Wahlco Environmental Systems Inc · 10-K405/A · For 12/31/97

Filed On 4/21/98   ·   SEC File 1-10478   ·   Accession Number 1047469-98-15844

Amendment to Annual Report -- [X] Reg. S-K Item 405   ·   Form 10-K
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-K405/A   Amendment to Annual Report -- [X] Reg. S-K Item       11     65K 
                          405                                                    

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   UNITED STATES
    SECURITIES AND EXCHANGE COMMISSION
    WASHINGTON, D.C. 20549

   FORM 10-K/A
   (Amendment No. 1)

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

   FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997

    OR

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

For the transition period from    -     to    -   
                               --------     --------

    COMMISSION FILE NUMBER 1-10478

    WAHLCO ENVIRONMENTAL SYSTEMS, INC.

    (Exact name of registrant as specified in its charter)

         DELAWARE                               33-0391175
(State or other jurisdiction of incorporation or   (I.R.S. Identification No.)  
organization)                               

3600 WEST SEGERSTROM AVENUE                               
SANTA ANA, CALIFORNIA                            92704
(Address of principal executive offices)               (Zip Code)       

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:  (714) 979-7300 

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: 

               Title of each class                NAME OF EACH EXCHANGE ON WHICH
                                                REGISTERED

      Common Stock, Par Value $0.01              New York Stock Exchange

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: 

TITLE OF EACH CLASS                                 
None                                

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405  
of Regulation S-K is not contained herein, and will not be contained, to the    
best of registrant's knowledge, in definitive proxy or information statements   
incorporated by reference in Part III of the Form 10-K or any amendment to this 
Form 10-K [X]                                                                   

At March 13, 1998, the aggregate market value of the voting stock held by       
non-affiliates of the registrant was $1,482,688.                                

At March 13, 1998, there were 17,649,000 shares of the registrant's common stock
outstanding.                                                                    

     DOCUMENTS INCORPORATED BY REFERENCE

      NONE

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      PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                    

Directors are elected to serve for a one-year term and until their successors   
are elected and qualified.  Pursuant to the Company's Bylaws, the number of     
directors is established by the Board from time to time, provided that the      
authorized number of directors may not be less than five nor more than nine.    
The Board has set the number of directors at five.                              

                                                                · Download Table


                                 DIRECTOR
NAME                     AGE       SINCE 
                                         

C. Stephen Beal          50        1995  
Maarten D. Hemsley       48        1995  
Paul H. Hunn             63        1995  
Mark L. Plaumann         42        1996  
David R. A. Steadman     60        1995  


ADDITIONAL INFORMATION CONCERNING THE COMPANY'S DIRECTORS                       

C. STEPHEN BEAL.  Mr. Beal has been President and Chief Executive Officer of the
Company since October 1996 and President of the Company's Engineered Products   
Group since 1991.  Prior to joining the Company, pursuant to the acquisition of 
Pentney Engineering, Ltd. by the Company in 1991, Mr. Beal served as Managing   
Director and was a joint owner of the Pentney Group since 1974.                 

MAARTEN D. HEMSLEY.  Mr. Hemsley has been President of Bryanston Management     
Limited, a financial consulting and advisory firm, since January 1993.  Since   
its founding in April 1991 until December 1995, Mr. Hemsley served in various   
executive capacities and as a director of Oakhurst Company, Inc., a holding     
company in the automotive after-market products business, most recently as      
Chairman and Chief Executive Officer.  From January 1989 until December 1995,   
Mr. Hemsley served in various executive capacities and as a director of Steel   
City Products, Inc., a majority owned, publicly traded subsidiary of Oakhurst,  
most recently as Chief Financial Officer.  From 1990 until March 1994, Mr.      
Hemsley was Chief Financial Officer and from January 1992 until March 1994, also
President and a director of Integra -- A Hotel and Restaurant Company.  Mr.     
Hemsley is a director of Industrial Acoustics Company, Inc., a New York based   
engineered products group specializing in noise control products and systems.   

PAUL H. HUNN.  Mr. Hunn was Chief Executive Officer of Reliance Bank in White   
Plains, New York from 1995 to 1996 and has been its Chairman since 1995.  He    
retired as Managing Director of Manufacturers Hanover Trust in May 1991 after   
thirty-two years.                                                               

MARK L. PLAUMANN.  Mr. Plaumann has been a financial consultant, primarily to   
Wexford Management LLC ("WEXFORD"), since March 1998.  Prior to that he was a   
Senior Vice President of Wexford from January 1996 and a director and/or Vice   
President of the general partner of various public partnerships managed by      
Wexford from March 1995.  From June 1996 to October 1996, he served as interim  
President of the Company.  Mr. Plaumann joined the predecessor entities of      
Wexford in February 1995.  Prior to joining Wexford, Mr. Plaumann was a Managing
Director of Alvarez & Marsal, Inc., a crisis management consulting firm, from   
1990 to 1995, and from 1985 to 1990 he was with American Healthcare Management, 
Inc., an owner and operator of hospitals, where he served in a variety of       
capacities, most recently as its President.  Prior to that he was with Ernst &  
Young LLP in its auditing and consulting divisions for eleven years.            

DAVID R. A. STEADMAN.  Mr. Steadman has been President of Atlantic Management   
Associates, Inc., a management services firm, since 1988.  From 1990 to 1994,   
Mr. Steadman served as President and Chief Executive Officer of Integra -- A    
Hotel and Restaurant Company and from 1987 to 1988 as Chairman and Chief        
Executive Officer of GCA Corporation, a manufacturer of automated semiconductor 
capital                                                                         

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equipment.  From 1980 to 1987, Mr. Steadman was a Vice President of Raytheon    
Company, a defense electronics manufacturer, and served in various management   
positions, most recently as President of its venture capital division.  Mr.     
Steadman is a director of Elcotel, Inc., a manufacturer of high technology pay  
telephone components; Aavid Thermal Technologies, Inc., a manufacturer of       
thermal management products and a producer of computational fluid dynamics      
software; and Tech/Ops Sevcon, Inc., a manufacturer of electronic control       
systems for electric vehicles.                                                  

Messrs. Hemsley, Hunn and Steadman were designated by WES Acquisition Corp.     
("WESAC"), which holds approximately 81% of the Company's common stock, $0.01   
par value per share ("COMMON STOCK"), to be appointed to the Board to replace   
the directors who resigned pursuant to an understanding relating to WESAC's     
purchase of stock and debt of the Company from Pacific Diversified Capital      
Company in June 1995.  Mr. Plaumann was appointed a director in connection with 
his election as President of the Company in June 1996, upon the request of      
WESAC.  Mr. Beal was appointed pursuant to the terms of a letter agreement dated
May 5, 1995 between Mr. Beal and WESAC.  There are no family relationships      
between any director or executive officer and any other director or executive   
officer of the Company.                                                         

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE                         

Section 16(a) of the Securities Exchange Act of 1934 requires the Company's     
officers and directors, and persons who own more than 10% of a registered class 
of the Company's equity securities ("INSIDERS") to file reports of ownership and
certain changes in ownership with the Securities and Exchange Commission and to 
furnish the Company with copies of those reports.                               

Based solely on a review of those reports and amendments thereto furnished to   
the Company during its most recent fiscal year or written representations by    
Insiders that no Forms 5 were required to be filed, the Company believes that   
during the fiscal year ended December 31, 1997, all Section 16(a) filing        
requirements applicable to the Company's Insiders were satisfied.               

ITEM 11.  EXECUTIVE COMPENSATION.                                               

This item contains information about the compensation, stock option grants and  
employment arrangements of the directors and certain executive officers of the  
Company as well as other information about the Company.                         

SUMMARY COMPENSATION TABLE                                                      

The following table sets forth all compensation for the fiscal years ended      
December 31, 1997, 1996 and 1995 allocated or paid on or before March 31, 1998  
to the Company's Chief Executive Officer during 1997 and to the other most      
highly compensated executive officers of the Company whose compensation exceeded
$100,000 in 1997 and who were serving at the end of 1997 for services rendered  
in all capacities to the Company and its subsidiaries.                          

                                                        · Enlarge/Download Table


                                                                                  LONG TERM        
                                           ANNUAL COMPENSATION                   COMPENSATION      
                               ---------------------------------------  ---------------------------
                                                               OTHER                               
                                                               ANNUAL    SECURITIES     ALL OTHER  
                                                                COM-     UNDERLYING     COMPENSA-  
 NAME AND PRINCIPAL                      SALARY      BONUS   PENSATION  OPTIONS/SARS      TION     
 POSITION                       YEAR        ($)       ($)      ($) (1)       (#)           ($)     
---------------------------------------------------------------------------------------------------
                                                                                                   
   C. STEPHEN BEAL               1997     190,824     -0-        -0-         -0-           347 (2) 
      President and Chief        1996     212,497     -0-        -0-         -0-           307     
      Executive Officer          1995     186,117     -0-      145,282     529,470         348     

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   BARRY J. SOUTHAM              1997     150,936     -0-        -0-         -0-         2,808 (2) 
      Senior Vice President      1996     181,553     -0-        -0-       15,525        4,696     
      Sales & Marketing          1995     154,248     -0-      39,813     200,000        4,995     

   A. NOEL DEWINTER              1997     116,051     -0-        -0-         -0-           405 (2) 
      Vice President and Chief   1996     101,276     -0-        -0-       59,500        1,132     
      Financial Officer          1995     120,328     -0-        -0-         -0-         2,231     


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

1.   Excludes perquisites and other personal benefits if the aggregate amount of
  such items of compensation was less than the lesser of either $50,000 or
  10% of the total annual salary and bonus of the named executive officer.

2.   This amount consists of premiums paid on excess life insurance.            

OPTION/SAR GRANTS                                                               

During the fiscal year ended December 31, 1997, no stock options or SARs were   
granted to the executive officers named in the Summary Compensation Table,      
above.                                                                          

AGGREGATED OPTION/SAR EXERCISES IN THE LAST FISCAL YEAR AND FISCAL YEAR-END     
OPTION/SAR VALUE TABLE                                                          

During 1997, there were no option exercises by any of the executive officers    
named in the Summary Compensation Table, above.                                 

The following table sets forth certain information based on the fair market     
value per share ($0.375) of the Common Stock at December 31, 1997, the last day 
of the Company's 1997 fiscal year, with respect to stock options held at that   
date by each of the individuals named in the Summary Compensation Table, above. 
No SARs were held during 1997 and none are now held by any of such persons.  The
"Value of Unexercised In-The-Money Options" is the positive difference (if any) 
between the market value of the Common Stock subject to the options at December 
31, 1997 and the exercise price.                                                

                                                        · Enlarge/Download Table


                        NUMBER OF SECURITIES UNDERLYING                                       
                         UNEXERCISED OPTIONS AT FISCAL     VALUE OF UNEXERCISED IN-THE-MONEY  
                                    YEAR END                  OPTIONS AT FISCAL YEAR END      
                        --------------------------------------------------------------------- 
 NAME                      EXERCISABLE     UNEXERCISABLE      EXERCISABLE       UNEXERCISABLE 
----------------------------------------------------------------------------------------------
                                                                                              
 C. Stephen Beal            529,470             -0-               -0-                 -0-     
 Barry J. Southam           115,525           100,000             -0-                 -0-     
 A. Noel DeWinter            22,000            37,500             -0-                 -0-     

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EMPLOYMENT, SEVERANCE AND OTHER AGREEMENTS.                                     

EMPLOYMENT AGREEMENTS.  Effective as of May 5, 1995, Mr. Beal entered into an   
employment agreement with the Company substantially on the terms agreed to at   
the time WES Acquisition Corp. acquired an 81% stock interest in the Company and
certain Company debt from Pacific Diversified Capital Company.  See footnote (3)
under "SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT" in Item 12, 
below.  The initial term of the agreement expired on May 5, 1997, but the       
agreement continues in effect thereafter unless terminated by either party on   
sixty days' prior notice.  The agreement provides (i) that Mr. Beal is to be    
elected President of the Company's Engineered Products Group at a salary of     
$16,700 per month; (ii) for payment by the Company of the final installment of  
his relocation payments in the amount of $124,596; and (iii) for conveyance to  
him of a Company membership in a local country club.  Mr. Beal is entitled to   
participate in the Company's benefit programs made available to other executives
generally and, in addition, to receive reimbursement on a tax grossed-up basis  
for premiums paid to maintain $2 million of life insurance coverage;            
reimbursement for country club membership; and reimbursement for monthly auto   
lease payments not to exceed $750 per month when his Company vehicle lease      
expires.  The agreement provides that the Compensation Committee of the Board of
Directors will establish an appropriate bonus plan for Mr. Beal, but as of April
30, 1997, no such plan had been established.  In the event that Mr. Beal's      
employment is terminated without cause, whether during the initial term or      
thereafter, the Company is obliged to continue to pay him his salary for a      
period of eighteen months following such termination and, at the Company's      
expense, to continue to provide the benefits described above for the same       
period.  If termination is for cause, only accrued salary and unused vacation is
paid.                                                                           

SEVERANCE AGREEMENTS.  The Company has an agreement with each of Messrs. Southam
and DeWinter that provides for the continued payment to each of them of his     
salary for a period of twelve months after his employment terminates (and in the
case of Mr. DeWinter continuation of automobile allowance and health benefits)  
unless termination is for cause or by reason of his resignation.                

INDEMNIFICATION AGREEMENTS.  The Company has entered into indemnification       
agreements with each of the executive officers named in the Summary Compensation
Table, above, that provide contractual indemnification rights similar in scope  
to the applicable sections of the Company's Bylaws.  Each agreement applies     
retroactively as well as prospectively to any actions taken by the indemnified  
officer while serving as an officer and/or director of the Company.  The        
indemnification agreements also provide that the Company will indemnify such    
persons to the fullest extent permitted by law, notwithstanding that the        
indemnification is not specifically authorized by the indemnification agreement,
the Company's Certificate of Incorporation, the Company's Bylaws, or by statute.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION                     

None of the members of the Compensation Committee during 1997 (Messrs. Steadman,
Hemsley and Hunn) is or was an employee of the Company or any of its            
subsidiaries, and during 1997, no executive officer of the Company while serving
as such also served as a director or member of a compensation committee of any  
entity with which any director of the Company had any relationship as a director
or officer.                                                                     

In April 1996, the Company retained Atlantic Management Associates, Inc., of    
which Mr. Steadman is President, to obtain Mr. Steadman's services as a         
management consultant for a fee of $8,000 per month.  In connection with these  
consulting services, in June 1996, Mr. Steadman was granted an option under the 
Second Amended and Restated Stock Incentive Plan to purchase 50,000 shares of   
Common Stock at an option price of $0.49 per share.  The option becomes         
exercisable in two equal installments, on the first and second anniversary of   
the grant date.                                                                 

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See Item 7.  "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND   
RESULTS OF OPERATIONS -- LIQUIDITY AND CAPITAL RESOURCES" in Part II, above, for
a description of loan transactions between the Company, WESAC and certain       
limited partnership funds managed by Wexford.                                   

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NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH IN ANY OF THE COMPANY'S      
FILINGS UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES EXCHANGE ACT OF 1934 
THAT MIGHT INCORPORATE FUTURE FILINGS, INCLUDING THIS ANNUAL REPORT ON FORM 10-K
IN WHOLE OR IN PART, THE FOLLOWING REPORT OF THE COMPENSATION COMMITTEE, AND THE
PERFORMANCE GRAPH SHALL NOT BE DEEMED TO BE INCORPORATED BY REFERENCE INTO ANY  
SUCH FILINGS.                                                                   

COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION                         

This report has been prepared by the members of the Compensation Committee of   
the Board and addresses the Company's compensation policies with respect to the 
Chief Executive Officer and other executive officers of the Company for the 1997
fiscal year.                                                                    

CHIEF EXECUTIVE OFFICER'S COMPENSATION                                          

Mr. Beal's compensation in 1997 was determined according to an employment       
agreement between him and the Company dated as of May 5, 1995.  See "EMPLOYMENT,
SEVERANCE AND OTHER AGREEMENTS," above.                                         

COMPENSATION OF OTHER EXECUTIVES                                                

The executive compensation philosophy of the Company with respect to its        
executive officers is to provide a total compensation package in which base     
salary, bonus, incentives and benefits are structured and administered in a     
manner designed to align compensation with the Company's business strategy and  
performance, to be reasonable in comparison to competitive practice, and to     
motivate and reward executives on the basis of Company and individual           
performance.  However, because of the Company's poor financial performance, the 
10% cut in their pay that the executive officers of the Company agreed to in    
mid-1996 remained in effect until April 1997 at which time it was reduced       
to a 5% pay cut.                                                                

COMPONENTS OF COMPENSATION                                                      

The Company's executive compensation is, in general, composed of base salary,   
incentive compensation and stock option grants; however there was no incentive  
award program in effect and no stock option grants were made in 1997.           

The base salaries of executive officers are reviewed periodically and are       
designed to be competitive within the industries in which the Company competes, 
subject however, to the Company's financial resources, which in 1997 were       
severely limited.  In addition, the Committee considers a number of subjective  
criteria, including individual performance, levels of responsibility and prior  
experience.  The Committee does not make individual base salary decisions       
according to specific criteria and does not ascribe specific weights to the     
factors it considers.                                                           

THE COMPENSATION COMMITTEE:   David R. A. Steadman                              
Maarten D. Hemsley  
Paul H. Hunn        

COMPENSATION OF DIRECTORS                                                       

Directors who are employees of the Company do not receive additional            
compensation for service as a member of the Board or of any of its committees.  
From January through September 1996, non-employee directors each received a     
retainer at the rate of $3,000 per quarter and a fee of $500 for each Board and 
committee meeting attended.  No meeting fees were paid for telephone conference 
call meetings.                                                                  

Each non-employee director on the date of his election to the Board was         
automatically granted a ten-year stock option to purchase 8,000 shares of Common
Stock under the Second Amended and Restated Stock Incentive Plan at a per-share 
exercise price equal to the fair market value of a share of Common Stock on the 
grant date.  The option was exercisable as to one-half of the shares from and   
after the grant date and as to an additional one-quarter of the shares on each  
of the next two anniversaries of the grant date.                                

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In October 1996, directors reduced their fees to $2,000 per quarter and $500 for
each day spent in attendance at Board and/or Committee meetings, to be partially
offset by a stock option grant, which is expected to be made in connection with 
the consummation of the Company's 1998 rights offering.  All directors, whether 
or not employees, are reimbursed for expenses incurred by them in attending     
Board and committee meetings.                                                   

PERFORMANCE GRAPH                                                               

The following graph compares the percentage change in the Company's cumulative  
total stockholder return on Common Stock for the last five years with the       
performances of the Standard & Poor's 500 Index (a broad market index) and New  
York Stock Exchange stocks in Sanitary Services, SIC 4950-4959, (a peer group   
index), over the same period.  Because there are a limited number of air        
pollution control companies that may be included in an index, the industry group
index includes companies engaged in hazardous waste, water treatment and air    
pollution control.                                                              

[GRAPH]   

                                                        · Enlarge/Download Table


                                                          Fiscal Year Ended December 31            
                                               1992   1993      1994      1995       1996    1997  
                                                                                                   
Wahlco Environmental Systems, Inc.             100   $ 59.32   $ 27.12   $ 18.64   $  5.08  $  5.08
Peer Group (NYSE Stocks - SIC 4950-4959)       100   $ 74.12   $ 71.46   $ 81.42   $ 86.24  $ 85.67
           (US Companies - Sanitary Services)                                                      
Broad Market Index (S&P 500)                   100   $110.08   $111.54   $153.45   $188.69  $251.64


The returns are calculated assuming the value of the investment in the Company's
stock and each index was $100 on December 31, 1992, and that all dividends were 
reinvested; however, the Company paid no dividends during the periods shown.    
The graph lines merely connect the beginning and end of the measuring periods   
and do not reflect fluctuations within the periods.  The historical stock       
performance shown on the graph is not intended to, and may not be indicative of,
future stock performance.                                                       

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ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL HOLDERS AND MANAGEMENT.      

The following table contains certain information as of April 1, 1998, regarding 
the beneficial ownership of the Company's Common Stock (i) by each person known 
by the Company to own beneficially more than 5% of the outstanding Common Stock;
(ii) by each of the directors of the Company; (iii) by the executive officers   
named in the Summary Compensation Table, in Item 11, above; and (iv) by all     
directors and executive officers as a group.  The numbers and percentages are   
based on 17,649,000 shares of Common Stock outstanding on April 1, 1998 and     
assume for each person or group listed, the exercise of all warrants and stock  
options held by such person or group that are exercisable within 60 days of     
April 1, 1998, in accordance with Rule 13d-3(d)(1) of the Securities Exchange   
Act of 1934, but not the exercise of such warrants or stock options owned by any
other person.  Except as otherwise noted, beneficial ownership includes both    
sole voting and dispositive powers with respect to the shares listed.           

                                                                · Download Table


                                   NUMBER OF SHARES            PERCENT OF
NAME                               BENEFICIALLY OWNED (1)         CLASS  
                                                                         
Wexford Management LLC (2)                 17,664,255 (3)         83.9%  
C. Stephen Beal                               529,470 (4)          2.9%  
Maarten D. Hemsley                              8,000 (5)           *    
Paul H. Hunn                                    8,000 (5)           *    
Mark L. Plaumann                               12,500 (6)           *    
David R. A. Steadman                           33,000 (7)           *    
Barry J. Southam                              115,525 (8)           *    
A. Noel DeWinter                               22,000 (9)           *    
All directors and executive                                              
officers as a group (7 persons)                                          
                                      18,392,750 (10)(11)         84.4%  


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

*    Less than 1%.                                                              

1.   Based upon information furnished by the stockholders.                      

2.   The address of Wexford Management LLC ("WEXFORD") is 411 West Putnam       
Avenue, Greenwich, Connecticut 06830.                                 

3.   Pursuant to a Stock Purchase Agreement dated as of May 15, 1995, WES       
 Accusation Corp. ("WESAC") purchased all of the shares of the Company's
Common Stock (14,260,000 shares) held by Pacific Diversified Capital  
Company ("PDC"), which represent approximately 81% of the outstanding 
   Common Stock, together with $4.9 million out of approximately $20 million
of debt owed by the Company to PDC for a total purchase price of      
  $5 million.  PDC contributed the remainder of the debt to the capital of
the Company.  The annual interest rate on the note evidencing the $4.9
million debt is 13%.                                                  

   The purchase by WESAC was funded through the sale of 94% of its shares to
 two private investment funds and the balance to Henry N. Huta, a former
    President of the Company, Mr. Beal and two of Mr. Hemsley's children.  See
    footnote (11), below.  Through investment management agreements with those
two funds, Wexford has shared voting and dispositive power as to these
shares.                                                               

Of the 17,664,255 shares listed, 3,404,255 represent shares that are  
   subject to purchase under currently exercisable warrants with an exercise
     price per share of $0.47 that are held by four limited partnerships managed
by Wexford.  These warrants were granted by the Company to these      
     partnerships in partial consideration of their making a loan to the Company
through WESAC.  See                                                   

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   Item 7.  "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS -- LIQUIDITY AND CAPITAL RESOURCES" in Part II, 
above, for a description of these loan transactions.                  

4.   These shares may be purchased under an employee stock option that is       
   currently exercisable at an option price of $0.49 per share.  Mr. Beal is
also a minority shareholder in WESAC.  See footnote (11), below.      

5.   These shares may be purchased under a stock option that is currently       
exercisable at an option price of $1.875 per share.                   

6.   These shares are purchasable within 60 days of April 1, 1998 under an      
outstanding stock option at an option price of $0.49 per share.       

7.   These shares are purchasable within 60 days of April 1, 1998 under two     
outstanding stock options at per-share option prices of $0.49 (25,000 
shares) and $1.875 (8,000 shares).                                    

8.   These shares are purchasable within 60 days of April 1, 1998 under two     
outstanding employee stock options at per-share option prices of $0.49
(15,525 shares) and $0.99 (100,000 shares).                           

9.   These shares are purchasable within 60 days of April 1, 1998 under two     
outstanding stock options at an option price of $0.49 per share.      

10.  This number includes 3,404,255 shares that are purchasable at $0.47 per    
share under currently exercisable warrants held by the Wexford-managed
     limited partnerships referred to in footnote (3), above, and 728,495 shares
purchasable within 60 days of April 1, 1998, under outstanding stock  
options at prices ranging from $0.49 to $1.875 per share.             

11.  The ownership of WESAC is as follows:                                      

                                                                · Download Table


                                        SHARES OF    PERCENTAGE OF OUTSTANDING
   NAME OF SHAREHOLDER                 WESAC HELD          WESAC SHARES       
                                                                              
Wexford Capital Partners II L.P.         9,411,600               66%          
Wexford Overseas Partners I L.P.         4,033,543               28%          
Henry N. Huta                              356,500              2.5%          
C. Stephen Beal                            356,500              2.5%          
Rebecca Hemsley                             50,928              0.3%          
Debra Hemsley                               50,929              0.3%          


ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.                       

Reference is made to "COMPENSATION OF DIRECTORS" and "COMPENSATION COMMITTEE    
INTERLOCKS AND INSIDER PARTICIPATION" in Item 11, above, and to Item 7.         
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF     
OPERATIONS -- LIQUIDITY AND CAPITAL RESOURCES" in Part II, above.               

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

      -10-

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      SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange  
Act of 1934, the registrant has duly caused this Amendment No. 1 to the         
Company's report on Form 10-K for the fiscal year ended December 31, 1997 to be 
signed on its behalf by the undersigned, thereunto duly authorized.             

                                  WAHLCO ENVIRONMENTAL SYSTEMS, INC.

Date: April 21, 1998                    By:     /s/ C. Stephen Beal             
                                           -----------------------------------
                         C. Stephen Beal
                                             President & Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and  
in the capacities and on the dates indicated.                                   

                                                                · Download Table


 SIGNATURES                                      TITLE                   DATE      
                                                                                   

   /s/ David R. A. Steadman*    Chairman of the Board of Directors   April 21, 1998
------------------------------                                                     
 David R. A. Steadman                                                              

   /s/ C. Stephen Beal          President & Chief Executive Officer  April 21, 1998
------------------------------                                                     
 C. Stephen Beal                                                                   

   /s/ A. Noel DeWinter         Vice President & Chief Financial     April 21, 1998
------------------------------  Officer (principal accounting and                  
 A. Noel DeWinter               financial officer)                                 

   /s/Maarten D. Hemsley*       Director                             April 21, 1998
------------------------------                                                     
 Maarten D. Hemsley                                                                

   /s/ Paul H. Hunn*            Director                             April 21, 1998
------------------------------                                                     
 Paul H. Hunn                                                                      

   /s/ Mark L. Plaumann*        Director                             April 21, 1998
------------------------------                                                     
 Mark L. Plaumann                                                                  

*By:    /s/ Roger M. Barzun                                                        
    --------------------------                                                     
     Roger M. Barzun                                                               
     ATTORNEY-IN-FACT                                                              


    -11-

Dates Referenced Herein   and   Documents Incorporated By Reference

				Referenced-On Page
This 10-K405/A Filing		Date		First		Last			Other Filings
		12/31/92		8
		5/5/95		3		7
		5/15/95		9
		12/31/95		3
		12/31/96		3					10-K405, 10-K405/A, NT 10-K
		4/30/97		5
		5/5/97		5
For The Period Ended		12/31/97		1		11			10-K405
		3/13/98		1
		3/31/98		3					10-K405, 10-Q
		4/1/98		9		10
Filed On / Filed As Of		4/21/98		11
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