As filed with the Securities and Exchange Commission on April 16, 2002

                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                   FORM 10-KSB

         (Mark One)

[X]  Annual  report  under Section 13 or 15(d) of the Securities Exchange Act of
     1934

For the fiscal year ended December 31, 2001.

[ ]  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                      (IRS Employer
     Incorporation or Organization)                      Identification No.)

12750 Merit Drive, Park Central VII, Suite 770
Dallas, Texas                                                   75251
----------------------------------------------         -------------------------
         (Address of Principal Executive Offices)             (Zip Code)

                                 (972) 931-2374
--------------------------------------------------------------------------------
                (Issuer's Telephone Number, Including Area Code)

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

Securities registered under Section 12(g) of the Exchange Act:

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

     Check  whether  the issuer (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 10-KSB. [ ]

     State issuer's revenues for its most recent fiscal year: $4,046,061.

     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 March 31, 2002, was 15,702,490 shares.

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

<PAGE>

                               MEDSOLUTIONS, INC.

                                   FORM 10-KSB

                                Table of Contents
                                -----------------

Item                                                                       Page
                                                                          Number
                                     PART I                               ------

1.       Description of Business..............................................2

2.       Description of Property.............................................13

3.       Legal Proceedings...................................................13

4.       Submission of Matters to a Vote of Security Holders ................14

                                     PART II

5.       Market For Common Equity and Related Stockholder Matters............14

6.       Management's Discussion and Analysis or Plan of Operation...........15

7.       Financial Statements................................................21

8.       Changes in and Disagreements With Accountants on
         Accounting and Financial Disclosure.................................22

                                    PART III

9.       Directors, Executive Officers, Promoters and Control Persons;
         Compliance With Section 16(a) of the Exchange Act...................22

10.      Executive Compensation .............................................25

11.      Security Ownership of Certain Beneficial Owners and
         Management and Related Stockholder Matters..........................26

12.      Certain Relationships and Related Transactions......................28

13.      Exhibits and Reports on Form 8-K....................................29

Signatures...................................................................31

Audited Consolidated Financial Statements...................................F-i


                                       i
<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  for   deploying  our
          proprietary technology,  including,  without limitation,  our intended
          markets and future products, and our ability to raise capital;

     o    statements regarding our research and development efforts;

     o    statements  regarding the plans and  objectives of our  management for
          future  operations,  the  production  of  products,   including  those
          incorporating our technology,  and the size and nature of the costs we
          expect to incur and the people and services we may employ;

     o    statements  regarding our  competition or regulations  that may affect
          us;

     o    statements regarding our ability to compete with third parties;

     o    any statements using the words  "anticipate,"  "believe,"  "estimate,"
          "expect,"   "intend,"  "may,"  "will,"  "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.


                                       1
<PAGE>

                                     PART I

Item 1. Description of Business.

General

     MedSolutions,  Inc.  ("we," "us," or the "Company") is a Texas  corporation
that was  organized  on November  11, 1993.  Through our  99%-owned  subsidiary,
EnviroClean Management Services, Inc. ("EMSI"), from which the Company currently
derives  virtually  all of its 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, including hospitals, clinics, doctors' offices and a variety of other
regulated  medical  waste  generators.  We  operate a  permitted  medical  waste
incineration  plant in  Galveston,  Texas  (the "UTMB  Facility")  from which we
collect,  transport and dispose of medical waste, and is owned by the University
of Texas Medical Branch at Galveston, Texas ("UTMB"). We also operate a facility
in Garland, Texas (the "Garland Facility"),  owned by EMSI, that is permitted as
a medical waste incineration and transfer facility,  but is currently being used
only for waste collection and transfer.

     During 2001, we expanded our business strategy and business plan to explore
opportunities in medical waste-related products and service businesses, which we
could market to our existing client base of doctors and medical  facilities,  in
addition to expanding our present operations.  To this end, at our shareholders'
meeting held on May 2, 2001, the shareholders,  among other things: (i) voted to
change  the  name  of  the  Company  from  EnviroClean  International,  Inc.  to
MedSolutions,  Inc.;  (ii)  increased  the number of shares of  preferred  stock
authorized by the Company from 5,000,000 to 100,000,000; and (iii) elected three
new directors.

As of December  31,  2001,  we employed 46 persons,  45 of which were  full-time
employees.  We maintain our principal offices at 12750 Merit Drive, Park Central
VII,   Suite  770,   Dallas,   Texas   75251.   Our   websites  are  located  at
http://www.medsolutions.net and http://www.emsi-medwaste.com.

Business Background

     The Company was originally  incorporated  as Advanced  EnviroTech  Systems,
Inc., and subsequently changed its name to EnviroClean International,  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. On October 28, 1997, the U. S. Patent and Trademark Office issued Patent
# 5,680,820 for a "Solid Waste  Handling and Conveying  Apparatus." On March 24,
1998,  the U.S.  Patent and  Trademark  Office  issued  Patent #  5,730,072  for
"Combustion in an Oxygen Rich Environment." Additionally, the Company received a
Certificate of Registration  from the U. S. Patent and Trademark  office for the
"EnviroClean" name.

     Based on our  experience in the  industry,  because of, among other things,
the EnviroClean(R) System's potential ability to reduce carcinogens in emissions
and its compact size compared to conventional  incinerators,  we believe that we
have a patented,  unique and effective  thermal  oxidation  process which,  with
sufficient capital, can be modified and successfully marketed and can be applied
in the  destruction  of a wide variety of  specialized  waste  streams.  In this
regard,  our present  EnviroClean(R)  System is constructed  mainly of stainless
steel,  which has been proven not to be as resistant to corrosive  emissions (of
hydrochloric acid and chlorine) as originally anticipated.  Based on discussions
with an independent  consultant and the contract  manufacturer,  we believe that
with  sufficient  capital,  which is not presently  available to us, a corrosive
resistant EnviroClean(R) System could be manufactured.  However, due to the lack
of sufficient capital to (i) modify the EnviroClean(R)  System,  (ii) reduce its
manufacturing  and operating  costs, and (iii) increase and expand the marketing
efforts  regarding the  EnviroClean(R)  System, as well as a lack of significant
revenue  from the  sale of  EnviroClean(R)  Systems,  we have  discontinued  our
efforts to  manufacture  and market the  system.  Neither of the  facilities  we
operate, in Galveston and Garland, currently utilizes the EnviroClean(R) System;


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<PAGE>

however,  an EnviroClean(R)  System is installed in the Garland Facility and has
been  operational  in the past.  As a result,  we  presently  conduct  our waste
management  and  destruction  operations  without the use of the  EnviroClean(R)
System.

     Although we were  established for the purpose of developing,  manufacturing
and marketing of the EnviroClean(R)  System, our success in that regard has been
marginal,  and we have not produced  significant revenue or any profit from such
activity.  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.

EnviroClean(R) Thermal Oxidation System

     The   EnviroClean(R)   System.   In  1994,  we  created  and  patented  our
EnviroClean(R)  System,  a method of  incinerating  medical waste at or near the
customer's site.

     Sales.  In  1994,  we  entered  into  an  agreement  with  Intercontinental
Manufacturing  Company ("IMCO"), a company capable of large-scale  production of
the EnviroClean(R) System, in a joint effort to build a prototype and market the
completed  EnviroClean(R)  System.  As amended,  the  agreement  grants IMCO the
exclusive  right to  manufacture  the  EnviroClean(R)  System  and to market the
EnviroClean(R)  System  to  the  U.S.  Department  of  Defense,  its  subsidiary
agencies,  and certain foreign  governments.  In exchange,  we are entitled to a
royalty  for each  EnviroClean(R)  System  sold by  IMCO.  With  respect  to the
original  design  and  manufacture  of  seven  EnviroClean(R)  Systems,  we  had
remaining financial  obligations to IMCO under the agreement,  which IMCO agreed
to  convert  into  equity  of the  Company  in June  2001.  Without  significant
financial resources to undertake and complete  significant  modifications to the
EnviroClean(R)  System,  we do not  believe  the  System  can be  marketed  on a
profitable basis.

     In June 1995, we entered into a corporate  joint  venture,  Tratamiento  de
Desechos Medicos, S.A. de C.V. ("TRADEM"),  with a private company in Mexico and
a  large,   publicly-held   Mexican   company  for  the  purpose  of   acquiring
EnviroClean(R)  Systems  and  providing  medical  waste  management  services in
Mexico. We own a 33% interest in the joint venture.  TRADEM purchased a total of
five  EnviroClean(R)  Systems  from us. Two of the  EnviroClean(R)  Systems  are
located in a facility  in Lerma,  Mexico and the other three were  installed  in
Iztapalapa,  Mexico.  In  addition to these prior  sales,  TRADEM also  advanced
partial payment to us for other prospective purchases of EnviroClean(R) Systems.
However,  TRADEM  experienced  significant  operating  losses  during its entire
existence,  primarily due to changes in the Mexican regulatory environment.  Due
to this fact, we and the other joint venture  participants decided not to invest
additional  capital  in  TRADEM,  and  only  one of the  Mexican  joint  venture
facilities  remains in  operation.  As a result,  in 1999,  although  we had not
abandoned  our 33% interest in TRADEM,  we wrote-off the remaining net assets in
the joint venture to zero.

     In 1996, we sold an  EnviroClean(R)  System to EMSI for use in its facility
in Garland,  Texas. We subsequently acquired  substantially all of EMSI. In June
1998, we determined that it was not economically feasible to operate the Garland
Facility, due in part to approximately $300,000 of modifications that would have
been required to the EnviroClean(R) System at the Garland Facility, and the cost
of recertification that would have been required by changing environmental laws.
As a result, waste incineration at the facility was idled,  although the Garland
Facility  continues  to  function as a medical  waste  collection  and  transfer
facility.  We have recently received  temporary  authorization from the TNRCC to
begin  processing  waste at the Garland  facility using the autoclave  method of
treatment  for a period of six  months  and have  submitted  a Permit  Amendment
Application for permanent approval.

     From our  inception,  we have  produced  a total  of  seven  EnviroClean(R)
Systems,  including  the  prototype.  The  EMSI  unit in  Garland,  Texas is not
presently  operating and, to the best of our knowledge,  only one unit in Mexico
is  still  operational.  We  are  presently  disposing  of  waste  utilizing  an
incineration  facility owned by UTMB,  which is unrelated to the  EnviroClean(R)
System technology.  Without significant  additional capital, we will not be in a
position to modify,  further develop,  manufacture or market the  EnviroClean(R)
System.  Since the system uses gas as a fuel,  the system may not provide a cost


                                       3
<PAGE>

efficient method of waste disposal,  unless gas prices decreased to consistently
low  levels.  We have no  pending  orders  for  the  sale of any  EnviroClean(R)
Systems.

Acquisitions and Corporate Background

     EnviroClean  Management  Services,  LLC. In 1995, we organized  EnviroClean
Management  Services,  LLC  ("EMS")  to engage in the  regulated  medical  waste
collection and  transportation  business.  Also, EMS owned the Garland Facility.
EMS was acquired by EMSI in April 1996.

     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
and the UTMB arrangement through the BMI acquisition.

     EnviroClean Management Services, Inc. We and other shareholders formed EMSI
in February  1996, as a  consolidation  vehicle for the merger or acquisition of
EMS, 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  shareholders.  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  sufficient  shares to give us 96.1% of EMSI's stock.  Since
then we have acquired additional shares and now own 99.3% of EMSI.

Business Expansion

     We intend to broaden the market  areas in which we will become  involved by
expanding  into other  medical  waste-related  products and service  businesses,
including  medical  record  document  destruction  services,   reuseable  sharps
containers or sharps  containers  sales  (containers in which sharp  instruments
such as needles, scalpels, etc. are disposed), and OSHA training, which we would
market to our current client base of doctors and medical  facilities.  We intend
to expand into these new markets internally or through  acquisitions.  There can
be no assurance that we will be able to support  planned growth or to consummate
such  acquisitions,  or that such  acquisitions,  if  completed,  would  produce
revenue or profit for the Company and its shareholders.

     Although we have a history of operations  in the medical  waste  management
industry,  we have no history  of  operations  in other  medical  waste  related
products and service  businesses.  We are a fairly new enterprise and are in the
process of  marketing  our  products or services  and may  encounter  unusual or
unexpected problems that we may not be successful in resolving.  In addition, we
intend to expand our  operations  into other medical  waste and related  service
businesses.  We have  little  experience  in  areas  other  than  medical  waste
management  and we are still in the  process  of  evaluating  the  business  and
operational risks of undertaking activities outside of our core business. We may
encounter unanticipated, unusual and unexpected risks and problems in developing
any new area of  business,  which  could  adversely  affect  us,  as well as our
operations, revenue and ability to obtain a profit.

     We may not be successful  in the marketing of our products or services.  We
have  performed,  to date,  no  scientific,  empirical or other form of detailed
market analysis or study to demonstrate the level of local or regional  customer
acceptance  (if any) or need for our  technology  or services  other than market
studies  provided to us by third parties and their  subjective  observations and
conversations with potential customers.

     Our business strategy and aggressive 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 the 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


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<PAGE>

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.

     We intend  to expand  our  operations  into  other  medical  waste  related
products  and  service  businesses.  However,  we are  currently  engaged in the
business of the  transportation  and  destruction of regulated  medical waste as
well as providing services for the handling of regulated medical waste on behalf
of our customers who generate such waste. As a result,  our financial success is
completely  dependent upon our ability to  successfully  market our products and
services to potential  customers,  the success of our business  strategy and the
continued existence/viability of our waste destruction methods, products and the
services  we provide  our  customers  in the pickup,  transport,  treatment  and
disposal of their waste.  Based on our  experience in the  industry,  we believe
that our business can be readily  adapted to provide other medical waste related
products and services which could involve significant risk, cost and expense. If
we are not  successful in locating or operating  these intended  businesses,  it
could have a material  adverse  effect on our ability to achieve  profitability.
Additionally,  there is no  assurance  that we will  have  sufficient  financial
resources to implement any significant change in our business.

Collection and Transportation

     We collect,  transport, and dispose of over one million pounds per month of
regulated  medical and special waste,  primarily from  hospitals,  clinics,  and
doctors' offices.  Based on our experience in the industry, we believe that this
provides  a strong  foundation  in the  medical  and  special  waste  management
industry and that  significant  opportunities  exist to expand this business and
continue  providing services for dental offices,  veterinarians,  pharmaceutical
companies,  retirement  homes,  and medical testing  laboratories.  In addition,
based on our  experience in the industry,  we believe that our present  business
and client base  provide the  opportunity  to expand into other  medical-related
products and services businesses.

     We have over 800 medical waste disposal  agreements  with customers for the
collection of their medical waste,  and an agreement with one disposal  facility
to destroy their medical waste.  During 2001,  UTMB accounted for  approximately
24.7% of our revenue,  Texas Health Resources System  approximately 8.7%, Baylor
Health  Care  System   approximately   7.9%,   Christus  Spohn  Hospital  System
approximately 7.3%, and Trinity Mother Frances Health System approximately 7.0%.
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.

     We use a software  system in every phase of our operations  that enables us
to closely track all waste through the collection, transportation, treatment and
disposal  process as well as provide  manifests and invoices for each individual
customer account.

     Collection.  We own and lease trucks that are specially  equipped to handle
regulated medical waste in accordance with applicable health and  transportation
regulations.  The waste is packaged for  transportation  by the customers  using
plastic  containers or corrugated  boxes, bags and labels supplied by us in most
cases,  and is then  loaded  onto  our  vehicles.  We must  comply  with  strict
packaging regulations for both waste containers and the transportation vehicles.
(See Regulation.)

     Transportation.  Once the waste is loaded,  it is  transported to the waste
disposal  site.  Regulations  mandate that we maintain  strict  control over the
transportation, ensuring that the medical waste remains secure and inaccessible.
Further, we are required to follow specific procedures to respond immediately to
any  type  of  spill,   leakage  or  other   emergency  that  may  occur  during
transportation.  To  date,  we have not  experienced  any  such  incident.  (See
Regulation--DOT Regulations.)

Disposal Operations

     We operate and manage an incineration facility in Galveston, Texas owned by
UTMB, 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, and also for waste streams generated
by UTMB and its affiliates.


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<PAGE>

     As part of EMSI's acquisition of 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.

     Under the current  agreement with UTMB,  certain fees that we must pay UTMB
will increase on a gradual  annual basis,  including a fixed  facility usage and
maintenance fee that was $17,500 per month in 2001, and will increase to $21,500
per month by the year 2005, a graduated  capital  renewal fee (to reimburse UTMB
for a capital investment of approximately $1.1 million) ranging from $10,833 per
month in 2001 to  approximately  $20,200  per month  from  December  2001  until
December  2005, and a constant usage fee of $.005 per lb. based on the volume of
medical  waste  processed at the UTMB  Facility for non-UTMB  waste.  We pay all
utilities  and are entitled to a variable  credit for steam  generated  from the
unit.

     In the past, the UTMB Facility has experienced operational disruptions that
have  caused  us to  occasionally  discontinue  incinerator  operations  at  the
facility while appropriate repairs were made. During such discontinued  facility
use, we made  arrangements for waste disposal with alternative  vendors in order
to continue our  operations.  Our costs in using  alternative  vendors for waste
disposal are usually higher than the costs of using the UTMB Facility.  The UTMB
incinerator  currently  requires  extensive  modifications  and  improvements to
maintain compliance with certain federal and state regulatory  requirements.  It
is  expected  that we will be unable to  incinerate  waste at the UTMB  Facility
commencing  April  15,  2002,  in order  that the  foregoing  modifications  and
improvements can be made and the incinerator will be able to comply with the New
Source  Performance  Standards that take effect in September 2002. We expect the
incinerator  to be out of service  for a minimum  of 90 days.  We  submitted  an
application  to the TNRCC to allow us to install an  alternative  state-approved
technology in order to allow for  uninterrupted  medical waste  treatment at our
Garland Facility and have recently  received  Temporary  Authorization  from the
TNRCC  permitting us to process our regulated  medical waste using the autoclave
method of  treatment  for a period  of six  months.  We have  signed a letter of
intent with a company to install an  autoclave  treatment  system at our Garland
Facility and to process our regulated  medical waste, on a subconract basis, for
a fixed price-per-pound.

Financial Condition

     We have incurred  losses in all fiscal years of operation,  including 2001.
Also,  we have  significant  short  and  long-term  financial  obligations  that
significantly exceed the amount of our current assets.  Although our accountants
are  presently  preparing  our  federal  income tax  returns for the years ended
December  31,  1999,  2000,  and 2001,  these  returns  have not yet been filed;
however,  although we do owe delinquent federal payroll withholding taxes, we do
not  believe  we  have  any  federal  income  tax due for  these  periods.  (See
Management's  Discussion and Analysis or Plan of Operation and the  accompanying
Audited Financial Statements and Footnotes to such Financial Statements).

Future Funding Agreement With Lilly Beter Capital Group, Ltd.

     On October 31, 2000, we entered into an agreement  with Lilly Beter Capital
Group, Ltd.  ("LBCG") whereby LBCG agreed to assist us in raising  $5,000,000 of
equity and to provide services to us with respect to the raising of a minimum of
$15,000,000  and  a  maximum  of  $20,000,000  through  the  sale  of  tradable,
low-grade, high-yield 10-year bonds. Pursuant to the terms of this agreement, we
were required to provide the costs and expenses  associated with both the equity
and debt  offerings  in an  amount  not to  exceed  $850,000.  Pursuant  to this
original LBCG  agreement,  we deposited  funds in the amount of $500,000 into an
LBCG Escrow  Account to defray the costs of  administrative  expenses.  Of these
funds,  $300,000 was paid to LBCG. We then utilized $200,000,  with the approval
of LBCG,  for working  capital.  The agreement  with LBCG expired on October 30,
2001.

     We  are  currently  engaged  in  negotiations  with  LBCG  regarding  a new
financing  agreement.  LBCG has  presented a proposed  agreement  that  contains
additional  conditions and provides that LBCG will, subject to those conditions,
move forward with "a positive and highly feasible" financing package.  Under the
proposed  LBCG  agreement,  there is no firm  commitment or guarantee by LBCG to


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<PAGE>

provide any specific amount of financing. We have not yet accepted this proposed
LBCG  agreement.  Based on the  uncertainty of the Company's  relationship  with
LBCG, the Company has written off the $300,000 of deferred  financing costs that
the Company has paid LBCG. If a satisfactory agreement is not reached with LBCG,
the Company may seek a refund of certain amounts that have been paid to LBCG.

     LBCG's   obligations  under  the  October  31,  2000  LBCG  Agreement  were
conditioned upon a number of factors and requirements, including the following:

     o    an increase in the number of our Board of Directors to nine directors,
          including a director  selected by LBCG (Ms. Lilly Beter was elected as
          a Director on May 2, 2001);

     o    a right of first  refusal  granted to LBCG with respect to  additional
          financings in excess of $5,000,000;

     o    our indemnification of LBCG and its affiliates with respect to certain
          claims or liabilities;

     o    the  completion  by us of an  acquisition  or  acquisitions  that  are
          acceptable to LBCG;

     o    our meeting of certain  projections of pro forma financial  statements
          agreed upon by LBCG and us;

     o    our  filing of a Form  10-SB with the  United  States  Securities  and
          Exchange  Commission (the "SEC") with respect to our Common Stock (our
          Form 10-SB became effective on September 14, 2001); and

     o    other  factors,  many of which are not  within  our  control,  such as
          market  conditions and successful  implementation  of a market for our
          Common Stock following the filing of the Form 10-SB.

     LBCG's obligations under the proposed LBCG agreement are conditioned upon a
number of additional factors and requirements, including the following:

     o    the  disclosure of the current LBCG  Agreement to persons from whom we
          may seek bridge financing;

     o    our  becoming  a company  whose  shares  are  publicly  traded and our
          maintaining  compliance with all applicable filing requirements of the
          Securities and Exchange Commission;

     o    we must replenish the LBCG Escrow Account to $500,000;

     o    the disclosure of our federal employee withholding tax status; and

     o    a written  acknowledgment  by any person investing in our Common Stock
          prior to the  financing  contemplated  by LBCG  that  LBCG has made no
          guarantee as to the financing.

     Neither  we nor LBCG can  provide  any  assurance  that the  proposed  LBCG
agreement  will be executed,  and, if executed,  that the original or additional
conditions  will be met,  that the financing  contemplated  by the proposed LBCG
agreement will be consummated, or that a public market for our Common Stock will
develop.

     Acquisitions we may consider,  if successful,  would allow us to modify our
long-term business  strategy,  which we believe will provide the building blocks
for a revised business plan. The business strategy would include  acquisition of
other  medical  waste-related  products and service  business and would focus on
selling a variety of other  medical  waste-related  products and services to the
healthcare community.


                                       7
<PAGE>

Industry Overview

     Millions  of tons of  problem  waste  are  generated  daily by a myriad  of
industrial pharmaceutical,  technological and health care organizations.  As the
quantities  of problem  waste and the  diversity of  specialized  waste  streams
continue to  increase,  environmentally  friendly,  cost  effective  options for
solving  the  problems  associated  with  waste  handling,   transportation  and
destruction  have  declined.  These  complex  problems  have  become  especially
prevalent in the regulated medical waste industry. Increased public awareness of
the environmental issues has led both the federal and state governments to place
severe  restrictions on how medical and problem waste  generators can dispose of
their waste materials.

     In the past it was  commonplace  in the  United  States  for  hospitals  to
destroy  their  medical  waste  in  onsite  incinerators.   However,   with  new
Environmental Protection Agency ("EPA") and state air emission regulations, many
hospitals have been forced to permanently  close their onsite  incinerators  and
find alternative waste treatment methods.

     In the U.S.  market for 2000,  approximately  80% of all medical  waste was
sent "offsite" for commercial  treatment.  Such high percentage is a result of a
number  of  business  concerns,   including  budgetary  limitations,   potential
liability,  incinerator  non-compliance  and other  concerns  related  to onsite
processing of medical waste. In addition to the business concerns, hospitals are
also concerned about the risk of exposing their personnel to contagious diseases
while  treating  regulated  waste.  These  factors,  combined with the fact that
existing and proposed  regulations  are making it extremely  difficult to secure
the required  permits for both private and  commercial  destruction  facilities,
lends   additional   support  to  our  belief  that  marketing   conditions  are
advantageous for a fully integrated  service concept  utilizing state of the art
waste treatment technology.

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 two primary competitors are large, publicly traded corporations
with  regional and national  businesses.  These  companies  provide a variety of
services other than collection, transportation, treatment and disposal. As such,
these  competitors  have a broader scope of business and  substantially  greater
financial and other resources than we possess.

     According to public securities filings, 3CI Complete Compliance Corporation
("American  3CI")  is one of the  largest  regulated  medical  waste  management
companies in the southwest. In 1999, Stericycle,  Inc. completed its acquisition
of Browning Ferris Industries'  ("BFI") medical waste division from Allied Waste
for over $400 million,  making  Stericycle the largest medical waste  management
company in the United States. Stericycle utilizes a proprietary  electro-thermal
deactivation  ("ETD") process in a multi-regional  strategy.  By utilizing their
ETD  process,  Stericycle  is able to recycle or reuse a portion of the plastics
within  the  regulated  medical  waste  stream.  However,  Stericycle,  like us,
primarily utilizes incineration and autoclave technologies that were acquired to
process a majority of the waste stream.

     Based  on  our  experience  in  the  industry,   we  believe  that  we  can
successfully  compete with these  companies by  concentrating  our operations in
Texas and surrounding states. We believe we can gain a competitive  advantage by
reducing  the price of waste  disposal  services to customers to an amount below
that of our competitors  through a reduction of our costs, and expansion through
acquisitions,  which in turn will provide our customer  base with other  medical
waste-related products and services.

     The medical  services  industry is highly  competitive,  and the  companies
currently engaged in that industry have greater resources and experience than we
do. We have not yet  completed  our detailed  business plan and are still in the
process  of  evaluating  the  business  and  operational  aspects  and  risks of
undertaking  this strategy.  We have therefore not fully  developed a plan as to
how best to address  the  initial  competitive  disadvantage  under which we may
enter this industry.

                                       8

<PAGE>

     Many of our competitors have significantly  greater financial,  advertising
and marketing resources than us, which, without  significantly greater financial
resources,  will place us at a  competitive  disadvantage.  The  medical/special
waste disposal,  medical related services and environmental  services industries
are extremely competitive. We will compete with a number of competitors offering
similar  technologies  or services for the treatment of medical waste as well as
those using similar or dissimilar technologies or products.

     If we do not enhance and improve our products and  services,  our sales and
financial  results could be adversely  affected.  Development  of new,  improved
waste  destruction  devices  or  methods  may make our  devices  and/or  methods
obsolete,  less  competitive  or require  substantial  capital  outlays by us to
purchase or license new technologies, if available.

Patents and Trademarks

     On October 28, 1997,  the U. S. Patent and  Trademark  Office issued Patent
#5,680,820  for a "Solid Waste  Handling and Conveying  Apparatus." On March 24,
1998  the  U.S.  Patent  and  Trademark  Office  issued  Patent  #5,730,072  for
"Combustion  in  an  Oxygen  Rich  Environment."  Additionally,  we  received  a
"Certificate of Registration" from the U. S. Patent and Trademark office for the
"EnviroClean"  name.  In 1999 we wrote down the value of these  patents  and the
trademark to -zero-.

Regulation

     General Federal  Regulation.  We operate within the regulated medical waste
management  industry,  which is 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 permits issued by governmental agencies.

o    Permits.  We must obtain and keep in force government  permits that must be
     periodically  renewed and are subject to  modification or revocation by the
     applicable regulatory authority.

o    Regulations. 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 protect our employees  from the hazards of medical
     waste.

     There  are  two  general  aspects  to our  business  that  are  subject  to
regulation:  treatment  and  transportation.  The  Company's  primary  method of
treatment  is  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 certain  medical
wastes,  such as residues  from  chemotherapy  procedures.  Air  emissions  from
incinerators can contain certain  byproducts that are subject to federal,  state
and in some cases, local regulation. In some circumstances, the ash byproduct of
incineration may also be regulated.  As a result,  it is expensive to permit and
construct new facilities.  Transportation  of medical waste exposes employees to
potentially infectious materials. As such, federal regulations have been imposed
to minimize the risk of employees to infectious  materials  and provide  uniform
labeling and packaging of medical waste.

     There are at least four federal agencies that have authority over regulated
medical waste.  These agencies are the EPA, the  Occupational  Safety and Health
Administration  ("OSHA"),  the U.S. Department of Transportation ("DOT") and the
U.S. Postal Service.  Our business,  as it is currently operated,  is subject to
regulations of the EPA, OSHA and DOT, but not of the U.S. Postal Service.  These
agencies regulate medical waste under a variety of statutes and regulations.

     In November  2000,  we incurred  $17,316 of  expenses  in  connection  with
clean-up costs related to a caustic spill at the UTMB  Facility.  In April 2000,
we incurred  $85,976 of expenses in connection  with  clean-up  costs of a stack
discharge  at the UTMB  Facility.  In the  fourth  quarter  of 1998,  $31,240 of

                                        9
<PAGE>

expenses  were  incurred  for a similar  discharge at the UTMB  Facility.  As of
December 31, 2001, we were not involved in any remediation  activities involving
environmental regulation.

     Clean Air Act  Regulations.  In August  1997,  the EPA adopted  regulations
under the Clean Air Act  Amendments  of 1990 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 that
meets minimum emission  standards for these  pollutants.  We currently lease and
operate one  incinerator,  which is at the UTMB  Facility.  This  incinerator is
owned by UTMB.  UTMB  currently  has a permit  on two  incinerators.  We have an
agreement with UTMB,  which permits us to operate one  incinerator on an ongoing
basis and  operate  the second  incinerator  if our  monthly  volume of waste so
requires.  We are  responsible to operate the facility in accordance with UTMB's
permit.  Based  on our  experience  in the  industry,  we  believe  that we have
complied  and will  continue  to be in  compliance  with all  federal  and state
permits regarding our operation of UTMB's  incinerators.  In addition,  based on
our experience in the industry,  we believe that the UTMB  incinerator  has been
maintained in compliance with all federal and state permits,  and that UTMB will
maintain its permits on its incinerators.

     It is likely that the EPA will, in the future,  impose  stricter  emissions
standards.  Stricter emissions  standards could benefit us if the result is that
hospitals and other waste generators increase or accelerate their use of outside
medical waste treatment  contractors like us. Stricter emissions standards could
also have a  material  adverse  effect  on us to the  extent  that  UTMB  incurs
increased  costs to bring its own  incinerators  into  compliance  with the more
stringent standards.  We may then face price increases for the use and operation
of the UTMB Facility,  as well as increased costs for maintenance and repair. We
might also face price  increases  for treatment of medical waste that we deliver
to other parties for processing.

     Occupational  Safety and Health Act of 1970.  The  Occupational  Safety and
Health  Act of 1970  authorizes  OSHA to issue  occupational  safety  and health
standards.  Unlike the EPA  regulations  that are  designed  to control  medical
waste,  OSHA  regulations  are designed to minimize the exposure of employees to
hazardous  work  environments,  in particular  the reduction or  elimination  of
occupational   bloodborne  infections.   Due  to  our  business  of  collection,
transportation and final disposal of medical waste, our employees may be exposed
to  potentially  infectious  materials.  Our employees are exposed to this waste
only after it has been packaged for transport; therefore, the greatest potential
for  occupational  exposure is through  needle  sticks from sharps not  properly
packaged or sealed and spillage from improperly  packaged fluids.  Our packaging
and handling practices, including reliance on mechanical waste handling, as well
as state and federal packaging requirements,  substantially reduce the potential
exposure.  Various  standards apply to certain aspects of our operations.  These
regulations  govern,  among other things,  exposure to bloodborne  pathogens and
other potentially  infectious  materials,  lock out/tag out procedures,  medical
surveillance requirements, use of respirators and personal protective equipment,
emergency planning, hazard communication, noise, ergonomics and 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.

     Resource  Conservation and Recovery Act of 1976. The Resource  Conservation
and Recovery Act of 1976  ("RCRA")  relates to  hazardous  waste,  as opposed to
medical waste. In 1976, Congress passed the 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.


                                       10
<PAGE>

     We use  landfills  operated by parties  unrelated to us for the disposal of
treated medical waste from the UTMB Facility and for the disposal of incinerator
ash.  At the  UTMB  Facility,  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. Following treatment and testing,  most waste from
the UTMB Facility is disposed of as nonhazardous waste.

     DOT Regulations. DOT has placed 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.

     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 into the
environment of a hazardous  material.  Our drivers are trained on topics such as
safety,  hazardous materials,  medical waste, hazardous chemicals and infectious
substances. Our 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 ("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.  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.


                                       11
<PAGE>

     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 also updated in December 1994. The responsibility
for these  regulations  rests with the Office of Waste  Management  of the Texas
Natural  Resource  Conservation  Commission  ("TNRCC").  Under Subchapter Y, the
TNRCC  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 TNRCC 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:

     o    Steam disinfection;

     o    chlorine disinfection/maceration;

     o    chemical disinfection;

     o    moist disinfection;

     o    thermal inactivation; and

     o    incineration.

     Our primary method of treatment of medical waste is  incineration.  This is
the only  method that we perform  ourselves,  although  we have  utilized  other
treatment  methods  through  subcontractors.  Approval  from the  Office  of Air
Quality of the TNRCC is required for incineration processes. Currently, we lease
and  operate one  incinerator  from UTMB at the UTMB  Facility  that is properly
licensed by the TNRCC.  (See  Regulation--Clean  Air Act Regulations  above.) We
have  recently  received  Temporary   Authorization  from  the  TNRCC  to  begin
processing  regulated  medical waste at the Garland Facility using the autoclave
method (steam disinfection) of treatment for a period of six months.

     Permits;  Summary.  Currently,  the waste we  transport  and  dispose of is
considered medical waste and incineration is one of many appropriate  methods of
disposal.  Currently, the incinerator we operate meets the minimum EPA standards
for disposal of such waste.

     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  to  EMSI  for  solid  waste,   medical  waste  and
          bio-hazardous substances;

     o    permits to EMSI and UTMB to operate treatment facilities;

     o    permits to EMSI to operate transfer stations;

                                       12

<PAGE>

     o    permits  governing  discharge of sanitary  water and  registration  of
          equipment  under air  regulations  (EMSI's  in  Garland  and UTMB's in
          Galveston);

     o    approvals to EMSI for the use of EnviroClean(R)System; and

     o    various business operator's licenses.

     Based on our  experience in the industry,  we believe that we are currently
in compliance in all material  respects with our permits and applicable laws and
regulations.

     Governmental authorities may take future actions which could pose
obstacles in the waste disposal industry and require methods or technology
different from the methods currently developed or utilized by us. We are not
able to predict the outcome of any such actions, controls, regulations or laws
on our operations and any significant reduction in revenues due to such changes
could result in operating income becoming insufficient to cover operating
expenses.

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.  The rent is $9,626.25  per month from  November 1,
2001,  through  October 31, 2002,  $10,192.50  per month from  November 1, 2002,
through  October 31, 2003,  $10,758.75 per month from November 1, 2003,  through
October 31, 2004, and  $11,375.00 a month from November 1, 2004 through  October
31, 2005.

     We own the Garland Facility, which consists of real property,  building and
improvements,  furniture and equipment. The EnviroClean(R) System in the Garland
Facility has been idle since  approximately  June 1998.  We estimate the cost of
required   upgrades  and  retesting  the  system  to  restore  the   equipment's
functionality to be approximately $300,000. 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.  Because  the  EnviroClean(R)  System has been idle for  approximately
three years,  and since that time we have used the Garland  Facility solely as a
transfer  station,  we have  provided an  allowance  to write down to -zero- the
undepreciated  cost  of the  EnviroClean(R)  System  and  the  Garland  building
improvements.  We have recently received Temporary  Authorization from the TNRCC
to begin  processing  regulated  medical waste at the Garland Facility using the
autoclave method (steam disinfection) of treatment for a period of six months.

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

Item 3. Legal Proceedings.

     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 a named  defendant,  along with  several  officers of the
Company,  named  individually,  in a lawsuit filed in Buncombe County,  Superior
Court North Carolina.  A default judgment was rendered against all defendants in
November 1999, as a result of not filing answers in a timely manner.  The ruling
was appealed to the North Carolina Supreme Court and the Company posted a surety
bond in the amount of the judgment of $354,708. The Company's President posted a
$100,000 letter of credit secured by a certificate of deposit in connection with
the surety bond.  The  estimated  liability  due under the  judgment  amounts to
$403,369, including interest accrued since November 1999. The Company provided a
$360,000  loss related to this  judgment in the 1999  consolidated  statement of
operations.  On June 8, 2001, the Supreme Court in North  Carolina  affirmed the
judgment.  In July 2001, the  plaintiffs  received the amount of the surety bond


                                       13
<PAGE>

and the Company paid accrued interest in the amount of $48,255 in December 2001.
On August 1, 2001,  the  bonding  company  seized the  $100,000  certificate  of
deposit  posted in connection  with the bond by the  Company's  President and in
December 2001, seized 63,450 shares of the Company's common stock which had been
tendered by the plaintiffs as part of the lawsuit.  In addition,  on November 9,
2001, the bonding company filed a lawsuit against the Company  claiming  damages
of $254,708,  (the amount it paid to the  plaintiffs on the surety bond less the
certificate of deposit), plus interest and attorneys' fees. However, the Company
believes 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 valid claim against the Company.  The Company
is examining options  regarding claims for  indemnification,  contribution,  and
claims  against third parties.  However,  the Company has not made any decisions
and such issues remain unresolved.  The accompanying consolidated balance sheet,
as of December 31, 2001,  reflects an accrual for losses in connection with this
litigation of $260,000.

     Michael  Moorhead,  one of the defendants in the North Carolina  action has
filed suit in Texas against the Company's  former  counsel in the North Carolina
action claiming,  among other things, that the counsel is liable for the loss in
such case for failure to timely respond to discovery. The case is styled Michael
Moorhead v. Hunton & Williams,  et al, 160th  Judicial  District  Court,  Dallas
County,  Texas,  Cause No.  01-07565.  Hunton & Williams has filed a third-party
action against Mr. Fleeger, alleging that Mr. Fleeger was the contact person for
all of the defendants in the North Carolina case, and was therefore  responsible
to the plaintiff.  Hunton & Williams,  et al seeks contribution from Mr. Fleeger
in the event  they are  liable to Mr.  Moorhead.  Mr.  Fleeger  has  denied  the
allegations against him and has filed a counterclaim  against Hunton & Williams,
seeking damages for negligence.

     We are a named  defendant in a lawsuit in the  District  Court of the 126th
Judicial  District in Travis County,  Texas,  commenced by the State of Texas on
November 20, 2000.  The lawsuit  claims that we breached a contract  award under
the Texas Smart Jobs  Program,  and violated its  promises  and  obligations  by
failing to meet the requirements of the contract. The lawsuit seeks compensatory
damages  in the amount of  $439,631,  plus costs and  attorneys'  fees.  We have
answered the suit and denied all material allegations.  In March 2001, we made a
settlement  offer to the  State of Texas in the  amount  of  $60,000,  which was
rejected.  The Company has  attempted  to make a  reasonable  estimation  of its
potential  liability in this matter,  which we determined to be $60,000,  and we
have accrued such amount in our financial statements.

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

     No matter was submitted to a vote of the Company's  shareholders during the
fourth quarter of 2001.

                                     PART II

Item 5. Market for Common Equity and Related Stockholder Matters.

     There is currently no public market for our Common Stock.

     At December 31, 2001, we had 15,001,973  shares of Common Stock outstanding
and had approximately 690 shareholders of record.

     We have no fixed dividend  policy.  The Board of Directors is authorized to
consider  dividend  distributions  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  since  our  inception.  For  the
foreseeable  future, it is anticipated that we will use all available cash flows
to finance our growth and that dividends will not be paid to shareholders.

                                       14

<PAGE>

Recent Sales of Unregistered Securities

     During 1999, we (i) issued  42,901 shares of our Series II Preferred  Stock
at $3.00 per share for a total of $128,703, (ii) issued 408,400 shares of Common
Stock at $1.50 per share, less expenses,  for a total of $528,160,  (iii) issued
152,946  shares of Common Stock in exchange for  conversion  of 38,580 shares of
our Series I Preferred  Stock,  (iv)  issued  71,919  shares of Common  Stock in
exchange for conversion of 44,089 shares of our Series II Preferred  Stock,  and
(v)  issued  1,664,751  shares of Common  Stock in  exchange  for  cancellation,
extension and guarantee of debt.

     During 2000, we (i) issued 707,333 shares of Common Stock at prices ranging
from $1.25 to $1.50 per share,  less  expenses,  for a total of  $857,273,  (ii)
issued 19,595 shares of Common Stock in exchange for  conversion of 4,899 shares
of our Series I Preferred  Stock,  (iii)  issued 7,500 shares of Common Stock in
exchange for conversion of 7,500 shares of our EMSI Series I Preferred Stock and
(iv) issued  1,885,966  shares of Common Stock in exchange for  cancellation  of
debt.

     During 2001,  we (i) issued  585,413  shares of Common Stock for a total of
$731,767  at $1.25 per  shares,  (ii)  issued  3,808  shares of Common  Stock in
exchange for conversion of 1,334 shares of our Series II Preferred Stock,  (iii)
issued 9,404 shares of Common Stock in exchange for  conversion  of 2,177 shares
of our Series I Preferred  Stock (iv) issued  240,500  shares of common stock as
employee stock bonuses and (v) issued 860,532 shares of Common Stock in exchange
for the cancellation debt.

     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  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 the Company, 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,  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  shareholders.  While we
have had preliminary discussions with four 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 to do an additional private placement or
a public  offering  within the next twelve months.  If we do so, all of the then
current existing  shareholders and their stock holdings will be  proportionately
diluted.

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
management  services,  including  collection,   transportation,   treatment  and
disposal services to our customers.

                                       15

<PAGE>

     Our revenues  increased to $4,046,061  in 2001 from  $2,900,914 in 2000. We
derive our revenues  from  services to two  principal  types of  customers:  (i)
long-term  care  facilities,  outpatient  clinics,  medical and dental  offices,
municipal  entities and other  smaller-quantity  generators of regulated medical
waste  ("secondary  waste  generators");   and  (ii)  hospitals,   blood  banks,
pharmaceutical  manufacturers and other larger-quantity  generators of regulated
medical waste ("primary waste  generators").  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
"secondary  waste  generators"  customers  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  hospitals and other
"primary  waste  generators"  customers,  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.  As of
December 31, 2001, we served approximately 800 customers.

Years Ended December 31, 2001 and 2000

                                                    Years Ended December 31,
                                                  ----------------------------
                                                       2001            2000
                                                  ------------    ------------
Revenues                                          $  4,046,061    $  2,900,914
Cost of revenues                                     3,788,566       2,731,095
                                                  ------------    ------------

Gross profit                                           257,495         169,819


Selling, general and administrative expenses         1,254,480       1,028,093
Compensatory element of stock bonuses                  250,000         250,000
                                                  ------------    ------------

Loss from operations                                (1,246,985)     (1,108,274)
Depreciation and amortization                          142,051         367,363
Interest expense                                       153,725         171,145
Deferred offering cost                                 326,688            --
Debt conversion expense                                 22,533            --
Other income                                           (71,694)        (22,859)
                                                  ------------    ------------
Loss before extraordinary item                      (1,820,288)     (1,623,923)

Extraordinary item-loss from extinguishments
of debt                                                 87,573         850,000
                                                  ------------    ------------

Net loss                                          $ (1,907,861)   $ (2,473,923)
                                                  ============    ============

Basic and diluted loss per common share:
         Before extraordinary item                $      (0.13)   $      (0.14)
         Extraordinary item                              (0.01)          (0.07)
                                                  ------------    ------------
         Net loss                                 $      (0.14)   $      (0.21)
                                                  ============    ============

Weighted  average  common  shares used in basic
and diluted loss per share                          13,911,278      11,697,371
                                                  ------------    ------------

Year 2001 Compared to 2000.

     Revenues. Our revenues increased $1,145,147, or 39.5%, to $4,046,061 during
the year ended December 31, 2001, from $2,900,914 during the year ended December
31, 2000. The increase in revenue in 2001 was due to increased volume of medical
waste processed and signing  contracts with new customers.  In April of 2000, we
reorganized  our sales and marketing  function and hired a new sales manager for
EMSI.  In  November  2001 we hired  two new  vice  presidents  for our  investor
relations and sales and marketing departments.


                                       16
<PAGE>

     Cost of revenues.  Our cost of revenues  increased  $1,057,471 or 38.7%, to
$3,788,566  during 2001, from $2,731,095 in 2000. The increase was primarily due
to higher  container  costs,  transportation  costs and  waste  treatment  costs
related  to  increased  volume  of waste  processed  and to  increased  expenses
associated with the downtime of UTMB's incinerator.

     Selling,  general and  administrative  expenses.  Our selling,  general and
administrative expenses increased $226,387, or 22.0%, to $1,254,480 during 2001,
from  $1,028,093 in 2000.  The increase was  attributable  principally to higher
payroll and payroll-related expenses. Our office rental expenses were reduced by
approximately  $69,750 by  subleasing a portion of our  corporate  offices.  Our
sublease was terminated on September 30, 2001.  Substantially  all of the parent
company salaries in 2001 and 2000 were accrued but not paid.

     Compensatory  element of stock bonuses.  Stock compensation  included bonus
shares for officers and employees totaling $250,000 in both 2001 and 2000

     Depreciation and  amortization.  Depreciation and amortization  declined by
$225,312,  or 61.3%,  to $142,051 for the year ended  December  31,  2001,  from
$367,363 for the year ended December 31, 2000. The decrease was due primarily to
reduced  amortization  expense related to the UTMB service contract that expired
on  December  8,  2000,  and to several  EMSI fixed  assets  that  became  fully
depreciated during the year ended December 31, 2001.

     Interest  expense.  Our interest expense  decreased  $17,420,  or 10.2%, to
$153,725 during 2001, from $171,145 in 2000. Interest expense for EMSI increased
$21,474 during the period.  However,  our interest expense at the parent company
level declined by $38,894 as a result of our converting debentures and preferred
stock  during  early 2000,  and  extinguishing  a  $1,000,000  note payable to a
shareholder  in July of 2000.  These  decreases  were  offset  by  approximately
$18,750 charged to 2001 interest expense related to the guarantee of a letter of
credit by our president  and our largest  shareholder,  and by interest  expense
charges  in 2001 and 2000 of  $22,135  and  $28,000,  respectively,  related  to
interest  for  a  judgment  against  us  arising  from  litigation.  (See  Legal
Proceedings.)

     Deferred  offering  cost.  In  December  2001,  we wrote off to expense the
financing  costs we had previously  deferred in connection  with our arrangement
with LBCG. The original Firm  Commitment  Agreement from LBCG expired on October
31, 2001,  and LBCG  informed us they would be unable to renew the  agreement on
the same terms and  conditions  as set forth in the Original  Agreement.  We are
continuing to discuss obtaining a financing  arrangement from LBCG with the same
or similar terms and conditions or, alternatively, seeking a refund from LBCG of
all of the unexpended funds we have paid to them.

     Debt  conversion  expense.  We further amended a note agreement in May 2001
with our largest shareholder, permitting him to convert, at his option, his note
payable from the Company into our Common Stock at $1.25 per share instead of the
original  $1.50 per share.  In  connection  with such  amendment,  we charged an
additional $19,500 to debt conversion expense in the second quarter of 2001.

     Other  income.  In  December  2001,  we wrote off to other  income  certain
adjustments of estimates to vendor accounts payable of approximately $70,000.

     Extraordinary  item-loss  from  extinguishment  of  debt.  In  2001,  as an
inducement  to our president who had made cash advances to the Company from time
to time, we gave him the right to convert such  advances  receivable by him into
our Common Stock at a conversion rate of $0.75 per share and recorded $87,573 as
loss from  extinguishment  of debt.  In July 2000,  we induced  the  shareholder
holding a  $1,000,000  note  payable  from us to  extinguish  our debt to him in
exchange for 1,850,000 shares of our Common Stock. This transaction, although it
reduced  the amount of our  shareholders'  deficiency,  resulted  in a loss from
extinguishment of debt in 2000.

     Net loss.  Net loss was $1,907,861  during 2001,  compared to $2,473,923 in
2000. The reduced loss was primarily due to the factors described above.


                                       17
<PAGE>

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 Stock through
private offerings to certain individuals,  primarily existing shareholders,  and
from loans and advances received from certain shareholders. Revenues during 2001
were approximately $95,000 per month higher than the monthly average revenue for
2000.  The  principal  uses of liquidity  are  payments for labor,  material and
expenses,  debt  and  lease  obligations,   federal  payroll  withholding  taxes
(arrearage  consisting of the third and fourth quarters of 2000, and the second,
third and fourth  quarters of 2001,  in the  aggregate  amount of  approximately
$340,000,  for which we have submitted a payment plan proposal and are presently
negotiating  payment terms with the Internal  Revenue  Service) to carry out our
regulated medical waste management  services.  The UTMB Facility did not operate
for  much of  2001,  causing  increased  transportation  costs  and  alternative
regulated  medical waste  processing  costs and resulting in the continuation of
significant operating losses and cash flow deficiencies.

     We do not believe our existing cash position and cash flow from  operations
will 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),
shareholder  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  accompanying  consolidated
financial statements, the Company incurred consolidated net losses of $1,907,861
and  $2,473,923  for the years ended  December 31, 2001 and 2000,  respectively.
Additionally,  the Company has significant  deficits in both working capital and
stockholders'   equity  at  December  31,  2001  and  2000.  Further,  as  noted
previously,  the  Company  has not made  sales of the  Enviroclean(R)  System to
customers  other than  affiliated  entities  during its existence and,  although
current with its payroll taxes for the year 2002, EMSI has a substantial payroll
tax obligation for the years ended December 31, 2001 and 2000.

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

     Historically,  cash flow deficits have been funded by  shareholders  of the
Company.  However, the shareholders 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  $857,273,  $731,767, and $634,164 during the years ended December
31, 2000,  2001,  and the three months ended March 31, 2002,  respectively.  Our
largest  shareholder loaned the Company $55,000 in 2001. Also, our President has
advanced  funds for working  capital to us from time to time  totaling  $262,721
through  December 31, 2001.  There is no assurance  that such private  placement
funding and loans and advances will continue to satisfy our cash needs,  or that
the proposed  financing with LBCG will occur or be successful in securing future
financing.

Few of our customers have accounted for a majority of our sales
---------------------------------------------------------------

     During  the year ended  December  31,  2001,  sales of our  services  to 24
customers represented approximately 83.1% of our total revenues, including sales
to UTMB, which amounted to approximately 24.7% of our total revenues.  A loss of
any of these  customers  could  reduce our  revenues,  increase  our losses from
operations and limit our ability to achieve profitability.


                                       18
<PAGE>

Outstanding liabilities
-----------------------

     We have  outstanding  liabilities and debt of  approximately  $3,679,891 at
December 31, 2001. Our current rate of revenue may be  insufficient to enable us
to repay our debt upon maturity. 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
-------------------------------

     As discussed  above,  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  has filed a  lawsuit  against  us
claiming   damages  of   $254,708.17,   plus  interest  and  attorneys  fees  as
indemnification  for the payments made to  plaintiffs in connection  with a bond
posted on behalf of us. We have 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 can be no assurance that we will prevail,  and if we
lose the lawsuit,  it will  significantly  reduce cash  available for continuing
operations.

Discussion of Liquidity - Year 2001 Compared to 2000

     At December  31,  2001,  our  working  capital  deficit  was  $(2,642,775),
compared to a working  capital deficit of $(2,790,871) at December 31, 2000. The
decrease in working capital deficit was primarily due to an increase in accounts
receivable  and prepaid  insurance  and a decrease  in accounts  payable to IMCO
resulting  from  converting  that  payable  into our Common  Stock,  offset by a
reduction in cash,  supplies  inventory and  classifying  the notes payable to a
shareholder as a current liability.

     Net cash used in operating  activities was $(810,347) during 2001, compared
to $(372,018)  for 2000.  This increase  primarily  reflects a decreased loss in
2001 offset by an increase in accounts receivable.

         Net cash provided by (used in) investing activities for the year ended
December 31, 2001, was ($54,433) compared to $26,155 for the year ended December
31, 2000. The change is primarily attributable to an increase in property
additions (principally reusable containers for collecting and transporting
regulated medical waste).

     Net cash  provided by financing  activities  was  $608,715  during the year
ended  December 31, 2001,  compared to $518,230 for the year ended  December 31,
2000. Proceeds from the sale of Common Stock decreased  approximately  $125,506.
Payments on long-term  obligations increased to $101,364 in 2001 from $89,043 in
2000.  Contributing  to the  increase  in 2001 was a payment  to LBCG of $50,000
(compared  to $250,000 in 2000)  toward the  administrative  costs of a proposed
offering of high yield bonds and equity securities,  and other deferred offering
costs. All such costs were written off at the end of 2001 because we were unable
to come to satisfactory terms with LBCG concerning their financing assistance to
us.

     The net cash  decrease for the year ended  December 31, 2001 was  $256,065,
compared  to an increase in cash of  $172,367  for the year ended  December  31,
2000, and is comprised of the items discussed above.

     At December 31, 2001, our long-term  obligations  were $495,274,  including
bank debt of $402,728,  and installment  notes of $92,545.  On July 31, 2000, we
exchanged a note payable to our single largest  shareholder for 1,850,000 shares
of our Common Stock.  In connection  with this exchange a new note in the amount
of  $116,667  was issued for the  interest  that had  accrued  until the date of
conversion.  The note was increased in July 2001 by an additional  loan from the
shareholder. The note, due July 31, 2002, bears interest at 10% per annum and is
collaterized  by  certain  future  royalties,  if  any,  from  the  sale  of the
EnviroClean(R)  Systems and the  related  patented  technology  and by all other
tangible and intangible assets of the Company. (See Footnotes 7, 8 and 14 to the
accompanying Financial Statements.)


                                       19
<PAGE>

     Of our aggregate  bank debt at December 31, 2001,  $285,413 is secured by a
first lien on the Garland Facility,  and bears interest at a variable rate based
on the national prime rate,  plus 0.5% as published in the Wall Street  Journal.
The note is payable in minimum  monthly  installments  of principal and interest
totaling $3,467, matures in July 2011, and is guaranteed by Mr. Matthew Fleeger,
our President and Chief Executive Officer.

     As of December 31, 2001, we also owed $117,316 to another bank,  which debt
is collaterized by the  EnviroClean(R)  System located at the Garland  Facility.
The note  bears  interest  at a rate of 10% per  annum,  is  payable  in monthly
installments of principal and interest totaling $4,315 through July 2004, and is
guaranteed by Mr. Fleeger.

     Although  at present we are current on our bank note  payments,  we have in
the past  occasionally  been in arrears on both of the bank notes and in default
on certain other matters.  To date, the banks have not exercised their rights of
recourse,  or sought other remedies against us. We do not believe that the banks
will demand payment in full due to the past instances of default.  However,  out
of an abundance of caution,  we have classified the entire amount payable to the
banks as a current liability in the December 31, 2001 and 2000 balance sheets.

     We are also  obligated  under  various  installment  notes  payable for the
purchase of  equipment.  The notes,  which bear  interest at rates  ranging from
8.15% to 12.15%,  are due at various dates through January 2006, and are payable
in monthly installments of approximately $2,798. The notes are collateralized by
the equipment acquired therewith.

     We have two series of convertible  debentures  outstanding totaling $40,135
at December 31, 2001,  compared  with $60,135 at December 31, 2000.  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 2001 or 2000.

Research and Development

     Research and development costs are expensed as incurred.  Substantially all
research and  development  activities  were  discontinued  in 1999,  and we have
disbanded our technical staff.

Material Commitments For Capital Expenditures

     We have recently reached an agreement in principle concerning leases with a
major leasing company for the replacement of certain  transportation  equipment,
and the addition of two other  trucks.  We do not expect the monthly  outlay for
the new vehicles,  including the lease costs and the fixed maintenance expenses,
to exceed  comparable  costs we have been  incurring  during the past year.  The
lease  terms are  expected  to be in the range of 72 to 84 months and the leases
will be guaranteed by Mr. Fleeger.

     If an agreement with LBCG is reached,  and a financing is consummated,  the
proceeds from such  financing  should allow us to meet any  anticipated  capital
expenditures for the next twelve months. If the LBCG financing  arrangements are
not  consummated,   we  will  be  required  to  obtain  funds  for  any  capital
expenditures elsewhere.

Events Subsequent to December 31, 2001

     During  most of the  month  of  January  2002,  the UTMB  Facility  was not
functioning.   As  a  result,  we  were  required  to  discontinue  incineration
activities at the facility while appropriate repairs were being performed.  UTMB
restored  functionality as of February 8, 2002. The UTMB  incinerator  currently
requires  extensive  modifications and improvements to maintain  compliance with
certain federal and state regulatory  requirements.  It is expected that we will
be unable to incinerate waste at the UTMB Facility commencing April 15, 2002, in


                                       20
<PAGE>

order that the  foregoing  modifications  and  improvements  can be made and the
incinerator  will be able to comply  with the New Source  Performance  Standards
that take  effect in  September  2002.  We expect the  incinerator  to be out of
service for a minimum of 90 days.  We submitted an  application  to the TNRCC to
allow us to install an  alternative  state-approved  technology  at our  Garland
Facility.  In order to allow for  uninterrupted  processing of medical waste, we
have recently received  Temporary  Authorization from the TNRCC permitting us to
process our regulated  medical waste using the autoclave method of treatment for
a period of six  months.  We have  signed a letter of intent  with a company  to
install an autoclave treatment system at our Garland Facility and to process our
regulated medical waste, on a subconract basis, for a fixed price-per-pound.

     At December 31,  2001,  EMSI had a payroll tax  deficiency  to the Internal
Revenue  Service of  approximately  $340,000.  We have  submitted a payment plan
proposal  to the  Internal  Revenue  Service  and  are  also in the  process  of
submitting an Offer in Compromise to settle the matter. We are current in paying
our payroll taxes for 2002.

     In February  2002,  we received  $525,000 from an existing  shareholder  to
purchase 500,000 shares of our Common Stock. The sale of the shares was approved
by our Board of Directors.

Recently Issued Accounting Standards

In July 2001, the Financial  Accounting Standards Board ("FASB") issued SFAS No.
141,  "Business  Combinations,"  which  supercedes  Accounting  Principles Board
("APB") Opinion No. 16, "Business  Combinations." SFAS 141 requires the purchase
method of accounting for business combinations initiated after June 30, 2001 and
eliminates the  pooling-of-interests  method. In addition,  SFAS 141 establishes
specific  criteria for the  recognition  of intangible  assets  separately  from
goodwill.  The  provisions of SFAS 141 became  effective as of July 1, 2001. The
adoption of SFAS 141 has not changed the method of  accounting  used in previous
business combinations, initiated prior to July 1, 2001.

In July 2001, the FASB also issued SFAS No. 142,  "Goodwill and Other Intangible
Assets," which is effective for fiscal years  beginning after December 15, 2001.
Certain provisions shall also be applied to acquisitions initiated subsequent to
June 30, 2001.  SFAS 142 supercedes  APB Opinion No. 17 "Intangible  Assets" and
requires,  among other things,  the  discontinuance  of amortization  related to
goodwill and the indefinite lived intangible  assets.  These assets will then be
subject to an  impairment  test at least  annually.  In  addition,  the standard
includes  provisions upon adoption for the  reclassification of certain existing
recognized intangibles as goodwill, reassessment of the useful lives of existing
recognized  intangibles  and  reclassification  of  certain  intangibles  out of
previously  reported  goodwill.  This  standard  should  have no  effect  on the
Company's results of operations.

In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived  Assets," which supercedes SFAS No. 121,  "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
and certain provisions of APB Opinion No. 30, "Reporting Results of Operations -
Reporting the Effects of Disposal of a Segment of a Business and  Extraordinary,
Unusual and Infrequently  Occurring Events and Transactions."  SFAS 144 requires
that  long-lived  assets  to be  disposed  of by  sale,  including  discontinued
operations, be measured at the lower of carrying amount or fair value, less cost
to  sell,   whether  reported  in  continuing   operations  or  in  discontinued
operations.  SFAS 144 also broadens the reporting  requirements  of discontinued
operations to include all components of an entity that have  operations and cash
flows  that  can be  clearly  distinguished,  operationally  and  for  financial
reporting purposes,  from the rest of the entity. The provisions of SFAS 144 are
effective  for fiscal years  beginning  after  December 15, 2001.  Management is
evaluating the effect of this  statement on the Company's  results of operations
and financial position.

Item 7. Financial Statements.

     The financial  statements  attached to this Report on Form 10-KSB beginning
at page F-i are incorporated by reference.


                                       21
<PAGE>
<TABLE>
<CAPTION>

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

     None.

                                    PART III

Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
        With Section 16(a) of the Exchange Act.

     Members of our Board of  Directors  serve until the next annual  meeting of
our shareholders or until their successors have been duly elected and qualified.
Our officers are elected at the Board of Directors meeting following each annual
shareholders' meeting, and serve at the pleasure of our Board of Directors.  Our
last annual  meeting was held on May 2, 2001, for the fiscal year ended 2000. We
intend to hold our next annual shareholders' meeting as soon as practicable.

          The following persons comprise the directors and executive officers of
the Company:

                                Director/Officer
Name and Age                    Since              Position(s) Held
-------------------------      -----------------   -------------------------------------------------------
<S>                            <C>                 <C>
Matthew H. Fleeger (38)         1993               President,  Chief Executive Officer and Chairman of the
                                                   Board of Directors of the Company
Sam Hicks, C.P.A. (61)          1998               Director;   Senior  Vice  President;   Chief  Financial
                                                   Officer
Mark M. Altenau, M.D. (60)      1994               Director
Donald McAfee (50)              2001               Director
Charles Crochet (42)            2001               Director
Lilly Beter (67)                2001               Director
Beverly L. Fleeger (67)         1993               Vice President and Corporate Secretary
Hector Diaz (38)                1997               Vice President, EMSI
Robert Centeno (40)             2001               Vice President, Sales and Marketing
</TABLE>


Matthew H.  Fleeger -  Chairman  of the Board,  President,  and Chief  Executive
--------------------------------------------------------------------------------
Officer
-------

     Mr.  Fleeger  is a founder  of the  Company  and  serves as its  President,
Chairman of the Board of Directors and Chief Executive Officer, positions he has
held since 1993. Mr. Fleeger  graduated  from Southern  Methodist  University in
1985,  receiving a Bachelors  degree in business with an emphasis in finance and
marketing.  He has also been selected as a member of International  Who's Who of
Business Professionals.

     Mr.  Fleeger has a background in finance,  marketing and sales with several
years of experience in the oil and gas industry.  From 1985 to 1990 he served as
the  President  of  Gulf  Coast  Western,  Inc.,  a  family-owned  oil  and  gas
exploration business.

     From 1990 to 1993,  Mr.  Fleeger  served as a Vice  President of Kinlaw Oil
Company, a large Dallas/Fort Worth,  Texas-based petroleum company. From 1999 to
2000,  Mr.  Fleeger  served as a director of Palm Beach Tan,  Inc.,  the largest
chain of indoor tanning salons in the United States.  Mr. Fleeger has 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
is the son of Beverly L.  Fleeger,  the Company's  Vice  President and Corporate
Secretary.

Sam Hicks, C.P.A. - Director; Senior Vice President and Chief Financial Officer
-------------------------------------------------------------------------------

     Mr.  Hicks,  a member of the Board of  Directors  since  1999,  manages the
accounting/finance  departments of the Company and its operating divisions,  and
is the Company's Chief Financial Officer.  Mr. Hicks received his BS in Business
Administration from Creighton University in 1962 and holds CPA certificates from


                                       22
<PAGE>

the states of Nebraska and Texas.  He is a member of the  American  Institute of
Certified  Public   Accountants  and  the  Texas  Society  of  Certified  Public
Accountants.

     His previous  career  includes over 20 years of domestic and  international
experience  in  accounting  and finance,  with 16 of those years as a partner of
Ernst & Young LLP, a big-five  accounting and consulting  firm.  From 1996 until
joining the Company in 1998, Mr. Hicks served as Director of Financial Reporting
for HealthCor Holdings, Inc. a large, publicly held home healthcare organization
in  Dallas.   Mr.  Hicks  oversees  all  financial   aspects  of  the  Company's
development,  including  the  responsibility  for  staffing the  divisions  with
financial personnel.

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  shareholder 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.

Donald D. McAfee, M.D. - Director
---------------------------------

     Dr.  McAfee,  a member of the Board of  Directors  since May 2, 2001,  is a
cardiologist in Bellingham,  Washington,  where he has been in practice for over
20 years. He is on the Governing  Board of St.  Joseph's  Hospital and Mt. Baker
Kidney  Center.  He is the former  Chief of Staff of St.  Joseph's  Hospital  in
Bellingham.

Charles Crochet - Director
--------------------------

     Mr. Crochet, a member of the Board of Directors of the Company since May 2,
2001,  has  served as a member of the Board of  Directors,  President  and Chief
Executive  Officer of 3CI Complete  Compliance  Corporation,  the third  largest
medical waste management company in the United States, from 1994 until 2000. Mr.
Crochet has over 20 years management  experience in the environmental sector. He
founded,  permitted,  designed and implemented multiple collection and treatment
operations  throughout  the  southern  United  States for the safe  disposal  of
regulated  medical waste. Mr. Crochet graduated from the University of Louisiana
with a degree in Business  Management.  He is a member of various  organizations
and holds several industry related certifications.

Lilly Beter - Director
----------------------

     Ms.  Beter has been a member of the Board of  Directors  since May 2, 2001.
For at least the past five years,  and until her  retirement  in June 1999,  Ms.
Beter  served as  President  of Lilly Beter  Capital  Group,  Ltd.,  a financial
advisory firm with offices in Washington, D. C., New York, California,  Florida,
Minnesota,  Illinois,  Gibraltar and the Turks and Caicos Islands  (British West
Indies), until her retirement in June of 1999. Ms. Beter is no longer an officer
or employee of Lilly Beter Capital Group, Ltd. and holds no economic interest in
the firm.  Ms.  Beter is a member of the American  League of  Lobbyists  and the
American Arbitration  Association.  She currently sits on the Board of Directors
of New Visual  Entertainment,  Inc.,  SATX,  Inc.  and  USIP.com,  each a public
company.

Beverly L. Fleeger - Vice President, Corporate Secretary
--------------------------------------------------------

     Ms.  Fleeger has worked for the Company since its inception in 1993.  Prior
to joining the Company,  Ms. Fleeger had over 30 years of business  organization
and administrative  experience. For 17 years, Ms. Fleeger managed the offices of
a  family-owned  oil and gas  production  company.  In 1978,  Ms. Fleeger formed
Bevco,   Int'l.,  an  international   search  firm  specializing  in  mid-to-top
management personnel for major mining and oil exploration companies. Ms. Fleeger
graduated  from a New  Mexico  Business  College  and  received  her BA from the
University  of Texas at Dallas.  Ms.  Fleeger  is the  mother of our  President,
Matthew Fleeger.


                                       23
<PAGE>

Hector Diaz - Senior Vice President/EnviroClean Management Services, Inc.
-------------------------------------------------------------------------

     Mr. Diaz serves as the Vice President of EMSI, a subsidiary of the Company.
Mr. Diaz is responsible for all EMSI operations including the UTMB Facility, the
Garland Facility,  and all North and South Texas transportation issues. Mr. Diaz
has over 12 years experience in the management and operation of biomedical waste
treatment  facilities.  He has managed the UTMB  Facility  since 1995.  Prior to
joining  the  Company,  Mr.  Diaz was  with  Safe Way  Disposal  in  Middletown,
Connecticut for eight years, where he rose from incinerator operator to Director
of Operations. Safe Way Disposal was one of the largest medical waste management
companies in the Northeast prior to their acquisition by Stericycle.

Robert Centeno - Vice President, Sales and Marketing
----------------------------------------------------

     Mr. Centeno joined the Company in November 2001. Mr. Centeno attended Mount
San Antonio  College in Los Angeles,  California  and went  directly into inside
sales  for a large  corporation  in Los  Angeles.  He has over  twenty  years of
experience in  operations,  sales,  sales  management,  consulting  and business
development. In 1987 Mr. Centeno moved to Dallas where he owned and operated the
Dallas  Hair Club for Men.  He sold that  business  in 1999 and bought the first
franchise  offering of the Great  Outdoors  Sub Shops.  Mr.  Centeno  negotiated
franchise  sales in  several  new Texas  markets  outside  of  Dallas  for Great
Outdoors Franchise, Inc. prior to selling his share to his partner.

Section 16(a) Beneficial Ownership Reporting Compliance

     Section 16(a) of the Securities Exchange Act of 1934, as amended,  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  reports  furnished to us and written
representations that no other reports were required, we believe that, during the
2001 fiscal  year,  all Section  16(a)  filing  requirements  applicable  to the
Company's executive  officers,  directors and greater than 10% beneficial owners
were  complied  with except for (i)  Matthew H.  Fleeger did not file one Form 4
reporting two  transactions  which took place in December 2001, and (ii) Beverly
L. Fleeger did not file one Form 4 reporting two  transactions  which took place
in December 2001. Further, Matthew H. Fleeger, Sam Hicks, Beverly L. Fleeger and
Charles  Crochet have each informed the Company that he or she has not yet filed
a Form 5 to report  transactions not previously reported in 2001 and/or to amend
earlier reported information.


Litigation
----------

     In November,  2001, Mr. Fleeger was notified by Clark County, Nevada that a
complaint  had been filed against him pursuant to a request by a Park Place Ent.
Corp (PPE)  property.  The  complaint  resulted from claims made by the property
that,  in 1997 and  1998,  Mr.  Fleeger  allegedly  executed  instruments  which
resulted in obligations being incurred by him. In 1999, two other PPE properties
made similar claims and requests.  These resulted in the filing of complaints in
Clark and Douglas  Counties,  Nevada  against Mr.  Fleeger,  which  actions were
stayed pending resolution of a civil action filed in 1999 by Mr. Fleeger against
the properties  regarding the alleged debts. The civil action,  filed in federal
court,  alleged  that  the  obligations  were  credit  instruments  and that the
defendants violated federal law, specifically the Fair Debt Collection Practices
Act  (FDCPA),  in their  method of  pursuing  collection.  The civil  matter was
resolved  with the federal  court  ruling that the matter fell under  Nevada law
and, that as a result of such, the FDCPA did not apply.

     The  actions  filed in 2001 and 1999 in Clark  County,  Nevada  (File  Nos.
01F17876X & 99FO7364X),  both styled State of Nevada v. Matthew Harris  Fleeger,
essentially  allege that Mr. Fleeger,  by executing  instruments  which were not
paid,  violated a revised Nevada statute. In September 1999, Mr. Fleeger entered
into a settlement  agreement  regarding certain of the alleged debts pursuant to
which payments were made on the obligation. In view of the settlement agreement,
it is Mr.  Fleeger's  position  that all  claims,  which are the  subject of the


                                       24
<PAGE>
<TABLE>
<CAPTION>

settlement  agreement,  have been waived,  that such claims have been  converted
into simple debt claims and that as such, the FDCPA has been violated.

     With respect to the other claims,  Mr.  Fleeger has reached an agreement in
principal with Douglas County which,  if finalized,  will result in a no contest
plea that will be dismissed  upon  payment of the amounts  allegedly  owed.  Mr.
Fleeger is in negotiations  with Clark County  regarding a similar  arrangement.
The agreements have not yet been reduced to writing or executed.

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, 2001, 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..........     2001     $180,000     $ 87,573(3)          --          $  5,534(4)
   Chairman of the Board,        2000     $120,000     $125,000         $145,250(3)     $  1,645(4)
President and Chief              1999     $120,000         --                           $  4,936(4)
   Executive Officer

Sam Hicks...................     2001     $ 94,661         --               --              --
   Senior Vice President,        2000     $ 85,000     $ 30,000             --              --
   Director, Chief Financial     1999     $ 84,792     $ 18,750(3)          --
   Officer and Principal
   Accounting Officer

Beverly L. Fleeger..........     2001     $ 61,539         --               --          $  6,582(5)
   Vice President, Director,     2000     $ 55,000     $ 40,000             --          $  6,582(5)
   Secretary and Treasurer       1999     $ 55,000         --           $125,000(3)     $  5,805(5)
---------------------------------------------------------------------------------------------------
</TABLE>

     (1)  Salary  includes  accrued but unpaid salaries in each year as follows:
          Matthew H. Fleeger -2001 - $180,000;  2000 - $111,500;  1999 - $73,250
          Sam Hicks -2001 - $25,613;  2000 - $17,000;  1999 - $30,958 Beverly L.
          Fleeger -2001 - $6,532; 2000 - $8,250; 1999 - $17,990

     (2)  Bonuses of up to 250,000  shares of Common  Stock were  awarded by the
          Board of  Directors  for the year 2000 and  charged  to expense at the
          rate of $1 per share.  Specific  awards were  approved by the Board of
          Directors on May 1, 2001.

     (3)  During 2001, the foregoing  named officers were  authorized to convert
          their accrued salaries and loans into Common Stock of the Company at a
          conversion rate of $0.75 per share:



                       Accrued                 Total     Number of  Compensation
Name of Officer        Salary     Loans      Converted   Shares     Element
---------------        ------     -----      ---------   ------     -------
Matthew H. Fleeger     $321,250   $262,721   $262,721    350,295    $87,573
Sam Hicks              $ 56,779       --         --         --      $  --
Beverly L. Fleeger     $ 24,522       --     $   --         --      $  --


                                       25
<PAGE>

The  compensation  element ($0.25 per share) was charged to debt  extinguishment
expense in 2001.

     During 1999, the foregoing named officers were authorized to exercise their
stock options without payment,  except for Matthew Fleeger who exchanged certain
advances  receivable and wages receivable  amounting to $94,750 for a portion of
his option  price.  Mr.  Fleeger's  shares  include  10,000 shares issued by the
Company as consideration for his guarantee of certain corporate obligations.

     (4)  Represents  payments on a club membership for Matthew Fleeger used for
          Company purposes.

     (5)  Represents  payments  on  automobile  driven by Ms.  Fleeger  used for
          Company purposes.

     Non-employee  directors  receive no compensation for attendance at meetings
of the Board of  Directors.  The Company  pays for each  non-employee  Directors
ordinary and necessary travel expenses incurred in attending such meetings.

Employment Agreements

     On May 1, 2001, our Board of Directors  approved,  in principal,  effective
January 1, 2001, an employment  agreement  between the Company and Mr.  Fleeger.
The agreement has not yet been reduced to a written contract. The material terms
of the agreement include: (i) a five-year term; (ii) minimum annual compensation
of $180,000,  with a yearly cost of living increase of 6%, or an amount equal to
the highest-paid employee as a result of any acquisition; (iii) that Mr. Fleeger
will remain Chief Executive Officer and President; (iv) that a severance package
will include the  compensation  of any remaining term of the  agreement;  (v) an
annual  stock or cash  bonus  based upon  EBITDA  formula  to be  developed  and
approved by LBCG and/or the Company's  Board of Directors;  (vi) a bonus for the
year 2000 of 125,000 shares of Common Stock, and the option to convert any loans
made by him and/or accrued  compensation at a price of $.75 per share; and (vii)
a formal written agreement will be prepared by our counsel.

     On May 1, 2001, our Board of Directors  approved,  in principal,  effective
January 1, 2001, an employment  agreement between the Company and Mr. Hicks. The
agreement has not yet been reduced to a written contract.  The material terms of
the agreement include: (i) a five-year term; (ii) minimum annual compensation of
$96,000,  with a yearly cost of living increase of 6%, or an amount equal to the
highest-paid  financial employee as a result of any acquisition;  (iii) that Mr.
Hicks will remain the Chief  Financial  Officer,  (iv) that a severance  package
will include the  compensation  of any remaining term of the  agreement;  (v) an
annual  stock or cash  bonus  based upon  EBITDA  formula  to be  developed  and
approved by LBCG and/or the Company's  Board of Directors;  (vi) a bonus for the
year  2000 of 30,000  shares of Common  Stock,  and the  option to  convert  his
accrued  compensation  at a price of $.75 per share;  and (vii) a formal written
agreement will be prepared by our counsel.

     Our success will depend largely on the continuing  efforts of our executive
officers,  including our CEO and President,  Matthew Fleeger and Chief Financial
Officer,  Sam Hicks.  Our business may be adversely  affected if the services of
those individuals  become  unavailable to us. In addition,  increasing the sales
volume of our services and the  expansion  into other  medical  related  service
businesses will require the  implementation  of a successful  marketing plan. We
will need to hire  additional  qualified  staff to enable us to  achieve  market
penetration.  If we  cannot  successfully  identify,  attract,  hire and  retain
additional  personnel in a timely and effective manner, it would have a material
adverse effect on our business, financial condition and results of operations by
limiting our sales and decreasing revenue.

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

     The following table sets forth certain information concerning the number of
shares of Common  Stock  owned  beneficially  as of March 31,  2002 by: (i) each
person  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 shareholders listed possess sole voting and investment
power with respect to the shares shown.


                                       26
<PAGE>

                                                Shares Beneficially Owned(1)
Name and Address of Beneficial Owner     Number of Shares    Percent of Class(2)
                                         Beneficially  Owned

Matthew H. Fleeger                            1,138,777(3)             7.0%
    12750 Merit Drive -Park Central VII
    Suite 770
    Dallas, Texas 75251
Mark Altenau, M.D.                            2,721,100(4)            17.2%
    12750 Merit Drive -Park Central VII
    Suite 770
    Dallas, Texas 75251
Beverly Fleeger                                 538,469(5)             3.4%
  12750 Merit Drive -Park Central VII
   Suite 770
   Dallas, Texas 75251
Don McAfee, M.D.                                                       1.3%
    12750 Merit Drive -Park Central VII         201,229
    Suite 770
    Dallas, Texas 75251
Sam Hicks                                       160,817(6)             1.0%
    12750 Merit Drive -Park Central VII
    Suite 770
    Dallas, Texas 75251
Charles Crochet                                                         --
    12750 Merit Drive -Park Central VII           7,400
    Suite 770
    Dallas, Texas 75251
Lilly Beter                                        --                   --
    3925 Excelsior Blvd, Suite 500
    Minneapolis, Minnesota 55416
All Directors and Executive
Officers as a Group (7 persons)               4,795,192(7)            29.1%(8)

Ron Michael, M.D.                               779,364                5.0%
    12750 Merit Drive -Park Central VII
    Suite 770
    Dallas, Texas 75251
Vivian Erikson                                1,000,000                6.4%
    12750 Merit Drive
    Suite 770
    Dallas, Texas  75251

(1) Pursuant to Rule 13d-3 under the Exchange Act of 1934, as amended,  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  control  within 60 days.  The number of shares shown
includes  outstanding shares owned as of March 31, 2002, by the person indicated


                                       27
<PAGE>

and shares  underlying  warrants,  options and/or  convertible  debt and accrued
interest  thereon owned by such person on March 31, 2002, that were  exercisable
within 60 days of that date.

(2)  Applicable  percentage  ownership is based on  15,702,490  voting shares of
Common Stock outstanding on March 31, 2002.

(3) Includes  114,609  shares owned by Preston Harris  Interests,  Inc., a Texas
corporation,  of which Mr. Fleeger is the president and majority shareholder and
491,933 shares of Common Stock underlying  convertible accrued salaries at March
31, 2002. (See Certain Relationships and Related Transactions.)

(4) Includes  156,189  shares of Common Stock  underlying  convertible  debt and
accrued  interest  thereon at March 31,  2002.  (See Certain  Relationships  and
Related Transactions--Agreement with Largest Shareholder.)

(5)  Includes  32,696  shares of Common  Stock  underlying  convertible  accrued
salaries  at  March  31,   2002.   (See   Certain   Relationships   and  Related
Transactions.)

(6)  Includes  84,026  shares of Common  Stock  underlying  convertible  accrued
salaries  at  March  31,   2002.   (See   Certain   Relationships   and  Related
Transactions.)

(7) Includes  764,844  shares of Common Stock  underlying  convertible  debt and
accrued  interest  thereon and convertible  accrued  salaries at March 31, 2002.
(See Certain Relationships and Related Transactions.)

(8)  Applicable  percentage  ownership is based on  15,702,490  voting shares of
Common Stock  outstanding  on March 31, 2002, and on shares  issuable  within 60
days of March 31, 2002.

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 payable  balances with our  shareholders  and officers.  At
December 31, 2000 and 2001, and March 31, 2002, our payables to shareholders and
officers were as follows:

                                    December 31,           March 31,
                                 2000          2001          2002
                              ----------    ----------    ----------
          Dr. Mark Alteneau   $  121,528    $  190,945    $  195,236
          Matthew Fleeger     $  217,535    $  322,596    $  370,296
          Sam Hicks           $   31,167    $   56,779    $   63,019
          Beverly Fleeger     $   17,990    $   24,522    $   24,522
                              ----------    ----------    ----------
            Total             $  388,470    $  594,842    $  653,073
                              ==========    ==========    ==========

Shareholder Lock-Up Agreement

     Shareholders  owning  approximately 80% of our Common Stock (including,  to
some extent,  our largest  shareholder  (See Agreement With Largest  Shareholder
below)) have entered into an agreement with us by which the shareholders  agreed
to place  certain  restrictions  on their right to sell  shares of Common  Stock
owned by them (the  "Lock-Up  Agreement").  Essentially,  the  shareholders  who
signed the agreement (the  "Restricted  Shareholders")  agreed to the following:
(i) after the  expiration  of one year from the  effective  date of the  Lock-Up
Agreement, 20% of the shares of Common Stock owned by the Restricted Shareholder
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  Shareholder  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


                                       28
<PAGE>

of Common Stock owned by the Restricted Shareholder will no longer be subject to
the  Lock-Up  Agreement;  (iv)  after  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  Shareholder  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  Shareholder
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 Shareholder,  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 shareholders of the Restricted  Shareholder  (and to
any  direct or  indirect  partner or  shareholder  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
agree in writing to be bound by the terms of the Lock-Up  Agreement prior to the
transfer.  In addition,  seven  shareholders,  owning an  additional  10% of our
Common Stock, have agreed to a lock-up agreement similar, but not identical,  to
the one referred to above. On December 18, 2001, the Board of Directors voted to
extend  the  effective  date  of the  Lock-Up  Agreement  from  the  date of the
Agreement  to the date upon which a Form  15c2-11  to be filed by the  Company's
market  maker(s),  if any,  is  accepted by the Nasdaq  Stock  Market.

Agreement With Largest Shareholder

     Effective July 31, 2000, Dr. Mark Altenau,  our single largest  shareholder
of Common Stock,  agreed to convert a debt owed by us to him of $1,000,000  into
1,850,000  shares of Common Stock,  thus  essentially  satisfying  the debt. The
conversion of the debt had the effect of reducing our liabilities by $1,000,000.
As part of the agreement with Dr.  Altenau,  we agreed that Dr. Altenau would be
free to sell  (subject to applicable  law) up to $1,500,000  worth of our Common
Stock in the event LBCG executed the LBCG  Agreement.  Dr. Altenau has agreed to
the Lock-Up  Agreement,  subject to his right to sell up to $1,500,000  worth of
Common Stock. As a result, regardless of the number of shareholders who agree to
the Lock-Up Agreement, including Dr. Altenau, Dr. Altenau will have the right to
sell  shares of our  Common  Stock up to the amount of  $1,500,000.  If a public
market does  develop for our Common  Stock,  Dr.  Altenau will have the right to
sell  shares of our Common  Stock  while  other  shareholders  who agreed to the
Lock-Up Agreement may be limited in their ability to sell. In addition,  on July
31, 2000, Dr. Altenau exchanged the then-accrued interest on the $1,000,000 note
payable for a new note payable of $116,667,  with a 10% per annum interest rate,
due July 31, 2002. This note was amended and restated on July 31, 2001, with the
same terms and  conditions  except that the new note payable is in the amount of
$171,667.67.  Dr.  Altenau has the option to convert this debt into Common Stock
of the corporation at a conversion rate of $1.25 per share.

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(1)

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(1)

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(1)

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(1)


                                       29
<PAGE>

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(1)

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(1)

3.7               Bylaws, as amended, of the Company(1)

4.1               Form of Lock-Up Agreement(1)

4.2               Form of Subscription Agreement(1)

4.3               Stock  Purchase  Option,  dated January 15, 1997,  between the
                  Company and Gary S. Krall(1)(2)

10.1              Firm  Commitment  Agreement,  dated October 31, 2000,  between
                  Lilly Beter Capital Group, Ltd. and the Company(1)

10.2              Loan  Conversion  and Common Stock  Agreement  between Mark M.
                  Altenau, M.D. and the Company, dated July 31, 2000(1)

10.3              Contractor  Services  Agreement  effective  May 28,  1995,  as
                  amended,  between  the  Company  and The  University  of Texas
                  Medical Branch at Galveston(1)

10.4              Memorandum  of  Agreement,  dated June 15,  2001,  between the
                  Company and Intercontinental Manufacturing Company(1)

10.5              Exclusive  Medical  Waste  Service  Agreement,  dated March 1,
                  1999,  between  EnviroClean  Management  Services,   Inc.  and
                  Christus Spohn Hospital System(1) (3)

10.6              Medical Waste  Transportation  and Disposal  Agreement,  dated
                  March 1, 2001, between EnviroClean Management Services,  Inc.,
                  and Trinity Mother Frances Regional Health Center(1) (3)

10.7              Amended and  Restated  Promissory  Note dated July 31, 2001 by
                  the Company to Mark M. Altenau, M.D. for $171,666.67(1)

10.8              Amended  and  Restated  Loan   Conversion   and  Common  Stock
                  Agreement between Mark M. Altenau, M.D. and the Company, dated
                  July 31, 2001(1)

10.9              Amendment 4 to the Contractor  Services  Agreement between the
                  Company and  University of Texas  Medical  Branch at Galveston
                  (Exhibit 10.3).(1)

10.10             LBCG Financing Proposal(1)

----------
(1)  Previously filed
(2)  Denotes a management contract or compensatory plan or arrangement.
(3)  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.

         (b)      Reports on Form 8-K.
                  -------------------

                  None.


                                       30
<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, 2002                By:  /S/ Matthew H. Fleeger
                                          --------------------------------------
                                           Matthew H. Fleeger
                                           President and Chief Executive Officer


                                      MEDSOLUTIONS, INC.


Dated:  April 15, 2002                By:  /S/ Sam Hicks
                                          --------------------------------------
                                           Sam Hicks
                                           Chief Financial Officer and Principal
                                           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.



Dated:  April 15, 2002                By: /S/ Matthew H. Fleeger
                                          --------------------------------------
                                           Matthew H. Fleeger, Director


Dated:  April 15, 2002                By: /S/ Sam Hicks
                                          --------------------------------------
                                           Sam Hicks, Director


Dated:  April 15, 2002                By: /S/ Mark M. Altenau, M.D.
                                          --------------------------------------
                                           Mark M. Altenau, M.D., Director


Dated:  April 15, 2002                By: /S/ Charles Crochet
                                          --------------------------------------
                                           Charles Crochet, Director


Dated:  April 15, 2002                By: /S/ Donald McAfee, M.D.
                                         ---------------------------------------
                                           Donald McAfee, M.D., Director


Dated:  April 15, 2002                By: /S/ Lilly Beter
                                         ---------------------------------------
                                           Lilly Beter, Director


                                       31
<PAGE>



                               MEDSOLUTIONS, INC.
              (FORMERLY KNOWN AS ENVIROCLEAN INTERNATIONAL, INC.)

                       CONSOLIDATED FINANCIAL STATEMENTS

                               DECEMBER 31, 2001












                                      F-i

<PAGE>

                             MEDSOLUTIONS, INC.
           (FORMERLY KNOWN AS ENVIROCLEAN INTERNATIONAL, INC.)

                            INDEX TO FORM 10K-SB

                                                                          Page
                                                                          ----
PART I - FINANCIAL INFORMATION:


   REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS                                 1


    CONSOLIDATED BALANCE SHEETS                                             2
      At December 31, 2001 and 2000


    CONSOLIDATED STATEMENTS OF OPERATIONS                                   3
      For the Years Ended December 31, 2001 and 2000


    CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY                   4 - 6
      For the Years Ended December 31, 2001 and 2000


    CONSOLIDATED STATEMENTS OF CASH FLOWS                                 7 - 8
      For the Years Ended December 31, 2001 and 2000


    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                            9 - 32



                                      F-ii
<PAGE>

To the Board of Directors
MedSolutions, Inc.
(Formerly known as EnviroClean International, Inc.)



                       REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
                       ----------------------------------------

We have audited the  accompanying  consolidated  balance sheets of MedSolutions,
Inc.  (the  "Company")  as of  December  31,  2001  and  2000,  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 auditing standards generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audit to obtain reasonable  assurance about whether the consolidated
financial  statements  are free of  material  misstatement.  An  audit  includes
examining,  on a test basis,  evidence supporting the amounts and disclosures in
the  consolidated  financial  statements.  An audit also includes  assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall  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,  2001 and 2000,  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 and 13. The  consolidated  financial
statements do not include any adjustments  that might result from the outcome of
this uncertainty.

As more fully  described  in Note 13,  the  Company  is a  defendant  in various
lawsuits  alleging  breach of contract and other matters.  It is not possible to
predict at this time  whether the ultimate  settlements  will exceed the amounts
currently provided for by the Company.





                                                        GRASSI & CO., CPAs, P.C.

New York, New York
February 22, 2002



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

                                MEDSOLUTIONS, INC.
                (FORMERLY KNOWN AS ENVIROCLEAN INTERNATIONAL, INC.)

                           CONSOLIDATED BALANCE SHEETS

                                                ASSETS
                                                ------
                                                                                     At December 31,
                                                                              ----------------------------
                                                                                   2001            2000
                                                                              ------------    ------------
<S>                                                                           <C>             <C>
Current Assets:
  Cash                                                                        $       --      $    256,065
  Accounts receivable - trade, net                                                 831,945         359,877
  Other accounts receivable                                                           --            95,317
  Prepaid expenses and other current assets                                        101,661          77,146
  Supplies                                                                          34,147          71,677
                                                                              ------------    ------------
      Total Current Assets                                                         967,753         860,082

Property and equipment - at cost, net of accumulated
  depreciation                                                                     699,026         748,531
Permits, net of accumulated amortization                                            23,153          24,313
Deferred offering costs                                                               --           250,000
Other                                                                                3,014           3,014
                                                                              ------------    ------------
      Total Assets                                                            $  1,692,946    $  1,885,940
                                                                              ============    ============
                              LIABILITIES AND STOCKHOLDERS' DEFICIENCY
                                                                                              ------------
Current Liabilities:
  Bank overdraft                                                              $    145,500    $     31,719
  Convertible debentures                                                            40,135          60,135
  Current maturities of long-term obligations                                      425,911         484,258
  Accounts payable                                                               1,157,537       1,102,353
  Accounts payable to IMCO                                                            --           495,085
  Accrued liabilities                                                            1,668,432       1,401,118
  Notes payable - stockholder                                                      171,667            --
  Advances from stockholder                                                          1,346          76,285
                                                                              ------------    ------------
      Total Current Liabilities                                                  3,610,528       3,650,953

Long-term obligations, less current maturities                                      69,363         212,380
Notes payable - stockholder                                                           --           116,667
                                                                              ------------    ------------
      Total Liabilities                                                          3,679,891       3,980,000
                                                                              ------------    ------------
Commitments, Contingencies and Other Matters
  (Notes 1, 2, 7, 13 and 15)

Stockholders' Deficiency:
  Common stock (par value $.001) - 100,000,000 shares
    uthorized at December 31, 2001 and 2000; 15,001,973 shares
    issued and 14,989,773 shares outstanding at December 31,
    2001 and 13,294,026 shares issued and 13,281,826 shares
    outstanding at December 31, 2000                                                15,002          13,294
  MSI Preferred stock (par value $.001) - 100,000,000 and
    5,000,000 shares authorized at December 31, 2001 and 2000,
    respectively
      Preference on liquidation of $6.00 per share; -0- and
        2,177 shares outstanding at December 31, 2001 and
        2000, respectively                                                            --            13,065
      Preference on liquidation of $3.00 per share; -0- and
        1,334 shares outstanding at December 31, 2001 and
        2000, respectively                                                            --             4,002
   Additional paid-in capital                                                   18,454,014      16,423,679
   Accumulated deficit                                                         (20,437,961)    (18,530,100)
   Treasury stock, at cost - 12,200 shares at December 31, 2001
     and 2000                                                                      (18,000)        (18,000)
                                                                              ------------    ------------
        Total Stockholders' Deficiency                                          (1,986,945)     (2,094,060)
                                                                              ------------    ------------
        Total Liabilities and Stockholders' Deficiency                        $  1,692,946    $  1,885,940
                                                                              ============    ============
</TABLE>

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

                                       F-2

<PAGE>


                               MEDSOLUTIONS, INC.
               (FORMERLY KNOWN AS ENVIROCLEAN INTERNATIONAL, INC.)

                      CONSOLIDATED STATEMENTS OF OPERATIONS


                                                       For the Years Ended
                                                           December 31,
                                                   ----------------------------
                                                        2001            2000
                                                   ------------    ------------

Revenues:
  Sales - Net                                      $  4,046,061    $  2,900,914
                                                   ------------    ------------

Cost, Expenses and Other Income:
  Cost of sales                                       3,788,566       2,731,095
  Compensatory element of stock issuances for
    bonus                                               250,000         250,000
  General and administrative expenses                 1,254,480       1,028,093
  Depreciation and amortization                         142,051         367,363
  Debt conversion expense                                22,533            --
  Interest expense                                      153,725         171,145
  Other income                                          (71,694)        (22,859)
  Write-off of deferred offering costs                  326,688            --
                                                   ------------    ------------
                                                      5,866,349       4,524,837
                                                   ------------    ------------
Loss before extraordinary item                       (1,820,288)     (1,623,923)

Extraordinary item - loss from extinguishment of
  debt, net of income tax benefit of $-0-               (87,573)       (850,000)
                                                   ------------    ------------
Net Loss                                           $ (1,907,861)   $ (2,473,923)
                                                   ============    ============

Basic and diluted loss per common share:
    Before extraordinary item                      $       (.13)   $       (.14)
    Extraordinary item                                     (.01)           (.07)
                                                   ------------    ------------
      Net Loss                                     $       (.14)   $       (.21)
                                                   ============    ============
Weighted average common shares used in basic and
  diluted loss per share                             13,911,278      11,697,371
                                                   ============    ============



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

                                       F-3
<PAGE>
<TABLE>
<CAPTION>

                               MEDSOLUTIONS, INC.
               (FORMERLY KNOWN AS ENVIROCLEAN INTERNATIONAL, INC.)

               CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY

                 FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000


                                                                               MSI Preferred Stock
                                                  MSI Common Stock                  Series I
                                           ----------------------------    ----------------------------
                                              Shares          Amount          Shares          Amount
                                           ------------    ------------    ------------    ------------
<S>                                       <C>             <C>             <C>             <C>
Year Ended December 31, 2001:
----------------------------

Balance - December 31, 2000                  13,294,026    $     13,294           2,177    $     13,065
MSI common stock sold for cash                  585,413             586            --              --
MSI common stock exchanged to cancel
  stockholder loan                              350,295             350            --              --
Debt conversion expense                            --              --              --              --
Extraordinary item - loss from
  extinguishment of debt                           --              --              --              --
MSI common stock exchanged for accounts
  payable                                       483,476             483            --              --
MSI common stock issued for bonus               240,500             241            --              --
MSI common stock exchanged from PFD II            3,808               4            --              --
MSI common stock exchanged from PFD I             9,404               9          (2,177)        (13,065)
MSI common stock exchanged for EMSI
  common stock                                    8,290               8            --              --
MSI common stock exchanged from
  debentures                                     26,761              27            --              --
Accrual of 2001 interest to be exchanged
  in stock in 2002                                 --              --              --              --
Accrual of 2001 employee bonuses to be
  issued in stock in 2002                          --              --              --              --
Net loss                                           --              --              --              --
                                           ------------    ------------    ------------    ------------
Balance - December 31, 2001                  15,001,973    $     15,002            --      $       --
                                           ============    ============    ============    ============

Year Ended December 31, 2000:
-----------------------------

Balance - January 1, 2000                    10,660,070    $     10,660           6,854    $     41,122

MSI common stock sold for cash                  707,333             707            --              --
MSI common stock exchanged to cancel
  stockholder loan                            1,850,000           1,850            --              --
Extraordinary item - loss from
  extinguishment of debt                           --              --              --              --
MSI common stock exchanged for salary             3,000               3            --              --
MSI Preferred Series I issued to pay
  accrued debenture interest                       --              --               222           1,339
MSI common stock exchanged for Preferred
  Series I                                       19,595              20          (4,899)        (29,396)
MSI common stock exchanged for debenture
  Series I                                       32,966              33            --              --
MSI common stock exchanged for EMSI
  common stock                                   13,562              13            --              --
MSI common stock exchanged for EMSI
  Series I Preferred Stock                        7,500               8            --              --
Accrual of 2000 employee bonuses to be
  issued in stock in 2001                          --              --              --              --
Net loss                                           --              --              --              --
                                           ------------    ------------    ------------    ------------
Balance - December 31, 2000                  13,294,026    $     13,294           2,177    $     13,065
                                           ============    ============    ============    ============



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

                                       F-4

<PAGE>

                               MEDSOLUTIONS, INC.
               (FORMERLY KNOWN AS ENVIROCLEAN INTERNATIONAL, INC.)

               CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY

                 FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000


                                                MSI Preferred Stock           EMSI Preferred Stock
                                                    Series II                      Series I
                                           ----------------------------    ----------------------------
                                              Shares          Amount          Shares          Amount
                                           ------------    ------------    ------------    ------------
Year Ended December 31, 2001:
----------------------------

Balance - December 31, 2000                       1,334    $      4,002            --      $       --
MSI common stock sold for cash                     --              --              --              --
MSI common stock exchanged to cancel
  stockholder loan                                 --              --              --              --
Debt conversion expense                            --              --              --              --
Extraordinary item - loss from
  extinguishment of debt                           --              --              --              --
MSI common stock exchanged for accounts
  payable                                          --              --              --              --
MSI common stock issued for bonus                  --              --              --              --
MSI common stock exchanged from PFD II           (1,334)         (4,002)           --              --
MSI common stock exchanged from PFD I              --              --              --              --
MSI common stock exchanged for EMSI
  common stock                                     --              --              --              --
MSI common stock exchanged from
  debentures                                       --              --              --              --
Accrual of 2001 interest to be exchanged
  in stock in 2002                                 --              --              --              --
Accrual of 2001 employee bonuses to be
  issued in stock in 2002                          --              --              --              --
Net loss                                           --              --              --              --
                                           ------------    ------------    ------------    ------------
Balance - December 31, 2001                        --      $       --              --      $       --
                                           ============    ============    ============    ============

Year Ended December 31, 2000:
-----------------------------

Balance - January 1, 2000                         1,334    $      4,002           7,500    $     52,501

MSI common stock sold for cash                     --              --              --              --
MSI common stock exchanged to cancel
  stockholder loan                                 --              --              --              --
Extraordinary item - loss from
  extinguishment of debt                           --              --              --              --
MSI common stock exchanged for salary              --              --              --              --
MSI Preferred Series I issued to pay
  accrued debenture interest                       --              --              --              --
MSI common stock exchanged for Preferred
  Series I                                         --              --              --              --
MSI common stock exchanged for debenture
  Series I                                         --              --              --              --
MSI common stock exchanged for EMSI
  common stock                                     --              --              --              --
MSI common stock exchanged for EMSI
  Series I Preferred Stock                         --              --            (7,500)        (52,501)
Accrual of 2000 employee bonuses to be
  issued in stock in 2001                          --              --              --              --
Net loss                                           --              --              --              --
                                           ------------    ------------    ------------    ------------
Balance - December 31, 2000                       1,334    $      4,002            --      $       --
                                           ============    ============    ============    ============



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

                                       F-5
<PAGE>


                                MEDSOLUTIONS, INC.
                (FORMERLY KNOWN AS ENVIROCLEAN INTERNATIONAL, INC.)

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY

                  FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000



                                            Additional
                                              Paid-in      Accumulated       Treasury
                                              Capital        Deficit          Stock           Total
                                           ------------    ------------    ------------    ------------
Year Ended December 31, 2001:
----------------------------

Balance - December 31, 2000                $ 16,423,679    $(18,530,100)   $    (18,000)   $ (2,094,060)
MSI common stock sold for cash                  731,181            --              --           731,767
MSI common stock exchanged to cancel
  stockholder loan                              262,371            --              --           262,721
Debt conversion expense                          22,533            --              --            22,533
Extraordinary item - loss from
  extinguishment of debt                         87,573            --              --            87,573
MSI common stock exchanged for accounts
  payable                                       602,841            --              --           603,324
MSI common stock issued for bonus                  (241)           --              --              --
MSI common stock exchanged from PFD II            4,757            --              --               759
MSI common stock exchanged from PFD I            14,102            --              --             1,046
MSI common stock exchanged for EMSI
  common stock                                       (8)           --              --              --
MSI common stock exchanged from
  debentures                                     36,476            --              --            36,503
Accrual of 2001 interest to be exchanged
  in stock in 2002                               18,750            --              --            18,750
Accrual of 2001 employee bonuses to be
  issued in stock in 2002                       250,000            --              --           250,000
Net loss                                           --        (1,907,861)           --        (1,907,861)
                                           ------------    ------------    ------------    ------------
Balance - December 31, 2001                $ 18,454,014    $(20,437,961)   $    (18,000)   $ (1,986,945)
                                           ============    ============    ============    ============

Year Ended December 31, 2000:
-----------------------------

Balance - December 31, 1999                $ 13,334,695    $(16,056,177)   $    (18,000)   $ (2,631,197)

MSI common stock sold for cash                  856,566            --              --           857,273
MSI common stock exchanged to cancel
  stockholder loan                              998,150            --              --         1,000,000
Extraordinary item - loss from
  extinguishment of debt                        850,000            --              --           850,000
MSI common stock exchanged for salary             2,997            --              --             3,000
MSI Preferred Series I issued to pay
  accrued debenture interest                       --              --              --             1,339
MSI common stock exchanged for Preferred
  Series I                                       29,376            --              --              --
MSI common stock exchanged for debenture
  Series I                                       49,415            --              --            49,448
MSI common stock exchanged for EMSI
  common stock                                      (13)           --              --              --
MSI common stock exchanged for EMSI
  Series I Preferred Stock                       52,493            --              --              --
Accrual of 2000 employee bonuses to be
  issued in stock in 2001                       250,000            --              --           250,000
Net loss                                           --        (2,473,923)           --        (2,473,923)
                                           ------------    ------------    ------------    ------------
Balance - December 31, 2000                $ 16,423,679    $(18,530,100)   $    (18,000)   $ (2,094,060)
                                           ============    ============    ============    ============


The  accompanying  notes are an integral  part of these  consolidated  financial
statements.
</TABLE>

                                       F-6

<PAGE>
<TABLE>
<CAPTION>

                               MEDSOLUTIONS, INC.
               (FORMERLY KNOWN AS ENVIROCLEAN INTERNATIONAL, INC.)

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                 FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000




                                                                For the Years Ended
                                                                    December 31,
                                                            --------------------------
                                                                2001           2000
                                                            -----------    -----------
<S>                                                         <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:

  Net loss                                                  $(1,907,861)   $(2,473,923)
  Adjustments to reconcile net loss to net cash used in
    operating activities:
      Depreciation and amortization                             142,051        367,363
      Bad debt expense                                           19,498           --
      Loss from extinguishment of debt                           87,573        850,000
      Debt conversion expense                                    22,533           --
      Stock/options issued for services and interest             37,058          3,000
      Employees' stock bonus                                    250,000        250,000
      Write-off of deferred offering costs                      326,688           --
      Gain on sale of equipment                                    --           (5,696)
      Gain on exchange of land for note payable                    --          (25,000)
      Notes payable given for interest and other expenses          --           59,901
    Changes in assets (increase) decrease:
      Accounts receivable                                      (396,249)        37,232
      Supplies                                                   37,530        (25,128)
      Prepaid expenses and other current assets                 (48,140)        (2,135)
    Changes in liabilities increase (decrease):
      Accounts payable and accrued liabilities                  317,409        585,120
      Bank overdraft                                            113,781        (11,080)
      Advances from stockholder                                 187,782         18,328
                                                            -----------    -----------
        NET CASH USED IN OPERATING ACTIVITIES                  (810,347)      (372,018)
                                                            -----------    -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Proceeds from sale of equipment                                  --            5,696
  Additions to property and equipment                           (54,433)        (4,716)
  Decrease in other non-current assets                             --           25,175
                                                            -----------    -----------
    NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES         (54,433)        26,155
                                                            -----------    -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from sale of common stock                            731,767        857,273
  Proceeds from notes payable - stockholder                      55,000           --
  Payments on other long-term obligations                      (101,364)       (89,043)
  Deferred offering costs                                       (76,688)      (250,000)
                                                            -----------    -----------
      NET CASH PROVIDED BY FINANCING ACTIVITIES                 608,715        518,230
                                                            -----------    -----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS           (256,065)       172,367

CASH AND CASH EQUIVALENTS - BEGINNING                           256,065         83,698
                                                            -----------    -----------
CASH AND CASH EQUIVALENTS - END                             $      --      $   256,065
                                                            ===========    ===========
</TABLE>



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

                                       F-7
<PAGE>
<TABLE>
<CAPTION>


                               MEDSOLUTIONS, INC.
               (FORMERLY KNOWN AS ENVIROCLEAN INTERNATIONAL, INC.)

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                 FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000



                                                                  For the Years Ended
                                                                      December 31,
                                                             ---------------------------
                                                                  2001           2000
                                                             ------------   ------------
<S>                                                          <C>            <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

  Interest paid                                              $    114,030   $     67,981
                                                             ============   ============
  Income taxes paid                                          $       --     $       --
                                                             ============   ============

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING INFORMATION:

  Equipment acquired by long-term debt                       $       --     $     98,892
                                                             ============   ============
  Write-off of fully depreciated assets                      $    375,023   $       --
                                                             ============   ============

SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING INFORMATION:

  Conversion of debt to equity                               $       --     $  1,050,787
                                                             ============   ============
  Stock issued in connection with loans and accounts
    payable                                                  $    886,045   $       --
                                                             ============   ============
  Notes payable given for interest                           $       --     $    116,667
                                                             ============   ============
  Exchange of property for debt                              $       --     $     75,000
                                                             ============   ============
  Stock and options issued for compensation                  $       --     $      3,000
                                                             ============   ============
  Accrued employees' stock bonus                             $    250,000   $    250,000
                                                             ============   ============
  Issuance of MSI common stock for EMSI common stock         $          8   $       --
                                                             ============   ============
  Conversion of MSI preferred stock for common stock         $     17,067   $     29,396
                                                             ============   ============
  Conversion of EMSI preferred stock for EMSI common
    stock                                                    $       --     $     52,501
                                                             ============   ============
</TABLE>


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

                                       F-8

<PAGE>

                               MEDSOLUTIONS, INC.
               (FORMERLY KNOWN AS ENVIROCLEAN INTERNATIONAL, INC.)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                 FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000



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, 2001 and 2000. The
Company has suspended its efforts to manufacture  and market the  EnviroClean(R)
Systems  until  such time it has the  financial  resources  to  reinstate  these
activities.

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.

In January  1998,  the Company  exchanged  shares of its common stock to acquire
667,375  shares of EMSI's  common  stock from other  shareholders,  giving MSI a
controlling  interest of  approximately  51.3% in EMSI.  In December  1998,  the
Company  offered to exchange one share of MSI common stock for one share of EMSI
common stock with the remaining shareholders of EMSI. This offer resulted in the
acquisition  of  1,771,151  additional  shares  of EMSI  common  stock,  thereby
increasing the Company's  ownership to approximately  96.1%.  During  subsequent
periods, the Company has continued to obtain outstanding shares of EMSI's common
stock such that its ownership of EMSI is presently approximately 99.3%.


                                       F-9
<PAGE>

                               MEDSOLUTIONS, INC.
               (FORMERLY KNOWN AS ENVIROCLEAN INTERNATIONAL, INC.)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                 FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000



NOTE 2  GOING CONCERN

As indicated by the accompanying consolidated financial statements,  the Company
incurred  consolidated  net losses of $1,907,861  and  $2,473,923  for the years
ended December 31, 2001 and 2000,  respectively.  Additionally,  the Company has
significant  deficits  in both  working  capital  and  stockholders'  equity  at
December 31, 2001 and 2000.  Further,  as noted previously,  the Company has not
made sales of the  EnviroClean(R)  System to  customers  other  than  affiliated
entities  during its  existence and is delinquent in paying its payroll taxes to
the IRS. These factors raise  substantial  doubt about the Company's  ability to
continue as a going concern.

Historically,  cash flow  deficits  have  been  funded  by  shareholders  of the
Company.  However, the shareholders 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 $732,000 and $857,000 during the years ended December 31, 2001 and
2000, respectively. The Company's largest shareholder loaned the Company $55,000
in 2001.  Also, the Company's  President has advanced funds for working  capital
totalling  $262,721  through  December 31, 2001. There is no assurance that such
private  placement  funding and loans and advances  will continue to satisfy the
Company's cash needs, or that the proposed  financing with LBCG will occur or be
successful in securing future financing.

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.

NOTE  3  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

The accompanying  consolidated  financial statements include the accounts of the
Company  and  its 99%  owned  subsidiary,  EMSI.  All  significant  intercompany
balances and  transactions  between the Company and EMSI 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.


                                      F-10

<PAGE>

                               MEDSOLUTIONS, INC.
               (FORMERLY KNOWN AS ENVIROCLEAN INTERNATIONAL, INC.)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                 FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000



NOTE  3  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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

The  Company's  trade  accounts  receivable  is stated net of an  allowance  for
doubtful  accounts  of  $50,000  and  $30,502  at  December  31,  2001 and 2000,
respectively.

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.

Waste Management Facility Rights
--------------------------------

Waste  management  facility  rights  relate to EMSI's right to operate a medical
waste incineration  facility at the University of Texas Medical Branch (UTMB) in
Galveston, Texas, and were amortized over a period of five years.

Such rights were fully amortized at December 31, 2000.

Permits
-------

Permits  consist of costs incurred in acquiring  medical waste disposal  permits
from the  Texas  Natural  Resource  Conservation  Commission  ("TNRCC")  and are
amortized  over a period  of five  years  upon  commencement  of  medical  waste
disposal operations at the respective facility.


                                      F-11
<PAGE>

                               MEDSOLUTIONS, INC.
               (FORMERLY KNOWN AS ENVIROCLEAN INTERNATIONAL, INC.)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                 FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000



NOTE  3  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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

The Company continually  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
-------------------

Revenues 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.

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.

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

The Company follows  Statement of Financial  Accounting  Standards No. 123 (SFAS
No.  123),  "Accounting  for  Stock-Based  Compensation."  SFAS 123  establishes
accounting and reporting standards for stock-based employee  compensation plans.
This statement allows companies to choose between the "fair  value-based  method
of  accounting"  as defined in this  statement  and the  "intrinsic  value-based
method of accounting" as prescribed by Accounting  Principles  Board Opinion No.
25 (APB 25), "Accounting for Stock Issued to Employees."

The Company has elected to continue to follow the accounting  guidance  provided
by APB 25, as permitted for stock-based  compensation  relative to the Company's
employees.  Stock and options  granted to other parties in  connection  with the
provision of goods and  services to the Company is accounted  for under the fair
value method as prescribed by SFAS No. 123.


                                      F-12
<PAGE>

                               MEDSOLUTIONS, INC.
               (FORMERLY KNOWN AS ENVIROCLEAN INTERNATIONAL, INC.)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                 FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000



NOTE  3  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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  10,  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.

Research and Development Costs
------------------------------

Research  and  development  ("R&D")  costs are  expensed as  incurred.  Elements
included in R&D expense include all direct costs  associated with the design and
construction of the EnviroClean(R) System prototype; internal costs incurred for
salaries,  benefits and related expenses of personnel who devoted  substantially
all of their time in the design,  development  and testing of the  prototype and
the pre-production  EnviroClean(R) Systems; and costs incurred in the testing of
ETOS.  R&D  costs  also  include   amounts   incurred  in  the  development  and
construction of the pre-production  EnviroClean(R)  Systems in excess of amounts
attributable   to  the   inventories   cost  of  the   EnviroClean(R)   Systems.
Substantially  all R&D activities  were  discontinued in 1999, and the Company's
technical staff has been disbanded.

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

Advertising costs are charged to expense when incurred.  Advertising expense for
the years ended  December  31, 2001 and 2000  approximated  $14,000 and $11,500,
respectively.

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.


                                      F-13
<PAGE>

                               MEDSOLUTIONS, INC.
               (FORMERLY KNOWN AS ENVIROCLEAN INTERNATIONAL, INC.)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                 FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000



NOTE  3  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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

In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 141 ("SFAS 141"), "Business Combinations,"
which supercedes  Accounting  Principles Board ("APB") Opinion No. 16, "Business
Combinations."  SFAS 141 requires the purchase method of accounting for business
combinations    initiated    after   June   30,   2001   and    eliminates   the
pooling-of-interests method. In addition, SFAS 141 establishes specific criteria
for  the  recognition  of  intangible  assets  separately  from  goodwill.   The
provisions  of SFAS 141 have been  adopted as of July 1, 2001.  The  adoption of
SFAS 141 has not changed  the method of  accounting  used in  previous  business
combinations, initiated prior to July 1, 2001.

In July 2001, the FASB also issued Statement of Financial  Accounting  Standards
No. 142 ("SFAS 142"), "Goodwill and Other Intangible Assets," which is effective
for fiscal years beginning  after December 15, 2001.  Certain  provisions  shall
also be applied to acquisitions  initiated subsequent to June 30, 2001. SFAS 142
supercedes  APB Opinion No. 17  "Intangible  Assets" and  requires,  among other
things,  the  discontinuance  of  amortization   related  to  goodwill  and  the
indefinite  lived  intangible  assets.  These  assets will then be subject to an
impairment test at least annually. In addition, the standard includes provisions
upon  adoption  for  the   reclassification   of  certain  existing   recognized
intangibles as goodwill, reassessment of the useful lives of existing recognized
intangibles  and  reclassification  of  certain  intangibles  out of  previously
reported goodwill.  This standard should have no effect on the Company's results
of operations.


                                      F-14
<PAGE>

                               MEDSOLUTIONS, INC.
               (FORMERLY KNOWN AS ENVIROCLEAN INTERNATIONAL, INC.)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                 FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000



NOTE  3  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Impact of Recently Issued Accounting Standards (Continued)
----------------------------------------------

In October 2001, the FASB issued Statement of Financial Accounting Standards No.
144 ("SFAS  144"),  "Accounting  for the  Impairment  or Disposal of  Long-Lived
Assets," which supercedes  Statement of Financial  Accounting  Standards No. 121
("SFAS  121"),  "Accounting  for the  Impairment  of  Long-Lived  Assets and for
Long-Lived  Assets to be Disposed Of" and certain  provisions of APB Opinion No.
30,  "Reporting  Results of  Operations - Reporting the Effects of Disposal of a
Segment of a Business  and  Extraordinary,  Unusual and  Infrequently  Occurring
Events  and  Transactions."  SFAS 144  requires  that  long-lived  assets  to be
disposed of by sale, including discontinued operations, be measured at the lower
of  carrying  amount or fair  value,  less  cost to sell,  whether  reported  in
continuing operations or in discontinued operations.  SFAS 144 also broadens the
reporting  requirements of discontinued  operations to include all components of
an entity that have operations and cash flows that can be clearly distinguished,
operationally and for financial reporting purposes, from the rest of the entity.
The  provisions  of SFAS 144 are  effective  for fiscal  years  beginning  after
December 15, 2001.  Management is evaluating the effect of this statement on the
Company's results of operations and financial position.

NOTE  4  PROPERTY AND EQUIPMENT

Property and equipment consisted of the following:

                                                              At December 31,
                                                         -----------------------
                                                            2001         2000
                                                         ----------   ----------

          Land                                           $   20,000   $   20,000
          Building                                          589,738      589,738
          Furniture and equipment                           667,992      988,582
                                                         ----------   ----------
                                                          1,277,730    1,598,320
          Less:  Accumulated depreciation                   578,704      849,789
                                                         ----------   ----------
          Property and Equipment, Net                    $  699,026   $  748,531
                                                         ==========   ==========

Depreciation of property and equipment for the years ended December 31, 2001 and
2000 amounted to $117,267 and $173,075, respectively.


                                      F-15

<PAGE>

                               MEDSOLUTIONS, INC.
               (FORMERLY KNOWN AS ENVIROCLEAN INTERNATIONAL, INC.)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                 FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000



NOTE  5  JOINT VENTURE AGREEMENT

In June 1995, the Company entered into a corporate joint venture, Tratamiento de
Desechos Medicos,  S.A. de C.V. ("TRADEM"),  with Grupo Bufete Industrial,  S.A.
and Grupo Camil S.A. de C.V. for the purpose of acquiring  EnviroClean(R)Systems
and  providing  medical  waste  management  services  in Mexico.  The  Company's
ownership interest in the joint venture is 33%.

As of January  1, 1999,  the  Company  had sold five ETOS to TRADEM.  Two of the
EnviroClean(R)  Systems  are  located in a medical  waste  disposal  facility in
Lerma,  Mexico.  The other  three ETOS were  located  in a  facility  located in
Iztapalapa,  Mexico.  In addition to these prior sales,  TRADEM advanced partial
payment  to the  Company  for  other  prospective  purchases  of  EnviroClean(R)
Systems.  There were no sales made by the  Company to TRADEM and no charges  for
technical  support to TRADEM for the years ended December 31, 2001 and 2000. The
joint venture was written-off in 1999 to $-0-.

NOTE  6  INCOME TAXES

The Company was not  required  to record a  provision  for income  taxes for the
years ended  December  31, 2001 and 2000,  as a result of net  operating  losses
incurred during those years.

As of December 31, 2001, the Company had available approximately  $15,800,000 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  2001 NOL  carryforwards  expire in the years 2018  through  2021,
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,  2001,  the Company has a deferred  tax asset of  approximately
$7,400,000,  representing  the  benefits of its net  operating  loss and certain
expenses not currently deductible for tax purposes.  These temporary differences
consisted  principally  of  compensation  related to the granting of  restricted
stock and stock  options,  valuation  allowances  for an  investment  in a joint
venture and property  and  equipment,  accrued  salaries  and  depreciation  and
amortization.  The  Company's  deferred  tax asset has been fully  reserved by a
valuation  allowance  since  realization  of  its  benefit  is  uncertain.   The
difference between the statutory tax rate of 34% and the Company's effective tax
rate (0%) is  attributed  to  non-deductible  expenses  and an  increase  in the
valuation allowance of approximately $700,000 in 2001 and $840,000 in 2000.


                                      F-16
<PAGE>

                             MEDSOLUTIONS, INC.
                (FORMERLY KNOWN AS ENVIROCLEAN INTERNATIONAL, INC.)

                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                  FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000



NOTE  7  ACCRUED LIABILITIES

Accrued liabilities consist of the following:

                                                            At December 31,
                                                       -------------------------
                                                          2001           2000
                                                       ----------     ----------

        Salaries                                       $  428,844     $  202,431
        Payroll and other taxes                           394,951        221,528
        Interest                                           60,859         82,462
        Incineration expenses                             334,527        355,366
        Insurance                                          35,831         43,254
        Litigation provision (Note 13)                    320,000        420,000
        Miscellaneous                                      93,420         76,077
                                                       ----------     ----------
                                                       $1,668,432     $1,401,118
                                                       ==========     ==========


NOTE  8  LONG-TERM OBLIGATIONS

Long-term obligations are comprised of the following:

                                                            At December 31,
                                                       -------------------------
                                                          2001           2000
                                                       ----------     ----------

    Bank note - EMSI facility                          $  285,413     $  304,419
    Bank note - EMSI EnviroClean(R) System
      and facility                                        117,316        153,653
    Installment notes - equipment                          92,545        138,566
    IMCO - deferred engineering - design
      costs                                                 -            100,000
                                                       ----------     ----------
    Total indebtedness to banks, financial
      institutions and IMCO                               495,274        696,638
    Less:  Bank notes classified as
             current                                      402,728        458,072
    Less:  Current maturities                              23,183         26,186
                                                       ----------     ----------
         Total Long-Term Obligations                   $   69,363     $  212,380
                                                       ==========     ==========

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 7.25% at
December  31,  2001.  The note is  payable in minimum  monthly  installments  of
principal and interest  totalling  $3,910 (reduced to $3,467 beginning August 9,
2001),  and matures in July 2011.  The Company's  president and chief  executive
officer has guaranteed  this debt. The total amount  outstanding at December 31,
2001 is $285,413.


                                      F-17

<PAGE>

                               MEDSOLUTIONS, INC.
               (FORMERLY KNOWN AS ENVIROCLEAN INTERNATIONAL, INC.)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                 FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000



NOTE  8  LONG-TERM OBLIGATIONS (Continued)

In July 1999,  the Company  borrowed  $200,000 from a bank primarily for working
capital  purposes.  The note is secured by a second lien on the EMSI facility in
Garland, and a first lien on the EnviroClean(R) System located at that facility.
The note bears  interest  at 10.5% and is payable  in  monthly  installments  of
principal  and  interest  totalling  $4,315  through  July 2004.  The  Company's
president and chief executive officer has guaranteed this debt. The total amount
outstanding at December 31, 2001 is $117,316.

The Company has occasionally been in default on both the July 1996 and July 1999
bank notes due to delinquent  payments and certain other  matters.  However,  to
date,  the banks have not  exercised  their rights of recourse,  or sought other
remedies against the Company as a result of such noncompliance.

Management  does not believe  payment in full will be demanded by the banks as a
consequence of the Company's instances of default. However,  management believes
that reclassification of the outstanding note balances to current liabilities is
appropriate since the banks have the right to demand full payment.

The  Company is  obligated  under  various  installment  notes  payable  for the
purchase of  equipment.  The notes,  which bear  interest at rates  ranging from
8.15% to 12.15%,  are due at various dates through  January 2006 and are payable
in monthly  installments  of  approximately  $2,798  consisting of principal and
interest. The notes are collateralized by the equipment acquired.

In 1994, the Company entered into  manufacturing  and marketing  agreements with
IMCO in a joint effort to build the EnviroClean(R)  System prototype and further
develop  and  improve  the  technology  and  commercial  applications  of  ETOS.
Significant provisions of the agreements included the following:

o    IMCO was granted an exclusive  license to  manufacture  the  EnviroClean(R)
System for MSI customers during the term of the agreement.  However, the Company
retained sole  ownership of the concept,  engineering  design,  and  technology,
including  future  changes  in  the  design,   concept,  or  technology  of  the
EnviroClean(R) System.

o    The  Company  agreed to pay IMCO for the cost of a  prototype  unit and any
modifications  made  to  the  original  prototype  up to  specified  limits.  In
addition,  the Company agreed to pay IMCO for the cost of up to three production
test units up to specified  limits.  At December 31, 2000,  costs in  connection
with the production of these units were classified as a current liability in the
accompanying consolidated financial statements.


                                      F-18


<PAGE>

                               MEDSOLUTIONS, INC.
               (FORMERLY KNOWN AS ENVIROCLEAN INTERNATIONAL, INC.)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                 FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000



NOTE  8  LONG-TERM OBLIGATIONS (Continued)

o    The Company was to pay IMCO an amount not to exceed  $195,000 for preparing
design drawings  necessary to produce the  EnviroClean(R)  System  prototype and
production  test  units.  $120,000  of this  amount  was to be paid at a rate of
$10,000 with the delivery of each of the first  twelve  production  units of the
EnviroClean(R)  System.  At  December  31,  2000,  $20,000  of the  $120,000  is
classified  as  a  current   liability  of  the  Company  in  the   accompanying
consolidated financial statements as two production units have been delivered to
date.  The  remaining  $100,000 is  reflected as a long-term  obligation  of the
Company in the accompanying  consolidated  financial  statements at December 31,
2000.

o    The Company was to pay IMCO an additional  amount not to exceed $65,000 for
preparation of system and detail design drawings  necessary to begin manufacture
of the  EnviroClean(R)  System.  The Company's  obligation  with respect to this
amount is classified  as a current  liability in the  accompanying  consolidated
financial statements at December 31, 2000.

o    IMCO was granted an exclusive license to market the  EnviroClean(R)  System
to the United States  Department  of Defense and its  subsidiary  agencies,  and
certain  foreign  governments.  Under  an  amendment  in 1998  to the  marketing
agreement,   the  Company   will   receive  a  royalty  of  $125,000   for  each
EnviroClean(R) System sold by IMCO.

In connection  with the building of the prototype and the production test units,
the Company is also  contingently  liable for certain  excess  overhead  charges
incurred by IMCO that will be repaid from future royalties,  if any, accruing to
the Company.

On June 15, 2001,  the Company  entered into a memorandum  of agreement  ("MOA")
with  IMCO,  whereby  certain  terms of the  Company's  1994  manufacturing  and
marketing  agreement  with IMCO were  changed.  Under the terms of the MOA,  the
royalty rate on each EnviroClean(R)  System sold by IMCO to the Kingdom of Saudi
Arabia during the six-month period commencing June 15, 2001 accrues at a rate of
$25,000 per unit.  However, as to any sales made to the Kingdom of Saudi Arabia,
any royalty amounts earned will be applied first to IMCO's unrecovered  overhead
costs,  totalling  approximately  $400,000 at December 31, 2000,  any  royalties
earned  in  excess  of  unrecovered  overhead  costs  will  be  waived  up to an
additional $500,000, and any balance will be paid to MSI.

In  addition,  under the terms of the MOA,  the  Company  converted  during 2001
$595,085 of indebtedness to IMCO into common stock of the Company at the rate of
$1.25 per share. No gain or loss was recognized on this transaction.


                                      F-19

<PAGE>

                               MEDSOLUTIONS, INC.
               (FORMERLY KNOWN AS ENVIROCLEAN INTERNATIONAL, INC.)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                 FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000



NOTE  8  LONG-TERM OBLIGATIONS (Continued)

Aggregate maturities of long-term  indebtedness  subsequent to December 31, 2001
are as follows:

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

                             2002                                     $  425,911
                             2003                                         20,824
                             2004                                         21,777
                             2005                                         24,576
                             2006                                          2,186
                                                                      ----------
                                                                      $  495,274
                                                                      ==========

NOTE  9  NOTES PAYABLE - STOCKHOLDER

At January 1, 2000, the Company was obligated on a note payable to a stockholder
of MSI in the amount of $1,000,000,  plus accrued  interest at a rate of 10%. On
July 31,  2000,  the  stockholder  exchanged  the  $1,000,000  note  payable for
1,850,000  shares of the Company's  common stock.  In addition,  the stockholder
purchased an additional 50,000 shares of common stock at $1.00 per common share,
the estimated fair value at that date. As a result of the note payable exchanged
at a favorable rate to the  stockholder,  the Company  recorded an extraordinary
loss from  extinguishment of debt at July 31, 2000 of $850,000,  as shown in the
accompanying  consolidated financial statements.  Further, on July 31, 2000, the
stockholder  exchanged the then accrued  interest on the $1,000,000 note payable
for a new convertible note payable of $116,667 bearing interest at a stated rate
of 10% due July 31,  2002.  The new note is  collateralized  by  certain  future
royalties,  if any,  from  the sale of  EnviroClean(R)  EC-500  Systems  and the
related  patent  technology.  The new  note and  accrued  interest  thereon  are
convertible into common stock, at the option of the holder, based on the rate of
$1.50 per share.  On May 7, 2001,  the Company  concluded an agreement with such
stockholder  to modify  the  conversion  rate from  $1.50 per share to $1.25 per
share.  The Company  recorded a debt  conversion  expense of $19,500  during the
second quarter of 2001 related to such modification.

On July 31, 2001, the note was amended to recognize additional loans,  totalling
$55,000, the reduced conversion price and the granting of additional  collateral
in the form of all other tangible and intangible assets of the Company.  The new
note, totalling $171,667, bears interest at 10% and is due on July 31, 2002.


                                      F-20
<PAGE>

                               MEDSOLUTIONS, INC.
               (FORMERLY KNOWN AS ENVIROCLEAN INTERNATIONAL, INC.)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                 FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000



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 scheduled to be paid semi-annually
on April 1 and October 1 of each year.

The outstanding  principal balance of the Series I Debentures at January l, 2000
was $85,000.  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. However,
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.  During 2001 and 2000,
noteholders  converted  $20,000  and  $35,000 of  principal,  respectively,  and
$16,503 and $15,929 of unpaid interest,  respectively, into the Company's common
stock.  Accrued  interest  payable on the debentures as of December 31, 2001 and
2000  totalled  $24,813 and  $34,808,  respectively.  The  principal  balance at
December 31, 2001 and 2000 was $30,000 and $50,000, respectively.

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

In October  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.

A total of  $160,000  of  Series II  Debentures  was  issued  in the year  ended
December 31, 1998.  An additional  $106,125 in Series II  Debentures  was issued
during 1999, for a total outstanding balance of $266,125.


                                      F-21

<PAGE>

                               MEDSOLUTIONS, INC.
              (FORMERLY KNOWN AS ENVIROCLEAN INTERNATIONAL, INC.)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                 FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000



NOTE 10  CONVERTIBLE DEBENTURES (Continued)

Series II Debentures (Continued)
--------------------

In July 1999,  $10,000  in Series II  Debentures,  plus  accrued  interest,  was
exchanged  for 3,560  shares of the  Company's  common  stock.  Because  of cash
constraints, the Company was not able to redeem the remaining $256,125 of Series
II Debentures at the stated  maturity date of November l, 1999. As an inducement
for additional  holders to convert Series II Debentures  into common stock,  the
Company  decreased the conversion  rate on October 11, 1999 from $3 per share to
$1.75 per share.  During 1999,  $245,990 of Series II  Debentures,  plus accrued
interest, were exchanged for 153,581 shares of the Company's common stock at the
new conversion  rate.  Accrued interest payable on the debentures as of December
31,  2001 and 2000  totalled  $2,942 and  $1,929,  respectively.  The  principal
balance at December 31, 2001 and 2000 was $10,135 for both years.

NOTE 11  STOCKHOLDERS' DEFICIENCY

On November  12,  1999,  the  Company's  stockholders  approved  the increase in
authorized   common  and  preferred   shares  to   100,000,000   and  5,000,000,
respectively. Also on that date, the stockholders approved a reverse stock split
(the  "Reverse  Split"),  in which  each share of common  stock then  issued and
outstanding  or held in  treasury  would  be  reclassified  and  exchanged  into
one-half  (1/2) of a share of new common stock,  thereby  reducing the number of
issued and outstanding  shares of the Company by 50%.  Although the stockholders
approved the Reverse Split,  the Board of Directors has not yet  implemented the
Reverse Split.

On May 2, 2001, the Company's  stockholders  approved the increase in authorized
preferred shares to 100,000,000.  In addition,  the stockholders  authorized the
Board of Directors to determine, in its sole discretion, the advisability of the
Reverse Split of common stock originally authorized in 1999 and to rescind it if
necessary.

Series I Preferred Stock
------------------------

In 1996,  the Company  issued  Series I Cumulative  Redeemable  Preferred  Stock
("Series I Preferred Stock"),  par value $.001, as an offer to holders of Series
I Debentures  (see Note 10) to receive shares of the Series I Preferred Stock in
exchange for the debenture  principal and accrued unpaid interest.  The Company,
at its option,  may convert the Series I Preferred  Stock into MSI common  stock
based on a rate of four  shares  of  common  stock  for each  share of  Series I
Preferred  Stock.  The Series I Preferred  Stock issued to debenture  holders is
also  convertible  into the Company's common stock, at the option of the holder,
based on the same rate of four shares of common stock for each share of Series I
Preferred Stock. The Series I Preferred Stock carries a cumulative dividend rate
of 8%, which is payable annually on June 1.



                                      F-22
<PAGE>

                               MEDSOLUTIONS, INC.
               (FORMERLY KNOWN AS ENVIROCLEAN INTERNATIONAL, INC.)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                 FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000



NOTE 11  STOCKHOLDERS' DEFICIENCY (Continued)

Series I Preferred Stock (Continued)
------------------------

The Series I Preferred Stock can be redeemed by MSI at a redemption  price of $7
per share, plus accumulated unpaid dividends. The Series I Preferred Stock has a
liquidation  preference of $6 per share, plus accumulated  unpaid dividends.  In
addition, the Company has the option of making the 8% annual dividend payment in
additional shares of Series I Preferred Stock, in lieu of cash, based on a value
of $6 per share for the Series I Preferred Stock, or in common stock, based on a
value of $1.50  per  share.  The  Company  has also  issued  shares  of Series I
Preferred  Stock or common stock,  at the same values ($6 per share for Series I
Preferred  Stock and $1.50 per share for common  stock),  in lieu of making cash
payments for accrued  interest on  debentures.  Cumulative  unpaid  dividends on
Series I  Preferred  Stock at  December  31,  2001 and 2000 was $-0- and $1,936,
respectively.

During  November  2001, the Company  converted all remaining  Series I preferred
stock to common stock based on a value of $1.50 per share.

Series II Preferred Stock
-------------------------

In 1999,  the Company  issued Series II Cumulative  Redeemable  Preferred  Stock
("Series II Preferred Stock"),  par value $.001 and stated value $3, for working
capital  purposes.  The Series II Preferred Stock is convertible into MSI common
stock,  based on a rate of one share of common stock for each share of Series II
Preferred  Stock, at the  shareholders'  option prior to January 31, 2000, or at
the  Company's  option at any time.  The  Series II  Preferred  Stock  carries a
cumulative dividend rate of 10%, which is payable annually on December 31.

The Series II Preferred Stock can be redeemed by MSI at a redemption price of $3
per share, plus accumulated unpaid dividends. Series II Preferred Stock also has
a liquidation preference of $3 per share, plus accumulated unpaid dividends, and
is senior in priority as to both dividends and  liquidation  with respect to the
Series I Preferred Stock, the Company's common stock, and the preferred stock of
EMSI discussed below.  Until the first anniversary  after issuance,  the Company
has the option of paying all cumulative dividends through issuance of additional
shares of Series II Preferred Stock in lieu of cash. After the first anniversary
of issuance,  the 10% dividends  must be paid in cash only.  Accumulated  unpaid
dividends  on Series II  Preferred  Stock at December 31, 2001 and 2000 was $-0-
and $948, respectively.

As an inducement  for  shareholders  to convert  Series II Preferred  Stock into
common stock, the Company decreased the conversion rate on October 11, 1999 from
$3 per share to $1.75 per share.  During 1999,  $15,375 (5,125 shares) of Series
II Preferred Stock was exchanged for 5,125 shares of the Company's  common stock
at the original  conversion rate. Also, during 1999, $116,889 (38,964 shares) of
Series II  Preferred  Stock was  exchanged  for 66,794  shares of the  Company's
common stock at the new conversion rate.

During  October 2001,  the Company  converted all remaining  Series II preferred
stock to common stock, based on a value of $1.25 per share.



                                      F-23
<PAGE>

                               MEDSOLUTIONS, INC.
               (FORMERLY KNOWN AS ENVIROCLEAN INTERNATIONAL, INC.)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                 FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000



NOTE 11  STOCKHOLDERS' DEFICIENCY (Continued)

EMSI Preferred Stock
--------------------

EMSI,  the  subsidiary  company of MSI,  has also  issued  Series I  Convertible
Redeemable  Preferred Stock ("EMSI Series I Preferred  Stock"),  par value $.001
and stated value $7. EMSI Series I Preferred  Stock is  convertible  into common
stock of EMSI at a rate of one share of common  stock for each share of the EMSI
Series I Preferred Stock if converted on or before May 31, 1997, or at a rate of
eight shares of common stock for ten shares of EMSI Series I Preferred  Stock if
converted  during the period from June 1, 1997 through May 31, 1998.  After that
date,  the EMSI  Series I  Preferred  Stock  may not be  converted  without  the
approval of the Company's Board of Directors.  EMSI Series I Preferred Stock has
a  liquidation  preference,  with respect to EMSI,  of $7 per share,  and may be
redeemed at various prices at the Company's option.

Dividends  on EMSI  Series I  Preferred  Stock are  payable as  declared  by the
Company's Board of Directors. No dividends have been declared to date.

During  the year  2000,  the  Company  converted  all  remaining  shares of EMSI
Preferred to MSI common stock.

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

The Company's Board of Directors has 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.  The  sole
outstanding option for 25,000 shares outstanding at December 31, 2001, held by a
former  officer of the Company  expired on January 15, 2002. The shares were not
exercised before expiration.

The Board of Directors  has approved an  employee's  stock bonus of $250,000 for
each of the years ended December 31, 2001 and 2000. These bonuses were reflected
as compensation expense in the accompanying 2001 and 2000 consolidated financial
statements.  The shares will be issued to employees in 2002 and 2001. No options
were granted to employees  during the years ended December 31, 2001 and 2000 and
no compensation  expense was recognized during those years with respect to stock
options.


                                      F-24

<PAGE>

                               MEDSOLUTIONS, INC.
               (FORMERLY KNOWN AS ENVIROCLEAN INTERNATIONAL, INC.)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                 FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000



NOTE 11  STOCKHOLDERS' DEFICIENCY (Continued)

Stock, Grants and Options (Continued)
-------------------------

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

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

     Balance outstanding at December 31, 2000       25,000              $0.75

     Granted                                          --                 --
     Exercised                                        --                 --
     Cancelled/Expired                                --                 --
                                                  --------           --------
     Balance outstanding at December 31, 2001       25,000              $0.75
                                                  ========           ========

On  May  31,  2001,  the  Board  of  Directors  authorized  three  officers  and
shareholders to convert accrued salaries and loans, at their option, into shares
of  common   stock,   at  the  rate  of  $0.75  per  share.   During  2001,   an
officer/stockholder  converted loans, totalling $262,721, into 350,295 shares of
the Company's  common stock.  Since the conversion rate was less than the market
value of the common stock, the Company  recorded an extraordinary  loss from the
extinguishment of debt of $87,573 during the year ended December 31, 2001. As of
December 31, 2001, the officers and  shareholders  have not converted any of the
accrued salaries totalling $402,551.

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,
                                                           ---------------------
                                                             2001        2000
                                                           ---------   ---------

       Convertible accrued salaries                          536,734        --
       Options to purchase common stock                       25,000      25,000
       Convertible debentures and unpaid interest             45,259      63,100
       Convertible preferred stock and unpaid dividends         --        12,300
       Note payable to stockholder and accrued interest      152,756      81,000
       Shares to be issued to employees under stock
         bonus                                               259,500     250,000
       Shares to be issued to directors for letter of
         credit guarantee                                     18,750        --
                                                           ---------   ---------
               Total                                       1,037,999     431,400
                                                           =========   =========


                                      F-25
<PAGE>

                                MEDSOLUTIONS, INC.
                (FORMERLY KNOWN AS ENVIROCLEAN INTERNATIONAL, INC.)

                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                  FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000



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 of $15,000 on one  medical  waste
incinerator;  an  additional  usage  fee  of  $750  per  day  on  an  additional
incinerator,  as needed;  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 adjustable  quarterly  depending on
the actual waste volume  processed  during the preceding  quarter.  Of the total
purchase  price of BMI,  $650,000  was  estimated  as the fair value of the UTMB
waste management  facility rights and was amortized over five years. Such rights
were fully amortized at December 31, 2000.

The Company has renegotiated with UTMB an amendment  extending the UTMB contract
until December 8, 2005. 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         $ 20,208      $.005 per lb.
             2004            $ 20,500         $ 20,208      $.005 per lb.
             2005            $ 21,500         $ 20,208      $.005 per lb.

The  Company is required  to pay all  utility  costs but will  receive a monthly
credit for the value of steam produced by the incinerator plant. The contract is
cancellable by either party with a one year written notice.


                                      F-26

<PAGE>

                               MEDSOLUTIONS, INC.
               (FORMERLY KNOWN AS ENVIROCLEAN INTERNATIONAL, INC.)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                 FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000



NOTE 13  COMMITMENTS AND CONTINGENCIES

Proposed Financing
------------------

On October 31,  2000,  MSI entered into a financing  agreement  with Lilly Beter
Capital Group, Ltd. ("LBCG"), whereby LBCG agreed to assist MSI in raising up to
$5,000,000 of equity  financing and provide  services to MSI with respect to the
raising of a minimum of  $15,000,000  and a maximum of  $20,000,000 of tradeable
low-grade,  high-yield,  10-year  bonds.  Pursuant to the terms of the financing
agreement,  MSI is required to provide the costs and  expenses  associated  with
both the equity and debt offerings,  not to exceed  $850,000.  In November 2000,
$250,000 was paid to LBCG,  which is reported as deferred  offering costs in the
accompanying December 31, 2000 consolidated balance sheet. During the year ended
December 31, 2001, an additional $50,000 was paid to LBCG, which was capitalized
in deferred offering costs totalling $326,688.

The financing  agreement MSI entered into with LBCG expired on October 30, 2001.
In January,  2002 LBCG presented the Company with a proposal for a new financing
agreement,  which contains additional conditions.  Those conditions include, the
replenishment  of the escrow  account  that the Company has paid to LBCG (to pay
the costs  and  expenses  associated  with the  equity  and debt  offerings)  to
$500,000,  and MSI becoming a company whose shares are publicly traded. There is
no assurance that the contingencies  specified in the proposed agreement will be
met and that the financing contemplated by the agreement will be consummated. As
of February  22,  2002,  there is no firm  commitment  or  guarantee  by LBCG to
provide the financing.  Due to the uncertainty of the  negotiations  between the
Company and LBCG,  the Company  decided to charge to expense in 2001 all related
deferred offering costs in the amount of $326,688.

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

MSI  and  EMSI  operate  exclusively  in one  industry.  MSI has  the  right  to
manufacture (through its exclusive contract with IMCO) a low-emissions,  thermal
oxidation  system  designed for medical and other special waste  streams.  MSI's
only  significant  customer to date is an  affiliated  entity  located in Mexico
(TRADEM). Development of customers and markets by MSI in other countries will be
influenced,  in part, on the adoption and/or enforcement of emissions  standards
for which the EnviroClean(R) System was designed. Should such additional markets
develop,  political changes or currency fluctuations in other countries, as well
as changes in the other factors above, could adversely affect the Company.


                                      F-27
<PAGE>


                               MEDSOLUTIONS, INC.
               (FORMERLY KNOWN AS ENVIROCLEAN INTERNATIONAL, INC.)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                 FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000



NOTE 13  COMMITMENTS AND CONTINGENCIES (Continued)

Risks and Concentrations (Continued)
------------------------

EMSI provides waste management services to medical waste generators in North and
South Texas.  EMSI's operation at Galveston is 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 area.  Substantially  all of the
waste  processed by the Company is done at the Galveston  facility,  except when
the  facility  is not  operational,  in which case the  Company  outsources  its
medical waste processing  through alternate  facilities.  In the event that UTMB
cancelled  the waste  management  facility  agreement  with EMSI and a  suitable
alternate  facility  could  not  be  located,   there  would  be  a  significant
detrimental impact on the operations of EMSI (see Note 15).

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

With respect to trade  receivables,  ongoing  credit  evaluations  of customers'
financial  condition are performed and generally,  no security is required.  The
Company  maintains a reserve for potential credit losses and such losses, in the
aggregate, have not exceeded management's expectations.

At December 31, 2001 and 2000, UTMB accounted for approximately 35% of the
accounts receivable balance. For the years ended December 31, 2001 and 2000,
UTMB accounted for approximately 25% and 34%, respectively, of net revenues.

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

The Company has a  non-cancelable  operating lease covering its corporate office
in Dallas, Texas that expired on October 31, 2001.

In October 2001,  the Company  extended its lease covering its office in Dallas,
Texas for a term of four years,  commencing on November 1, 2001.  Minimum annual
rentals under the new lease are as follows:

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

                    2002                                 $  116,648
                    2003                                    123,442
                    2004                                    130,238
                    2005                                    113,250
                                                         ----------
                                                         $  483,578
                                                         ==========

                                      F-28
<PAGE>

                               MEDSOLUTIONS, INC.
               (FORMERLY KNOWN AS ENVIROCLEAN INTERNATIONAL, INC.)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                 FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000



NOTE 13  COMMITMENTS AND CONTINGENCIES (Continued)

Lease Obligations (Continued)
-----------------

Rent  expense and  sub-rental  income for the years ended  December 31, 2001 and
2000 were as follows:

                                                           For the Years Ended
                                                               December 31,
                                                         -----------------------
                                                            2001         2000
                                                         ----------   ----------

                   Rent expense                          $  142,127   $  142,942
                   Less: Sub-rental income                   69,750       70,383
                                                         ----------   ----------
                                                         $   72,377   $   72,559
                                                         ==========   ==========

On September 30, 2001, the sublease agreement with the tenant was terminated.

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

The Company was  delinquent in paying its payroll taxes for the third and fourth
quarters of 2000 and the second,  third and fourth  quarters of 2001.  The total
amount  of the  delinquency  at  December  31,  2001 and 2000 was  approximately
$340,000 and $150,000, respectively, including estimated penalties and interest.
The Company has contacted the Internal Revenue Service (IRS) about  establishing
a repayment plan with the IRS.  Unless a payment plan can be negotiated with the
IRS regarding these arrearages,  or if the amount continues to increase,  a lien
could be placed  against the Company's  assets,  or the Company could be sued or
face a judgment. The Company is current in paying its payroll taxes for 2002.

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.  During the year ended  December  31,  2000,  the  Company  incurred
$103,292 in connection  with clean-up  costs of a stack  discharge and a caustic
spill at the UTMB facility.


                                      F-29
<PAGE>

                               MEDSOLUTIONS, INC.
               (FORMERLY KNOWN AS ENVIROCLEAN INTERNATIONAL, INC.)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                 FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000



NOTE 13  COMMITMENTS AND CONTINGENCIES (Continued)

Litigation
----------

The Company was a named  defendant,  along with several officers of the Company,
named individually,  in a lawsuit filed in Buncombe County, Superior Court North
Carolina.  A default  judgment was rendered  against all  defendants in November
1999 as a result of not  filing  answers  in a timely  manner.  The  ruling  was
appealed to the North  Carolina  Supreme  Court and the Company  posted a surety
bond in the amount of the judgment of $354,708. The Company's President posted a
$100,000 letter of credit secured by a certificate of deposit in connection with
the surety bond.  The  estimated  liability  due under the  judgment  amounts to
$403,369, including interest accrued since November 1999. The Company provided a
$360,000  loss related to this  judgment in the 1999  consolidated  statement of
operations.  On June 8, 2001, the Supreme Court in North  Carolina  affirmed the
judgment. In July 2001 the plaintiffs received the amount of the surety bond and
the Company paid accrued  interest in the amount of $48,255 in December 2001. On
August 1, 2001 the bonding  company  seized the $100,000  certificate of deposit
posted in connection  with the bond by the  Company's  President and in December
2001 seized 63,450 shares of the Company's  common stock which had been tendered
by the plaintiffs as part of the lawsuit. In addition,  on November 9, 2001, the
bonding  company  filed a  lawsuit  against  the  Company  claiming  damages  of
$254,708,  (the  amount it paid to the  plaintiffs  on the surety  bond less the
certificate of deposit), plus interest and attorneys' fees. However, the Company
believes 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 valid claim against the Company.  The Company
is examining options  regarding claims for  indemnification,  contribution,  and
claims  against third parties.  However,  the Company has not made any decisions
and such issues remain unresolved.  The accompanying consolidated balance sheet,
as of December 31, 2001,  reflects an accrual for losses in connection with this
litigation of $260,000.

The Company is a named  defendant in a lawsuit filed in Travis County,  Texas by
the State of Texas.  The lawsuit  claims  that the  Company  breached a contract
awarded  under the Texas Smart Jobs Program by failing to meet the  requirements
of the contract and seeks compensatory  damages in the amount of $439,631,  plus
costs and  attorneys'  fees.  The Company has answered and has denied all of the
plaintiff's  allegations  and there has not been any  activity in the case since
July 2001.  While the Company cannot predict the outcome of any settlement,  the
Company  estimates  that its  liability  under this  litigation  will not exceed
$60,000.  Accordingly,  an accrual of $60,000 was reflected in the  accompanying
December 31, 2001 and 2000 consolidated balance sheets.

The Company is 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 the  Company's  financial
position, results of operations, or cash flows.


                                      F-30
<PAGE>

                               MEDSOLUTIONS, INC.
               (FORMERLY KNOWN AS ENVIROCLEAN INTERNATIONAL, INC.)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                 FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000



NOTE 13  COMMITMENTS AND CONTINGENCIES (Continued)

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

On May 1,  2001,  the  Company's  Board of  Directors  approved,  in  principal,
effective  January 1, 2001, an  employment  agreement  with its Chief  Executive
Officer  and  President.  The  agreement  has not yet been  reduced to a written
contract.  The material terms of the agreement  include:  (i) a five-year  term;
(ii) a minimum  compensation of $180,000  yearly,  with an annual cost of living
increase of 6%, or an amount equal to the highest  paid  employee as a result of
any  acquisition;  (iii) that such employee will remain Chief Executive  Officer
and President;  (iv) that a severance  package will include the  compensation of
any  remaining  term of the  agreement;  (v) an annual stock or cash bonus based
upon a formula  considering  earnings before interest,  taxes,  depreciation and
amortization  ("EBITDA") to be developed and approved by LBCG;  and (vi) a bonus
for the year 2000 of  125,000  shares of common  stock and the option to convert
any loans made by him and/or accrued compensation at a price of $.75 per share.

On May 1,  2001,  the  Company's  Board of  Directors  approved,  in  principal,
effective  January 1, 2001, an  employment  agreement  with its Chief  Financial
Officer.  The  agreement  has not yet been  reduced to a written  contract.  The
material terms of the agreement  include:  (i) a five-year  term; (ii) a minimum
compensation  of $96,000 yearly with an annual cost of living  increase of 6% or
an  amount  equal to the  highest  paid  financial  employee  as a result of any
acquisition;  (iii) that such employee will remain the Chief Financial  Officer;
(iv) that a severance  package will include the  compensation  of any  remaining
term of the  agreement;  (v) an annual  stock or cash bonus based upon an EBITDA
formula to be developed and approved by LBCG; and (vi) a bonus for the year 2000
of  30,000  shares  of  common  stock and the  option  to  convert  his  accrued
compensation at a price of $.75 per share.

Proposed Acquisition of Equipment
---------------------------------

The  Company is  currently  negotiating  with a major  leasing  company  for the
replacement  of certain  transportation  equipment and the addition of two other
trucks.  The Company  does not expect the monthly  outlay for the new  vehicles,
including  the  lease  costs  and the  fixed  maintenance  expenses,  to  exceed
comparable  costs that the Company has been incurring  during the past year. The
lease terms are expected to be in the range of 72 to 84 months.


                                      F-31
<PAGE>

                               MEDSOLUTIONS, INC.
               (FORMERLY KNOWN AS ENVIROCLEAN INTERNATIONAL, INC.)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                 FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000



NOTE 14  RELATED PARTY TRANSACTIONS

Related  party  payables  at  December  31,  2001 and 2000 to  stockholders  and
officers  amounted to $594,842 and $388,220,  of which $421,829 and $195,268 are
included in accrued liabilities, respectively.

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

                                                 Years Ended December 31,
                                                --------------------------
                                                   2001            2000
                                                ----------      ----------

                   Interest expense             $   14,416      $   63,194
                                                ==========      ==========

Other debt and equity  transactions  with related parties are disclosed in Notes
9, 11 and 15.

NOTE 15  SUBSEQUENT EVENTS

During most of the month of January  2002,  the waste  incineration  facility at
UTMB in  Galveston,  Texas was not  functioning.  As a result,  the  Company was
required  to   discontinue   incineration   activities  at  the  facility  while
appropriate  repairs were being made. UTMB restored proper  functionality of the
incinerator  as of  February  8,  2002.  The UTMB  facility  currently  requires
extensive  modifications  and  improvements to maintain  compliance with certain
federal and state regulatory requirements. It is expected that the UTMB facility
will be shut down commencing April 15, 2002 to effect the foregoing  renovations
and improvements so that the facility will be able to comply with the New Source
Performance  Standards.  The Company expects the facility will be out of service
for at least 90 days. The Company submitted an application to the TNRCC to allow
it to install an alternative  regulated medical waste treatment operation at its
Garland plant. The Company recently received  Temporary  Authorization  from the
TNRCC  permitting it to process its regulated  medical waste using the autoclave
method of treatment. The Company has signed a Letter of Intent with a company to
install an autoclave treatment system at its Garland facility and to process its
regulated medical waste on a fixed price-per-pound basis.

In January and February 2002, the Company received  approximately  $634,000,  of
which $525,000 was from an existing  stockholder who purchased 500,000 shares of
its common stock.


                                      F-32