================================================================================

    As filed with the Securities and Exchange Commission on April 15, 2005.


                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                     ---------------------------------------

                                   FORM 10-KSB

{X}      ANNUAL REPORT UNDER SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT
         OF 1934.

                  FOR THE FISCAL YEAR ENDED: DECEMBER 31, 2004.

{ }      TRANSITION REPORT UNDER SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE
         ACT OF 1934. FOR THE TRANSITION PERIOD FROM ____ TO _____.

                         Commission file number: 0-32995

                               MEDSOLUTIONS, INC.
                 (Name of small business issuer in its charter)

             Texas                                               75-2531556
(State or other jurisdiction of                              (I.R.S. Employer
 incorporation or organization)                              Identification No.)


                 12750 Merit Drive, Park Central VII, Suite 770
                               Dallas, Texas 75251
           (Address of principal executive office including zip code)

                                 (972) 931-2374
                         (Registrant's telephone number)

      Securities registered under Section 12(b) of the Exchange Act: None.
      Securities registered under Section 12(g) of the Exchange Act: None.

                     Common Stock, Par Value $.001 Per Share
                                (Title of Class)

Check  whether the  registrant:  (1) filed all  reports  required to be filed by
Section 13 or 15(d) of the  Exchange  Act during the past 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 { } No
{x}

Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation  S-B is not  contained  in  this  form,  and no  disclosure  will  be
contained,  to the  best of  registrant's  knowledge,  in  definitive  proxy  or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form { }

State Issuer's revenues for most recent fiscal year: $7,926,330

State the aggregate market value of the voting and non-voting common equity held
by non-affiliates  computed by reference to the price at which the common equity
was sold,  or the average bid and asked  price of such  common  equity,  as of a
specified date within the past 60 days. $0.

The number of shares  outstanding of registrant's  common stock, $.001 par value
per share, as of April 4, 2005, was 18,181,208 shares.

Transitional Small Business Disclosure Format (check one): Yes { } No {X}


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<PAGE>

                               MEDSOLUTIONS, INC.
                        2004 ANNUAL REPORT ON FORM 10-KSB
                                      INDEX

                                     Part I.
                                                                            Page
                                                                            ----

  Item 1.   Description of Business                                            1
  Item 2.   Description of Property                                           13
  Item 3.   Legal Proceedings                                                 14
  Item 4.   Submission of Matters to a Vote of Security Holders               14
Part II.
  Item 5.   Market for Common Equity and Related Stockholder Matters          15
  Item 6.   Management's Discussion and Analysis or Plan of Operation         17
  Item 7.   Consolidated Financial Statements                                 24
  Item 8.   Changes In and Disagreements with Accountants on Accounting
            and Financial Disclosures
                                                                              24
  Item 8A.  Controls and Procedures                                           24
  Item 8B.  Other Information                                                 24
Part III.
   Item 9.  Directors and Executive Officers of the Registrant                25
   Item 10. Executive Compensation                                            27
   Item 11. Security  Ownership of Certain  Beneficial  Owners and
            Management and Related  Stockholder Matters                       28
   Item 12. Certain Relationships and Related Transactions                    31
   Item 13. Exhibits and Reports on Form 8-K                                  32
   Item 14. Principal Accountant Fees and Services                            34
Signatures                                                                    36
Audited Consolidated Financial Statements                                    F-i
Exhibit Index


<PAGE>

                SAFE HARBOR REGARDING FORWARD LOOKING STATEMENTS

         This Form 10-KSB contains forward-looking statements.  These statements
relate to future events or our future financial performance. You should exercise
extreme caution with respect to all forward-looking statements contained in this
Form 10-KSB. Specifically, the following statements are forward-looking:

o        statements   regarding   our  overall   strategy   including,   without
         limitation,  our intended  markets,  service offerings and acquisitions
         and our expected liquidity and capital resources;

o        statements  regarding the plans and  objectives of our  management  for
         future  operations,  expectations  for sales and marketing and the size
         and nature of the costs we expect to incur and the people and  services
         we may employ;

o        statements regarding anticipated trends in our business;

o        statements regarding regulations that may affect us;

o        statements  regarding our  competition  and our ability to compete with
         third parties;

o        any statements  using the words  "anticipate,"  "believe,"  "estimate,"
         "expect,"   "intend,"  "may,"  "should,"   "would,"  "expect,"  "plan,"
         "predict," "potential," "continue" and similar words; and

o        any statements other than historical fact.

         Forward-looking  statements reflect the current view of management with
respect to future events and are subject to numerous  risks,  uncertainties  and
assumptions.  We can give no assurance that such  expectations  will prove to be
correct.  Should any one or more of such risks or  uncertainties  materialize or
should any underlying assumptions prove incorrect,  actual results are likely to
vary  materially  from  those  described  in this Form  10-KSB.  There can be no
assurance  that the  projected  results  will  occur,  that these  judgments  or
assumptions will prove correct or that unforeseen  developments  will not occur.
We are under no duty to update any of the  forward-looking  statements after the
date of this Form 10-KSB.






<PAGE>

                                     PART I

Item 1.  Description of Business

Company Overview

         MedSolutions,  Inc. ("we," "us," or the "Company"), a Texas corporation
that was organized on November 11, 1993, is a diversified  holding  company that
provides complete and effective waste management  outsource  solutions  marketed
and  serviced  through  three  wholly owned  subsidiaries.  Through  EnviroClean
Management Services, Inc. ("EMSI"), from which we currently derive virtually all
of our revenue,  we are primarily  engaged in regulated medical waste management
services,  which  include  collecting,  transporting,  treating and disposing of
regulated  medical  waste  from  a  variety  of  healthcare  customers.  Through
ShredSolutions,  Inc.  ("SSI"),  we  market  a fully  integrated,  comprehensive
service  for  the  collection,   transportation  and  destruction  of  Protected
Healthcare Information (PHI) and other confidential  documents,  primarily those
generated by  healthcare  providers  and  regulated  under the Health  Insurance
Portability and  Accountability  Act ("HIPAA").  Through  SharpsSolutions,  Inc.
("SharpsSolutions"),  we offer a reusable  sharps  container  service program to
healthcare facilities that we expect will virtually eliminate the current method
of utilizing  disposable sharps containers.  We are a fully integrated regulated
medical waste  management  company  providing  medical waste and PHI collection,
transportation,  treatment and disposal,  and related  consulting,  training and
education services and products. Our three principal groups of customers include
(i)  outpatient  clinics,  medical  and dental  offices,  biomedical  companies,
municipal   entities,   long-term  and  sub-acute  care   facilities  and  other
smaller-quantity  generators  ("SQG") of  regulated  medical  waste,  (ii) blood
banks,  surgery centers,  dialysis centers and other medium quantity  generators
("MQG") of regulated  medical waste and (iii) hospitals,  diagnostic  facilities
and other  larger-quantity  generators  ("LQG") of regulated  medical waste.  We
believe that the services we offer are compelling to our customers  because they
allow our customers to avoid the  significant  capital and operating  costs that
they would have to incur if they were to manage their regulated medical waste or
PHI destruction and internally. Moreover, by outsourcing these waste management,
sharps container  management,  PHI destruction,  regulatory compliance and other
services to us, our customers  reduce or eliminate their risk of the large fines
associated with regulatory non-compliance.

Business Background

         We were originally  incorporated as Advanced EnviroTech  Systems,  Inc.
for the purpose of  developing,  designing and  manufacturing  a patented  solid
waste treatment technology,  the EnviroClean(R)  Thermal Oxidation System, which
we may sometimes refer to as the "EnviroClean(R) System", for the destruction of
regulated  medical and other specialized waste streams generated by the medical,
commercial  and industrial  business  communities  in an  environmentally  sound
manner. We subsequently changed our name to EnviroClean  International,  Inc. We
have two issued  patents  (No.  5,680,820  and No.  5,730,072)  and a  trademark
regarding  the  EnviroClean(R)  System.  Although  we were  established  for the
purpose of developing,  manufacturing and marketing the  EnviroClean(R)  System,
our  success  in  that  regard  has  been  marginal,  and we have  not  produced
significant  revenue or any profit from such  activities.  Lack of funds for the
development,  modification and marketing of the EnviroClean(R)  System,  coupled
with the general lack of acceptance  and demand,  and the cost of production and
operation  of the product,  contributed  to our  disappointing  results in prior
periods.  There are no plans to reactivate the  development  of the  EnviroClean
System. In 1999, we altered our focus from the development of the EnviroClean(R)
System to the  development  of our regulated  medical waste  management  service
business,  changed our corporate name and modified our business model to emulate
that of the  industry  leader,  Stericycle,  Inc.  ("Stericycle"),  but  with an
emphasis on customer service. In addition, we subsequently began to focus on the
creation and  development  of  subsidiaries  to provide our large base of health
care provider customers with other health care related waste management services
and regulatory compliance programs. From the point we elected to implement these
changes in our business  strategy,  our business has seen a dramatic  turnaround
and a much more receptive market.

Industry Overview

         The  regulated  medical  waste  industry  arose with the Medical  Waste
Tracking  Act of 1988,  or MWTA,  which  Congress  enacted in  response to media
attention  after medical waste washed ashore on ocean beaches,  particularly  in
New York and New Jersey. Since the 1980s, government regulation has increasingly
required the proper  handling and disposal of the medical waste generated by the
health care  industry.  Regulated  medical  waste is generally  described as any
medical  waste  that  can  cause an  infectious  disease,  including  single-use
disposable items, such as needles,  syringes, gloves and other medical supplies;
cultures and stocks of infectious agents; and blood and blood products.



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<PAGE>

         According to Stericycle's  reports,  the size of the regulated  medical
waste market in the United States is approximately $3.0 billion and is in excess
of $10.0  billion when  ancillary  services  such as PHI  destruction,  reusable
sharps container  programs,  training,  education,  product sales and regulatory
compliance programs are taken into consideration. Industry growth is driven by a
number of factors. These factors include:

         Pressure To Reduce  Hospital  Costs.  The health care industry is under
pressure to reduce costs and improve  efficiency.  To accomplish this reduction,
outside contractors are being hired to perform some services,  including medical
waste  management,  PHI destruction and reusable sharps container  programs.  We
believe that our medical waste  management  services help health care  providers
reduce costs by reducing their medical waste  tracking,  handling and compliance
costs,  reducing  their  potential  liability  related to  employee  exposure to
bloodborne pathogens and other infectious  material,  and reducing the amount of
money invested in on-site treatment of medical waste and/or PHI destruction.

         Shift to Off-Site  Treatment.  We believe  that  managed care and other
health care  cost-containment  pressures are causing  patient care to shift from
institutional  higher-cost  acute-care  settings  to  less  expensive,  smaller,
off-site  treatment  alternatives.  Many common  diseases and conditions are now
being  treated  in smaller  non-institutional  settings.  We believe  that these
non-institutional  alternate-site health care expenditures will continue to grow
as cost-cutting  pressures  increase.  Typically these type of settings generate
only small amounts of medical waste; thus, the potential risks of non-compliance
with applicable state and federal medical waste regulations is  disproportionate
to the cost of services we can provide.

         Aging of U.S. Population.  According to industry statistics,  the "baby
boom" generation (births between 1946 and 1964) constitutes approximately 30% of
the United  States  population.  The  relative  size of this  generation  should
continue to result in an increase  in the average age of the  population,  while
falling  mortality  rates ensure that the average person should live longer.  As
people age, they typically require more medical attention and a wider variety of
tests and  procedures.  In  addition,  as  technology  improves,  more tests and
procedures become available.  All of these factors lead to increased  generation
of medical waste.

         Environmental  and  Safety  Regulation.  Our  industry  is  subject  to
extensive  regulation beyond the MWTA. For example, the Clean Air Act Amendments
of 1990 (the "Clean Air Act")  regulations  adopted in 1997 limit the  discharge
into the atmosphere of pollutants released by medical waste incineration.  These
regulations have increased the costs of operating medical waste incinerators and
have resulted in the closures of several on-site treatment  facilities,  thereby
increasing  the  demand  for  off-site  treatment  services.  In  addition,  the
Occupational  Safety and Health  Administration  ("OSHA") has issued regulations
concerning  employee  exposure to  bloodborne  pathogens  and other  potentially
infectious  materials that require,  among other things,  special procedures for
the handling and disposal of medical waste and annual  training of all personnel
who may be exposed to blood and other body fluids.  These  regulations  underlie
the expansion of our service  offerings to include OSHA compliance  services for
health care providers.

Services and Operations

         Our  services  and   operations   are  comprised  of  the   collection,
transportation,  treatment,  and disposal of regulated  medical waste,  reusable
sharps  containers and PHI,  together with  regulatory  compliance  training and
education programs and consulting  services.  To service our customers,  we have
two  collection/treatment  facilities  and two  transfer  sites in the  State of
Texas, one  collection/treatment/transfer  facility in the State of Oklahoma and
one transfer facility in Louisiana. We offer programs to assist our customers in
the proper  handling,  separating,  packaging and disposing of medical waste. We
also advise our health care  customers in the proper  methods of  recording  and
documenting  their  medical waste  management to comply with federal,  state and
local regulations.  In addition, we offer consulting services to our health care
customers  for OSHA and HIPAA  compliance  and to assist  them in  reducing  the
amount of medical waste they generate. We have approximately 5,500 medical waste
disposal  agreements  with  customers for the  collection of their medical waste
and/or PHI.  During  2004,  the  University  of Texas  Medical  Branch  ("UTMB")
accounted for approximately  14.1% of our revenue,  Christus Spohn Health System
approximately  6.9%,  Quest  Diagnostics,  Inc.  approximately  3.8%, East Texas
Medical  Center  Hospitals  and Clinics  approximately  3.3%,  and Texas  Health
Resources  approximately 2.8%. The loss of any of these sources of revenue could
reduce our revenues,  increase our losses from operations and materially  impact
our ability to be profitable.

         Collection and Transportation. We consider efficiency of collection and
transportation to be a critical element of our operations  because it represents
approximately  one-half of our operating  costs. We have  sophisticated  routing
software to optimize our routes.  We try to maximize the number of stops on each
route. We use a global positioning system ("GPS") for our collection vehicles to
improve efficiency.  We attempt to correlate the size of our collection vehicles
to the amount of medical  waste to be  collected  at a  particular  stop or on a
particular route. We collect reusable  containers or corrugated boxes of medical
waste from our  customers at intervals  depending  upon  customer  requirements,
terms of service and volume of medical waste  produced.  The containers or boxes


                                       2
<PAGE>

are  inspected  at each  customer's  site  prior to  pickup.  The  waste is then
transported  directly  to  one  of  our  treatment  facilities  or to one of our
transfer  stations where it is combined with other medical waste and transported
to a treatment facility. In some select circumstances we transport medical waste
to other permitted medical waste treatment facilities.

         As part of our  collection  operations,  we supply  specially  designed
containers for use by most of our customers. We have reusable plastic containers
that are  leak  and  puncture  resistant.  The  plastic  containers  enable  our
customers to reduce costs by reducing the number of times that medical  waste is
handled,  eliminating the cost (and weight) of corrugated  boxes and potentially
reducing liability  resulting from human contact with medical waste. The plastic
containers  are  designed to  maximize  the loads that will fit within the cargo
compartments  of our standard  trucks and  trailers.  If a customer  generates a
large  volume of waste,  we will place a large  temporary  storage  container or
trailer on the customer's premises.  In order to maximize regulatory  compliance
and minimize potential liability,  we will not accept medical waste unless it is
properly  packaged by customers in  containers  that we have either  supplied or
approved.

         Treatment  and  Disposal.   Upon  arrival  at  a  treatment   facility,
containers or boxes of medical  waste are typically  scanned to verify that they
do not contain any unacceptable  substances such as radioactive  materials.  Any
container or box that is discovered to contain unacceptable waste is returned to
the customer. After inspection,  the waste is treated using one of our treatment
technologies.  Upon completion of the particular process, the resulting waste or
incinerator  ash is transported  for disposal in a landfill  operated by parties
unaffiliated with us. After the plastic  containers have been emptied,  they are
washed, sanitized and returned to customers for re-use.

         Treatment   Technologies.   We  currently  use  both   autoclaving  and
incineration technologies for treating regulated medical waste.

         Autoclaving.  Autoclaving  treats  medical  waste  with  steam  at high
temperature  and pressure to kill pathogens.  Autoclaving  alone does not change
the appearance of waste, and  recognizable  medical waste may not be accepted by
some landfill  operators,  but  autoclaving  may be combined with a shredding or
grinding process to render the medical waste unrecognizable.

         Incineration. Incineration burns medical waste at elevated temperatures
and reduces it to ash.  Incineration  reduces the volume of waste, and it is the
recommended  treatment and disposal  option for some types of medical waste such
as  anatomical  waste or residues from  chemotherapy  procedures.  However,  air
emissions from incinerators can contain certain byproducts, which are subject to
federal,  state and, in some  cases,  local  regulation.  In  addition,  the ash
byproduct of incineration may be regulated in some instances.

Our current capacity to treat regulated medical waste is approximately divided
between these treatment methods in the following percentages:

                   Autoclaving                    80%
                   Incineration                   20%

We vary our treatment of medical waste among  available  treatment  technologies
based on the type of waste  and  capacity  and  pricing  considerations  in each
service area, in order to minimize operating costs and capital investments.

         Disposal Operations.  We operate three permitted treatment  facilities.
Our  treatment/transfer  facility located in Garland, Texas (a suburb of Dallas)
services North Texas, Oklahoma, Arkansas and Louisiana (the "Garland Facility").
Our  treatment/transfer  facility  in  Tulsa,  Oklahoma  is  currently  used for
transfer  purposes and services the Oklahoma  market and can service the Kansas,
Missouri and Northern Arkansas markets.  We have a treatment facility located in
Galveston,  Texas which services  customers  located in South Texas and Southern
Louisiana  with an  emphasis  on the  Greater  Houston,  Corpus  Christi and San
Antonio/Austin service areas. The Galveston facility is owned by UTMB (the "UTMB
Facility"), a component of the University of Texas System, which is an agency of
the State of Texas.  We use the UTMB  Facility for the disposal of waste streams
that we collect and transport for our customers located in this region, and also
for  waste  streams  generated  by  UTMB  and  its  affiliates.  As  part of our
acquisition of BMI Services, Inc. ("BMI") in 1996, BMI's contract to operate the
medical  waste  incineration  facility  at UTMB  and to  provide  medical  waste
incineration  services to UTMB was  assigned to us. Our current  agreement  with
UTMB expires in December 2005.

         Our current  agreement  with UTMB was amended in August,  2004 to allow
UTMB to add an  autoclave  unit  at the  UTMB  branch  in  Galveston  at its own
expense.  The autoclave unit was added in tandem with the incinerator  unit as a
more cost  effective and efficient  means to process waste that does not have to
be incinerated. Under the current agreement with UTMB, certain fees that we must


                                       3
<PAGE>

pay UTMB will increase on an annual basis.  There is also a fixed facility usage
and  maintenance fee that was $18,500 per month for most of 2003 but was reduced
to $12,500 per month  beginning  in November  2003 and will remain at that level
until  December 2005, a graduated  capital  renewal fee (to reimburse UTMB for a
capital investment of approximately  $1.5 million) of approximately  $31,366 per
month  until  December  2005,  and a constant  usage fee at a per pound rate for
waste incinerated and a per pound rate for waste that is autoclaved based on the
volume of medical waste  processed at the UTMB Facility for non-UTMB  waste.  We
pay a flat fee of  approximately  $2,865 per month for utilities  related to the
UTMB Facility.

         In 2003,  we  negotiated a long-term  agreement to manage and operate a
permitted  medical waste treatment  facility in Tulsa,  Oklahoma.  Our agreement
became  effective  October  1, 2003 and we began  marketing  and  servicing  the
Oklahoma market from the Tulsa facility (the "Tulsa  Facility") in 2004.  During
2004, it was determined that a transfer  facility in Oklahoma City would be more
cost  effective and efficient in the markets we are trying to serve based on the
business we acquired  during 2004. A new site in Oklahoma  City has been secured
and a  permit  application  has  been  submitted.  We  expect  approval  and the
commencement of operations in 2005.

         Consulting  Services.  Before medical waste is picked up by our trucks,
our integrated  waste  management  approach  attempts to "build in" efficiencies
that will yield  advantages  for our  customers.  For  example,  our  consulting
services can assist our  customers in reducing the volume of medical  waste that
they generate or assist them with regulatory  compliance training.  In addition,
we provide customers with the documentation  necessary for compliance with laws,
which, if they complete the documentation properly, will reduce interruptions to
their businesses to verify compliance.

         Documentation.  We provide complete  documentation to our customers for
all medical waste and PHI that we collect,  including the name of the generator,
date of pick-up and date of delivery to a treatment  facility.  We believe  that
our  documentation  system  meets  all  applicable  federal,   state  and  local
regulations  regarding the packaging  and labeling of medical  waste,  including
regulations issued by the U.S.  Department of Transportation,  or U.S. DOT, OSHA
and state and local  authorities.  This  documentation  is sometimes used by our
customers to prove that they are in compliance with these regulations.

         During 2004,  the Company  launched the  following  new programs to its
customers.

         SharpsSolutions,  Inc.--Reusable Sharps Container Program. The Reusable
Sharps Container Program is perhaps one of the most significant  investments and
opportunities that we are currently undertaking. Sharps management is defined as
the  management  and  treatment of  sharp-edged  medical waste such as syringes,
needles,  razors,  scissors  and  scalpels  that may have come into contact with
blood  born  pathogens,  such  as HIV  or  hepatitis.  The  most  common  sharps
management  is where  the  hospital  employees  dispose  of  sharps  in  various
containers  that are then  collected by other  hospital  employees  and disposed
(container and sharps content together) within the hospitals' waste that is then
treated  in-house or outsourced to a medical waste service  provider such as the
Company.  The  Reusable  Sharps  Container  Program  is  intended  to be a fully
outsourced  service  offering where hospital  employees do not handle the sharps
once they are disposed at the point of use.  This is paramount  for hospitals in
that hospital personnel are less subject to needle stick injuries.

         Statistically,  there are  600,000 to  800,000  needle  stick  injuries
annually,  with a third of them occurring during the disposal process. With each
needle stick  costing  between  $5,000 and $10,000,  these  incidents  alone are
costing the  industry  over one  billion  dollars  annually.  In addition to the
cost/liability savings associated with reduced needle stick incidents,  the cost
of recycling the containers  rather than purchasing  them is significant,  often
saving 15 to 20% for the generator.  The combined  savings  between direct costs
plus costs associated with reduced needle sticks can reach up to 30% per year.

         Currently,  the reusable sharps  container  recycling market is rapidly
developing.  It is very  popular on the east coast of the  United  States  where
approximately  80% of the  market  utilizes  reusable  sharps  programs,  but is
virtually  unknown in our existing  service  markets.  With the proper sales and
marketing strategy and market penetration to existing customers,  we have a very
good  chance of  capturing  significant  market  share in our  existing  service
markets.  The Company's  Reusable Sharps  Container  Program is a key element of
providing  this  broadened  range of  services  in  response  to this new market
opportunity.  The  idea  behind  the  program  is to  create  an even  stronger,
longer-term  relationship with large generators of waste by acquiring  contracts
and offering a service that actually put the  Company's  personnel and processes
inside of the  customers'  facilities.  We  initiated  service  to the first LQG
customer in October 2004 and estimate,  based on research  conducted by industry
analysts  and our own  conservative  estimates,  that  there  is a total  market
opportunity in the markets we service of approximately $20 million annually.

         EnviroSafe  Complete  Compliance  Program.  The EnviroSafe program is a
competitive program to Stericycle's  extremely lucrative SteriSafe program - the


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<PAGE>

difference  being that, in addition to regulated  medical waste  management  and
OSHA  compliance,  we will offer services  related to compliance with HIPAA. Our
EnviroSafe  program will be priced at more competitive  rates that those offered
by Stericycle's SteriSafe program and offer better customer service initiatives.

         The goal of the  EnviroSafe  program is to reach  small  generators  of
waste and charge them for a turnkey  medical  waste  management  and  OSHA/HIPAA
compliance  package that  generates a more  consistent and  substantial  revenue
stream from the small  generator  than is  typically  expected  from the minimal
amounts of revenue  generated from medical waste service  pickups.  By providing
the customer with regulated medical waste and PHI pickup and disposal  services,
informational software,  manuals and training, we will ensure compliance for our
customers and protect them from the high fines and workplace injuries associated
with noncompliance.

         Two packages are offered,  "Premium" and "Complete," whereby a customer
can choose its level of service.  The Premium  package  includes  medical  waste
pickup and disposal and some informational  materials in the form of manuals and
software. The Complete package offers total OSHA/HIPAA compliance materials plus
training, mock OSHA inspections and HIPAA related document destruction services.

Business Strategy

         Our goals are to  strengthen  our  position  as a regional  provider of
integrated  services in the regulated medical waste industry and to continuously
improve our financial  performance.  Components of our strategy to achieve these
goals include:

         Improve  Margins.  We will  continue  to  actively  work to improve our
margins by increasing our base of small quantity  generators and focusing on our
ancillary service strategies,  including reusable sharps container programs, PHI
destruction and regulatory compliance programs. These services fulfill the needs
of our large,  medium and small quantity generators and we believe that with the
rapid organic and acquisitional growth of our customer base, the opportunity for
sales of ancillary services and regulatory  compliance products to our customers
will continue to grow and the  incremental  cost of offering these services will
continue to decrease, thereby improving margins.

         Expand  Range of Services  and  Products.  We believe  that we have the
opportunity  to expand our  business by  increasing  the range of  products  and
services that we offer to our existing customers.  For example, we now offer PHI
destruction and a broad range of OSHA compliance and consulting  services to our
customers.  Because our drivers call on numerous medical facilities on a routine
basis,  we also offer  single-use  disposable  medical  supplies  to our medical
customers, and we may increase these offerings in the future.

         Seek  Strategic  and/or  Complementary  Acquisitions.  We actively seek
strategic  opportunities  to  acquire  businesses  that  expand  our  network of
treatment  centers and  increase our customer  base.  We believe that  strategic
acquisitions  can enable us to gain  operating  efficiencies  through  increased
capacity  utilization  and  increased  route  density  as well as to expand  the
geographic service areas in which we operate.

         Capitalize on Outsourcing Due to Clean Air  Regulations.  The Clean Air
Act  regulations  have  increased  both the capital costs required to bring many
existing  incinerators  into  compliance  and the  operating  costs of continued
compliance.  We  plan  to  continue  to try and  capitalize  on the  anticipated
movement by hospitals to outsource medical waste treatment rather than incur the
cost of installing the air pollution  control  systems  necessary to comply with
these EPA regulations.

         Our business strategy and expansion plans will place significant strain
on our management, working capital, financial and management control systems and
staff.  Our failure to properly respond to these needs by failing to maintain or
upgrade financial and management control systems,  failing to recruit additional
staff or failing to  respond  effectively  to  difficulties  encountered  during
expansion could adversely affect our business,  financial  condition and results
of operations.  Although,  based on our  experience in the industry,  we believe
that our management  and financial  systems and controls are adequate to address
current needs and we are attempting to recruit and train additional staff, there
can be no  assurance  that our  systems,  controls  or staff will be adequate to
sustain future growth.

Acquisitions and Corporate Background

         BMI  Services,   Inc  ("BMI").  BMI,  a  regulated  medical  waste  and
transportation  management company,  was acquired by EMSI in April 1996. BMI was
based in Houston,  Texas and was one of the largest independent  transporters of
medical waste in Texas. We acquired our primary waste  transportation  business,
our transfer station in Tyler,  Texas and the UTMB  arrangement  through the BMI
acquisition.


                                       5
<PAGE>

         EnviroClean   Management   Services,   Inc   ("EMSI").   We  and  other
stockholders  formed EMSI in February 1996, as a  consolidation  vehicle for the
merger or acquisition of BMI and other  proposed  entities.  In January 1998, we
exchanged shares of our common stock, $.001 par value per share ("Common Stock")
to acquire 667,375 shares of EMSI from other stockholders. This transaction gave
us a controlling  interest of approximately  51.3% of EMSI. In December 1998, we
offered to exchange one of our shares for each share of EMSI still  outstanding.
As a result,  we acquired  shares  representing  an aggregate of 96.1% of EMSI's
stock.  Since  then we have  continued  the  exchange  offer  and have  acquired
additional shares and now own 99.3% of EMSI.

         AmeriTech Environmental, Inc. ("ATE"). On November 7, 2003, we acquired
certain of the assets of ATE,  including the assignment by ATE to the Company of
all of its regulated  medical waste  disposal  customer  contracts  (which cover
approximately 800 customers).  The other assets acquired consisted  primarily of
equipment  associated with ATE's regulated medical waste disposal business and a
parcel of real property permitted as a transfer site located in Houston,  Texas.
The purchase price for the acquired  assets was $650,000 cash, a promissory note
in the  original  principal  amount of $750,000  bearing  interest at a rate per
annum of 7%, interest  payable  monthly,  and all principal and accrued interest
due on  November  7, 2004,  and  705,072  shares of our Common  Stock.  The cash
portion of the  purchase  price was funded from the  proceeds of sales of Common
Stock in private  placements and $400,000 which was loaned to the Company by two
of its  directors/stockholders  in exchange for promissory  notes.  The purchase
price was determined largely based upon the amount of revenues ATE had generated
from its  regulated  medical  waste  disposal  business  during the first  three
quarters of 2003.

         During  2004 and in  accordance  with the  acquisition  agreement,  the
Company calculated a purchase price adjustment with respect to the customer list
acquired from ATE. The  calculation  resulted in a purchase  price  reduction of
$254,433,  which lowered the assigned  value of the customer list  acquired.  In
addition,  the Company further determined there was an impairment of $139,330 in
2004 to the customer list acquired from ATE. Accordingly, the Company recorded a
charge of $139,330 during 2004, to reflect the decrease in net carrying value of
the  customer  list.  As part of the  acquisition,  the  Company  also  recorded
goodwill of approximately $1,000,000.

         A  settlement  was reached  between ATE and the Company on February 11,
2005 due to numerous  disputes and  disagreements  that arose in relation  ATE's
representations  in the asset purchase  agreement.  The settlement calls for the
modification of the promissory note to ATE from the Company to reduce the amount
owed from  $750,000 to  $150,000,  payable in two  installments  of $75,000 each
which shall begin at the time that ATE delivers audited financial  statements of
ATE's books and records for the nine-month  period ended September 30, 2003 that
will allow us to comply with our Form 8-K reporting requirements with the United
States  Securities and Exchange  Commission  ("SEC").  The resulting  settlement
should allow us to record a gain from  extinguishment  of debt of  approximately
$650,000  during the three  months  ended March 31,  2005.  We are  currently in
discussions to convert the remaining  balance of the promissory note into Common
Stock of the Company.

         We have not  complied  with the SEC  Form  8-K  reporting  requirements
relating to the ATE acquisition. We are required to file two years of historical
financial  statements to comply with the SEC's Form 8-K reporting  requirements.
We have not yet completed our audit of ATE relating to the 2003 acquisition, and
accordingly have not yet complied with these reporting requirements.

         Med-Con Waste  Solutions,  Inc.  ("Med-Con")  On September 30, 2004, we
acquired certain assets, including a customer list, of Med-Con in an acquisition
accounted  for as a  purchase  for a total  purchase  price of  $1,149,000.  The
purchase price for the acquired  assets was (i) $250,000 cash, (ii) a promissory
note in the original principal amount of $500,000 bearing interest at a rate per
annum of 7%, payable in 30 equal monthly  installments of principal and interest
with the first such  installment due on January 1, 2005, (iii) a promissory note
in the original  principal  amount of $250,000,  with no interest,  and with the
principal  amount and the due date subject to adjustment based upon the delivery
by  Med-Con  to the  Company  of  consents  to the  assignment  of the  customer
contracts   acquired  from  Med-Con  within  75  days  of  the  closing  of  the
transaction,  (iv) and 149,000 shares of Common Stock.  The principal  amount of
the $500,000 promissory note was subject to adjustment depending upon the amount
of revenues  realized by the Company from the customer  contracts  acquired from
Med-Con for the ensuing 90 days  following  the closing of the  transaction.  We
assigned  $497,610,  based on an  independent  appraisal,  to the customer  list
acquired and  established a useful life of five years over which to amortize the
assigned  cost.  Amortization  expense of the  customer  list for each year will
approximate $99,522.

         During the year ended  December  31,  2004 and in  accordance  with the
acquisition  agreement,  we calculated a purchase price  adjustment of $153,780,
which lowered the assigned value of the assets acquired.  This reduction reduced
the note payable to Med-Con by $153,780.


                                       6
<PAGE>

         As part of the acquisition,  we also recorded goodwill of approximately
$499,610, net of the purchase price reduction.

         We have not  complied  with the SEC  Form  8-K  reporting  requirements
relating to the Med-Con acquisition.

         Bray Medical Waste Service ("Bray") On January 1, 2004, we acquired the
customer contracts and took over the regulated medical waste operations of Bray.
The purchase price for the acquired  assets was (i) $11,200 cash and (ii) 29,867
shares of Common Stock valued at $22,400 for a total  purchase price of $33,600.
The  purchase  price  allocation  was  $30,000  to  customer  list and $3,600 to
goodwill.

Expansion Plans and Acquisition Targets

         In addition to our agreement to manage and operate the Tulsa  Facility,
we  have  also  initiated   operations  at  a  permitted  transfer  facility  in
Logansport,  Louisiana pursuant to a lease arrangement. We have also submitted a
permit transfer application to the Oklahoma Department of Environmental  Quality
("ODEQ")  for a transfer  site in Oklahoma  City.  This should  allow us to more
effectively service the Oklahoma,  East Texas, Arkansas,  Louisiana,  Kansas and
Missouri markets. We are also in various discussions with potential  acquisition
and/or merger candidates to densify and/or expand the markets we service.

         Evaluation and  Integration.  We believe that our  management  team can
evaluate  potential  acquisition  candidates and determine  whether a particular
medical  waste  management  business  can be  successfully  integrated  into our
business. In determining whether to proceed with a business acquisition, we will
evaluate a number of factors including:

         o  the  financial  impact of the proposed  acquisition,  including  the
            effect on our cash flow and earnings per share;

         o  the  historical  and  projected  financial  results  of  the  target
            company;

         o  the  purchase  price  negotiated  with the seller  and our  expected
            internal rate of return;

         o  the  structure  of the  purchase  with regard to offering one or the
            combination of the following: cash, notes and stock;

         o  the composition and size of the target  company's  customer base and
            the opportunity value of integrating our service,  ancillary service
            and regulatory compliance programs into the target company's market;

         o  the  efficiencies  that we can  achieve  by  integrating  the target
            company with our existing operations;

         o  the potential for enhancing or expanding our geographic service area
            and allowing us to make other acquisitions in the same service area;

         o  the experience,  reputation and personality of the target  company's
            management;

      o the target company's  reputation for customer service and  relationships
        with the communities that it serves; and

      o whether  the  acquisition  gives us any  strategic  advantages  over our
        competition.

Once a business is  acquired,  we will  implement  programs  designed to improve
customer service, sales,  marketing,  routing,  equipment utilization,  employee
productivity, operating efficiencies and cash flow.

Marketing and Sales

         Marketing Strategy.  We use both telemarketing and direct sales efforts
to obtain new customers.  In addition, we have a large database of potential new
large and small  quantity  generators,  which we believe  gives us a competitive
advantage in identifying and reaching these higher-margin  accounts. Our drivers
participate  in our  marketing and sales  efforts by actively  soliciting  small
quantity generators while they service their routes.

         Small Quantity  Generators  ("SQG"). We have targeted SQG's as a growth
area. We believe that these  customers offer high profit  potential  compared to
other potential  customers.  Typical small quantity generators are individual or
small groups of doctors, dentists and other health care providers who are widely
dispersed and generate only small amounts of medical waste.  These customers are
very  concerned  about  having the medical  waste  picked up and  disposed of in


                                       7
<PAGE>

compliance with applicable state and federal regulations.  We believe that these
customers view the potential risks of  non-compliance  with applicable state and
federal  medical  waste  regulations  as  disproportionate  to the  cost  of the
services that we provide. We believe that this factor has been the basis for the
significantly  higher gross  margins that we have achieved with our SQG's to our
LQG's.

         Medium Quantity  Generators  ("MQG").  The medium  quantity  generators
segment  of  our  business  currently  provides  us  with  the  opportunity  for
substantial  growth and better profit  margins than LQG's.  These  customers are
typically blood banks,  dialysis centers,  surgery centers and other high volume
specialty facilities.

         Large  Quantity  Generators  ("LQG").  We  believe  that we  have  been
successful  in serving  LQG's and plan to continue to serve those  customers  as
long as they establish  route anchors that open the door for  opportunities  for
our ancilliary services and/or maintain satisfactory levels of profitability. In
addition, we believe that the implementation of more stringent Clean Air Act and
other federal regulations  directly and indirectly  affecting medical waste will
enable us to improve our marketing efforts to large quantity  generators because
the additional costs that they will incur to comply with these  regulations will
make the costs of our services more attractive,  particularly  relative to their
use of their own incinerators. Our marketing and sales efforts to large quantity
generators are conducted by full-time account executives whose  responsibilities
include  identifying  and  attracting  new  customers  and serving our  existing
account  base  of  large  quantity  generators.  In  addition  to  securing  new
contracts,  our marketing and sales personnel provide consulting services to our
health care  customers,  assisting  them in reducing the amount of medical waste
that they generate,  training their employees on safety issues and  implementing
programs to audit, classify and segregate medical waste in a proper manner.

         Contract  and Service  Agreements.  We have  long-term  contracts  with
substantially all of our customers.  We negotiate  individual service agreements
with each large  quantity  and small  quantity  generators.  Although  we have a
standard form of agreement,  particularly for small quantity  generators,  terms
may vary depending upon the customer's  service  requirements  and the volume of
medical waste  generated  and, in some  jurisdictions,  requirements  imposed by
statute or regulation.  Service agreements typically include provisions relating
to the types of  containers,  frequency of  collection,  pricing,  treatment and
documentation  for  tracking   purposes.   Each  agreement  also  specifies  the
customer's  obligation  to  pack  its  medical  waste  in  approved  containers.
Substantially all of our agreements with customers contain automatic renewal and
price increase provisions.

         Service  agreements  are  generally  for a period of one to five years,
although  customers  may  terminate on written  notice and, in most cases,  upon
payment  of a  penalty.  We may set our  prices  on the  basis of the  number of
containers that we collect,  the weight of the medical waste that we collect and
treat, the number of collection stops that we make on the customer's  route, the
number of collection  stops that we make for a particular  multi-site  customer,
and other factors.

         Competition.  There are  several  regulated  medical  waste  management
companies  operating in the state of Texas and the surrounding  region,  and the
market is highly competitive. Our primary competitors are large, publicly traded
corporations with regional and national businesses. These companies also provide
a variety of  services  other than  collection,  transportation,  treatment  and
disposal.  As  such,  these  competitors  have a broad  scope  of  business  and
substantially greater financial and other resources than we possess.

         According  to public  securities  filings,  Stericycle  is the  largest
medical waste  management  company in the United  States.  Stericycle  initially
developed  and  utilized  a  proprietary  electro-thermal  deactivation  ("ETD")
process in a national strategy. However, Stericycle, like us, primarily utilizes
autoclave technologies to process a majority of its waste stream and to a lesser
degree incineration technologies. 3CI Complete Compliance Corporation ("American
3CI"), a subsidiary of Stericycle,  is one of the larger regional  medical waste
management companies in the Southeast.

         Based  on our  experience  in the  industry,  we  believe  that  we can
successfully  compete with  Stericycle,  American 3CI and other  competitors  by
concentrating  our  operations  in the  Southern  U.S. We believe that we gain a
competitive  advantage by offering better customer service than our competitors,
attractive  ancillary  services  and  regulatory  compliance  programs  and,  if
necessary,  the  ability  to reduce  the  price of waste  disposal  services  to
customers  to an amount  below that of our  competitors.  We believe this can be
accomplished as a result of having our facilities in closer geographic proximity
to the generators of medical waste, our cost reduction  efforts,  our ability to
offer  ancillary  services  and programs  and the  expansion  of our  operations
through acquisitions.

         In addition,  we face potential  competition  from  businesses that are
attempting  to  commercialize   alternate  treatment  technologies  or  products
designed  to reduce or  eliminate  the  generation  of  medical  waste,  such as
reusable or degradable medical products.


                                       8
<PAGE>

         We  compete  for  service   agreements   primarily   on  the  basis  of
cost-effectiveness,  quality of service and geographic location. We also attempt
to compete by demonstrating to customers that we can do a better job in reducing
their potential  liability.  Our ability to obtain new service agreements may be
limited  by the fact that a  potential  customer's  current  vendor  may have an
excellent service history or a long-term service contract or may offer prices to
the potential customer that are lower than ours.

Competitive Strengths

We believe that we benefit from the following competitive strengths:

         Broad  Range of  Services.  We offer  our  customers  a broad  range of
services to help them develop internal  systems and processes,  which allow them
to manage their medical waste, sharps containers and PHI destruction efficiently
and safely from the point of generation through treatment and disposal.  We have
also  developed  regulatory  compliance  programs  to help train our  customers'
employees  on the proper  methods of handling  medical  waste in order to reduce
potential employee exposure.  Other regulatory  compliance  programs such as our
EnviroSafe  Program  include those  designed to help clients ensure and maintain
compliance with OSHA, HIPAA and other relevant regulations.

         Strong   Sales   Network  and   Proprietary   Database.   We  use  both
telemarketing and direct sales efforts to obtain new customers.  In addition, we
have a large  database of  potential  new small and large  quantity  generators,
which we believe gives us a competitive  advantage in  identifying  and reaching
these higher-margin and route anchor accounts.

         Experienced Senior Management Team. Our senior executives  collectively
have over 45 years of management  experience in the waste  management and health
care industries.

Governmental Regulation

         We are subject to extensive and frequently changing federal,  state and
local laws and  regulations.  This  statutory and regulatory  framework  imposes
compliance  burdens  and  risks on us,  including  requirements  to  obtain  and
maintain government permits.  These permits grant us the authority,  among other
things:

         o  to construct and operate treatment and transfer facilities;

         o  to   transport   medical   waste   within   and   between   relevant
            jurisdictions; and

         o  to handle particular regulated substances.

Our permits  must be  periodically  renewed and are subject to  modification  or
revocation by the  regulatory  authorities.  We are also subject to  regulations
that  govern  the  definition,  generation,  segregation,  handling,  packaging,
transportation,  treatment,  storage and disposal of medical waste.  We are also
subject to  extensive  regulations  designed  to minimize  employee  exposure to
medical waste.

         Federal Regulation.  There are at least four federal agencies that have
authority over medical waste. These agencies are the EPA, OSHA, the U.S. DOT and
the U.S. Postal Service.  These agencies  regulate medical waste under a variety
of statutes and regulations.

         Medical Waste Tracking Act of 1988. In the late 1980s, the EPA outlined
a  two-year  demonstration  program  pursuant  to MWTA,  which  was added to the
Resource Conservation and Recovery Act of 1976. The MWTA was adopted in response
to health and environmental concerns over infectious medical waste after medical
waste washed ashore on beaches,  particularly in New York and New Jersey, during
the summer of 1988.  Public  safety  concerns  grew  following  media reports of
careless management of medical waste. The MWTA was intended to be the first step
in addressing  these problems.  The primary  objective of the MWTA was to ensure
that  medical  wastes which were  generated  in a covered  state and which posed
environmental  problems,  including an unsightly  appearance,  were delivered to
disposal or  treatment  facilities  with  minimum  exposure to waste  management
workers and the public. The MWTA's tracking requirements included accounting for
all waste transported and imposed civil and criminal sanctions for violations.

         In regulations implementing the MWTA, the EPA defined medical waste and
established guidelines for its segregation,  handling, containment, labeling and
transport.  The  MWTA  demonstration  program  expired  in  1991,  but the  MWTA
established a model followed by many states in developing their specific medical
waste regulatory frameworks.


                                       9
<PAGE>

         Clean Air Act Regulations.  In August 1997, the EPA adopted regulations
under  the  Clean  Air Act that  limit  the  discharge  into the  atmosphere  of
pollutants  released by medical waste incineration.  These regulations  required
every state to submit to the EPA for  approval a plan to meet  minimum  emission
standards for these pollutants. Due to these regulations,  the UTMB Facility was
closed from April 15, 2002 until March 25, 2003 in order to  implement  upgrades
and improvements to the UTMB incinerator to comply with the new regulations.  We
believe that we will be successful  in  maintaining  all  necessary  federal and
state permits to continue the operation of our incinerators.

         Occupational Safety and Health Act of 1970. The Occupational Safety and
Health  Act of 1970  authorizes  OSHA to issue  occupational  safety  and health
standards.  OSHA  regulations are designed to minimize the exposure of employees
to hazardous work  environments.  Various  standards apply to certain aspects of
our operations. These regulations govern, among other things:

         o  exposure to bloodborne  pathogens and other  potentially  infectious
            materials;

         o  lock out/tag out procedures;

         o  medical surveillance requirements;

         o  use of respirators and personal protective equipment;

         o  emergency planning;

         o  hazard communication;

         o  noise;

         o  ergonomics; and

         o  forklift safety.

Our  employees  are  required  by our policy to receive new  employee  training,
annual  refresher  training and training in their specific tasks. As part of our
medical  surveillance  program,   employees  receive  pre-employment  physicals,
including  drug  testing,   annually  required  medical  surveillance  and  exit
physicals.  We also subscribe to a drug-free  workplace policy. In addition,  we
are subject to unannounced OSHA Safety inspections at any time.

         Resource  Conservation  and  Recovery  Act of 1976.  In 1976,  Congress
passed  the  Resource  Conservation  and  Recovery  Act of 1976,  or RCRA,  as a
response to growing public concern about problems  associated  with the handling
and disposal of solid and hazardous  waste.  RCRA required the EPA to promulgate
regulations  identifying  hazardous wastes.  RCRA also created standards for the
generation,  transportation,  treatment,  storage  and  disposal  of  solid  and
hazardous  wastes.  These  standards  included a  documentation  program for the
transportation  of hazardous  wastes and a permit system for solid and hazardous
waste disposal facilities. Medical wastes are currently considered non-hazardous
solid wastes under RCRA. However,  some substances  collected by us from some of
our customers,  including photographic fixer developer solutions, lead foils and
dental amalgam, are considered hazardous wastes.

         We use landfills  operated by parties  unrelated to us for the disposal
of  incinerator  ash and autoclaved  waste.  Waste is not regulated as hazardous
under RCRA unless it contains hazardous  substances exceeding certain quantities
or concentration  levels,  meets specified  descriptions,  or exhibits  specific
hazardous  characteristics.  Following autoclave treatment, waste is disposed of
as  non-hazardous  waste.  After  incineration  treatment,  we test ash from the
incineration  process to  determine  whether it must be disposed of as hazardous
waste.

         We employ quality control  measures to check incoming medical waste for
specific types of hazardous substances. Our customer agreements also require our
customers to exclude  different  kinds of hazardous  substances  or  radioactive
materials from the medical waste they provide us.

         DOT Regulations. The U.S. DOT has put regulations into effect under the
Hazardous Materials Transportation Authorization Act of 1994 which require us to
package and label medical waste in compliance  with  designated  standards,  and
which  incorporate  bloodborne  pathogens  standards issued by OSHA. Under these
standards,   we  must,  among  other  things,  identify  our  packaging  with  a
"biohazard" marking on the outer packaging, and our medical waste container must
be  sufficiently  rigid and strong to prevent  tearing or  bursting  and must be
puncture-resistant, leak-resistant, properly sealed and impervious to moisture.


                                       10
<PAGE>

         DOT  regulations   also  require  that  a  transporter  be  capable  of
responding  on a  24-hour-a-day  basis in the event of an  accident,  spill,  or
release to the  environment  of a hazardous  material.  We have  entered into an
agreement with an organization that provides 24-hour emergency spill response to
provide this service.

         Our drivers are trained on topics such as safety,  hazardous materials,
medical  waste,  hazardous  chemicals and infectious  substances.  Employees are
trained to deal with emergency spills and releases of hazardous  materials,  and
we have a written  contingency plan for these events. Our vehicles are outfitted
with spill control equipment and the drivers are trained in its use.

         Comprehensive Environmental Response, Compensation and Liability Act of
1980. The Comprehensive  Environmental Response,  Compensation and Liability Act
of 1980, or CERCLA, established a regulatory and remedial program to provide for
the  investigation  and cleanup of facilities  that have released or threaten to
release hazardous substances into the environment. CERCLA and state laws similar
to it may impose strict,  joint and several  liability on the current and former
owners and operators of facilities  from which releases of hazardous  substances
have occurred and on the generators and transporters of the hazardous substances
that come to be located at these facilities.  Responsible  parties may be liable
for  substantial  site  investigation  and cleanup  costs and  natural  resource
damages,  regardless  of  whether  they  exercised  due care and  complied  with
applicable laws and regulations.  If we were found to be a responsible party for
a  particular  site,  we could be  required  to pay the entire  cost of the site
investigation  and cleanup,  even though other parties also may be liable.  This
result  would  be the  case if we were  unable  to  identify  other  responsible
parties,  or if those parties were financially unable to contribute money to the
cleanup.

State and Local  Regulation.  We currently conduct all of our business in Texas,
Oklahoma,  Louisiana and Arkansas.  At some point in the future,  we may conduct
business in other  states.  Other states have  different  regulations  regarding
medical waste, medical waste transport and medical waste incineration. If at any
time,  we expand our  business  into other  states,  we believe,  because of the
stringent standards applicable in Texas, that the costs of bringing our business
into compliance with the regulations of other states will be minimal.

Medical Waste. The Texas  Department of Health retains  authority to define what
waste will be  regulated  and how it may be  treated.  These  rules,  which were
updated in December  1994,  can be found in Title 25 Texas  Administrative  Code
("TAC")  Sections  1.131-1.137.  Under Texas law, the term  "special  waste from
health-care facilities" ("SWFHCRF") is used to define medical waste regulated by
state agencies. Only five categories of waste are regulated:

o        animal waste from animals intentionally exposed to pathogens;

o        bulk human blood and blood products;

o        pathological waste;

o        microbiological waste; and

o        sharps.

The  criteria  for  selection  of  these  categories  were  based  primarily  on
environmental  concerns rather than occupational  concerns. A chain of events is
necessary to produce disease from contact with medical waste. The items selected
for regulation were deemed to have the highest potential for disease  production
provided all of the required  events took place.  Sharps,  due to their inherent
ability to provide a portal of entry,  must be managed  properly  regardless  of
their contamination status.

Transportation of Medical Waste.  Subchapter Y, 30 TAC ss. 330.1001-1010 defines
rules for medical waste  management,  disposal,  transportation,  collection and
storage. These rules were updated in December 1994. The responsibility for these
regulations  rests  with the  Office  of Waste  Management  of the  TCEQ.  Under
Subchapter Y, the TCEQ regulates and registers transporters of medical waste by,
among other things,  requiring  specific  documentation of transportation of all
medical waste. Currently, the Company is a registered medical waste transporter.
The registration is subject to annual renewal,  and though we believe,  based on
our  experience  in the  industry,  that we are in  compliance  with  all of the
statutory guidelines, there is no guarantee that the TCEQ will continually grant
renewal registration to us.

Treatment  of Medical  Waste.  Approved  methods of  treatment of SWFHCRF can be
found in Title 25 TAC Section 1.133.  There are currently six approved treatment
methods:


                                       11
<PAGE>

o        steam disinfection;

o        chlorine disinfection/maceration;

o        chemical disinfection;

o        moist disinfection;

o        thermal inactivation; and

o        incineration.

We employ the steam disinfection (i.e.  autoclave) and incineration  methods for
the treating of medical waste. We have been successful in obtaining  permits for
our current medical waste transfer,  treatment and processing facilities and for
our transportation operations. Currently, we lease and operate one autoclave and
one incinerator from UTMB at the UTMB Facility that is properly  licensed by the
Office of Air  Quality of the Texas  Natural  Resource  Conservation  Commission
("TNRCC").

         We are  responsible  for  complying  with the  maintenance  obligations
pursuant to numerous  governmental  permits  and  licenses  owned by us or under
which we conduct  our  business.  We are also  responsible  for  complying  with
permits maintained by others. These permits include:

         o  transport  permits  for solid  waste,  medical  waste and  hazardous
            substances;

         o  permits to construct and operate treatment facilities;

         o  permits to construct and operate transfer stations;

         o  permits  governing  discharge of sanitary water and  registration of
            equipment under air regulations;

         o  approvals for the use of ETD and other technologies to treat medical
            waste; and

         o  various business operator's licenses.

         We believe that we are currently in compliance in all material respects
with our permits and applicable laws and regulations.  If we expand our services
to other states,  we will have to comply with such state's  specific  permitting
process to obtain the necessary permits to operate in such state, including, but
not  limited  to  obtaining  zoning  approval  and  local  and  state  operating
authority. Most communities rely on state authorities to provide operating rules
and safeguards for their community.  Usually the state provides public notice of
the project and, if enough  public  interest is shown,  a public  hearing may be
held. If we are successful in meeting all regulatory requirements, the state may
issue a permit to construct the new treatment facility or transfer station. Once
the  facility is  constructed,  the state may again issue  public  notice of its
intent to issue an operating  permit and may provide an  opportunity  for public
opposition  or other  action that may impede our ability to construct or operate
the  planned  facility.  Permitting  for  transportation  operations  frequently
involves  registration  of vehicles,  inspection  of equipment,  and  background
investigations on our officers and directors.

Patents and Proprietary Rights

         We rely on  unpatented  and  unregistered  trade  secrets,  proprietary
know-how  and  continuing  technological  innovation.  We  try to  protect  this
information, in part, by confidentiality agreements with our employees,  vendors
and  consultants.  There can be no assurance that these  agreements  will not be
breached,  that we would have adequate remedies for any breach or that our trade
secrets or know-how will not otherwise become known or independently  discovered
by other parties.

         Our commercial  success may also depend on our not  infringing  patents
issued to other  parties.  There can be no assurance  that patents  belonging to
other parties will not require us to alter our processes,  pay licensing fees or
cease  using any  current  or future  processes.  In  addition,  there can be no
assurance  that we would be able to license  the  technology  rights that we may
require at a reasonable  cost or at all. If we could not obtain a license to any
infringing  technology  that we currently use, it could have a material  adverse
effect on our business.


                                       12
<PAGE>

Potential Liability and Insurance

         The medical waste industry  involves  potentially  significant risks of
statutory,   contractual,  tort  and  common  law  liability  claims.  Potential
liability claims could involve, for example:

         o  cleanup costs;

         o  personal injury;

         o  damage to the environment;

         o  employee matters;

         o  property damage; or

         o  alleged  negligence  or  professional  errors  or  omissions  in the
            planning or performance of work.

We could also be subject to fines or penalties in connection  with violations of
regulatory requirements.

         We  carry  $5  million  of  liability  insurance   (including  umbrella
coverage),  and $1 million of aggregate  pollution and legal liability insurance
($2 million per incident),  which we consider  sufficient to meet regulatory and
customer requirements and to protect our employees,  assets and operations.  Our
pollution liability insurance excludes liabilities under CERCLA. There can be no
assurance  that we will not face  claims  under  CERCLA or  similar  state  laws
resulting in  substantial  liability  for which we are uninsured and which could
have a material adverse effect on our business.

Employees

         As of March 15, 2005, the Company had  approximately 93 full-time and 2
part-time employees. Four of the employees are employed in executive capacities;
the remaining  employees are in transportation  operations,  sales positions and
administrative  and clerical  capacities.  None of the  Company's  employees are
subject to collective bargaining agreements.

Item 2.  Description of Property

         We lease approximately 6,800 square feet of administrative office space
at 12750 Merit Drive-Park Central VII, Suite 770, Dallas, Texas 75251. The lease
expires on October 31,  2005;  however,  it was renewed and extended on February
12, 2005,  to extend to May 31, 2012.  As an  inducement to extend the lease and
reduce our rental  expense,  we reduced  our current  premises by  approximately
1,000 square feet and received  three months of free rent  beginning in February
2005. Beginning May 1, 2005, the rent will be $7,044 per month through April 30,
2007,  $7,539 per month from May 1, 2007 through April 30, 2010,  and $7,909 per
month from May 1, 2010  through  May 31,  2012.  As a result of the  renewal and
extension of the lease, the landlord gave us an approximate amount of $29,000 in
the form of an allowance to make improvements to the current premises.

         We lease approximately  7,500 square feet of administrative  office and
warehouse space at 14010 Interdrive East,  Houston,  Texas. The lease expired on
December  31, 2004 and we are renting  this space at a rate of $4,200 per month,
which has not changed since the lease expired.  We are currently in negotiations
to execute a long term lease/purchase agreement for the building.

         We own the Garland Facility, which consists of real property,  building
and improvements,  furniture and equipment. The Garland Facility includes 17,450
square feet of space (2,450  square feet of office space and 15,000  square feet
of warehouse  space),  and is located on approximately  three acres of land. The
building is approximately 30 years old, and was extensively remodeled in 1996 at
a cost of more  than  $500,000  to  upgrade  the  facility  to  accommodate  the
EnviroClean(R)  System and to showcase  its  operation  for sales and  marketing
purposes.  The EnviroClean(R) System was removed during 2004 in order to use the
space in the Garland Facility more efficiently for our autoclave process.  Prior
to the  installation  of the  autoclave in 2002,  the Garland  Facility was used
solely as a  transfer  station.  Our bank debt is secured by a first lien on the
Garland Facility, and four loans from stockholders of the Company are secured by
second and third lien deeds of trust on the Garland Facility.

         As mentioned  above,  we operate the UTMB Facility in Galveston,  Texas
pursuant  to a  contract  with  UTMB,  but UTMB  owns the  property,  plant  and


                                       13
<PAGE>

equipment  comprising the UTMB  Facility.  We also operate the Tulsa Facility in
Tulsa,  Oklahoma,  under a long term lease  agreement with  Envirosolve,  L.L.C.
which owns the property, plant and equipment comprising the Tulsa Facility.

         In the opinion of our management, our properties are adequately covered
by insurance.

Item 3.  Legal Proceedings

         We operate in a highly regulated industry and are exposed to regulatory
inquiries  or  investigations  from  time to time.  Government  authorities  can
initiate  investigations  for a variety of  reasons.  We have been  involved  in
certain legal and administrative proceedings that have been settled or otherwise
resolved on terms  acceptable to us, without having a material adverse effect on
our business.

         We are  also a  party  to  various  legal  proceedings  arising  in the
ordinary course of business. However, there are no legal proceedings pending or,
to our knowledge, threatened against us that will adversely affect our financial
condition or our ability to carry on the business except the following:

         We were named  defendant in a lawsuit filed in Travis County,  Texas by
the State of Texas.  The lawsuit  claimed  that we  breached a contract  awarded
under the Texas Smart Jobs  Program by failing to meet the  requirements  of the
contract and sought compensatory  damages in the amount of $439,631,  plus costs
and attorneys'  fees. On March 3, 2003 we reached a settlement with the State of
Texas the terms of which will  require  that we pay the State  $240,620  with no
interest in 36 equal  installments  of $6,684  commencing  on or about April 30,
2003. The  settlement  also requires that we  retroactively  pay $6,110 to those
employees or past  employees whom we were obligated to pay, but failed to pay in
full, pursuant to the Smart Jobs Program. As of December 31, 2004, the remaining
liability to the State of Texas was $106,939.

         At December 31, 2004, the total  liabilities for litigation  settlement
is $212,989.

         We are also subject to various matters of litigation  during its normal
course of  operations.  Management  believes that the eventual  outcome of these
matters  will not have a  material  adverse  effect on our  financial  position,
results of operations, or cash flows.

Item 4.  Submission of Matters to a Vote of Security Holders

         No matters were submitted to a vote of our security  holders during the
quarter ended December 31, 2004.






                                       14
<PAGE>

                                     PART II

Item 5.  Market for Common Equity and Related Stockholder Matters

         There is currently no public trading market for our Common Stock.

         At April 4, 2005, we had 18,181,208  shares of Common Stock outstanding
and had approximately 700 stockholders of record.

         We have no fixed dividend policy with respect to our Common Stock.  The
Board of Directors  is  authorized  to consider  dividend  distributions  on the
Common Stock from time to time,  upon its  assessment of our operating  results,
capital  requirements and general financial condition and requirements.  We have
not paid a dividend on the Common Stock since our inception.

         Our Series A Preferred  Stock,  par value  $.001,  ranks  senior to the
Common Stock with respect to the payment of dividends,  redemption,  and payment
and rights upon  liquidation,  dissolution  or  winding-up of the affairs of the
Company.  At April 4, 2005,  we had 213,172  shares of Series A Preferred  Stock
outstanding.

         Each outstanding  share of Series A Preferred Stock will  automatically
convert on the second  anniversary  of the  issuance  of the Series A  Preferred
Stock,  without any  further  action on the part of the Company or the holder of
such share,  into such number of fully paid and  nonassessable  shares of Common
Stock as is determined by dividing the original  purchase  price for such share,
together with the amount of dividends accrued and unpaid thereon, whether or not
declared,  through the conversion  date by the applicable  conversion  price for
such share in effect on such conversion  date. The initial  conversion  price is
$1.50 for the Series A Preferred Stock, and is subject to adjustment pursuant to
certain anti-dilution provisions.

         Each outstanding  share of Series A Preferred Stock will  automatically
convert into Common Stock immediately upon the Company's sale of Common Stock in
a  firm  commitment  underwritten  public  offering  pursuant  to  an  effective
registration  statement  under the Securities Act of 1933 (with certain  limited
exceptions), the public offering price of which is not less than $1.50 per share
(subject to  adjustment  for certain  recapitalization  events) and in which the
aggregate  net  proceeds  to  the  Company  equal  or  exceed  $1,000,000.  Such
conversion  may,  at the option of any holder  tendering  shares of the Series A
Preferred  Stock  for  conversion,  be  conditioned  upon the  closing  with the
underwriters of the sale of securities pursuant to such offering, in which event
the persons  entitled to receive the Common Stock upon  conversion  of shares of
the Series A Preferred  Stock will not be deemed to have  converted  such shares
until immediately prior to the closing of such sale of securities.

         Each  share of Series A  Preferred  Stock is also  convertible,  at the
option  of  the  holder   thereof   and  without   payment  of  any   additional
consideration,  into Common  Stock  prior to the  automatic  conversion  of such
share. Each share of Series A Preferred Stock is convertible into such number of
fully paid and nonassessable shares of Common Stock as is determined by dividing
the  original  purchase  price  for such  share,  together  with the  amount  of
dividends  accrued  and unpaid  thereon,  whether or not  declared,  through the
conversion date by the applicable  conversion  price for such share in effect on
such  conversion  date. The initial  conversion  price is $1.50 for the Series A
Preferred Stock, and is subject to adjustment pursuant to certain  anti-dilution
provisions.

Recent Sales of Unregistered Securities

         During 2003, we (i) issued  898,267  shares of Common Stock for a total
of $864,500 at prices ranging from $0.75 to $2.25 per share, (ii) issued 122,000
shares of Common Stock as compensation  and in exchange for the  cancellation of
debt in the amount of $122,000,  and (iii) issued 705,082 shares of Common Stock
as partial  payment  to  acquire  assets  from ATE,  which was later  reduced to
250,000   shares   in   2005   upon   settlement   of   certain   breaches   and
misrepresentations by ATE to the Company in connection with this acquisition.

         During 2004, we (i) issued  100,000  shares of Common Stock for a total
of $130,000 at prices ranging from $1.25 to $1.50 per share, (ii) issued 143,333
shares of Preferred Stock for a total of $215,000 at a price of $1.50 per share,
(iii) issued  8,500 shares of Common Stock for services  purchased in the amount
of $8,500,  (iv) issued  149,000 and 29,867 shares of Common Stock  respectively
for the Med-Con and Bray acquisitions, respectively. We issued 115,000 shares of
its Common Stock to two  executives  in  satisfaction  of a 2001 bonus that they
elected to receive in stock in lieu of cash.

         All  transactions  described  above  were  deemed  to  be  exempt  from
registration under the Securities Act of 1933, as amended (the "Securities Act")
in reliance on Section 4(2) of the  Securities Act and/or Rule 506 of Regulation


                                       15
<PAGE>

D promulgated  under the  Securities  Act. The  recipients of securities in each
such  transaction  represented  their  intentions to acquire the  securities for
investment  only  and not  with a view to or for  sale in  connection  with  any
distribution   thereof  and  appropriate  legends  were  affixed  to  the  share
certificates  issued in such  transactions.  All recipients had adequate access,
through their relationships with us, to information about us.

         In 2001, we filed a Registration Statement on Form 10-SB on a voluntary
basis with the SEC, which  registration  statement became effective on September
14, 2001. Although we were not required to register under the applicable federal
securities  laws,  we believe  that  commencing  voluntary  reporting  under the
Securities  Exchange Act of 1934, as amended (the "Exchange Act"),  will enhance
our ability to access the capital markets.  We also are hopeful that one or more
market  makers  will  provide the basis for our Common  Stock to attain  trading
status and allow for a public  market in our Common  Stock.  We believe that the
establishment  of a public market for our shares will allow us to be in a better
position to obtain future financing and also provide increased  liquidity to our
stockholders.  While we have had  preliminary  discussions  with  broker-dealers
concerning  a  range  of  financial  advisory  services,   we  do  not  have  an
understanding  with, or a commitment  from,  anyone to act as a market maker for
our  securities,  and there can be no assurance that we will find a market maker
for our securities, or otherwise establish a public market for our Common Stock.

         We intend  to seek  additional  financing  through  additional  private
placement(s) or a public  offering  within the next twelve months.  If we do so,
all of the then current  existing  stockholders and their stock holdings will be
proportionately diluted.





















                                       16
<PAGE>

Item 6.  Management's Discussion and Analysis or Plan of Operation.

         The  following  discussion  of the  financial  condition and results of
operations  of the  Company  should be read in  conjunction  with the  Company's
Consolidated Financial Statements and related footnotes.

Background

         We were  incorporated  in November 1993. We provide  regulated  medical
waste,  reusable  sharps  containers  and  PHI  collection,  transportation  and
treatment  services to our customers and related training and education programs
and consulting services. We also sell ancillary supplies.

         Our revenues  increased to $7,926,330  in 2004 from  $6,318,861 in 2003
and from  $5,410,710  in 2002.  We derive our  revenues  from  services to three
principal  groups of  customers:  (i)  outpatient  clinics,  medical  and dental
offices, biomedical companies,  municipal entities, long-term and sub-acute care
facilities  and other  smaller-quantity  generators  of regulated  medical waste
("SQG"),  (ii) blood banks,  surgery centers,  dialysis centers and other medium
quantity  generators of regulated  medical  waste  ("MQG") and (iii)  hospitals,
diagnostic facilities and other larger-quantity  generators of regulated medical
waste  ("LQG").  Substantially  all of our  services  are  provided  pursuant to
customer  contracts  specifying  either scheduled or on-call  regulated  medical
waste management  services,  or both.  Contracts with small quantity  generators
generally  provide for annual  price  increases  and have an  automatic  renewal
provision  unless the customer  notifies us prior to completion of the contract.
Contracts with medium quantity generators and large quantity  generators,  which
may run for more than one year,  typically  include price escalator  provisions,
which allow for price increases generally tied to an inflation index or set at a
fixed percentage. At December 31, 2004, we served approximately 5,500 customers.

Statements of Operations Data

Years Ended December 31, 2004 and 2003
                                                     Years Ended December 31,
                                                   ----------------------------
                                                       2004            2003
                                                   ------------    ------------
Revenues                                           $  7,926,330    $  6,318,861
Cost of sales                                         5,692,801       4,405,464
                                                   ------------    ------------

Gross profit                                          2,233,529       1,913,397

Selling, general and administrative expenses          2,202,697       2,568,691
Depreciation and amortization                           579,332         320,778
Impairment of customer list                             139,330            --
                                                   ------------    ------------
Loss from operations                                   (687,830)       (976,072)

Other (income) expense:
Interest expense                                        317,854         180,279
Other income                                            (13,050)        (51,324)
Litigation settlement                                      --          (147,270)
                                                   ------------    ------------
                                                        304,804         (18,315)
                                                   ------------    ------------

Net loss                                           $   (992,634)   $   (957,757)

Preferred Stock Dividends                                (7,000)           --

Net loss applicable to common stock                $   (999,634)   $   (957,757)
                                                   ============    ============
Basic and diluted loss per common share:
         Net loss                                  $      (0.06)   $      (0.06)
                                                   ============    ============

Weighted  average  common  shares used in basic
and diluted loss per share                           18,113,411      16,633,717
                                                   ------------    ------------

EBITDA(1)                                          $     43,882    $   (456,700)
                                                   ============    ============


                                       17
<PAGE>

(1) EBITDA is calculated  for any period as the sum of net income or loss before
any preferred stock dividends,  plus net interest  expense,  income tax expense,
depreciation  expense,  debt conversion expense and loss from extinguishments of
debt.  We  consider  EBITDA to be a widely  accepted  financial  indicator  of a
company's  ability to service  debt,  fund capital  expenditures  and expand its
business.  EBITDA  is not  calculated  in the  same  way  by all  companies  and
therefore may not be comparable to similarly  titled measures  reported by other
companies.  EBITDA is not a measure in  accordance  with  accounting  principles
generally  accepted in the United States.  EBITDA should not be considered as an
alternative  to net income,  as an indicator of operating  performance  or as an
alternative  to cash flow as a measure of liquidity.  The funds depicted by this
measure may not be available for management's  discretionary use due to legal or
functional requirements, debt service, other commitments and uncertainties.

         EBITDA is calculated as follows:

Net loss before Preferred Stock Dividends                $(992,634)   $(957,757)
Interest expense                                           317,854      180,279
Depreciation expense                                       579,332      320,778
Impairment of customer list                                139,330         --
                                                         ---------    ---------
EBITDA                                                   $  43,882    $(456,700)
                                                         =========    =========

Critical Accounting Policies and Procedures

         Our discussion  and analysis of our financial  condition and results of
operations are based upon our consolidated financial statements, which have been
prepared in accordance  with  accounting  principles  generally  accepted in the
United States.  The preparation of these financial  statements  requires that we
make  estimates  and  judgments  that  affect  the  reported  amounts of assets,
liabilities,  revenues and  expenses,  and the related  disclosure of contingent
assets and liabilities (see Note 3 to the consolidated financial statements). We
believe  that  of  our  significant  accounting  policies  (see  Note  3 to  the
consolidated financial statements), the following may involve a higher degree of
judgment on our part and complexity of reporting.

         Accounts  Receivable.  Accounts receivable consist primarily of amounts
due to us from our normal  business  activities.  We maintain an  allowance  for
doubtful  accounts  to  reflect  the  expected   uncollectibility   of  accounts
receivable based on past collection  history and specific risks identified among
uncollected accounts.

         Revenue  Recognition and Processing Costs. We recognize revenue and the
associated  processing  costs at the time medical waste is received and prepared
for processing.

         Intangible Assets.  Intangible assets consist primarily of goodwill and
customer list acquired in the ATE, Bray and Med-Con.  acquisitions.  The Company
evaluates its  intangible  assets on an annual basis unless there are triggering
events which indicate an earlier analysis is necessary.

Results of Operations - Year 2004 Compared to 2003.

         Revenues.  Our revenues  increased  $1,607,469 or 25.4%,  to $7,926,330
during the year ended December 31, 2004, from  $6,318,861  during the year ended
December  31,  2003.  The  increase in revenue  from 2003 was due  primarily  to
acquisitions that have been previously  discussed from the ATE, Med-Con and Bray
acquisitions.  Those  acquisitions alone have increased revenue by approximately
$2,000,000  in 2004 in  comparison  to 2003  revenue.  However,  the increase in
revenue  from  acquisitions  was  offset  by  reduced  volume of  medical  waste
processed and lower revenue  realized from price decreases to certain  customers
caused  by  extremely   competitive  pricing  being  exerted  by  our  principal
competitor in the Texas  market.  To offset this revenue  loss,  management  has
implemented  several  revenue  enhancing  measures  by  implementing  within our
customer  invoices  fuel  surcharges,  resuming  the  charge of annual  fees,  a
regulatory  compliance fee and also container  recovery fees for those customers
that use corrugated  boxes verses  reusable  containers.  Our new billing system
allows us to initiate these fees and price  increases  which we could not charge
or implement under our old billing  system.  All price increases and fee charges
are provided under our customer contracts.

         Cost of sales.  Our cost of sales  increased  $1,287,337  or 29.2%,  to
$5,692,801  during 2004, from  $4,405,464 in 2003.  Gross margin for the Company
declined  to 28.2% in 2004 from  30.3% in 2003.  Most of the  decline  in margin
occurred in the first half of 2004 when our margin had decreased to 24.99% which
was  negatively  impacted by the pricing  pressure  discussed  earlier  from our
principal  competitor  in the Texas market.  However,  during the second half of
2004,  our margin  increased  to 31.2%  compared to 21.2% for the second half of
2003,  an increase of 10% in 2004.  This  increase  was caused  primarily by the


                                       18
<PAGE>

price  increases and new fee charges  discussed  earlier along with decreases in
long haul transportation costs due to the autoclave  installation at UTMB during
August 2004 that allows waste from our South Texas  customers to be processed in
Galveston  instead of hauling it to Garland for treatment and disposal.  Another
favorable  result from the  installation  of the  autoclave  at UTMB allowed our
processing  costs to decrease overall in the second half. Total processing costs
in the second half of 2004  decreased  to 28% as a  percentage  of revenue  from
34.4% for the same second half period in 2003. Management expects our margins to
continue to increase throughout 2005.

         Selling,  general and administrative expenses. Our selling, general and
administrative expenses decreased $365,994, or 14.2%, to $2,202,697 during 2004,
from  $2,568,691 in 2003.  The decrease was  attributable  principally  to lower
payroll  and  payroll  expenses  resulting  from an expense  credit of  $144,500
arising from bonuses awarded to certain employees and expensed in the year ended
December  31,  2001,  that was reversed in 2004.  Certain  employees  elected to
decline  their bonus and others have since left the Company and  therefore  have
forfeited their bonus.  Other favorable expense reductions in 2004 were from two
executives  who left the company in 2004 whose  positions were not filled by the
end of 2004  plus  reductions  in legal and  accounting  expense  and  purchased
outside services.

         Depreciation and amortization.  Depreciation and amortization increased
by $258,554,  or 80.6%,  to $579,332 for the year ended December 31, 2004,  from
$320,778 for the year ended  December 31, 2003.  The increase was due  primarily
from  increased  depreciation  expense  of  EMSI  fixed  assets  related  to new
equipment,   reusable  containers  and  building  improvements  to  our  Garland
facility.  The  depreciation  expense  from these fixed  additions  increased to
$392,825 in 2004 from  $270,778  compared  to the same  period in 2003.  Another
increase was caused by the  increase in  amortization  expense of customer  list
from our three  acquisitions  of ATE,  Med-Con  and Bray.  Amortization  expense
relating to the customer list in 2004 was $186,507 compared to $50,000 in 2003.

         Impairment of customer list. During 2004, the Company  determined there
was an  impairment  of $139,330 to the customer  list acquired from ATE due to a
decline in the customer revenue purchased.  Accordingly,  the Company charged to
expense the decrease in the net carrying value.

         Interest expense. Our interest expense increased $137,575,  or 76.3% to
$317,854  during the year ended December 31, 2004 from $180,279  during the year
ended December 31, 2003.  Interest expense  increased in 2004 due to shareholder
and seller financing associated with our acquisitions of ATE and Med-Con.  Other
factors that  contributed  to the increase in interest  expense during 2004 were
from a shareholder who advanced the Company  $950,000 in various  increments and
advances  throughout 2004 whose funds were used for working capital purposes and
to pay the IRS for the second quarter 2004 payroll taxes owed by the Company.

         Other income. Other income consists principally of debt extinguishments
from certain  creditors  with whom the Company either  reached  legally  binding
agreements  whereby  certain debt was forgiven or the statute of limitations had
passed  whereby the creditors  lost their right to present legal claims  against
us. Accordingly, we recorded such extinguishments as other income.

         Net loss.  Net loss was  $992,634  for 2004,  compared to a net loss of
$957,757 for 2003. The increased loss was primarily due to the factors described
above.

         EBITDA.  EBITDA was $43,882 for 2004 compared to $(456,700) for 2003, a
positive  increase of $500,581.  The  increased  EBITDA was primarily due to the
factors described above.

Liquidity and Capital Resources

         Source of Funds for Operations and Capital Expenditures.
         --------------------------------------------------------

         Our principal source of liquidity is collections on accounts receivable
from waste management  service  revenue,  from sales of our Common and Preferred
Stock  through  private  offerings to certain  individuals,  primarily  existing
stockholders,  and from loans and advances  received from certain  stockholders.
Revenues  during 2004 were  approximately  $134,000 per month  higher,  stemming
primarily  from  the  acquisitions  of  ATE,  Med-Con  and  Bray  as  previously
discussed,  than the monthly  average  revenue for 2003.  The principal  uses of
liquidity  are payments for labor,  fuel,  material and  expenses,  and debt and
lease obligations to carry out our regulated medical waste management  services.
While our revenues from operations  were higher in 2004,  both continued  higher
costs and less then anticipated  revenues  related to our ATE  acquisition,  and
increased  capital  spending  to  fund  new  equipment   purchases  and  capital
improvements to our Garland Facility, were significant factors which contributed
to operating losses and cash flow deficiencies in 2004.


                                       19
<PAGE>

         We are of the opinion  that our  existing  cash  position and cash flow
from operations will not enable us to satisfy our current cash requirements.  We
will be required to obtain additional  financing to implement our business plan.
Historically,  we have met our cash  requirements from a combination of revenues
from  operations  (which  by  themselves  have  been  insufficient  to meet such
requirements), stockholder loans and advances, and proceeds from the sale of our
debt and equity securities.

         Going concern.
         --------------

         The  following  factors  raise  substantial  doubt about the  Company's
ability to continue as a going  concern.  As indicated by the  Company's  annual
consolidated financial statements,  the Company incurred consolidated net losses
of $992,634,  $957,757 and $285,726 for the years ended December 31, 2004,  2003
and 2002,  respectively.  Additionally,  the Company has significant deficits in
both working capital and stockholders' equity at December 31, 2004 and 2003. The
Company has remained  current with its payroll taxes to the IRS for most of 2004
and 2003;  however,  the Company has not paid the fourth quarter of 2003 and the
first  quarter of 2004  payroll  taxes which amount to  approximately  $294,000,
excluding penalties and interest.  The Company has retained legal counsel and is
negotiating with the IRS to obtain a favorable payment plan to satisfy the taxes
owed.  The  Company   expects  to  continue  to  explore  various  cost  cutting
initiatives,  expand its  business in new market areas  either  through  organic
growth or through strategic acquisitions,  and explore other sources for raising
capital with debt and equity instruments.

         History of negative cash flow.
         ------------------------------

         Historically,  stockholders  of  the  Company  have  funded  cash  flow
deficits.  However, the stockholders are under no specific funding obligation to
do so. As a means of  obtaining  working  capital and funds for  expansion,  the
Company has  received,  from  private  placements  of the  Company's  Common and
Preferred Stock,  approximately  $345,000,  $864,500,  and $1,155,763 during the
years  ended  December  31,  2004,  2003  and  2002,  respectively.  One  of our
stockholders  loaned the  Company  $1,000,000  at various  times and  increments
throughout  2004; a second  stockholder  loaned the Company $150,000 in 2004 and
$238,125 in 2003, and a third  stockholder  loaned the Company $217,500 in 2003.
Also,  our President has advanced  funds for working  capital to us from time to
time amounting to $105,758 at December 31, 2004. There is no assurance that such
private placement funding,  loans and advances will continue to satisfy our cash
needs.

         Outstanding liabilities.
         ------------------------

         We have outstanding liabilities and debt of approximately $7,060,815 at
December 31, 2004 compared to $5,842,064 at December 31, 2003.  Our current rate
of revenue may be  insufficient  to enable us to repay our debt upon maturity or
to meet our monthly obligations. In the event that we cannot generate sufficient
revenue and we are unable to finance the repayment of our debt, we could be sued
or face  judgments  against  us which  could  result in a loss of  assets  and a
discontinuation of operations.

         Litigation by a bonding company.
         --------------------------------

         We, along with certain of our  officers  and  directors,  were named as
defendants  in a  lawsuit  in North  Carolina  in 1998.  The  judgment  has been
satisfied,  but a bonding company filed a lawsuit against us claiming damages of
$254,708,  plus interest and attorneys fees as indemnification  for the payments
made to plaintiffs in connection with a bond posted on our behalf.  We responded
alleging,  among other  things,  accord and  satisfaction  and  believe  that by
seizing the shares of Common Stock tendered by the plaintiffs in the litigation,
the bonding  company has been fully  reimbursed  for the amount paid on the bond
and does not have a valid claim against us. However, there was no assurance that
we would  prevail,  and if we lost the  lawsuit,  it  would  have  significantly
reduced cash available for continuing operations.

         On November 3, 2003, a settlement agreement between the bonding company
and the Company was reached calling for an immediate payment of $100,000 and the
remaining  balance of $212,093 to be paid in four equal  installments of $53,023
beginning  May 7, 2004 and  continuing  thereafter  every six months until fully
paid.  The company  paid  $50,000 and $50,000 was paid from the trust  mentioned
above. In addition,  the Company has paid two of the four remaining installments
of $53,023 each. The accompanying  consolidated balance sheet as of December 31,
2004 includes the remaining liability to the bonding company of $106,046.


                                       20
<PAGE>

Discussion of Liquidity - Year 2004 Compared to 2003

         At December 31, 2004,  our working  capital  deficit was  $(4,452,202),
compared to a working capital deficit of $(3,118,340) at December 31, 2003.

         Net cash provided  (used) in operating  activities was $212,572  during
2004,  compared to $(507,834) for 2003. This increase was caused  primarily from
decreases in accounts  receivable  and other  current  assets but were offset by
decreases in accounts  payable and other accrued  liabilities.  The decreases in
accounts receivable is due to our ability to issue and collect our invoices more
quickly and  efficiently  in 2004 using our new  billing  system.  This  ability
increased  the  Company's  cash  flow to meet our  current  obligations  thereby
causing the decreases in accounts payable and other accrued liabilities.

         Net cash used in investing  activities  for the year ended December 31,
2004,  was  $(601,189)  compared to ($902,385)  for the year ended  December 31,
2003.  The net decrease in 2004 is primarily  attributable  to the cost from the
cash portion of the acquisitions of certain assets of Med-Con and Bray amounting
to $261,200 in 2004 but offset by the cash portion of the acquisition of certain
assets of ATE amounting to $752,094 in 2003. Also, we invested $350,104 in fixed
asset additions in 2004 compared to $150,974 in fixed asset additions in 2003.

         Net cash provided by financing  activities was $388,617 during the year
ended December 31, 2004,  compared to $1,410,219 for the year ended December 31,
2003.  Proceeds  from the sale of Common  Stock  declined by  $734,501  but were
offset by  proceeds  from the sale of  Preferred  Stock in 2004 in the amount of
$215,000. Proceeds from stockholder loans increased to $1,150,000 in 2004 verses
in $490,625 in 2003.  The  increase in  stockholder  loans in 2004 was offset by
increased  payments on long term obligations in the amount of $919,833  compared
to  $255,202  in 2003 and  payments to  short-term  stockholder  advances in the
amount of $186,550 in 2004 compared to advances from stockholders of $310,295 in
2003.

         There was no net change in cash balance for the year ended December 31,
2004, the same as the year ended December 31, 2003.

Other Liquidity Matters

         At December  31,  2004,  our  long-term  obligations  were  $2,742,456,
including  bank  debt  and  capital   leases  of  $213,198,   notes  payable  to
stockholders  totaling  $1,539,976,  notes payable to Med-Con totaling $467,820,
installment notes on equipment of $308,473 and liabilities for the settlement of
the Smart Jobs and Surety Bond  litigation  matters in the  aggregate  amount of
$212,989.

         Our bank debt at  December  31,  2004 of $213,198 is secured by a first
lien on the Garland Facility, and bears interest at a variable rate based on the
national prime rate as published in the Wall Street Journal, plus 0.5% (4.75% at
December  31,  2004).  The note is payable in minimum  monthly  installments  of
principal and interest totaling $3,100,  matures in July 2011, and is guaranteed
by our President and Chief Executive Officer.

         Throughout  2004,  one of our  stockholders  loaned the Company a total
amount of $1,000,000.  The initial loan of $500,000 was funded on March 7, 2004.
The  proceeds of the note were used for working  capital  purposes.  The note is
payable in 36 equal monthly  installments  of $16,133 and bears interest at 10%.
The note is  convertible  into Common Stock at the rate of $0.75 per share based
on the principal and interest  outstanding at the time of conversion and subject
to anti-dilutions provisions. Beginning on January 7, 2005, the note was amended
to be payable of interest only for a period of six months and then revert to the
monthly  installment  of $16,133 on July 7, 2005 until paid in full.  On July 7,
2004, this same stockholder  provided a second loan in the amount of $250,000 to
the  Company.  The  proceeds of the note were used to pay the  Company's  second
quarter  2005  payroll  taxes  to the  IRS in the  amount  of  $158,832  and the
remaining amount for working capital purposes. The note is payable in 36 monthly
installments  of $8,333 and bears interest at the prime rate as published in the
Wall  Street  Journal  plus 8% (as of March  15,  2005,  the  interest  rate was
13.50%).  On September 27, 2004, this same stockholder  provided a third loan in
the amount of $150,000  to the  Company.  The  proceeds of the note were used to
purchase  certain assets of the Med-Con  acquisition.  The note is payable in 34
monthly installments of $5,280 and bears interest at the prime rate as published
in the Wall Street Journal plus 8%. On December 6, 2004,  this same  stockholder
provided a fourth loan in the amount of $100,000 to the Company. The proceeds of
the note were used for  working  capital  purposes.  The note is  payable  in 29
monthly installments of $4,060 and bears interest at the prime rate as published
in the Wall Street  Journal plus 8%. As of December 31, 2004,  all notes payable
to this stockholder totaled $845,992.


                                       21
<PAGE>

         On  November  7, 2003,  two  stockholders  of the  Company  each loaned
$200,000 to the Company to assist with the funding of the ATE acquisition. These
notes  payable to the  stockholders  bear interest at the rate of 10 percent per
annum and are payable as follows: As to the first stockholder, the note was paid
in full in 2004. As to the second stockholder,  the note,  including other funds
advanced to the Company,  is payable monthly  commencing  December 7, 2003 for a
period of 36 months.  The total  monthly  payment  amount is $7,684.  The second
stockholder loaned an additional  $150,000 to the Company on September 29, 2004.
The  proceeds  of the note were used to purchase  certain  assets of the Med-Con
acquisition.  The  loans  are  secured  by a  second  lien  deed of trust on the
Garland,  Texas  plant.  At December 31, 2004,  the total  obligation  to second
stockholder was $298,717.

         The Company is obligated  under various  installment  notes payable and
capital leases for the purchase of equipment and software. The notes, which bear
interest at rates  ranging from 7.0% to 16.1%,  are due at various dates through
September  15, 2009 and are  payable in monthly  installments  of  approximately
$10,318   consisting  of  principal  and   interest.   The  equipment   acquired
collateralizes the notes.

         On March 3, 2003 we  reached a  settlement  with the State of Texas the
terms  of  which  will  require  that  we pay the  State  $240,620  in 36  equal
installments  of $6,684  commencing on or about April 30, 2003.  The  settlement
also  requires  that we  retroactively  pay  $6,110 to those  employees  or past
employees whom we were obligated to pay, but failed to pay in full,  pursuant to
the Smart Jobs  Program.  Accordingly,  the excess  litigation  accrual  and the
accrued  interest  expense  related to the Smart Jobs litigation was credited to
income in February 2003 in the amount of $147,270.

         We have two  series  of  convertible  debentures  outstanding  totaling
$40,135 at December 31, 2004 and 2003.  The Company has permitted the holders of
the debentures to convert such amounts into our Common Stock,  but these amounts
reflect  debentures that have not yet been converted by the holders thereof.  We
have not made any cash payments for interest or principal on these debentures in
2004 or 2003 and are in default thereof.

         On  November  7, 2003,  we issued a note  payable  to ATE for  $750,000
bearing  7%  interest  payable  monthly  with the  final  interest  payment  and
principal  payable on November 7, 2004.  The note was issued in connection  with
our acquisition of the assets of ATE and formed part of the consideration of the
transaction.  On February 11, 2005, a settlement was reached between ATE and the
Company due to numerous  disputes  and  disagreements  that arose in relation to
representations,  quality and other factors that were  represented by ATE in the
asset purchase  agreement.  The  settlement  calls for the  modification  of the
promissory  note to ATE from the Company to reduce the amount owed from $750,000
to $150,000,  payable in two  installments  of $75,000 each which shall begin at
the time that ATE delivers financial statements of its books and records for the
nine-month period ended September 30, 2003 that will allow the Company to comply
with its Form 8-K reporting requirements with the SEC.

         From time to time,  our  President  and another  officer of the Company
advanced  funds to cover  working  capital  needs.  At December  31,  2004,  the
outstanding  balance  of such loans and other  amounts  due other  officers  and
directors of the Company amounted to $171,845.

Material Commitments For Capital Expenditures

         We currently have no significant commitments for capital expenditures.

Events Subsequent to December 31, 2004

         In January,  2005, two of our stockholders that held notes payable from
the Company  agreed to be paid interest only on their notes for six months.  The
aggregate  amount  outstanding  of the  interest  only notes  payable to the two
stockholders  totaled  $756,143  at the time of the  agreement.  The notes  will
resume paying principal and interest according to their original terms beginning
in July, 2005.

         In February,  2005, these same two stockholders each loaned the Company
$75,000 for an  aggregate  amount of $150,000  in  exchange  for two  promissory
notes.  One note is  payable  in 36  monthly  installments  of $2,545  and bears
interest at the prime rate as published  in the Wall Street  Journal plus 8% (as
of March 15, 2005, the interest rate was 13.50%).  This note is not  convertible
into  Common  Stock.  The second note is payable in 36 monthly  installments  of
$2,420 and bears interest at 10%. The note is  convertible  into Common Stock at
the rate of $1.00 per share based on the principal and interest  outstanding  at
the time of conversion and subject to  anti-dilutions  provisions.  The proceeds
from both notes were used for working capital purposes.

         As mentioned  earlier with regard to the ATE acquisition,  a settlement
was reached  between  ATE and the  Company on February  11, 2005 due to numerous
disputes and disagreements  that arose in relation to  representations,  quality
and other factors that were represented by ATE in the asset purchase  agreement.


                                       22
<PAGE>

The settlement calls for the modification of the promissory note to ATE from the
Company to reduce the amount  owed from  $750,000  to  $150,000,  payable in two
installments  of $75,000 each which shall begin at the time that ATE delivers an
audit of its books and records for the  nine-month  period ended  September  30,
2003  that  will  allow  the  Company  to  comply  with its  Form 8-K  reporting
requirements with the SEC. The resulting  settlement should allow the Company to
record a gain from  extinguishment of debt of approximately  $650,000 during the
three months ended March 31, 2005. We are  currently in  discussion  with ATE to
convert the remaining balance into Common Stock of the Company.

         As previously  mentioned with regards to the Med-Con  acquisition,  the
Company  issued a  $500,000  note at the time of such  purchase  that was  later
reduced by  $153,780  due to a purchase  price  adjustment  leaving a balance of
$346,220. The term of the reduced note calls for monthly installments of $12,613
beginning  January 1, 2005.  The Company has not paid any payments in accordance
to the note and is in  default,  however,  no notice of default by the payee has
been given to the Company.

         During the first quarter in 2005,  the Company  issued 69,839 shares of
its  Preferred  Stock  at a  price  of  $1.50  per  share  to  various  existing
stockholders for a total consideration of $104,758.

         On March 9, 2005, the Company issued 129,210 shares of its Common Stock
at a price of $1.00 per share to existing stockholders for a total consideration
of $129,210.

Recently Issued Accounting Standards

         The  following   pronouncements  have  been  issued  by  the  Financial
Accounting Standards Board ("FASB").

         In January 2003,  Financial  Accounting Standards Board ("FASB") issued
FASB  Interpretation  No. 46 "Consolidation of Variable Interest Entities" ("FIN
46"). This interpretation of Accounting Research Bulletin No. 51,  "Consolidated
Financial  Statements," provides guidance for identifying a controlling interest
in a variable  interest  entity  ("VIE")  established by means other than voting
interest.  FIN 46 also required  consolidation  of a VIE by an  enterprise  that
holds such  controlling  interest.  In December  2003,  the FASB  completed  its
deliberations  regarding  the proposed  modifications  to FIN No., 46 and issued
Interpretation  Number 46R,  "Consolidation  of Variable  Interest Entities - an
Interpretation  of ARB 51" ("FIN No.  46R").  The decisions  reached  included a
deferral of the effective date and provisions  for additional  scope  exceptions
for certain types of variable interests.  Application of FIN No. 46R is required
in financial  statements  of public  entities  that have  interests in VIEs,  or
potential VIEs,  commonly  referred to as  special-purpose  entities for periods
ending after December 15, 2003.  Application  by public small business  issuers'
entities is required in all interim and annual financial  statements for periods
ending after December 15, 2004. The adoption of this  pronouncement did not have
a material effect on the Company's financial statements.

         In December  2004,  the FASB issued  Statement of Financial  Accounting
Standard  ("SFAS") No. 123R, "Share Based Payment." This statement is a revision
of SFAS  Statement  No.  123,  "Accounting  for  Stock-Based  Compensation"  and
supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and its
related  implementation  guidance.  SFAS 123R addresses all forms of share based
payment  ("SBP")  awards  including  shares issued under employee stock purchase
plans, stock options, restricted stock and stock appreciation rights. Under SFAS
123R,  SBP awards  result in a cost that will be  measured  at fair value on the
awards' grant date, based on the estimated number of awards that are expected to
vest.  This  statement  is  effective  for  public  entities  that file as small
business  issuers - as of the beginning of the first interim or annual reporting
period that begins  after  December  15,  2005.  The Company is currently in the
process of evaluating  the effect that the adoption of this  pronouncement  will
have on our financial statements.

         In December  2004,  the FASB issued  Statement of Financial  Accounting
Standard  ("SFAS") No. 153,  "Exchanges of Nonmonetary  Assets".  This Statement
amends  Opinion 29 to  eliminate  the  exception  for  nonmonetary  exchanges of
similar productive assets and replaces it with a general exception for exchanges
of  nonmonetary  assets that do not have  commercial  substance.  A  nonmonetary
exchange  has  commercial  substance  if the future cash flows of the entity are
expected to change significantly as a result of the exchange.  The provisions of
this Statement are effective for nonmonetary asset exchanges occurring in fiscal
periods  beginning  after June 15, 2005.  Earlier  application  is permitted for
nonmonetary asset exchanges occurring in fiscal periods beginning after December
16, 2004. The provisions of this Statement should be applied prospectively.  The
adoption of this  pronouncement is not expected to have a material effect on the
Company's financial statements.

         Emerging   Issue  Task  Force  (EITF)   Issue  04-8,   "The  Effect  of
Contingently  Convertible  Instruments on Diluted  Earnings per Share." The EITF
reached  a  consensus  that  contingently  convertible   instruments,   such  as
contingently  convertible debt,  contingently  convertible  preferred stock, and
other such  securities,  should be  included in diluted  earnings  per share (if
dilutive)  regardless  of whether the market  price  trigger  has been met.  The
consensus is effective for reporting periods ending after December 15, 2004. The
adoption of this  pronouncement  did not have a material effect on the Company's
financial statements.


                                       23
<PAGE>

Off-Balance Sheet Arrangements

         During the year ended  December 31,  2004,  the Company had off balance
sheet arrangements  related to its lease  obligations.  The Company is obligated
under such lease arrangements for $1,683,655 through 2010.

Item 7.  Consolidated Financial Statements.

         The  Company's   Consolidated   Financial   Statements   and  Notes  to
Consolidated  Financial Statements are attached to this Form 10-KSB beginning at
page F-i and are incorporated herein by reference.

Item  8.  Changes  in and  Disagreements  With  Accountants  on  Accounting  and
Financial Disclosure.

          None.

Item 8A. Controls and Procedures.

         Under  the  supervision  and with the  participation  of the  Company's
management,  including its principal  executive officer and principal  financial
officer,  the Company conducted an evaluation of the effectiveness of the design
and operation of its  disclosure  controls and  procedures,  as defined in Rules
13a-15(e) and 15d-15(e)  under the Securities  Exchange Act of 1934, as amended,
as of the end of the period  covered by this  report  (the  "Evaluation  Date").
Based  on  this  evaluation,  the  Company's  principal  executive  officer  and
principal  financial  officer  concluded  as of the  Evaluation  Date  that  the
Company's  disclosure  controls  and  procedures  were  effective  such that the
information  relating to the Company,  including its consolidated  subsidiaries,
required  to be  disclosed  in  its  SEC  reports  (i) is  recorded,  processed,
summarized  and  reported  within the time  periods  specified  in SEC rules and
forms,  and (ii) is accumulated and  communicated  to the Company's  management,
including its principal  executive officer and principal  financial officer,  as
appropriate to allow timely decisions regarding required disclosure.

         During the fourth quarter of 2004, the Company did not make any changes
in its internal controls over financial reporting that have materially affected,
or are reasonably likely to materially  affect,  the Company's  internal control
over financial reporting.

Item 8B. Other Information.

         None.








                                       24
<PAGE>

                                    PART III

Item 9.   Directors and Executive Officers of the Registrant.

         Members of our Board of Directors  serve until the next annual  meeting
of our  stockholders  or until  their  successors  have  been duly  elected  and
qualified.  Our officers are elected at the Board of Directors meeting following
each annual  stockholders'  meeting,  and serve at the  pleasure of our Board of
Directors. Our last annual meeting was held on June 30, 2004.

         Winship  B.  Moody,  Sr.  currently  serves  as the  audit  committee's
financial expert. Mr. Moody is an independent member of the Board of Directors.

         The following persons comprise the directors and executive  officers of
the Company as of April 5, 2005:

                                Director/Officer
Name and Age                    Since               Position(s) Held
--------------------------      ----------------    ----------------------------
Matthew H. Fleeger (41)         1993                President, Chief Executive
                                                    Officer and Director
Mark M. Altenau, M.D. (63)      1994                Director
Winship B. Moody, Sr. (70)      2002                Chairman of the Board of
                                                    Directors of the Company
Ajit S. Brar (72)               2004                Director
Lonnie P. Cole, Sr. (42)        2004                Senior Vice President, Sales
Steve Evans (45)                2003                Vice President, Finance
Alan Larosee (51)               2004                Vice President, Operations

Matthew H. Fleeger - President, and Chief Executive Officer and Director
------------------------------------------------------------------------

         Our Founder, President, Chief Executive Officer and a director, Matthew
H.  Fleeger,  has been with the Company for 11 years,  during our growth from an
early  stage  venture  capital  concept  to  the  present.  Mr.  Fleeger  has  a
comprehensive  background  in finance,  marketing  and sales with several  years
experience  in the oil and gas  industry.  He was also a director  and played an
important  role in the  development of Palm Beach Tan, Inc. from a 6-store chain
of tanning  salons to the largest chain of indoor  tanning salons in the nation.
He has extensive experience in corporate structuring,  mergers and acquisitions,
joint ventures and a variety of equity and debt private placement  vehicles used
to fund the working  and  expansion  capital  needs of small  developmental  and
growth companies.  Mr. Fleeger graduated from Southern Methodist University with
a BA in Business with an emphasis in Finance and Marketing. He has been selected
as a member of the International Who's Who of Business Professionals.

Winship B. Moody, Sr. - Chairman of the Board
---------------------------------------------

         Mr.  Moody has a  background  in finance and  accounting.  His previous
career included 28 years of experience in the pulp and paper industry. From 1962
to 1990, he worked at Rice Barton  Corporation  where he rose to the position of
President,  Chief Executive Officer and Chief Financial  Officer.  Mr. Moody has
also  served  as  President  and a Board  Member  of the  American  Pulp & Paper
Manufacturers Association. Mr. Moody retired in 1990 and currently serves on the
Board of Profile Senior Golf  Association.  He received his Bachelors  degree in
chemical engineering from the University of Maine.

Mark M. Altenau, M.D. - Director
--------------------------------

         Dr.  Altenau,  a member of the Board of  Directors  since  1994,  is an
otolaryngologist  in Dallas,  Texas,  where he has been in private  practice for
over 20 years. He has been a significant  stockholder of the Company since March
of 1994. Dr. Altenau  received his  undergraduate  degree from the University of
Cincinnati and his graduate degree from University of Cincinnati Medical School.

Ajit S. Brar - Director
-----------------------

         Mr. Brar joined the board in 2004 and has a  background  in real estate
and oil and gas  investments..  He retired  with a 27 year career with the U. S.
Government  and is the  Managing  Partner  and  Treasurer  of  four  (4) 220 SMR
Partnerships  in  Arizona,  Colorado,  New York,  and Ohio and a partner  in SMR
Partnerships in Illinois, Nevada, California, Alabama and Florida.


                                       25
<PAGE>

Lonnie P. Cole, Sr. - Senior Vice President, Sales
--------------------------------------------------

         Mr.  Cole  joined  the  Company  on  October  1,  2004 and has 16 years
experience in the medical waste industry.  From 1989 to 1995, he was Director of
Sales for American 3CI, a Stericycle  subsidiary.  From 1996 through 1998 he was
the General Manager of Sales & Operations for EnviroWaste Management of Houston.
In 1999 he joined Air and Sea  Environmental  as General  Manager of their Sales
Department in Houston, Texas as Vice President of Sales. Mr. Cole left ATE prior
to the MSI  acquisition  and  joined  MCWS as  President/CEO.  He served in that
position until we acquired them in September 2004, at which time he joined EMSI.

Steve Evans - Vice President, Finance
-------------------------------------

         Mr.  Evans,  CPA,  joined the Company as  Controller  in June 2003.  He
served as the Corporate  Accounting  Manager for Aurum Technology,  Inc., a $200
million revenue information technology company that was spun off from Electronic
Data  Systems  ("EDS"),  and  outsources  and sells  software  to the  financial
services  industry.  Prior to that,  Mr. Evans was with KPMG,  an  international
accounting  firm and was CFO of Preferred Bank of Houston.  Mr. Evans  graduated
from Abilene Christian University with a B.B.A. in Accounting.

Alan Larosee -Vice President, Operations
----------------------------------------

         Mr. Larosee joined the Company in August 2004 serving as Vice President
of Operations.  Mr. Larosee comes to us with over 20 years experience in medical
waste management and project development. Mr. Larosee is a seasoned professional
with  a  strong  record  of  achievement  in  strategic  planning,   permitting,
regulatory  affairs,  financing,   budgeting,  marketing,  sales  and  hazardous
materials  management.  His prior experience  includes Health and Safety manager
with Clean Harbors, Inc. of Braintree,  MA, General Manager for Medigen, Inc. (a
division  of  Clean  Harbors)  based  in  New  York,  NY,  Project  Manager  for
Bio-Container  International  of  Montville,  NJ,  Director  of  Operations  for
ECOAIRE,  Inc. of Hollywood,  FL and most recently Vice  President/Partner  with
Healthy Home  Environmental,  Inc.,  Nanuet,  NY. Mr. Larosee received his BS in
Business Management from Bryant College in Smithfield, Rhode Island. Mr. Larosee
signed a three year  Employment  Agreement,  effective  March 1, 2005,  to serve
officially as Vice President, Operations

Section 16(a) Beneficial Ownership Reporting Compliance

         Section 16(a) of the Exchange Act requires the Company's  directors and
executive  officers,  and persons who own more than 10% of a registered class of
our equity securities,  to file with the SEC reports of ownership and changes in
ownership of Common Stock and other equity securities of the Company.  Executive
officers,  directors  and  greater  than 10%  stockholders  are  required by SEC
regulation  to furnish the Company  with copies of all Section  16(a) forms they
file.

         Based on the review of copies of such forms furnished to us and written
representations  that no other forms were required,  during the 2004 fiscal year
and prior fiscal years the following executive  officers,  directors and greater
than 10% beneficial owners failed to file on a timely basis, as disclosed in the
such forms, reports required by Section 16(a) of the Exchange Act:

         o  Mr.  Fleeger did not report one  transaction  on a timely basis on a
            Form 4. This transaction was subsequently  reported on Form 4 during
            the 2004 fiscal year.
         o  Mr. Brar did not report his initial ownership on a timely basis on a
            Form 3 upon his  election to the Board of  Directors.  Mr. Brar also
            did not report  three  transactions  on a timely  basis on a Form 4.
            These  transactions were  subsequently  reported on Form 3 or on Mr.
            Brar's Form 5 for the 2004 fiscal year.
         o  Mr. Evans did not report one transaction on a timely basis on a Form
            4. This  transaction  was reported on Mr. Evans' Form 5 for the 2004
            fiscal year.
         o  Dr. Altenau did not report two  transactions  on a timely basis on a
            Form 4. These transactions were reported on Dr. Altenau's Form 5 for
            the 2004 fiscal year.
         o  Mr.  Moody did not report two  transactions  on a timely  basis on a
            Form 4. These  transactions  were reported on Mr. Moody's Form 5 for
            the 2004 fiscal year.
         o  Mr. Cole did not report one  transaction on a timely basis on a Form
            4. This  transaction  was reported on Mr. Cole's Form 5 for the 2004
            fiscal year.
         o  Mr. Larosee has not timely reported his initial  ownership on Form 3
            upon  appointment  as an officer of the Company,  and has not timely
            filed his Form 5 for the 2004 fiscal  year.  These  reports  will be
            filed subsequent to the filing date of this annual report.


                                       26
<PAGE>
<TABLE>
<CAPTION>

Code of Ethics

         The Company  has not yet  adopted a code of ethics that  applies to its
principal executive officer,  principal financial officer,  principal accounting
officer or controller,  or persons  performing  similar  functions.  The Company
currently  has no  plans  to adopt a  revised  code of  ethics  that  meets  the
definition of a "code of ethics" under applicable SEC regulations.

Item 10. Executive Compensation.

   The following  table sets forth the aggregate cash  compensation  paid by the
Company in the three most recent  fiscal years ended  December 31, 2004, to each
of its most highly compensated officers of the Company.

                           Summary Compensation Table
                               Annual Compensation
                           --------------------------

                                                                Other Annual      All other
Name and Principal Position       Year    Salary(1)  Bonus(2)  Compensation(3)   Compensation
---------------------------       ----    ---------  --------  ---------------   ------------
<S>                               <C>     <C>        <C>       <C>               <C>
Matthew H. Fleeger ............   2004    $204,910      --          --            $  9,355(4)
   President, Chief ...........   2003    $233,218      --          --            $  3,612(4)
   Executive Officer, Director    2002    $190,800      --       $ 78,300(3)      $  3,874(4)

Lonnie P. Cole, Sr ............   2004    $ 34,231      --          --                --
   Senior Vice President, Sales                                                       --

J. Steven Evans ...............   2004    $ 70,000      --          --                --
   Vice President, Finance and    2003    $ 31,635      --          --                --
   Chief Accounting Officer

Alan Larosee ..................   2004    $ 28,800      --          --                --
     Vice President, Operations
</TABLE>
--------------------------------------------------------------------------------
(1)  Salary  includes  accrued  but  unpaid  salaries  in each year as  follows:
     Matthew H. Fleeger - 2004 - $43,000;  2003 - $50,000; 2002 - $85,008 Lonnie
     P. Cole, Sr. - 2004 - $10,000

(2)  Bonuses  of up to  250,000  shares  of Common  Stock,  subject  to  certain
     employment  restrictions,  were awarded by the Board of  Directors  for the
     year 2001 and  charged to  expense  at the rate of $1 per  share.  Specific
     awards were approved by the Board of Directors and shares were  distributed
     in 2004.

(3)  During 2004, the following  named officers were authorized to convert their
     accrued salaries and loans into Common Stock of the Company:

<TABLE>
<CAPTION>
                                                                           Compensation
                         Accrued      Loans at      Total       Number of     Element
                      Salary at End    End of     Converted       Shares      Charged
Name of Officer          Of Year        Year     During Year    Converted   to Expense
---------------          -------        ----     -----------    ---------   ----------
<S>                      <C>            <C>      <C>            <C>         <C>
Matthew H. Fleeger      $315,687      $105,760       --            --           --


         During 2003, the following  named  officers were  authorized to convert
their accrued salaries and loans into Common Stock of the Company:

                                                                           Compensation
                         Accrued      Loans at      Total       Number of     Element
                      Salary at End    End of     Converted       Shares      Charged
Name of Officer          Of Year        Year     During Year    Converted   to Expense
---------------          -------        ----     -----------    ---------   ----------
Matthew H. Fleeger      $241,650      $220,502       --            --           --
</TABLE>

(4)  Represents  gasoline for automobile and  disability  insurance  premiums in
     2004, 2003 and 2002.


                                       27
<PAGE>
<TABLE>
<CAPTION>

         In September 2003 the Board of Directors adopted a compensation program
for outside  directors.  The principal  components of the plan call for specific
Company Common Stock awards for service on the board (20,000 shares per person),
for service on  committees  of the board,  including  the audit  committee,  the
compensation  committee and the stock option committee  (5,000,  5,000 and 5,000
shares,  respectively),  and 10,000 shares for service as chairman of the board.
Further,  the Board of Directors  adopted a program to receive  compensation for
board meeting  attendance of $1,000 or $500 per meeting attended in person or by
telephone, respectively. The Company recognized an expense in 2003 of $139,500 .
For 2004,  the directors  elected to receive stock options in lieu of any Common
Stock awards and cash payments for services. In addition, the Board of Directors
authorized  the  payment of  interest to board  members  and  officers  who have
advanced  funds to the  Company  from  time to time or who have  unpaid  accrued
salaries  unpaid by the Company.  Accordingly,  the Company  charged  $67,200 to
interest  expense  in 2004 for such  interest  accruals.  None of the  foregoing
amounts have been paid at December 31, 2004.

Item 11.  Security  Ownership of Certain  Beneficial  Owners and  Management and
Related Stockholder Matters.

         The following table sets forth each certain information  concerning the
number of shares of Common Stock owned  beneficially as of April 4, 2005 by: (i)
persons  known to us to own more than five  percent  of any class of our  voting
securities;  (ii) each of our directors and the executive officers named in Item
10 above; and (iii) all our directors and executive officers as a group.  Unless
otherwise indicated,  the stockholders listed possess sole voting and investment
power with respect to the shares shown.

                                                                Number of Shares
     Name and Address of Beneficial Owner                     Beneficially Owned(1)          Percent of Class(2)
     ------------------------------------                     ---------------------          -------------------
<S>                                                           <C>                            <C>
Matthew H. Fleeger, President, CEO and Director                   1,321,636(3)                      7.3%
  12750 Merit Drive -Park Central VII, Suite 770
  Dallas, Texas 75251
Mark Altenau, M.D., Director                                      2,623,959(4)                     14.4%
  12750 Merit Drive -Park Central VII, Suite 770
  Dallas, Texas 75251
Winship B. Moody, Sr., Chairman of the Board of                     582,504(5)                      3.2%
Directors
  12750 Merit Drive -Park Central VII, Suite 770
  Dallas, Texas 75251
Ajit S. Brar, Director                                              742,249(6)                      4.0%
  12750 Merit Drive -Park Central VII, Suite 770
  Dallas, Texas  75251
Lonnie P. Cole, Sr., Senior Vice President, Sales                   149,000(7)                      0.8%
  12750 Merit Drive -Park Central VII, Suite 770
  Dallas, Texas  75251
Steve Evans, Vice President, Finance
  12750 Merit Drive -Park Central VII, Suite 770
  Dallas, Texas  75251                                               12,332(8)                       --
Alan Larosee, Vice President, Operations
  12750 Merit Drive -Park Central VII, Suite 770
  Dallas, Texas  75251                                                 --                            --
All Directors and Executive
Officers as a Group (7 persons)                                   5,431,680(9)                     29.9%(10)
Cahill Investments, LLC                                           1,000,000                         5.5%
  12750 Merit Drive - Park Central VII, Suite 770
  Dallas, Texas 75251
</TABLE>

(1)  Pursuant  to Rule 13d-3  under the  Exchange  Act a person  has  beneficial
ownership of any  securities  as to which such person,  directly or  indirectly,
through any contract, arrangement,  undertaking,  relationship or otherwise, has
or shares voting power and/or  investment  power as to which such person has the
right to acquire such voting and/or investment power within 60 days.  Percentage
of beneficial  ownership as to any person as of a particular  date is calculated
by dividing the number of shares beneficially owned by such person by the sum of
the  number of shares  outstanding  as of such date and the  number of  unissued
shares as to which such person has the right to acquire voting and/or investment


                                       28
<PAGE>
<TABLE>
<CAPTION>

control within 60 days. The number of shares shown includes  outstanding  shares
owned as of  April 4,  2005,  by the  person  indicated  and  shares  underlying
warrants,  options and/or convertible debt and accrued interest thereon owned by
such person on April 4, 2005, that were exercisable within 60 days of that date.

(2)  Applicable  percentage  ownership is based on  18,181,208  voting shares of
Common Stock outstanding on April 4, 2005.

(3) Includes  220,442  shares owned by Preston Harris  Interests,  Inc., a Texas
corporation,  of which Mr.  Fleeger is the president  and majority  stockholder;
494,838  shares of Common  Stock  underlying  convertible  accrued  salaries  at
December 31, 2004; and 179,704  shares for advances  outstanding at December 31,
2004. (See Certain Relationships and Related Transactions.)

(4) Includes an option for 33,000 shares of Common Stock.

(5) Includes  399,140  shares of Common Stock  underlying  convertible  debt and
accrued interest  thereon and an option for 38,500 shares of common stock.  (See
Certain Relationships and Related Transactions.)

(6) Includes  535,234  shares of Common Stock  underlying  convertible  debt and
accrued interest  thereon and an option for 14,000 shares of Common Stock.  (See
Certain Relationships and Related Transactions.)

(7) Includes  149,000  shares owned by Med-Con  Waste  Solutions,  Inc., a Texas
corporation, of which Mr. Cole was the President and Chief Executive Officer.

(8) Includes an option for 12,332 shares of Common Stock.

(9) Includes  934,374  shares of Common Stock  underlying  convertible  debt and
accrued  interest  thereon,  convertible  accrued salaries at December 31, 2004,
convertible  advances  from  stockholders,   and  stock  options.  (See  Certain
Relationships and Related Transactions.)

(10)  Applicable  percentage  ownership is based on 18,181,208  voting shares of
Common Stock outstanding on April 4, 2005, and on shares issuable within 60 days
of April 4, 2005.

                      Equity Compensation Plan Information
                            (as of December 31, 2004)
------------------------------------------------ --------------------- --------------------- ---------------------
                                                                                                  Number of
                                                                                                  securities
                                                                                             remaining available
                                                      Number of                              for future issuance
                                                   securities to be                              under equity
                                                     issued upon         Weighted-average     compensation plans
                                                     exercise of        exercise price of         (excluding
                                                     outstanding           outstanding            securities
                                                  options, warrants     options, warrants    reflected in column
                                                    and rights (a)        and rights (b)           (a)) (c)
------------------------------------------------ --------------------- --------------------- ---------------------
<S>                                              <C>                   <C>                   <C>
Equity compensation plans approved by
      Security holders......................
                                                       268,118                $1.00                581,882
------------------------------------------------ --------------------- --------------------- ---------------------
Equity compensation plans not approved by
      Security  holders.....................
                                                          --                    --                    --
------------------------------------------------ --------------------- --------------------- ---------------------
      Total.................................           268,118                $1.00                581,882
------------------------------------------------ --------------------- --------------------- ---------------------
</TABLE>

Employment Agreements

         Matthew  H.  Fleeger  serves  as  the  Company's  President  and  Chief
Executive  Officer and entered  into a  three-year  employment  agreement  dated
December 30, 2004 to be effective as of January 1, 2005. Mr. Fleeger is entitled
to receive an annual base salary of $200,000, increased 5% annually, and is also
entitled to be paid a cash bonus of $25,000 on April 15,  2005.  Pursuant to the
Executive Target Bonus Program, Mr. Fleeger is also eligible for an annual bonus
based on the Company achieving  certain goals related to EBITDA.  Any such bonus
will be paid to Mr.  Fleeger in the form of a stock  option to purchase a number
of shares of Common Stock equal to the amount of such bonus at an exercise price
per  share of  Common  Stock  equal to the fair  market  value  (as such term is
defined in the Company's  2002 Stock Option Plan or any successor  plan thereto)
of such  Common  Stock as of the  effective  date that such  option is  granted;
provided,  however,  that in the event  that Mr.  Fleeger  becomes  the owner of
equity  securities  of the  Company  representing  more  than  10% of the  total


                                       29
<PAGE>

combined  voting power of all classes of equity  securities of the Company,  the
exercise  price  per share of  Common  Stock  shall be equal to 110% of the fair
market value of such Common Stock as of the  effective  date that such option is
granted;  provided further,  however, that Mr. Fleeger shall have the option, in
his sole discretion, to receive up to 50% of the amount of any such bonus in the
form of cash in lieu of such stock  option.  Pursuant  to the  Executive  Target
Bonus Program, Mr. Fleeger may be eligible for the following bonuses:

--------------------------------------- ----------------------------------------
        EBITDA Target Range                           Bonus Amount
--------------------------------------- ----------------------------------------
   At least:          But less than:
------------------ -------------------- ----------------------------------------
   $1,000,000           $1,100,000                      $25,000
------------------ -------------------- ----------------------------------------
   $1,100,000           $1,200,000                      $30,000
------------------ -------------------- ----------------------------------------
   $1,200,000           $1,300,000                      $35,000
------------------ -------------------- ----------------------------------------
   $1,300,000           $1,400,000                      $40,000
------------------ -------------------- ----------------------------------------
   $1,400,000           $1,500,000                      $45,000
------------------ -------------------- ----------------------------------------
   $1,500,000           $1,600,000                      $50,000
------------------ -------------------- ----------------------------------------
   $1,600,000           $1,700,000                      $55,000
------------------ -------------------- ----------------------------------------
   $1,700,000           $1,800,000                      $60,000
------------------ -------------------- ----------------------------------------
   $1,800,000           $1,900,000                      $65,000
------------------ -------------------- ----------------------------------------
   $1,900,000           $2,000,000                      $70,000
------------------ -------------------- ----------------------------------------
   $2,000,000           $2,100,000                      $75,000
------------------ -------------------- ----------------------------------------
   $2,100,000               NA          Mr.  Fleeger and the Board of Directors,
                                        or a duly authorized  committee thereof,
                                        shall   negotiate   the  amount  of  Mr.
                                        Fleeger's bonus in good faith; provided,
                                        however,  that such  amount  shall in no
                                        event be less  than  the sum of  $75,000
                                        plus  an  additional   $5,000  for  each
                                        $100,000 of EBIDTA over $2,100,000.
------------------ -------------------- ----------------------------------------

          Mr. Lonnie P. Cole, Sr. serves as a Senior Vice President in charge of
our Sales Department.  Mr. Cole entered into a three-year  employment  agreement
dated  September 30, 2004 to be effective as of October 1, 2004.  Mr. Cole is to
receive a base salary of $100,000  annually and is eligible for bonus incentives
based on the Company achieving certain goals related to revenue growth.




                                       30
<PAGE>

Item 12. Certain Relationships and Related Transactions.

          We incur  certain  general and  administrative  expenses  jointly with
other related  parties.  Such costs are allocated  amongst us and our affiliates
based on the specific entity incurring the expense,  square footage  utilization
on shared  facilities,  estimated  utilization  of other  relevant  products and
services, or the human resources dedicated to each respective entity.

          We have  certain  notes  and  accounts  payable  balances  owed to our
stockholders  and officers.  At December 31, 2004 and 2003,  such amounts are as
follows:
                                                   December 31,
                                                2004         2003
                                             ----------   ----------
                   Vivian Eriksen            $  365,704   $  607,795
                   Winship Moody, Sr.           298,717      240,513
                   Matthew Fleeger              421,447      535,666
                   Ajit Brar                    845,992         --
                   Sam Hicks                       --         70,622
                   Beverly Fleeger                 --         82,318
                   Robert Centeno                  --         20,000
                                             ----------   ----------
                     Total                   $1,931,860   $1,556,914
                                             ==========   ==========

Loans from Directors and Stockholders

          Mr. Winship Moody, Sr. loaned the Company $200,000 in November 2003 in
connection  with our acquisition of ATE and has made other working capital loans
and advances totaling $38,125 during 2003. Both amounts owed were converted into
a note bearing interest at the rate of 10 percent per annum that is repayable in
36 equal  monthly  installments  of $7,684,  including  interest,  beginning  on
December  7, 2003,  and is  secured  by a second  lien deed of trust on the real
property at our Garland  Facility.  Mr. Moody's note is convertible  into Common
Stock at the rate of $1.00 per share. Mr. Moody loaned us an additional $150,000
to the Company on September 29, 2004.  The note bears interest at the rate of 10
percent per annum and is repayable in 36 equal  monthly  installments  of $4,840
each and is  convertible  into Common Stock at the rate of $1.00 per share.  The
proceeds of the note were used to purchase certain assets related to the Med-Con
acquisition.  This second loan is also secured by a second lien deed of trust on
the real property at our Garland Facility.

          Mr. Ajit S. Brar loaned a total  amount of  $1,000,000  to the Company
throughout  2004.  The initial loan of $500,000 was funded on March 7, 2004. The
proceeds of the note were used for working capital purposes. The note is payable
in 36 equal monthly  installments of $16,133 and bears interest at 10%. The note
is  convertible  into  Common  Stock at the rate of $0.75 per share based on the
principal  and interest  outstanding  at the time of  conversion  and subject to
anti-dilutions provisions. Beginning on January 7, 2005, the note was amended to
be payable of  interest  only for a period of six months and then  revert to the
monthly  installment  of $16,133 on July 7, 2005 until paid in full.  On July 7,
2004, this same stockholder  provided a second loan in the amount of $250,000 to
the  Company.  The  proceeds of the note were used to pay the  Company's  second
quarter  2005  payroll  taxes  to the  IRS in the  amount  of  $158,832  and the
remaining amount for working capital purposes. The note is payable in 36 monthly
installments  of $8,333 and bears interest at the prime rate as published in the
Wall  Street  Journal  plus 8% (as of March  15,  2005,  the  interest  rate was
13.50%).  On September 27, 2004, this same stockholder  provided a third loan in
the amount of $150,000  to the  Company.  The  proceeds of the note were used to
purchase  certain assets of the Med-Con  acquisition.  The note is payable in 34
monthly installments of $5,280 and bears interest at the prime rate as published
in the Wall Street Journal plus 8%. On December 6, 2004,  this same  stockholder
provided a fourth loan in the amount of $100,000 to the Company. The proceeds of
the note were used for  working  capital  purposes.  The note is  payable  in 29
monthly installments of $4,060 and bears interest at the prime rate as published
in the Wall Street  Journal plus 8%. As of December 31, 2004,  all notes payable
to this stockholder totaled $845,992.

Stockholder Lock-Up Agreement

          Stockholders owning approximately 70% of our Common Stock have entered
into a  lock-up  agreement  (the  "Lock-Up  Agreement")  with  us by  which  the
stockholders  agreed  to place  certain  restrictions  on  their  right to sell,
pledge, or otherwise  transfer shares of Common Stock owned by them for one year
following the date that the Common Stock is initially quoted on the OTC Bulletin
Board(R) or other national  exchange (the "Effective  Date").  Essentially,  the
stockholders who signed the agreement (the "Restricted Stockholders") agreed not
to sell,  pledge,  or otherwise  transfer  shares of Common Stock owned by them,
subject  to the  following:  (i)  after  the  expiration  of one  year  from the
Effective  Date,  20% of the  shares of  Common  Stock  owned by the  Restricted


                                       31
<PAGE>

Stockholder will no longer be subject to the Lock-Up  Agreement;  (ii) after the
expiration of 90 days  following  the  completion of one year from the Effective
Date, 40% of the shares of Common Stock owned by the Restricted Stockholder will
no longer be subject to the Lock-Up Agreement; (iii) after the expiration of 180
days  following the  completion of one year from the Effective  Date, 60% of the
shares of Common  Stock owned by the  Restricted  Stockholder  will no longer be
subject  to the  Lock-Up  Agreement;  (iv)  after  the  expiration  of 270  days
following the completion of one year from the Effective  Date, 80% of the shares
of Common Stock owned by the Restricted Stockholder will no longer be subject to
the Lock-Up Agreement;  and (v) after expiration of two years from the Effective
Date,  100% of the shares of Common  Stock owned by the  Restricted  Stockholder
will no longer be subject to the  Lock-Up  Agreement.  The  restrictions  do not
apply to (i) a bona fide gift made by the Restricted Stockholder,  provided that
the donee of the  shares  of  Common  Stock or  securities  convertible  into or
exchangeable  or exercisable  for any shares of Common Stock agree in writing to
be bound by the  terms  of the  Lock-Up  Agreement  prior  to the  gift;  (ii) a
distribution to partners or stockholders of the Restricted  Stockholder  (and to
any  direct or  indirect  partner or  stockholder  thereof),  provided  that the
ultimate  distributees  of the shares of Common Stock or securities  convertible
into or  exchangeable  or  exercisable  for any shares of Common  Stock agree in
writing  to be  bound  by  the  terms  of the  Lock-Up  Agreement  prior  to the
distribution;  and (iii) transfers,  without consideration,  of shares of Common
Stock or securities  convertible  into or  exchangeable  or exercisable  for any
shares of Common  Stock to family  members or to one or more trusts  established
for the  benefit of one or more family  members,  provided  that the  transferee
agrees in writing to be bound by the terms of the Lock-Up Agreement prior to the
transfer.

Item 13. Exhibits and Reports on Form 8-K.

          (a)       Exhibits.

     3.1 Articles of Incorporation  of the Company,  filed with the Secretary of
Sate of the State of Texas on  November  12,  1993  (filed as Exhibit 3.1 to the
Company's  Form  10-SB  filed on July  16,  2001,  and  incorporated  herein  by
reference).

     3.2 Articles of Amendment to the Articles of  Incorporation of the Company,
filed  with the  Secretary  of State of the State of Texas on January  10,  1994
(filed as Exhibit 3.2 to the  Company's  Form 10-SB filed on July 16, 2001,  and
incorporated herein by reference).

     3.3 Articles of Amendment to the Articles of  Incorporation of the Company,
filed  with the  Secretary  of State of the State of Texas on January  31,  1996
(filed as Exhibit 3.3 to the  Company's  Form 10-SB filed on July 16, 2001,  and
incorporated herein by reference).

     3.4 Articles of Amendment to the Articles of  Incorporation of the Company,
filed with the  Secretary  of State of the State of Texas on  November  12, 1996
(filed as Exhibit 3.4 to the  Company's  Form 10-SB filed on July 16, 2001,  and
incorporated herein by reference).

     3.5 Articles of Amendment to the Articles of  Incorporation of the Company,
filed with the  Secretary  of State of the State of Texas on  December  23, 1999
(filed as Exhibit 3.5 to the  Company's  Form 10-SB filed on July 16, 2001,  and
incorporated herein by reference).

     3.6 Articles of Amendment to the Articles of  Incorporation of the Company,
filed with the  Secretary of State of the State of Texas on June 27, 2001 (filed
as  Exhibit  3.6 to the  Company's  Form  10-SB  filed  on July  16,  2001,  and
incorporated herein by reference).

     3.7  Bylaws,  as  amended,  of the  Company  (filed as  Exhibit  3.7 to the
Company's  Form  10-SB  filed on July  16,  2001,  and  incorporated  herein  by
reference).

     4.1 Form of Lock-Up  Agreement  (filed as Exhibit 4.1 to the Company's Form
10-SB filed on July 16, 2001, and incorporated herein by reference).

     4.2 Form of Subscription  Agreement  (filed as Exhibit 4.2 to the Company's
Form 10-SB filed on July 16, 2001, and incorporated herein by reference).

     4.3 Stock Purchase Option,  dated January 15, 1997, between the Company and
Gary S. Krall  (filed as Exhibit 4.3 to the  Company's  Amendment  No. 1 to Form
10-SB filed on February 13, 2002, and incorporated herein by reference).(*)


                                       32
<PAGE>

     4.4  Certificate of Designation of the Series A 10%  Convertible  Preferred
Stock, as filed with the Texas Secretary of State on November 12, 2004 (filed as
Exhibit  4.1 to  the  Company's  Form  8-K  filed  on  November  12,  2004,  and
incorporated herein by reference).

     10.1 Firm Commitment Agreement, dated October 31, 2000, between Lilly Beter
Capital Group, Ltd. and the Company (filed as Exhibit 10.1 to the Company's Form
10-SB filed on July 16, 2001, and incorporated herein by reference).

     10.2 Loan  Conversion and Common Stock  Agreement  between Mark M. Altenau,
M.D.  and the  Company,  dated  July 31,  2000  (filed  as  Exhibit  10.2 to the
Company's  Form  10-SB  filed on July  16,  2001,  and  incorporated  herein  by
reference).

     10.3  Contractor  Services  Agreement  effective  May 28, 1995, as amended,
between the Company and The  University  of Texas  Medical  Branch at  Galveston
(filed as Exhibit 10.3 to the Company's  Form 10-SB filed on July 16, 2001,  and
incorporated herein by reference).

     10.4 Memorandum of Agreement,  dated June 15, 2001, between the Company and
Intercontinental  Manufacturing  Company (filed as Exhibit 10.4 to the Company's
Form 10-SB filed on July 16, 2001, and incorporated herein by reference).

     10.5  Exclusive  Medical  Waste  Service  Agreement,  dated March 21, 2002,
between EnviroClean  Management Services,  Inc. and Christus Spohn Health System
(filed as Exhibit  10.5 to the  Company's  Form 10-QSB filed on August 16, 2002,
and incorporated herein by reference).+

     10.6 Medical Waste  Transportation and Disposal  Agreement,  dated March 1,
2001, between EnviroClean Management Services,  Inc., and Trinity Mother Frances
Regional  Health Center (filed as Exhibit 10.6 to the Company's  Amendment No. 1
to  Form  10-SB  filed  on  February  13,  2002,  and  incorporated   herein  by
reference).+

     10.7  Amended  and  Restated  Promissory  Note dated  July 31,  2001 by the
Company to Mark M. Altenau,  M.D. for $171,666.67  (filed as Exhibit 10.7 to the
Company's  Amendment  No.  1 to Form  10-SB  filed on  February  13,  2002,  and
incorporated herein by reference).

     10.8  Amended and  Restated  Loan  Conversion  and Common  Stock  Agreement
between Mark M.  Altenau,  M.D.  and the Company,  dated July 31, 2001 (filed as
Exhibit 10.8 to the  Company's  Amendment  No. 1 to Form 10-SB filed on February
13, 2002, and incorporated herein by reference).

     10.9 Amendment 4 to the Contractor  Services  Agreement between the Company
and  University of Texas Medical  Branch at Galveston  (Exhibit  10.9) (filed as
Exhibit 10.9 to the  Company's  Amendment  No. 1 to Form 10-SB filed on February
13, 2002, and incorporated herein by reference).

     10.10 LBCG  Financing  Proposal  (filed as Exhibit  10.10 to the  Company's
Amendment  No. 1 to Form 10-SB  filed on February  13,  2002,  and  incorporated
herein by reference).

     10.11 Purchase Agreement for the purchase of an autoclave for the Company's
Garland facility between  EnviroClean  Management  Services,  Inc. and BondTech,
Inc.  (filed as Exhibit 10.11 to the  Company's  Form 10-QSB filed on August 19,
2002, and incorporated herein by reference).

     10.12  Promissory  Note  dated  August  28,  2002 by the  Company to Vivian
Eriksen for  $202,250.79.  (filed as Exhibit 10.12 to the Company's  Form 10-QSB
filed on November 14, 2002, and incorporated herein by reference).

     10.13  Promissory  Note  dated  August  28,  2002 by the  Company to Vivian
Eriksen for  $90,000.00.  (filed as Exhibit 10.13 to the  Company's  Form 10-QSB
filed on November 14, 2002, and incorporated herein by reference).

     10.14  Promissory  Note  dated  August  28,  2002 by the  Company to Vivian
Eriksen for  $322,749.21.  (filed as Exhibit 10.14 to the Company's  Form 10-QSB
filed on November 14, 2002, and incorporated herein by reference).

     10.15 Asset Purchase Agreement and related exhibits thereto, dated November
7, 2003, between the Company and AmeriTech Environmental, Inc. (filed as Exhibit
2.1 to the  Company's  Form 8-K filed on November  24,  2003,  and  incorporated
herein by reference).


                                       33
<PAGE>

     10.16  Promissory  Note dated March 7, 2004,  by the Company to Ajit S. and
Saroj Brar for $500,000.00. (filed as Exhibit 10.16 to the Company's Form 10-QSB
filed on July 14, 2004, and incorporated herein by reference).

     10.17  Promissory  Note dated July 7, 2004,  by the Company to Ajit S. Brar
for $250,000.00.

     10.18  Promissory  Note dated  September 27, 2004 by the Company to Ajit S.
Brar for $150,000.

     10.19  Promissory  Note dated  September 29, 2004 by the Company to Winship
Moody for $150,000.

     10.20  Promissory  Note dated  November  7, 2003 by the  Company to Winship
Moody for $238,225.

     10.21  Promissory Note dated July 19, 2004 by the Company to Don McAfee for
$35,562.99.

     10.22 Asset  Purchase  Agreement,  dated as of September  30, 2004,  by and
between MedSolutions,  Inc. and Med-Con Waste Solutions,  Inc. (filed as Exhibit
2.1 to the Company's Form 8-K filed on October 6, 2004, and incorporated  herein
by reference).

     10.23 Promissory Note dated December 6, 2004 by the Company to Ajit S. Brar
for $100,000 **

     10.24 Employment Agreement dated September 30, 2004 between the Company and
Lonnie P. Cole,  Sr.  (the form of which was an  exhibit  to the Asset  Purchase
Agreement  filed as Exhibit  2.1 to the  Company's  Form 8-K filed on October 6,
2004, and incorporated herein by reference).*

     10.25 Employment  Agreement dated December 30, 2004 between the Company and
Matthew H.  Fleeger  (filed as Exhibit 10.1 to the  Company's  Form 8-K filed on
December 30, 2004, and incorporated herein by reference).*

     10.26  Promissory  Note dated  February  14, 2005 by the Company to Ajit S.
Brar for $75,000.**

     10.27  Promissory  Note dated  February  17, 2005 by the Company to Winship
Moody for $75,000.**

     31.1  Certification  of  Chief  Executive  Officer  of  MedSolutions,  Inc.
Pursuant to Rule 13a-14(a)/15d-14(a).**

     31.2  Certification  of Chief  Accounting  Officer  of  MedSolutions,  Inc.
Pursuant to Rule 13a-14(a)/15d-14(a).**

     32.1  Certification  of  Chief  Executive  Officer  of  MedSolutions,  Inc.
Pursuant to 18 U.S.C. Section 1350.**

     32.2  Certification  of Chief  Accounting  Officer  of  MedSolutions,  Inc.
Pursuant to 18 U.S.C. Section 1350.**

----------
     (*) Denotes a management contract or compensatory plan or arrangement.
     (+)  Confidential  treatment was requested with respect to certain portions
of this exhibit. Omitted portions were filed separately with the SEC at the time
the exhibit was filed.
     (**) Filed herewith.

         (b)      Reports on Form 8-K.

         A report  on Form 8-K was  filed  on  October  6,  2004  reporting  the
acquisition  by the  Company of certain  of the  assets  and the  assumption  of
certain of the liabilities of Med-Con Waste Solutions, Inc.

         A report on Form 8-K was  filed on  November  18,  2004  reporting  the
designation of the Company's Series A Preferred Stock.

         A report on Form 8-K was  filed on  December  30,  2004  reporting  the
execution by the Company of that certain  employment  agreement  with Matthew H.
Fleeger, dated December 30, 2004 to be effective as of January 1, 2005.

Item 14. Principal Accountant Fees and Services.

         Audit Fees. The aggregate fees billed by Marcum & Kliegman,  L.L.P. for
the fiscal  years ended  December  31, 2004 and 2003 for  professional  services
rendered for the audit of the Company's annual financial statements,  the review
of the financial  statements included in the Company's Forms 10-QSB and services
that were  provided in  connection  with  statutory  and  regulatory  filings or
engagements totaled $80,000 and $72,000, respectively.


                                       34
<PAGE>

         Audit-Related  Fees.  The  aggregate  fees billed by Marcum & Kliegman,
L.L.P.  for the fiscal years ended  December 31, 2004 and 2003 for assurance and
related services that are reasonably  related to the performance of the audit or
review  of the  Company's  financial  statements  and are not  disclosed  in the
paragraph captioned "Audit Fees" above were $0 and $0, respectively.

         Tax Fees.  The aggregate fees billed by Marcum & Kliegman,  L.L.P.  for
the fiscal  years ended  December  31, 2004 and 2003 for  professional  services
rendered  for tax  compliance,  tax advice and tax  planning,  were  $13,000 and
$18,000, respectively.

         All Other Fees. The aggregate fees billed by Marcum & Kliegman,  L.L.P.
for the fiscal years ended December 31, 2004 and 2003 for products and services,
other than the services  described in the  paragraphs  captioned  "Audit  Fees",
"Audit-Related Fees", and "Tax Fees" above were $0 and $0, respectively.

         The Audit  Committee  has  established  its  pre-approval  policies and
procedures,  pursuant  to which  the  Audit  Committee  approved  the  foregoing
services provided by Marcum & Kliegman, LLP in 2004.


<PAGE>

                                   SIGNATURES

         In  accordance  with  Section  13 or 15(d)  of the  Exchange  Act,  the
registrant  caused  this  report to be signed on its behalf by the  undersigned,
thereunto duly authorized.


                                                     MEDSOLUTIONS, INC.


Dated:  April 15, 2005                  By: /S/ Matthew H. Fleeger
                                           -------------------------------------
                                           Matthew H. Fleeger
                                           President and Chief Executive Officer

                                        By: /s/ J. Steven Evans
                                           -------------------------------------
                                           Vice President/Finance and Chief
                                           Accounting Officer



         In accordance  with the Exchange Act, this report has been signed below
by the following  persons on behalf of the  registrant and in the capacities and
on the dates indicated.

          Signature                        Title                       Date
          ---------                        -----                       ----

 /s/ Matthew H. Fleeger          President, Chief Executive       April 15, 2005
--------------------------       Officer and Director
Matthew H. Fleeger

 /s/ Winship B. Moody, Sr.       Chairman of the Board of         April 15, 2005
--------------------------       Directors
Winship B. Moody, Sr.

 /s/ Mark M. Altenau             Director                         April 15, 2005
--------------------------
Mark M. Altenau, M.D.


 /s/ Ajit S. Brar                Director                         April 15, 2005
--------------------------
Ajit S. Brar








                                       35
<PAGE>

                               MEDSOLUTIONS, INC.

                          INDEX TO FINANCIAL STATEMENTS


                                                                         Page
                                                                      ----------
 PART II - FINANCIAL INFORMATION:


    REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM              F-1


    CONSOLIDATED BALANCE SHEETS                                          F-2
      At December 31, 2004 and 2003


    CONSOLIDATED STATEMENTS OF OPERATIONS                                F-3
      For the Years Ended December 31, 2004 and 2003


    CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY               F-4 - F-5
      For the Years Ended December 31, 2004 and 2003


    CONSOLIDATED STATEMENTS OF CASH FLOWS                             F-6 - F-7
      For the Years Ended December 31, 2004 and 2003


    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                        F-8 - F-33














                                      F-i
<PAGE>

To the Board of Directors
MedSolutions, Inc.



             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
             -------------------------------------------------------

We have audited the  accompanying  consolidated  balance sheets of MedSolutions,
Inc.  (the  "Company")  as of  December  31,  2004  and  2003,  and the  related
consolidated statements of operations,  stockholders'  deficiency and cash flows
for the years  then  ended.  These  consolidated  financial  statements  are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). 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. The Company
is not  required  to  have,  nor were we  engaged  to  perform,  an audit of its
internal control over financial reporting.  Our audit included  consideration of
internal  control  over  financial  reporting  as a basis  for  designing  audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the  effectiveness  of the Company's  internal  control
over financial reporting. Accordingly, we express no such opinion. An audit also
includes  examining,  on a test  basis,  evidence  supporting  the  amounts  and
disclosures in the consolidated  financial statements,  assessing the accounting
principles  used  and  significant  estimates  made  by  management,  as well as
evaluating the overall consolidated 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
MedSolutions,  Inc.  as of December  31,  2004 and 2003,  and the results of its
operations  and  cash  flows  for the  years  then  ended,  in  conformity  with
accounting principles generally accepted in the United States of America.

The accompanying  consolidated  financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
consolidated  financial statements,  the Company's significant operating losses,
working capital deficiency and stockholders'  deficiency raise substantial doubt
about its ability to continue as a going concern.  Management's  plans regarding
these  matters  are  also  described  in Notes  2.  The  consolidated  financial
statements do not include any adjustments  that might result from the outcome of
this uncertainty.


                                                          MARCUM & KLIEGMAN, LLP

New York, New York
February 25, 2005




                                      F-1
<PAGE>
<TABLE>
<CAPTION>


                               MEDSOLUTIONS, INC.
                           CONSOLIDATED BALANCE SHEETS
                                     ASSETS
                                     ------
                                                                          December 31,
                                                                  ----------------------------
                                                                      2004            2003
                                                                  ------------    ------------
<S>                                                               <C>             <C>
Current Assets:
  Cash                                                            $       --      $       --
  Accounts receivable - trade, net of allowance of
    $88,835 and $58,372                                                979,080       1,333,765
  Prepaid expenses and other current assets                            240,428         219,223
  Supplies                                                              11,911          12,778
                                                                  ------------    ------------
      Total Current Assets                                           1,231,419       1,565,766

Property and equipment - at cost, net of accumulated
  depreciation of $1,335,071 and $951,894                            1,636,265       1,478,176
Intangible assets - Customer list, net of accumulated
  amortization of $235,868 and $50,000                                 897,980         950,000
Intangible assets - Goodwill                                         1,495,173         961,832
Intangible assets - permits                                             59,764          59,764
Other assets                                                            43,034           3,014
                                                                  ------------    ------------
      Total Assets                                                $  5,363,635    $  5,018,552
                                                                  ============    ============

                    LIABILITIES AND STOCKHOLDERS' DEFICIENCY
                    ----------------------------------------

Current Liabilities:
  Cash overdraft                                                  $    323,881    $    109,991
  Note payable to bank                                                  22,493          37,276
  Convertible debentures                                                40,135          40,135
  Current maturities of long-term obligations                          122,571          89,475
  Accounts payable                                                   1,268,941       1,325,953
  Accrued liabilities                                                1,741,064       1,447,951
  Note payable - AmeriTech Environmental, Inc.                         750,000         750,000
  Current maturities - notes payable to Med-Con                        467,820            --
  Current maturities - notes payable stockholders                      588,618         338,677
  Current maturities - litigation settlements                          186,253         186,253
  Advances from stockholders                                           171,845         358,395
                                                                  ------------    ------------
      Total Current Liabilities                                      5,683,621       4,684,106

Long-term obligations, less current maturities                         399,100         419,050
Notes payable - stockholders, less current maturities                  951,358         525,919
Litigation settlements, less current maturities                         26,736         212,989
                                                                  ------------    ------------
      Total Liabilities                                              7,060,815       5,842,064
                                                                  ------------    ------------
Commitments, Contingencies and Other Matters
  (Notes 1, 2, 8, 12, 13 and 14)

Stockholders' Deficiency:
  Preferred stock (par value $.001) - 100,000,000
    shares authorized at December 31, 2004 and 2003,
    respectively, 143,333 shares issued and outstanding at
    December 31,2004 and 0 shares issued at December 31, 2003              143            --
  Common stock (par value $.001) - 100,000,000 shares
    authorized at December 31, 2004 and 2003; 18,141,242 shares
    issued and 18,129,042 shares outstanding at December 31,
    2003 and 18,084,703 shares issued and 18,072,503 shares
    outstanding at December 31, 2003                                    18,141          18,084
Additional paid-in capital                                          21,595,614      21,476,848
Accumulated deficit                                                (23,293,078)    (22,300,444)
Treasury stock, at cost - 12,200 shares at December 31, 2004
  and 2003                                                             (18,000)        (18,000)
                                                                  ------------    ------------
        Total Stockholders' Deficiency                              (1,697,180)       (823,512)
                                                                  ------------    ------------
        Total Liabilities and Stockholders' Deficiency            $  5,363,635    $  5,018,552
                                                                  ============    ============
</TABLE>

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

                                      F-2
<PAGE>

                               MEDSOLUTIONS, INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS




                                                        For the Years Ended
                                                           December 31,
                                                   ----------------------------
                                                       2004            2003
                                                   ------------    ------------

Revenues:
  Sales - Net                                      $  7,926,330    $  6,318,861
                                                   ------------    ------------

Cost, Expenses and Other Income:
  Cost of sales                                       5,692,801       4,405,464
  Selling, general and administrative expenses        2,202,697       2,568,691
  Depreciation and amortization                         579,332         320,778
  Impairment of customer list                           139,330            --
                                                   ------------    ------------
                                                      8,614,160       7,294,933
                                                   ------------    ------------
Loss from operations                                   (687,830)       (976,072)

Other (income) expense:
  Interest expense                                      317,854         180,279
  Other income                                          (13,050)        (51,324)
  Litigation settlement                                    --          (147,270)
                                                   ------------    ------------
                                                        304,804         (18,315)
                                                   ------------    ------------
Net Loss                                               (992,634)       (957,757)

Preferred Stock Dividend                                  7,000            --

Net Loss applicable to common stock                $   (999,634)   $   (957,757)
                                                   ============    ============

Basic and diluted net loss per common share        $       (.06)   $       (.06)
                                                   ============    ============
Weighted average number of common shares
  Outstanding                                        18,113,411      16,633,717
                                                   ============    ============





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

                                      F-3

<PAGE>
<TABLE>
<CAPTION>

                               MEDSOLUTIONS, INC.

               CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY

                 FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003

                                                                             MSI Preferred Stock
                                                  MSI Common Stock                Series A
                                            --------------------------    ------------------------
                                               Shares         Amount         Shares        Amount
                                            -----------    -----------    -----------   -----------
<S>                                         <C>            <C>            <C>           <C>
Year Ended December 31, 2004:
-----------------------------

Balance - December 31, 2003                  18,084,703    $    18,084           --     $      --
MSI common stock sold for cash                  100,000            100           --            --
MSI preferred stock sold for cash                  --             --          143,333           143
MSI common stock issued for bonuses             115,000            115
MSI common stock bonuses cancelled by the
Company                                            --             --             --            --
MSI common stock issued in partial
  payment for assets of Bray                     29,867             30           --            --
MSI common stock issued for consulting
  services                                        8,500              9           --            --
MSI common stock issued for director fees        20,000             20           --            --
MSI common stock reversal of shares
  issued due to clawback provision for
  AmeriTech acquisition                        (365,828)          (366)          --            --
MSI common stock issued in partial
  payment for assets of Med-Con                 149,000            149           --            --


Net loss                                           --             --             --            --
                                            -----------    -----------    -----------   -----------
Balance - December 31, 2004                  18,141,242    $    18,141        143,333   $       143
                                            ===========    ===========    ===========   ===========


Year Ended December 31, 2003:
----------------------------

Balance - December 31, 2002                  16,359,354    $    16,359           --     $      --
MSI common stock sold for cash                  898,267            898           --            --
MSI common stock issued in part
  payment to acquire AmeriTech
  Environmental, Inc.                           705,082            705           --            --
MSI common stock exchanged for accounts
  payable and accrued compensation              122,000            122           --            --
Net loss                                           --             --             --            --
                                            -----------    -----------    -----------   -----------
Balance - December 31, 2003                  18,084,703    $    18,084           --     $      --
                                            ===========    ===========    ===========   ===========
</TABLE>





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





                                      F-4
<PAGE>
<TABLE>
<CAPTION>

                               MEDSOLUTIONS, INC.

               CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY

                 FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003


                                             Additional
                                              Paid-in       Accumulated       Treasury
                                              Capital         Deficit           Stock          Total
                                            ------------    ------------    ------------    ------------
<S>                                         <C>             <C>             <C>             <C>
Year Ended December 31, 2004:
-----------------------------

Balance - December 31, 2003                 $ 21,476,848    $(22,300,444)   $    (18,000)   $   (823,512)
MSI common stock sold for cash                   129,900            --              --           130,000
MSI preferred stock sold for cash                214,857            --              --           215,000
MSI common stock issued for bonuses                 (115)           --              --              --
MSI common stock bonuses cancelled by the
  Company                                       (144,500)           --              --          (144,500)
MSI common stock issued in partial
  payment for assets of Bray                      22,369            --              --            22,399
MSI common stock issued for consulting
  services                                         8,491            --              --             8,500
MSI common stock issued for director fees            (20)           --              --              --
MSI common stock reversal of shares
  issued due to clawback provision for
  AmeriTech acquisition                         (254,067)           --              --          (254,433)
MSI common stock issued in partial
  payment for assets of Med-Con                  148,851            --              --           149,000
Preferred Stock Dividend                          (7,000)           --              --            (7,000)
Net loss                                            --          (992,634)           --      $   (992,634)
                                            ------------    ------------    ------------    ------------
Balance - December 31, 2004                 $ 21,595,614    $(23,293,078)   $    (18,000)   $ (1,697,180)
                                            ============    ============    ============    ============


Year Ended December 31, 2003:
----------------------------

Balance - December 31, 2002                 $ 19,963,268    $(21,342,687)   $    (18,000)   $ (1,381,060)
MSI common stock sold for cash                   863,602            --              --           864,500
MSI common stock issued in part
  payment to acquire AmeriTech
  Environmental, Inc.                            528,100            --              --           528,805
MSI common stock exchanged for accounts
  payable and accrued compensation               121,878            --              --           122,000
Net loss                                            --          (957,757)           --          (957,757)
                                            ------------    ------------    ------------    ------------
Balance - December 31, 2003                 $ 21,476,848    $(22,300,444)   $    (18,000)   $   (823,512)
                                            ============    ============    ============    ============
</TABLE>



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



                                      F-5


<PAGE>
<TABLE>
<CAPTION>

                               MEDSOLUTIONS, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                 FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003

                                                               For the Years Ended
                                                                   December 31,
                                                           --------------------------
                                                               2004           2003
                                                           -----------    -----------
<S>                                                        <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:

  Net loss                                                 $  (992,634)   $  (957,757)
  Adjustments to reconcile net loss to net cash used in
    operating activities:
      Depreciation and amortization                            579,332        320,778
      Gain on disposal of fixed asset                          (11,194)          --
      Impairment of customer list                              139,330           --
      Bad debt expense                                          59,000         78,768
      Stock and options issued for services and interest         8,500        122,000
      Litigation settlement                                       --         (147,270)
      Cancellation of accrued stock compensation              (144,500)          --
    Changes in assets (increase) decrease:
      Accounts receivable                                      295,685       (539,627)
      Supplies                                                     867         12,975
      Prepaid expenses and other current assets                309,516        (95,135)
      Other non-current assets                                 (72,151)           601
    Changes in liabilities increase (decrease):
      Accounts payable and accrued liabilities                (173,069)       674,430
      Bank overdraft                                           213,890         22,403
                                                           -----------    -----------
        NET CASH PROVIDED (USED) IN OPERATING ACTIVITIES       212,572       (507,834)
                                                           -----------    -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Additions to property and equipment                         (350,104)      (150,974)
  Proceeds from disposal of fixed asset                         10,115           --
  Permits                                                         --              683
  Asset acquisition of AmeriTech Environmental, Inc.              --         (752,094)
  Asset acquisition of Bray Medical Waste Service              (11,200)          --
  Asset acquisition of Med-Con Waste Solutions, Inc.          (250,000)          --
                                                           -----------    -----------
        NET CASH USED IN INVESTING ACTIVITIES                 (601,189)      (902,385)
                                                           -----------    -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from sale of common stock                           130,000        864,501
  Proceeds from sale of preferred stock                        215,000           --
  Proceeds from notes payable - stockholders                 1,150,000        490,625
  (Repayments to) advances from stockholders                  (186,550)       310,295
  Payments on other long-term obligations                     (919,833)      (255,202)
                                                           -----------    -----------
        NET CASH PROVIDED BY FINANCING ACTIVITIES              388,617      1,410,219
                                                           -----------    -----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS              --             --

CASH AND CASH EQUIVALENTS - BEGINNING                             --             --
                                                           -----------    -----------
CASH AND CASH EQUIVALENTS - END                            $      --      $      --
                                                           ===========    ===========
</TABLE>



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


                                      F-6
<PAGE>
<TABLE>
<CAPTION>

                               MEDSOLUTIONS, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                 FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003


                                                                  For the Years Ended
                                                                      December 31,
                                                              ---------------------------
                                                                  2004           2003
                                                              ------------   ------------
<S>                                                           <C>            <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

  Interest paid                                               $    236,384   $    134,570
                                                              ============   ============
  Income taxes paid                                           $       --     $       --
                                                              ============   ============

SUPPLEMENTAL DISCLOSURE:

  Issuance of notes payable for property and
    equipment                                                 $    220,303   $    323,719
                                                              ============   ============
  Stock issued in connection with loans and accounts
    payable                                                   $      8,500   $     20,000
                                                              ============   ============
  Issuance of MSI common stock for AmeriTech acquisition      $       --     $    528,805
                                                              ============   ============
  Issuance of MSI note payable for AmeriTech acquisition      $       --     $    750,000
                                                              ============   ============
  Common stock reclaimed in connection to clawback
    provision regarding AmeriTech acquisition                 $    254,433   $       --
                                                              ============   ============
  Issuance of MSI notes payable for Med-Con acquisition       $    750,000   $       --
                                                              ============   ============
  Issuance of MSI common stock for Med-Con acquisition        $    149,000   $       --
                                                              ============   ============
  Notes payable reduced in connection to clawback provision
    regarding Med-Con acquisition                             $    153,780   $       --
                                                              ============   ============
  Issuance of MSI common stock for Bray acquisition           $     22,399   $       --
                                                              ============   ============
</TABLE>



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

                                      F-7
<PAGE>

                               MEDSOLUTIONS, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                 FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003

NOTE  1  DESCRIPTION OF BUSINESS

MedSolutions,  Inc.  ("MSI"  or the  "Company")  formerly  known as  EnviroClean
International,  Inc. was incorporated in the State of Texas in November 1993 and
commenced  operations in January 1994. The Company was organized for the purpose
of developing, manufacturing, and marketing the EnviroClean(R) Thermal Oxidation
System  ("EnviroClean(R)  System" or "ETOS"),  which was designed to  incinerate
medical and other  specialized  wastes in an  environmentally  sound manner.  In
1994,  through   collaboration  with   Intercontinental   Manufacturing  Company
("IMCO"),  the Company built the  EnviroClean(R)  System prototype.  The initial
sale of  EnviroClean(R)  Systems  occurred  in  1996.  There  were no  sales  of
EnviroClean(R) Systems during the years ended December 31, 2004 and 2003.

In 1995,  the  Company  founded  EnviroClean  Management  Services,  LLC,  which
subsequently became EnviroClean Management Services, Inc. ("EMSI") in 1996. EMSI
is a waste management  services company that services  principally medical waste
generators such as hospitals,  clinics, and physicians' offices.  EMSI collects,
transports,  and  disposes of medical  waste at two  facilities,  one located in
Garland,  Texas,  which  services  the North  Texas  area,  and one  located  in
Galveston, Texas, which services Houston and the South Texas area.

During 2004,  the Company  acquired  the business and certain  assets of Med-Con
Waste  Solutions,  Inc.  ("Med-Con"),  a Texas  corporation in the medical waste
industry.  The Company also  acquired in 2004 the customer  contracts of B. Bray
Medical Waste Service ("Bray"), a Texas sole  proprietorship.  Effective October
3, 2003,  the Company  acquired  the  business  and certain  assets of AmeriTech
Environmental,  Inc. ("AmeriTech"), a Texas corporation in the regulated medical
waste industry.

NOTE 2  GOING CONCERN

As indicated by the accompanying consolidated financial statements,  the Company
incurred  consolidated  net losses of $992,634  and $957,757 for the years ended
December  31,  2004  and  2003,  respectively.  Additionally,  the  Company  has
significant  deficits  in both  working  capital  and  stockholders'  equity  at
December 31, 2004 and 2003.  These  factors  raise  substantial  doubt about the
Company's ability to continue as a going concern.

Historically,  cash flow  deficits  have  been  funded  by  stockholders  of the
Company.  However, the stockholders are under no specific funding obligation. As
a means of providing working capital and funding for a proposed  financing,  the
Company has received,  from private  placements  of the Company's  common stock,
approximately $345,000 and $864,500 during the years ended December 31, 2004 and
2003,  respectively.  Three of the  Company's  largest  stockholders  loaned the
Company $1,150,000 in 2004 and $490,625 in 2003. There is no assurance that such
private  placement  funding and loans and advances  will continue to satisfy the
Company's  cash  needs,  or that any other  financing  will  occur.  The Company
expects to continue to explore  various  cost  cutting  initiatives,  expand its
business in new market areas and explore other sources for raising  capital with
debt or equity instruments.

The accompanying  consolidated  financial statements have been prepared assuming
that the Company will be able to continue as a going concern.  Accordingly,  the
consolidated financial statements do not include any adjustments relative to the
recoverability  and  classification of assets, or the amounts and classification
of  liabilities  that might be  necessary  in the event the Company is unable to
continue operations.



                                      F-8

<PAGE>

                               MEDSOLUTIONS, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                 FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003


NOTE  3  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation
---------------------------

The accompanying  consolidated  financial statements include the accounts of the
Company, its 99% owned subsidiary, EMSI, and its newly formed subsidiaries.  All
significant  intercompany  balances and transactions between the Company and its
subsidiaries have been eliminated in consolidation.

Cash and Cash Equivalents
-------------------------

For purposes of the consolidated  statement of cash flows, the Company considers
all  investments  with an original  maturity of three  months or less to be cash
equivalents.

Allowance for Doubtful Accounts
-------------------------------

The  Company's  trade  accounts  receivable  is stated net of an  allowance  for
doubtful  accounts  of  $88,835  and  $58,372  at  December  31,  2004 and 2003,
respectively.  The allowance for doubtful  accounts  reflects  management's best
estimate  of  probable  losses  inherent  in  the  account  receivable  balance.
Management determines the allowance based on known troubled accounts, historical
experience,  and other  currently  available  evidence.  With  respect  to trade
receivables,  ongoing credit evaluations of customers'  financial  condition are
performed and  generally,  no collateral  is required.  The Company  maintains a
reserve for potential credit losses and such losses, in the aggregate,  have not
exceeded management's expectations.

Supplies
--------

Supplies  are  stated at the lower of  average  cost or fair  value and  consist
primarily of medical  waste  containers  and supplies  provided to hospitals and
medical clinics and offices.

Property and Equipment
----------------------

Property and equipment are stated at cost less appropriate  valuation allowances
and accumulated  depreciation and amortization.  Depreciation is provided on the
straight-line  method over the  estimated  useful  lives of the related  assets,
generally  three to twenty  years.  Amortization  of leasehold  improvements  is
provided on the  straight-line  method over the lesser of the  estimated  useful
lives of the  improvements  or the  initial  term of the lease.  Gain or loss is
recognized upon sale or other disposition of property and equipment.



                                      F-9

<PAGE>

                               MEDSOLUTIONS, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                 FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003


NOTE  3  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Goodwill and Intangible Assets
------------------------------

FASB  Statement  No.  142,  Goodwill  and Other  Intangible  Assets  ("FAS 142")
requires that goodwill and  intangible  assets with  indefinite  useful lives no
longer be amortized,  but instead  tested for  impairment  at least  annually in
accordance  with the  provisions  of FAS 142.  This  standard also requires that
intangible  assets with definite useful lives be amortized over their respective
estimated  useful lives to their  estimated  residual  values,  and reviewed for
impairment.

AmeriTech Acquisition

In November  2003,  the  Company  acquired  certain of the  assets,  including a
customer list, of AmeriTech in an acquisition  accounted for as a purchase.  The
Company, based on an independent appraisal,  assigned $1,000,000 to the value of
the  customer  list  acquired and  established  a useful life of five years over
which to amortize the assigned cost.  During the quarter ended June 30, 2004 and
in accordance with the acquisition agreement,  the Company calculated a purchase
price adjustment with respect to the customer list acquired from AmeriTech.  The
calculation  resulted in a purchase price  reduction of $254,433,  which lowered
the assigned  value of the customer list acquired.  This  reduction  reduced the
number of shares issued to AmeriTech at the time of purchase by 365,828  shares.
During the year ended December 31, 2004,  the Company  further  determined  that
there  was  an  impairment  of  $139,330  to the  customer  list  acquired  from
AmeriTech.  Accordingly,  the Company  recorded a charge of $139,330  during the
year ended December 31, 2004, to reflect the decrease in the net carrying value.
The Company has recorded $159,788 in amortization  expense for the twelve months
ended December 31, 2004. Going forward,  amortization expense for each year will
approximate  $107,000.  As part of the  acquisition,  the Company also  recorded
goodwill of approximately $1,000,000.

A settlement was reached between ATE and the Company on February 11, 2005 due to
numerous disputes and disagreements  that arose in relation to  representations,
quality and other  factors that were  represented  by ATE in the asset  purchase
agreement.  The settlement  calls for the modification of the promissory note to
AmeriTech  from the Company to reduce the amount owed from $750,000 to $150,000,
payable in two  installments  of $75,000 each which shall begin at the time that
ATE  delivers  audited  financial  statements  of its books and  records for the
nine-month period ended September 30, 2003 that will allow the Company to comply
with its Form 8-K reporting  requirements  with the United States Securities and
Exchange Commission ("SEC").  The resulting  settlement should allow the Company
to record a gain from  extinguishment  of debt of approximately  $650,000 during
the three months ended March 31, 2005. We are currently in discussions  with ATE
to convert the remaining  balance of their  promissory note into Common Stock of
the Company.



                                      F-10

<PAGE>

                               MEDSOLUTIONS, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                 FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003

NOTE  3  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Med-Con - Acquisition

On September 30, 2004, the Company acquired certain assets, including a customer
list,  of  Med-Con in an  acquisition  accounted  for as a purchase  for a total
purchase price of $1,149,000. The purchase price for the acquired assets was (i)
$250,000  cash,  (ii) a  promissory  note in the  original  principal  amount of
$500,000 bearing interest at a rate per annum of 7%, payable in 30 equal monthly
installments  of principal and interest with the first such  installment  due on
January 1, 2005,  (iii) a promissory  note in the original  principal  amount of
$250,000,  with no  interest,  and with the  principal  amount  and the due date
subject to  adjustment  based  upon the  delivery  by Med-Con to the  Company of
consents to the  assignment  of the  customer  contracts  acquired  from Med-Con
within 75 days of the closing of the  transaction,  (iv) and  149,000  shares of
Common  Stock.  The  principal  amount  of  the  $500,000  promissory  note  was
adjustable  depending  upon the amount of revenues  realized by the Company from
the customer  contracts  acquired from Med-Con for the ensuing 90 days following
the closing of the transaction.  The Company, based on an independent appraisal,
assigned $497,610 to the customer list acquired and established a useful life of
five years over which to amortize the assigned cost. Amortization expense of the
customer list for each year will approximate $99,522.

During  the  quarter  ended  December  31,  2004  and  in  accordance  with  the
acquisition  agreement,  the Company  calculated a purchase price  adjustment of
$153,780,  which  lowered  the  assigned  value  of the  assets  acquired.  This
reduction reduced the note payable to Med-Con by $153,780.

As part of the acquisition,  the Company also recorded goodwill of approximately
$499,610, net of the purchase price reduction.








                                      F-11
<PAGE>

                               MEDSOLUTIONS, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                 FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003



NOTE  3  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Impairment of Long-Lived Assets
-------------------------------

The Company continuously monitors events and changes in circumstances that could
indicate carrying amounts of long-lived assets, including intangible assets, may
not be  recoverable.  An impairment  loss is recognized when expected cash flows
are less than the  assets'  carrying  value.  Accordingly,  when  indicators  or
impairment are present,  the Company evaluates the carrying value of such assets
in relation to the operating  performance and future  undiscounted cash flows of
the underlying  business.  The Company's  policy is to record an impairment loss
when  it is  determined  that  the  carrying  amount  of the  asset  may  not be
recoverable.

Revenue Recognition and Processing Costs
----------------------------------------

Revenues and the associated  processing costs from waste management services are
recognized at the time medical waste is received and prepared for processing.

Fair Value of Financial Instruments
-----------------------------------

The recorded carrying values of accounts receivable, accounts payable, and other
long-term  obligations  are  considered to  approximate  the fair values of such
financial instruments because of the short maturities.

Provisions for Income Taxes
---------------------------

No provisions have been made for federal or state income taxes since the Company
has incurred net operating losses since its inception. The Company is subject to
certain local minimum taxes.

Stock-Based Compensation
------------------------

During the year ended  December  31,  2003,  the Company  adopted  SFAS No. 148,
"Accounting  for  Stock-based   Compensation-Transition  and  Disclosure."  This
statement amended Statement No. 123, "Accounting for Stock-based  Compensation."
As  permitted  under  Statement  No.  123,  the Company  continues  to apply the
Accounting  Principles Board Opinion (APB) No. 25,  "Accounting for Stock Issued
to Employees." As required under Statement No. 148, the following table presents
pro-  forma  net loss  and  basic  and  diluted  loss  per  share as if the fair
value-based method had been applied to all awards.






                                      F-12

<PAGE>

                               MEDSOLUTIONS, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                 FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003




NOTE  3  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Stock-Based Compensation (Continued)

(in thousands)


Periods Ended December 31, 2004 and 2003
----------------------------------------
                                                          2004          2003
                                                       ------------------------

Net loss applicable to common stock                    $   (1,000)         (957)

Stock-based employee compensation
cost, net of tax effect, under fair
value accounting                                             (162)          (29)
                                                       ------------------------
Pro-forma loss under
Fair Value Method                                      $   (1,162)        (986)
                                                       ========================
Income loss per share applicable to
Common Stock Basic and Diluted                         $     (.06)         (.06)

Per share stock-based employee
compensation cost, net of tax
effect, under fair value accounting                    $     (.01)         --
                                                       ------------------------
Pro-forma loss share basic
& diluted                                              $     (.07)         (.06)
                                                       ========================





                                      F-13
<PAGE>

                               MEDSOLUTIONS, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                 FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003




NOTE  3  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)


The fair value of each option grant was estimated at the date of grant using the
Black-Scholes  option valuation model. The Black-Scholes  option valuation model
was developed for use in estimating  the fair value of traded options which have
no  vesting  restrictions  and are fully  transferable.  During  the year  ended
December  31,  2004 and 2003,  the  Company  granted  228,118  and 40,000  stock
options,  respectively  to employees and  directors.  The exercise  price of the
stock options was $1.00 (which is  equivalent to the weighted  average price per
share) and vest  immediately.  The options may be exercised over a period of ten
years.  Because the Company's stock options have  characteristics  significantly
different from those of traded  options,  and because  changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion,  the  existing  models do not  necessarily  provide a  reliable  single
measure of the fair value  estimate of its stock  options.  The total  number of
stock  options  outstanding  as of December  31, 2004 and  2003,was  268,118 and
40,000  respectively.  In calculating the fair values of the stock options,  the
following assumptions were used:

                                                     YEAR                YEAR
                                                 2004 GRANTS         2003 GRANTS

Dividend yield                                        --                  --
Weighted average expected life:                    5 years             5 years
Weighted average risk-free interest rate             3.27%               2.99%
Expected volatility                                 80.39%              98.18%

Loss Per Share of Common Stock
------------------------------

Basic net loss per share of common stock has been computed based on the weighted
average number of common shares outstanding during the periods presented.

Common stock equivalents,  consisting of options,  convertible accrued wages and
convertible  securities,  discussed  in  Note  11,  were  not  included  in  the
calculation of diluted loss per share because their inclusion would have had the
effect of decreasing the loss per share otherwise computed.

Advertising Expenses
--------------------

Advertising costs are charged to expense when incurred.  Advertising expense for
the years ended  December  31, 2004 and 2003  approximated  $79,149 and $45,300,
respectively.

Other income
------------

Other income consists principally of debt extinguishments from certain creditors
with whom the  companies  either  reached  legally  binding  agreements  whereby
certain debt was forgiven or the statute of  limitations  has passed whereby the
debt holders lost their right to present legal claims against us.



                                      F-14

<PAGE>

                               MEDSOLUTIONS, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                 FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003



NOTE  3  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Environmental Expenditures
--------------------------

Environmental  expenditures  are  capitalized  if the costs  mitigate or prevent
future  environmental  contamination  or if the costs improve  existing  assets'
environmental  safety or efficiency.  All other  environmental  expenditures are
expensed.  Liabilities  for  environmental  expenditures  are accrued when it is
probable  that  such  obligations  have been  incurred  and the  amounts  can be
reasonably  estimated.  Currently,  there are no ongoing environmental issues or
activities.

Use of Estimates
----------------

The preparation of financial statements in conformity with accounting principles
generally  accepted in the United States of America requires  management to make
estimates  and  assumptions  that  affect  the  reported  amounts  of assets and
liabilities at the date of the financial  statements and the reported amounts of
revenues and expenses  during the related  periods.  Actual results could differ
from such estimates.

Impact of Recently Issued Accounting Standards
----------------------------------------------

The  following  pronouncements  have  been  issued by the  Financial  Accounting
Standards Board ("FASB").

In January 2003,  Financial  Accounting  Standards  Board  ("FASB")  issued FASB
Interpretation  No. 46 "Consolidation of Variable Interest Entities" ("FIN 46").
This  interpretation  of  Accounting  Research  Bulletin  No. 51,  "Consolidated
Financial  Statements," provides guidance for identifying a controlling interest
in a variable  interest  entity  ("VIE")  established by means other than voting
interest.  FIN 46 also required  consolidation  of a VIE by an  enterprise  that
holds such  controlling  interest.  In December  2003,  the FASB  completed  its
deliberations  regarding  the proposed  modifications  to FIN No., 46 and issued
Interpretation  Number 46R,  "Consolidation  of Variable  Interest Entities - an
Interpretation  of ARB 51" ("FIN No.  46R").  The decisions  reached  included a
deferral of the effective date and provisions  for additional  scope  exceptions
for certain types of variable interests.  Application of FIN No. 46R is required
in financial  statements  of public  entities  that have  interests in VIEs,  or
potential VIEs,  commonly  referred to as  special-purpose  entities for periods
ending after December 15, 2003.  Application  by public small business  issuers'
entities is required in all interim and annual financial  statements for periods
ending after December 15, 2004. The adoption of this  pronouncement did not have
a material effect on the Company's financial statements.

In December 2004,  the FASB issued  Statement of Financial  Accounting  Standard
("SFAS") No. 123R,  "Share Based  Payment." This statement is a revision of SFAS
Statement No. 123, "Accounting for Stock-Based  Compensation" and supersedes APB
Opinion  No. 25,  Accounting  for Stock  Issued to  Employees,  and its  related
implementation  guidance.  SFAS 123R  addresses all forms of share based payment
("SBP") awards  including  shares issued under  employee  stock purchase  plans,
stock options,  restricted stock and stock appreciation rights. Under SFAS 123R,
SBP awards  result in a cost that will be  measured at fair value on the awards'


                                      F-15

<PAGE>

                               MEDSOLUTIONS, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                 FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003


NOTE  3  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)


grant date,  based on the estimated  number of awards that are expected to vest.
This  statement is effective  for public  entities  that file as small  business
issuers - as of the  beginning of the first interim or annual  reporting  period
that begins after  December 15, 2005. The Company is currently in the process of
evaluating the effect that the adoption of this  pronouncement  will have on our
financial statements.

In December 2004,  the FASB issued  Statement of Financial  Accounting  Standard
("SFAS") No. 153,  "Exchanges of  Nonmonetary  Assets".  This  Statement  amends
Opinion 29 to  eliminate  the  exception  for  nonmonetary  exchanges of similar
productive  assets and  replaces it with a general  exception  for  exchanges of
nonmonetary assets that do not have commercial substance. A nonmonetary exchange
has commercial  substance if the future cash flows of the entity are expected to
change  significantly  as a  result  of the  exchange.  The  provisions  of this
Statement are  effective for  nonmonetary  asset  exchanges  occurring in fiscal
periods  beginning  after June 15, 2005.  Earlier  application  is permitted for
nonmonetary asset exchanges occurring in fiscal periods beginning after December
16, 2004. The provisions of this Statement should be applied prospectively.  The
adoption of this  pronouncement is not expected to have a material effect on the
Company's financial statements.

Emerging  Issue  Task Force  (EITF)  Issue  04-8,  "The  Effect of  Contingently
Convertible  Instruments  on Diluted  Earnings  per Share."  The EITF  reached a
consensus  that  contingently  convertible  instruments,  such  as  contingently
convertible  debt,  contingently  convertible  preferred  stock,  and other such
securities,  should be  included  in diluted  earnings  per share (if  dilutive)
regardless  of whether the market price  trigger has been met. The  consensus is
effective for reporting  periods ending after December 15, 2004. The adoption of
this  pronouncement  did not have a material  effect on the Company's  financial
statements.






                                      F-16

<PAGE>

                               MEDSOLUTIONS, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                 FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003



NOTE 4 ACQ UISITION OF CERTAIN ASSETS OF AMERITECH ENVIRONMENTAL,  INC. AND BRAY
MEDICAL WASTE SERVICE

AmeriTech Environmental, Inc.
-----------------------------

On October 3, 2003, the Company signed a letter of intent to acquire  certain of
the assets, including customer contracts,  assume certain of the liabilities and
take over the  regulated  medical waste  operations of AmeriTech  Environmental,
Inc. ("AmeriTech"),  a Texas corporation, in exchange for a combination of cash,
a promissory note and shares of the Company's common stock, par value $.001 (the
"Common Stock"). Pursuant to the definitive asset purchase agreement dated as of
November 7, 2003, by and between the Company and AmeriTech,  the transaction was
completed by an  assignment  by AmeriTech to the Company of all of its regulated
medical  waste  disposal  customer  contracts,  which  cover  approximately  800
customers. The other assets acquired consisted primarily of equipment associated
with AmeriTech's  regulated medical waste disposal business and a parcel of real
property located in Houston, Texas.

The purchase  price for the  acquired  assets was $650,000 in cash, a promissory
note in the original principal amount of $750,000 bearing interest at a rate per
annum of 7%, interest payable  monthly,  with all principal and accrued interest
due on the first anniversary of the note, and 705,072 shares of Common Stock. As
discussed  in Note 3, the  number of shares of  Common  Stock  delivered  at the
closing was decreased by 365,828  shares due to the amount of revenues  realized
by the Company from the  customer  contracts  acquired  from  AmeriTech  for the
ensuing six months following the closing of the transaction. The cash portion of
the  purchase  price was funded from the  proceeds  of sales of Common  Stock in
private  placements  and $400,000  which was loaned to the Company by two of its
directors/stockholders  in exchange for promissory notes. The purchase price was
determined  largely  based upon the amount of revenues  AmeriTech  has generated
from its  regulated  medical  waste  disposal  business  during the first  three
quarters of 2003.

MedSolutions purchased the following assets and assumed the liabilities shown in
the following table in exchange for the amount paid.

                       Description                                      Amount

        Purchase price:
        Cash paid                                                     $  650,000
        Promissory note                                                  750,000
        Common stock, 705,072 shares                                     528,805
        Acquisition related costs                                        102,093
                                                                      ----------

        Total acquisition cost                                        $2,030,898
                                                                      ==========

        Assets acquired:

        Net assets (supplies, property, plant
          and equipment, less related liabilities)                        73,297
        Customer list, to be amortized over five years                 1,000,000
        Goodwill                                                         957,601
                                                                      ----------

        Total assets acquired                                         $2,030,898
                                                                      ==========



                                      F-17

<PAGE>

                               MEDSOLUTIONS, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                 FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003



NOTE 4 ACQUISITION  OF CERTAIN  ASSETS OF AMERITECH  ENVIRONMENTAL,  INC. AND B.
BRAY MEDICAL WASTE SERVICE (Continued)

Results of  operations  of  AmeriTech  have been  included  in the  consolidated
financial  statements for the three months  following the acquisition on October
3, 2003.

The  following  table  presents  the  unaudited  pro forma  combined  results of
operations  of the Company and  AmeriTech as if they had been  combined from the
beginning of 2003 (the operating results for 2002 are not available):

                                                                     Pro forma
                                                                     Combined
                                                                    At December
                                                                      31,2003
                                                                   ------------

         Revenues:
           Net Sales                                               $  8,780,712

           Net loss                                                $ (1,942,820)
         Basic net loss per common share                           $      (0.11)

         Weighted average common shares
           outstanding - basic and diluted                           17,710,166


The pro forma  combined  results are not  necessarily  indicative of the results
that actually  would have occurred if the  acquisition  had been completed as of
the beginning of the year 2003,  nor are they  necessarily  indicative of future
consolidated results.

The Company has not complied  with the Form 8-K  reporting  requirements  of the
United States Securities and Exchange  Commission (SEC). The Company has not yet
completed its audit of  AmeriTech.  The Company is required to file two years of
historical financial statements to comply with such SEC reporting requirements.

Bray Medical Waste Service
--------------------------

Effective January 1, 2004, the Company acquired the customer  contracts and took
over the regulated medical waste operations of B. Bray Medical Waste Service,  a
Texas sole proprietorship. The purchase price for the acquired assets (i)$11,200
cash and (ii)29,867 shares of the Company's Common Stock valued at $22,400 for a
total purchase price of $33,600,  allocated  $30,000 to customer list and $3,600
to goodwill.


                                      F-18
<PAGE>


                               MEDSOLUTIONS, INC.


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                 FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003


NOTE  4  ACQUISITION OF CERTAIN ASSETS OF MED-CON WASTE SOLUTIONS, INC.

Med-Con Waste Solutions, Inc.
-----------------------------

On September 30, 2004,  the Company  acquired  certain of the assets,  including
customer  contracts,  and assumed  certain of the  liabilities and took over the
regulated  medical waste  operations of Med-Con Waste  Solutions,  Inc., a Texas
corporation ("Med-Con"), in exchange for a combination of cash, promissory notes
and shares of the  Company's  Common  Stock.  Pursuant to the  definitive  asset
purchase  agreement  dated as of September  30, 2004, by and between the Company
and Med-Con, the transaction was accomplished by an assignment by Med-Con to the
Company of all of its regulated medical waste disposal customer contracts, which
cover approximately 330 customers. The other assets acquired consisted primarily
of  equipment   associated  with  Med-Con's  regulated  medical  waste  disposal
business.

The  purchase  price for the  acquired  assets  was (i)  $250,000  cash,  (ii) a
promissory note in the original principal amount of $500,000 bearing interest at
a rate per annum of 7%,  payable in 30 equal monthly  installments  of principal
and interest  with the first such  installment  due on January 1, 2005,  (iii) a
promissory note in the original principal amount of $250,000,  with no interest,
and with the principal  amount and the due date subject to adjustment based upon
the  delivery by Med-Con to the Company of  consents  to the  assignment  of the
customer  contracts  acquired from Med-Con  within 75 days of the closing of the
transaction, (iv) and 149,000 shares of Common Stock. The Company also purchased
approximately   $75,000  in  equipment  and  assumed  approximately  $75,000  in
liabilities from Med-Con. The cash portion of the purchase price was funded from
part of the  proceeds of  stockholder  advances in  anticipation  of the Company
converting  these advances into shares of the Company's Series A 10% Convertible
Preferred  Stock, par value $.001 (the "Series A Preferred  Stock"),  during the
quarter  ending  December 31, 2004, and $300,000 which was loaned to the Company
by two of its  directors/stockholders  in exchange  for  promissory  notes.  The
purchase price was determined  largely based upon the average  annualized amount
of revenues Med-Con generated from its regulated medical waste disposal business
during the months of May, June, July and August 2004.

As of December 31, 2004 and in accordance with the asset purchase agreement, the
total  purchase  price for Med-Con was decreased  $153,780.  The decrease to the
purchase price was  accomplished  by a  corresponding  decrease to the principal
amount of the $500,000  promissory note leaving a balance owed of $346,220.  The
decrease was a result of the actual amount of revenue realized during the 90 day
period  following the close of the asset  purchase  agreement that was less then
the projected  revenue amount used to calculate the purchase price.  The Company
has not paid any payments in accordance to the note and is in default,  however,
no notice of default by the payee has been given to the Company.



                                      F-19
<PAGE>

                               MEDSOLUTIONS, INC.


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                 FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003


NOTE  4  ACQUISITION  OF  CERTAIN  ASSETS  OF  MED-CON  WASTE  SOLUTIONS,   INC.
(Continued)

MedSolutions purchased the following assets and assumed the liabilities shown in
the following table in exchange for the amount paid.

                 Description                                            Amount

         Purchase price:
         Cash paid                                                    $  250,000
         Promissory note                                                 750,000
         Common stock, 149,000 shares                                    149,000
         Liabilities assumed                                              71,448
         Acquisition related costs                                         2,000
                                                                      ----------

         Total acquisition cost                                       $1,222,448
                                                                      ==========

         Assets acquired:

         Equipment                                                    $   71,448
         Allocation to customer list, to be
         amortized over five years                                       574,500
         Allocation to goodwill                                          576,500
                                                                      ----------

         Total assets acquired                                        $1,222,448
                                                                      ==========


Pro Forma Results
-----------------

The following table presents the pro-forma combined results of operations of the
Company  for its  2004  acquisitions  as if they  had  been  combined  from  the
beginning of 2004 (the operating results for 2003 are not available)

                                                                     Pro forma
                                                                      Combined
                                                                    At December
                                                                     31, 2004
                                                                   ------------

         Revenues:
           Net Sales                                               $  8,585,818

           Net loss                                                $ (1,126,560)

         Basic net loss per common share                           $      (0.06)

         Weighted average common shares
           outstanding - basic and diluted                           18,231,635

The pro forma  combined  results are not  necessarily  indicative of the results
that actually  would have occurred if the  acquisition  had been completed as of
the beginning of the 2004 year,  nor are they  necessarily  indicative of future
consolidated results.


                                      F-20

<PAGE>

                               MEDSOLUTIONS, INC.


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                 FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003


NOTE  5  PROPERTY AND EQUIPMENT

Property and equipment consisted of the following:

                                                              At December 31,
                                                         -----------------------
                                                            2004         2003
                                                         ----------   ----------

         Land                                            $   58,680   $   58,680
         Building                                           777,560      709,458
         Furniture and equipment                          2,135,096    1,661,932
                                                         ----------   ----------
                                                          2,971,336    2,430,070
         Less:  Accumulated depreciation                  1,335,071      951,894
                                                         ----------   ----------
         Property and Equipment, Net                     $1,636,265   $1,478,176
                                                         ==========   ==========

Depreciation of property and equipment for the years ended December 31, 2004 and
2003 amounted to $392,825 and $270,778, respectively.


NOTE  6 INCOME TAXES

The Company was not  required  to record a  provision  for income  taxes for the
years ended  December  31, 2004 and 2003,  as a result of net  operating  losses
incurred during those years.

As of December 31, 2004, the Company had available approximately  $18,660,000 of
net operating losses ("NOL") for income tax purposes that may be carried forward
to offset future taxable income, if any. The NOL carryforwards from December 31,
1995 through 1997 expire during the years 2010 through 2012 and the December 31,
1998  through  2004 NOL  carryforwards  expire in the years 2018  through  2024,
respectively.  The Company's ability to utilize its carryforwards may be subject
to an annual  limitation  in  future  periods  pursuant  to  Section  382 of the
Internal Revenue Code, as amended.

At December  31,  2004,  the Company has a deferred  tax asset of  approximately
$7,470,000,  principally representing the benefits of its net operation loss and
certain other expenses not currently deductible for tax purposes.  The Company's
deferred  tax asset has been  fully  reserved  by a  valuation  allowance  since
realization of its benefit is uncertain.  The valuation  allowance  increased by
$330,000 during the year ended December 31, 2004.




                                      F-21


<PAGE>

                               MEDSOLUTIONS, INC.


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                 FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003


NOTE  7 ACCRUED LIABILITIES

Accrued liabilities consist of the following:

                                                              At December 31,
                                                         -----------------------
                                                            2004         2003
                                                         ----------   ----------

         Salaries                                        $  486,373   $  458,752
         Payroll and other taxes                            440,207      203,212
         Royalty obligation                                   5,000       61,112
         Interest                                           173,141       94,069
         Processing expenses                                100,131      145,414
         Insurance                                          206,824      191,647
         Other accrued liabilities                          329,388      293,745
                                                         ----------   ----------
                                                         $1,741,064   $1,447,951
                                                         ==========   ==========



NOTE  8 LONG-TERM OBLIGATIONS

Long-term obligations are comprised of the following:

                                                              At December 31,
                                                         -----------------------
                                                            2004         2003
                                                         ----------   ----------

         Bank note - EMSI facility                       $  213,198   $  244,597
         Installment notes - equipment                      308,473      263,928

         Total indebtedness to bank and
           financial institutions                           521,671      508,525

         Less:  Current maturities                          122,571       89,475
                                                         ----------   ----------
              Total Long-Term Obligations                $  399,100   $  419,050
                                                         ==========   ==========





                                      F-22
<PAGE>

                               MEDSOLUTIONS, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                 FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003



NOTE  8  LONG-TERM OBLIGATIONS (Continued)


In July 1996, the Company borrowed  $367,500 from a bank. The note is secured by
a first lien on EMSI's  facility  in  Garland,  Texas,  and bears  interest at a
variable rate based on the national prime rate, plus 2.5%,  aggregating 4.75% at
December  31,  2004.  The note is  payable in minimum  monthly  installments  of
principal and interest  totaling  $3,100 and matures in July 2011. The Company's
president and chief executive officer has guaranteed this debt. The total amount
outstanding at December 31, 2004 is $213,198.

The  Company is  obligated  under  various  installment  notes  payable  for the
purchase of equipment with a cost of $323,000. The notes, which bear interest at
rates ranging from 7.0% to 16.1%, are due at various dates through September 15,
2008 and are  payable in monthly  installments  totaling  approximately  $10,318
consisting of principal and interest. The equipment acquired  collateralizes the
notes.

Aggregate  maturities of long-term  indebtedness  (including the notes payable -
stockholders  described in Note 9 below) and the Smart Jobs  litigation  and the
Surety Bond  litigation  settlements  described in Note 13 below  subsequent  to
December 31, 2004 are as follows:

         Year Ended December 31,                       Amount
         ----------------------                      ----------

                  2005                               $1,359,515
                  2006                                  769,287
                  2007                                  420,829
                  2008                                   66,884
                  2009                                   50,568
                  2010 and thereafter                    75,373
                                                     ----------
                                                     $2,742,456
                                                     ==========

NOTE  9  NOTES PAYABLE - STOCKHOLDERS

On August  28,  2002,  the  Company  received  loans  totaling  $615,000  from a
stockholder of the Company.  The notes payable to the stockholder  bear interest
at the  rate of 10  percent  per  annum,  are  payable  monthly,  and  commenced
September 28, 2002 for a period of 60 months.  The total monthly  payment amount
is $13,067. The loans are secured by a second lien deed of trust on the Garland,
Texas plant. At December 31, 2004, the total obligation was $365,704.

On November 7, 2003, the above mentioned  stockholder and another stockholder of
the Company  each  loaned  $200,000 to the Company to assist with the funding of
the  AmeriTech  Environmental,  Inc.  acquisition.  These  notes  payable to the
stockholders bear interest at the rate of 10 percent per annum and are payable



                                      F-23
<PAGE>


                               MEDSOLUTIONS, INC.

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003



NOTE  9  NOTES PAYABLE - STOCKHOLDER (Continued)


as follows: As to the first stockholder, the note is paid in full by February 7,
2004. As to the second stockholder,  the note, including other funds advanced to
the Company,  is payable monthly commencing  December 7, 2003 for a period of 36
months.  The total monthly  payment  amount is $7,684.  In addition,  the second
stockholder may convert at his option any portion of the  outstanding  principal
and unpaid  accrued  interest  on this note into  fully paid and non  assessable
shares of common stock of the Company.  The conversion  price is $1.00 per share
and is subject to adjustment based on antidilution  provisions  specified in the
agreement. Both loans are secured by a second lien deed of trust on the Garland,
Texas plant. On September 29, 2004, the second  stockholder loaned an additional
$150,000 to the  Company to assist with the funding of the Med-Con  acquisition.
This  particular  note pays interest at 10 percent and is payable over 36 months
with a monthly installment of principal and interest in the amount of $4,840. At
December 31, 2004, the total obligation to the second stockholder was $298,717.

On March 7, 2004, a third  stockholder  loaned the Company  $500,000 in exchange
for a convertible  promissory  note bearing  interest at the rate of 10 percent.
The  proceeds  from the loan  were for  working  capital  purposes.  The note is
payable  monthly  for a period  of 36  months  with each  payment  amounting  to
$16,133.59. The note is convertible into common stock of the Company at the rate
of  $0.75  per  share  in  whole  or in  part  at any  time  and is  subject  to
anti-dilution provisions, subject to the Company's right to pay in full the then
outstanding principal and accrued interest within 30 days of notice of intent by
the note-holder to convert, effectively canceling the payee's conversion right.

On July 7, 2004,  the third  stockholder  loaned an  additional  $250,000 to the
Company in exchange for a  non-convertible  promissory note bearing  interest at
the prime rate (as published in the Wall Street Journal) plus 8.0%. The proceeds
from the loan were to pay the  Internal  Revenue  Service for the payment of the
Company's  second  quarter  of 2004  payroll  taxes.  The note is  payable in 36
monthly installments of $8,333 each.

As  discussed  in Note 5 with  regard to the  Med-Con  acquisition  and with the
second stockholder above, the third stockholder loaned an additional $150,000 to
the Company to assist with the  funding of the  Med-Con  acquisition.  The third
stockholder  received  in  exchange of the  $150,000  advance a  non-convertible
promissory  note  bearing  interest at the prime rate (as  published in the Wall
Street  Journal) plus 8.0%.  The note is payable in 34 monthly  installments  of
$5,257 each.

On December 6, 2004, the third stockholder loaned an additional  $100,000 to the
Company in exchange for a  non-convertible  promissory note bearing  interest at
the prime rate (as published in the Wall Street Journal) plus 8.0%. The proceeds
from the loan were for expenses  related to the Med-Con  acquisition The note is
payable in 31 monthly  installments  of $3,861 each.  At December 31, 2004,  the
total obligation to the third stockholder was $845,992.



                                      F-24

<PAGE>

                               MEDSOLUTIONS, INC.

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003



NOTE 10  CONVERTIBLE DEBENTURES

Series I Debentures
-------------------

In 1994 and 1995,  the Company  issued a total of $1,100,000 of 15%  Convertible
Redeemable  Subordinated  Debentures  ("Series I  Debentures")  for the  primary
purpose of funding  the initial R&D  activities  relating to the  EnviroClean(R)
System. The terms of the Series I Debentures  specified a final maturity date of
March 31,  1999,  with  provisions  for  conversion  of the  debentures,  at the
holder's  option,  into the Company's  common stock at varying  conversion rates
through maturity. The Series I Debentures also allowed the Company to redeem the
debentures  any time prior to maturity at a price of 105% of the debenture  face
value.  Interest on the Series I Debentures is payable  semi-annually on April 1
and October 1 of each year.

Due to cash constraints,  the Company was not able to redeem this balance at the
stated  maturity date of March 31, 1999. In addition,  the Company is delinquent
in its payment of interest on the outstanding  debentures.  The Company is still
allowing the holders to convert  Series I Debentures  into MSI common stock at a
conversion rate of $1.50 per share.  Accrued  interest payable on the debentures
as of December 31, 2004 and 2003 totaled $38,312 and $33,812,  respectively. The
principal balance at December 31, 2004 and 2003 was $30,000.

Series II Debentures
--------------------

In 1998 the Company issued 10%  Convertible  Redeemable  Debentures  ("Series II
Debentures")  primarily for working capital purposes. The terms of the Series II
Debentures  specify a maturity date of November l, 1999, and contain a provision
for conversion of the  debentures,  at the holder's  option,  into the Company's
common  stock  at a rate of $3 per  share.  The  Company  may  also  redeem  the
debentures at a price of 110% of the  debenture  face value prior to November l,
1999, and at a price of 100% of face value thereafter. Interest on the Series II
Debentures is scheduled to be paid semi-annually on May 1 and November 1 of each
year.

Due to cash constraints,  the Company was not able to redeem this balance at the
stated maturity date of November 1, 1999. In addition, the Company is delinquent
in its payment of interest on the outstanding  debentures.  However, the Company
is still  allowing the holders to convert  Series II Debentures  into MSI common
stock at a conversion rate of $1.75 per share.  Accrued  interest payable on the
debentures  as of  December  31,  2004  and  2003  totaled  $5,989  and  $4,969,
respectively. The principal balance at December 31, 2004 and 2003 was $10,135.



                                      F-25
<PAGE>

                               MEDSOLUTIONS, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                 FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003


NOTE 11  STOCKHOLDERS' DEFICIENCY


Stock Issuances
---------------

During the year ended  December  31, 2004,  the Company  sold 100,000  shares of
Common Stock to two stockholders for a total consideration of $130,000.

The Company has issued  8,500  shares of Common  Stock to two  stockholders  for
services purchased with a charge to expense in the amount of $8,500.

The Company  issued  29,867  shares of Common  Stock valued at $.75 per share as
partial payment for the assets purchased with regard to the Bray acquisition and
also issued 115,000 shares of Common Stock to two executives.

The Company  adjusted the AmeriTech  purchase price with respect to the customer
list  acquired  from  AmeriTech.  The  adjustment  resulted in a purchase  price
reduction of $254,433 which reduced the number of shares issued in consideration
for the acquisition by 365,828 shares.

The Company  issued  149,000 shares of Common Stock valued at $1.00 per share as
partial payment for the assets purchased with regard to the Med-Con acquisition.

During 2003 the Company  sold 898,267  shares of its common stock for  $864,500.
The  Company  also issued  122,000  shares  valued at  $122,000  for stock based
compensation and in settlement of accounts payable.

Preferred Stock
---------------

During the year ended  December  31, 2004,  the Company  sold 143,333  shares of
Series A Preferred Stock as a result of the Company issuing a Private  Placement
Memorandum  ("Memorandum")  called  the  Acquisition  and  Expansion  Fund II on
October 1, 2004.  The terms of the  Memorandum  call for the  Company to sell to
accredited  investors  Series  A 10%  Convertible  Preferred  Stock  ("Series  A
Preferred  Stock"),  par value of $.001 and  Series B 8%  Convertible  Preferred
Stock ("Series B Preferred  Stock"),  par value of $.001. The Series A Preferred
Stock is being sold at a minimum of 10,000 shares and a maximum  500,000  shares
at a $1.50 per share.  After the Company has accepted  subscriptions for 500,000
shares of Series A Preferred  Stock,  up to 600,000 shares of Series B Preferred
Stock are being offered at $1.75 per share.  Each outstanding share of Preferred
Stock will  automatically  convert on the second  anniversary of the issuance of
the  Preferred  Stock  into one share of  Common  Stock at a price not less then
$1.50 per share.




                                      F-26


<PAGE>

                               MEDSOLUTIONS, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                 FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003


NOTE 11  STOCKHOLDERS' DEFICIENCY (Continued)


Stock Grants and Options
------------------------

At the annual meeting of  stockholders  of the Company on December 18, 2002, the
stockholders  approved the adoption of the  MedSolutions,  Inc. 2002 Stock Plan.
The  purpose of the plan is to attract and retain the best  available  personnel
for positions of substantial responsibility,  to provide additional incentive to
employees, directors and consultants and to promote the success of the Company's
business.  Options  granted under the plan may be Incentive Stock Options or Non
statutory Stock Options,  as determined by the Board of Directors at the time of
grant.  850,000 shares of common stock have been reserved for issuance under the
plan.

The Company's Board of Directors has previously  approved grants of common stock
and options to purchase  common stock to key executives  and  employees,  all of
which were granted prior to January 1, 1999.  The Company has also granted stock
and options to a  stockholder  of the Company in  connection  with various loans
made by the  stockholder  to the  Company,  all of which were  granted  prior to
January 1, 1999. The option grants are for periods of two to five years. Certain
options  may not be  exercised  for a period of two years  after the grant date.
Options for 198,118 and 40,000  shares were granted to directors  and  employees
during 2004 and 2003, respectively.

A summary of activity involving options on the Company's common stock follows:

                                             Number of Options    Exercise Price
                                             -----------------    --------------

Balance outstanding at December 31, 2002           40,000              $1.00

Granted                                               -                  -
Exercised                                             -                  -
Cancelled/Expired                                     -                  -
                                                 --------              -----
Balance outstanding at December 31, 2003           40,000              $1.00

Granted                                           228,118               1.00
Exercised                                             -                  -
Cancelled/Expired                                     -                  -
                                                 --------              -----
Balance outstanding at December 31, 2004          268,118              $1.00
                                                 ========              =====



<PAGE>

                               MEDSOLUTIONS, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                 FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003



NOTE 11  STOCKHOLDERS' DEFICIENCY (Continued)


Earnings Per Share
------------------

Securities that could potentially dilute basic earnings per share ("EPS") in the
future that were not included in the computation of diluted EPS because to do so
would  have  been  anti-dilutive  for  the  periods  presented  consist  of  the
following:


                                                               At December 31,
                                                           ---------------------
         Potentially Dilutive Securities:                     2004        2003
         --------------------------------                  ---------   ---------

         Convertible accrued salaries                        620,612     444,575
         Preferred convertible stock                         143,333        --
         Options to purchase common stock                    268,118      40,000
         Convertible debentures and unpaid interest           54,752      51,172
         Note payable to stockholder and accrued interest    838,907     232,426
         Advances from stockholders                          280,584     368,763
         Employee bonus plan                                    --       259,500
                                                           ---------   ---------
                 Total                                     2,206,306   1,396,436
                                                           =========   =========


NOTE 12  WASTE MANAGEMENT FACILITY AGREEMENT

In April 1996, EMSI acquired  certain assets and assumed certain  liabilities of
BMI Services,  Inc.  ("BMI"),  a medical  waste  transportation  and  management
company.  As part of this  acquisition,  BMI's  contract  to operate the medical
waste incineration facility at UTMB in Galveston,  Texas, and to provide medical
waste incineration services to UTMB, was assigned to EMSI. The original contract
was for an  initial  term of five  years that  ended in  December  2000,  but is
renewable for a second five-year term (see below). The contract required EMSI to
pay UTMB a monthly fixed facility usage fee on one medical waste incinerator;  a
monthly  variable  fee based on the volume of  medical  waste  processed  at the
facility;  and utility charges for the facility.  EMSI was also  responsible for
repairs and maintenance  costs of the facility up to an annual limit of $90,000.
In return,  EMSI received  medical waste  management fees from UTMB based on the
quantity of waste  processed.  Such fees are determined using a progressive rate
schedule,  which is adjusted  annually.  The Company  renegotiated  with UTMB an
amendment extending the UTMB contract until December 8, 2005.




                                      F-28
<PAGE>

                               MEDSOLUTIONS, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                 FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003



NOTE 12  WASTE MANAGEMENT FACILITY AGREEMENT  (Continued)

During 2004,  the Company and the  University  of Texas  Medical  Branch  (UTMB)
amended their operating agreement again for the incineration facility, resulting
in UTMB installing at its own expense an autoclave system for waste treatment to
be  managed  by the  Company.  The  amendment  requires  the  Company to pay the
following estimated monthly amounts during the contract years:


                           Fixed Facility
                            Maintenance          Capital           Variable
         Contract Years     and Use Fee        Renewal Fee         Usage Fee
         --------------    -------------       -----------       -------------
                                                                 (Based on waste
                                                                   incinerated)

              2001            $ 17,500           $ 10,833         $.005 per lb.
              2002            $ 18,500           $ 20,208         $.005 per lb.
              2003            $ 19,500           $ 27,159         $.005 per lb.
              2004            $ 12,500           $ 30,290         $.005 per lb.
              2005            $ 12,500           $ 31,366         $.005 per lb.

Further,  the  Company  agreed to pay UTMB  $0.035 per pound for all third party
waste  processed  through the autoclave with a guarantee by the Company to pay a
monthly  minimum  amount of no less then  $21,000.00  for such  processing.  The
Company is required to pay $2,700  towards the  facility's  utility  costs.  The
contract  is  cancelable  by either  party  with a one year  written  notice and
payment of the remaining  capital  renewal fee if cancelled by the Company.  The
Company operates the incineration  facility under the revised agreement one week
per month with UTMB paying the utility  costs in excess of $2,700.  In exchange,
certain of the  processing  fees charged by us to UTMB were modified in the most
recent amendment.


NOTE 13  COMMITMENTS AND CONTINGENCIES

Risks and Concentrations
------------------------

MSI and EMSI operate exclusively in one industry. EMSI provides waste management
services to medical waste generators in North and South Texas.  Until August 29,
2002,  EMSI's  operations were highly dependent upon utilization of UTMB's waste
incineration  facility.  EMSI uses this  facility to service UTMB in addition to
several  other  customers  in the South  Texas area.  Prior to August 29,  2002,
substantially  all  of the  waste  processed  by the  Company  was  done  at the
Galveston facility, except when the facility was not operational,  in which case
the  Company   outsourced  its  medical  waste  processing   through   alternate
facilities.  On August 29, 2002, EMSI commenced  using its own autoclave  system
that was installed in its Garland,  Texas  facility.  Accordingly,  in the event
that UTMB cancelled the waste  management  facility  agreement  with EMSI,  EMSI
would be able to use its Garland  facility as a suitable  alternate  facility to
avoid any  significant  detrimental  impact on the  operations of EMSI (see Note
13).


                                      F-29
<PAGE>

                               MEDSOLUTIONS, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                 FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003



NOTE 13  COMMITMENTS AND CONTINGENCIES (Continued)


Financial  instruments,  which potentially subject the Company to concentrations
of  credit  risk,  are  primarily  cash and  cash  equivalents,  trade  accounts
receivable and related party notes.

At December 31, 2004 and 2003,  UTMB  accounted  for  approximately  6% and 19%,
respectively,  of the accounts receivable balance.  For the years ended December
31, 2004 and 2003, UTMB accounted for approximately  14% and 19%,  respectively,
of net revenues in each year.

The  Company  carries $5  million of  liability  insurance  (including  umbrella
coverage),  and $1 million of aggregate  pollution and legal liability insurance
($2  million  per  incident),  which the Company  considers  sufficient  to meet
regulatory and customer  requirements  and to protect its employees,  assets and
operations.  The Company's pollution  liability  insurance excludes  liabilities
under  CERCLA.  There can be no assurance  that the Company will not face claims
under CERCLA or similar state laws resulting in substantial  liability for which
the Company is uninsured and which could have a material  adverse  effect on its
business.

Lease Obligations
-----------------

Effective  February 10, 2005, the Company  extended and renewed its lease at its
corporate headquarters in Dallas, Texas. The amended lease reduced the Company's
premises by approximately  1,000 square feet to the current 5,832 square feet of
space and reduced its current  monthly rental expense by  approximately  $4,500.
The amended lease renewed and extended the current lease in effect to expire May
31, 2012. The Company has leases for its corporate  office and other  facilities
for terms which expire through  December 2012.  Minimum annual rentals under the
leases are as follows:

         Years Ended
         December 31,                      Amount
         ------------                    ----------

            2005                         $   67,743
            2006                             84,531
            2007                             88,486
            2008                             90,463
            2009                             90,463
            thereafter                      227,888
                                         ----------
                                         $  649,574
                                         ==========




                                      F-30

<PAGE>

                               MEDSOLUTIONS, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                 FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003



NOTE 13  COMMITMENTS AND CONTINGENCIES (Continued)

During the year ended  December 31, 2002, the Company,  through its  subsidiary,
EnviroClean  Transport  Services,  Inc., entered into operating lease agreements
for the use of eight  vehicles.  The monthly lease  payments  range from $993 to
$1,101 and the lease periods range from 39 months for one used truck to 72 to 84
months for the  remaining  vehicles.  In addition  the  Company  pays a per-mile
maintenance fee of $0.06 to $0.065 for the use of the vehicles.

During the year ended  December 31,  2003,  the Company  entered into  operating
lease  agreements  for the use of eight  new  vehicles  to  expand  its fleet to
accommodate  the new business  acquired from AmeriTech  Environmental,  Inc. The
monthly lease  payments  range from $1,106 to $1,527 and the lease periods range
from 60 to 72 months for the  vehicles.  In addition the Company pays a per-mile
maintenance fee of $0.065 to $0.070 for the use of the vehicles.

The following table shows the future minimum operating lease payments that are
due under the contracts.


         Years Ended
         December 31,                      Amount
         ------------                    ----------

            2005                         $  226,483
            2006                            214,470
            2007                            213,378
            2008                            201,458
            2009                            166,154
            2010                             12,138
                                         ----------
                                         $1,034,081
                                         ==========


Rent expense for all operating  leases during the years ended  December 31, 2004
and 2003 was $797,731 and $477,149, respectively.


Payroll Tax Delinquency
-----------------------

At  December  31,  2004  unpaid  2003  and  2004  payroll   taxes   amounted  to
approximately  $294,000,  excluding penalties and interest.  At the end of 2004,
the Company began a  negotiation  process with the Internal  Revenue  Service to
settle and pay through an installment  plan all the  outstanding  taxes due with
penalties and interest.

Environmental Matters
---------------------

The Company  operates  within the medical waste  management  industry,  which is
subject to various federal, state and local laws and regulations.  Management is
not  aware  of  any  significant   contingent   liabilities  relative  to  these
activities.


                                      F-31

<PAGE>

                               MEDSOLUTIONS, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                 FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003



NOTE 13  COMMITMENTS AND CONTINGENCIES (Continued)


Litigation
----------

We  operate  in a  highly  regulated  industry  and are  exposed  to  regulatory
inquiries  or  investigations  from  time to time.  Government  authorities  can
initiate  investigations  for a variety of  reasons.  We have been  involved  in
certain legal and administrative proceedings that have been settled or otherwise
resolved on terms  acceptable to us, without having a material adverse effect on
our business.

We are also a party to various legal proceedings  arising in the ordinary course
of  business.  However,  there  are no  legal  proceedings  pending  or,  to our
knowledge,  threatened  against  us that will  adversely  affect  our  financial
condition or our ability to carry on the business except the following:

The Company was named  defendant in a lawsuit filed in Travis  County,  Texas by
the State of Texas.  The lawsuit  claimed  that the Company  breached a contract
awarded  under the Texas Smart Jobs Program by failing to meet the  requirements
of the contract and sought compensatory damages in the amount of $439,631,  plus
costs and  attorneys'  fees.  On March 3, 2003 we reached a settlement  with the
State of Texas the terms of which will  require  that we pay the State  $240,620
with no interest in 36 equal installments of $6,684 commencing on or about April
30, 2003. The settlement also requires that we retroactively pay $6,110 to those
employees or past  employees whom we were obligated to pay, but failed to pay in
full, pursuant to the Smart Jobs Program. As of December 31, 2004, the remaining
liability to the State of Texas was $106,943.

At December  31, 2004,  the total  liabilities  for  litigation  settlements  is
$212,989.  The  $212,989  also  includes a provision  of $106,046 to the bonding
company as previously discussed.





                                      F-32
<PAGE>

                               MEDSOLUTIONS, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                 FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003

NOTE 13  COMMITMENTS AND CONTINGENCIES (Continued)

Employment Agreements
---------------------

Matthew H. Fleeger serves as the Company's President and Chief Executive Officer
and entered into a three-year employment agreement dated December 30, 2004 to be
effective  as of January 1, 2005.  Mr.  Fleeger is entitled to receive an annual
base salary of $200,000,  increased 5% annually, and is also entitled to be paid
a cash bonus of $25,000 on April 15,  2005.  Pursuant  to the  Executive  Target
Bonus  Program,  Mr.  Fleeger is also  eligible for an annual bonus based on the
Company achieving  certain goals related to EBITDA.  Any such bonus will be paid
to Mr.  Fleeger in the form of a stock  option to purchase a number of shares of
Common Stock equal to the amount of such bonus at an exercise price per share of
Common  Stock  equal to the fair  market  value (as such term is  defined in the
Company's  2002 Stock Option Plan or any successor  plan thereto) of such Common
Stock as of the effective date that such option is granted;  provided,  however,
that in the event that Mr. Fleeger becomes the owner of equity securities of the
Company  representing  more than 10% of the total  combined  voting power of all
classes of equity  securities  of the Company,  the exercise  price per share of
Common  Stock  shall be equal to 110% of the fair  market  value of such  Common
Stock as of the effective  date that such option is granted;  provided  further,
however,  that Mr.  Fleeger shall have the option,  in his sole  discretion,  to
receive up to 50% of the amount of any such bonus in the form of cash in lieu of
such stock option.

Mr. Lonnie P. Cole, Sr. serves as a Senior Vice President in charge of our Sales
Department.  Mr. Cole  entered  into a  three-year  employment  agreement  dated
September 30, 2004 to be effective as of October 1, 2004. Mr. Cole is to receive
a base salary of $100,000 annually and is eligible for bonus incentives based on
the Company achieving certain goals related to revenue growth.

NOTE 14 RELATED PARTY TRANSACTIONS

Related party expenses included in the accompanying  consolidated  statements of
operations are as follows:

                                     Years Ended December 31,
                                    ---------------------------
                                       2004             2003
                                    ----------       ----------

         Interest expense           $  182,498       $   95,650
                                    ==========       ==========










                                      F-33






<PAGE>

                                  EXHIBIT INDEX

EXHIBIT  NO.               DESCRIPTION

     3.1 Articles of Incorporation  of the Company,  filed with the Secretary of
Sate of the State of Texas on  November  12,  1993  (filed as Exhibit 3.1 to the
Company's  Form  10-SB  filed on July  16,  2001,  and  incorporated  herein  by
reference).

     3.2 Articles of Amendment to the Articles of  Incorporation of the Company,
filed  with the  Secretary  of State of the State of Texas on January  10,  1994
(filed as Exhibit 3.2 to the  Company's  Form 10-SB filed on July 16, 2001,  and
incorporated herein by reference).

     3.3 Articles of Amendment to the Articles of  Incorporation of the Company,
filed  with the  Secretary  of State of the State of Texas on January  31,  1996
(filed as Exhibit 3.3 to the  Company's  Form 10-SB filed on July 16, 2001,  and
incorporated herein by reference).

     3.4 Articles of Amendment to the Articles of  Incorporation of the Company,
filed with the  Secretary  of State of the State of Texas on  November  12, 1996
(filed as Exhibit 3.4 to the  Company's  Form 10-SB filed on July 16, 2001,  and
incorporated herein by reference).

     3.5 Articles of Amendment to the Articles of  Incorporation of the Company,
filed with the  Secretary  of State of the State of Texas on  December  23, 1999
(filed as Exhibit 3.5 to the  Company's  Form 10-SB filed on July 16, 2001,  and
incorporated herein by reference).

     3.6 Articles of Amendment to the Articles of  Incorporation of the Company,
filed with the  Secretary of State of the State of Texas on June 27, 2001 (filed
as  Exhibit  3.6 to the  Company's  Form  10-SB  filed  on July  16,  2001,  and
incorporated herein by reference).

     3.7  Bylaws,  as  amended,  of the  Company  (filed as  Exhibit  3.7 to the
Company's  Form  10-SB  filed on July  16,  2001,  and  incorporated  herein  by
reference).

     4.1 Form of Lock-Up  Agreement  (filed as Exhibit 4.1 to the Company's Form
10-SB filed on July 16, 2001, and incorporated herein by reference).

     4.2 Form of Subscription  Agreement  (filed as Exhibit 4.2 to the Company's
Form 10-SB filed on July 16, 2001, and incorporated herein by reference).

     4.3 Stock Purchase Option,  dated January 15, 1997, between the Company and
Gary S. Krall  (filed as Exhibit 4.3 to the  Company's  Amendment  No. 1 to Form
10-SB filed on February 13, 2002, and incorporated herein by reference).(*)

     4.4  Certificate of Designation of the Series A 10%  Convertible  Preferred
Stock, as filed with the Texas Secretary of State on November 12, 2004 (filed as
Exhibit  4.1 to  the  Company's  Form  8-K  filed  on  November  12,  2004,  and
incorporated herein by reference).

     10.1 Firm Commitment Agreement, dated October 31, 2000, between Lilly Beter
Capital Group, Ltd. and the Company (filed as Exhibit 10.1 to the Company's Form
10-SB filed on July 16, 2001, and incorporated herein by reference).

     10.2 Loan  Conversion and Common Stock  Agreement  between Mark M. Altenau,
M.D.  and the  Company,  dated  July 31,  2000  (filed  as  Exhibit  10.2 to the
Company's  Form  10-SB  filed on July  16,  2001,  and  incorporated  herein  by
reference).

     10.3  Contractor  Services  Agreement  effective  May 28, 1995, as amended,
between the Company and The  University  of Texas  Medical  Branch at  Galveston
(filed as Exhibit 10.3 to the Company's  Form 10-SB filed on July 16, 2001,  and
incorporated herein by reference).

     10.4 Memorandum of Agreement,  dated June 15, 2001, between the Company and
Intercontinental  Manufacturing  Company (filed as Exhibit 10.4 to the Company's
Form 10-SB filed on July 16, 2001, and incorporated herein by reference).


<PAGE>

     10.5  Exclusive  Medical  Waste  Service  Agreement,  dated March 21, 2002,
between EnviroClean  Management Services,  Inc. and Christus Spohn Health System
(filed as Exhibit  10.5 to the  Company's  Form 10-QSB filed on August 16, 2002,
and incorporated herein by reference).+

     10.6 Medical Waste  Transportation and Disposal  Agreement,  dated March 1,
2001, between EnviroClean Management Services,  Inc., and Trinity Mother Frances
Regional  Health Center (filed as Exhibit 10.6 to the Company's  Amendment No. 1
to  Form  10-SB  filed  on  February  13,  2002,  and  incorporated   herein  by
reference).+

     10.7  Amended  and  Restated  Promissory  Note dated  July 31,  2001 by the
Company to Mark M. Altenau,  M.D. for $171,666.67  (filed as Exhibit 10.7 to the
Company's  Amendment  No.  1 to Form  10-SB  filed on  February  13,  2002,  and
incorporated herein by reference).

     10.8  Amended and  Restated  Loan  Conversion  and Common  Stock  Agreement
between Mark M.  Altenau,  M.D.  and the Company,  dated July 31, 2001 (filed as
Exhibit 10.8 to the  Company's  Amendment  No. 1 to Form 10-SB filed on February
13, 2002, and incorporated herein by reference).

     10.9 Amendment 4 to the Contractor  Services  Agreement between the Company
and  University of Texas Medical  Branch at Galveston  (Exhibit  10.9) (filed as
Exhibit 10.9 to the  Company's  Amendment  No. 1 to Form 10-SB filed on February
13, 2002, and incorporated herein by reference).

     10.10 LBCG  Financing  Proposal  (filed as Exhibit  10.10 to the  Company's
Amendment  No. 1 to Form 10-SB  filed on February  13,  2002,  and  incorporated
herein by reference).

     10.11 Purchase Agreement for the purchase of an autoclave for the Company's
Garland facility between  EnviroClean  Management  Services,  Inc. and BondTech,
Inc.  (filed as Exhibit 10.11 to the  Company's  Form 10-QSB filed on August 19,
2002, and incorporated herein by reference).

     10.12  Promissory  Note  dated  August  28,  2002 by the  Company to Vivian
Eriksen for  $202,250.79.  (filed as Exhibit 10.12 to the Company's  Form 10-QSB
filed on November 14, 2002, and incorporated herein by reference).

     10.13  Promissory  Note  dated  August  28,  2002 by the  Company to Vivian
Eriksen for  $90,000.00.  (filed as Exhibit 10.13 to the  Company's  Form 10-QSB
filed on November 14, 2002, and incorporated herein by reference).

     10.14  Promissory  Note  dated  August  28,  2002 by the  Company to Vivian
Eriksen for  $322,749.21.  (filed as Exhibit 10.14 to the Company's  Form 10-QSB
filed on November 14, 2002, and incorporated herein by reference).

     10.15 Asset Purchase Agreement and related exhibits thereto, dated November
7, 2003, between the Company and AmeriTech Environmental, Inc. (filed as Exhibit
2.1 to the  Company's  Form 8-K filed on November  24,  2003,  and  incorporated
herein by reference).

     10.16  Promissory  Note dated March 7, 2004,  by the Company to Ajit S. and
Saroj Brar for $500,000.00. (filed as Exhibit 10.16 to the Company's Form 10-QSB
filed on July 14, 2004, and incorporated herein by reference).

     10.17  Promissory  Note dated July 7, 2004,  by the Company to Ajit S. Brar
for $250,000.00.

     10.18  Promissory  Note dated  September 27, 2004 by the Company to Ajit S.
Brar for $150,000.

     10.19  Promissory  Note dated  September 29, 2004 by the Company to Winship
Moody for $150,000.

     10.20  Promissory  Note dated  November  7, 2003 by the  Company to Winship
Moody for $238,225.

     10.21  Promissory Note dated July 19, 2004 by the Company to Don McAfee for
$35,562.99.

     10.22 Asset  Purchase  Agreement,  dated as of September  30, 2004,  by and
between MedSolutions,  Inc. and Med-Con Waste Solutions,  Inc. (filed as Exhibit
2.1 to the Company's Form 8-K filed on October 6, 2004, and incorporated  herein
by reference).

     10.23 Promissory Note dated December 6, 2004 by the Company to Ajit S. Brar
for $100,000 **

     10.24 Employment Agreement dated September 30, 2004 between the Company and
Lonnie P. Cole,  Sr.  (the form of which was an  exhibit  to the Asset  Purchase
Agreement  filed as Exhibit  2.1 to the  Company's  Form 8-K filed on October 6,
2004, and incorporated herein by reference).*


<PAGE>

     10.25 Employment  Agreement dated December 30, 2004 between the Company and
Matthew H.  Fleeger  (filed as Exhibit 10.1 to the  Company's  Form 8-K filed on
December 30, 2004, and incorporated herein by reference).*

     10.26  Promissory  Note dated  February  14, 2005 by the Company to Ajit S.
Brar for $75,000.**

     10.27  Promissory  Note dated  February  17, 2005 by the Company to Winship
Moody for $75,000.**

     31.1  Certification  of  Chief  Executive  Officer  of  MedSolutions,  Inc.
Pursuant to Rule 13a-14(a)/15d-14(a).**

     31.2  Certification  of Chief  Accounting  Officer  of  MedSolutions,  Inc.
Pursuant to Rule 13a-14(a)/15d-14(a).**

     32.1  Certification  of  Chief  Executive  Officer  of  MedSolutions,  Inc.
Pursuant to 18 U.S.C. Section 1350.**

     32.2  Certification  of Chief  Accounting  Officer  of  MedSolutions,  Inc.
Pursuant to 18 U.S.C. Section 1350.**

----------
     (*) Denotes a management contract or compensatory plan or arrangement.
     (+)  Confidential  treatment was requested with respect to certain portions
of this exhibit. Omitted portions were filed separately with the SEC at the time
the exhibit was filed.
     (**) Filed herewith.