (747,013)
  Dividends..........................       --           (300,000)    (100,000)     --            --
  Capital contribution...............       --            223,750      --           --            --
                                       ------------  ------------  -----------   ---------    ----------
           Net cash provided by (used
             in) financing
             activities..............       240,064       202,453      294,580    (282,039)   (2,860,321)
                                       ------------  ------------  -----------   ---------    ----------
NET INCREASE (DECREASE) IN CASH AND
  CASH EQUIVALENTS...................       (53,842)      992,422    1,007,602      11,484    (1,728,852)
CASH AND CASH EQUIVALENTS, beginning
  of period..........................       154,814       100,972    1,093,394   1,093,394     2,100,996
                                       ------------  ------------  -----------   ---------    ----------
CASH AND CASH EQUIVALENTS, end of
  period.............................  $    100,972  $  1,093,394  $ 2,100,996   $1,104,878   $  372,144
                                       ============  ============  ===========   =========    ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
  INFORMATION:
  Cash paid for --
    Interest.........................  $     98,522  $     78,294  $    61,230   $  14,401    $   23,399
    Income taxes.....................  $    135,000  $    220,951  $   540,000   $  --        $   10,000
The accompanying notes are an integral part of these consolidated financial
                                  statements.
 
                                      F-45
 
                  SERVICE ENTERPRISES, INC., AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
1.  BUSINESS AND ORGANIZATION:
 
     Service Enterprises, Inc. (SEI) (a Texas corporation), and subsidiaries
(the Company) are primarily engaged in the maintenance, repair and replacement
service-related activities of plumbing, air conditioning, electrical repair and
other home improvement services in Houston and the surrounding areas.
 
     On March 19, 1996, all of the outstanding stock of SEI and certain real
estate owned by the former shareholder of SEI was acquired by Enterprise Holding
Company (EHC) for $17,500,000. EHC was formed solely for the purpose of
acquiring the Company and has no other operations. The accompanying unaudited
financial statements of the Company for the quarter ended March 31, 1996, do not
reflect the effect of the purchase of the Company by EHC.
 
     In April 1996, the Company entered into a stock purchase agreement with
ADCOT, Inc. (ADCOT), to purchase all of the outstanding common stock of ADCOT
for $2,000,000. (See ADCOT's financial statements included elsewhere herein.)
EHC intends to enter into a definitive agreement with American Residential
Services, Inc. (ARS), pursuant to which EHC will be acquired by ARS. All
outstanding shares of EHC's common stock and a portion of EHC's preferred stock
will be exchanged for cash and shares of ARS's common stock concurrent with the
consummation of the initial public offering of the common stock of ARS.
 
2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
 
  BASIS OF PRESENTATION
 
     The consolidated financial statements include the accounts and results of
operations of Service Enterprises, Inc., and its wholly owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
 
  INTERIM FINANCIAL INFORMATION
 
     The interim consolidated financial statements as of March 31, 1996, and for
the three months ended March 31, 1995 and 1996, are unaudited, and certain
information and footnote disclosures, normally included in financial statements
prepared in accordance with generally accepted accounting principles, have been
omitted. In the opinion of management, all adjustments, consisting only of
normal recurring adjustments, necessary to fairly present the financial
position, results of operations and cash flows with respect to the consolidated
interim financial statements, have been included. The results of operations for
the interim periods are not necessarily indicative of the results for the entire
fiscal year.
 
  INVENTORIES
 
     Inventories consist of parts and supplies held for use in the ordinary
course of business and are valued at the lower of cost or market using the
first-in, first-out (FIFO) method.
 
  PROPERTY AND EQUIPMENT
 
     Property and equipment are recorded 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
lease life or the estimated useful life of the asset.
 
     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.
 
                                      F-46
 
                  SERVICE ENTERPRISES, INC., AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
  REVENUE RECOGNITION
 
     The Company recognizes revenues when services are performed.
 
  INCOME TAXES
 
     The Company follows the liability method of accounting for income taxes in
accordance with Statement of Financial Accounting Standards (SFAS) No. 109.
Under this method, deferred income taxes are recorded based upon differences
between the financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
underlying assets or liabilities are recovered or settled.
 
  STOCK SPLIT
 
     During 1994, the Company effected a seven-for-one stock split of Company
Common Stock.
 
  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 assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
 
  CASH AND CASH EQUIVALENTS
 
     The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.
 
  NEW ACCOUNTING PRONOUNCEMENT
 
     Effective January 1, 1995, 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, and intangible 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 is
compared to the asset's carrying amount to determine if a write-down to market
value or discounted cash flow value is necessary. Adoption of this standard did
not have a material effect on the financial position or consolidated results of
operations of the Company.
 
3.  PROPERTY AND EQUIPMENT:
 
     Property and equipment consist of the following:
ESTIMATED            DECEMBER 31
                                        USEFUL LIVES    --------------------------
                                          IN YEARS          1994          1995
                                        -------------   ------------  ------------
Leasehold improvements...............      5 - 10       $    140,983  $    140,333
Transportation equipment.............         5            1,357,588     1,930,724
Tools and equipment..................       3 - 7            182,797       181,893
Telephone equipment..................       5 - 7            230,582       181,886
Furniture and fixtures...............       3 - 7            509,423       453,034
                                                        ------------  ------------
                                                           2,421,373     2,887,870
Less -- Accumulated depreciation and
amortization.........................                      1,433,226     1,610,193
                                                        ------------  ------------
          Property and equipment,
             net.....................                   $    988,147  $  1,277,677
                                                        ============  ============
4.  INVESTMENT IN AFFILIATED COMPANY:
 
     During July 1994, the Company sold a portion of its investment in American
Natural Gas Power, Inc. (ANGP), for $225,000 and an unsecured
noninterest-bearing note receivable for $35,000 due on demand or, if no demand
is made, due in June 1996. After the sale, the Company's interest in ANGP
decreased from approximately 33 percent at December 31, 1993, to approximately 8
percent at December 31, 1994, and
 
                                      F-47
 
                  SERVICE ENTERPRISES, INC., AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
accordingly is no longer accounted for under the equity method. Included in
other income is a net realized gain on sale of $228,353 for the year ended
December 31, 1994.
 
5.  NOTE RECEIVABLE:
 
     In January 1994, the Company sold an investment in real estate to an
individual. The consideration included a note receivable for $300,000,
collateralized by a second lien on the real estate, which bears interest at 4
percent, payable monthly, with principal due January 1999.
 
     In the event that the aggregate of all principal payments made on or before
the third anniversary of this note, January 25, 1997, equals $200,000, this note
shall be discounted such that the note is fully discharged by the prepayment of
such $200,000 within the initial three-year period. This note has been recorded
at its prepayment value of $200,000, discounted to a market rate of interest,
and is included in other noncurrent assets on the accompanying consolidated
balance sheet.
 
     Management estimates that the fair value of its note receivable
approximates its discounted historical carrying value of $193,000 at December
31, 1995.
 
6.  DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
 
     Activity in the Company's allowance for doubtful accounts consist of the
following:
                                                 DECEMBER 31
                                       -------------------------------
                                         1993       1994       1995
                                       ---------  ---------  ---------
                                                    
Balance at beginning of year.........     22,000  $  38,080  $  53,257
Additions charged to costs and
  expenses...........................     36,429     55,407     46,996
Deductions for uncollectible
  receivables written off............    (24,118)   (54,212)   (53,495)
Bad debt recoveries..................      3,769     13,982     11,817
                                       ---------  ---------  ---------
                                       $  38,080  $  53,257  $  58,575
                                       =========  =========  =========

     Accounts payable and accrued expenses consist of the following:
 
                                            DECEMBER 31
                                       ----------------------
                                          1994        1995
                                       ----------  ----------
                                             
Accounts payable, trade..............  $  303,280  $  507,810
Accrued compensation and benefits....     120,501     143,708
Accrued income taxes.................      29,809      71,781
Accrued taxes other than income
taxes................................     146,389     131,388
Other accrued expenses...............      72,103      36,258
                                       ----------  ----------
                                       $  672,082  $  890,945
                                       ==========  ==========
 
7.  SHORT- AND LONG-TERM DEBT:
 
     Short-term debt consists of the following:

                                            DECEMBER 31
                                       ----------------------
                                          1994        1995
                                       ----------  ----------
$850,000 demand line of credit with
  bank; collateralized by
  transportation equipment, accounts
  receivable and inventory, interest
  at prime plus 1% (9.5% at December
  31, 1995), payable monthly,
  principal due June 1996............  $  200,000  $  200,000
Demand note payable to bank;
  cross-collateralized with the line
  of credit, bearing interest at
  prime plus 1%, principal of $25,000
  plus interest, payable in monthly
  installments through January
  1996...............................     300,000      --
Demand note payable to bank;
  cross-collateralized with the line
  of credit, interest at prime plus
  1%, payable monthly, principal due
  September 1996.....................     120,312      51,562
                                       ----------  ----------
                                       $  620,312  $  251,562
                                       ==========  ==========
 
                                      F-48
 
                  SERVICE ENTERPRISES, INC., AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     Long-term debt consists of the following:

                                            DECEMBER 31
                                       ----------------------
                                          1994        1995
                                       ----------  ----------
Note payable to bank;
  cross-collateralized with the line
  of credit, interest at prime plus
  1%, interest only through June
  1996, payable monthly, then
  principal of $21,500, plus
  interest, payable in monthly
  installments through June 1998.....  $   --      $  495,451
     Less -- Current portion.........      --         129,000
                                       ----------  ----------
                                       $   --      $  366,451
                                       ==========  ==========
 
     The aggregate maturities of long-term debt are as follows:
 
                                    
Year ending December 31 --
     1996............................  $  129,000
     1997............................     258,000
     1998............................     108,451
                                       ----------
                                       $  495,451
                                       ==========
 
     In connection with the bank indebtedness, the Company has entered into an
agreement which provides for certain affirmative covenants and restrictions,
including certain required financial ratios and restrictions on retained
earnings. As of December 31, 1995, the Company was in compliance with these
covenants.
 
     The notes payable have been personally guaranteed by the Company's
shareholder.
 
     Management estimates that the fair value of its debt obligations
approximates the historical value of $747,013 at December 31, 1995.
 
8.  LEASES:
 
     The Company operates in leased facilities under an agreement with its
shareholder and affiliates. The amount paid under these leases was $291,600,
$291,600 and $301,600 in 1993, 1994 and 1995, respectively. These leases were
canceled concurrent with the purchase of the Company and the leased facilities
by EHC.
 
     During 1994, the Company renewed a parking lot lease agreement with an
affiliated company, which expired September 30, 1995. The Company continued its
lease on a month-to-month basis. Amounts paid under this lease in 1993, 1994 and
1995 totaled $22,500, $30,000 and $25,000, respectively.
 
     The Company has entered into two operating sublease agreements with a
company at its facilities, and these agreements expire in June 1997 and November
1998, respectively. Rental income recognized during 1993, 1994 and 1995 was
approximately $13,650, $11,400 and $16,400, respectively.
 
     Future minimum rental income under the sublease agreements is as follows:
 
Year ending December 31 --
     1996............................  $   41,400
     1997............................      35,700
     1998............................      25,000
                                       ----------
                                       $  102,100
                                       ==========
 
                                      F-49
 
                  SERVICE ENTERPRISES, INC., AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
9.  INCOME TAXES:
 
     Federal and state income taxes are as follows:
 

                                              YEAR ENDED DECEMBER 31
                                       ------------------------------------
                                           1993         1994        1995
                                       ------------  ----------  ----------
Federal --
                                                        
     Current.........................  $     18,602  $  466,159  $  553,973
     Deferred........................      (205,440)     48,585       6,419
State --
     Current.........................           203      67,764      68,371
     Deferred........................       (28,471)      6,733         890
                                       ------------  ----------  ----------
                                       $   (215,106) $  589,241  $  629,653
                                       ============  ==========  ==========
 
     Actual income tax expense differs from income tax expense computed by
applying the U.S. federal statutory corporate tax rate of 34 percent to income
before income taxes as follows:

                                              YEAR ENDED DECEMBER 31
                                       ------------------------------------
                                           1993         1994        1995
                                       ------------  ----------  ----------
Provision (benefit) at the statutory
  rate...............................  $   (191,252) $  273,536  $  570,008
                                                        
Increase (decrease) resulting from --
     State income tax, net of benefit
       for federal deduction.........       (18,657)     49,169      45,713
     Nondeductible expenses..........         6,553     184,418      18,743
     Related-party gain on sale......       --           76,075      --
Other................................       (11,750)      6,043      (4,811)
                                       ------------  ----------  ----------
                                       $   (215,106) $  589,241  $  629,653
                                       ============  ==========  ==========
 
     Deferred income tax provision results 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:

                                            DECEMBER 31
                                       ----------------------
                                          1994        1995
                                       ----------  ----------
Depreciation and amortization........  $   56,200  $   36,213

Net operating loss carryforward......     (33,098)    (33,098)
Accruals and reserves not deductible
  until paid.........................     (65,203)    (40,685)
Other................................     109,857     112,635
                                       ----------  ----------
               Net deferred income
                  tax liabilities....  $   67,756  $   75,065
                                       ==========  ==========
 
     The net deferred tax assets and liabilities are comprised of the following:
 
                                            DECEMBER 31
                                       ----------------------
                                          1994        1995
                                       ----------  ----------
Deferred tax assets --
                                             
     Current.........................  $   62,611  $   39,068
     Long-term.......................     103,598     100,640
                                       ----------  ----------
               Total.................     166,209     139,708
Deferred tax liabilities,
  long-term..........................     233,965     214,773
                                       ----------  ----------
               Net deferred income
                  tax liabilities....  $   67,756  $   75,065
                                       ==========  ==========
 
                                      F-50
 
                  SERVICE ENTERPRISES, INC., AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
10.  RELATED-PARTY TRANSACTIONS:
 
     The Company has receivables from its shareholder and from certain
affiliated entities related through common ownership and control in the amount
of $278,187 and $10,308 at December 31, 1994 and 1995, respectively. Receivables
from shareholder accrue interest at 5 1/2 percent. Interest income recognized
during 1993, 1994 and 1995 was approximately $147,800, $54,000 and $27,000,
respectively.
 
     The Company acquired an investment in real estate held for sale from its
shareholder for $1,750,000 in January 1993. In January 1994, the investment was
sold for approximately $1,275,000, net of closing costs. At December 31, 1993,
the investment was written down to its net realizable value resulting in an
unrealized loss of approximately $475,000 included in other income (expense) on
the consolidated statement of operations.
 
     In 1991, the Company received 250,000 shares of registered Exploration
Company of Louisiana (Exploration) common stock valued at $125,000 from its
shareholder in exchange for shares of stock in ANGP. During March 1994, the
Company sold the 250,000 shares of common stock of Exploration to its
shareholder for $348,750 resulting in a gain of $223,750 which has been
accounted for as additional paid-in capital.
 
11.  COMMITMENTS AND CONTINGENCIES:
 
  LITIGATION
 
     The Company is involved in legal actions arising in the ordinary course of
business. Management does not believe that the outcome of such legal action 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 general
and business auto liability, commercial property, workers' compensation and a
general umbrella policy. The Company has not incurred significant claims or
losses on any of its insurance policies.
 
  GUARANTEES
 
     The Company's former shareholder is required to make seven annual payments
of $75,000 each under a lawsuit settlement. The Company's former shareholder is
also required under this settlement to make four annual payments of $20,000
each, beginning in 2003. The Company has guaranteed these settlement payments.
 
12.  EVENTS SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
     (UNAUDITED):
 
     In June 1996, the Company and its shareholder entered into a definitive
agreement with ARS, providing for the acquisition of the Company by ARS.
Additionally, on May 28, 1996, the Company completed its acquisition of ADCOT.
 
                                      F-51

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Florida Heating and Air Conditioning, Inc.:
 
     We have audited the accompanying combined balance sheet of Florida Heating
and Air Conditioning, Inc. (a Florida corporation), and related companies as of
December 31, 1995, and the related combined statements of operations,
shareholders' equity and cash flows for the year then ended. 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 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 combined financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the combined 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 combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Florida
Heating and Air Conditioning, Inc., and related companies as of December 31,
1995, and the combined results of their operations and their cash flows for the
year then ended in conformity with generally accepted accounting principles.
 
ARTHUR ANDERSEN LLP
 
Houston, Texas
May 24, 1996

                                      F-52
 
                  FLORIDA HEATING AND AIR CONDITIONING, INC.,
                             AND RELATED COMPANIES
                            COMBINED BALANCE SHEETS

                                        DECEMBER 31,     MARCH 31,
                                            1995           1996
                                        ------------    -----------
                                                        (UNAUDITED)
               ASSETS
                                                  
CURRENT ASSETS:
     Cash and cash equivalents.......    $1,022,154     $   421,590
     Accounts receivable --
          Trade, net of allowance of
             $41,305 and $41,305.....     1,394,895       1,426,487
          Other receivables..........       444,680         324,257
     Inventories.....................       306,523         346,608
     Prepaid expenses and other
      current assets.................        52,992         112,086
                                        ------------    -----------
               Total current
                   assets............     3,221,244       2,631,028
PROPERTY AND EQUIPMENT, net..........       495,110         626,144
OTHER NONCURRENT ASSETS..............        38,509          38,421
                                        ------------    -----------
               Total assets..........    $3,754,863     $ 3,295,593
                                        ============    ===========
 
LIABILITIES AND SHAREHOLDERS' EQUITY
                                                  
CURRENT LIABILITIES:
     Current maturities of long-term
      debt...........................    $  100,166     $   232,366
     Accounts payable and accrued
      expenses.......................     1,626,569       1,511,732
     Payable to shareholder..........       641,804          80,804
     Billings in excess of costs and
      estimated earnings on
      uncompleted contracts..........       367,519         345,673
     Deferred income taxes...........       287,454         287,454
                                        ------------    -----------
               Total current
                   liabilities.......     3,023,512       2,458,029
LONG-TERM DEBT, net of current
  maturities.........................        18,017         --
DEFERRED INCOME TAXES................        42,339          42,339
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
     Common stock....................         8,850           8,850
     Additional paid-in capital......         4,000           4,000
     Retained earnings...............       658,145         782,375
                                        ------------    -----------
               Total shareholders'
                   equity............       670,995         795,225
                                        ------------    -----------
               Total liabilities and
                   shareholders'
                   equity............    $3,754,863     $ 3,295,593
                                        ============    ===========
 
    The accompanying notes are an integral part of these combined financial
                                  statements.
 
                                      F-53
 
                  FLORIDA HEATING AND AIR CONDITIONING, INC.,
                             AND RELATED COMPANIES
                       COMBINED STATEMENTS OF OPERATIONS
 

                                                         THREE MONTHS ENDED
                                       YEAR ENDED             MARCH 31
                                      DECEMBER 31,   --------------------------
                                          1995           1995          1996
                                      ------------   ------------  ------------
                                                            (UNAUDITED)
                                                          
 
REVENUES............................. $ 14,510,455   $  3,919,169  $  3,658,439
 
COST OF SERVICES.....................   10,541,122      2,990,025     2,674,081
                                      ------------   ------------  ------------
     Gross profit....................    3,969,333        929,144       984,358
 
SELLING, GENERAL AND ADMINISTRATIVE
  EXPENSES...........................    3,738,253        894,415       837,485
                                      ------------   ------------  ------------
     Income from operations..........      231,080         34,729       146,873
 
OTHER INCOME (EXPENSE):
 
     Interest expense................      (11,743)        (1,275)       (7,534)
 
     Other...........................       (8,238)           258            94
                                      ------------   ------------  ------------
INCOME BEFORE INCOME TAXES...........      211,099         33,712       139,433
 
PROVISION FOR INCOME TAXES...........       13,966          2,225         9,203
                                      ------------   ------------  ------------
NET INCOME........................... $    197,133   $     31,487  $    130,230
                                      ============   ============  ============

    The accompanying notes are an integral part of these combined financial
                                  statements.
 
                                      F-54
 
                  FLORIDA HEATING AND AIR CONDITIONING, INC.,
                             AND RELATED COMPANIES
                  COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
COMMON STOCK      ADDITIONAL                     TOTAL
                                        ----------------     PAID-IN      RETAINED     SHAREHOLDERS'
                                        SHARES    AMOUNT     CAPITAL      EARNINGS         EQUITY
                                        ------    ------    ----------    ---------    --------------
BALANCE, December 31, 1994...........    1,700    $8,850      $4,000      $ 467,012       $479,862
     Dividend........................     --        --         --            (6,000)        (6,000)
     Net income......................     --        --         --           197,133        197,133
                                        ------    ------    ----------    ---------    --------------
BALANCE, December 31, 1995...........    1,700     8,850       4,000        658,145        670,995
     Dividend (unaudited)............     --        --         --            (6,000)        (6,000)
     Net income (unaudited)..........     --        --         --           130,230        130,230
                                        ------    ------    ----------    ---------    --------------
BALANCE, March 31, 1996
  (unaudited)........................    1,700    $8,850      $4,000      $ 782,375       $795,225
                                        ======    ======    ==========    =========    ==============
The accompanying notes are an integral part of these combined financial
                                  statements.
 
                                      F-55
 
                  FLORIDA HEATING AND AIR CONDITIONING, INC.,
                             AND RELATED COMPANIES
                       COMBINED STATEMENTS OF CASH FLOWS

                                                         THREE MONTHS ENDED
                                       YEAR ENDED             MARCH 31
                                      DECEMBER 31,   --------------------------
                                          1995           1995          1996
                                      ------------   ------------  ------------
                                                            (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income.........................  $  197,133    $     31,487  $    130,230
  Adjustments to reconcile net income
     to net cash provided by (used
     in) operating activities --
     Depreciation and amortization...     195,662          45,393        45,804
     Deferred income taxes...........       5,756         --            --
     Gain on sale of property and
       equipment.....................     (12,303)         (4,819)       (4,117)
     Changes in operating assets and
       liabilities --
     (Increase) decrease in --
       Accounts receivable...........     (45,342)         60,456        88,831
       Inventories...................     (37,228)        (32,636)      (40,085)
       Prepaid expenses and other
          current assets.............       8,064          (5,168)      (59,094)
       Other noncurrent assets.......     (10,613)        (51,906)           88
     Increase (decrease) in --
       Accounts payable and accrued
          expenses...................     330,097         105,815      (114,837)
       Billings in excess of costs
          and estimated earnings on
          uncompleted contracts......    (140,690)       (195,999)      (21,846)
                                      ------------   ------------  ------------
     Net cash provided by (used in)
       operating activities..........     490,536         (47,377)       24,974
                                      ------------   ------------  ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Proceeds from sale of property and
     equipment.......................      16,704           8,494         7,499
  Additions of property and
     equipment.......................    (236,209)       (178,901)     (180,220)
                                      ------------   ------------  ------------
     Net cash used in investing
       activities....................    (219,505)       (170,407)     (172,721)
                                      ------------   ------------  ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Increase (decrease) in payable to
     shareholders....................       1,357        (248,000)     (561,000)
  Borrowings of long-term debt.......     185,511         162,080       157,240
  Principal payments of long-term
     debt............................    (165,494)        (54,193)      (43,057)
  Dividends..........................      (6,000)        --             (6,000)
                                      ------------   ------------  ------------
     Net cash provided by (used in)
       financing activities..........      15,374        (140,113)     (452,817)
                                      ------------   ------------  ------------
NET INCREASE (DECREASE) IN CASH AND
  CASH EQUIVALENTS...................     286,405        (357,897)     (600,564)
CASH AND CASH EQUIVALENTS, beginning
  of period..........................     735,749         735,749     1,022,154
                                      ------------   ------------  ------------
CASH AND CASH EQUIVALENTS, end of
  period.............................  $1,022,154    $    377,852  $    421,590
                                      ============   ============  ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
  INFORMATION:
  Cash paid for --
     Interest........................  $   11,743    $      1,275  $      7,534
     Income taxes....................  $  --         $    --       $      2,279
 
    The accompanying notes are an integral part of these combined financial
                                  statements.
 
                                      F-56
 
                  FLORIDA HEATING AND AIR CONDITIONING, INC.,
                             AND RELATED COMPANIES
                     NOTES TO COMBINED FINANCIAL STATEMENTS
 
1.  BUSINESS AND ORGANIZATION:
 
     Florida Heating and Air Conditioning, Inc. (a Florida corporation) and its
three affiliated companies (collectively, the Company), are primarily engaged in
the installation and maintenance, repair and replacement of air conditioning and
heating systems in new and preexisting residential and commercial buildings in
Southeast Florida.
 
     The Company and its shareholders intend to enter into a definitive
agreement with American Residential Services, Inc. (ARS), pursuant to which all
outstanding shares of the Company's common stock will be exchanged for cash and
shares of ARS's common stock concurrent with the consummation of the initial
public offering (the Offering) of the common stock of ARS.
 
2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
 
  BASIS OF PRESENTATION
 
     The combined financial statements include the accounts and results of
operations of Florida Heating and Air Conditioning, Inc., and its affiliated
companies (see Note 11) which are under common control and management of two
individuals. All significant intercompany transactions and balances have been
eliminated in combination.
 
  INTERIM FINANCIAL INFORMATION
 
     The interim combined financial statements as of March 31, 1996, and for the
three months ended March 31, 1995 and 1996, are unaudited, and certain
information and footnote disclosures, normally included in financial statements
prepared in accordance with generally accepted accounting principles, have been
omitted. In the opinion of management, all adjustments, consisting only of
normal recurring adjustments, necessary to fairly present the financial
position, results of operations and cash flows with respect to the interim
combined financial statements, have been included. The results of operations for
the interim periods are not necessarily indicative of the results for the entire
fiscal year.
 
  INVENTORIES
 
     Inventories consist of duct materials, air conditioning equipment,
refrigeration supplies and accessories 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 lesser of the life
of the lease or the estimated useful life of the asset.
 
     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 the services are performed except when
work is being performed under a construction contract. Revenues on residential
and commercial service and maintenance contracts are recorded and collected
monthly.
 
                                      F-57
 
       FLORIDA HEATING AND AIR CONDITIONING, INC., AND RELATED COMPANIES
             NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
 
     Revenues from construction contracts are recognized on the
percentage-of-completion method measured by the percentage of costs incurred to
total estimated costs for each contract. 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
are recognized in the period in which the revisions are determined.
 
  WARRANTY COSTS
 
     The Company warrants labor for the first year after installation on new air
conditioning and heating units. The Company generally warrants labor for 30 days
after servicing of existing air conditioning and heating units. A reserve for
warranty costs is recorded upon completion of installation or service.
 
  INCOME TAXES
 
     The Company follows the liability method of accounting for income taxes in
accordance with Statement of Financial Accounting Standards (SFAS) No. 109.
Under this method, deferred income taxes are recorded based upon differences
between the financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
underlying assets or liabilities are recovered or settled.
 
     Certain of the companies in the affiliated group have elected S Corporation
status as defined by the Internal Revenue Code, whereby the Company is not
subject to taxation for federal purposes. Under S Corporation status, the
shareholders report their share of the Company's taxable earnings or losses in
their personal tax returns.
 
  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 assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
 
  CASH AND CASH EQUIVALENTS
 
     The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.
 
  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, and intangible 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 is
compared to the asset's carrying amount to determine if a write-down to market
value or discounted cash flow value was necessary. Adoption of this standard did
not have a material effect on the financial position or results of operations of
the Company.
 
                                      F-58
 
       FLORIDA HEATING AND AIR CONDITIONING, INC., AND RELATED COMPANIES
             NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
 
3.  PROPERTY AND EQUIPMENT:
 
     Property and equipment consist of the following:
 
                                         ESTIMATED
                                        USEFUL LIVES    DECEMBER 31,
                                          IN YEARS          1995
                                        ------------    ------------
Transportation equipment.............       5            $1,051,880
                                                  
Machinery and equipment..............       7               115,774
Computer and telephone equipment.....     5 - 7             354,674
Leasehold improvements...............       7                57,151
Furniture and fixtures...............       7                39,308
                                                        ------------
                                                          1,618,787
Less -- Accumulated depreciation and
  amortization.......................                     1,123,677
                                                        ------------
               Property and
                  equipment, net.....                    $  495,110
                                                        ============
 
4.  DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
 
     Activity in the Company's allowance for doubtful accounts consist of the
following:
                                        DECEMBER 31,
                                            1995
                                        ------------
                                     
Balance at beginning of year.........     $ 41,305
Additions to costs and expenses......       25,038
Deductions for uncollectible
  receivables written off............      (25,038)
                                        ------------
                                          $ 41,305
                                        ============
 
     Accounts payable and accrued expenses consist of the following:
 
                                        DECEMBER 31,
                                            1995
                                        ------------
Accounts payable, trade..............    $1,283,034
                                     
Accrued compensation and benefits....       198,175
Other accrued expenses...............       145,360
                                        ------------
                                         $1,626,569
                                        ============
 
     Installation contracts in progress are as follows:

                                        DECEMBER 31,
                                            1995
                                        ------------
Costs incurred on contracts in
  progress...........................    $  985,003
                                     
Estimated earnings, net of losses....       351,711
                                        ------------
                                          1,336,714
Less -- Billings to date.............     1,704,233
                                        ------------
Billings in excess of costs and
  estimated earnings on uncompleted
  contracts..........................    $ (367,519)
                                        ============
 
5.  LONG-TERM DEBT:
 
     Long-term debt consists of installment notes payable for transportation
equipment. The debt is secured by the related transportation equipment. The
terms of the notes range from 24 months to 36 months with monthly payments of
principal and interest of approximately $10,500. The notes bear interest at
rates ranging from 7 percent to 9 percent.
 
                                      F-59
 
       FLORIDA HEATING AND AIR CONDITIONING, INC., AND RELATED COMPANIES
             NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
 
     The aggregate maturities of long-term debt as of December 31, 1995, are as
follows:
                                    
Year ending December 31 --
     1996............................  $  100,166
     1997............................      18,017
                                       ----------
                                       $  118,183
                                       ==========
 
     Management estimates that the fair value of its debt obligations
approximates the historical value of $118,183 at December 31, 1995.
 
     The Company has a $200,000 line of credit with a financial services
company. The line of credit expires August 31, 1996, and bears interest at prime
plus 1 percent per annum. The line of credit is secured by a lien on accounts
receivable and inventory and is guaranteed by the shareholders. There was no
balance outstanding under this line of credit at December 31, 1995.
 
6.  LEASES:
 
     The Company leases facilities from a company which is owned by the
shareholders. The lease expires in 2000 and provides for rents increasing at 5
percent per year. The rent paid under this related-party lease was approximately
$198,000 for the year ended December 31, 1995. The Company also leases a
facility from a third party, which expires in 1997. The rent paid under this
lease was approximately $15,000 for the year ended December 31, 1995. The leases
provide for the Company to pay taxes, maintenance, insurance and certain other
operating costs of the leased property. The leases contain renewal provisions.
 
     The Company leases vehicles for a shareholder and affiliates. The lease
payments under these vehicle leases was approximately $45,000 for the year ended
December 31, 1995.
 
     Future minimum lease payments for operating leases are as follows:
                                    
Year ending December 31 --
     1996............................  $   234,897
     1997............................      204,438
     1998............................      184,252
     1999............................      193,465
     2000............................       82,242
                                       -----------
                                       $   899,294
                                       ===========
 
                                      F-60
 
       FLORIDA HEATING AND AIR CONDITIONING, INC., AND RELATED COMPANIES
             NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
 
7.  INCOME TAXES:
 
     The S Corporation in the affiliated group will terminate its S Corporation
status concurrent with the effective date of the Offering. The Company is
subject to taxation in certain states based upon the jurisdiction in which
revenues are earned.
 
     Federal and state income taxes are as follows:
 
                                         YEAR ENDED
                                        DECEMBER 31,
                                            1995
                                        ------------
Federal --
                                     
     Current.........................     $  6,733
     Deferred........................        4,915
State --
     Current.........................        1,477
     Deferred........................          841
                                        ------------
                                          $ 13,966
                                        ============
 
     Actual income tax expense differs from income tax expense computed by
applying the U.S. federal statutory corporate tax rate of 34 percent to income
before income taxes as follows:
 
                                         YEAR ENDED
                                        DECEMBER 31,
                                            1995
                                        ------------
Provision at the statutory rate......     $ 71,774
                                     
Increase (decrease) resulting from --
     Income of S Corporation.........      (59,557)
     State income tax, net of benefit
       for federal deduction.........        1,398
     Other...........................          351
                                        ------------
                                          $ 13,966
                                        ============
 
     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:

                                        DECEMBER 31, 1995
                                        -----------------
                                     
Loss from limited partnership
  investment.........................       $ 230,844
Cash to accrual adjustment...........         136,674
Other................................         (37,725)
                                        -----------------
Net deferred income tax
liabilities..........................       $ 329,793
                                        =================
 
                                      F-61
 
       FLORIDA HEATING AND AIR CONDITIONING, INC., AND RELATED COMPANIES
             NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
 
     The net deferred tax assets and liabilities are comprised of the following:
 
                                        DECEMBER 31, 1995
                                        -----------------
Deferred tax assets --
     Current.........................       $  11,972
     Long-term.......................          25,998
                                        -----------------
          Total......................          37,970
Deferred tax liabilities --
     Current.........................         299,426
     Long-term.......................          68,337
                                        -----------------
          Total......................         367,763
                                        -----------------
          Net deferred income tax
             liabilities.............       $ 329,793
                                        =================
 
8.  RELATED-PARTY TRANSACTIONS:
 
     One of the shareholders loans the Company funds as needed. The loans are
payable on demand and, under certain conditions, bear interest at prime plus 1
percent. The amount payable to the shareholder is $641,804 at December 31, 1995.
No interest was incurred or paid during the year ended December 31, 1995,
related to these loans.
 
9.  COMMITMENTS AND CONTINGENCIES:
 
  LITIGATION
 
     The Company is involved in legal actions arising in the ordinary course of
business. Management does not believe the outcome of such legal action will have
a material adverse effect on the Company's financial position or combined
results of operations.

  INSURANCE

     The Company carries a broad range of insurance coverage, including general
and business auto liability, commercial property, workers' compensation and a
general umbrella policy. The Company has not incurred significant claims or
losses on any of its insurance policies.

10.  SALES TO SIGNIFICANT CUSTOMER:

     During 1995, one customer accounted for approximately 14 percent of the
Company's sales.

11.  SHAREHOLDERS' EQUITY:

     The common stock ownership of the corporate entities is as follows:

                                          SHARES         SHARES        PAR
                                        AUTHORIZED     OUTSTANDING    VALUE
                                        -----------    -----------    ------
Florida Heating and Air Conditioning,
  Inc. ..............................       1,000           800       $10.00
Florida Heating and Air Conditioning
  Service, Inc. .....................         600           600         1.00
Florida Heating and Air Duct, Inc....      10,000           100          .50
Bullseye Air Conditioning, Inc. .....         600           200         1.00

12.  EVENTS SUBSEQUENT TO DATE OF AUDITORS' REPORT OF
     INDEPENDENT PUBLIC ACCOUNTANTS (UNAUDITED):

     In June 1996, the Company and its shareholders entered into a definitive
agreement with ARS, providing for the acquisition of the Company by ARS.

     Concurrent with the acquisition, the Company will enter into agreements
with the shareholders to lease land and buildings used in the Company's
operations for a negotiated amount and term.

                                      F-62

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To DIAL ONE Meridian and Hoosier, Inc.:

     We have audited the accompanying balance sheets of DIAL ONE Meridian and
Hoosier, Inc. (an Indiana corporation), as of December 31, 1994 and 1995, and
the related statements of operations, shareholder's equity and cash flows 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.

     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 DIAL ONE Meridian and
Hoosier, Inc., as of December 31, 1994 and 1995, 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
May 24, 1996

                                      F-63

                      DIAL ONE MERIDIAN AND HOOSIER, INC.
                                 BALANCE SHEETS

                                              DECEMBER 31
                                       --------------------------    MARCH 31,
                                           1994          1995          1996
                                       ------------  ------------   -----------
                                                                    (UNAUDITED)
               ASSETS
CURRENT ASSETS:
  Cash and cash equivalents..........  $    427,005  $    856,754   $   957,275
  Investments........................       150,000       --            --
  Accounts receivable --
     Trade, net of allowance of
       $41,595, $54,050 and
       $59,725.......................       869,316       989,963     1,035,645
     Shareholder and affiliates......         6,316        14,261        21,487
     Other receivables...............        19,098        26,459       --
  Inventories........................       345,934       249,773       322,995
  Prepaid expenses and other current
     assets..........................        72,239        96,545        81,441
  Costs and estimated earnings in
     excess of billings on
     uncompleted contracts...........        42,717        16,825        18,778
                                       ------------  ------------   -----------
          Total current assets.......     1,932,625     2,250,580     2,437,621
PROPERTY AND EQUIPMENT, net..........       829,316       919,238     1,563,545
OTHER NONCURRENT ASSETS..............        28,567        18,819       145,332
                                       ------------  ------------   -----------
          Total assets...............  $  2,790,508  $  3,188,637   $ 4,146,498
                                       ============  ============   ===========
       LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES:
  Current maturities of long-term
     debt............................  $    262,046  $    266,830   $   275,358
  Accounts payable and accrued
     expenses........................       488,197       638,224       654,091
  Unearned revenue on service
     contracts.......................       353,045       423,259       406,612
  Billings in excess of costs and
     estimated earnings on
     uncompleted contracts...........        78,049        32,131       112,691
                                       ------------  ------------   -----------
          Total current
             liabilities.............     1,181,337     1,360,444     1,448,752
LONG-TERM DEBT, net of current
  maturities.........................       610,180       544,483     1,334,898
DEFERRED INCOME TAXES................       --             13,309        18,517
OTHER NONCURRENT LIABILITIES.........       --            --             73,909
COMMITMENTS AND CONTINGENCIES
SHAREHOLDER'S EQUITY:
  Common stock, no par value; 1,000
     shares authorized,
     598 shares issued and 588
     outstanding.....................         7,201         7,201         7,201
  Additional paid-in capital.........        35,000        35,000        35,000
  Retained earnings..................       956,890     1,228,300     1,228,321
  Treasury stock, 10 shares at
     cost............................          (100)         (100)         (100)
                                       ------------  ------------   -----------
          Total shareholder's
             equity..................       998,991     1,270,401     1,270,422
                                       ------------  ------------   -----------
          Total liabilities and
             shareholder's equity....  $  2,790,508  $  3,188,637   $ 4,146,498
                                       ============  ============   ===========

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

                                      F-64

                      DIAL ONE MERIDIAN AND HOOSIER, INC.
                            STATEMENTS OF OPERATIONS
YEAR ENDED                  THREE MONTHS
                                               DECEMBER 31                 ENDED MARCH 31
                                       ----------------------------  --------------------------
                                           1994           1995           1995          1996
                                       ------------  --------------  ------------  ------------
                                                                            (UNAUDITED)
REVENUES.............................  $  8,066,155  $   10,132,706  $  1,958,498  $  2,638,043
COST OF SERVICES.....................     5,797,066       7,280,888     1,421,980     1,767,046
                                       ------------  --------------  ------------  ------------
          Gross profit...............     2,269,089       2,851,818       536,518       870,997
SELLING, GENERAL AND ADMINISTRATIVE
  EXPENSES...........................     1,988,791       2,349,482       511,719       854,416
                                       ------------  --------------  ------------  ------------
          Income from operations.....       280,298         502,336        24,799        16,581
OTHER INCOME (EXPENSE):
     Interest income.................         8,517          23,399       --              8,637
     Interest expense................       (56,585)        (86,097)      (21,818)      (28,500)
     Other...........................        36,817          10,259        12,732         3,318
                                       ------------  --------------  ------------  ------------
INCOME BEFORE INCOME TAXES...........       269,047         449,897        15,713            36
PROVISION FOR INCOME TAXES...........       110,365         178,487         5,793            15
                                       ------------  --------------  ------------  ------------
NET INCOME...........................  $    158,682  $      271,410  $      9,920  $         21
                                       ============  ==============  ============  ============
The accompanying notes are an integral part of these financial statements.
 
                                      F-65
 
                      DIAL ONE MERIDIAN AND HOOSIER, INC.
                       STATEMENTS OF SHAREHOLDER'S EQUITY
COMMON STOCK      ADDITIONAL                                  TOTAL
                                        ----------------     PAID-IN       RETAINED     TREASURY    SHAREHOLDER'S
                                        SHARES    AMOUNT     CAPITAL       EARNINGS      STOCK          EQUITY
                                        ------    ------    ----------    ----------    --------    --------------
BALANCE, December 31, 1993...........     588     $7,201     $ 35,000     $  798,208     $ (100)      $  840,309

     Net income......................    --         --         --            158,682      --             158,682
                                        ------    ------    ----------    ----------    --------    --------------
BALANCE, December 31, 1994...........     588      7,201       35,000        956,890       (100)         998,991
     Net income......................    --         --         --            271,410      --             271,410
                                        ------    ------    ----------    ----------    --------    --------------
BALANCE, December 31, 1995...........     588      7,201       35,000      1,228,300       (100)       1,270,401
     Net income (unaudited)..........    --         --         --                 21      --                  21
                                        ------    ------    ----------    ----------    --------    --------------
BALANCE, March 31, 1996
  (unaudited)........................     588     $7,201     $ 35,000     $1,228,321     $ (100)      $1,270,422
                                        ======    ======    ==========    ==========    ========    ==============
The accompanying notes are an integral part of these financial statements.

                                      F-66

                      DIAL ONE MERIDIAN AND HOOSIER, INC.
                            STATEMENTS OF CASH FLOWS
YEAR ENDED                THREE MONTHS
                                              DECEMBER 31               ENDED MARCH 31
                                       --------------------------  ------------------------
                                           1994          1995         1995         1996
                                       ------------  ------------  ----------  ------------
                                                                         (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income.........................  $    158,682  $    271,410  $    9,920  $         21
  Adjustments to reconcile net income
     to net cash provided by
     operating activities --
     Depreciation and amortization...       205,310       245,028      61,070        70,870
     Deferred income taxes
       (benefit).....................       108,303        45,302      --           (45,800)
     Changes in operating assets and
       liabilities --
       (Increase) decrease in --
          Accounts receivables.......      (183,259)     (128,008)    (25,367)      131,261
          Inventories................      (129,922)       96,161      48,989        34,066
          Prepaid expenses and other
             current assets..........       (14,768)      (29,873)    (16,122)       37,918
          Costs and estimated
             earnings in excess of
             billings on uncompleted
             contracts...............        29,530        25,892      42,717        17,721
          Other noncurrent assets....         2,606       (16,678)     (5,397)      (62,643)
       Increase (decrease) in --
          Accounts payable and
             accrued expenses........        86,294       150,027     (74,932)     (131,315)
          Unearned revenue on service
             contracts...............        60,469        70,214      (7,854)      (16,647)
          Billings in excess of costs
             and estimated earnings
             on uncompleted
             contracts...............        27,852       (45,918)     18,752        18,292
          Other noncurrent
             liabilities.............       --            --           --            73,909
                                       ------------  ------------  ----------  ------------
       Net cash provided by operating
          activities.................       351,097       683,557      51,776       127,653
                                       ------------  ------------  ----------  ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
     Additions of property and
       equipment.....................      (318,444)     (334,950)    (59,008)     (534,680)
     Purchase of investment..........      (150,000)      --           --           --
     Proceeds from sale of
       investment....................       --            150,000      --           --
     Cash paid for acquisition, net
       of cash acquired..............       --            --           --          (259,533)
                                       ------------  ------------  ----------  ------------
       Net cash used in investing
          activities.................      (468,444)     (184,950)    (59,008)     (794,213)
                                       ------------  ------------  ----------  ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
     Borrowings of long-term debt....       451,815       200,639      17,783       849,273
     Principal payments of long-term
       debt..........................      (183,134)     (261,552)    (65,686)      (74,966)
     (Advances) payments of
       receivable from shareholder
       and affiliates................        17,940        (7,945)       (184)       (7,226)
                                       ------------  ------------  ----------  ------------
       Net cash provided by (used in)
          financing activities.......       286,621       (68,858)    (48,087)      767,081
                                       ------------  ------------  ----------  ------------
NET INCREASE (DECREASE) IN CASH AND
  CASH EQUIVALENTS...................       169,274       429,749     (55,319)      100,521
CASH AND CASH EQUIVALENTS, beginning
  of period..........................       257,731       427,005     427,005       856,754
                                       ------------  ------------  ----------  ------------
CASH AND CASH EQUIVALENTS, end of
  period.............................  $    427,005  $    856,754  $  371,686  $    957,275
                                       ============  ============  ==========  ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
  INFORMATION:
     Cash paid for --
          Interest...................  $     56,585  $     86,097  $   21,818  $     28,500
          Income taxes...............  $     20,000  $    126,137  $   --      $     32,167
The accompanying notes are an integral part of these financial statements.

                                      F-67

                      DIAL ONE MERIDIAN AND HOOSIER, INC.
                         NOTES TO FINANCIAL STATEMENTS

1.  BUSINESS AND ORGANIZATION:

     DIAL ONE Meridian and Hoosier, Inc., (an Indiana corporation) (the
Company), is primarily engaged in the installation and maintenance, repair and
replacement of residential and commercial air conditioning and heating systems
in Indianapolis and the surrounding areas.

     The Company and its shareholder intend to enter into a definitive agreement
with American Residential Services, Inc. (ARS), pursuant to which all
outstanding shares of the Company's common stock will be exchanged for cash and
shares of ARS's common stock concurrent with the consummation of the initial
public offering (the Offering) of the common stock of ARS.

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

  INTERIM FINANCIAL INFORMATION

     The interim financial statements as of March 31, 1996, and for the three
months ended March 31, 1995 and 1996, are unaudited, and certain information and
footnote disclosures, normally included in financial statements prepared in
accordance with generally accepted accounting principles, have been omitted. In
the opinion of management, all adjustments, consisting only of normal recurring
adjustments, necessary to fairly present the financial position, results of
operations and cash flows with respect to the interim financial statements, have
been included. The results of operations for the interim periods are not
necessarily indicative of the results for the entire fiscal year.

  INVENTORIES

     Inventories consist of parts and supplies for use in the ordinary course of
business and are valued 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.

     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.

     Included in property and equipment are certain assets subject to capital
leases. These assets are amortized using the straight-line method over the
lesser of the life of the leases or the estimated useful life of the asset.

  REVENUE RECOGNITION

     The Company recognizes revenue when the services are performed except when
work is being performed under a construction contract. Revenues on residential
and commercial service and maintenance contracts are recorded and collected
monthly.

     Revenues from construction contracts are recognized on the
percentage-of-completion method measured by the percentage of costs incurred to
total estimated costs for each contract. 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
are recognized in the period in which the revisions are determined.

                                      F-68

                      DIAL ONE MERIDIAN AND HOOSIER, INC.
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

  WARRANTY COSTS

     The Company warrants labor for one or five years after installation on new
air conditioning and heating units. The Company generally warrants labor for 30
days after servicing of existing air conditioning and heating units. A reserve
for warranty costs is recorded upon completion of installation or service.

  INCOME TAXES

     The Company follows the liability method of accounting for income taxes in
accordance with Statement of Financial Accounting Standards (SFAS) No. 109.
Under this method, deferred income taxes are recorded based upon differences
between the financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
underlying assets or liabilities are received or settled.

  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 assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

  CASH AND CASH EQUIVALENTS

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

  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, and intangible 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 is
compared to the asset's carrying amount to determine if a write-down to market
value or discounted cash flow value was necessary. 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 consist of the following:

                                       ESTIMATED            DECEMBER 31
                                      USEFUL LIVES   --------------------------
                                        IN YEARS         1994          1995
                                      ------------   ------------  ------------

Land and building....................      30        $    145,920  $    183,320
Leasehold improvements...............      10             191,823       212,461
Transportation equipment.............    3 - 4            827,628       950,262
Machinery and equipment..............      7              162,243       165,367
Furniture and fixtures...............      5              280,527       369,956
Telephone equipment..................    7 - 10            47,291       109,016
                                                     ------------  ------------
                                                        1,655,432     1,990,382
Less -- Accumulated depreciation and
amortization.........................                     826,116     1,071,144
                                                     ------------  ------------
          Property and equipment,
             net.....................                $    829,316  $    919,238
                                                     ============  ============

                                      F-69

                      DIAL ONE MERIDIAN AND HOOSIER, INC.
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

4.  DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:

     Activity in the Company's allowance for doubtful accounts consist of the
following:
                                                               DECEMBER 31
                                                           --------------------
                                                             1994        1995
                                                           --------    --------

Balance at beginning of year............................... $13,609     $41,595
Additions charged to costs and expenses....................  43,451      32,071
Deductions for uncollectible receivables written off....... (15,465)    (19,616)
                                                           --------    --------
                                                            $41,595     $54,050
                                                           ========    ========

     Accounts payable and accrued expenses consist of the following:

                                                               DECEMBER 31
                                                           --------------------
                                                             1994        1995
                                                          ---------   ---------
Accounts payable, trade..............................     $ 128,155   $ 185,409
Accrued compensation and benefits....................       228,886     254,393
Warranty accrual.....................................        60,754      79,102
Other accrued expenses...............................        70,402     119,320
                                                          ---------   ---------
                                                          $ 488,197   $ 638,224
                                                          =========   =========

     Installation contracts in progress are as follows:

                                                               DECEMBER 31
                                                           --------------------
                                                             1994        1995
                                                          ---------   ---------
Costs incurred on contracts in progress................  $  195,350  $  243,727
Estimated earnings, net of losses......................      93,439      96,263
                                                          ---------   ---------
                                                            288,789     339,990
Less -- Billings to date...............................     324,121     355,296
                                                          ---------   ---------
                                                         $  (35,332) $  (15,306)
                                                          =========   =========

     The following are included in the accompanying balance sheets under the
following captions:

                                                               DECEMBER 31
                                                           --------------------
                                                             1994        1995
                                                          ---------   ---------
Costs and estimated earnings in excess of billings
  on uncompleted contracts..........................     $   42,717  $   16,825
Billings in excess of costs and estimated earnings
  on uncompleted contracts..........................        (78,049)    (32,131)
                                                         ----------  ----------
                                                         $  (35,332) $  (15,306)
                                                         ==========  ==========

                                      F-70

                      DIAL ONE MERIDIAN AND HOOSIER, INC.
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

5.  LONG-TERM DEBT AND CAPITAL LEASES:

Long-term debt and capital leases consists of the following:

                                                               DECEMBER 31
                                                         ----------------------
                                                            1994        1995
                                                         ----------  ----------
Note payable, due in monthly installments of
  $4,167 plus interest at prime plus 1.25%
  (9.75% at December 31, 1995) and secured by
  accounts receivable, inventory and equipment,
  matures November 30, 1999............................  $  245,837  $  195,833
Land contract, maturing in November 2003, due in
  monthly installments of $1,456 including interest
  at 8%, collateralized with the related property deed
  held in escrow.......................................     111,123     102,238
Note payable, due in monthly installments of $2,500
  plus interest at prime plus 1.25% and secured by
  accounts receivable, inventory and equipment, matures
  July 31, 1998........................................     107,500      77,500
Capital leases, maturing from 1996 to 2000, interest
  ranging from 8.94% to 10%, secured by transportation
  equipment............................................     403,057     420,536
Other..................................................       4,709      15,206
                                                         ----------  ----------
                                                            872,226     811,313
Less -- Current maturities.............................     262,046     266,830
                                                         ----------  ----------
                                                         $  610,180  $  544,483
                                                         ==========  ==========

     The Company has a $250,000 bank line of credit expiring July 31, 1996, with
interest payable monthly at prime plus .75 percent. As of December 31, 1995,
there were no borrowings on this agreement. In addition, the Company has a
$100,000 bank lease line of credit expiring January 2, 2000, with interest at
8.94 percent payable monthly. As of December 31, 1995, borrowings on the lease
line were $23,214 and are included in capital leases.

     The notes payable contain covenants which require the Company to maintain
specified financial covenants. As of December 31, 1995, the Company was in
compliance with these covenants.

     The aggregate maturities of long-term debt as of December 31, 1995, are as
follows:

Year ending December 31 --
     1996............................  $   93,071
     1997............................      94,220
     1998............................      83,015
     1999............................      61,867
     2000............................      13,263
     Thereafter......................      45,341
                                       ----------
                                       $  390,777
                                       ==========

                                      F-71

                      DIAL ONE MERIDIAN AND HOOSIER, INC.
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

     The future minimum lease payments under capital leases are as follows:

Year ending December 31 --
     1996............................  $  219,291
     1997............................     159,026
     1998............................      95,352
     1999............................      23,855
     2000............................      --
                                       ----------
          Total minimum lease
             payments................     497,524
Less -- Amounts representing
interest.............................     (76,988)
                                       ----------
          Net minimum lease
             payments................     420,536
Less -- Current portion of
  obligations under capital leases...     173,759
                                       ----------
          Long-term portion of
             obligations under
             capital leases..........  $  246,777
                                       ==========

     Management estimates that the fair value of its debt obligations
approximates the historical value of $811,313 at December 31, 1995.

6.  LEASES:

     The Company leases a facility from its shareholder. The lease was renewed
on January 1, 1995, and expires on December 31, 1999. The lease requires monthly
payments of $7,500. The amount paid under this lease in 1994 and 1995 was
approximately $76,000 and $90,000, respectively.

7.  INCOME TAX:

     Federal and state income taxes are as follows:

                                             YEAR ENDED
                                            DECEMBER 31
                                       ----------------------
                                          1994        1995
                                       ----------  ----------
Federal --
     Current.........................  $   --      $   97,907
     Deferred........................      85,943      39,549
State --
     Current.........................       2,062      35,278
     Deferred........................      22,360       5,753
                                       ----------  ----------
                                       $  110,365  $  178,487
                                       ==========  ==========

     Actual income tax expense differs from income tax expense computed by
applying the U.S. federal statutory corporate tax rate of 34 percent to income
before income tax as follows:

Tax provision at the statutory
rate.................................  $   91,476  $  152,965
Increase (decrease) resulting from --
     State income taxes, net of
       related tax effect............      16,118      27,080
     Nondeductible expenses..........       3,080         321
     Other...........................        (309)     (1,879)
                                       ----------  ----------
                                       $  110,365  $  178,487
                                       ==========  ==========

                                      F-72

                      DIAL ONE MERIDIAN AND HOOSIER, 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 and liabilities result principally from the following:

                                            DECEMBER 31
                                       ----------------------
                                          1994        1995
                                       ----------  ----------
Depreciation and amortization........  $    4,675  $   13,859
Accruals and reserves not deductible
  until paid.........................     (50,724)    (43,433)
Other................................     (27,652)      1,175
                                       ----------  ----------
          Total deferred income tax
             assets..................  $  (73,701) $  (28,399)
                                       ==========  ==========

The net deferred tax assets and liabilities are comprised of the following:

                                            DECEMBER 31
                                       ----------------------
                                          1994        1995
                                       ----------  ----------
Deferred tax assets --
     Current.........................  $  (47,275) $  (41,708)
     Long-term.......................     (26,426)     --
                                       ----------  ----------
          Total......................     (73,701)    (41,708)
Deferred tax liabilities,
  long-term..........................      --          13,309
                                       ----------  ----------
          Net deferred income tax
             assets..................  $  (73,701) $  (28,399)
                                       ==========  ==========

8.  FRANCHISE AGREEMENTS:

     In October 1993, the Company renewed a four-year franchise agreement with
DIAL ONE of Central Indiana, Inc. (DIAL ONE), a company wholly owned by the
shareholder of the Company. The Company pays $15,000 annually plus a royalty fee
of 3 percent of gross sales in excess of a predefined base. Total amounts
incurred in 1994 and 1995 under this agreement were approximately $92,000 and
$56,000, respectively.

     The Company pays the LINC Corporation for consulting services under a
franchise agreement through its commercial division. Fees are based on a royalty
fee on gross revenues with a minimum payment of $15,000 a year. In 1994 and
1995, the Company incurred approximately $58,000 and $61,000, respectively,
under the terms of the agreement.

9.  EMPLOYEE BENEFIT PLANS:

     The Company has adopted a retirement plan which qualifies under Section
401(k) of the Internal Revenue Code. The plan provides for 50 percent matching
contributions by the Company for the first $200 of each participant's
contribution. The Company has the right to make additional discretionary
contributions. Total contributions by the Company under this plan were
approximately $64,000 and $86,000 for 1994 and 1995, respectively.

10.  RELATED-PARTY TRANSACTIONS:

     The Company is a DIAL ONE franchise (see Note 8) under an agreement with
DIAL ONE. The Company also shares certain costs with DIAL ONE for personnel and
overhead, which are billed monthly to DIAL ONE, based on that company's pro rata
share of those expenses. In 1995, the Company received $24,000 in rental income
from DIAL ONE for space occupied in the building that the Company owns. At
December 31, 1994 and 1995, the Company had a balance due from DIAL ONE of
approximately $6,000 and $14,000, respectively.

                                      F-73

                      DIAL ONE MERIDIAN AND HOOSIER, INC.
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

11.  COMMITMENTS AND CONTINGENCIES:

  LITIGATION

     The Company is involved in legal actions arising in the ordinary course of
business. Management does not believe that 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 general
and business auto liability, commercial property, workers' compensation and a
general umbrella policy. The Company has not incurred significant claims or
losses on any of its insurance policies.

12.  SUBSEQUENT EVENT:

     Effective January 1, 1996, the Company acquired 100 percent of the
outstanding shares of stock in Sagamore Heating & Cooling, Inc. (Sagamore) for
$281,000. Consideration paid by the Company included $100,000 in cash and a
$181,000 note payable to the former owner. The Company consolidated Sagamore
effective as of the date of acquisition.

13.  EVENTS SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
     (UNAUDITED):

     In June 1996, the Company and its shareholder entered into a definitive
agreement with ARS, providing for the acquisition of the Company by ARS.

     Concurrent with the acquisition, the Company will enter into agreements
with the shareholder to lease land and buildings used in the Company's
operations for a negotiated amount and term.

                                      F-74

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To ADCOT, Inc.:

     We have audited the accompanying balance sheets of ADCOT, Inc. (a Texas
corporation), as of December 31, 1994 and 1995, and the related statements of
operations, shareholder's deficit and cash flows 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.

     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 ADCOT, Inc., as of December
31, 1994 and 1995, 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
May 24, 1996 (except with respect to
  the matter discussed in Note 4, as to
  which the date is June 5, 1996)

                                      F-75

                                  ADCOT, INC.
                                 BALANCE SHEETS

                                               DECEMBER 31
                                       ----------------------------   MARCH 31,
                                            1994           1995          1996
                                       -------------   ------------  -----------
                                                                     (UNAUDITED)
               ASSETS
CURRENT ASSETS:
     Cash and cash equivalents.......  $     122,966  $    256,104  $    48,788
     Accounts receivable --
          Trade......................          3,132       --            28,113
          Shareholder and
             affiliates..............         10,476        11,968       10,725
     Inventories.....................        416,332       411,892      644,623
     Prepaid expenses and other
       current assets................        --              23,607       49,944
                                       -------------  ------------  -----------
               Total current
                  assets.............        552,906       703,571      782,193
PROPERTY AND EQUIPMENT, net..........        294,820       299,757      355,242
OTHER NONCURRENT ASSETS..............        --                 999       31,345
NET ASSETS OF DISCONTINUED
  OPERATIONS.........................         34,065       123,494      510,235
                                       -------------  ------------  -----------
               Total assets..........  $     881,791  $  1,127,821  $ 1,679,015
                                       =============  ============  ===========
LIABILITIES AND SHAREHOLDER'S DEFICIT
CURRENT LIABILITIES:
     Current maturities of long-term
       debt..........................  $      15,692  $     77,263  $    83,138
     Accounts payable and accrued
       expenses......................        770,780       754,768    1,447,989
     Payable to shareholders and
       affiliates....................        266,297       241,008       --
     Unearned revenue on extended
       warranty contracts, current...        375,668       351,514      317,881
                                       -------------  ------------  -----------
               Total current
                  liabilities........      1,428,437     1,424,553    1,849,008
LONG-TERM DEBT, net of current
  maturities.........................        --              96,277      142,789
UNEARNED REVENUE ON EXTENDED WARRANTY
  CONTRACTS, noncurrent..............        637,614       579,307      612,942
OTHER LONG-TERM LIABILITIES..........         39,014       --            --
COMMITMENTS AND CONTINGENCIES
SHAREHOLDER'S DEFICIT:
     Common stock, $1 par value;
       100,000 shares authorized,
       10,000 issued and
       outstanding...................         10,000        10,000       10,000
     Deficit.........................     (1,233,274)     (982,316)    (935,724)
                                       -------------  ------------  -----------
               Total shareholder's
                  deficit............     (1,223,274)     (972,316)    (925,724)
                                       -------------  ------------  -----------
               Total liabilities and
                  shareholder's
                  deficit............  $     881,791  $  1,127,821  $ 1,679,015
                                       =============  ============  ===========

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

                                      F-76

                                  ADCOT, INC.
                            STATEMENTS OF OPERATIONS
YEAR ENDED              THREE MONTHS ENDED
                                              DECEMBER 31                   MARCH 31
                                       --------------------------  --------------------------
                                           1994          1995          1995          1996
                                       ------------  ------------  ------------  ------------
                                                                          (UNAUDITED)
REVENUES.............................  $  8,675,616  $  8,707,403  $  1,704,276  $  2,022,260
COST OF SERVICES.....................     5,574,296     5,709,114     1,191,947     1,236,174
                                       ------------  ------------  ------------  ------------
     Gross profit....................     3,101,320     2,998,289       512,329       786,086
SELLING, GENERAL AND ADMINISTRATIVE
  EXPENSES...........................     2,443,678     2,347,954       508,333       582,837
                                       ------------  ------------  ------------  ------------
     Income from operations..........       657,642       650,335         3,996       203,249
OTHER INCOME (EXPENSE):
     Interest expense................       (36,224)      (83,754)       (6,591)       (9,207)
     Other...........................        24,430        65,530        15,908        19,241
                                       ------------  ------------  ------------  ------------
INCOME FROM CONTINUING OPERATIONS
  BEFORE STATE INCOME TAXES..........       645,848       632,111        13,313       213,283
PROVISION FOR STATE INCOME TAXES.....       --             43,165           660         3,558
                                       ------------  ------------  ------------  ------------
NET INCOME FROM CONTINUING
  OPERATIONS.........................       645,848       588,946        12,653       209,725
INCOME (LOSS) FROM DISCONTINUED
  OPERATIONS, net of applicable state
  income taxes.......................      (141,923)     (114,900)        3,207       (76,012)
                                       ------------  ------------  ------------  ------------
NET INCOME...........................  $    503,925  $    474,046  $     15,860  $    133,713
                                       ============  ============  ============  ============
The accompanying notes are an integral part of these financial statements.

                                      F-77

                                  ADCOT, INC.
                      STATEMENTS OF SHAREHOLDER'S DEFICIT
COMMON STOCK                             TOTAL
                                       --------------------                     SHAREHOLDER'S
                                        SHARES      AMOUNT       DEFICIT           DEFICIT
                                       ---------    -------   --------------    -------------
BALANCE, December 31, 1993...........     10,000    $10,000   $   (1,737,199)    $ (1,727,199)
     Net income......................     --          --             503,925          503,925
                                       ---------    -------   --------------    -------------
BALANCE, December 31, 1994...........     10,000     10,000       (1,233,274)      (1,223,274)
     Dividends.......................     --          --            (223,088)        (223,088)
     Net income......................     --          --             474,046          474,046
                                       ---------    -------   --------------    -------------
BALANCE, December 31, 1995...........     10,000     10,000         (982,316)        (972,316)
     Dividends (unaudited)...........     --          --             (87,121)         (87,121)
     Net income (unaudited)..........     --          --             133,713          133,713
                                       ---------    -------   --------------    -------------
BALANCE, March 31, 1996
  (unaudited)........................     10,000    $10,000   $     (935,724)    $   (925,724)
                                       =========    =======   ==============    =============
The accompanying notes are an integral part of these financial statements.

                                      F-78

                                  ADCOT, INC.
                            STATEMENTS OF CASH FLOWS
YEAR ENDED              THREE MONTHS ENDED
                                              DECEMBER 31                   MARCH 31
                                       --------------------------  --------------------------
                                           1994          1995          1995          1996
                                       ------------  ------------  ------------  ------------
                                                                          (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income.........................  $    503,925  $    474,046  $     15,860  $    133,713
  Adjustments to reconcile net income
     to net cash provided by (used
     in) operating activities --
     Depreciation and amortization...       271,420       261,704        60,063        49,976
     Gain on sale of property and
       equipment.....................       (18,251)      (19,519)      (16,963)      --
     Write-off of property and
       equipment.....................       --             26,118       --            --
     Changes in operating assets and
       liabilities -- (Increase)
       decrease in --
       Accounts receivable...........        (6,318)        1,640           471       (26,870)
       Inventories...................       225,814         4,440      (212,987)     (232,731)
       Prepaid expenses and other
          current assets.............       127,891       (23,607)      (51,407)      (26,337)
       Other noncurrent assets.......        10,369          (999)      --            (30,346)
     Increase (decrease) in --
       Accounts payable and accrued
          expenses...................      (786,089)      (16,012)       (7,835)      693,221
       Unearned revenue on extended
          warranty contracts.........        (8,288)      (82,461)      (20,615)            2
                                       ------------  ------------  ------------  ------------
          Net cash provided by (used
             in) operating
             activities..............       320,473       625,350      (233,413)      560,628
                                       ------------  ------------  ------------  ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Proceeds from sale of property and
     equipment.......................        19,503        21,188        17,625       --
  Additions to property and
     equipment.......................       (49,403)     (294,428)      (84,798)     (105,461)
  Cash provided by (used in)
     discontinued operations.........       188,714       (89,429)      181,904      (386,741)
                                       ------------  ------------  ------------  ------------
          Net cash provided by (used
             in) investing
             activities..............       158,814      (362,669)      114,731      (492,202)
                                       ------------  ------------  ------------  ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Decrease in payable to shareholder
     and affiliates..................      (314,134)      (25,289)      --           (241,008)
  Borrowings of long-term debt.......       --            214,553        57,100        98,809
  Principal payments of long-term
     debt............................      (106,035)      (56,705)       (9,759)      (46,422)
  Increase (decrease) in other
     long-term liabilities...........        39,014       (39,014)      (27,480)      --
  Dividends..........................       --           (223,088)      --            (87,121)
                                       ------------  ------------  ------------  ------------
          Net cash provided by (used
             in) financing
             activities..............      (381,155)     (129,543)       19,861      (275,742)
                                       ------------  ------------  ------------  ------------
NET INCREASE (DECREASE) IN CASH AND
  CASH EQUIVALENTS...................        98,132       133,138       (98,821)     (207,316)
CASH AND CASH EQUIVALENTS, beginning
  of period..........................        24,834       122,966       122,966       256,104
                                       ------------  ------------  ------------  ------------
CASH AND CASH EQUIVALENTS, end of
  period.............................  $    122,966  $    256,104  $     24,145  $     48,788
                                       ============  ============  ============  ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
  INFORMATION:
  Cash paid for --
     Interest........................  $     79,658  $    111,536  $      8,788  $     12,413
The accompanying notes are an integral part of these financial statements.

                                      F-79

                                  ADCOT, INC.
                         NOTES TO FINANCIAL STATEMENTS

1.  BUSINESS AND ORGANIZATION:

     ADCOT, Inc. (a Texas corporation) (the Company) (d.b.a. A-ABC Appliance),
is primarily engaged in the sales of consumer appliances and the service-related
activities of plumbing, air conditioning, appliance and electrical repair and
other home improvement services in Houston and the surrounding areas.

     In April 1996, the Company and its shareholder entered into a stock
purchase agreement with Service Enterprises, Inc. (SEI) to sell all of its
outstanding common stock for $2,000,000 to SEI.

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

  INTERIM FINANCIAL INFORMATION

     The interim financial statements as of March 31, 1996, and for the three
months ended March 31, 1995 and 1996, are unaudited, and certain information and
footnote disclosures, normally included in financial statements prepared in
accordance with generally accepted accounting principles, have been omitted. In
the opinion of management, all adjustments, consisting only of normal recurring
adjustments, necessary to fairly present the financial position, results of
operations and cash flows with respect to the interim financial statements, have
been included. The results of operations for the interim periods are not
necessarily indicative of the results for the entire fiscal year.

  INVENTORIES

     Inventories consist of appliances and service-related parts and supplies
held for use in the ordinary course of business and are valued at the lower of
cost or market using the weighted-average cost method.

  PROPERTY AND EQUIPMENT

     Property and equipment are recorded 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.

     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 or 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.

  INCOME TAXES

     The Company has elected S Corporation status as defined by the Internal
Revenue Code, whereby the Company is not subject to taxation for federal
purposes. Under S Corporation status, the shareholder reports his share of the
Company's taxable earnings or losses in his personal tax return.

     The Company is subject to Texas franchise tax which is an income-based tax.
Accordingly, the Company has recorded a provision for this tax in the
accompanying statement of operations for 1995. No provision for franchise taxes
was recorded in the 1994 statement of operations as the Company's franchise tax
was offset by a business loss carryover.

  REVENUE RECOGNITION

     The Company recognizes service revenue and parts sales revenue when a
product is delivered or the services are performed. Revenues from sales of
extended warranties are recognized over the life of the contract on a
straight-line basis.

                                      F-80

                                  ADCOT, INC.
                  NOTES TO 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 and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

  CASH AND CASH EQUIVALENTS

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

  NEW ACCOUNTING PRONOUNCEMENTS

     Effective January 1, 1995, 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, and
intangible 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 is compared to the asset's
carrying amount to determine if a write-down to market value or discounted cash
flow value was necessary. 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 consist of the following:

                                                            DECEMBER 31
                                      USEFUL LIVES   --------------------------
                                        IN YEARS         1994          1995
                                      ------------   ------------  ------------
Leasehold improvements...............    5 - 15      $    221,120  $    256,245
Transportation equipment.............      5              815,190       849,183
Computer and telephone equipment.....    5 - 7            351,383       --
Furniture and fixtures...............    5 - 7          1,053,293     1,109,215
                                                     ------------  ------------
                                                        2,440,986     2,214,643
Less -- Accumulated depreciation and
  amortization.......................                   2,146,166     1,914,886
                                                     ------------  ------------
          Property and equipment,
             net.....................                $    294,820  $    299,757
                                                     ============  ============

4.  DISCONTINUED OPERATIONS:

     Subsequent to the purchase of the Company by SEI, the board of directors of
SEI's parent company (Enterprise Holding Company) approved the disposition of
the Company's retail appliance sales division. The allocation of purchase price
to the fair market value of the net assets of the Company acquired by SEI will
be based on preliminary estimates of fair value and may be revised when
additional information concerning asset and liability valuations is obtained.
Accordingly, any gain or loss on the sale of the appliance sales division will
be considered an adjustment of purchase price.

     The net losses of these operations prior to April 1, 1996, are included in
the statements of operations under discontinued operations. Revenues, cost of
sales, selling, general and administrative expenses, other income and expense,
and income taxes for fiscal years 1994 and 1995 exclude amounts associated with
the discontinued division. Revenues from such operations were approximately
$12,101,000 and $11,915,000 for the years ended December 31, 1994 and 1995,
respectively. Certain expenses have been allocated to

                                      F-81

                                  ADCOT, INC.
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
discontinued operations, which were allocated based upon estimated divisional
usage. All assets of the operations are expected to be sold in 1996.

     The components of net assets of discontinued operations included in the
balance sheets are as follows:

                                            DECEMBER 31
                                       ----------------------
                                          1994        1995
                                       ----------  ----------

Net working capital (deficit)........  $  (64,208) $   55,667
Property and equipment, net..........      98,273      99,919
Other liabilities....................      --         (32,092)
                                       ----------  ----------
                                       $   34,065  $  123,494
                                       ==========  ==========

5.  DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:

     Accounts payable and accrued expenses consist of the following:

                                            DECEMBER 31
                                       ----------------------
                                          1994        1995
                                       ----------  ----------
Accounts payable, trade..............  $  488,819  $  495,031
Accrued compensation and benefits....      93,193      87,725
Accrued taxes, other than income.....     147,066     101,383
Other accrued expenses...............      41,702      70,629
                                       ----------  ----------
                                       $  770,780  $  754,768
                                       ==========  ==========

6.  INVENTORY FLOOR PLAN LIABILITY:

     The Company maintains certain inventories on a floor plan financing method
with General Electric Capital Corporation (GECC) in connection with its
discontinued retail appliance sales division. The terms of the floor plan allow
an interest-free period of 90 days after purchase followed by interest accruing
at a rate of prime plus 2.5 percent on the remaining unpaid balance. Payment is
due as the inventory is sold.

     The Company also has floor plan financing available from three other
companies with similar terms. However, the Company does not utilize these, and
had no balances outstanding at December 31, 1994 and 1995.

     The inventory floor plan facilities are personally guaranteed by the sole
shareholder and/or an officer of the Company.

7.  LONG-TERM DEBT:

     Long-term debt consists of the installment notes payable for transportation
equipment. The debt is secured by the related transportation equipment. The
terms of the notes are 36 months with monthly payments of principal and interest
of approximately $9,000. The notes bear interest at rates ranging from 8.25
percent to 11 percent.

     The aggregate maturities of long-term debt as of December 31, 1995, are as
follows:

Year ending December 31 --
     1996............................  $   77,263
     1997............................      67,241
     1998............................      29,036
                                       ----------
                                       $  173,540
                                       ==========

                                      F-82

                                  ADCOT, INC.
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

     Management estimates that the fair value of its debt obligations
approximates the historical value of $173,540 at December 31, 1995.

8.  LEASES:

  OPERATING LEASES

     The Company leases certain facilities from its sole shareholder and his
affiliates. The leases expire from 1997 through 2010. The rent paid under these
related-party leases was approximately $305,000 and $370,000 in 1994 and 1995,
respectively.

     Other nonrelated-party leases for retail facilities expire in 1997. The
rent paid under nonrelated-party leases was approximately $183,000 and $162,000
in 1994 and 1995, respectively.

     The lease terms generally range from five to 15 years. The leases generally
provide for the Company to pay taxes, maintenance, insurance and certain other
operating costs of the leased property. The leases on most of the properties
contain renewal provisions.

     Future minimum lease payments for operating leases are as follows:

Year ending December 31 --
     1996............................  $    558,140
     1997............................       430,034
     1998............................       330,288
     1999............................       292,848
     2000............................       240,432
     Thereafter......................       725,820
                                       ------------
                                       $  2,577,562
                                       ============

9.  RELATED-PARTY TRANSACTIONS:

     The Company has payables to its sole shareholder and certain other related
parties in the amounts of $266,297 and $241,008 at December 31, 1994 and 1995,
respectively. Interest accrues on these payables at 8 percent per annum.

10.  COMMITMENTS AND CONTINGENCIES:

  LITIGATION

     The Company is involved in legal actions arising in the ordinary course of
business. Management does not believe that 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 general
and business auto liability, commercial property, workers' compensation and a
general umbrella policy. The Company has not incurred significant claims or
losses on any of its insurance policies.

11.  EVENT SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
     (UNAUDITED):

     In June 1996, the Company and its shareholder entered into a definitive
agreement with ARS, providing for the acquisition of the Company by ARS.

                                      F-83

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

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

                               TABLE OF CONTENTS

                                                                            PAGE
                                                                            ----
Prospectus Summary ........................................................   3
Risk Factors ..............................................................  10
The Company ...............................................................  14
Use of Proceeds ...........................................................  16
Dividend Policy ...........................................................  17
Capitalization ............................................................  17
Dilution ..................................................................  18
Selected Financial Data ...................................................  19
Management's Discussion and Analysis
  of Financial Condition and Results
  of Operations ...........................................................  21
Business ..................................................................  33
Management ................................................................  42
Certain Transactions ......................................................  51
Security Ownership of Certain
  Beneficial Owners and Management ........................................  55
Shares Eligible for Future Sale ...........................................  56
Description of Capital Stock ..............................................  57
Underwriting ..............................................................  63
Legal Matters .............................................................  64
Experts ...................................................................  64
Additional Information ....................................................  64
Index to Financial Statements ............................................. F-1

Until                , 1996 (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 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.

                                4,200,000 SHARES

                                      LOGO

                                  COMMON STOCK
                                  ------------
                                   PROSPECTUS
                                AUGUST    , 1996
                                  ------------

                                SMITH BARNEY INC.

                                   MONTGOMERY
                                   SECURITIES

                                    PART II

                     INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13.  OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

     The following table sets forth the expenses (other than underwriting
discounts and commissions) in connection with the offering described in this
Registration Statement, all of which shall be paid by the Company. All of such
amounts (except the SEC Registration Fee, the NASD Filing Fee and the New York
Stock Exchange Listing Fee) are estimated.

SEC Registration Fee.................  $     21,652
NASD Filing Fee......................         6,779
NYSE Filing Fee......................       *
Blue Sky Fees and Expenses...........       *
Printing and Engraving Costs.........       *
Legal Fees and Expenses..............       *
Accounting Fees and Expenses.........       *
Transfer Agent and Registrar Fees and
  Expenses...........................       *
Miscellaneous........................       *
                                       ------------
          Total......................  $    *
                                       ============

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

* To be provided by amendment.

ITEM 14.  INDEMNIFICATION OF DIRECTORS AND OFFICERS.

  DELAWARE GENERAL CORPORATION LAW

     Section 145(a) of the General Corporation Law of the State of Delaware (the
"DGCL") provides that a corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgements, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of NOLO CONTENDERE or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.

     Section 145(b) of the DGCL states that a corporation may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that he is
or was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit if he acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Court of Chancery or the

                                      II-1

court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper.

     Section 145(c) of the DGCL provides that to the extent that a director,
officer, employee or agent of a corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in
subsections (a) and (b) of Section 145, or in defense of any claim, issue or
matter therein, he shall be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection therewith.

     Section 145(d) of the DGCL states that any indemnification under
subsections (a) and (b) of Section 145 (unless ordered by a court) shall be made
by the corporation only as authorized in the specific case upon a determination
that indemnification of the director, officer, employee or agent is proper in
the circumstances because he has met the applicable standard of conduct set
forth in subsections (a) and (b). Such determination shall be made (1) by the
board of directors by a majority vote of a quorum consisting of directors who
were not parties to such action, suit or proceeding, or (2) if such a quorum is
not obtainable, or, even if obtainable, a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or (3) by the
stockholders.
 
     Section 145(e) of the DGCL provides that expenses (including attorneys'
fees) incurred by an officer or director in defending any civil, criminal,
administrative or investigative action, suit or proceeding may be paid by the
corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it shall ultimately be determined that he is not
entitled to be indemnified by the corporation as authorized in Section 145. Such
expenses (including attorneys' fees) incurred by other employees and agents may
be so paid upon such terms and conditions, if any, as the board of directors
deems appropriate.
 
     Section 145(f) of the DGCL states that the indemnification and advancement
of expenses provided by, or granted pursuant to, the other subsections of
Section 145 shall not be deemed exclusive of any other rights to which those
seeking indemnification or advancement of expenses may be entitled under any
bylaw, agreement, vote of stockholders or disinterested directors or otherwise,
both as to action in his official capacity and as to action in another capacity
while holding such office.
 
     Section 145(g) of the DGCL provides that a corporation shall have the power
to purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the corporation
would have the power to indemnify him against such liability under the
provisions of Section 145.
 
     Section 145(j) of the DGCL states that the indemnification and advancement
of expenses provided by, or granted pursuant to, Section 145 shall, unless
otherwise provided when authorized or ratified, continue as to a person who has
ceased to be a director, officer, employee or agent, and shall inure to the
benefit of the heirs, executors and administrators of such a person.
 
  CERTIFICATE OF INCORPORATION

     The Restated Certificate of Incorporation of the Company provides that a
director of the Company shall not be personally liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to the
Company or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the DGCL or (iv) for any transaction from which the director
derived an improper personal benefit. If the DGCL is amended to authorize the
further elimination or limitation of the liability of directors, then the
liability of a director of the Company, in addition to the limitation on
personal liability described above, shall be limited to the fullest extent
permitted by the amended DGCL. Further, any repeal or modification of such
provision of the Restated Certificate of Incorporation by the stockholders of
the Company shall be prospective only, and shall not
 
                                      II-2
 
adversely affect any limitation on the personal liability of a director of the
Company existing at the time of such repeal or modification.
 
  BYLAWS
 
     The Bylaws of the Company provide that each person who was or is made a
party or is threatened to be made a party to or is involved in any action, suit
or proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that he or she, or a person of whom he or she is the legal
representative, is or was or has agreed to become a director or officer of the
Company or is or was serving or has agreed to serve at the request of the
Company as a director, officer, employee or agent of another corporation or of a
partnership, joint venture, trust or other enterprise, including service with
respect to employee benefit plans, whether the basis of such proceeding is
alleged action in an official capacity as a director or officer or in any other
capacity while serving or having agreed to serve as a director or officer, shall
be indemnified and held harmless by the Company to the fullest extent authorized
by the DGCL, as the same exists or may thereafter be amended (but, in the case
of any such amendment, only to the extent that such amendment permits the
Company to provide broader indemnification rights than said law permitted the
Company to provide prior to such amendment) against all expense, liability and
loss (including, without limitation, attorneys' fees, judgments, fines, ERISA
excise taxes or penalties and amounts paid or to be paid in settlement)
reasonably incurred or suffered by such person in connection therewith, and such
indemnification shall continue as to a person who has ceased to serve in the
capacity which initially entitled such person to indemnity thereunder and shall
inure to the benefit of his or her heirs, executors and administrators;
provided, however, that the Company shall indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such person only if such proceeding (or part thereof) was authorized by the
board of directors of the Company. The Bylaws further provide that the right to
indemnification conferred thereby shall be a contract right and shall include
the right to be paid by the Company the expenses incurred in defending any such
proceeding in advance of its final disposition; provided, however, that, if the
DGCL requires, the payment of such expenses incurred by a current, former or
proposed director or officer in his or her capacity as a director or officer or
proposed director or officer (and not in any other capacity in which service was
or is or has been agreed to be rendered by such person while a director or
officer, including, without limitation, service to an employee benefit plan) in
advance of the final disposition of a proceeding, shall be made only upon
delivery to the Company of an undertaking, by or on behalf of such indemnified
person, to repay all amounts so advanced if it shall ultimately be determined
that such indemnified person is not entitled to be indemnified under the Bylaws
or otherwise. In addition, the Bylaws provide that the Company may, by action of
its board of directors, provide indemnification to employees and agents of the
Company, individually or as a group, with the same scope and effect as the
indemnification of directors and officers provided for in the Bylaws.
 
  INDEMNIFICATION AGREEMENTS
 
     The Company has entered into Indemnification Agreements with each of its
directors. The Indemnification Agreements provide that the Company shall
indemnify the director and hold him harmless from any losses and expenses which,
in type or amount, are not insured under the directors and officers' liability
insurance maintained by the Company, and generally indemnifies the director
against losses and expenses as a result of a claim or claims made against him
for any breach of duty, neglect, error, misstatement, misleading statement,
omission or other act done or wrongfully attempted by the director or any of the
foregoing alleged by any claimant or any claim against the director solely by
reason of his being a director or officer of the Company, subject to certain
exclusions. The Indemnification Agreements also provide certain procedures
regarding the right to indemnification and for the advancement of expenses.
 
  UNDERWRITING AGREEMENT
 
     The Underwriting Agreement provides for the indemnification of the
directors and officers of the Company in certain circumstances.
 
                                      II-3
 
  INSURANCE
 
     The Company intends to maintain liability insurance for the benefit of its
directors and officers.
 
ITEM 15.  RECENT SALES OF UNREGISTERED SECURITIES.
 
     The following information relates to securities of the Company issued or
sold within the past three years which were not registered under the Securities
Act:
 
     On November 8, 1996, the Company issued 168,666, 168,666 and 112,445 shares
of Common Stock to C. Clifford Wright, William P. McCaughey and Howard S.
Hoover, Jr., respectively, the founders of the Company, for $1.00 per share.
Such issuances were exempt from the registration requirements of the Securities
Act by virtue of Section 4(2) thereof as transactions not involving any public
offering.
 
     On February 2, 1996, each outstanding share of Common Stock was
reclassified into 333 shares of Common Stock (the "First Stock Split"). All
share amounts reflected in the previous paragraph of this item 15 have been
adjusted to reflect the First Stock Split (and the Second Stock Split referred
to below). The First Stock Split was exempt from the registration requirements
of the Securities Act as it did not involve a "sale," as defined in Section
2(3) of the Securities Act.
 
     On March 19, 1996, the Company issued to Equus II Incorporated a revolving
convertible note with a maximum principal amount of $1.6 million. Of the amount
outstanding under such convertible note, $0.5 million in principal amount is
convertible into a number of shares of Common Stock equal to 10% of the shares
of Common Stock outstanding upon consummation of the Company's initial public
offering. Such issuance was exempt from the registration requirements of the
Securities Act by virtue of Section 4(2) thereof as a transaction not involving
any public offering.
 
     On March 19, 1996, the Company issued to Equus II Incorporated a warrant to
purchase 100,000 shares of Common Stock exercisable at the initial per share
public offering price. The warrants are exercisable at any time after the
closing of the initial public offering of the Company until five years from such
date. The number of shares represented by the warrant is subject to adjustment
for stock dividends and stock splits after the closing of the Company's initial
public offering. Such issuance was exempt from the registration requirements of
the Securities Act by virtue of Section 4(2) thereof as a transaction not
involving any public offering.
 
     On June 14, 1996, each outstanding share of Common Stock was reclassified
into 1.350685 shares of Common Stock (the "Second Stock Split"). Except where
the context otherwise requires, all share amounts reflected in the preceding
paragraphs of this item 15 have been adjusted to reflect the Second Stock Split.
The Second Stock Split was exempt from the registration requirements of the
Securities Act as it did not involve a "sale," as defined in Section 2(3) of
the Securities Act.
 
     Simultaneously with the completion of this Offering, the Company will issue
4,336,171 shares of Common Stock in connection with the acquisition of the
Founding Companies. Such issuances will be exempt from the registration
requirements of Section 4(2) thereof as transactions not involving any public
offering.
 
ITEM 16.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
 
     (a)  Exhibits.
 

    EXHIBIT
    NUMBER                          DESCRIPTION
    -------                         -----------
    *1.1       -- Form of Underwriting Agreement.
               
     2.1       -- Agreement and Plan of Reorganization dated as of June 13, 1996
                  by and among the Company, ARS Climatic Inc., Climatic
                  Corporation of Vero Beach and the stockholders named therein.

     2.2       -- Agreement and Plan of Reorganization dated as of June 13, 1996
                  by and among the Company, ARS FHAC Inc., Florida Heating and
                  Air Conditioning, Inc. and the stockholders named therein.

                                      II-4

     2.3       -- Agreement and Plan of Reorganization dated as of June 13, 1996
                  by and among the Company, ARS Atlas Inc., Atlas Services, Inc.
                  and the stockholders named therein.

     2.4       -- Agreement and Plan of Reorganization dated as of June 13, 1996
                  by and among the Company, ARS DIAL Inc., DIAL ONE Meridian and
                  Hoosier, Inc. and the stockholders named therein.

     2.5       -- Agreement and Plan of Reorganization dated as of June 13, 1996
                  by and among the Company, ARS Bullseye Inc., Bullseye Air
                  Conditioning, Inc. and the stockholders named therein.

     2.6       -- Agreement and Plan of Reorganization dated as of June 13, 1996
                  by and among the Company, ARS Duct Inc., Florida Heating and
                  Air Conditioning Duct, Inc. and the stockholders named
                  therein.

     2.7       -- Agreement and Plan of Reorganization dated as of June 13, 1996
                  by and among the Company, ARS Services Inc., Florida Heating
                  and Air Conditioning Service, Inc. and the stockholders named
                  therein.

     2.8       -- Agreement and Plan of Reorganization dated as of June 13, 1996
                  by and among the Company, ARS General Inc., General Heating
                  Engineering Company, Inc. and the stockholders named therein.

     2.9       -- Agreement and Plan of Reorganization dated as of June 13, 1996
                  by and among the Company, ARS Acquisition Inc., Enterprises
                  Holding Company and the stockholders named therein.

     2.10      -- Form of Uniform Provisions for the Acquisition of Founding
                  Companies.

    *3.1       -- Restated Certificate of Incorporation of the Company.

    *3.2       -- Bylaws of the Company.

    *3.3       -- Certificate of Designations of Series A Junior Participating
                  Preferred Stock.

    *4.1       -- Form of Certificate representing Common Stock.

    *4.2       -- Form of Rights Agreement of the Company, including form of
                  Rights Certificate as Exhibit B thereto.

     4.3       -- Form of Registration Rights Agreement among the Company and
                  the stockholders listed on the signature pages thereto.

     4.4       -- Stock Registration Agreement dated as of March 6, 1996 between
                  American Residential Services, Inc. and Equus II Incorporated.

     4.5       -- Stock Piggyback Registration Agreement dated as of 
                  March 19, 1996 between Enterprises Holding Company and
                  NationsBank of Texas, N.A.

    *5.1       -- Opinion of Baker & Botts, L.L.P.

   *10.1       -- American Residential Services, Inc. 1996 Incentive Plan.

   *10.2       -- Employment Agreement dated as of November 1, 1995 between the 
                  Company and Howard S. Hoover, Jr., as amended.

   *10.3       -- Employment Agreement dated as of November 1, 1995 between the 
                  Company and C. Clifford Wright, Jr., as amended.

   *10.4       -- Employment Agreement dated as of November 1, 1995 between the 
                  Company and William P. McCaughey, as amended.

   *10.5       -- Employment Agreement dated as of March 6, 1996 between the 
                  Company and John D. Held, as amended.

    10.6       -- Employment Agreement dated as of March 6, 1996 between the 
                  Company and A. Jefferson Walker, III.

    10.7       -- Employment Agreement dated as of April 15, 1996 between the 
                  Company and Michael Mamaux.

   *10.8       -- Employment Agreement dated as of June 13, 1996 between the
                  Company and Elliot Sokolow.

                                      II-5

   *10.9       -- Employment Agreement dated as of June 13, 1996 between the
                  Company and Howard W. Hauser.

   *10.10      -- Employment Agreement dated as of June 13, 1996 between the
                  Company and Gorden H. Timmons.

   *10.11      -- Employment Agreement dated as of June 13, 1996 between the 
                  Company and Gary Daymon.

   *10.12      -- Employment Agreement dated as of June 13, 1996 between the 
                  Company and Frank N. Menditch.

   *10.13      -- Employment Agreement dated as of June 13, 1996 between the 
                  Company and Howard C. Menditch.

   *10.14      -- Employment Agreement dated as of June 13, 1996 between the 
                  Company and Bruce L. Menditch.

   *10.15      -- Form of Indemnification Agreement between the Company and each
                  of its directors and officers.

   *21.1       -- Subsidiaries of the Company.

    23.1       -- Consent of Arthur Andersen LLP.

   *23.2       -- Consent of Baker & Botts, L.L.P.
                  (contained in Exhibit 5.1)

    23.3       -- Consent of Gorden H. Timmons, as a nominee for directorship.

    23.4       -- Consent of Elliot Sokolow, as a nominee for directorship.

    23.5       -- Consent of Nolan Lehmann, as a nominee for directorship.

    23.6       -- Consent of Randall B. Hale, as a nominee for directorship.

    23.7       -- Consent of Robert J. Cruikshank, as a nominee for 
                  directorship.

    23.8       -- Consent of Don D. Sykora, as a nominee for directorship.

    23.9       -- Consent of Frank N. Menditch, as a nominee for directorship.

    23.10      -- Consent of Thomas Amonett, as a nominee for directorship.

    24.1       -- Power of Attorney (included on the signature page of this 
                  Registration Statement).

   *27.1       -- Financial Data Schedule.
- ------------
 
* To be filed by amendment.
 
     (b)  Financial Statement Schedules.
 
     All schedules are omitted because they are not applicable or because the
required information is contained in the Financial Statements or Notes thereto.
 
ITEM 17.  UNDERTAKINGS.
 
     The undersigned registrant hereby undertakes to provide to the
Underwriters, at the closing specified in the Purchase Agreement, certificates
representing the shares of Common Stock offered hereby in such denominations and
registered in such names as required by the Underwriters to permit prompt
delivery to each purchaser.
 
     Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in
 
                                      II-6

the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
 
     The undersigned registrant hereby undertakes that:
 
          (1)  For the purposes of determining any liability under the
     Securities Act of 1933, the information omitted from the form of prospectus
     filed as a part of this registration statement in reliance upon Rule 430A
     and contained in a form of prospectus filed by the registrant pursuant to
     Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to
     be part of this registration statement as of the time it was declared
     effective.
 
          (2)  For the purpose of determining any liability under the Securities
     Act of 1933, each post-effective amendment that contains a form of
     prospectus shall be deemed to be a new registration statement relating to
     the securities offered therein, and the offering of such securities at that
     time shall be deemed to be the initial bona fide offering thereof.
 
                                      II-7
 
                                   SIGNATURES
 
     PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF HOUSTON, STATE OF TEXAS,
ON JUNE 17, 1996.
 
                                           AMERICAN RESIDENTIAL SERVICES, INC.
                                             By: /s/ C. CLIFFORD WRIGHT, JR.
                                                     C. CLIFFORD WRIGHT, JR.
                                                PRESIDENT AND CHIEF EXECUTIVE
                                                         OFFICER
 
     EACH PERSON WHOSE SIGNATURE APPEARS BELOW HEREBY APPOINTS C. CLIFFORD
WRIGHT, JR. AND HOWARD S. HOOVER, JR., AND BOTH OF THEM, EITHER OF WHOM MAY ACT
WITHOUT THE JOINDER OF THE OTHER, AS HIS TRUE AND LAWFUL ATTORNEYS-IN-FACT AND
AGENTS, WITH FULL POWER OF SUBSTITUTION AND RESUBSTITUTION, FOR HIM AND IN HIS
NAME, PLACE AND STEAD, IN ANY AND ALL CAPACITIES, TO SIGN ANY AND ALL AMENDMENTS
(INCLUDING POST-EFFECTIVE AMENDMENTS) TO THIS REGISTRATION STATEMENT AND ANY
REGISTRATION STATEMENT FOR THE SAME OFFERING FILED PURSUANT TO RULE 462 UNDER
THE SECURITIES ACT OF 1933, AND TO FILE THE SAME, WITH ALL EXHIBITS THERETO AND
ALL OTHER DOCUMENTS IN CONNECTION THEREWITH, WITH THE COMMISSION, GRANTING UNTO
SAID ATTORNEYS-IN-FACT AND AGENTS FULL POWER AND AUTHORITY TO DO AND PERFORM
EACH AND EVERY ACT AND THING APPROPRIATE OR NECESSARY TO BE DONE, AS FULLY AND
FOR ALL INTENTS AND PURPOSES AS HE MIGHT OR COULD DO IN PERSON, HEREBY RATIFYING
AND CONFIRMING ALL THAT SAID ATTORNEYS-IN-FACT AND AGENTS OR THEIR SUBSTITUTE OR
SUBSTITUTES MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.
 
     PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
 

                                    CAPACITY IN
        SIGNATURES                  WHICH SIGNED                       DATE
- ---------------------------  --------------------------------     --------------
                                                                             
/s/  C. CLIFFORD WRIGHT, JR.   President, Chief Executive          June 17, 1996
     C. CLIFFORD WRIGHT, JR.   Officer, and Director
                               (Principal Executive Officer and
                               Principal Financial Officer)

/s/  HOWARD S. HOOVER, JR.     Chairman of the Board               June 17, 1996
     HOWARD S. HOOVER, JR.

/s/  MICHAEL MAMAUX            Controller                          June 17, 1996
     MICHAEL MAMAUX            (Principal Accounting Officer)

/s/  WILLIAM P. MCCAUGHEY      Executive Vice President            June 17, 1996
     WILLIAM P. MCCAUGHEY      and Director
 
                                      II-8