U.S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20519

                       POST-EFFECTIVE AMENDMENT NO. 2 TO
                                   FORM 10-KSB

(MARK ONE)
[X]  ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
     1934 For the year ended December 31, 1999

[_]  TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
     OF 1934

                         Commission File Number 0-17594

                             USA BIOMASS CORPORATION
                 (Name of small business issuer in its charter)

              DELAWARE                                      33-032959
   (State or other jurisdiction of                      (I.R.S. Employer
    incorporation or organization)                     Identification No.)

         7314 Scout Avenue
         Bell Gardens, California                            90201
(Address of principal executive offices)                   (Zip Code)

          Issuer's telephone number (including area code): 562-928-9900

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

                                      None

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

                    Common Stock, $0.002 par value per share
                                 Title of Class

     Check whether the issuer:  (1) filed all reports required to be filed by 13
or 15(d) of the  Exchange  Act during  the past 12 months  (or for such  shorter
period that  registrant  was  required to file such  reports),  and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [_]

     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 statement to this Form 10-KSB. [_]

The registrant's  revenues from continuing operations for its most recent fiscal
year were $7,644,907.

     Based on the  average  of bid and  asked  prices  on March  31,  2000,  the
aggregate market value of common stock held by  non-affiliates of the registrant
on March 31, 2000 was approximately $36,223,252.

     The number of shares  outstanding of the registrant's  only class of Common
Stock, $0.002 par value per share, was 9,347,936 on March 31, 2000.


<PAGE>


                                     Part I

ITEM 1. DESCRIPTION OF BUSINESS.

HISTORICAL SUMMARY

     USA  Biomass   Corporation,   formerly  AMCOR  Capital   Corporation   (the
"Company"),  was  incorporated  in Delaware  on March 10,  1988.  The  Company's
consolidated  operations,  as of December  31,  1999,  include its wholly  owned
subsidiaries,   USA  Waste   Transport  Inc.,  USA   Biomass-Greenwaste,   Inc.,
TransPacific  Environmental,  Inc.  ("TPE") and AMCOR  Biomass  Farms,  LLC (99%
owned), all of which are continuing operations.  Discontinued Operations include
Sun Goddess Farms,  Inc., AMCOR  Properties,  Inc., and Las Palomas Country Club
Estates LLC, (99% owned).

DESCRIPTION OF BUSINESS

     The Company's  operations at December 31, 1999 included:  (i) "clean green"
waste  processing and recycling  ("biomass")  and (ii) contract waste  transport
services.  During 1997, the Company's focus shifted from  agribusiness  and land
planning/development  to  biomass.  Subsequently,  in  June  1998,  the  Company
broadened  its new focus to include solid waste  transportation  and developed a
strategic  alliance with Waste  Management,  Inc.,  formerly USA Waste  Services
("Waste Management").

     During  the  second  half of  1998,  in light  of the  Company's  strategic
alliance with Waste  Management and related  existing and potential  biomass and
solid waste  transportation  opportunities,  the  Company's  Board of  Directors
determined  that  the  Company's  shift  in  focus  from  agribusiness  and land
planning/development  to  solid  waste  transportation  and  biomass  should  be
complete  and  permanent.  Consequently,  the Board of  Directors  approved  the
Company's name change  effective August 31, 1998 and  subsequently,  on December
22, 1998,  adopted a Plan of Discontinued  Operations  (the "Plan")  pursuant to
which   the   Company   will    discontinue    its    agribusiness    and   land
planning/development operations and will focus on its solid waste transportation
and biomass operations. In addition, on January 12, 1999, the Board of Directors
approved a change in the Company's fiscal year end to December 31.

     Implementation of the Plan has had a material impact on the presentation of
the Company's financial  statements.  All business activity,  cash flows and net
assets of these  operations  for the year ended August 31, 1998,  the four month
period ended  December 31, 1998,  and the year ended December 31, 1999 have been
classified as discontinued  operations,  and the assets of these operations have
been reduced to the lower of cost or net realizable value.


SOLID WASTE TRANSPORTATION

     The Company entered into two  transportation  service  contracts with Waste
Management  in June 1998.  Under the  contracts,  the Company has the  exclusive
right to provide  transportation  services  from two of Waste  Management's  Los
Angeles-area transfer stations to certain landfills. The Company began providing
transportation  services in October 1998.  The  contracts  have initial terms of
five years,  with two automatic  five-year  extensions unless either party gives
180 days' prior  written  notice of its desire to terminate the contracts at the
end of the  then  current  term.  A third  contract  was  agreed  to with  Waste
Management in December 1999, with terms similar to the other two contracts.

BIOMASS/RECYCLING

     "Clean  green"  waste is organic  material  in the form of plants,  leaves,
clippings, cuttings, trimmings of grass, weeds, shrubbery, bushes, trees, garden
wastes and wood products from both commercial and residential sources, including
sawdust,  tree trunks,  scrap lumber and untreated wooden pallets.  The material
received as clean green waste cannot contain more than 0.5%  non-organic  matter
by total weight.

     The Company's  clean green waste  operations have been and most likely will
continue to be influenced  significantly by the implementation of the California
Integrated  Waste  Management  Act of 1989  (Assembly  Bill 939 ("AB 939").  The
provisions of AB 939 mandate,  among other  things,  the diversion of recyclable
materials from over-crowded  landfills. A key element of AB 939 relates to green
waste that could be processed and incorporated back into the soil or recycled in
other ways. AB 939 currently mandates that California's municipalities must have
a plan in place to divert 50% of all waste from landfills by the end of the year

<PAGE>


2000.

     The Company is engaged in private green waste recycling and holds leasehold
interests in a transfer station facility located in Santa Fe Springs, California
and a 3-acre site in Fontana, California that is fully permitted for green waste
processing.  The Company  receives  green waste at its  transfer  stations  from
various sources  including Waste  Management.  The Company processes and markets
the green waste to various users,  thereby assisting Waste Management and others
in fulfilling their recycling obligations under AB 939.

     In November 1998, the Company  commenced hauling green waste for the County
of Los Angeles Sanitation  District in connection with the County's diversion of
processed material from its Puente Hills landfill. The initial contract is for a
term of three years plus an option for three additional years and specifies that
the Company will divert the first 100 tons per day (500 tons per week) of excess
ground or processed  green waste from the landfill.  Pursuant to this  contract,
the Company has been  informally  presented with the  opportunity to divert more
than the minimum of 100 tons per day, which  opportunity  the Company intends to
pursue as sufficient outlet markets are identified.

     The Company  receives  and  processes  green waste from  numerous  Southern
California  municipalities  and  commercial  parties.  It also is a party  to an
operating agreement with Apollo Wood Recovery,  Inc., to process wood for boiler
fuel  (electricity  generation) and fiberboard at the Company's site in Fontana,
California. The Company is exploring the acquisition of a company engaged in the
composting of organic fertilizer.

     In March 2000,  the Company  acquired  American Waste  Transport,  (AWT), a
private San Diego  County-based  waste transport and green waste recycling firm.
AWT has  operations  that  mirror the  Company's  operations  in Los Angeles and
Orange counties,  with some overlap.  AWT's revenues for the year ended December
31, 1999, approximate $14 million.

     Presently,  there appears to be an abundant supply of green waste available
due  primarily  to the large  volume  produced  in Southern  California  and the
implementation  of AB  939.  The  Company  believes  there  is a  good  economic
incentive  to take all of the  green  waste  that is  offered,  particularly  as
landfill  "tipping  fees" ranging from $16 to over $27 per ton tend to establish
the market. The challenge is to identify and secure end-markets for the incoming
green waste, which historically have included fertilizer production  facilities,
boiler fuel (for electricity generation) and fiberboard production facilities.

     The Company owns  710-acres of  undeveloped  land located in the  Coachella
Valley,  which we plan to use as a  land-application/biomass  depository for our
continuing green waste operations.

DISCONTINUED OPERATIONS - AGRIBUSINESS

     Historically,  we engaged primarily in agribusiness,  principally  growing,
processing and marketing fresh table grapes in Southern  California's  Coachella
Valley.  We also received  management  and/or  development  fees and income from
packing and cold storage  services  that we provided for some of our  affiliated
partnerships and third parties. We leased an 80,000-square foot packing and cold
storage plant,  which we previously  used as our  headquarters  in the Coachella
Valley.

     Although  we were one of the  largest  producers  and  shippers  of  "early
market"  table  grapes  that are  harvested  from  early  May  through  June and
typically command premium prices, increased competition from Mexico, which has a
microclimate   similar  to  the  Coachella  Valley,  had  created   supply/price
uncertainty in the early table grape market. Consequently, the Plan provided for
the complete  divestiture of the Company's  agribusiness  operations,  which was
completed by December 31, 1999 except for the Company's  investment in an Oregon
farmland joint venture.

     The  Company's  investment  in the Columbia  River Basin of eastern  Oregon
includes a 50%  ownership  interest in a joint  venture  that owns a  6,000-acre
irrigated  potato and grain farming  operation,  together with certain  Columbia
River water rights. We are currently negotiating to sell our 50% interest in the
potato and grain farm to our joint venture  partner,  who operates that property
under a lease that would have  terminated  December 31, 1999, but which has been
extended for an additional five years.

DISCONTINUED OPERATIONS - LAND PLANNING/DEVELOPMENT


<PAGE>


     The Company  traditionally  was engaged  primarily  in  agribusiness,  with
additional revenues derived from partnership  management,  including real estate
development  partnerships.  Some of these  partnerships owned land that was once
used  for  farming  and  ultimately  became  suitable  for  development.   Other
partnerships were formed solely to acquire, plan and develop land.

     During  fiscal  1996,  the Company  began a major  subdivision/golf  course
project located  southeast of San Antonio,  Texas.  The Company,  under contract
with a partnership  managed by the Company in 1997,  completed  development of a
golf course at the project. On behalf of the Partnership,  the Company developed
and manages the 1,300-lot  subdivision  and golf course.  In February  2000, the
golf course was sold through foreclosure.

     Due to disappointing sales activity,  the Plan contemplated the sale of the
entire project in a "bulk sale" transaction and, in that regard, the Company, in
early 1999, wrote down its cost of the project to estimated net realizable value
plus any costs incurred to carry the project through liquidation.  This resulted
in a charge of  $5,306,244  to its fiscal 1998  financial  statements to reflect
this  write-down.  In March 1999, the Company  entered into an agreement to sell
the project for $11.5 million. However, the buyer did not close the transaction.
In the fourth  quarter  of 1999,  the  Company  transferred  (including  related
liabilities) its interest in the project to AMCOR Financial Corporation ("AFC"),
a then wholly owned subsidiary of the Company.

     In  January  2000,  the  Company  distributed  to its  common  and Series A
Preferred  shareholder,  all of its shares in AFC. The Company has disputes with
AFC regarding  the nature and amount of assets and  liabilities  transferred  to
AFC. Further, all of the regulatory  requirements related to the distribution of
the AFC shares to the Company's shareholders may not have been satisfied.

     During the four months ended December 31, 1998, the year ended December 31,
1999, and the first quarter of 2000,  the Company  disposed of certain assets of
the discontinued operations at amounts less than initially anticipated. Further,
the current appraised value of certain of the remaining assets has declined from
the values used in estimating the disposal loss at August 31, 1998.

     In 1999, the Company managed  approximately 15 limited  partnerships,  down
from over 120 in 1991.  The  partnerships  own two Southern  California  parcels
owned by one partnership, as well as a 173-acre property located outside Houston
owned jointly by two other  partnerships.  These partnerships are in the process
of terminating.

COMPETITION

     The  foundation  of the  Company's  continuing  solid waste  transportation
activities is exclusive transport  contracts with Waste Management,  the largest
waste hauler in the country.  The contracts include two transfer  stations.  The
first is located in Carson, California,  with a permitted capacity of over 5,000
tons per day, and is reported to be one of the largest in the country. The other
transfer  station is in South Gate,  California.  In December 1999 an additional
contract was  negotiated  for the  transport of biomass from Waste  Management's
Sunset  Environmental  transfer  station in Orange County.  Due to the exclusive
nature of these  contracts and the five-year  term and two five-year  options to
extend,  the  Company  does not  expect to be  confronted  with any  significant
competition for these three transfer stations for as long as 15 years,  provided
that the Company satisfactorily discharges its contractual responsibilities. The
Company intends to bid on future solid waste transportation  contracts for Waste
Management  and other  waste  companies  as they become  available,  which could
provide the Company with significant growth opportunities in the future.

     In  the  large  Southern  California  market,  there  are  three  principal
providers of contract waste transport services -- STS  Transportation,  American
Waste  Transport,  and USA Biomass  Corporation.  In March 2000,  American Waste
Transport ("AWT"),  with revenues of $14 million for the year ended December 31,
1999,  was  acquired  by  USA  Biomass.  AWT  has  major  contracts  with  Waste
Management, Republic Services and Allied Waste, as well as extensive green waste
operations.  Combined,  the two companies have a contractual  backlog  exceeding
$350 million. Revenues for 2000 are expected to be $25 million, and will provide
the Company with the dominant share of this market.

     The Company's clean green waste operations provide alternatives to landfill
disposal and are part of the non-hazardous waste recycling industry. The Company
believes that successful entry into the green waste industry, on a volume basis,
requires that the Company  identifies and contracts with multiple  end-users for


<PAGE>


the recycled product.  The industry is dominated by several large national waste
management  companies and numerous  regional and local  companies,  all of which
contribute  to  the   significant,   somewhat   fragmented,   competition   that
characterizes  the industry,  many having much greater financial and operational
resources, and more established market positions,  than the Company. The Company
believes  that its recent  strategic  alliance  with Waste  Management,  and its
expanded  market share gained with the AWT  acquisition,  will help insulate the
Company from external  competition  and provide a reliable  supply of biomass to
support the Company's green waste operations.

     There has been an increasing trend at the state and local levels to mandate
solid  waste  reduction  at the source and to prohibit  the  disposal of certain
types of wastes at landfills,  as evidenced by  legislation  such as AB 939. The
Company  believes  that as this trend  continues,  the  Company  will  encounter
additional  competition  from new and existing waste industry  participants.  In
addition,  the Company may compete with  municipalities  that maintain their own
waste  collection and landfill  operations and that have  significant  financial
advantages over the Company due to, among other things,  the availability of tax
revenues and tax-exempt financing.

BUSINESS STRATEGY

     The Company  continues to manage and expand its solid waste  transportation
and biomass  businesses.  The Company's present business strategy includes:  (i)
expansion of its contractual relationships with Waste Management and other waste
haulers, and (ii) growth of its green waste processing and recycling business as
additional markets are generated, both internally and through acquisitions.

EMPLOYEES

     As of December 31, 1999, the Company,  together with its subsidiaries,  had
108  full-time  employees,  including  10 in  administration  and 98 in  biomass
operations. None of the Company's employees are represented by a labor union and
the Company has experienced no work stoppages. However, the Company is presently
in  negotiations  with a local of the Teamsters Union pursuant to an election to
organize  held in April 1999.  The Teamsters  have a one-year  contract with the
truck  drivers of AWT,  which was acquired in March 2000.  The Company  believes
that in spite of the historically low unemployment rate in Southern  California,
there is an adequate  supply of the type of labor needed to staff the  Company's
expanding solid waste transportation and biomass operations.


ITEM 2. DESCRIPTION OF PROPERTY

     On December  31,  1998,  the Company  acquired a 4-acre  industrial  parcel
located  in Bell  Gardens,  California,  which  includes  a  40,000  square-foot
equipment  maintenance facility and a separate 2,400 square-foot office building
used as the base for the Company's transportation  operations.  During 1999, the
Company officially relocated its headquarters to the Bell Gardens facility.  Its
address is 7314 Scout Avenue, Bell Gardens, CA 90201.

     The Company's  biomass  operations  are based in two  locations,  the first
being a  1.75-acre  site in Santa Fe  Springs,  California,  which we lease  for
$54,000  annually.  This site  also  serves as a green  waste  transfer  station
pursuant to a  Conditional  Use Permit  from the City of Santa Fe  Springs.  The
second  location  is a fully  permitted  green  waste  transfer  and  processing
facility  on a 3-acre site in  Fontana,  California,  which we lease for $42,000
annually.

ITEM 3. LEGAL PROCEEDINGS

     In December 1997, a judgment was entered against the Company and two of its
officers,  who are also  shareholders.  The  Company has filed an appeal of this
judgment.

     On April 5, 2000, a bank filed a lawsuit  against the Company  related to a
deficiency  pertaining  to real property the bank  foreclosed  on in Texas.  The
Company  intends to vigorously  defend against this lawsuit and believes that it
has recorded its  liability  related  thereto on its financial  statements.  The
Company does not expect that this matter will have a material  adverse effect on
the Company's financial condition or results of operations.

     The Company is not involved in any other  pending legal  proceedings  other
than legal proceedings occurring in the ordinary course of business.  Such other


<PAGE>


legal proceedings in the aggregate are believed by management to be immaterial.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

     No matters  were  submitted to a vote of security  holders  during the last
quarter of the fiscal year ended December 31, 1999.


PART II

ITEM 5.  MARKET  FOR THE  REGISTRANT'S  COMMON  EQUITY AND  RELATED  STOCKHOLDER
         MATTERS

     The Company's Common Stock has traded in the over-the-counter  market since
1989 and is currently trading on the NASDAQ SmallCap Market. Set forth below are
the high and low bid prices of the Common  Stock during each quarter of calendar
1998 and 1999,  as  reported  by a member firm of the  National  Association  of
Securities  Dealers,  Inc. that affects  transactions  in NASDAQ SmallCap Market
stocks and acts as one of the market makers for the Company's  Common Stock. The
quotations  listed below reflect  inter-dealer  prices,  without retail mark-up,
mark-down or commissions, and may not represent actual transactions.

                                                Stock Prices
                                       -------------------------------
                                        High                      Low
                                       ------                    -----
FISCAL 1998
         First Quarter               $  5.375                  $ 4.1875
         Second Quarter                 5.313                    4.125
         Third Quarter                  5.187                    4.125
         Fourth Quarter                 4.938                    2.378

FISCAL 1999
         First Quarter               $  2.875                  $ 1.438
         Second Quarter                 2.375                    1.375
         Third Quarter                  2.00                     1.189
         Fourth Quarter                 4.50                     1.125

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


     At March 31, 2000, there were approximately 3,280 stockholders of record of
the  Company's  Common  Stock.  The Company has paid no  dividends on its Common
Stock and does not expect to pay dividends in the foreseeable future.

     On November 25, 1997, the Company completed the acquisition of the stock of
TPE, which was acquired for a total cost of  $1,607,049,  consisting of $350,000
in cash,  allocable  acquisition  costs of $61,207,  and  406,109  shares of the
Company's Common Stock with a value of $1,195,842.

In January  1998,  the Company  issued an aggregate  of 31,250  shares of Common
Stock in exchange  for $62,500  upon the  exercise of options  issued  under the
Company's 1994 Non-Qualified Stock Option Plan.

     In January  1998,  the  Company  issued  14,927  shares of Common  Stock in
exchange for the  cancellation  of a 5% note payable to a  non-affiliate  in the
principal amount of $70,899.

     In January  1999,  the Company  issued an  aggregate  of $22,151  shares of
Common Stock to two  non-affiliated  holders of 12% notes in lieu of an interest
payment of $55,377.

     In November  1999,  the Company  issued  149,407  shares of Common Stock in
exchange  for the  cancellation  of a  $410,869,  8% note  payable  to a  former
employee.

     In November  1999,  the Company  issued  290,799  shares of Common Stock in
exchange  for the  cancellation  of 12% notes  aggregating  $954,816  to various
private parties.

     In November  1999,  the Company  issued  89,170  shares of Common  Stock in
exchange  for the  cancellation  of two 5%  notes  aggregating  $267,461  to two


<PAGE>


private parties.

     In November 1999,  the Company  issued  422,883 shares  pursuant to Options
outstanding to two officers in exchange for the offset of $676,613 of notes owed
to the Officers by the Company.

     In  December  1999,  the  Company  issued  12,000  shares to a creditor  in
exchange for the cancellation of $41,297 owed by the Company.

     In December 1999,  the Company  issued  100,000 shares  pursuant to Options
held by an employee in the amount of $200,000.

     In December 1999, the Company issued 50,000 shares pursuant to Options held
by a  former  employee  in  consideration  for  $65,000,  in the  form of a note
receivable.

     In December  1999,  the Company  issued  12,500  shares to two  consultants
pursuant to Options for a total  consideration  of $37,500 in the form of a note
receivable.

     In December  1999, the Company  exchanged  5,940 shares of its common stock
for 330 shares of its Series A Preferred stock valued at $33,000.

The issuances of the Company's Common Stock in the above referenced transactions
were  affected in reliance upon the exemption  from  registration  under Section
4(2) of the  Securities  Act of 1933,  as amended  (the  "Securities  Act"),  as
transactions  not involving a public  offering.  Exemption from the registration
provisions of the Securities Act is claimed on the basis that such  transactions
did not involve any public offering and the purchasers were  sophisticated  with
access to the kind of information registration would provide.

ITEM 6. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

OVERVIEW

     In 1997, the Company entered the biomass business, and in 1998 entered into
a strategic alliance with Waste Management resulting in a long-term  contractual
relationship  for the  transport  of solid  waste.  Prior to 1999,  as described
above, the Company was engaged in agribusiness and real estate/land planning and
development.  In December  1998, the Company's  Board of Directors  approved the
Plan authorizing the liquidation of all agribusiness and real estate operations.
Implementation  of the Plan,  particularly  for years  1998 and 1999,  has had a
material impact on the presentation of the Company's financial statements.

FISCAL YEAR CHANGE

     Prior  to  the  year-ended  December  31,  1999,  the  Company's  financial
statements  were  prepared on the basis of an August 31 fiscal year.  In January
1999 the Company elected to convert to a December 31 calendar year for reporting
purposes and, in accordance  therewith,  filed a 10-QSB "Transition  Report" for
the four months ended December 31, 1998.  Accordingly,  the amounts reflected in
the Company's  current  Consolidated  Statements of Operations are for the years
ended  December  31,  1999 and August  31,  1998 and for the four  months  ended
December 31, 1998. Therefore,  for purposes of comparing the respective 12-month
periods for December 31, 1998 and 1999,  the 1998 numbers have been presented on
a  pro-forma  basis.  As  the  Company's  biomass   operations  were  relatively
insignificant prior to December 31, 1998, the following  pro-forma analysis,  in
the opinion of  management,  presents a realistic  comparison  of the two twelve
month periods.

CONTINUING OPERATIONS

     In October 1998, the Company officially  commenced waste transport services
for Waste  Management.  Pro forma revenues for 1998,  which included green waste
recycling and tree maintenance  revenues for the entire year, were $3.6 million.
Revenues for 1999,  which included just one calendar quarter of tree maintenance
revenues as this business was sold in March,  1999, were $7.6 million--up  111%,
but still below the  Company's  estimated  $10  million  break-even  level.  The
Company did have a positive  1999 gross margin of 12.3%,  although a loss in the
amount of $1,735,000  was incurred  (compared to a loss of $7,111,000  the prior
year) due primarily to a $637,000 loss from  TransPacific  Environmental's  tree
maintenance  operations  (which were sold in the first quarter),  and carry-over
administrative and interest costs (aggregating $2,319,000),


<PAGE>


partially to support the  phase-out  of  discontinued  operations.  In addition,
continuing  operations  incurred  significant  start-up  costs  to  develop  the
infrastructure  for a fast growth biomass business.  This included a substantial
investment in plant,  personnel and equipment to support the future  anticipated
revenue stream.

     With  additional  contracts  in  place,  the  Company  forecasts  year 2000
revenues to increase  substantially.  This will be  augmented by the March 2000,
acquisition of San Diego  County-based  American Waste Transport,  with revenues
approximating   $14  million  for  the  year  ended  December  31,  1999.   This
acquisition,  which  also has  contract  waste  transport  services,  as well as
extensive green waste recycling  operations,  should result in combined revenues
of $25 million for 2000.  Management  believes  that a minimum 12% gross  margin
level  can be  maintained,  which  would  generate  adequate  proceeds  to carry
administrative  and  interest  costs.  The present  contractual  backlog,  which
includes  contracts/renewals  with  terms in excess of 10  years,  exceeds  $350
million.


                        Pro Forma Statement of Operations
                      For the Year Ended December 31, 1998

                              Amounts in Thousands
                          -----------------------------

                                    Add       Less   For Year Ended December 31
                      Year Ended 4 Mos.End 4 Mos.End --------------------------
                       08/31/98  12/31/98   12/31/97       1998        1999
                       Audited  (Unaudited)(Unaudited)  (ProForma)   Audited
                       -------    -------    -------    ---------    -------
Revenues               $ 2,005    $ 2,025    $   406     $ 3,624     $ 7,645
Cost of Revenues         2,665      1,694        634       3,725       6,705
                       -------    -------    -------     -------     -------
  Gross Profit (Loss)     (660)       331       (228)       (101)        940
                       -------    -------    -------     -------     -------
Gen'l & Admin. Exp.      3,228      1,153        678       3,703       1,490
Loss from Asset
   Impairment            1,971         --         --       1,971         141
Loss on Sale of
   Assets                  366          4         --         370         215
Interest Exp.
  (Income), net            662        390         86         966         825
                       -------    -------    -------     -------     -------
   Loss, Continuing
     Operations before
     income taxes       (6,887)    (1,216)      (992)     (7,111)     (1,731)
(Provision for)
   benefit from
   income taxes          1,048         (3)       --        1,045          (3)
                       -------    -------    -------     -------     -------
   Loss, Continuing
     Operations        $(5,839)   $(1,219)     $(992)    $(6,066)    $(1,735)
                       =======    =======    =======     =======     =======

     For both 1998 and 1999,  the  Company's  continuing  operations  consist of
solid  waste  transport  and  biomass  operations,  which  include  green  waste
recycling.   The  Company  sold  its  unprofitable  municipal  tree  maintenance
operations  in March 1999.  The  Company's  discontinued  operations  consist of
agribusiness and land planning/development. A discussion of the material factors
that  affected  the  Company's  results  of  continuing  operations  and,  where
applicable, the results of its discontinued operations, are presented separately
below.

RESULTS OF CONTINUING OPERATIONS

REVENUES

     The Company's  revenues from  continuing  operations  for 1999 include both
biomass recycling and waste transport revenues whereas revenues for 1998 reflect
mostly biomass recycling activities, as the initial waste transport contract did
not commence  until October 1998. The Company  generated  revenues of $7,645,000
for 1999 compared to $3,624,000 for 1998, an increase of $4,021,000 or 111%. The
increase is principally due to a full year of waste transport  revenues in 1999,


<PAGE>


which totaled  $5,561,000,  compared to only three months in 1998, which totaled
$894,000. Other revenues for 1999 totaled $2,084,000 of which $363,000 pertained
to  municipal  tree  maintenance  operations,  which were sold  during the first
quarter of 1999.

COST OF REVENUES

     Costs of Revenues for 1999 were $6,705,000 compared to $3,725,000 for 1998,
an increase of  $2,980,000  or 80%. The increase is  principally  related to the
111%  increase in revenues in 1999.  This is partially  offset by a 1998 cost of
$797,000 related to green waste soil enhancement activities that were terminated
that year and by operating costs  associated with a full year's tree maintenance
operations in 1998. Overall,  this resulted in a gross profit from operations in
1999 of  $940,000,  for an  operating  margin  of  12.3%.  This  compares  to an
operating loss of $101,000 for the prior year. The improved margin is the result
of  significantly  higher  waste  transport  volume,  reduced  losses  from tree
maintenance  operations (which were sold in early,  1999) and the elimination of
soil enhancement activities.

     Gross margin on waste  transport  activities  was $853,000  (15.4% of waste
transport  revenues) in 1999,  and $236,000 (14% of gross  greenwaste  revenues,
exclusive  of  municipal  tree  trimming  activities)  in  1999.  Tree  trimming
contracts  resulted in a negative gross margin of $146,000 (40% of tree trimming
revenue) in 1999.

GENERAL AND ADMINISTRATIVE EXPENSES

     General and  administrative  expenses were  $1,490,000 for 1999 compared to
$3,706,000 for the prior year, a decrease of $2,215,000 or 60%. The  significant
decrease is primarily  due to the expected cost and related  overhead  reduction
pertaining to the phasing out of the  Company's  discontinued  agricultural  and
real  estate  operations.  In  addition,  the prior year  included  $672,000  of
administrative  costs related to TPE, which was sold early in 1999,  $360,000 of
corporate  restructuring  consulting  fees,  and  $188,000  related  to the cost
associated with options granted to members of the Company's Board of Directors.

INTEREST EXPENSE, NET OF INTEREST INCOME

     For 1999, interest expense, net of interest income, was $825,000,  compared
to $966,000 for 1998, a decrease of $143,000 or 15%, due largely to the pay down
of debt from asset sales.

LOSS FROM ASSET IMPAIRMENT

     In 1998 the  Company  incurred  a  $1,971,000  loss from  asset  impairment
related to a green waste contract that did not materialize and soil  enhancement
operations that were  suspended.  Such losses for 1999 were only $141,000 as the
substantial portion of the loss was incurred the prior year.

GAIN OR LOSS ON SALE OF ASSETS

     For 1999, the Company realized a net loss of $215,000 on the sale of assets
compared to a net loss of $370,000 in 1998. The higher prior year's loss related
primarily to the liquidation of assets,  related to the Company's  initial green
waste pilot program.


LOSS FROM CONTINUING OPERATIONS

     For 1999,  the Company  incurred a net loss of $1,735,000  from  continuing
operations  compared to a loss of  $7,111,000  for the prior year.  The material
disparity between the two years is principally that 1998 was a start-up year for
biomass  operations  and  included  a  full  year  loss  from  tree  maintenance
activities,  which were  disposed  of in early 1999.  Concerning  the 1999 loss,
$637,000 was attributable to TPE's tree maintenance operations,  which were sold
early in 1999.  Additional  administrative costs were incurred in relocating the
Company's  headquarters.  Interest  costs will also  decrease as the Company has
reduced its debt by 42%. As volume increases for 2000 and future years, based on
the Company's expanding  contractual backlog, the Company is expected to operate
profitably.

RESULTS OF DISCONTINUED OPERATIONS

     The Plan adopted by the Board of Directors  specified a one-year time frame


<PAGE>


for management to dispose of all non-biomass operations, which were reclassified
for financial statement purposes, as discontinued operations. As of December 31,
1999,  over $12 million of assets were sold,  with a $2.5  million  agricultural
property  scheduled for sale by mid-year 2000. Any remaining  assets not sold by
December 31, 1999 (principally a San Antonio subdivision that was under contract
to sell in 1999 for $11.5  million,  but the sale  aborted)  were  revalued  and
written down to fair market  value,  resulting in an  additional  1999 loss from
discontinued  operations.  These  assets  (and  related  liabilities)  were then
transferred  to  AMCOR  Financial   Corporation  ("AFC")  a  then  wholly  owned
subsidiary. AFC has separate management from the Company, and the Company has no
management or control over AFC. In January 2000, the Company  distributed to its
common and preferred  shareholders all of its AFC common shares. The Company has
disputes  with AFC  regarding  the nature  and amount of assets and  liabilities
transferred to AFC. Further,  all of the regulatory  requirements related to the
distribution of the AFC shares to the Company's  shareholders  may not have been
satisfied.

     For years  1998 and  1999,  implementation  of the Plan has had a  material
impact  on the  presentation  of the  Company's  financial  statements.  This is
because operations, cash flows and net assets of these operations for both years
have been  classified  as  discontinued  operations,  and the  assets  for these
operations were reduced to the lower of cost or net realizable value,  resulting
in significant charges to earnings.  Accordingly, the Company's agribusiness and
real estate  operations have been accounted for as  discontinued  operations and
the  results  thereof  have been  excluded  from  continuing  operations  in the
Company's consolidated financial statements.  For fiscal 1998, which had limited
biomass  start-up  revenues,  this  resulted in a loss of  $15,786,000  of which
$9,947,000  pertained  to  discontinued  operations,   principally  due  to  the
write-down of real estate and related assets. For 1999, which was the first full
year of biomass  operations,  the net loss was  $9,186,746  of which  $7,452,029
pertained to discontinued  operations,  principally related to the write-down of
the San Antonio project.

LIQUIDITY AND CAPITAL RESOURCES

     The  Company's  overall  financial  condition as of December  31, 1999,  as
compared to the prior year has not changed significantly, principally due to the
Company's  inability to liquidate all of its discontinued  operations.  However,
some assets were sold,  which served to reduce total debt from $19.7  million at
December  31, 1998 to $11.4  million at the end of 1999.  This $8.3 million debt
reduction (42%) is expected to yield significant annual interest savings for the
year  2000 and  beyond.  In  addition,  1999  revenues  from  expanding  biomass
operations  increased  111% over the prior year but, at $7.6 million,  are below
the projected $10 million threshold required to break even. Although the Company
reported  a loss of  $1,735,000  for the year from  continuing  operations,  due
largely to the development of the new biomass business, it had a gross operating
margin of 12.3%,  which  included  losses from TPE, which diluted the target 15%
margin  from  biomass   operations.   Revenue  growth  for  the  year  2000  was
significantly  enhanced in March,  when the Company completed the acquisition of
American Waste  Transport  which,  when  consolidated  with the Company,  should
generate $25 million of revenues for  2000--an  increase of 227% over 1999,  and
with a gross margin expected to exceed 12%,  should generate  adequate funds for
operations. Moreover, the Company now has a contractual backlog in place of more
than $350 million with terms  generally  exceeding 10 years or longer,  ensuring
consistent  revenue  for  future  periods.  Also,  in  March  2000  the  Company
successfully  completed  a  $3  million  private  placement  of  6%  convertible
preferred  stock.  A portion  of the  capital  was used for the  acquisition  of
American  Waste  Transport  and for the  payment  of  dividends  on the Series A
Convertible Preferred stock. The remaining net proceeds will be largely used for
working  capital  and for  capital  equipment  needs to  service  the  Company's
expanding contractual base.

     The  Company's  current ratio was .66 at December 31, 1999 compared to 1.11
the prior  year,  primarily  due to the  write  off of  assets  of  discontinued
operations,   which  were  classified  as  current,  pending  their  anticipated
disposition.  This ratio  significantly  improved in the first quarter 2000 as a
result of the private placement of preferred stock, which provided $3 million of
proceeds.  Moreover, liquidity is expected to continue to improve during 2000 as
a result of (i) the  intense  management  of cash  flow;  (ii) the  Company  has
adequate lines of credit in place and has plans to moderately expand both senior
and  subordinated  debt to fund working  capital  related to the Company's large
contract  backlog;  (iii) during 2000 the Company  expects to liquidate its $2.5
million  agricultural  property  investment,   (iv)  the  Company  has  tax-loss
carry-forwards  exceeding  $22  million  which can be applied to shelter  future
earnings  thereby  enhancing  cash flow,  and


<PAGE>


(v) the Company  intends to,  where  appropriate,  make  acquisitions  using its
common  stock  for the  generation  of  earnings  and cash  flow.  It is for the
foregoing  reasons that the Company  believes that its  liquidity  needs for the
year  2000  will be  sufficiently  satisfied.  Moreover,  with its  discontinued
operations now partially  liquidated,  the Company has strategically  positioned
itself to profitably  capitalize on the numerous  opportunities now available in
the biomass industry.

YEAR 2000 COMPLIANCE

     To date  management  of the Company  believes  that its  software  packages
currently in use are Year 2000  compliant.  Management  does not expect that the
financial  impact of required  modifications  to such software,  if any, will be
material  to  the  Company's  financial  position,  cash  flows  or  results  of
operations in any given year.

FORWARD-LOOKING STATEMENTS

     Certain of the statements  contained in this report,  including those under
"Description of Business" and "Management's Discussion and Analysis of Financial
Condition and Results of  Operations,"  and  especially  those  contained  under
"Liquidity and Capital Resources" are "forward-looking  statements" that involve
risks and  uncertainties.  The actual future results of the Company could differ
materially from those statements. Factors that could cause or contribute to such
differences  include,  but are not limited to,  those  discussed  in this Annual
Report on Form 10-KSB,  risks  associated with managing the Company's growth and
those factors discussed in "Risk Factors" described below in this Item 6 of this
Annual Report on Form 10-KSB.  While the Company  believes that these statements
are  accurate,  the  Company's  business  is  dependent  upon  general  economic
conditions  and various  conditions  specific to the clean green waste and solid
waste transportation  industries.  Future trends and results cannot be predicted
with certainty. In particular:

     -    In 1998 the Company has  elected to embark on a major  departure  from
          its historic business into the biomass and solid waste  transportation
          businesses in which the Company has relatively little experience. Such
          a  transformation  has many  risks and  uncertainties  that  could far
          outweigh the benefits of its strategic alliance with Waste Management.
          And,  notwithstanding  the  attractiveness of its long-term  transport
          contracts with Waste Management, the Company's success will ultimately
          depend  heavily on the ability of  management  to guide the Company in
          executing and  performing  the  contracts  with Waste  Management  and
          others.  Despite the  Company's  apparent  initial  success  under its
          contracts, the future remains uncertain.

     -    The Company has also  committed part of its future to expansion of its
          green waste operations.  The future of this industry will be partially
          dictated by AB 939, which mandates the diversion from landfills of 50%
          of the waste  stream.  At the present time,  municipalities  and waste
          haulers  seem  eager  to  comply  and  willing  to pay  fees to  those
          processors  willing  to take the  material.  However,  if the  Company
          expands its green waste operations without locating reliable, adequate
          end-market users, major green waste disposal problems could result.

     -    The  Company's  future  liquidity  and  viability  is  still  somewhat
          dependent upon a relatively  rapid and orderly  execution of the Plan.
          This may include  funding the periodic  cash  requirements  of certain
          liabilities related to discontinued operations.  Therefore, should the
          Company  fail  to  discharge  its  liquidation  plan  in an  expedient
          fashion, this could severely impair the Company's liquidity.

     The Company has not experienced a material adverse impact of such risks and
uncertainties and does not anticipate such an impact.  However, no assurance can
be given that such risks and uncertainties  will not affect the Company's future
results of operations or its financial position.

RISK FACTORS

OPERATING LOSS; ACCUMULATED DEFICIT

     In  connection  with  the   implementation   of  the  Plan,  the  Company's
agribusiness and land planning/development operations have been accounted for as
discontinued  operations and the results  thereof,  for 1998 and 1999, have been
excluded from continuing operations.  This resulted in classifying most revenues
for 1998 as  discontinued  operations,  as most of the Company's  revenues prior



<PAGE>


then were derived from now discontinued operations. In 1999 the Company incurred
an after-tax loss of $9,186,746  from all operations as compared to an after-tax
loss of $15,785,686 for fiscal 1998. As of December 31, 1999, the Company had an
accumulated  deficit of  $24,781,849.  Although the Company  expects to generate
working capital from its continuing  biomass and  transportation  operations and
divestiture of the Company's remaining agricultural investment,  the Company has
shifted  its focus to biomass  activities  with which it has  relatively  little
experience,  and there can be no  assurance  the  Company  will have  profitable
operations in the future.

WE USE DEBT FINANCING.

Our  organizational  documents  do not contain any  limitation  on the amount or
percentage of indebtedness,  funded or otherwise,  we might incur.  Accordingly,
we, and our  affiliates,  could  become more highly  leveraged,  resulting in an
increase  in debt  service  that  could  adversely  affect  our  ability  to pay
dividends to our  stockholders and result in an increased risk of default on our
obligations.  We are also subject to other risks normally  associated  with debt
financing.  We have used indebtedness and leveraging to finance  development and
acquisition,  and, therefore, most of our equipment is lease financed. If we are
unable to make lease  payments on time,  or if certain  other  events of default
occur,  this  equipment  could be  repossessed  or otherwise  transferred to the
lessor with a consequent loss of income and asset value.

POTENTIAL FLUCTUATIONS IN FUTURE OPERATING RESULTS; COMPETITION

     The  Company's  quarterly  results have varied  significantly  in the past,
although  and it is likely  that this  variability  will not be as severe in the
future due to the existence if of long-term solid waste transport contracts, and
the state of California law ("AB 939") mandating recycling.  Many factors remain
beyond the  Company's  control,  including:  the impact of  potential  increased
competition with respect to the Company's  biomass  activities by municipalities
that  maintain  their own waste  collection  and  landfill  operations  and have
significant  financial  advantages  over the Company due to, among other things,
the availability of tax revenues and tax-exempt  financing;  the  implementation
and enforcement of and compliance with legislation such as AB 939; the price and
availability  of fuel and other  resources  needed for the Company's solid waste
transportation  and biomass  activities;  the financial  health of the Company's
customers;  and  economic  conditions  generally.  The ability of the Company to
successfully  obtain new biomass and transportation  contracts and the volume of
the stream of biomass  available to the Company for transport or recycling under
existing contracts during a quarter are difficult to forecast. Such fluctuations
may also  contribute  to  volatility in the market price for the Common Stock of
the Company.

CUSTOMER CONCENTRATION

     The Company derives a significant portion of its revenues from a relatively
limited number of customers. The foundation of the Company's initial solid waste
transportation  activities  was  an  exclusive  transport  contract  with  Waste
Management. Initially, this one customer accounted for over 77% of revenues from
continuing operations. With the acquisition of American Waste Transport in March
2000,  this  customer  concentration  is expected to fall to less than 60%,  and
decline  further  during  the year as  additional  new  accounts  are  obtained.
However,  there can be no  assurance  that the  Company  will be  successful  in
obtaining additional transportation and biomass contracts.  Further, the Company
anticipates  that its contracts with Waste  Management  will continue to account
for a majority of its  transportation  revenues for the foreseeable  future. The
loss of this  customer or failure of Waste  Management  to continue to provide a
reliable  stream of biomass for transport  would likely have a material  adverse
effect on the Company's business, operating results and financial condition.

NEED FOR SUBSTANTIAL ADDITIONAL CAPITAL

     The Company's  future capital  requirements  will depend upon many factors,
including  the  Company's  ability  to obtain  new  biomass  and  transportation
contracts and customers and rapid,  orderly execution of the Plan.  Capital will
be necessary to fund the periodic  cash  requirements.  During the past year the
sale of  discontinued  operations  have funded much of these cash  requirements.
There can be no assurance  that such future  transactions  will be sufficient or
that  financing  will be  available  on a timely  basis,  if at all, or on terms
acceptable to the Company.  If adequate funds are not  available,  the Company's
business  strategy  could be impeded  and the  Company may be required to delay,
scale back or  eliminate  its efforts to expand its



<PAGE>


biomass and  transportation  activities.  Accordingly,  the Company's  business,
financial  condition and results of operations could be materially and adversely
affected.  If additional  funds are raised by issuing equity or convertible debt
securities,  options or warrants,  dilution to the existing  stockholders of the
Company may result.

CHANGES IN WORK FORCE AND ACTIVITIES; DEPENDENCE UPON KEY PERSONEL

     Late in 1998 the Company  elected to embark on a major  departure  from its
historic business into the biomass and solid waste transportation  businesses in
which the Company had relatively little experience. The Company's future success
depends to a large extent upon the continued  service of certain key  managerial
employees and the Company's  ability to restructure  its existing work force and
attract and retain highly  qualified  personnel in connection  with the shift in
the Company's activities.

     The  Company  believes  that  it  has  hired   individuals  with  extensive
management   and   operational   experience  in  the  biomass  and  solid  waste
transportation  industries.  The Company's  ability to succeed in its continuing
operations  will require it to continue to restructure  its existing  workforce,
hire and  integrate new talent  experienced  in solid waste  transportation  and
biomass  activities,  and motivate and effectively  manage all of its employees.
There can be no assurance  that the Company will be able to attract,  assimilate
or retain such personnel.  If the Company is unable to successfully  restructure
its  existing  work force and  attract,  manage and retain  qualified  personnel
experienced  in the Company's  continuing  operations,  the Company's  business,
operating results and financial condition could be adversely affected.

ENVIRONMENTAL REGULATION AND LIABILITY

     It may be necessary to expend  considerable  time, effort and money to keep
the Company's  existing or acquired  facilities and vehicles in compliance  with
applicable  federal,  state and local requirements  regulating  health,  safety,
environment,  zoning  and land use,  and as to which  there may not be  adequate
insurance  coverages or reserves.  If environmental  laws become more stringent,
the Company's  environmental  capital  expenditures and costs for  environmental
compliance may increase in the future.  In addition,  due to the  possibility of
unanticipated  factual or  regulatory  development,  the  amounts  and timing of
future environmental  expenditures could vary substantially from those currently
anticipated.

The Comprehensive  Environmental  Response,  Compensation,  and Liability Act of
1980, as amended ("Superfund" or "CERCLA"),  has been interpreted by some courts
to impose  strict,  joint and several  liability on current and former owners or
operators  of  facilities  at which  there  has been a release  or a  threatened
release of a "hazardous  substance"  and on persons who  generate,  transport or
arrange for the  disposal  of such  substances  at the  facility.  Thousands  of
substances are defined as "hazardous"  under CERCLA and their presence,  even in
minute amounts,  can result in substantial  liability.  The statute provides for
the  remediation of  contaminated  facilities and imposes the costs therefore on
the responsible  parties. The costs of conducting such a cleanup and the damages
can be very  significant  and, given the  limitations in insurance  coverage for
these  risks,  could  have a  material  adverse  impact on the  Company  and its
financial condition.

While the Company may be able to obtain  comprehensive  pollution  insurance  at
reasonable  costs,  it may carry only such  coverage,  if any, as is required by
regulatory permits. In addition,  the extent of insurance coverage under certain
forms of policies  has been the subject in recent years of  litigation  in which
insurance  companies have, in some cases,  successfully  taken the position that
certain  risks are not  covered  by such  policies.  If, in the  absence of such
insurance,  the Company were to incur  liability  for  environmental  damages of
sufficient magnitude, it could have a material adverse effect on the Company and
its financial condition.

SOME OF OUR OFFICERS AND DIRECTORS HAVE CONFLICTS OF INTEREST.

Several of our  directors  are  independently  employed  and those  persons,  by
engaging in other business activities,  have conflicts of interest in allocating
their time and resources.  Two of our officers and  directors,  Fred Behrens and
Robert Wright,  have ownership  interests in some of our  affiliates,  which has
resulted in both  existing and  potential  conflicts  of interest.  Our business
dealings with some of our affiliates are not the result of arm's-



<PAGE>


length negotiations. For a more detailed account of those existing and potential
conflicts of interest,  see the information contained under the heading "Certain
Relationships and Related Transactions" in this Prospectus.

VOTING RIGHTS UPON DEFAULT REGARDING PAYMENT OF DIVIDENDS.

We are in arrears on paying  quarterly  dividends on our Series A 9% Convertible
Preferred  Stock.  The total  amount of dividend  arrearages  on the Series A 9%
Preferred Stock as of April 30, 2000 was $553,959. All of our Series B Preferred
Stock has been  converted  into  591,621  shares  of our $.002 par value  common
stock. Dividends accrued on that Series B Preferred Stock prior to conversion in
the amount of $538,459  which was paid through the  issuance of 53,846  Series B
Preferred Stock to those holders of Series B Preferred Stock. The holders of our
Series A 9% Convertible  Preferred  Stock have the right,  voting as a class, to
elect two (2)  members of our Board of  Directors  on that date which is two (2)
years after the date on which we have  defaulted  in the payment of dividends on
the Series A 9%  Convertible  Preferred  Stock,  if such  default  occurs.  Poor
operating  results  may leave us  without  the  resources  to make the  dividend
payments  for the  Series  A  Preferred  Stock,  resulting  in a  change  in the
composition of the Board of Directors and,  therefore,  a potential  significant
change in our management.


ITEM 7. FINANCIAL STATEMENTS

     The consolidated  financial  statements of the Company and its subsidiaries
are  submitted  as a separate  section of this  Annual  Report on Form 10-KSB on
pages F-1 through F-38.

ITEM 8.  CHANGES  IN  AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
         FINANCIAL DISCLOSURES

         None



                                    PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
        WITH SECTION 16(a) OF THE EXCHANGE ACT.

DIRECTORS AND EXECUTIVE OFFICERS

     The directors and executive officers of the Company are as follows:

     Name                  Age               Position
     ----                  ---               --------
     Fred H. Behrens       58         Chairman of the Board, Chief Executive
                                      Officer and Director
     Robert A. Wright      63         President, Chief Operating Officer and
                                      Director
     Eugene W. Tidgewell   50         Chief Financial Officer, Treasurer, Vice
                                      President and Director
     Michael J. Silva      37         Chief Development Officer and Director
     Hilly G. Jones        50         Secretary
     Marlene Tapie         44         Director
     H. Glen Leason        75         Director

     FRED H. BEHRENS has served as the Chairman,  Chief Executive Officer, and a
director of the Company since 1988 and previously  served as Treasurer and Chief
Financial  Officer of the Company from 1990 to January  1998.  Mr.  Behrens also
served as the Chairman and director of Sun Goddess  Farms,  Inc., a wholly owned
subsidiary of the Company ("SGF").  Mr. Behrens has been actively  involved with
the Company and its affiliates since August 1979. From 1966 to 1971, Mr. Behrens
was on the audit staff of Arthur  Andersen & Company;  between 1971 and 1973, he
was a principal in a real estate  development  company;  and from 1973 to August
1979, he was employed as a Vice President of an agricultural management company.
Mr.  Behrens holds a Bachelor of Science degree from the University of Minnesota
School of Business  Administration.  Mr. Behrens is a general  partner of Rancho
California  Partners II, a California limited  partnership (the  "Partnership"),
which filed a voluntary  Chapter 11  Reorganization  Petition  under the federal
Bankruptcy  Act  to  resolve  certain  issues  with  the  Riverside  County  Tax
Assessor's  Office  on or  about  March  20,  1996.  The  decision  to file  for



<PAGE>


reorganization   was  made  to  protect  certain  real  property  owned  by  the
Partnership  from  foreclosure  while the  property was being  reappraised.  The
issues raised in the Petition have been favorably  resolved and the  Partnership
has dismissed the Petition.

     ROBERT A. WRIGHT has served as the President, and a director of the Company
since 1988.  Mr. Wright also serves as the President and director of Sun Goddess
Farms,  Inc. In April 2000,  Mr. Wright agreed to vacate the office of President
to assist with the management/liquidation of certain discontinued operations. He
remains a Company  director.  During the past 25 years Mr. Wright has been,  and
continues  to  be,  a  principal  in  and  the  President  of a  farm  equipment
manufacturing  company  located in central  Illinois.  Mr. Wright also served as
general  partner or  co-general  partner  for several  agricultural  real estate
partnerships,  which were not  organized by the Company or its  affiliates.  Mr.
Wright holds a Bachelor of Science degree in Business  (Management  and Finance)
from the  University  of  Colorado.  Mr.  Wright  is a  general  partner  of the
Partnership,  which filed a voluntary Chapter 11  Reorganization  Petition under
the federal  Bankruptcy Act to resolve certain issues with the Riverside  County
Tax  Assessor's  Office on or about  March 20,  1996.  The  decision to file for
reorganization   was  made  to  protect  certain  real  property  owned  by  the
Partnership  from  foreclosure  while the  property was being  reappraised.  The
issues raised in the Petition have been favorably  resolved and the  Partnership
has dismissed the Petition.

     EUGENE W. TIDGEWELL has served as the Chief Financial Officer and Treasurer
and as a Vice  President of the Company  since  January 1998 and has served as a
Director of the Company since February 1999. Mr.  Tidgewell was an audit manager
at Kelly & Company, the Company's independent  auditors,  from 1989 to 1998. Mr.
Tidgewell  holds  a  Bachelor  of  Science  Degree  in  Business  Administration
(Accounting)  from the  University  of  Notre  Dame  and is a  Certified  Public
Accountant in the State of California.

     MICHAEL J. SILVA has served as Chief Development Officer since January 2000
and a Director since  February  2000. Mr. Silva is an engineering  graduate from
the  University  of the Pacific and has MS in civil  engineering  from  Stanford
University.  Since  graduation,  he has been  exclusively  employed in the waste
service industry, serving as Division President/Chief Operating Officer for CR&R
from 1986 to 1997.  From 1997 to 1999 he served as Chief  Executive  Officer  of
Athens Services. Both companies are ranked in the top 10 nationally.

     MARLENE  A.  TAPIE has  served as a director  of the  Company  since  1988.
Between  1979  and  1994,  she  served  in  various  capacities  including  Vice
President,  Executive Secretary to the Chairman and Office  Administrator.  From
1992 through 1995,  Ms. Tapie owned and operated a clothing  company,  Marlene &
Company.  In  October  1994  she  and  her  husband,  Alan  Tapie,  a  PGA  golf
professional, purchased a controlling interest in Buena Park Golf Center, a golf
course and  driving  range  located in Buena  Park,  California.  She  currently
manages her husband,  who is a touring  professional  in the European PGA Senior
Tour.

     H. GLEN LEASON has served as a director of the Company since February 1999.
From 1984 to the present,  Mr. Leason has served as a Senior Vice President with
Torrey Pines  Securities.  Prior to that, Mr. Leason served in the United States
Navy Submarine Service From 1943 to 1946. He was a securities broker with Leason
& Company in Chicago,  Illinois from 1946 through 1960, eventually becoming Vice
President  for  its  initial  public  offering   department  in  Newport  Beach,
California,  was a Vice President in the initial public  offering  department at
R.J.  Henderson & Co., in Newport  Beach,  California  from 1960 to 1966, was an
Emerging  Growth Stock Vice  President  with  Jefferies & Co. in Newport  Beach,
California  from 1966 until Jefferies & Co., was purchased in 1969, and rejoined
Leason & Company as President  until 1973.  From 1973 to 1984, Mr. Leason worked
with  Wedbush  Securities  and then with  McDonald,  Krieger & Bowyer in Beverly
Hills,  California.   Mr.  Leason  completed  various  courses  at  Northwestern
University and Loyola Marymount University,  is a registered representative with
the NASD and holds a principal's license.

     HILLY G. JONES has served as Corporate Secretary since January 2000 and has
been the Company's  Office  Administrator  since May 1999. She has been employed
part time by the Company in various administrative capacities since 1989, except
for the period from June 1995 to December 1998, when she left the Company to own
and  operate  a small  business.  Prior to 1989,  she was  employed  in  various
administrative   capacities  in  the   securities,   environmental,   and  other
industries.



<PAGE>


     All directors  hold office until the next annual  stockholders'  meeting or
until their  respective  successors  are elected or until their  earlier  death,
resignation  or removal.  Officers are appointed by, and serve at the discretion
of, the Board of Directors.

COMPLIANCE WITH BENEFICIAL OWNERSHIP REPORTING RULES

     Section 16(a) of the Securities Exchange Act of 1934, as amended ("Exchange
Act"),  requires the Company's  executive officers and directors and persons who
beneficially own more than 10% of a registered class of a Company's Common Stock
("reporting  persons")  to file  initial  reports of  ownership  and  reports of
changes in ownership  with the SEC. Such  reporting  persons are required by SEC
regulations  to furnish the Company  with copies of all such  reports  that they
file.

     Based  solely  upon a review  of copies of such  reports  furnished  to the
Company during the year ended December 31, 1999 and  thereafter,  or any written
representations  received by the Company  from  reporting  persons that no other
reports were  required,  the Company  believes  that,  during the Company's 1999
year,  all  section  16(a)  filing  requirements  applicable  to  the  Company's
reporting persons were complied with.

ITEM 10. EXECUTIVE COMPENSATION

     There is shown  below  information  concerning  the  annual  and  long-term
compensation  for  services in all  capacities  to the Company of the  Company's
Chief  Executive  Officer  and the only other  executive  officer of the Company
whose aggregate cash compensation  exceeded $100,000  (collectively,  the "Named
Executives") during the fiscal years ended August 31, 1997 and 1998 and December
31, 1999.

                    SUMMARY COMPENSATION TABLE

                                            Annual Compensation
                               ------------------------------------------------
                                                      Other Annual
     Name and                                Salary   Compensation
  Principal Position           Year            ($)         ($)
  ------------------           ----          -------   ----------
  Fred H. Behrens              1999          136,200     15,650
    Chairman and Chief         1998          152,000     15,864
    Executive Officer          1997          120,000      5,724

  Robert A. Wright             1999          109,375     15,180
    President(1) and Chief     1998          133,081     15,080
    Operating Officer          1997          120,000     11,519

  Eugene W. Tidgewell          1999          112,000      --
    Vice President and         1998          102,666      --
    Chief Financial Officer
---------------------------


(1)  In April 2000,  Mr. Wright agreed to vacate the office of as President,  to
     assume responsibility for the management and liquidation of assets included
     in discontinued operations. He will remain as a Company director.

STOCK OPTION GRANTS IN 1999

     The following table sets forth information  concerning individual grants of
stock options made pursuant to the Company's  1997 Stock Option Plan during 1999
to each of the  named  executives.  The  Company  has  never  granted  any stock
appreciation rights.




<PAGE>

OPTIONS GRANT IN LAST FISCAL YEAR

                                            Individual Grants
                         -----------------------------------------------------
                               Number of   Percent of
                               Securities     Total
                               Underlying    Options     Exercise
                                Options     Granted to    or Base
                                Granted    Employees in    Price    Expiration
       Name                      (#)       Fiscal Year     ($/Sh)       Date
    ----------                ---------    -----------    -------   ----------
Eugene W. Tidgewell             19,500        66.43%       $1.50     10/15/10

OPTION EXERCISES AND VALUE FOR 1999

     The table below sets forth the following information with respect to option
exercises during 1999 by each of the named executive  officers and the status of
their options at December 31, 1999:

     o    The number of shares of common stock acquired upon exercise of options
          in fiscal 1999;

     o    The aggregate dollar value realized upon the exercise of such options,

     o    The total number of exercisable and non-exercisable stock options held
          at December 31, 1999, and

     o    The  aggregate  dollar value of  in-the-money  exercisable  options at
          December 31, 1999.

                     AGGREGATED OPTION EXERCISES DURING 1999
                                       AND
                       OPTION VALUES ON DECEMBER 31, 1999



<TABLE>
<CAPTION>
                   Number of
                    Shares
                 Acquired Upon                    Number of Unexercised     Value of Unexercised In-the-
                  Exercise of   Value Realized      Options 12/31/99          Money Options 12/31/99(1)
                                                --------------------------  ----------------------------
   Name              Option     Upon Exercise   Exercisable  Unexercisable   Exercisable   Unexercisable
--------------    ----------    -------------   -----------  -------------  -------------  -------------

<S>                 <C>           <C>                <C>          <C>            <C>            <C>
Fred H. Behrens     246,955       $343,514           --           --             --             --
Robert A. Wright    175,928        244,715           --           --             --             --
</TABLE>



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

(1)  In accordance  with SEC rules,  values are  calculated by  subtracting  the
     exercised price from the fair market value of the underlying  common stock.
     For purposes of this table, fair market value is deemed to be closing price
     on the date the options were executed for the Company's common reported for
     Nasdaq SmallCap transactions on December 31, 1999.

DIRECTORS' COMPENSATION

     The  Company's  directors do not receive cash  compensation  for  attending
Board of Director meetings.  In 1998, each director received options to purchase
up to 15,000 shares of the Company's  Common Stock at $3.00 per share,  the then
closing price of the Company's Common Stock.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The  following  table sets forth as of March 1, 2000,  certain  information
with respect to (i) each director of the Company,  (ii) the named executives and
(iii) all directors and executive officers of the Company as a group. Other than
as described below, no other person is known to the Company to be the beneficial
owner of more  than 5% of the  Company's  Common  Stock.  The  information  with
respect to each person  specified  as a supplier or  confirmed by such person or
based upon statements filed with the Commission.  Each person set forth below is
a director of the Company.


<PAGE>

                                       AMOUNT AND NATURE
NAME AND ADDRESS                    OF BENEFICIAL OWNERSHIP    PERCENT OF CLASS
OF BENEFICIAL OWNER                     OF COMMON STOCK(1)     OF COMMON STOCK
--------------------                ------------------------   ----------------

Fred H. Behrens(2)                          1,003,153                 9.98%
7314 Scout Avenue
Bell Gardens, CA 90201

Robert A. Wright(3)                           815,018                 8.11 %
86025 Avenue 52
Coachella, CA 92236

H. Glen Leason(4)                              16,370                    *
77-955 Calle Arroba
La Quinta, CA 92253

Eugene W. Tidgewell (5)                        39,500                    *
7314 Scout Avenue
Bell Gardens, CA 90201

Marlene Tapie (6)                              89,167                    *
76 Los Cabos
Dana Point, CA 92629

All Directors and Executives
Officers as a group (5 persons)(7)          1,963,208                19.54%

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

*    Represents less than 1%

(1)  Beneficial  ownership is determined in accordance with the rules of the SEC
     and  generally   included  voting  or  investment  power  with  respect  to
     securities.  Except as  indicated  by  footnote,  and subject to  community
     property laws where  applicable,  the persons named in the table above have
     sole voting and investment power with respect to all shares of Common Stock
     shown as  beneficially  owned by them.  Shares of Common  Stock  subject to
     options currently exercisable, or exercisable within 60 days after March 1,
     2000 are deemed to be outstanding in calculating  the percentage  ownership
     of a person or group but are not deemed to be  outstanding  as to any other
     person or group.

(2)  Includes 782,498 shares of Common Stock held by Behrens  Partners,  Ltd., a
     family limited  partnership  controlled by Mr.  Behrens.  Also includes (i)
     207,355  shares  held in escrow on behalf  of Mr.  Behrens  and ii)  13,300
     shares held in an IRA account.

(3)  Includes (i) 237,093 shares of Common Stock held by Wright Family Partners,
     Ltd., a family limited  partnership  controlled by Mr. Wright, (ii) 447,533
     shares of Common  Stock  held in  escrow on behalf of Mr.  Wright  and iii)
     130,392 shares held in an IRA account.

(4)  Includes 16,200 shares of Common Stock  underlying 9,000 shares of Series A
     9%  Convertible  Preferred  Stock  that are  convertible  and 170 shares of
     Common Stock held in an IRA account.

(5)  Represent 39,500 shares of Common Stock underlying options.

(6)  Includes 31,250 shares of Common Stock underlying options.

(7)  Includes  476,633  shares of Common  Stock  underlying  options  and 33,120
     shares of Common Stock underlying  18,400 shared of Series A 9% Convertible
     Preferred Stock that are convertible.


ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     Between  1981 and 1986,  the Company,  in its  capacity as general  partner
and/or placement agent,  raised  approximately $200 million in private placement
syndications.   This   syndication   activity   resulted  in  the  formation  of
approximately  137  limited   partnerships,   which  acquired  real  estate  for
agribusiness or development and resale  purposes.  Partnership  liquidation have
reduced this total to 14 limited  partnerships  as of December  31, 1999.  It is
planned  that all  partnerships  will file final tax returns  during the next 12
months and virtually all on-going business activities have ceased.

     On November 30, 1995, the Company  acquired a 50% interest in PS III Farms,
LLC, which leases 6,490 acres to one of the limited  liability  company members,
which is not affiliated  with the Company.  The lease expired  December 31, 1999
and has been renewed for an additional  five years pending  negotiations to sell


<PAGE>


the Company's 50% interest to its partner during 2000. The primary crop grown on
the farm is potatoes.

     The Company  holds a 99%  ownership  interest in Las Palomas  Country  Club
Estates LLC, a California limited liability  company,  which previously acted as
the development  entity for the golf course owned by an affiliated  partnership,
all operations has been transferred to AFC in December 1999.

     Fred H. Behrens, Chairman, Chief Executive Officer, director, and principal
shareholder of the Company holds a 1% ownership  interest in Las Palomas Country
Club  Estates  LLC.  The Company  also holds a 99%  ownership  interest in AMCOR
Builders  LLC,  which  previously  managed the  construction  operations  of the
Company in Texas prior to being  transferred  to AFC.  Robert A. Wright,  former
President  and Chief  Operating  Officer,  who remains  director  and  principal
shareholder of the Company holds a 1% ownership  interest in AMCOR Builders LLC.
The  Company  holds  a 99%  ownership  interest  in  AMCOR  Biomass  Farms  LLC.
Enterprise packing Company ("EPC") owns 442 limited partnership interests issued
by Lake Valley. Mr. Behrens and Mr. Wright are the only general partners of Lake
Valley and EPC.  There are 2,600  limited  partnership  interests of Lake Valley
presently issued and outstanding.  Therefore,  by attribution of their ownership
interests in EPC,  Messrs.  Behrens and Wright jointly own 17% of the issued and
outstanding limited partnership interests of Lake Valley.

     In December  1997,  Messrs.  Behrens  and Wright  agreed,  at the  lenders'
request,  to personally  guarantee  $4,250,000 of debt financing obtained by the
Company from GMAC Credit Corporation and TexStar Bank in connection with the Las
Palomas golf course/subdivision project. In consideration for the guarantee, the
Company agreed to pay to Messrs.  Behrens and Wright $212,500.  Messrs.  Behrens
and Wright  assigned to the Company their rights to this guarantee fee effective
August 31, 1998 as described below in this Item 12.

     On December 20, 1999, the Company agreed to reduce the conversion  price of
its Series B Convertible  Preferred  Stock to $6.67 per share from $10 per share
(on December 20, the market price for the  Company's  Common Stock were $4.188).
At that time, all of the Series B Convertible Preferred Stock that was issued to
three affiliated  limited  partnerships was converted into 591,621 shares of the
Company's common stock.


<PAGE>


                             USA Biomass Corporation

                        Consolidated Financial Statements

                  As of December 31, 1999 and 1998 and for the
           Year Ended December 31, 1999, the Four Month Period Ended
                              December 31, 1998 and
                         The Year Ended August 31, 1998






<PAGE>


                             USA Biomass Corporation

                 Index to the Consolidated Financial Statements
                  As of December 31, 1999 and 1998 and for the
               Year Ended December 31, 1999, the Four Month Period
                           Ended December 31, 1998 and
                         The Year Ended August 31, 1998
--------------------------------------------------------------------------------

Independent Auditors' Report ...............................................   1

Consolidated Financial Statements for USA Biomass Corporation:

     Consolidated Balance Sheets as of December 31, 1999 and 1998 ..........   2

     Consolidated Statements of Operations for the Year Ended
        December 31, 1999, the Four Month Period Ended December
        31, 1998 and the Year Ended August 31, 1998 ........................   5

     Consolidated Statements of Shareholders' Equity for the Year
        Ended December 31, 1999, the Four Month Period Ended
        December 31, 1998 and the Year Ended August 31, 1998 ...............   6

     Consolidated Statements of Cash Flows for the Year Ended
        December 31, 1999, the Four Month Period Ended December 31,
        1998 and the Year Ended August 31, 1998 ............................   8

Notes to the Consolidated Financial Statements .............................  13



<PAGE>


                         Report of Independent Auditors



To the Board of Directors and Shareholders of
USA Biomass Corporation

We have  audited the  accompanying  consolidated  balance  sheets of USA Biomass
Corporation  and its  subsidiaries  as of December  31,  1999 and 1998,  and the
related consolidated  statements of operations,  shareholders'  equity, and cash
flows for the year ended December 31, 1999, the four month period ended December
31, 1998, and the year ended August 31, 1998. These financial statements are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material  respects,  the consolidated  financial  position of USA
Biomass  Corporation and its  subsidiaries as of December 31, 1999 and 1998, and
the  consolidated  results of their operations and their cash flows for the year
ended  December 31, 1999, the four month period ended December 31, 1998, and the
year ended August 31, 1998, in conformity  with  generally  accepted  accounting
principles.


Kelly & Company
Newport Beach, California
April 12, 2000



<PAGE>


                             USA Biomass Corporation

                           Consolidated Balance Sheets
                           December 31, 1999 and 1998

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



                                     ASSETS

<TABLE>
<CAPTION>
                                                                               1999             1998
                                                                            -----------     -----------
<S>                                                                         <C>             <C>
Current assets:

  Cash and equivalents                                                      $   540,651     $   767,293
  Cash held in escrow                                                           617,176            --
  Cash held in trust                                                            203,891            --
  Accounts  receivable,  net of allowance for doubtful accounts of
     $90,580 and $54,985 as of December 31, 1999 and December 31, 1998,
     respectively                                                               862,619         526,170
  Receivable from affiliates                                                     25,869            --
  Income taxes  receivable                                                         --           292,639
  Other current assets                                                          129,589         423,295
  Net current assets of discontinued operations                               1,248,670       8,337,976
                                                                            -----------     -----------
     Total current assets                                                     3,628,465      10,347,373
  Property and equipment, net of accumulated depreciation                     7,584,040       9,104,446
  Note receivable, noncurrent                                                      --         6,462,347
  Other assets                                                                   31,963         127,645
  Intangible assets, net of accumulated amortization                            391,667         441,666
                                                                            -----------     -----------
  Total assets                                                              $11,636,135     $26,483,477
                                                                            ===========     ===========
</TABLE>


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


                                       F-2


<PAGE>


                             USA Biomass Corporation

                           Consolidated Balance Sheets
                           December 31, 1999 and 1998

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

                      LIABILITIES AND SHAREHOLDERS' EQUITY


<TABLE>
<CAPTION>
                                                              1999           1998
                                                          -----------     -----------
<S>                                                       <C>             <C>
Current liabilities:

     Accounts payable                                     $ 1,747,537     $ 1,944,450
     Payroll and payroll taxes payable                        632,013         890,698
     Accrued remediation costs                                180,808         507,000
     Lines of credit                                          640,000         874,610
     Payable to affiliates                                       --           520,618
     Notes payable:
        Affiliates                                            190,714       2,268,053
        Other                                                 727,717         979,954
     Capitalized lease obligations                            809,690         681,922
     Income taxes payable                                     347,942         334,832
     Accrued interest                                         194,620         284,272
                                                          -----------     -----------
          Total current liabilities                         5,471,041       9,286,409
Notes payable, net of current portion:
     Affiliates                                             1,020,967         597,420
     Other                                                  2,333,288       6,261,799
Capitalized lease obligations, net of current portion       2,551,898       3,515,768
                                                          -----------     -----------

Total liabilities                                          11,377,194      19,661,396
                                                          ===========     ===========
</TABLE>



Commitments and contingencies


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

                                       F-3

<PAGE>



                             USA Biomass Corporation

                           Consolidated Balance Sheets
                           December 31, 1999 and 1998

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


                 LIABILITIES AND SHAREHOLDERS' EQUITY, CONTINUED


<TABLE>
<CAPTION>
                                                                                       1999            1998
                                                                                   ------------    ------------
<S>                                                                                <C>             <C>
Shareholders' equity:

      Preferred Stock (2,000,000 shares authorized):
           Series A, 9% Convertible Preferred Stock, $0.01 par value;
               cumulative nonvoting; $7,422,000 and $7,475,000 aggregate
               liquidation preference at December 31, 1999 and 1998,
               respectively; 812,500 shares authorized, 742,200 and 747,500
               shares issued and outstanding at December 31, 1999 and 1998,
               respectively                                                        $      7,422    $      7,475
           Series B, 6% Convertible Preferred Stock, $0.01 par value;
               cumulative nonvoting; 750,000 shares authorized, 394,414 shares
               issued and outstanding at December 31, 1998                                 --             3,944
      Common stock, $0.002 par value; 25,000,000 shares authorized, 9,509,856
        and 7,761,385 shares issued, 9,485,606 and 7,737,135 shares
        outstanding at December 31, 1999 and 1998, respectively                          19,018          15,522
      Additional paid-in capital                                                     25,235,189      21,970,123
      Accumulated deficit                                                           (24,781,849)    (15,056,644)
      Notes receivable on common stock                                                 (102,500)           --
      Treasury stock, at cost (24,250 common shares at
        December 31, 1999 and 1998)                                                    (118,339)       (118,339)
                                                                                   ------------    ------------

Total shareholders' equity                                                              258,941       6,822,081
                                                                                   ------------    ------------

Total liabilities and shareholders' equity                                         $ 11,636,135    $ 26,483,477
                                                                                   ============    ============
</TABLE>


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

                                      F-4

<PAGE>



                             USA Biomass Corporation

                      Consolidated Statements of Operations
        For the Year Ended December 31, 1999, the Four Month Period Ended
                              December 31, 1998 and
                         The Year Ended August 31, 1998

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


<TABLE>
<CAPTION>
                                                                                  For the Four Month
                                                              For the Year Ended     Period Ended      For the Year Ended
                                                               December 31, 1999   December 31, 1998    August 31, 1998
                                                              ------------------  ------------------   ------------------
<S>                                                               <C>                 <C>                <C>
Revenues                                                          $  7,644,907        $  2,024,830       $  2,005,611
Cost of revenues                                                     6,704,505           1,694,250          2,665,206
                                                                  ------------        ------------       ------------

      Gross margin                                                     940,402             330,580           (659,595)
General and administrative expenses                                  1,490,421           1,152,697          3,228,682
Loss from asset impairment                                             141,050                --            1,971,123
Loss on sale of assets                                                 215,258               3,768            365,990
                                                                  ------------        ------------       ------------
      Operating loss from continuing operations                        906,327             825,885          6,225,390
Interest expense, net                                                  825,190             389,429            661,889
                                                                  ------------        ------------       ------------
      Loss from continuing operations before income taxes            1,731,517           1,215,314          6,887,279
Provision for (benefit from) income taxes                                3,200               3,200         (1,048,475)
                                                                  ------------        ------------       ------------

Loss from continuing operations                                      1,734,717           1,218,514          5,838,804
                                                                  ------------        ------------       ------------
Discontinued operations (Note 4):
      Estimated loss from disposal of discontinued operations        5,346,328             814,550          2,878,813
      Loss from  discontinued operations (Note 12)                   2,105,701                --            7,068,069
                                                                  ------------        ------------       ------------
      Total                                                          7,452,029             814,550          9,946,882
                                                                  ------------        ------------       ------------

Net loss                                                          $  9,186,746        $  2,033,064       $ 15,785,686
                                                                  ============        ============       ============

Loss from continuing operations per common share,
   basic and diluted                                              $       0.41        $       0.20       $       0.88
                                                                  ============        ============       ============

Net loss per common share, basic and diluted                      $       1.35        $       0.31       $       2.19
                                                                  ============        ============       ============
</TABLE>



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

                                       F-5

<PAGE>



                             USA Biomass Corporation

                 Consolidated Statements of Shareholders' Equity
              For the Year Ended December 31, 1999, the Four Month
                       Period Ended December 31, 1998 and
                         The Year Ended August 31, 1998
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                                       Common
                                                          Series A       Series B                      Shares          Series A
                                                         Preferred      Preferred        Common        Held in         Preferred
                                                           Shares         Shares         Shares        Treasury          Stock
                                                         ----------     ----------     ----------      ----------      ----------
<S>                                                         <C>            <C>          <C>               <C>          <C>
Balance, August 31, 1997                                       --          404,414      7,172,974            --              --
   Issuance of Series A 9% Convertible Preferred
      stock                                                 747,500           --             --              --        $    7,475
   Shares issued upon exercise of options                      --             --           31,250            --              --
   Shares issued in payment of debt                            --             --           14,927            --              --
   Shares issued for the acquisition of TransPacific
    Environmental, Inc.                                        --             --          406,109            --              --
   Shares issued in settlement of litigation                   --             --          144,000            --              --
   Stock options  granted to
    nonemployees for consulting and other  services            --             --             --              --              --
   Treasury shares  acquired                                   --             --             --           (24,250)           --
   Shares reacquired and retired                               --             --           (7,875)           --              --
   Series A Preferred stock  dividends                         --             --             --              --              --
   Net loss                                                    --             --             --              --              --
                                                         ----------     ----------     ----------      ----------      ----------

Balance, August 31, 1998                                    747,500        404,414      7,761,385         (24,250)     $    7,475
                                                         ==========     ==========     ==========      ==========      ==========

<CAPTION>
                                                                                         Common                          Retained
                                                          Series B                       Stock          Additional       Earnings
                                                         Preferred        Common         Held in         Paid-in       (Accumulated
                                                           Stock          Stock          Treasury        Capital          Deficit)
                                                        ------------   ------------    ------------    ------------    ------------

<S>                                                     <C>            <C>             <C>             <C>             <C>
Balance, August 31, 1997                                $      4,044   $     14,345            --      $ 14,242,065    $  3,259,382
  Issuance of Series A 9% Convertible Preferred
     stock                                                      --             --              --         6,161,869            --
  Shares issued upon exercise of options                        --               63            --            62,437            --
  Shares issued in payment of debt                              --               30            --            70,869            --
  Shares issued for the acquisition of TransPacific
     Environmental, Inc.                                        --              812            --         1,195,030            --
  Shares issued in settlement of litigation                     --              288            --            83,093            --
  Stock options  granted to
   nonemployees for consulting and other  services              --             --              --           187,500            --
  Treasury shares  acquired                                     --             --      $   (118,339)           --              --
  Shares reacquired and retired                                 --              (16)           --           (32,840)           --
  Series A Preferred stock  dividends                           --             --              --              --          (497,276)
  Net loss                                                      --             --              --              --       (15,785,686)
                                                        ------------   ------------    ------------    ------------    ------------

Balance, August 31, 1998                                $      4,044   $     15,522    $   (118,339)   $ 21,970,023    $(13,023,580)
                                                        ============   ============    ============    ============    ============

<CAPTION>
                                                        Notes
                                                    Receivable on
                                                        Common
                                                        Stock             Total
                                                    -------------     ------------
<S>                                                          <C>      <C>
Balance, August 31, 1997                                     --       $ 17,519,836
  Issuance of Series A 9% Convertible Preferred
     stock                                                   --          6,169,344
  Shares issued upon exercise of options                     --             62,500
  Shares issued in payment of debt                           --             70,899
  Shares issued for the acquisition of TransPacific
     Environmental, Inc.                                     --          1,195,842
  Shares issued in settlement of litigation                  --             83,381
  Stock options  granted to
   nonemployees for consulting and other  services           --            187,500
  Treasury shares  acquired                                  --           (118,339)
  Shares reacquired and retired                              --            (32,856)
  Series A Preferred stock  dividends                        --           (497,276)
  Net loss                                                   --        (15,785,686)
                                                             --       ------------

Balance, August 31, 1998                                     --       $  8,855,145
                                                     ============     ============
</TABLE>


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

                                       F-6

<PAGE>


                             USA Biomass Corporation

                 Consolidated Statements of Shareholders' Equity
              For the Year Ended December 31, 1999, the Four Month
                       Period Ended December 31, 1998 and
                         The Year Ended August 31, 1998
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                                     Common
                                                         Series A       Series B                     Shares        Series A
                                                        Preferred      Preferred       Common        Held in       Preferred
                                                         Shares          Shares        Shares       Treasury         Stock
                                                        ---------      ---------      ---------     ---------      ---------
<S>                                                       <C>            <C>          <C>             <C>          <C>
Balance, August 31, 1998                                  747,500        404,414      7,761,385       (24,250)     $   7,475
   Share cancellation                                        --          (10,000)          --            --             --
   Net loss                                                  --             --             --            --             --
                                                        ---------      ---------      ---------     ---------      ---------

Balance, December 31, 1998                                747,500        394,414      7,761,385       (24,250)         7,475
   Common stock issued in settlement of debt                 --             --          563,527          --             --
   Series B Convertible Preferred shares issued
      for cumulative dividends in arrears                    --           53,846           --            --             --
   Conversion of Series B Convertible Preferred
      Stock to common stock                                  --         (448,260)       591,621          --             --
   Common stock issued on exercise of stock options          --             --          585,383          --             --
   Conversion of Series A Convertible Preferred
      stock to common stock                                (5,300)          --            7,940          --              (53)
   Common stock options issued for services                  --             --             --            --             --
   Notes receivable arising from exercise of
       stock options                                         --             --             --            --             --
   Net loss                                                  --             --             --            --             --
                                                        ---------      ---------      ---------     ---------      ---------
Balance, December 31, 1999                                742,200           --        9,509,856       (24,250)     $   7,422
                                                        =========      =========      =========     =========      =========

<CAPTION>

                                                                                      Common                         Retained
                                                       Series B                       Stock          Additional      Earnings
                                                      Preferred         Common        Held in         Paid-in      (Accumulated
                                                        Stock           Stock         Treasury        Capital         Deficit)
                                                     ------------    ------------   ------------    ------------   ------------
<S>                                                  <C>             <C>            <C>             <C>            <C>
Balance, August 31, 1998                             $      4,044    $     15,522   $   (118,339)   $ 21,970,023   $(13,023,580)
   Share cancellation                                        (100)           --             --               100           --
   Net loss                                                  --              --             --              --       (2,033,064)
                                                     ------------    ------------   ------------    ------------   ------------

Balance, December 31, 1998                                  3,944          15,522       (118,339)     21,970,123    (15,056,644)
   Common stock issued in settlement of debt                 --             1,127           --         1,728,693           --
   Series B Convertible Preferred  shares issued
      for cumulative dividends in arrears                     538            --             --           537,921       (538,459)
   Conversion of Series B Convertible Preferred
      stock  to common stock                               (4,482)          1,183           --             3,299           --
   Common stock issued on exercise of stock options          --             1,170           --           977,941           --
   Conversion of Series A Convertible Preferred
       shares to common  shares                              --                16           --                37           --
    Stock options issued for services                        --              --             --            17,175           --
   Notes receivable arising from exercise of
       stock options                                         --              --             --              --             --
   Net loss                                                  --              --             --              --       (9,186,746)
                                                     ------------    ------------   ------------    ------------   ------------
Balance, December 31, 1999                                   --      $     19,018   $   (118,339)   $ 25,235,189   $(24,781,849)
                                                     ============    ============   ============    ============   ============

<CAPTION>

                                                           Notes
                                                       Receivable on
                                                          Common
                                                           Stock            Total
                                                       -------------     -----------
<S>                                                     <C>              <C>
Balance, August 31, 1998                                $      --        $ 8,855,145
   Share cancellation                                          --               --
   Net loss                                                    --         (2,033,064)
                                                        -----------      -----------

Balance, December 31, 1998                                     --          6,822,081
   Common stock issued in settlement of debt                   --          1,729,820
   Series B Convertible Preferred stock issued
      for cumulative dividends in arrears                      --               --
   Conversion of Series B Convertible Preferred
      stock  to common stock                                   --               --
   Common stock issued on exercise of stock options            --            979,111
   Conversion of Series A Convertible Preferred
      stock  to common stock                                   --               --
   Common stock options issued for services                    --             17,175
   Notes receivable arising from exercise of
       stock options                                       (102,500)        (102,500)
   Net loss                                                    --         (9,186,746)
                                                        -----------      -----------
Balance, December 31, 1999                              $  (102,500)     $   258,941
                                                        ===========      ===========
</TABLE>


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

                                      F-7

<PAGE>


                             USA Biomass Corporation

                      Consolidated Statements of Cash Flows
              For the Year Ended December 31, 1999, the Four Month
                       Period Ended December 31, 1998 and
                         The Year Ended August 31, 1998
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                        For the Four Month
                                                                   For the Year Ended     Period Ended        For the Year Ended
                                                                    December 31, 1999   December 31, 1998      August 31, 1998
                                                                   ------------------   ------------------    ------------------
<S>                                                                    <C>                 <C>                 <C>
Cash flows from operating activities:
      Net loss                                                         $ (9,186,746)       $ (2,033,064)       $(15,785,686)
       Deduct loss from discontinued
       operations                                                         7,452,029             814,550           9,946,882
                                                                       ------------        ------------        ------------
      Net loss from continuing operations                                (1,734,717)         (1,218,514)         (5,838,804)
      Adjustments to reconcile net loss to net
cash
        used in operating
activities:
           Depreciation                                                     958,929             268,658             316,229
           Amortization                                                      49,999              16,666              41,668
           Provision for uncollectible accounts                              50,580              14,985                --
           Loss on impairment of assets                                     141,050                --             1,971,123
           Loss on sale of assets, net                                      187,258                --               365,990
           Provision for settlement expense                                    --                  --               112,129
           Stock options granted to nonemployees
              for consulting and other services                                --                  --               187,500
           Stock Compensation                                                17,175                --                  --
           Issuance of common stock for accrued interest expense             55,376                --                  --
           Reduction of accrued remediation costs                          (254,496)               --                  --
      Decrease (increase) in assets, net of effect of
         acquisition of TransPacific Environmental, Inc.:
           Cash held in escrow                                             (617,176)               --                  --
           Cash held in trust                                              (203,891)               --                  --
           Accounts receivable                                             (387,029)           (205,621)            (97,855)
           Income taxes recoverable                                         292,639                --              (292,639)
           Other current assets                                             293,706              57,625             710,093
           Due from related parties                                            --                  --               239,887
           Other assets                                                      95,682             (97,464)              2,782
      Increase (decrease) in liabilities, net of effect of
        acquisition of TransPacific Environmental, Inc.:
           Accounts payable                                                (144,759)            678,193             106,421
           Payroll and payroll taxes payable                               (258,685)           (174,307)             87,557
           Accrued remediation costs                                        (71,696)               --              (507,000)
           Income taxes payable                                              13,110             331,632          (1,033,200)
           Accrued interest payable                                         243,921             143,526            (181,583)
           Deferred taxes                                                      --                  --               (55,894)
           Payable to affiliates                                           (412,694)            105,518                --
                                                                       ------------        ------------        ------------
Net cash used in operating activities of
   continuing operations                                                 (1,685,718)            (79,103)         (3,865,596)


Net cash used in operating activities of
   discontinued operations                                                 (640,801)         (1,193,334)         (6,105,493)
                                                                       ------------        ------------        ------------

Cash used in operating activities                                      $ (2,326,519)       $ (1,272,437)       $ (9,971,089)
                                                                       ------------        ------------        ------------
</TABLE>

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

                                       F-8

<PAGE>


                             USA Biomass Corporation

                      Consolidated Statements of Cash Flows
              For the Year Ended December 31, 1999, the Four Month
                       Period Ended December 31, 1998 and
                       The Year Ended August 31, 1998
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                                     For the Four Month
                                                                For the Year Ended      Period Ended      For the Year Ended
                                                                 December 31, 1999    December 31, 1998    August 31, 1998
                                                                ------------------   ------------------   ------------------
<S>                                                                 <C>                <C>                <C>
Cash flows provided by (used in) investing activities:
      Purchases of property and equipment                           $  (123,008)       $  (512,285)       $  (142,777)
      Proceeds  from the sale of a note receivable                    2,462,347               --                 --
      Proceeds from sales of property and equipment                     132,084               --              101,393
      Acquisition of TransPacific Environmental, Inc., net of
        cash acquired                                                      --                 --             (398,154)
                                                                    -----------        -----------        -----------
Net cash provided by (used in)investing activities of
   continuing operations                                              2,471,423           (512,285)          (439,538)

Net cash provided by investing activities
   of discontinued operations                                           963,676               --            4,199,029
                                                                    -----------        -----------        -----------

Cash provided by (used in) investing  activities                      3,435,099           (512,285)         3,759,491
                                                                    -----------        -----------        -----------

Cash flows provided by (used in) financing activities:

      Proceeds from lines of credit                                      15,000            625,000            249,610
      Proceeds from notes and loans                                        --            1,464,289          2,229,065
      Repayment of notes and loans                                     (574,280)          (387,349)        (3,098,801)
      Repayment of capital lease obligations                           (589,444)           (63,511)          (442,340)
      Proceeds from exercise of options                                 200,000               --                 --
      Repayment of notes and  loans - affiliates                        (52,900)            85,815               --
      Dividends paid on Series A Preferred stock                           --                 --             (497,276)
      Acquisition of treasury shares                                       --                 --             (118,339)
      Net proceeds from issuance of Series A
        Preferred stock                                                    --                 --            6,169,344
      Purchase and retirement of common stock                              --                 --              (32,856)
      Exercise of stock options                                            --                 --               62,500
                                                                    -----------        -----------        -----------

Net cash provided by (used in) financing activities of
   continuing operations                                             (1,001,624)         1,724,244          4,520,907

Net cash provided by (used in) financing activities of
   discontinued operations                                             (333,598)              --            2,338,596
                                                                    -----------        -----------        -----------

Cash provided by (used in) financing activities                      (1,335,222)         1,724,244          6,859,503
                                                                    -----------        -----------        -----------

Net increase (decrease) in cash                                        (226,642)           (60,478)           647,905

Cash and equivalents at beginning of  period                            767,293            827,771            179,866
                                                                    -----------        -----------        -----------

Cash and equivalents at end of  period                              $   540,651        $   767,293        $   827,771
                                                                    ===========        ===========        ===========
</TABLE>

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

                                      F-9

<PAGE>


                             USA Biomass Corporation

                      Consolidated Statements of Cash Flows
              For the Year Ended December 31, 1999, the Four Month
                       Period Ended December 31, 1998 and
                         The Year Ended August 31, 1998
--------------------------------------------------------------------------------

                Supplemental Disclosures of Cash Flow Information

<TABLE>
<CAPTION>
                                                         For the Four Month
                                   For the Year Ended      Period Ended       For the Year Ended
                                    December 31, 1999    December 31, 1998     August 31, 1998
                                   ------------------   -------------------   ------------------
<S>                                     <C>                 <C>                  <C>
Cash paid during the period for:
      Interest:
        Continuing operations           $1,196,703          $  189,382           $  838,066
        Discontinued operations            582,927             383,999              521,191
                                        ----------          ----------           ----------
                                        $1,779,630          $  573,381           $1,359,257
                                        ==========          ==========           ==========
      Income taxes                            --                  --             $  332,589
                                        ==========          ==========           ==========
</TABLE>


<TABLE>
<CAPTION>
                            Supplemental Schedule of
      Non-Cash Investing and Financing Activities of Continuing Operations
<S>                                                   <C>                <C>      <C>
Satisfaction of debt through issuance of stock:
      Liabilities satisfied                           $ 1,674,442        --       $    70,899
      Common stock issued                             $(1,674,442)       --           (70,899)
Dividends on Preferred Stock:
      Additional paid in capital                      $   538,459        --              --
      Reduction in retained earnings                  $  (538,459)       --              --
Exercise of stock options:
      Reduction of liabilities                            676,613        --              --
      Common shares issued                               (676,613)       --              --
Retirement of line of credit:
      Line of credit satisfied                            249,610        --              --
      Increase in loans payable                          (249,610)       --              --
 Conversion of preferred stock to common stock:
      Preferred shares converted                            4,535        --              --
      Common shares issued                                 (4,535)       --              --
Issuance of note receivable on common stock:
      Receivable on common stock                          102,500        --              --
      Common shares issued                               (102,500)       --              --
</TABLE>


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

                                      F-10

<PAGE>


                             USA Biomass Corporation

                      Consolidated Statements of Cash Flows
           For the Year Ended December 31, 1999, the Four Month Period
                           Ended December 31, 1998 and
                         The Year Ended August 31, 1998
--------------------------------------------------------------------------------

                            Supplemental Schedule of
 Non-Cash Investing and Financing Activities of Continuing Operations, Continued

<TABLE>
<CAPTION>
                                                                                            For the Four Month
                                                                       For the Year Ended      Period Ended      For the Year Ended
                                                                        December 31, 1999    December 31, 1998     August 31, 1998
                                                                       ------------------   ------------------   ------------------
<S>                                                                          <C>                <C>                <C>
Assets disposed of in non-cash transaction:
      Assets disposed                                                        $  (725,784)              --                 --
      Liabilities satisfied                                                      725,784               --                 --
Assets acquired (disposed of) in non-cash transactions:
      Assets acquired                                                           (853,691)       $ 5,141,152        $ 1,141,225
      Receivables from related parties                                            65,744               --              815,184
      Capital lease obligations incurred                                         787,947         (2,969,244)          (727,610)
      Liabilities incurred                                                          --           (2,171,908)          (413,615)
      Liability to officer incurred                                                 --                 --             (815,184)

Settlement liability and affiliates receivable:
      Liability to estate of former officer                                         --                 --          $  (283,388)
      Receivable from  affiliates                                                   --                 --              283,388

Purchase of all the capital stock of TransPacific Environmental, Inc.:
      Fair value of assets acquired                                                 --                 --          $ 2,260,933
      Less:
           Cash paid                                                                --                 --             (411,207)
           Common stock issued                                                      --                 --           (1,195,842)
           Liabilities assumed                                                      --                 --          $  (653,884)

Included in the net liabilities  assumed were the following operating
  assets and liabilities:
      Cash                                                                          --                 --          $    13,053
      Accounts receivable                                                           --                 --              116,235
      Other current assets                                                          --                 --               48,531
      Other assets                                                                  --                 --                2,230
      Accounts payable                                                              --                 --             (679,283)
      Notes payable                                                                 --                 --             (154,650)
</TABLE>

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

                                      F-11

<PAGE>


                             USA Biomass Corporation

                 Notes to the Consolidated Financial Statements
           For the Year Ended December 31, 1999, the Four Month Period
                           Ended December 31, 1998 and
                         The Year Ended August 31, 1998
--------------------------------------------------------------------------------

1.   Description of the Company's Business

     The  operations  of USA Biomass  Corporation  (the  "Company"),  a Delaware
     corporation, consist of clean green waste processing ("biomass"), and waste
     transportation,  which  commenced in October 1998.  These  activities  take
     place  exclusively  in Southern  California.  In January 1999,  the Company
     changed its year end to December 31.

     During the year ended August 31, 1998,  the Company  commenced  its biomass
     operations,  and in December 1998, the Company's Board of Directors adopted
     a plan to discontinue its agribusiness and real estate activities (Note 4).
     After a one year period,  the Company has completed a majority of the steps
     necessary  to  transition  from its  historical  activities  to its current
     segments.  Although  this has resulted in the  recognition  of  significant
     losses in the periods,  the Company  believes that the  combination  of its
     long term waste transportation  contracts,  its growing biomass operations,
     and  the  preferred  stock  offering  and  acquisition  of  American  Waste
     Transport  in the  first  quarter  of 2000 will  enable it to  successfully
     compete in its current lines of business.

2.   Summary of Significant Accounting Policies

     Principles of Consolidation

     The consolidated  financial  statements include the accounts of USA Biomass
     Corporation   and   its    subsidiaries.    USA   Waste   Transport,    USA
     Biomass-Greenwaste,   Inc.,  TransPacific  Environmental  Inc.,  and  AMCOR
     Biomass  Farms,  LLC (99% owned),  are the Company's  continuing  operating
     subsidiaries.  Sun Goddess Farms, Inc., AMCOR Properties, Inc., Las Palomas
     Country Club Estates,  LLC (99% owned) and AMCOR Builders,  LLC (99% owned)
     are discontinued operations. All significant intercompany transactions have
     been eliminated.

     Assets of  discontinued  operations  are  recorded at their  estimated  net
     realizable value (Note 4).

     Revenue Recognition

     Revenues  are  recognized  on the  accrual  method at the time the  related
     services are performed.

     Use of Estimates

     The  preparation  of financial  statements  in  conformity  with  generally
     accepted  accounting  principles  requires management to make estimates and
     assumptions  that affect the reported amounts of assets and liabilities and
     disclosure  of  contingent  assets  and  liabilities  at  the  date  of the
     financial  statements  and the  reported  amounts of revenues  and expenses
     during  the  reporting  period.  Actual  results  could  differ  from those
     estimates.

     Cash and Equivalents

     Cash and equivalents  include  short-term,  highly liquid  instruments with
     original maturities of three months or less.

     Accounts Receivable

     The Company grants credit to customers substantially all of whom are in the
     waste industry.  The Company  performs credit  evaluations of its customers
     and, generally,  requires no collateral.  The Company's ability to generate
     revenues  and collect  amounts due from  customers  is affected by economic
     fluctuations in the waste industry.

                                      F-12

<PAGE>


                             USA Biomass Corporation

                 Notes to the Consolidated Financial Statements
           For the Year Ended December 31, 1999, the Four Month Period
                           Ended December 31, 1998 and
                       For The Year Ended August 31, 1998
--------------------------------------------------------------------------------

2.   Summary of Significant Accounting Policies, Continued

     Accounts Receivable, Continued

     The Company uses the allowance method to account for uncollectible accounts
     receivable.  The  Company's  estimate  is  based on  historical  collection
     experience and a review of the current status of trade accounts receivable.
     It is reasonably  possible that the Company's estimate of the allowance for
     doubtful accounts will change.

     Property and Equipment

     Property and equipment are recorded at cost and are  depreciated  using the
     straight-line method over the expected useful lives noted below.

                                                         Estimated Useful
                                                               Life
                                                         ----------------
           Vehicles and equipment                          3-10 years
           Office furniture and equipment                  3-10 years
           Buildings                                         30 years

     Leasehold  improvements  are amortized  over the shorter of the life of the
     assets or the life of the related lease.

     Intangible Assets

     Intangible  assets include  licenses,  lease agreements and customer lists.
     Intangible  assets are  amortized  using the  straight-line  method  over a
     period of 10 years.  Regularly,  the Company assesses the intangible assets
     for impairment based on recoverability of the balances from expected future
     operating cash flows on an undiscounted basis (Note 8).

     Long Lived Assets

     Long-lived  assets held and used by the Company are reviewed for impairment
     whenever  events or changes in  circumstances  indicate  that the  carrying
     amount of an asset may not be recoverable.  The estimated undiscounted cash
     flows  associated  with the assets are compared to the carrying  amounts to
     determine if a writedown to fair value is required.

     As a result of the Company's review and assessment, and based upon the best
     information   available  in  the   circumstances,   including   independent
     appraisals, at December 31, 1999 and August 31, 1998 the Company determined
     that the carrying amounts of certain assets exceeded the fair value of such
     assets (Note 7).

                                      F-13

<PAGE>


                             USA Biomass Corporation

                 Notes to the Consolidated Financial Statements
           For the Year Ended December 31, 1999, the Four Month Period
                           Ended December 31, 1998 and
                         The Year Ended August 31, 1998
--------------------------------------------------------------------------------


2.   Summary of Significant Accounting Policies, Continued

     Stock Based Compensation

     Statement of Financial  Accounting  Standards ("SFAS") No. 123,  Accounting
     for  Stock-Based  Compensation  ("SFAS 123"),  established  accounting  and
     disclosure  requirements using a fair-value-based  method of accounting for
     stock-based employee and nonemployee compensation plans.

     The Company  continues  to account for  stock-based  employee  compensation
     using the intrinsic value method prescribed in Accounting  Principles Board
     Opinion No. 25,  Accounting  for Stock  Issued to Employees as permitted by
     SFAS 123.  Compensation cost for stock options,  if any, is measured as the
     excess of the quoted  market  price of the  Company's  stock at the date of
     grant  over  the  amount  an  employee  must  pay  to  acquire  the  stock.
     Compensation  cost is recorded over the requisite  vesting periods based on
     the market value on the date of grant.

     New Accounting Pronouncement

     In June 1998, the FASB issued Statement of Financial  Accounting  Standards
     ("SFAS")  No.  133,  Accounting  for  Derivative  Instruments  and  Hedging
     Activities,  which  establishes  accounting  and  reporting  standards  for
     derivative  instruments.  This Statement  requires that an entity recognize
     all  derivatives  as  either  assets or  liabilities  in the  statement  of
     financial  position and measure those  instruments  at fair value.  In June
     1999, the FASB issued SFAS No. 137,  Accounting for Derivative  Instruments
     and Hedging Activities-Deferral of the Effective Date of FASB Statement No.
     133, which postponed the adoption date of SFAS 133. As such, the Company is
     not required to adopt the new Statement until the year 2001. The Company is
     currently  evaluating  the effect that  implementation  of the new standard
     will have on its results of operations and financial position.

3.   Cash Held in Escrow and in Trust

     At December  31,  1999,  the  Company  had funds held in an escrow  account
     resulting  from the sale of  farmland  from its  discontinued  agribusiness
     operations.  The funds were held in escrow pending the Company's ability to
     secure a certain  loan  release.  In February  2000,  the loan  release was
     obtained and the cash was released from the escrow account.

     At December 31,  1999,  the Company had cash held in trust with an attorney
     to be used in the resolution of certain liabilities.

                                      F-14

<PAGE>


                             USA Biomass Corporation

                 Notes to the Consolidated Financial Statements
           For the Year Ended December 31, 1999, the Four Month Period
                           Ended December 31, 1998 and
                         The Year Ended August 31, 1998
--------------------------------------------------------------------------------

4.   Discontinued Operations

     On  December  22,  1998 , the  Company  adopted  a plan to  dispose  of its
     agribusiness  and real  estate  operations.  In October  1999,  the Company
     transferred  substantially  all of its  remaining  real  estate  assets and
     related  liabilities to AMCOR Financial Corp.  ("AFC"), a then wholly owned
     subsidiary.  In January  2000,  the Company  distributed  to its common and
     preferred  shareholders  all of its AFC  common  shares.  The  Company  has
     disputes with AFC regarding the nature and amount of assets and liabilities
     transferred to AFC. Further, all the regulatory requirements related to the
     distribution of the AFC shares to the Company's  shareholders  may not have
     been satisfied. As a result, the Company continues to record its investment
     related  to  these  real  estate  assets  as  net  assets  of  discontinued
     operations in the consolidated balance sheets.

     At August 31, 1998 estimated losses of approximately $1,543,000 anticipated
     on sales of  discontinued  operations  and  estimated  operating  losses of
     approximately  $1,336,000  for the period from August 31, 1998  through the
     estimated  dates  of  disposition  of  discontinued  operations,  currently
     expected to be December 31, 2000,  were included in the  estimated  loss on
     disposal of discontinued operations.  Additional losses on the dispositions
     of discontinued  operations of $5,346,328 and $814,550 were recorded in the
     year ended  December 31, 1999 and the four months  ended  December 31, 1998
     due to asset sales at less than expected  amounts and diminished  appraised
     values resulting from slower than expected sales.

     Selected  information  for the  discontinued  agribusiness  and real estate
     operations is presented below.

                                      For the Year Ended December 31, 1999
                             ---------------------------------------------------
                              Agribusiness        Real Estate        Total
                             ---------------   ---------------   ---------------
     Revenues                $    221,793      $    869,000      $   1,090,793
                             ===============   ===============   ===============

     Operating income (loss) $    489,763      $  1,615,938      $   2,105,701
                             ===============   ===============   ===============

     Loss on disposal        $    158,636      $  5,187,692      $   5,346,328
                             ===============   ===============   ===============

                                      F-15

<PAGE>


                             USA Biomass Corporation

                 Notes to the Consolidated Financial Statements
           For the Year Ended December 31, 1999, the Four Month Period
                           Ended December 31, 1998 and
                         The Year Ended August 31, 1998
--------------------------------------------------------------------------------


4.    Discontinued Operations, Continued

                             For the Four Month Period Ended December 31, 1998
                             -------------------------------------------------
                             Agribusiness      Real Estate          Total
                             ------------      ------------      ------------
     Revenues                        --                --                --
                             ============      ============      ============
     Operating income (loss)         --                --                --
                             ============      ============      ============

     Loss on disposal                --        $    814,550      $    814,550
                             ============      ============      ============

                                       For the Year Ended August 31, 1998
                             ------------------------------------------------
                             Agribusiness      Real Estate          Total
                             ------------      ------------      ------------
     Revenues                $  6,057,166      $ 12,304,686      $ 18,361,852
                             ============      ============      ============
     Operating loss          $ (1,989,554)     $ (1,554,930)     $ (2,878,882)
                             ============      ============      ============
     Loss on disposal        $ (1,323,883)     $ (1,554,930)     $ (2,878,813)
                             ============      ============      ============


     At December 31, 1999, the remaining assets of the  discontinued  operations
     are the Company's  receivable  from a partnership  that owned a golf course
     sold in foreclosure in February 2000,  certain housing  development land in
     Texas, and a 50% interest in PS III Farms, LLC, which owns 6,490 acres that
     it leases to a limited  liability  company  owned by the other 50%  venture
     partner.  The  lease  has a  remaining  term of nine  months  and has  been
     extended for an additional five years. The primary crop grown on the Oregon
     farm is potatoes. The real estate assets have been pledged as collateral on
     notes payable on which the Company is primarily liable totaling  $4,887,402
     at December 31, 1999,  which is included in the net assets of  discontinued
     operations.  Of this amount, $3,048,070 was collateralized by a golf course
     upon which the lender  foreclosed in February 2000. The lender notified the
     Company that a deficiency of $1,600,000 exists after the foreclosure and in
     April 2000 filed a related lawsuit.


5.   Amounts Due to/Due from Affiliates

     Amounts  due  to/due  from  affiliates   relate  to  the  activities  of  a
     partnership,  Enterprise Packing Company ("EPC"), the partners of which are
     two officers who are also  shareholders  and directors of the Company.  The
     amount due from the partnership represents the net of advances to and other
     transactions with the partnership and bears interest at 8% per annum.

     Offset of Guarantee Fees

     The  partners  of EPC  have  from  time to  time  provided  their  personal
     guarantees to lenders who required the  guarantees as necessary  conditions
     to lending the  Company  various  amounts,  which  aggregate  approximately
     $11,750,000. During the year ended August 31, 1998, as partial satisfaction
     of amounts  that EPC owes the  Company,  the  partners of EPC  assigned and
     offset their rights to receive loan guarantee fees totaling $548,500, which
     is included in discontinued operations.

                                      F-16

<PAGE>


                             USA Biomass Corporation

                 Notes to the Consolidated Financial Statements
           For the Year Ended December 31, 1999, the Four Month Period
                           Ended December 31, 1998 and
                         The Year Ended August 31, 1998
--------------------------------------------------------------------------------

5.   Amounts Due to/Due from Affiliates , Continued

     Assignment of Priority Receivable

     During  the year ended  August  31,  1998,  EPC  assigned  its right to its
     priority  receivable  from a  partnership  to the  Company in the amount of
     $428,841 as partial  satisfaction  of its amount owed to the Company.  This
     receivable is included in discontinued operations.

     Exercise of Options

     During the year ended  December 31, 1999,  the Company made advances to EPC
     of  approximately  $100,000,  and the two  officers  exercised  options  to
     purchase  422,883 shares of the Company's  common stock. The exercise price
     of the purchased  shares was paid through the  cancellation  of $676,613 of
     amounts due the officers by the Company.

6.   Note Receivable

     The note receivable at December 31, 1998 resulted from sale of a portion of
     the assets of the Company's  discontinued  operations.  In August 1999, the
     Company  sold this note.  The terms of this sale provide for the Company to
     receive up to an  additional  $500,000 if the note is paid by August  2000.
     This amount  decreases  monthly  until July 2002. If the note is paid after
     July 2002,  the  Company  will not  realize  any  additional  amounts.  Any
     additional amounts received will be recorded as income when received.

7.   Property and Equipment

     Property and equipment consists of the following:


<TABLE>
<CAPTION>
                                                                   December 31,
                                                           --------------------------
                                                               1999           1998
                                                           -----------    -----------
<S>                                                        <C>            <C>
     Vehicles and equipment                                $ 6,548,131    $ 7,139,065
     Office furniture and equipment                             32,971         21,859
     Leasehold improvements                                     13,686         68,244
     Buildings                                                 433,043        654,288
     Land                                                    1,804,082      1,814,082
                                                           -----------    -----------

                                                             8,831,913      9,697,538
        Less: accumulated amortization and depreciation     (1,247,873)      (593,092)
                                                           -----------    -----------

     Total property and equipment, net                     $ 7,584,040    $ 9,104,446
                                                           ===========    ===========
</TABLE>

                                      F-17

<PAGE>


                             USA Biomass Corporation

                 Notes to the Consolidated Financial Statements
           For the Year Ended December 31, 1999, the Four Month Period
                           Ended December 31, 1998 and
                       For The Year Ended August 31, 1998
--------------------------------------------------------------------------------


7.   Property and Equipment, Continued

     The  following  is an  analysis  of  property  held  under  capital  leases
     (included   in  the   preceding   summaries)   with   related   accumulated
     depreciation,  depreciation  expense, and the total depreciation expense of
     continuing operations:

                                                      December 31,
                                             -----------------------------
                                                1999              1998
                                             -----------       -----------

     Vehicles and equipment                  $ 3,096,035       $ 3,142,256
     Accumulated depreciation                   (518,685)         (133,836)
                                             -----------       -----------

     Total                                   $ 2,577,350       $ 3,008,420
                                             ===========       ===========


                                          For the Four Month
                     For the Year Ended     Period Ended      For the Year Ended
                      December 31, 1999   December 31, 1998    August 31, 1998
                     ------------------   ------------------  ------------------

     Capitalized lease
       depreciation
       expense              $436,913           $ 78,240             $119,934
                            ========           ========             ========

     Total property,
       equipment and
       capital lease
       depreciation
       expense              $958,929           $268,658             $319,229
                            ========           ========             ========


     During the year ended December 31, 1999, the Company sold biomass equipment
     with a net book amount of $1,055,126  and  recognized a loss of $215,258 on
     the sale of these assets.

     Asset Impairment

     During the year ended  December  31,  1999,  the four  month  period  ended
     December  31,  1998 and the year ended  August  31,  1998,  certain  assets
     (tangible and  intangible)  of the Company were reviewed for  impairment as
     circumstances and situations  changed such that there were indications that
     their carrying amounts were not recoverable.

     Tangible Assets

     In 1999, there were certain pieces of equipment  previously utilized by the
     Company  that were  determined  to no longer be  necessary,  or the Company
     significantly  changed the manner and extent to which they were used in its
     biomass  operations.  When the Company  determined that the assets would no
     longer be  utilized,  it decided to hold these assets for  disposition  and
     ceased recording  depreciation  expense.  In this  connection,  the Company
     obtained an appraisal of the fair value less estimated costs of disposal of
     the equipment and, accordingly, recognized an impairment loss.

                                      F-18

<PAGE>


                             USA Biomass Corporation

                 Notes to the Consolidated Financial Statements
           For the Year Ended December 31, 1999, the Four Month Period
                           Ended December 31, 1998 and
                       For The Year Ended August 31, 1998
--------------------------------------------------------------------------------

7.   Property and Equipment, Continued

     Intangible Assets

     Subsequent to the  acquisition of TransPacific  Environmental,  Inc. during
     the year ended  August 31,  1998,  the  Company  concluded,  based upon its
     review of values assigned to the acquisition's  intangible  assets,  and in
     particular the amount  assigned to a pending City of Los Angeles  curb-side
     green  waste  contract  that facts and  circumstances  did not  support the
     initial  value  ascribed  to the  contract,  and  accordingly,  the Company
     recognized an impairment loss.

<TABLE>
<CAPTION>
                                               For the Four Month
                           For the Year Ended     Period Ended     For the Year Ended
                            December 31, 1999  December 31, 1998     August 31, 1998
                           ------------------  ------------------  ------------------
<S>                            <C>                     <C>           <C>
     Impairment loss
       recognized on
       greenwaste equipment    $  141,050              --              $  634,563
     Impairment loss
         recognized on
         the intangible
         assets TPE
         greenwaste contract        --                 --               1,336,560
                               ----------              --              ----------
     Total                     $  141,050              --              $1,971,123
                               ==========         ==========           ==========
</TABLE>

8.   Intangible Assets

     Intangible  assets  associated  with the Company are all involved  with the
     green waste segment of the business. The intangible assets are noted below:

                                                         December 31,
                                                   -----------------------
                                                      1999          1998
                                                   ---------     ---------
     Recycling license                             $ 250,000     $ 250,000
     Customer lists                                   50,000        50,000
     Facilities lease                                200,000       200,000
                                                   ---------     ---------

                                                     500,000       500,000
          Less: accumulated amortization            (108,333)      (58,334)
                                                   ---------     ---------

     Intangible assets, net of amortization        $ 391,667     $ 441,666
                                                   =========     =========

     Amortization  expense for the year ended  December 31, 1999, the four month
     period  ended  December  31,  1998,  and the year ended August 31, 1998 was
     $49,999, $16,666, and $41,668, respectively.

                                      F-19

<PAGE>


                             USA Biomass Corporation

                 Notes to the Consolidated Financial Statements
           For the Year Ended December 31, 1999, the Four Month Period
                           Ended December 31, 1998 and
                         The Year Ended August 31, 1998
--------------------------------------------------------------------------------

9.   Lines of Credit

     Lines of credit consist of the following:

<TABLE>
<CAPTION>
                                                                                          December 31,
                                                                                   -------------------------
                                                                                      1999          1998
                                                                                   ----------    -----------
<S>                                                                                <C>           <C>
     Borrowing under a $650,000 line of credit with a bank, interest at prime
     plus 1.50%. The weighted average interest rates on borrowings outstanding
     were 9.49% and 9.85% for the years ended December 31, 1999 and 1998,
     respectively, collateralized by all assets of the Company, and due June 30,
     2000                                                                          $  640,000    $   625,000

     Borrowing under a $250,000 line of credit with a bank, interest at prime
     plus 2%. The weighted average interest rate on borrowings outstanding was
     10.35% for the four month period ended December 31, 1998, paid in full
     during 1999                                                                          --         249,610
                                                                                   ----------    -----------

     Total                                                                            640,000        874,610

          Less: current portion                                                      (640,000)      (874,610)
                                                                                   ----------    -----------

     Total noncurrent                                                                     --           --
                                                                                   ==========    ===========

10.  Notes Payable

     Notes payable consist of the following:

     Notes Payable to Affiliates:

     Uncollateralized

     Notes payable, with effective interest rates ranging from 6% to 12% per
     annum. Notes with aggregate principal amounts of $175,000 are payable to
     individuals who are investors in limited partnerships managed by the
     Company and are in default and classified as current. A note of $210,815 is
     due to the spouse of a director, a major shareholder, and is due January 2,
     2001. Notes of $15,713 and $810,152 are payable to affiliated partnerships
     managed by the Company.                                                       $1,211,681    $ 2,495,284


     Note payable to an employee, with interest at 8% per annum,
     converted into common stock in November 1999.                                        --         370,189
                                                                                   ----------    -----------

           Total due to affiliates                                                  1,211,681      2,865,473

                Less: current portion                                                (190,714)    (2,268,053)
                                                                                   ----------    -----------

           Total noncurrent due to affiliates                                      $1,020,967    $   597,420
                                                                                   ==========    ===========
</TABLE>

                                      F-20

<PAGE>


                             USA Biomass Corporation

                 Notes to the Consolidated Financial Statements
           For the Year Ended December 31, 1999, the Four Month Period
                           Ended December 31, 1998 and
                         The Year Ended August 31, 1998
--------------------------------------------------------------------------------


10.  Notes Payable, Continued

     Notes Payable to Third Parties:

     Uncollateralized

<TABLE>
<CAPTION>
                                                                                           December 31,
                                                                                    --------------------------
                                                                                       1999           1998
                                                                                    -----------    -----------
<S>                                                                                 <C>            <C>
     Note payable,  with interest at 8% per annum with monthly payments of
     $11,182, paid in 1999                                                                  --     $    46,011
                                                                                    -----------    -----------

     Total due to third parties - uncollateralized                                          --          46,011
                                                                                    -----------    -----------

     Collateralized

     Notes payable to individuals, paid in April 2000                               $    31,723        296,164

     Notes payable, collateralized by a vehicle, with interest at 9.50% per
     annum. The note is due in February 2004, with monthly payments of $714              29,396            --

     Note payable, collateralized by a note receivable, with interest at 12.25%.
     This note was paid in September 1999                                                   --       4,000,000

     Note payable, collateralized by Company's Bell Gardens facility, with
     interest at Wall Street Journal Prime plus 1% per annum, (8.5% at December
     31,1999). The note is due in December 2003, with monthly principal payments
     of $8,098                                                                          780,372        800,000

     Notes payable, collateralized by equipment with interest ranging from 8% to
     18.7% per annum. Maturity dates range from December 1999 to June 2004            2,219,514      2,099,578
                                                                                    -----------    -----------

     Total due to third parties - collateralized                                      3,061,005      7,195,742
                                                                                    -----------    -----------
     Total due to third parties                                                       3,061,005      7,241,753

         Less: current portion                                                         (727,717)      (979,954)
                                                                                    -----------    -----------

         Total noncurrent  due to third parties                                     $ 2,333,288    $ 6,261,799
                                                                                    ===========    ===========
</TABLE>

                                      F-21

<PAGE>


                             USA Biomass Corporation

                 Notes to the Consolidated Financial Statements
           For the Year Ended December 31, 1999, the Four Month Period
                           Ended December 31, 1998 and
                         The Year Ended August 31, 1998
--------------------------------------------------------------------------------

10.  Notes Payable, Continued

     Maturities of notes payable for the years ending December 31:

                2000                                             $  918,431
                2001                                              1,597,388
                2002                                                682,609
                2003                                                349,915
                2004 and thereafter                                 724,343

11.  Obligations Under Capital Leases


     The Company leases vehicles and equipment  under  long-term  noncancellable
     capital leases. Obligations under capital leases consist of the following:

<TABLE>
<CAPTION>
                                                                                            December 31,
                                                                                    --------------------------
                                                                                        1999          1998
                                                                                    -----------    -----------
<S>                                                                                 <C>            <C>
     Capital leases with  effective  interest rates of 9.5% and 9.75% per annum,
     with aggregate monthly principal and interest payments of $3,545 through
     December 1998                                                                          --     $     7,924

     Capital lease with an effective interest rate of
     8.5% per annum, with monthly  principal and
     interest payments of $1,525 through September 2002                             $    36,737         49,960

     Capital  leases with interest  ranging from 9.1% to 12.62% per annum,  with
     monthly principal and interest payments ranging from $924 to $5,564,  which
     aggregate $21,515. Maturity dates range from
     August 2000 to June 2001                                                           302,021        518,464

     Capital  leases with an effective  interest  rate of 8.75% per annum,  with
     monthly  principal  and interest  payments  ranging from $4,125 to $15,044,
     which aggregate $54,779. Maturity dates range from
     October to December 2003                                                         2,636,259      2,998,728

     Capital  leases with interest  ranging from 7.60% to 8.50% per annum,  with
     monthly  principal and interest  payments  ranging from $394 to $488, which
     aggregate $1,329. Maturity dates range from
     September to November 2004                                                          64,638            --
</TABLE>

                                      F-22

<PAGE>


                             USA Biomass Corporation

                 Notes to the Consolidated Financial Statements
           For the Year Ended December 31, 1999, the Four Month Period
                           Ended December 31, 1998 and
                         The Year Ended August 31, 1998
--------------------------------------------------------------------------------


11.  Obligations Under Capital Leases, Continued

<TABLE>
<CAPTION>
                                                                                          December 31,
                                                                                    --------------------------
                                                                                        1999          1998
                                                                                    -----------    -----------
<S>                                                                                 <C>            <C>
     Capital  leases  with  interest  ranging  from 7.8% to 17% per annum,  with
     monthly  principal  and  interest  payments  ranging from $1,040 to $6,691,
     which aggregate $16,426. Maturity dates range from
     February 2001 to March 2003                                                    $   321,933    $   622,614
                                                                                    -----------    -----------

     Total obligations under capital leases                                         $ 3,361,588    $ 4,197,690
                                                                                    ===========    ===========


     Future minimum lease payments under capital leases at December 31, 1999 are
     as follows:



           2000                                                                                    $ 1,063,752
           2001                                                                                        992,565
           2002                                                                                        683,799
           2003                                                                                      1,256,787
           2004                                                                                         14,920
                                                                                                   -----------

           Total minimum lease payments                                                              4,011,823

          Less: amount representing interest at the incremental borrowing
             rate                                                                                     (650,235)
                                                                                                   -----------

     Present value of minimum lease payments                                                         3,361,588

          Less: current maturities                                                                    (809,690)
                                                                                                   -----------

     Obligations under capital leases, long-term                                                   $ 2,551,898
                                                                                                   ===========
</TABLE>

                                      F-23

<PAGE>



                             USA Biomass Corporation

                 Notes to the Consolidated Financial Statements
           For the Year Ended December 31, 1999, the Four Month Period
                           Ended December 31, 1998 and
                         The Year Ended August 31, 1998
--------------------------------------------------------------------------------

12.  Income Taxes

     The components of the provision for income taxes are as follows:


<TABLE>
<CAPTION>
                                                                    For the Four Month
                                              For the Year Ended        Period Ended       For the Year Ended
                                              December 31, 1999      December 31, 1998       August 31, 1998
                                              ------------------    ------------------     ------------------
<S>                                               <C>                  <C>                    <C>
     Current tax expense (benefit):

           Federal                                        --                   --             $  (995,904)
           State                                  $     3,200          $     3,200                  3,323
                                                  -----------          -----------            -----------
                                                        3,200                3,200               (992,581)
                                                  -----------          -----------            -----------
        Deferred tax expense (benefit):
           Federal                                        --                   --                 (240,381)
           State                                          --                   --                  184,487
                                                  -----------          -----------            -----------
                                                          --                   --                  (55,894)
                                                  -----------          -----------            -----------

         Total provision (benefit)                $     3,200          $     3,200            $(1,048,475)
                                                  ===========          ===========            ===========

        Provision (benefit) allocated to:

        Discontinued operations                           --                   --                     --
        Loss on disposal of discontinued
           operations                                     --                   --                     --
        Continuing operations                     $     3,200          $     3,200            $(1,048,475)
                                                  -----------          -----------            -----------

        Total provision (benefit)                 $     3,200          $     3,200            $(1,048,475)

                                                  ===========          ===========            ===========
</TABLE>


     The deferred tax benefit for federal  income tax purposes is primarily  due
     to the  utilization of the net operating loss to offset prior years' income
     taxes and the expected  future tax liability.  The deferred tax expense for
     state  income tax  purposes  is  primarily  due to the  establishment  of a
     valuation  allowance  in fiscal year 1998 for the state  deferred tax asset
     recognized in fiscal year 1997.

     The income tax benefit for the year ended  August 31, 1998 is  allocated to
     loss from  continuing  operations as the tax benefit  arising from the loss
     from  continuing  operations  is the same as the benefit  arising  from the
     aggregate of all losses from operations.  Consequently,  no incremental tax
     benefit remains for allocation to the loss from discontinued  operations or
     loss on disposal of discontinued operations.

                                      F-24

<PAGE>


                             USA Biomass Corporation

                 Notes to the Consolidated Financial Statements
           For the Year Ended December 31, 1999, the Four Month Period
                           Ended December 31, 1998 and
                         The Year Ended August 31, 1998
--------------------------------------------------------------------------------

12.  Income Taxes, Continued

     Significant  components  of the  Company's  deferred  income tax assets and
     liabilities are as follows:


<TABLE>
<CAPTION>
                                                                       December 31,
                                                              --------------------------
                                                                   1999           1998
                                                              -----------    -----------
<S>                                                           <C>            <C>
     Deferred income tax assets:

         Depreciation                                         $    42,427           --
         Net operating loss carryforward                        8,767,232    $ 2,822,273
         Nondeductible writedowns related to discontinued
            operations                                            282,954      3,331,355
         State tax credit carryforward                               --          250,462
         Other                                                      7,086          7,086
                                                              -----------    -----------

     Total deferred income tax assets                           9,099,699      6,411,176
         Valuation allowance                                   (8,689,700)    (5,722,651)
                                                              -----------    -----------

     Net deferred income tax asset                            $   409,999    $   688,525
                                                              ===========    ===========

     Deferred income tax liability:

         Depreciation                                                --      $   350,917
         Partnership loss                                     $   409,999        337,608
                                                              -----------    -----------
            Total deferred income tax liability                   409,999        688,525
                                                              -----------    -----------

     Net deferred income tax liability                               --             --
                                                              ===========    ===========
</TABLE>



     The  Company,  based  upon its recent  history  of losses and  management's
     assessment of when operations are  anticipated to generate  taxable income,
     has concluded that it is more likely than not that none of the net deferred
     income tax assets will be realized  through future taxable earnings and has
     established a valuation allowance for them.

     The valuation allowances  increased  $2,967,049,  $507,281,  and $5,215,370
     during the year ended December 31, 1999, the four months ended December 31,
     1998, and the year ended August 31, 1998, respectively.


                                      F-25





<PAGE>


                             USA Biomass Corporation

                 Notes to the Consolidated Financial Statements
           For the Year Ended December 31, 1999, the Four Month Period
                          Ended December 31, 1998 and
                         The Year Ended August 31, 1998
--------------------------------------------------------------------------------

12.  Income Taxes, Continued

     Reconciliation  of the  effective  tax rate to the U.S.  federal  statutory
     income tax rate is as follows:


<TABLE>
<CAPTION>
                                                                      For the Four Month
                                                 For the Year Ended     Period Ended       For the Year Ended
                                                 December 31, 1999    December 31, 1998      August 31, 1998
                                                 ------------------   ------------------   ------------------
<S>                                                   <C>                  <C>                  <C>
       U.S. federal statutory income tax rate         (34.0)%              (34.0)%              (34.0)%
       State tax provision                              0.1                  0.1                  0.7
       Nondeductible writedowns related to
          discontinued operations                       --                   --                   2.7
       Nondeductible penalties                          --                   5.6                  --
       Other                                            0.3                  0.5                  1.0
       Change in valuation allowance                   33.7                 28.0                 23.4
                                                     ------               ------               ------

       Effective income tax rate                        0.1%                 0.2%                (6.2)%
                                                     ======               ======               ======
</TABLE>


     The Company had a California  Enterprise  Zone tax credit  carryforward  of
     $250,462.  The  Company  generated  the tax  credits  through  its  farming
     operations  located in the Coachella  Enterprise  Zone. The tax credits can
     only be  utilized  by  generating  income in the  Enterprise  Zone.  In the
     current year,  the Company has  discontinued  all of its  operations in the
     Coachella Enterprise Zone; therefore, the deferred tax asset related to the
     state tax credit carryforwards has been written off.

     The  Company  has federal and state net  operating  loss  carryforwards  of
     $22,483,572  and  $12,701,550,  respectively.  The  federal  and  state net
     operating  loss  carryforwards  will  begin to  expire  in 2018  and  2003,
     respectively.

13.  Commitments

     The Company  leases certain of its biomass  facilities and equipment  under
     noncancellable  operating  leases.  Future  minimum  lease  payments  under
     noncancellable operating leases at December 31, 1999 are as follows:

     Continuing Operations

         2000                                                      $109,392
         2001                                                        38,628
                                                                   --------

         Total future minimum lease payments                       $148,020
                                                                   ========

     Rent expense from  operating  leases  related to continuing  operations was
     $150,936 for the year ended  December 31, 1999,  $74,792 for the four month
     period ended  December 31, 1998, and $240,728 for the year ended August 31,
     1998.

                                      F-26

<PAGE>


                             USA Biomass Corporation

                 Notes to the Consolidated Financial Statements
           For the Year Ended December 31, 1999, the Four Month Period
                           Ended December 31, 1998 and
                         The Year Ended August 31, 1998
--------------------------------------------------------------------------------


13.  Commitments, Continued

     Discontinued Operations

     The costs associated with early termination of operating leases in the real
     estate  operations  have been included in loss on disposal of  discontinued
     operations.  Contractually  required  payments  relating to these operating
     leases are as follows:

         2000                                                    $119,616
         2001                                                      12,512
         2002                                                       9,026
         2003                                                       9,026
         2004                                                       3,008
                                                                 --------
         Total future minimum lease payments                     $153,188
                                                                 ========

     Rent expense from operating  leases related to discontinued  operations was
     $201,726 for the year ended  December 31, 1999,  $75,737 for the four month
     period ended  December 31, 1998, and $308,907 for the year ended August 31,
     1998.

14.  Contingencies

     Concentrations

     Cash Balances

     The  Company  maintains  cash  balances  in bank  accounts  which  exceeded
     federally  insured limits by $983,031 and $661,838 at December 31, 1999 and
     1998, respectively;  however, the Company has not experienced any losses in
     such accounts.

     Customers

     During the year ended  December 31, 1999 and the four months ended December
     31, 1998, a single  customer  accounted for 97% and 99%,  respectively,  of
     revenue for the transportation  subsidiary and 77% and 48%, respectively of
     total revenue.  This revenue is realized under  contracts that have initial
     terms  of 5 years  with  renewal  options  up to 10  years.  There  were no
     transportation  revenues  during  the year  ended  August  31,  1998.  This
     customer  accounted  for  59%  and  47% of the  total  accounts  receivable
     balances at December 31, 1999 and 1998,  respectively.  No other  customers
     had accounts receivable balances that exceeded 10%.

                                      F-27

<PAGE>


                             USA Biomass Corporation

                 Notes to the Consolidated Financial Statements
           For the Year Ended December 31, 1999, the Four Month Period
                           Ended December 31, 1998 and
                         The Year Ended August 31, 1998
--------------------------------------------------------------------------------

14.  Contingencies, Continued

     Concentrations, Continued

     Fuel

     During the year ended  December 31, 1999 and the four months ended December
     31, 1998, the Company  purchased 97% and 94%  respectively of its fuel from
     one entity. In all of its transportation  contracts,  the Company has terms
     that  provide for direct  increases  or decreases in the hauling rate based
     upon extraordinary increases or decreases in their cost of fuel.

     Certain Significant Estimates

     Write-down of Equipment

     At August 31, 1998 and December 31, 1999, the Company recognized impairment
     write-downs of certain  specialized  equipment  previously  utilized in its
     biomass  operations.  In  determining  the amount of each  impairment,  the
     Company obtained valuations from an independent  equipment  appraiser.  The
     valuations  contemplate  the  orderly  sale of this  equipment  in, and the
     existence  of, a market  for used  specialty  equipment.  Given the  unique
     economic and operational nature of the equipment and the limited market, it
     is  reasonably  possible  that the  Company's  estimate of the amount to be
     realized  from the  disposition  of the  equipment  to recover its carrying
     amount will change in the near term.  The carrying  value of this equipment
     was $158,850 at December 31, 1999.

     Discontinued Operations

     Discontinued  operations include  management's best estimates of amounts it
     expects to realize on the disposition of its real estate operations.  These
     operations include significant estimates of amounts expected to be realized
     related  to  completed  houses  and  residential  lots held for  sale,  and
     receivables  due from affiliated  real estate limited  partnerships.  These
     estimates are based on several factors  including values of recent sales of
     similar  properties,  and  valuations  by  independent  appraisers  of real
     estate.  These valuations  contemplate  sale in an orderly  liquidation and
     assume the  existence  of a market  for all the assets of the  discontinued
     operations,  all or any of which may or may not materialize.  Consequently,
     the amounts the Company will ultimately  realize could differ materially in
     the near term from the amounts  assumed in arriving at the loss on disposal
     of the discontinued operations.

15.  Stock Based Compensation Plans

     Under terms of the  Company's  stock  option  plans,  directors,  officers,
     employees, and certain vendors may be granted options to purchase shares of
     the Company's  common stock at no less than 100% of the market price of the
     shares on the date the option is granted.  Options generally vest over four
     years and have a maximum term of ten years.  At December 31, 1999 and 1998,
     606,850 and 982,883 shares, respectively, were reserved for future issuance
     under the plans.

                                      F-28

<PAGE>


                             USA Biomass Corporation

                 Notes to the Consolidated Financial Statements
           For the Year Ended December 31, 1999, the Four Month Period
                           Ended December 31, 1998 and
                       For The Year Ended August 31, 1998
--------------------------------------------------------------------------------

15.  Stock Based Compensation Plans, Continued

     A summary of the activity  relating to the Company's  stock option plans as
     of December  31, 1999,  December 31, 1998 and August 31, 1998,  and changes
     during the periods then ended is presented below:


<TABLE>
<CAPTION>
                                                                       For the Four Month
                                            For the Year Ended           Period Ended             For the Year Ended
                                             December 31, 1999         December 31, 1998            August 31, 1998
                                            -------------------      ----------------------      ----------------------
                                                       Weighted                   Weighted                    Weighted
                                                       Average                    Average                     Average
                                                       Exercise                   Exercise                    Exercise
                                            Shares      Price         Shares       Price          Shares       Price
                                           --------    --------      ---------    ---------      ----------   ---------
<S>                                         <C>          <C>         <C>              <C>         <C>             <C>
     Outstanding at beginning of year       982,883      $2.43       1,012,883        $2.45         656,633       $1.65
     Exercised                             (585,383)      1.62             --           --          (31,250)       2.00
     Granted                                364,350       1.18             --           --          555,000        3.97
     Cancelled/repriced                         --         --          (30,000)        2.81        (150,000)       4.60
     Forfeited                             (155,000)      1.26             --           --          (17,500)       3.14
                                           --------                  ---------                   ----------
     Outstanding at end of year             606,850       2.24         982,883         2.43       1,012,883        2.43
                                           ========                  =========                   ==========
</TABLE>

     The following table summarizes  information about stock options outstanding
     at December 31, 1999:

<TABLE>
<CAPTION>
                                                  Weighted Average
                          Outstanding  at      Remaining Contractual     Exercisable at
     Exercise Prices     December 31, 1999        Life (in Years)       December 31, 1999
     ---------------     -----------------     ---------------------    -----------------
<S>                              <C>                     <C>                      <C>
       $1.30 - $1.60              98,100                 5                         88,250
                2.00             286,250                 5                        258,439
                3.00             212,500                 8                         43,750
                4.00              10,000                 7                          5,000
                         -----------------                              -----------------
       $1.30 to 4.00             606,850                                          395,439
                         =================                              =================
</TABLE>


     SFAS No.  123  requires  the use of  option  valuation  models  to  provide
     supplemental  information  regarding  options granted after 1994. Pro forma
     information  regarding  net income and  earnings  per share shown below was
     determined as if the Company had  accounted for its employee  stock options
     under the fair value method of that statement.

     The fair value of each option  granted was  estimated  at the date of grant
     using  the  Black-Scholes  option  pricing  model  (the  "BSOPM")  with the
     following  weighted average  assumptions used for grants in the years ended
     December 31, 1999 and August 31, 1998,  respectively:  dividend yield of 0%
     for  both  years;  expected  volatility  of 0.96  and  1.17,  respectively;
     risk-free  interest  rate of 5.57% and 4.90%,  respectively;  and  expected
     contractual  life of 10 years for both years.  The  weighted  average  fair
     value of options  granted  during the years  ended  December  31,  1999 and
     August  31,  1998 was $1.96 and $3.07,  respectively.  There were no grants
     during the four month period ended December 31, 1998.

                                      F-29

<PAGE>


                             USA Biomass Corporation

                 Notes to the Consolidated Financial Statements
           For the Year Ended December 31, 1999, the Four Month Period
                           Ended December 31, 1998 and
                       For The Year Ended August 31, 1998
--------------------------------------------------------------------------------

15.  Stock Based Compensation Plans, Continued

     The BSOPM was  developed  for use in  estimating  the fair  value of traded
     options.   The  Company's  employee  stock  options  have   characteristics
     significantly  different  from  those of  traded  options  such as  vesting
     restrictions  and  extremely  limited  transferability.  In  addition,  the
     assumptions  used  in  option  valuation  models  are  highly   subjective,
     particularly the expected stock price  volatility of the underlying  stock.
     Because changes in these subjective input assumptions can materially affect
     the fair value estimate,  in management's  opinion,  the existing models do
     not  provide a reliable  single  measure of the fair value of its  employee
     stock options.

     For  purposes of pro forma  disclosures,  the  estimated  fair value of the
     options is  amortized  over the  options'  vesting  periods.  The pro forma
     effect on net loss for the periods  presented is not  representative of the
     pro forma effect on net loss in future years  because it does not take into
     consideration pro forma  compensation  expense related to grants made prior
     to 1994. The Company's pro forma information is as follows:

<TABLE>
<CAPTION>
                                                                             For the Four Month
                                                     For the Year Ended         Period Ended        For the Year Ended
                                                      December 31, 1999       December 31, 1998       August 31, 1998
                                                     -------------------    --------------------    ------------------
<S>                                                        <C>                   <C>                    <C>
       Net loss, as reported                               $9,186,746            $2,033,064             $15,785,686
       Net loss, pro forma                                 $9,565,709            $2,069,014             $16,803,346
       Basic and diluted loss per share, as reported       $     1.35            $     0.31             $      2.19
       Basic and diluted loss per share, pro forma         $     1.40            $     0.31             $      2.21
</TABLE>


     Common stock warrants issued in the periods  presented to non-employees for
     services rendered  primarily under consulting  agreements are accounted for
     based on the fair value of the consideration  received or the fair value of
     the equity instrument issued, whichever is more reliably measurable.

                                      F-30

<PAGE>


                             USA Biomass Corporation

                 Notes to the Consolidated Financial Statements
           For the Year Ended December 31, 1999, the Four Month Period
                           Ended December 31, 1998 and
                       For The Year Ended August 31, 1998
--------------------------------------------------------------------------------

15.  Stock Based Compensation Plans, Continued

     A summary of the activity  relating to warrants as of December 31, 1999 and
     1998,  and changes  during the year ended December 31, 1999, the four month
     period  ended  December  31,  1998 and the year ended  August  31,  1998 is
     presented below:

<TABLE>
<CAPTION>
                                                                        For the Four Month
                                               For the Year Ended          Period Ended          For the Year Ended
                                                December 31, 1999        December 31, 1998        August 31, 1998
                                               -------------------     ----------------------    -------------------
                                                          Weighted                   Weighted               Weighted
                                                          Average                    Average                Average
                                                          Exercise                   Exercise               Exercise
                                               Warrants    Price       Warrants       Price      Warrants    Price
                                               --------   --------     --------      --------    --------   --------
<S>                                             <C>          <C>        <C>             <C>       <C>          <C>
     Outstanding at beginning of period         479,500      $3.29      479,500         $3.29     362,500      $1.66
        Granted                                     --         --           --            --      117,000       1.63
        Expired                                (340,000)      2.00          --            --          --         --
                                               --------                --------                  -------
        Outstanding at end of period            139,500       6.43      479,500          3.29     479,500       3.29
                                                =======                ========                  ========
</TABLE>


     The range of exercise  prices of warrants  outstanding at December 31, 1999
     was $4.50 to $6.67.  The weighted  average  fair value of warrants  granted
     during the year ended August 31, 1998 was $3.25.

     The following table summarizes  information  about warrants  outstanding at
     December 31, 1999:

Estimated
<TABLE>
<CAPTION>
                                                 Volatility            Dividend       Risk-Free         Lives
                                                   Factor                Yield     Interest Rates     (In Years)
                                               --------------          --------    --------------     ----------
<S>                                            <C>                         <C>          <C>                <C>
                  1998 warrant grants               1.032                  0%           5.20%              4
                  1997 warrant grants          1.080 to 1.184              0%           5.34%              2
</TABLE>

16.  Disclosures about Fair Values of Financial Instruments

     The  estimated  fair value  amounts  of all  financial  instruments  on the
     Company's December 31, 1999 and 1998 balance sheets have been determined by
     using available market information and appropriate valuation methodologies.
     Fair  value is  described  as the amount at which the  instrument  could be
     exchanged in a current transaction between informed willing parties,  other
     than in a forced liquidation. However, considerable judgment is necessarily
     required  in  interpreting  market data to develop  the  estimates  of fair
     value.  Accordingly,  the estimates  presented  herein are not  necessarily
     indicative  of the  amounts  that the  Company  could  realize in a current
     market exchange.  The use of different market assumptions and/or estimation
     methodologies  may have a  material  effect  on the  estimated  fair  value
     amounts.  The  Company  does  not  have  any off  balance  sheet  financial
     instruments.

                                      F-31

<PAGE>


                             USA Biomass Corporation

                 Notes to the Consolidated Financial Statements
           For the Year Ended December 31, 1999, the Four Month Period
                           Ended December 31, 1998 and
                       For The Year Ended August 31, 1998
--------------------------------------------------------------------------------

16.  Disclosures about Fair Values of Financial Instruments, Continued

     The  following  methods  and  assumptions  were  used  by  the  Company  in
     estimating fair value disclosures for financial statements:

          Cash and equivalents,  accounts receivable, cash held in escrow and in
          trust,  other current  assets,  accounts  payable,  current portion of
          notes  payable,  and  certain  other  current  liability  amounts  are
          reported in the  balance  sheet at  approximate  fair value due to the
          short term maturities of these instruments.

          The fair value of noncurrent notes payable is estimated by determining
          the net present value of future  payments.  The carrying amount on the
          balance  sheet  approximates  the  fair  value as the  interest  rates
          approximate  current market rates with the exception of one noncurrent
          note with a carrying amount of $810,153 and a fair value of $686,354.

17.  Loss per Common Share

     Basic and diluted loss per common share have been  computed by dividing the
     loss available to common  stockholders  by the  weighted-average  number of
     common shares for the period.  Loss available to common stockholders is the
     loss after adding to the loss any preferred  stock  dividend  requirements.
     The  additional  common  shares  that would be  issuable  for  options  and
     warrants  outstanding are ignored, as to include them in the calculation of
     diluted loss per share would be antidilutive.

     The computations of basic and diluted loss per common share are as follows:

<TABLE>
<CAPTION>
                                                                                   For the Four Month
                                                         For the Year Ended           Period Ended         For the Year Ended
                                                         December 31, 1999         December 31, 1998       August 31, 1998
                                                         ------------------        ------------------      ------------------
<S>                                                           <C>                       <C>                 <C>
     Loss from continuing operations                          $1,734,717                $1,218,514          $5,838,804
          Add: dividends on preferred
             shares-declared                                         --                       --               497,276
          Add: dividends on preferred shares
             - paid upon conversion                              216,928                      --                  --
          Add: dividends on preferred shares
             - cumulative, not declared                          671,850                   297,133             362,059
          Add: excess fair market value given
             in preferred stock conversion to
             common stock                                        609,284                      --                  --
                                                              ----------                ----------          ----------

     Loss to common shareholders                               3,232,779                 1,515,647           6,698,139
</TABLE>

                                      F-32

<PAGE>


                             USA Biomass Corporation

                 Notes to the Consolidated Financial Statements
           For the Year Ended December 31, 1999, the Four Month Period
                           Ended December 31, 1998 and
                       For The Year Ended August 31, 1998
--------------------------------------------------------------------------------

17.  Loss per Common Share, Continued


<TABLE>
<CAPTION>
                                                                              For the Four Month
                                                    For the Year Ended           Period Ended         For the Year Ended
                                                    December 31, 1999         December 31, 1998       August 31, 1998
                                                    ------------------        ------------------      ------------------
<S>                                                   <C>                    <C>                       <C>
     Loss from discontinued operations,
        including loss on disposal                    $    7,452,029         $      814,550            $    9,946,882
                                                      --------------         --------------            --------------

     Net loss available to common shareholders
                                                      $   10,684,808         $    2,330,197            $   16,645,021
                                                      ==============         ==============            ==============

     Weighted average shares - basic and
        diluted                                            7,896,229              7,737,135                 7,595,556
                                                      ==============         ==============            ==============

     Loss per Common Share -  Basic and Diluted

     Loss per share from continuing operations        $         0.41         $         0.20            $         0.88
     Loss per share from discontinued
        operations, including loss on disposal                  0.94                   0.11                      1.31
                                                      --------------         --------------            --------------
     Net loss per share available to  common
        shareholders                                  $         1.35         $         0.31            $         2.19
                                                      ==============         ==============            ==============
</TABLE>


     The effect of the  potentially  dilutive  securities  listed below were not
     included in the computation of diluted  earnings per share because to do so
     would have been antidilutive for the periods presented.

<TABLE>
<CAPTION>
                                                                          For the Four Month
                                                    For the Year Ended      Period Ended        For the Year Ended
                                                    December 31, 1999     December 31, 1998      August 31, 1998
                                                    ------------------    ------------------    ------------------
<S>                                                      <C>                   <C>                  <C>
     Shares of common stock issuable under:
        Employee stock options                             386,850               982,883              449,084
        Warrants                                           379,500               479,500              182,227
        Series A Convertible Preferred Stock             1,335,960             1,345,500            1,345,500
        Series B Convertible Preferred Stock                  --                 591,621              404,414
</TABLE>


     Warrants to purchase an additional 12,500 and 10,000 shares of common stock
     with  exercise  prices of $4.50 and $6.00  per  share,  respectively,  were
     outstanding  during the  periods  presented  and were not  included  in the
     computation  of diluted  earnings per share because their  exercise  prices
     were greater than the average  market  prices of the common shares for each
     of the periods presented.

                                      F-33

<PAGE>


                             USA Biomass Corporation

                 Notes to the Consolidated Financial Statements
           For the Year Ended December 31, 1999, the Four Month Period
                           Ended December 31, 1998 and
                       For The Year Ended August 31, 1998
--------------------------------------------------------------------------------

18.  Stock Transactions

     Series A Convertible Preferred Stock and Related Transactions

     During the first  quarter of the year ended  August 31,  1998,  the Company
     sold 747,500 shares of its Series A 9% Convertible Preferred stock ("Series
     A Preferred stock") at $10 per share. In connection with the offering,  the
     Company  granted the  underwriters  warrants to purchase  65,000  shares of
     Series A  Preferred  stock at $12 per  share,  which  were  exercisable  in
     September 1998 and expire four years thereafter.

     The Series A Preferred stock is convertible into the Company's common stock
     at the  option of the  holder  at any time at a price  equal to 125% of the
     common  stock  closing  price on  September  24, 1997 of $4.4375 per share,
     which represents approximately 1.8 shares of common stock for each share of
     Series A  Preferred  stock upon  conversion.  The  Company  may convert the
     Series A Preferred  stock to common  stock at such time as the common stock
     has traded for 20  consecutive  days at 150% of the closing  stock price on
     September  24,  1997.  In the event the  number of shares of the  Company's
     common stock is increased or decreased as a result of a stock split,  stock
     dividend, reverse stock split, or otherwise, the number of shares of common
     stock into which each share of Series A  Preferred  stock may be  converted
     shall  concurrently  be  proportionately  increased or decreased.  Further,
     after five years,  the  Company may redeem the Series A Preferred  stock at
     $10.00 per share.  Upon  notice by the  Company to redeem,  the  holders of
     Series A Preferred stock will have 30 days to elect to convert their Series
     A shares to common  stock at 125% of its  closing  price on  September  24,
     1997.

     The Series A Preferred  stock provides for a 9% annual dividend of $.90 per
     share payable quarterly.  Dividends  accumulate whether or not declared and
     must be paid prior to any dividend  distribution to the holders of Series B
     Preferred  stock or common stock.  In any liquidation or dissolution of the
     Company,  the  holders of Series A  Preferred  stock will be  entitled to a
     liquidation  preference  of $10 per  share  plus all  related  accumulated,
     accrued,  and  unpaid  dividends.  Further,  if the  Company  does  not pay
     dividends on the Series A Preferred  stock for eight  cumulative  quarters,
     the  holders  of  Series A  Preferred  stock  have the  right to elect  the
     majority of the Company's Board of Directors.  As of December 31, 1999, the
     Company had not declared dividends for six consecutive  quarters.  In March
     2000, the Company declared and paid dividends for three quarters,  totaling
     $416,340 and the  cumulative  dividends  not declared at April 10, 2000 was
     $553,959 ($.90 per share). No dividend in April 2000 was declared.

     Series B Convertible Preferred Stock and Related Transactions

     In December 1999, the Company  exchanged 591,621 shares of its common stock
     for Series B  Preferred  stock in the ratio of one and  one-half  shares of
     common stock for each share of Series B Preferred  stock.  Upon conversion,
     the  cumulative  dividends in arrears of $538,459 were paid by the issuance
     of 53,846  additional  shares of Series B Preferred stock. The terms of the
     Series B Preferred  stock provided for conversion of each share of Series B
     Preferred  stock into one share of common stock.  The value of the enhanced
     conversion   has  been  used  to  reduce   earnings   available  to  common
     shareholders in determining earnings per share.

                                      F-34

<PAGE>


                             USA Biomass Corporation

                 Notes to the Consolidated Financial Statements
           For the Year Ended December 31, 1999, the Four Month Period
                           Ended December 31, 1998 and
                       For The Year Ended August 31, 1998
--------------------------------------------------------------------------------

18.  Stock Transactions, Continued

     Shares Issued Under Stock Option Plans

     During the years ended December 31, 1999 and August 31, 1998, stock options
     were  exercised  resulting  in the  purchase of 585,383  common  shares for
     $979,111 and 31,250 common shares for $62,500, respectively.

     Common Stock Issued in Exchange for Debt

     During the year ended August 31, 1998,  the Company issued 14,927 shares of
     common stock at market value in payment of debt of $70,899.

     Shares Issued for the Acquisition of TransPacific Environmental, Inc.

     During the year ended August 31, 1998, the Company issued 406,109 shares of
     common stock for the acquisition of TransPacific Environmental, Inc.

     Shares Issued in Connection with Legal Settlement

     In the year ended August 31, 1998,  the Company  issued  144,000  shares of
     common  stock  in  connection  with  a  judgment  rendered  by a  court  in
     litigation  brought by an individual and the estate of a former officer and
     shareholder.  As a result of the judgment,  the issuance of these shares is
     recorded as settlement expense.

     Treasury Stock Repurchase Program

     The Company's Board of Directors on November 10, 1997 authorized management
     to  purchase  up to  $1,000,000  worth of its common  stock over a 12 month
     period.  As of December 31, 1999 and 1998,  the Company had  repurchased at
     market value 24,250 shares for $118,339.

     Common Shares Reserved for Future Issuance

     At December 31, 1999,  the Company has  reserved  common  shares for future
     issuance as follows:

         Stock option plans                                         606,850
         Warrants                                                   139,500
         Convertible preferred stock                              1,335,960
                                                                  ---------


                                                                  2,082,310
                                                                  =========

                                      F-35

<PAGE>


                             USA Biomass Corporation

                 Notes to the Consolidated Financial Statements
           For the Year Ended December 31, 1999, the Four Month Period
                           Ended December 31, 1998 and
                       For The Year Ended August 31, 1998
--------------------------------------------------------------------------------

19.  Business Segments

     SFAS No.  131,  Disclosure  about  Segments  of an  Enterprise  and Related
     Information,   establishes   standards  for  reporting   information  about
     operating  segments in annual  financial  statements and requires  selected
     information about operating segments in interim financial reports issued to
     stockholders. Operating segments are defined as components of an enterprise
     about which separate  financial  information is available that is evaluated
     regularly by the chief operating decision maker in deciding how to allocate
     resources and in assessing performance.

     Each of these operating  segments is considered a reportable  segment,  and
     the  accounting  policies of the  operating  segments are the same as those
     described in Note 2. The Company  evaluates the performance of its segments
     and  allocates  resources to them based on revenue and EBITDA.  The Company
     defines EBITDA as earnings before interest,  income taxes, depreciation and
     amortization, and other nonoperating income and expense.

     Certain financial information is presented below:



<TABLE>
<CAPTION>
                                           Green Waste       Waste
                                           Recycling        Transport        Other          Total
                                          ------------    ------------   ------------   ------------
<S>                                       <C>             <C>            <C>            <C>
     Year ended December 31, 1999:
        Revenue                           $  2,084,098    $  5,560,809           --     $  7,644,907
        EBITDA                                (375,503)        953,598   $   (714,338)     (136,243)
        Assets                               1,916,002       5,444,436      4,275,697     11,636,135
        Depreciation and amortization          371,934         604,417         32,577      1,008,928
        Interest, net                          226,146         464,693        134,351        825,190
     Four months ended December 31, 1998:
        Revenue                           $  1,122,595    $    902,235   $       --     $  2,024,830
        EBITDA                                (356,634)        164,115       (349,021)      (541,540)
        Assets                               3,430,480       5,382,814     17,670,183     26,483,477
        Depreciation and amortization          171,732          97,173         16,419        285,324
        Interest, net                          146,688          84,645        158,096        389,429
     Year ended August 31, 1998:
        Revenue                           $  2,005,611            --     $       --     $  2,005,611
        EBITDA                              (3,898,672)           --       (1,934,396)    (5,833,068)
        Assets                               3,258,418            --       18,212,661     21,471,079
        Depreciation and amortization          249,631            --          108,266        357,897
        Interest, net                          198,864            --          463,025        661,889
</TABLE>

                                      F-36

<PAGE>


                             USA Biomass Corporation

                 Notes to the Consolidated Financial Statements
           For the Year Ended December 31, 1999, the Four Month Period
                           Ended December 31, 1998 and
                       For The Year Ended August 31, 1998
--------------------------------------------------------------------------------

20.  Subsequent Events

     Acquisition of American Waste Transport

     In March 2000, the Company  acquired  substantially  all of the outstanding
     shares  of  American  Waste  Transport  ("AWT")  for cash in the  amount of
     $750,000  and up to one  million  shares  of the  Company's  common  stock,
     subject to resolution of certain  contingencies.  This business combination
     will be accounted for using the purchase method.

     The following  unaudited pro forma  consolidated  results of operations are
     presented as if the acquisition of AWT had taken place at January 1, 1999.

                                                                   Year Ended
                                                               December 31, 1999
                                                               -----------------
     Revenue                                                       22,588,000
                                                                 ------------
     Net loss from continuing operations                            1,570,024
                                                                 ------------
     Net loss                                                       9,022,053
                                                                 ------------
     Net loss per share, basic and diluted                       $      (1.16)
                                                                 ------------


     Sale of Series C Convertible Preferred Stock

     In March 2000,  the Company issued 3,000 shares of its Series C Convertible
     Preferred stock at $1,000 per share. In conjunction with the offering,  the
     Company issued warrants to purchase  100,000 shares of the Company's common
     stock at $4.65 per share.  The  warrants may be exercised at any time until
     they expire on March 31, 2005.

     The Series C Convertible  Preferred  shares may be converted at any time at
     $4.65 per share and provide for a 6% annual dividend rate. In addition, the
     Company is precluded from payment of dividends on or purchase of its common
     stock.

     A portion of the proceeds of this offering was used for the AWT acquisition
     described  above  and  for  the  payment  of  dividends  on  the  Series  A
     Convertible  Preferred stock . The remaining proceeds of this offering will
     be used for working capital.

                                      F-37

<PAGE>


21.  Unaudited Quarterly Financial Data

     The  following is a  reconciliation  of 1999 interim  results of operations
     which were impacted by the effect of year-end adjustments:



<TABLE>
<CAPTION>
                                                                                                                     Quarter
                                                                                                                     Ended
                                  Quarter Ended                Quarter Ended               Quarter Ended           December 31,
                                  March 31, 1999               June 30, 1999             September 30, 1999           1999
                          ---------------------------   ---------------------------  ---------------------------   -----------
                           As reported                   As reported                  As reported
                          in Form 10QSB   As adjusted   in Form 10QSB   As adjusted  in Form 10QSB  As adjusted       Actual
                          -------------   -----------   -------------   -----------  -------------  -----------    -----------
<S>                        <C>            <C>            <C>            <C>            <C>          <C>            <C>
     Revenues              $ 2,067,000    $ 2,067,000    $ 1,837,000    $ 1,837,000    $ 1,965,000  $ 1,965,000    $ 1,776,000
                           ===========    ===========    ===========    ===========    ===========  ===========    ===========

     Costs and expenses (1)  2,487,000      2,840,000      1,998,000      1,976,000      1,747,000    2,264,000      2,300,000
                           ===========    ===========    ===========    ===========    ===========  ===========    ===========

     Net income (loss)(2)  $  (420,000)   $  (773,000)   $  (161,000)   $  (139,000)   $    20,000  $  (497,000)   $(7,778,000)
                           ===========    ===========    ===========    ===========    ===========  ===========    ===========

     Net loss per common
       share, basic and
       diluted             $     (0.08)   $     (0.13)   $     (0.05)   $     (0.05)  $     (0.03)  $     (0.09)   $     (1.08)
                           ===========    ===========    ===========    ===========   ===========   ===========    ===========
</TABLE>



(1) Costs and  expenses  increased  primarily  due to  adjustments  relating  to
depreciation,  liability  insurance,  medical insurance,  impairment losses, bad
debt expenses and losses on sale of assets.

(2) The reason for the  significant  loss of $7,778,000  in the fourth  quarter,
when  compared  to  prior  quarters,  is due  to  the  recording  of  loss  from
discontinued operations of approximately $7.4 million.

                                      F-38

<PAGE>



ITEM 13.  EXHIBITS.

     (a)  Exhibits.

          1       Not applicable

          2       Plan of Discontinued Operations (1)

          3.1     Certificate  of  Incorporation  of the Company  filed with the
                  Secretary of State of Delaware on March 10, 1988 (2)

          3.2     Certificate of Amendment of Certificate  of  Incorporation  of
                  the Company  filed with the  Secretary of State of Delaware on
                  December 21, 1988 (2)

          3.3     Certificate of Amendment of Certificate  of  Incorporation  of
                  the Company  filed with the  Secretary of State of Delaware on
                  March 21, 1989 (2)

          3.4     Certificate of Designations,  Preferences and Relative Rights,
                  Qualifications and Restrictions of the Series A 9% Convertible
                  Preferred  Stock of the Company  filed with the  Secretary  of
                  State of Delaware on May 13, 1994 (3)

          3.5     Certificate of Amendment of Certificate  of  Incorporation  of
                  the Company  filed with the  Secretary of State of Delaware on
                  February 24, 1997 (4)

          3.7     Bylaws of the Company, as amended (4)

          4.1     Certificate of Designations,  Preferences and Relative Rights,
                  Qualifications and Restrictions of the Series C 6% Convertible
                  Preferred  Stock of the Company  filed with the  Secretary  of
                  State of Delaware on April 13, 2000

          4.2     Trust  Indenture  between  the  Company and First City Bank of
                  Dallas (2)

          10.1    Stock Option  Agreement dated July 2, 1990 between the Company
                  and Fred H. Behrens (6)

          10.2    Stock Option  Agreement dated July 2, 1990 between the Company
                  and Robert A. Wright (6)

          10.3    Stock Option  Agreement dated July 2, 1990 between the Company
                  and Marlene A. Tapie (6)


<PAGE>



          10.4    Stock  Acquisition  Agreement dated as of November 25, 1997 by
                  and among Gus Franklin and Susan K. Franklin,  the Company and
                  TPE (1)

          10.5    Agreement Regarding  Transportation  Services dated as of June
                  8, 1998 by and  between  USA Waste of  California,  Inc.,  the
                  Company and AMCOR Biomass, Inc. (1)

          10.6    Commercial Lease dated effective as of November 1, 1998 by and
                  between Desert Mist Cooling and the Company (1)

          10.7    Securities  Purchase  Agreement  dated  March 14,  2000 by and
                  between  Siete  Investors  LLC, a Delaware  limited  liability
                  company,  and  the  Company,   including  Registration  Rights
                  Agreement as exhibit thereto (filed as an exhibit to Form SB-2
                  concurrent herewith)

          10.8    Agreement  and  Plan of  Merger  dated  March  1,  2000 by and
                  between  Fred  Alexander,  Linda  Alexander,  AWT  Acquisition
                  Corp., AGI Acquisition Corp.,  American Waste Transport,  Inc.
                  and American Green Waste, Inc. (to be filed)

          11.     Statement re: Computation of Per Share Earnings (Loss)(5)

          21      Subsidiaries of the Company (7)

          23.1    Consent of Independent Auditors

          23.2    Consent of Counsel (8)

          27      Financial Data Schedule(9)

     (b)  Form 8-K filings

          99.1    Form 8-K,  for event  dated  January  12,  1999,  incorporated
                  herein  by this  reference  as filed  with the  Commission  on
                  January 27, 1999,  reporting on Item 8, Change in Fiscal Year,
                  in connection with the Company's Board of Directors'  decision
                  to change the Company's fiscal year from August 31 to December
                  31,  commencing  with  the  calendar  year/fiscal  year  ended
                  December 31, 1998.

          99.2    Form 8-K, for event dated March 1, 2000,  incorporated  herein
                  by this  reference as filed with the  Commission  on March 15,
                  2000,   reporting  on  Item  2,  Acquisition  of  Assets,   in
                  connection with the acquisition of 100% of the common stock of
                  American Waste Transport,  Inc. from Fred and Linda Alexander,
                  non-affiliates of the Company.

          99.3    Form 8-K, for event dated April 8, 2000,  incorporated  herein
                  by this  reference as filed with the  Commission  on April 17,
                  2000, reporting on Item 5, Other Events, in


<PAGE>



                  connection  with the grant of a leave of  absence to Robert A.
                  Wright  from the service of the  Company as  president  of the
                  Company.

          99.4    Form 8-K, for event dated April 19, 2000,  incorporated herein
                  by this  reference as filed with the  Commission  on April 20,
                  2000,  reporting on Item 5, Other Events,  in connection  with
                  the filing of a pro forma  balance sheet at February 29, 2000,
                  to  exhibit  the  Company's  compliance  with the  NASDAQ  net
                  tangible equity requirement for continued listing on the Small
                  Cap Quotation Service.

----------

(1)  Filed as an exhibit to the Company's  Form 10-KSB for the fiscal year ended
     August 31, 1998 and incorporated herein by reference.

(2)  Filed as an exhibit to the  Company's  Form 10-K for the fiscal  year ended
     November 30, 1988 and incorporated herein by reference.

(3)  Filed as Exhibit 4.2 to the Company's Form 10-QSB for the quarterly  period
     ended May 31, 1994, and incorporated herein by reference.

(4)  Amended  Bylaws  filed as an exhibit to the  Company's  Form 10-KSB for the
     fiscal year ended August 31, 1997 as filed with the  Commission on December
     5, 1997 and  incorporated  herein by  reference.  Additional  amendment  to
     Bylaws filed as an exhibit to the  Company's  Form 10-QSB for the quarterly
     period ended  February 28, 1998 as filed with the  Commission  on April 15,
     1998 and incorporated herein by reference.

(5)  Included in Financial Statements

(6)  Filed as an exhibit to the  Company's  Form 10-K for the fiscal years ended
     November 30, 1992, 1991, and 1990 as filed with the Commission on March 15,
     1991 and incorporated herein by reference.

(7)  Filed as an exhibit to the Company's  Form 10-KSB for the fiscal year ended
     August  31,  1997 as filed  with the  Commission  on  December  5, 1997 and
     incorporated herein by reference.

(8)  Included in Exhibit 5.

(9)  Filed as an exhibit to the Company's  Form 10-KSB filed with the Commission
     on April 14, 2000, and incorporated herein by reference.

<PAGE>

                                   SIGNATURES

In accordance  with Section 13 or 15(d) of the Exchange Act, the  Registrant has
caused this Post-  Effective  Amendment No. 2 to Form 10-KSB to be signed on its
behalf by the undersigned in the City of Long Beach, California, on May 5, 2000.

USA Biomass Corporation, a Delaware corporation

------------------------------------
By: /s/ Fred H. Behrens
Its: Chief Executive 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.

USA BIOMASS CORPORATION



---------------------------------
/s/ Marlene Tapie, Director
May 5, 2000


---------------------------------
/s/ Eugene W. Tidgewell, Director
May 5, 2000


---------------------------------
/s/ Fred H. Behrens, Director
May 5, 2000


---------------------------------
/s/ Michael J. Silva, Director
May 5, 2000