<PAGE>


                                  UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D. C. 20549

                                    FORM 10-K

                                   (Mark One)
  [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
           ACT OF 1934 for the fiscal year ended December 31, 2001 OR

    [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
        EXCHANGE ACT OF 1934 For the transition period from
                                                            ------------------
                              to
                                -----------------

                         Commission file number 0-22417

                              WASTE HOLDINGS, INC.
             (Exact name of registrant as specified in its charter)

               NORTH CAROLINA                          56-0954929
       (State or other jurisdiction of              (I.R.S. Employer
        incorporation or organization)              Identification No.)

           3301 BENSON DRIVE, SUITE 601
             RALEIGH, NORTH CAROLINA                       27609
     (Address of principal executive offices)           (Zip Code)

       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (919) 325-3000
        SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: None
           SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
                      common stock (no par value per share)

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

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

The aggregate market value of the voting stock held by non-affiliates of the
registrant based upon the closing price of the common stock on March 25, 2002,
on the NASDAQ National Market System was approximately $82,675,159 as of such
date. Shares of common stock held by each executive officer and director and by
each person who owns 10% or more of the outstanding common stock have been
excluded in that such persons may be deemed to be affiliates. This determination
of affiliate status may not be conclusive for other purposes.

As of March 25, 2002 the registrant had outstanding 13,334,703 shares of common
stock.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Company's Proxy Statement for the 2002 Annual Meeting of
Shareholders are incorporated herein by reference into Part III.

<PAGE>

                   NOTE RELATING TO FORWARD-LOOKING STATEMENTS

Statements in this Annual Report on Form 10-K that are not descriptions of
historical facts are forward-looking statements that are subject to risks and
uncertainties. These statements and other statements made elsewhere by us or our
representatives, which are identified or qualified by words such as "likely,"
"will," "suggests," "expects," "may," "believe," "could," "should," "would,"
"anticipates," "plans" or similar expressions, are based on a number of
assumptions. Actual events or results could differ materially from those
currently anticipated due to a number of factors, including those set forth
herein and in our other SEC filings and including, in particular: our ability to
manage growth; the availability and integration of acquisition targets; weather
conditions; competition; geographic concentration; and government regulation.
Shareholders, potential investors and other readers are urged to consider these
factors carefully in evaluating the forward-looking statements and are cautioned
not to place undue reliance on such forward-looking statements. The
forward-looking statements made herein are only made as of the date of this
report and we undertake no obligation to publicly update such forward-looking
statements to reflect subsequent events or circumstances.

                                     PART I

ITEM 1. BUSINESS

INTRODUCTION

     Waste Holdings Inc. is a regional, vertically integrated solid waste
services company. We provide solid waste collection, transfer, disposal and
recycling services to commercial, industrial and residential customer locations
in North Carolina, South Carolina, Virginia, Tennessee, Mississippi, Alabama,
Georgia and Florida. Our principal operations as of December 31, 2001 consisted
of 40 collection operations, 26 transfer stations, approximately 100 county
convenience drop-off centers, eight recycling facilities and ten landfills,
serving more than 360,000 municipal, residential, commercial and industrial
customer locations.

     Members of the senior management team founded Waste Holdings in 1970 and
are recognized for their leadership roles throughout the solid waste management
industry and trade organizations. Our management team collectively has over 198
years of experience in the solid waste industry and over 128 years with Waste
Holdings.

Recent Developments

     During 2001, we made three acquisitions and sold one business operation.
For more detail on these transactions, see "2001 Acquisitions and Disposition"
starting on page 6.

     Total revenues increased $6.9 million, or 2.8%, for the 12-month period
ended December 31, 2001, compared to the same period in 2000. However, net
income decreased $0.3 million, or 3.6%, for the 12-month period ended December
31, 2001, compared to the same period in 2000. For more detail on our results of
operations and the causes of these changes, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations" starting on page 20.

     Waste Holdings is the successor in interest to Waste Industries, Inc. Waste
Holdings was formed in September 2000 as part of our company's holding company
reorganization, which was completed on March 31, 2001.

Industry Overview

     In recent years, the solid waste collection and disposal industry has
undergone a period of significant consolidation and integration. We believe that
this consolidation and integration has been caused primarily by:

     .    increasingly stringent environmental regulation and enforcement
          resulting in increased capital requirements for collection companies
          and landfill operators;

     .    the ability of larger integrated operators to achieve certain
          economies of scale;

     .    the increased integration of collection, transfer, disposal and
          recycling capabilities; and

     .    the continued privatization of solid waste collection and disposal
          services by municipalities and other governmental bodies and
          authorities.

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     Despite the considerable consolidation and integration that has occurred in
the solid waste industry in recent years, we believe, based on our experience in
the industry, that the industry remains primarily regional in nature due to the
localized nature of collecting and disposing of waste and highly fragmented due
to the many small competitors in many markets.

     The increasingly stringent industry regulations, such as the Subtitle D
Regulations, have resulted in rising operating and capital costs and have caused
consolidation and acquisition activities to accelerate in the solid waste
collection and disposal industry. Many of the smaller industry participants have
found these costs difficult to bear and have decided to either close their
operations or sell them to larger operators. In addition, Subtitle D requires
more stringent engineering of solid waste landfills including liners, leachate
collection and monitoring and gas collection and monitoring. These ongoing costs
are coupled with increased financial reserves from solid waste landfill
operators for closure and post-closure monitoring. As a result, we believe,
based on our market research, the number of solid waste landfills is declining
while the size of solid waste landfills is increasing.

     In many markets in which we operate or intend to expand, competitive
pressures are forcing operators to become more efficient by establishing an
integrated network of solid waste collection operations and transfer stations,
through which we secure solid waste streams for disposal. Operators have adopted
a variety of disposal strategies, including owning landfills, establishing
strategic relationships to secure access to landfills, or by otherwise capturing
significant waste stream volumes to gain leverage in negotiating lower landfill
fees and securing long-term contracts with high capacity landfills on most
favored pricing status terms.

     In the Southeastern U.S. solid waste market, which is our market, city and
county governments have historically provided a variety of solid waste services
using their own personnel. Over time, many municipalities have opted to
privatize or contract out their collection and disposal services to the private
sector. Landfills, transfer stations and incinerators located in our market area
are predominantly municipally owned. The Southeastern market is currently
undergoing significant economic and population growth. Certain states in the
Southeastern U.S. exceed the national average in terms of economic growth as
measured by gains in jobs, personal income and population.

     There is an increasing trend at the state and local levels to encourage
waste reduction at the source and to prohibit the disposal of certain types of
wastes, such as yard wastes and recyclable materials, at landfills. For example,
North Carolina, South Carolina and Virginia have each established quantifiable
goals and time frames to reduce the solid waste disposed of in their respective
landfills. We believe, based on our experience in the industry, that these
trends and laws have created significant opportunities for solid waste services
companies to provide additional recycling services to generators of solid waste
who are not otherwise able to dispose of such waste.

Strategy

     Our objective is to build the premier solid waste services company in the
Southeastern U.S. by expanding our operations and capitalizing on our strong
market presence. Our strategy for achieving this objective is:

     .    to generate internal growth by adding customers and services to our
          existing operations;

     .    to acquire solid waste collection companies, customers and, under
          appropriate circumstances, landfills in existing and new areas of our
          target market; and

     .    to increase operating efficiencies and enhance profitability in our
          existing and acquired operations.

     We intend to implement this strategy primarily through internal growth
supplemented by tuck-in acquisitions in our existing markets. We expect
acquisitions in new markets to be more limited than in the prior two years. We
continue to examine opportunities to expand our presence in new and existing
markets in the Southeastern U.S. There can be no assurance that we will be able
to identify suitable acquisition candidates or, if identified, successfully
negotiate their acquisition. If we fail to implement successfully our
acquisition strategy, our growth potential will be limited.

Internal Growth

     In order to continue to achieve internal growth, we will focus on
increasing sales penetration in current and adjacent market areas, marketing
upgraded or additional services (such as on-site solid waste compaction) to
existing customers and implementing selective price increases. We are the first
or second largest provider, in terms of market share, of waste services in the
majority of the markets in which we operate. Current levels of population growth
and economic development in the Southeastern U.S. and our strong market presence
should provide an opportunity for us to increase revenues and market share in
our region. As customers are added in existing markets, our density is improved,
which should increase our collection efficiencies and profitability. At December
31, 2001, we had

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an approximately 53-person sales force dedicated to maintaining and increasing
our sales to new and existing commercial, industrial, municipal and residential
customers.

     An important part of our internal growth strategy is to operate transfer
stations strategically located throughout our geographic area to improve our
consolidation of collected solid waste and permit us to deliver the collected
solid waste to landfills where we have negotiated favorable volume rates with
landfill operators or to dispose of it at sites we own. At December 31, 2001, we
operated 26 transfer stations, seven of which we own. By operating transfer
stations, we engage in direct communication with municipalities that own the
transfer stations regarding waste disposal services, better positioning us to
gain additional business in our markets in the event any of these municipalities
privatize their solid waste operations. To the extent we are unable to operate
existing transfer stations owned by municipalities, we would consider
constructing our own transfer station.

Expansion Through Acquisitions

     Our strategy for growth includes:

     .    "tuck-in" and other acquisitions of solid waste collection companies
          and customers in existing and adjacent markets;

     .    the acquisition of solid waste collection companies and customers in
          new markets; and

     .    the acquisition of landfills in certain circumstances.

     We seek to acquire companies with a significant market presence, high
service standards and an experienced management team willing to remain with
Waste Holdings.

     Based on our market research, we believe that numerous "tuck-in"
acquisition opportunities exist within our current market area. A "tuck-in"
acquisition refers to an acquisition in which we acquire a solid waste
collection company, a division of a company or customers of a company located in
our existing market area, and integrate the acquired operations or customers
into the operations of one of our existing branch facilities. These acquisitions
have become an integral part of the industry competitive model due to the
efficiencies involved. Such acquisitions, if consummated, provide us with
opportunities to improve market share and route density.

     As we enter new markets through acquisitions, we intend to continue to
implement a regional expansion strategy. The regional expansion strategy
provides us with a base of operations to grow internally through price
increases, providing additional services to existing customers, adding new
private and public customers as well as tuck-in acquisitions. We can then expand
our presence in the targeted region by adding solid waste collection and
transfer operations in regional markets adjacent to or contiguous with the new
location. Because our goal is to increase the scale of our operations through
internal growth and through the acquisition of other solid waste businesses, we
might experience periods of rapid growth with significantly increased staffing
requirements. Such growth, if it were to occur, could place a significant strain
on our management and on our operational, financial and other resources. Our
ability to maintain and manage our growth effectively will require us to expand
our management information systems capabilities and improve our operational and
financial systems and controls. Moreover, we will need to attract, train,
motivate, retain and manage our senior managers, technical professionals and
other employees. Any failure to expand our management information systems
capabilities and our operational and financial systems and controls or to
recruit appropriate additional personnel in an efficient manner at a pace
consistent with any business growth we may experience would have a material
adverse effect on our operations.

     The recent consolidation and integration activity in the solid waste
industry, as well as the difficulties, uncertainties and expenses relating to
the development and permitting of solid waste landfills and transfer stations,
has increased competition for the acquisition of existing solid waste
collection, transfer and disposal operations. Increased competition for
acquisition candidates as well as less advantageous acquisition terms, including
increased purchase prices might result in fewer acquisition opportunities being
made available to us. These circumstances might increase acquisition costs to
levels beyond our financial capability or pricing parameters. Such circumstances
might have an adverse effect on our results of operations. Many of our
competitors for acquisitions are larger, better known companies which possess
significantly greater resources than we have. We also believe, based on our
experience, that a significant factor in our ability to consummate acquisitions
will be the relative attractiveness of shares of our common stock as an
investment instrument to potential acquisition candidates. This attractiveness
will, in large part, be dependent upon the relative market price and capital
appreciation prospects of our common stock compared to the equity securities of
our competitors.

     In the past several years, we have been and expect to continue to be
actively engaged in identifying solid waste landfill acquisition candidates in
the Southeastern U.S., although the number of candidates is limited in our
current market area. Based on our experience in the industry, we believe that
the successful acquisition of landfills will provide us with opportunities to
integrate vertically our collection, transfer and disposal operations while
improving operating margins. Generally, we will evaluate a landfill target by
determining, among other things, whether access to the landfill is economically
feasible from our existing market areas either directly or through strategically
located transfer stations, expected landfill life, the potential for landfill
expansion, and current

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disposal costs compared with the cost to acquire the landfill. In addition,
where the acquisition of a landfill site is either not available or not
economically feasible, we seek to enter into long-term disposal contracts with
facilities that are located in proximity to our market areas.

Acquisition Program

     From 1990 through December 31, 2001, we acquired, either by merger or asset
purchase, 61 solid waste collection or disposal operations, with three being
acquired in 2001, seven being acquired in 2000, and 15 being acquired in 1999.
We have developed a set of financial, geographic and management criteria
designed to assist management in the evaluation of acquisition candidates
engaged in solid waste collection and disposal. These criteria evaluate a
variety of factors, including, but not limited to:

     .    historical and projected financial performance;

     .    internal rate of return, return on assets and return on revenue;

     .    experience and reputation of the candidate's management and customer
          service reputation and relationships with the local communities;

     .    composition and size of the candidate's customer base;

     .    whether the geographic location of the candidate will enhance or
          expand our market area or ability to attract other acquisition
          candidates;

     .    whether the acquisition will augment or increase our market share or
          help protect our existing customer base;

     .    any synergies gained by combining the acquisition candidate with our
          existing operations; and

     .    liabilities of the candidate.

     We have an established integration procedure for newly acquired companies
designed to effect a prompt and efficient integration of the acquired business
while minimizing disruption to our ongoing business and that of the acquired
business. Once a solid waste collection operation is acquired, programs designed
to improve collection and disposal routing, equipment maintenance and
utilization, employee productivity, operating efficiencies and overall
profitability are implemented. To improve an acquired business' operational
productivity, administrative efficiency and profitability, we apply the same
benchmarking programs and systems to the acquired business as are employed at
our existing operations. We also solicit new commercial, industrial and
residential customers in areas within and surrounding the markets served by the
acquired collection operations as a means of further improving operating
efficiencies and increasing the volumes of solid waste collected by the acquired
operation. We typically attempt to retain the acquired company's management and
key employees and to decentralize operations, while consolidating administrative
and management information systems through our corporate offices.

     Prior to completing an acquisition, we perform extensive environmental,
operational, engineering, legal, human resource and financial due diligence. All
acquisitions are subject to initial evaluation and approval by our management
before being recommended to our Board of Directors.

                                       5

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<TABLE>
<CAPTION>
                             Year             Principal
      Company              Acquired            Business               Location         Market Area
-----------------------    --------    -----------------------    -----------------    ------------
<S>                          <C>       <C>                        <C>                  <C>
Commercial routes from       2001      Commercial Collections     Memphis &            Southwest TN
Allied Waste Industries                                           Nashville, TN;       Central TN
                                                                  Norfolk, VA;         Southeast VA

Andrews Garbage Service      2001      Residential and            Crossville, TN       Central TN
                                       Commerical Collections

Red Rock Landfill            2001      Construction and           Holly Springs, NC    Central NC
                                       Demolition Landfill
</TABLE>

     2001 Acquisitions and Disposition

     On March 1, 2001, we acquired commercial routes in Memphis and Nashville,
Tennessee; Norfolk, Virginia; Augusta, Georgia; and Pensacola, Florida for $5.0
million in cash from Allied Waste Industries, Inc. The Memphis and Norfolk
operations are tuck-ins to existing operations. Subsequently, the Augusta and
Pensacola routes were sold for approximately $800,000 in cash.

     On May 15, 2001, we disposed of a business unit for $426,000 in cash and
notes to Capital Cartage, Inc.

     On September 27, 2001, we acquired residential and commercial routes from
Andrews Garbage Service as a tuck-in to existing operations in Crossville,
Tennessee for approximately $216,000 in cash.

     On November 1, 2001, we acquired real estate and the permit to construct
and develop a construction and demolition landfill in Holly Springs, North
Carolina from Holly Springs Landfill, LLC for $5.6 million in cash. This
acquisition provides us with our tenth landfill.

     We primarily used borrowings under our revolving credit facility to fund
acquisitions during 2001.

Operating Enhancements

     We have implemented advanced management information systems, financial
controls, shared support services and benchmarking systems designed to improve
the productivity, efficiency and profitability of our existing and acquired
operations. Each branch facility has on-line real time access to our financial,
operating, cost and customer information. This access enables our managers to
evaluate continuously our performance record and to establish benchmarks in all
phases of our operations. Management utilizes these systems to:

     .    improve collection and transportation efficiencies;

     .    enhance equipment and personnel utilization;

     .    reduce equipment acquisition and maintenance costs;

     .    reduce disposal costs by maximizing waste streams directed to lower
          cost landfills;

     .    monitor and collect customer accounts on a timely basis; and

     .    provide current information to our sales force to ensure properly
          structured pricing for new customers.

     Through the utilization of our systems and controls, we will continue to
manage our landfill disposal costs and to negotiate long-term disposal contracts
with Subtitle D landfill operators. In addition, we have developed an extensive
network of transfer stations that we use to consolidate waste streams to gain
greater leverage in negotiating landfill disposal fees. As of December 31, 2001,
approximately 39% of our waste volume was directed through transfer stations
owned or operated by us.

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Contracts Program

     We currently have approximately 245 municipal contracts. We believe that
opportunities for gaining larger contracts are increasing due to trends among
municipalities to privatize or outsource solid waste services. In most cases,
only larger disposal services companies such as us are financially acceptable to
the municipality. Historically, in the Southeastern U.S., city and county
governments have provided a variety of solid waste services using their own
personnel. Over time, many municipalities have opted to privatize or contract
out their collection and disposal services to the private sector. Typically,
these contracts are competitively bid and have initial terms of one to five
years. In bidding for large contracts, our management team draws on its
experience in the waste industry and its knowledge of local service areas in
existing and target markets. We engage in extensive due diligence using our
advanced management information systems and productivity and cost modeling
analyses to respond to requests for proposals to provide services. Our regional
managers are responsible for managing the relationships with local governmental
officials within their respective service area and sales representatives may be
assigned specific municipalities for coverage. We may be required to bid for
renewal of a contract previously awarded to us, or in certain cases to
renegotiate the contract as a result of changed market conditions. During 2001,
we retained approximately 98.6% of our municipal contracts that were up for bid
or renewal.

Services

     Commercial, Industrial and Residential Waste Services

     We provide commercial and industrial collection and disposal services under
one-year to five-year service agreements. Fees are determined by such factors as
collection frequency, level of service, route density, the type, volume and
weight of the waste collected, the type of equipment and containers furnished,
the distance to the disposal or processing facility, the cost of disposal or
processing and prices charged in our markets for similar service. Collection of
larger volumes associated with commercial and industrial waste streams generally
helps improve our operating efficiencies and, through consolidation of these
volumes, we can negotiate more favorable disposal prices. Our commercial and
industrial customers utilize portable containers for storage thereby enabling us
to service many customers with fewer collection vehicles. Commercial and
industrial collection vehicles normally require one operator. We provide two to
eight cubic yard containers to commercial customers and 10 to 42 cubic yard
containers to industrial customers. As a part of the services provided by Waste
Holdings and for an additional fee under our waste services contract, we install
stationary compactors that compact waste prior to collection on the premises of
a substantial number of large volume customers. No single commercial or
industrial contract is individually material to our results of operations.

     Our residential solid waste collection and disposal services are performed
either on a subscription basis with individual households, or under contracts
with municipalities, homeowners associations, apartment owners or mobile home
park operators. Municipal contracts grant us the right to service all or a
portion of the residences in a specified community or to provide a central
repository for residential waste drop-off. We had approximately 245 municipal
contracts in place as of December 31, 2001. No single municipal or other
residential contract is individually material to our results of operations.
Municipal contracts in our market areas are typically awarded on a competitive
bid basis and thereafter on a bid or negotiated basis and usually range in
duration from one to five years. Residential contract fees are based primarily
on route density, the frequency and level of service, the distance to the
disposal or processing facility, the cost of disposal or processing and prices
charged in its markets for similar service. Municipal collection fees are paid
either by the municipalities from tax revenues or through direct service charges
to the residents receiving the service.

     At December 31, 2001, we owned and operated 10 solid waste landfills in
Florida, Georgia, Mississippi, North Carolina and Tennessee. Our landfill
facilities are designed and operated to meet federal, state and local
regulations in all material respects and we believe each of our landfill sites
are in compliance with current applicable state and federal Subtitle D
regulations in all material respects. None of our landfills are permitted to
accept hazardous waste.

     Transfer Station Services

     The 26 transfer stations we operated at December 31, 2001 receive, compact
and transfer solid waste to larger company-owned vehicles for transport to
landfills. We believe that transfer stations benefit us by:

     .    providing access to multiple landfills;

     .    improving utilization of collection personnel and equipment;

     .    concentrating the waste stream to gain leverage in negotiating for
          more favorable disposal rates; and

     .    building relationships with municipalities that can lead to
          opportunities for additional business in the future.

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     Depending on the location, size and local regulatory environment, transfer
stations can be constructed for as little as $150,000 for a small rural facility
or as much as $1.0 million for larger sites. We believe that we have obtained
all permits and authorizations necessary to operate our existing transfer
stations and that each of our existing transfer stations has been operated in
compliance in all material respects with applicable environmental regulations.

     At December 31, 2001, we owned seven of the transfer stations we operate,
and operate the remaining 19 transfer stations pursuant to operating agreements.
These operating agreements have terms ranging from annual one-year renewals to
an indefinite period. We generally receive a fixed monthly operating fee for our
services under these agreements, together with a variable fee based upon the
number of hauls made by us from the station. At December 31, 2001, approximately
62% of waste directed to the transfer stations we operated was delivered by
third parties, who pay us a fee based on the tonnage delivered. Control of these
third-party waste streams coupled with our waste stream adds to our bargaining
power in our negotiations for favorable solid waste disposal rates with landfill
operators.

     Recycling Services

     Recycling involves the removal of reusable materials from the waste stream
for processing and sale in various applications. Based on our experience in the
industry, we believe that recycling will continue to be an important component
of local and state solid waste management plans as a result of the public's
increasing environmental awareness and expanding regulations mandating or
encouraging waste recycling. We offer commercial, industrial and residential
customers recycling for office paper, cardboard, newspaper, aluminum and steel
cans, plastic, glass, pallets and yard waste. At December 31, 2001, we operated
approximately 100 convenience sites where residents can dispose of recyclables.
These commodities are delivered either to third-party processing facilities in
exchange for a fee or to one of eight facilities operated by us for processing
prior to resale.

     At December 31, 2001, less than 3% of our waste stream was recycled.
Through a centralized effort, we resell recycled waste products using
commercially reasonable practices and seek to manage commodity-pricing risk by
spreading the risk among our customers. The resale prices of, and demand for,
recyclable commodities, particularly wastepaper, can be volatile and subject to
changing market conditions. Accordingly, our results of operations will be
affected, and might be affected materially, by changing resale prices or demand
for certain recyclable commodities, particularly wastepaper. These changes might
also contribute to significant variability in our period-to-period results of
operations.

     Convenience Sites and Other Specialized Services

     In 1982, we developed the concept of a convenience site in response to
increasing volumes of waste dumped randomly in rural areas. Each site typically
consists of a ramp for easy disposal access, a trash compactor and trash and
recycling containers. Most sites have posted operating hours during which our
personnel assist residents with the deposit of waste and recyclables while
monitoring the types of waste deposited at the sites. Because these convenience
sites reduce the amount of trash dumped along roads and adjacent to recreational
areas, we believe that county and local governments will contract for these
sites to be strategically located. At December 31, 2001, we operated
approximately 100 convenience sites located in 14 counties in our market area.

     In addition, we have increased our efforts to secure additional contracts
to manage comprehensive disposal services for large corporations and
municipalities. For example, after thorough review and evaluation, we might
provide a lump sum quote for handling all the waste in a company's facility.
This would include source separating various wastes into commodities for resale
and non-recyclables for disposal. The process of sorting at the source,
processing through a compaction system and scheduling waste and recyclable
removals only when the containers are full reduces our cost and increases our
operating efficiency. Furthermore, confidential documents can be controlled
throughout the process and destroyed to the customer's satisfaction.

Operations

     Branch Facility Structure

     Based on our experience in the industry, we believe that a branch
facilities structure retains decision-making authority close to the customer,
which enables us to identify customers' needs quickly and implement
cost-effective solutions. Furthermore, we believe that it provides a
low-overhead, highly efficient operational structure that allows us to branch
into geographically contiguous markets and operate in small communities which
larger competitors might not find attractive. Based on our experience in the
industry, we believe that branch facilities and decentralized management of
operations provide us with a strategic competitive advantage given the
relatively rural nature of the Southeastern U.S.

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<PAGE>

     We deliver our waste services from branch locations in contiguous service
areas, which permits our branch facilities to provide back-up services and
support to one another. Each manager of a branch facility has autonomous service
and decision-making authority for the local market area. Each designated
division is overseen by a division manager and a division controller, who is
typically located at one of our branch facilities. Effective January 1, 2001,
the branch network was realigned into the divisions set forth below:

Central Division   South Division       East Division       Georgia Division
----------------   ---------------   ------------------   ----------------------
Danville, VA       Bolivia, NC       Elizabeth City, NC   Albany, GA
Durham, NC         Conway, SC        Goldsboro, NC        Americus, GA
Garner, NC         Hope Mills, NC    Greenville, NC       Dawson, GA
Graham, NC         Summerville, SC   Jacksonville, NC     Douglas, GA
Greensboro, NC     Sumter, SC        Kinston, NC          Easley, SC
Henderson, NC      Wilmington, NC    Newport, NC          Lilburn, GA
Huntersville, NC                     Norfolk, VA          Moultrie, GA
Oxford, NC                           Rocky Mount, NC      Oglethorpe, GA
Wytheville, VA                       Wilson, NC           Warner Robbins AFB, GA
                                                          Warner Robbins, GA

Mississippi Valley Division
---------------------------
Biloxi, MS
Crossville, TN
Decatur, TN
Mobile, AL
Nashville, TN
Olive Branch, MS

                               DISPOSAL OPERATIONS
--------------------------------------------------------------------------------

North Carolina Landfill        Mississippi Valley Division      Georgia Division
-----------------------        ---------------------------      ----------------
Holly Springs, NC                    Biloxi, MS                 Atlanta, GA
Durham, NC                           Decatur, TN                Douglas, GA
Roseboro, NC                         Olive Branch, MS           Greycourt, SC
                                                                Jacksonville, FL

     Our managerial philosophy centers on the principle that customers' needs
can best be served at the local level by a staff of well-trained personnel led
by a branch manager. Each branch manager is responsible for implementing sales
programs, maintaining service quality, promoting safety in the branch's
operations and overseeing the day-to-day operations for the branch, including
contract administration. Branch managers also assist division managers in
identifying potential acquisition candidates. Frequently, the branch manager is
also the branch facility's sales manager; but in larger market areas, branch
facilities will have one or more sales persons. Branch managers are compensated
based on the performance of their branch. Each branch manager reports to a
division manager, who reports directly to our President.

     In addition to delivering our services, branch staff responsibilities
include setting up customer accounts, answering customer questions, processing
accounts payable and maintaining accurate payroll and personnel information.
Maintenance support for collection equipment is also provided at the branch
facility. The facility size, number of maintenance personnel and capabilities
are determined by the number of vehicles operated and the type of services
provided within the branch facility's market area.

     On a monthly basis, the corporate and/or division officers meet with each
branch manager to discuss and evaluate the branch operations. This evaluation is
conducted through the use of flash reports on a weekly basis at the branch and
division levels. Flash reports highlight key operating data such as
employee-hours, overtime hours, truck hours, revenues and extraordinary costs.
These meetings are oriented to identifying trends, opportunities and strategies
in the branch facility's proximate geographic area. Using a decentralized
approach, but with strong division and corporate monitoring and strict budgetary
and operating guidelines and quality control standards, each branch manager has
the authority to exercise discretion in business decisions. Our management
information systems provide corporate management timely oversight of branch
performance.

                                       9

<PAGE>

     Information Technologies

     A cornerstone of our desire to deliver responsive and cost-effective waste
services is our management information systems network. Many of our information
systems, controls and services are designed to assist branch facilities'
personnel in making decisions based upon centralized information. Financial
control is maintained through personnel, fiscal and accounting policies that are
established at the corporate level for implementation at the branch locations.
Our systems allow for centralized billing and collection through a lock-box
system, thus enhancing cash management. An internal audit program monitors
compliance with our policies and the benchmarks are monitored continuously using
an advanced management information system. This information system links our IBM
AS/400 computer to each branch using satellite technology which allows each
branch on-line, real-time financial, productivity, maintenance and customer
information.

     Support Services

     In order to ensure focus at the branch facility level and to support branch
operations, we established our Support Services Team in 1995. Support services
include:

          .    safety and training services;

          .    risk management;

          .    capital expenditure evaluation;

          .    human resources services;

          .    equipment maintenance;

          .    location of most economical disposal facilities;

          .    purchasing;

          .    sales and marketing support;

          .    productivity analysis;

          .    research and development services; and

          .    acquisition due diligence.

     The Support Services Team provides significant assistance to the branch
facilities in the integration of newly acquired operations and in securing new
and retaining existing customers. Successful integration of an acquired business
is critical to achieving operational and administrative efficiencies and
improved profitability of the incremental business.

     Support services include a comprehensive safety and risk management program
that has strong management support and includes strict safety rules and
policies, accident investigations, tracking and statistical analysis, employee
safety awards, branch safety committees and random facility inspections by both
corporate staff and an outside loss control specialist.

     We believe that our safety program has resulted in accident rates and
insurance loss ratios that are consistently lower than industry averages.

     Landfill and Other Disposal Alternatives

     At December 31, 2001, we used more than 150 landfill disposal sites in the
markets we serve, and we owned and operated ten of these landfill sites. We have
historically opted to contract for landfill services due to the availability of
disposal space at favorable tipping fees in close proximity to our current
markets. In some markets, we have been able to control disposal costs by
negotiating long-term disposal contracts with Subtitle D landfill operators. In
addition, we operate an extensive network of transfer stations to consolidate
waste streams and receive volume discounts on disposal costs.

                                       10

<PAGE>

     Based on our market research, we believe that many landfills not in
compliance with Subtitle D Regulations will close in our market area in the next
few years. Despite this, the absolute volume of disposal capacity is increasing
due both to the expansion of capacity at existing landfills and the opening of
new landfills. Landfill operators are aggressively soliciting solid waste
volumes to ensure cash flows sufficient to support the expansion costs and other
capital expenditures made to achieve compliance with the provisions of Subtitle
D. Based on our market research, we believe there will continue to be a
significant supply of low-cost disposal capacity in our current markets and that
by controlling a large volume of the waste stream we will be able to continue to
negotiate favorable disposal costs. We plan to continue to secure long-term
disposal contracts with Subtitle D landfill operators and to continue expansion
of transfer stations. Transfer stations allow us access to additional disposal
sites and are substantially less expensive to develop than landfills. Based on
our experience in the industry, we believe that landfills that have been
targeted for closure might provide prime sites to develop transfer stations.

     We acquired one landfill in 2001. We might acquire other existing landfills
or we might develop landfills or partner with an experienced landfill operator
for the acquisition, development or assumption of the operation of additional
landfills. In our current markets, such action would be pursued if we believed
that ownership or operation of a landfill in a particular market would provide
significant cost benefits compared to our traditional system of consolidating
waste and negotiating favorable disposal rates. In a new market, we might become
a landfill owner or operator if that market lacks the amount of disposal
capacity that we have experienced in our current markets.

     Alternatives to landfill disposal, such as recycling and composting, are
increasingly being used. In addition, incineration is an alternative to landfill
disposal in certain of our markets. There also has been an increasing trend at
the state and local levels to mandate recycling and waste reduction at the
source and to prohibit the disposal of certain types of waste, such as yard
wastes, at landfills. These developments may result in the volume of waste being
reduced in certain areas. North Carolina, South Carolina and Virginia have each
adopted plans or requirements that set goals for specified percentages of
certain solid waste items to be recycled. These recycling goals are being phased
in over the next few years. These alternatives, if and when adopted and
implemented, might have a material adverse effect on our business, financial
condition and results of operations.

Landfill Closure and Post-Closure Costs

     We have financial obligations relating to closure and post-closure,
remediation costs and long-term care, for the landfill sites we own and operate.
Our obligations for these costs will increase if we decide to develop or acquire
additional landfill sites in the future.

     Landfill closure and post-closure costs include estimated costs to be
incurred for final closure of landfills and estimated costs for providing
required post-closure monitoring and maintenance of landfills. We estimate these
future cost requirements based on our interpretation of the technical standards
of the Environmental Protection Agency's Subtitle D Regulations. While the
precise amounts of these future obligations cannot be determined, at December
31, 2001, we estimate the total costs to range from approximately $44.1 million
to approximately $48.5 million for remediation, final closure of our operating
facilities and post-closure monitoring costs. Our estimate of these costs is
expressed in current dollars and is not discounted to reflect anticipated timing
of future expenditures. We had accrued approximately $2.7 million and $3.8
million for such projected costs at December 31, 2000 and 2001, respectively. At
December 31, 2001, we had not paid any amounts out of these accruals. We provide
accruals for these future costs (generally for a term of 30 years after final
closure of any landfill), and will provide additional accruals for these and
other landfills we might acquire or develop in the future, based on engineering
estimates of consumption of airspace over the useful lives of such facilities.
There can be no assurance that our ultimate financial obligations for actual
closure or post-closure costs will not exceed the amount accrued and reserved or
amounts otherwise receivable pursuant to insurance policies or trust funds. Such
a circumstance could have a material adverse effect on our financial condition
and results of operation.

Marketing and Sales

     We market our services locally through our regional and branch managers and
approximately 53 direct sales representatives who focus on commercial,
industrial and residential customers. We also obtain new customers from referral
sources, our general reputation and local market print advertising. Leads are
also developed from a construction reporting service, new building permits,
business licenses and other public records. Additionally, each branch facility
advertises in the yellow pages and other local business print media that cover
its service area. A variety of methods are used to market services directly to
individual households. Some branch locations have dedicated sales
representatives that market residential services. We engage in direct mail
campaigns and door-to-door marketing and work with real estate agents and
developers to sell services to new developments. We recently installed
telemarketing programs to sell residential services. Additionally, we attend and
make presentations at municipal and state conferences and advertise in
governmental associations' membership publications.

     Our sales representatives visit customers on a regular basis and make sales
calls to potential new customers. These sales representatives receive a
significant portion of their compensation based upon certain incentive formulas.
We emphasize providing quality services, customer satisfaction and retention,
and believe that this focus on quality service will help retain existing
customers

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<PAGE>

as well as attract additional customers. Maintenance of a local presence and
identity is an important aspect of our marketing plan. In order to accomplish
these objectives, many of our managers are involved in local governmental, civic
and business organizations.

     No single customer of ours accounted for more than 4% of our revenues in
2001. We do not believe that the loss of any single customer would have a
material adverse effect on our results of operations.

Competition

     The solid waste management industry is highly competitive, very fragmented
and requires substantial labor and capital resources. Intense competition exists
within the industry not only for collection, transportation and disposal volume,
but also for acquisition candidates. The industry includes three large national
waste companies: Waste Management, Inc.; Allied Waste Industries, Inc.; and
Republic Services, Inc. There are several other public companies in the industry
with annual revenue in excess of $100 million, including Casella Waste Systems,
Inc. and Waste Connections, Inc. We compete with a number of these and other
regional and local companies, including publicly or privately owned providers of
incineration services.

     We also compete with certain municipalities that operate their own solid
waste collection and disposal facilities. These municipalities may have certain
advantages over us due to the availability of tax revenues and tax-exempt
financing.

     We compete for collection and recycling accounts primarily on the basis of
price and quality of our services. From time to time, competitors may reduce the
price of their services in an effort to expand market share or to win a
competitively bid municipal contract. These practices may also lead to reduced
pricing for our services or the loss of business.

Competitive Bid Contracts

     We provide a substantial portion of our residential collection services
under municipal contracts and, at December 31, 2001, approximately 34% of our
revenues came from municipal contracts. As is generally the case in the
industry, municipal contracts are subject to periodic competitive bidding. The
balance of our residential services are provided on a subscription basis.
However, no single customer of any type accounted for more than 4% of our
revenues in 2001. At December 31, 2001, we had not lost, nor do we reasonably
expect to lose, a contract that would have a material adverse effect on our
financial condition or results of operations because the contract either was or
is not material. Our inability to compete with larger and better capitalized
companies, or to replace a significant number of municipal contracts lost
through the competitive bidding process with comparable contracts or other
revenue sources within a reasonable time period, could have a material adverse
effect on our results of operations.

Employees

     At December 31, 2001, we employed approximately 1,700 full-time employees.
None of our employees are represented by unions and we believe that our employee
relations are good. We are highly dependent upon the services of the members of
our management team, the loss of any of whom might have an adverse effect on our
operations.

Risk Management, Insurance and Performance Bonds

     We actively maintain environmental and other risk management programs
appropriate for our business. Our environmental risk management program includes
evaluating both existing facilities, as well as potential acquisitions, for
environmental law compliance and operating procedures. We also maintain a worker
safety program that encourages safe practices in the workplace. Operating
practices at all of our existing operations stress minimizing the possibility of
environmental contamination and litigation.

     We carry a range of insurance intended to protect our assets and
operations, including a commercial general liability policy and a property
damage policy. If a partially or completely uninsured claim were made against us
(including liabilities associated with cleanup or remediation at our own
facilities) and it was successful and of sufficient magnitude, it could have a
material adverse effect on our results of operations or financial condition. Any
future difficulty in obtaining insurance could also impair our ability to secure
future contracts, which might be conditioned upon the availability of adequate
insurance coverage.

     Municipal solid waste collection contracts may require performance bonds or
other means of financial assurance to secure contractual performance. We have
not experienced difficulty in obtaining performance bonds or letters of credit
for our current operations. At December 31, 2001, we had provided customers and
various regulatory authorities with bonds and letters of credit of approximately
$24.1 million to secure our obligations. If we were unable to obtain surety
bonds or letters of credit in sufficient amounts or at acceptable rates, we may
be precluded from entering into additional municipal solid waste collection
contracts or obtaining or retaining landfill operating permits.

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<PAGE>

Regulation

     Introduction

     We are subject to extensive and evolving federal, state and local
environmental laws and regulations that have been enacted in response to
technological advances and increased concern over environmental issues. These
regulations not only strictly regulate the conduct of our operations but also
are related directly to the demand for many of the services we offer.

     The regulations affecting us are administered by the EPA and various other
federal, state and local environmental, zoning, health and safety agencies. We
believe that we are currently in substantial compliance with applicable federal,
state and local laws, permits, orders and regulations, and we do not currently
anticipate any material environmental costs (although there can be no assurance
in this regard). We anticipate there will continue to be increased regulation,
legislation and regulatory enforcement actions related to the solid waste
services industry. As a result, we attempt to anticipate future regulatory
requirements and to plan accordingly to remain in compliance with the regulatory
framework.

     In order to transport waste, we must have one or more permits from state or
local agencies. These permits also must be periodically renewed and are subject
to modification and revocation by the issuing agency. None of our permits has
ever been revoked.

     In order to develop, own or operate a landfill, a transfer station or other
solid waste facilities, we are required to go through several governmental
review processes and obtain one or more permits and often zoning or other land
use approvals. Obtaining these permits and zoning or land use approvals is
difficult, time consuming and expensive. In addition, this process is often
opposed by various local elected officials and citizens' groups. Once obtained,
operating permits generally must be periodically renewed and are subject to
modification and revocation by the issuing agency.

     Our facilities are subject to a variety of operational, monitoring, site
maintenance, closure, post-closure and financial assurance obligations which
change from time to time and which could give rise to increased capital
expenditures and operating costs. We do not expect to make material capital
expenditures for environmental control facilities in 2002. In connection with
any such landfills, it is often necessary to expend considerable time, effort
and money in complying with the governmental review and permitting process
necessary to maintain or increase the capacity of these landfills. Governmental
authorities have broad power to enforce compliance with these laws and
regulations and to obtain injunctions or impose civil or criminal penalties in
the case of violations.

     The principal federal, state and local statutes and regulations applicable
to our various operations are as follows:

     The Resource Conservation and Recovery Act of 1976

     RCRA regulates the generation, treatment, storage, handling, transportation
and disposal of solid waste and requires states to develop programs to ensure
the safe disposal of solid waste. RCRA divides solid waste into two groups,
hazardous and non-hazardous. Wastes are generally classified as hazardous if
they either are specifically included on a list of hazardous wastes or exhibit
certain hazardous characteristics and are not specifically designated as
non-hazardous. Wastes classified as hazardous under RCRA are subject to much
stricter regulation than wastes classified as non-hazardous.

     Among the wastes that are specifically designated as non-hazardous waste
are household waste and "special" waste, including items such as petroleum
contaminated soils, asbestos, foundry sand, shredder fluff and most
non-hazardous industrial waste products.

     Although we currently are not involved with transportation or disposal of
hazardous substances, we transported hazardous substances in the past and might
become involved with hazardous substance transportation and disposal in the
future. The EPA regulations issued under Subtitle C of RCRA impose a
comprehensive "cradle to grave" system for tracking the generation,
transportation, treatment, storage and disposal of hazardous wastes. The
Subtitle C Regulations provide standards for generators, transporters and
disposers of hazardous wastes, and for the issuance of permits for sites where
such material is treated, stored or disposed. Subtitle C imposes detailed
operating, inspection, training and emergency preparedness and response
standards, as well as requirements for manifesting, record keeping and
reporting, facility closure, post-closure and financial responsibilities.

     In October 1991, the EPA adopted the Subtitle D Regulations governing solid
waste landfills. Because we own and operate landfills, we must comply with these
regulations.

     The Subtitle D Regulations, which generally became effective in October
1993, include location restrictions, facility design standards, operating
criteria, closure and post-closure requirements, financial assurance
requirements, groundwater monitoring

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<PAGE>

requirements, groundwater remediation standards and corrective action
requirements. In addition, the Subtitle D Regulations require that new landfill
sites meet more stringent liner design criteria (typically, composite soil and
synthetic liners or two or more synthetic liners) designed to keep leachate out
of groundwater and have extensive collection systems to carry away leachate for
treatment prior to disposal. Groundwater monitoring wells must also be installed
at virtually all landfills to monitor groundwater quality and, indirectly, the
leachate collection system operation. The Subtitle D Regulations also require,
where threshold test levels are present, that methane gas generated at landfills
be controlled in a manner that protects human health and the environment. We are
not aware of any problem with methane gas at any of our facilities. Each state
is required to revise its landfill regulations to meet these requirements or
such requirements will be automatically imposed upon it by the EPA. Each state
is also required to adopt and implement a permit program or other appropriate
system to ensure that landfills within the state comply with the Subtitle D
Regulations criteria. Various states in which we operate now or might in the
future have adopted regulations or programs as stringent as, or more stringent
than, the Subtitle D Regulations. Failure to comply with these regulations could
require us to undertake investigatory or remedial activities, to curtail
operations or to close a landfill temporarily or permanently. Future changes in
these regulations might require us to modify, supplement or replace equipment or
facilities at costs that might be substantial. The failure of regulatory
agencies to enforce these regulations vigorously or consistently might give an
advantage to our competitors whose facilities do not comply with the Subtitle D
Regulations or its state counterparts. Our ultimate financial obligations
related to any failure to comply with these regulations could have a material
adverse effect on our operations and financial condition.

     The Federal Water Pollution Control Act of 1972

     The Federal Water Pollution Control Act of 1972, known as the Clean Water
Act, establishes rules regulating the discharge of pollutants from a variety of
sources, including solid waste disposal sites and transfer stations, into waters
of the U.S. Because we own and operate landfills and transfer stations, we must
comply with this Act. For example, if run-off or collected leachate from our
transfer stations or from our owned or operated landfills is discharged into
streams, rivers or other surface waters, the Clean Water Act would require us to
apply for and obtain a discharge permit, conduct sampling and monitoring and
possibly reduce the quantity of pollutants in such discharge. Also, virtually
all landfills are required to comply with the EPA's storm water regulations
issued in November 1990. Such regulations are designed to prevent possibly
contaminated landfill storm water runoff from flowing into surface waters. We
believe that our facilities are in compliance in all material respects with
Clean Water Act requirements. Various states in which we operate now or might in
the future have delegated authority to implement the Clean Water Act permitting
requirements, and some of these states have adopted regulations that are more
stringent than the federal requirements.

     The Comprehensive Environmental Response, Compensation and Liability Act of
1980

     The Comprehensive Environmental Response, Compensation and Liability Act of
1980, also known as CERCLA, established a regulatory and remedial program
intended to provide for the investigation and cleanup of facilities from which
there has been, or is threatened, a release of any hazardous substance into the
environment. CERCLA's primary mechanism for remedying such problems is to impose
strict joint and several liability for cleanup of facilities on current owners
and operators of the site, former owners and operators of the site at the time
of the disposal of the hazardous substances, as well as the generators of the
hazardous substances and the transporters who arranged for disposal or
transportation of the hazardous substances. The costs of CERCLA investigation
and cleanup can be very substantial. Liability under CERCLA does not depend upon
the existence or disposal of "hazardous waste" as defined by RCRA, but can also
be founded upon the existence of even very small amounts of the more than 700
"hazardous substances" listed by the EPA, many of which can be found in
household waste.

     We currently do not handle hazardous waste, but because we own and operate
landfills and transfer stations, we might be subject to CERCLA. If we were to be
found to be a responsible party for a CERCLA cleanup, the enforcing agency could
hold us, or any other generator, transporter or the owner or operator of the
facility, completely responsible for all investigative and remedial costs even
if others might also be liable. CERCLA also authorizes the imposition of a lien
in favor of the U.S. upon all real property subject to, or affected by, a
remedial action for all costs for which a party is liable. CERCLA provides a
responsible party with the right to bring legal action against other responsible
parties for their allocable share of investigative and remedial costs. Our
ability to get others to reimburse us for their allocable share of such costs
would be limited by our ability to find other responsible parties and prove the
extent of their responsibility and by the financial resources of such other
parties.

     The Clean Air Act

     The Clean Air Act provides for regulation, through state implementation of
federal requirements, of the emission of air pollutants from certain landfills
based upon the date of the landfill construction and volume per year of
emissions of regulated pollutants. Because we own and operate landfills, we must
comply with this Act. We believe we are in compliance with this Act. The EPA has
proposed new source performance standards regulating air emissions of certain
regulated pollutants (methane and non-methane organic compounds) from municipal
solid waste landfills. Landfills located in areas with air pollution problems
might be subject to even more extensive air pollution controls and emission
limitations. In addition, the EPA has issued standards regulating the disposal

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<PAGE>

of asbestos-containing materials. Some of the federal statutes described above
contain provisions authorizing the institution of lawsuits by private citizens
to enforce the provisions of the statutes.

     The Occupational Safety and Health Act of 1970

     OSHA establishes employer responsibilities and authorizes the promulgation
by the Occupational Safety and Health Administration of occupational health and
safety standards, including the obligation to maintain a workplace free of
recognized hazards likely to cause death or serious injury, to comply with
worker protection standards established by OSHA, to maintain records, to provide
workers with required disclosures and to implement health and safety training
programs. Various of those promulgated standards might apply to our operations,
including those standards concerning notices of hazards, safety in excavation
and demolition work, the handling of asbestos and asbestos-containing materials,
and worker training and emergency response programs. Our employees are trained
to respond appropriately in the event there is an accidental spill or release of
packaged asbestos-containing materials or other regulated substances during
transportation or landfill disposal.

     State and Local Regulations

     Each state in which we now operate or might operate in the future has laws
and regulations governing the generation, storage, treatment, handling,
transportation and disposal of solid waste, water and air pollution and, in most
cases, the siting, design, operation, maintenance, closure and post-closure
maintenance of landfills and transfer stations. Because of our business, we must
comply with these laws and regulations. In addition, many states have adopted
Superfund statutes comparable to, and in some cases more stringent than, CERCLA.
These statutes impose requirements for investigation and cleanup of contaminated
sites and liability for costs and damages associated with such sites, and some
provide for the imposition of liens on property owned by responsible parties.
Furthermore, many municipalities also have ordinances, local laws and
regulations affecting our operations. These include zoning and health measures
that limit solid waste management activities to specified sites or activities,
flow control provisions that direct the delivery of solid wastes to specific
facilities, laws that grant the right to establish franchises for collection
services and then put out for bid the right to provide collection services, and
bans or other restrictions on the movement of solid wastes into a municipality.

     Permits and approvals may limit the types of waste that may be accepted at
a landfill or the quantity of waste that may be accepted at a landfill during a
given time period. In addition, permits and approvals, as well as some state and
local regulations, might limit a landfill to accepting waste that originates
from specified geographic areas or seek to restrict the importation of
out-of-state waste or otherwise discriminate against out-of-state waste.
Generally, restrictions on the importation of out-of-state waste have not
withstood judicial challenge. However, from time to time federal legislation is
proposed which would allow individual states to prohibit the disposal of
out-of-state waste or to limit the amount of out-of-state waste that could be
imported for disposal and would require states to reduce the amounts of waste
exported to other states. Although Congress has not yet passed such legislation,
if this or similar legislation is enacted, states in which we operate landfills
could act to limit or prohibit the importation of out-of-state waste. Such state
actions could materially adversely affect landfills within those states that
receive a significant portion of waste originating from out-of-state.

     In addition, some states and localities may for economic or other reasons
restrict the exportation of waste from their jurisdiction or require that a
specified amount of waste be disposed of at facilities within their
jurisdiction. In 1994, the U.S. Supreme Court held unconstitutional, and
therefore invalid, a local ordinance that sought to impose flow controls on
taking waste out of the locality. However, some state and local jurisdictions
continue to seek to enforce such restrictions and, in certain cases, we might
elect not to challenge such restrictions based upon various considerations. In
addition, the aforementioned proposed federal legislation would allow states and
localities to impose certain flow control restrictions.

     These restrictions could result in the volume of waste going to landfills
being reduced in some areas, which might materially adversely affect our ability
to operate our landfills at their full capacity and/or affect the prices that
can be charged for landfill disposal services. These restrictions might also
result in higher disposal costs for our collection operations. If we were unable
to pass such higher costs through to our customers, our business, financial
condition and results of operations could be materially adversely affected.

     There has been an increasing trend at the state and local level to mandate
and encourage waste reduction at the source and waste recycling, and to prohibit
or restrict the disposal of some types of solid wastes, such as yard wastes,
leaves and tires, in landfills. The enactment of regulations reducing the volume
and types of wastes available for transport to and disposal in landfills could
affect our ability to operate our facilities at their full capacity.

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ITEM 2.  PROPERTY AND EQUIPMENT

     Our principal executive offices are located at 3301 Benson Drive, Raleigh,
North Carolina, where we currently lease approximately 25,000 square feet of
office space. Our principal property and equipment consists of land (primarily
transfer stations, bases for collection operations and landfill sites),
buildings, and vehicles and equipment. Our land and buildings are located in
North Carolina, South Carolina, Virginia, Tennessee, Mississippi, Alabama,
Georgia and Florida. We also lease real property in the states in which we do
business. At December 31, 2001, we operated 40 collection operations, 26
transfer stations, eight recycling facilities and ten landfills aggregating
approximately 1,964 acres. All our property and equipment are used in our one
industry segment, which includes collection, transfer, recycling, processing and
disposal of municipal solid and industrial waste.

     Containers

     Some type of container is used in almost every service we provide, and we
therefore have an extensive inventory on-hand or on-site at customers' locations
throughout North Carolina, South Carolina, Virginia, Tennessee, Mississippi,
Alabama, Georgia and Florida. We own all of our containers and centrally manage
our inventory located at the branch facility level. We also own a significant
number of on-site compaction containers, which provide efficiency for
high-volume solid waste generators. Container life is dependent on the location
of the container, the type of waste that is deposited into the container and how
the container is maintained. Proper maintenance of commercial and industrial
front loader and roll-off containers consists of regular repainting, scheduled
repairs and switch-outs, quality cleaning, sanding and priming and monitoring of
the container by our employees to check for needed repairs. Residential
collection containers require minor maintenance.

     Collection Vehicles

     We use a fleet of specialized collection vehicles to collect and transport
waste and to provide recycling and convenience site services. At December 31,
2001, we owned approximately 95% of our transportation fleet and leased the
remainder. We have implemented an aggressive and reliable maintenance program to
extend the useful lives of our equipment. Preventative and long-term maintenance
is performed on regularly scheduled cycles that are more frequent than most
manufacturers' suggested schedules. Preventative maintenance is performed on
collection vehicles after every 150 to 250 hours of operation depending on their
class, and long-term maintenance (reconstruction of engines, transmissions,
etc.) is performed every four to six years. Additionally, cosmetic repairs
(painting, interior upholstery repairs) are performed as needed. The majority of
the maintenance program is done by our personnel located in branch facilities.

ITEM 3. LEGAL PROCEEDINGS

     We are not a party to any material pending legal proceedings. In the normal
course of our business and as a result of the extensive governmental regulation
of the waste industry, we might periodically become subject to various judicial
and administrative proceedings involving federal, state or local agencies. In
these proceedings, an agency might seek to impose fines on us or to revoke, or
to deny renewal of, an operating permit held by us. In addition, we might become
party to various claims and suits pending for alleged damages to persons and
property, alleged violation of certain laws and for alleged liabilities arising
out of matters occurring during the normal operation of the waste management
business.

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

     No matters were submitted to a vote of security holders during the fourth
quarter ended December 31, 2001.

                               EXECUTIVE OFFICERS

     As of December 31, 2001, our executive officers were as follows:

Name                      Age   Position(s)
----                      ---   -----------
Lonnie C. Poole, Jr....    64   Chairman, Chief Executive Officer and Director
Jim W. Perry...........    57   President, Chief Operating Officer and Director
D. Stephen Grissom.....    49   Chief Financial Officer, Secretary and Treasurer
William J. Hanley......    48   Vice President, Sales and Marketing
Lonnie C. Poole, III...    40   Vice President, Director of Support Services

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     LONNIE C. POOLE, JR., founded Waste Holdings in 1970 and has served as
Chief Executive Officer and Chairman of the Board of directors of Waste Holdings
since that time. Mr. Poole holds a B.S. in Civil Engineering from North Carolina
State University and an M.B.A. from the University of North Carolina at Chapel
Hill. Mr. Poole has more than 31 years experience in the solid waste industry.
He has served in the Environmental Industry Association, or EIA, formerly the
National Solid Waste Management Association, or NSWMA, a non-profit business
association established to, among other things, inform, educate and assist its
members in cost-effective, safe and environmentally responsible management of
waste in the following positions: Chairman, Vice-Chairman and Board Member. In
addition, Mr. Poole has served in the EIA Research and Education Foundation as
Chairman and now is a member of its Board of Directors. Mr. Poole was inducted
into the EIA Hall of Fame in 1994.

     JIM W. PERRY joined Waste Holdings in 1971 and has served as our President
and Chief Operating Officer since 1987 and as a director since 1974. Mr. Perry
holds a B.S. in Agricultural and Biological Engineering from North Carolina
State University and an M.S. in Systems Management from the University of
Southern California. Mr. Perry has more than 31 years experience in the solid
waste industry and has received the Distinguished Service Award from the NSWMA.
In addition, Mr. Perry has served in the Carolinas Chapter of NSWMA as Chairman
and on the Membership Committee. Mr. Perry was inducted into the EIA Hall of
Fame in 1997.

     D. STEPHEN GRISSOM joined Waste Holdings in 2001 as Chief Financial Officer
and Vice President of Finance. Prior to that, Mr. Grissom was Chief Financial
Officer for Austin Quality Foods from 1982 to 2000 and has more than 24 years of
controllership and CFO experience. He is a certified public accountant and holds
a B.A. in accounting from North Carolina State University.

     William J. Hanley joined Waste Holdings in 2001 as Vice President of Sales
and Marketing. Prior to that, Mr. Hanley served as Sales Manager, General Sales
Manager and Regional Sales Manager with Waste Management, Inc. from 1995 to
2001. He holds a B.S. in Business Administration from Clarion University. Mr.
Hanley has eight years of experience in the solid waste industry.

     LONNIE C. POOLE, III has served as our Vice President, Director of Support
Services since 1995. From 1990 to 1995, he served as our Risk Management
Director. Mr. Poole holds a B.S. in Aerospace Engineering from North Carolina
State University. Mr. Poole is the son of Lonnie C. Poole, Jr. Mr. Poole has
more than 11 years experience in the solid waste industry.

                               Other Key Employees

     The following table sets forth certain information concerning our other key
employees as of December 31, 2001:

Name                     Age   Position(s)
----                     ---   -----------
Harrell J. Auten.....     53   Vice President--South Division
Brad E. Baty.........     43   Vice President--Central Division
Thomas C. Cannon.....     52   Vice President--Georgia Division
James J. Becher......     52   Vice President--Mississippi Valley Division
Thomas A. Winstead...     47   Vice President--East Division

     HARRELL J. AUTEN has served as Vice President of Waste Holdings since 1998
and has served as our South Division Manager since 1993. Prior to that, Mr.
Auten owned and operated his own company. Mr. Auten holds a B.S. in Business
Administration from the University of North Carolina at Chapel Hill and has more
than 31 years experience in the solid waste industry.

     BRAD E. BATY has served as Vice President of Waste Holdings since June
2001. Prior to joining Waste Holdings, Mr. Baty worked for 18 years with Waste
Management, Inc. and two years with Casella Waste Systems. He held various
operational positions including General Manager, Vice President, State President
and Region President. Mr. Baty has more than 20 years experience in the solid
waste industry.

     JAMES J. BECHER has served as a Vice President of Waste Holdings since
March 1998. He joined Waste Holdings in 1986 as a Branch Manager. Mr. Becher
holds a B.A. in History from Guilford College in North Carolina. He has 16 years
experience in the solid waste industry.

     THOMAS C. CANNON has served as a Vice President of Waste Holdings since
September 1998. Mr. Cannon joined us during our acquisition of TransWaste
Services, Inc. Mr. Cannon founded TransWaste Services in 1994 and has served as
its President since that time. He holds a B.B.A. in Industrial Management from
the University of Georgia and has done graduate work in Accounting at Georgia
Southwestern College. Mr. Cannon has eight years of experience in the solid
waste industry.

                                       17

<PAGE>

     THOMAS A. WINSTEAD has served as a Vice President of Waste Holdings since
March 1998. He joined us 1985 as a Branch Manager and has also served as East
Regional Operations Manager from 1990 to 1997. He is a graduate of Atlantic
Christian College with a B.S. in Health and Physical Education. Mr. Winstead has
more than 17 years of experience in the solid waste industry.

     None of our executive officers, directors or other key employees is related
to any other executive officer, director or other key employee, except that
Lonnie C. Poole, Jr. and Lonnie C. Poole, III are father and son.

                                     PART II

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

     Our common stock trades on the Nasdaq National Market under the symbol
"WWIN". After the holding company reorganization, the common stock of Waste
Holdings continues to trade on the Nasdaq National Market under the symbol
"WWIN". The following sets forth the quarterly high and low bid prices for the
years indicated as reported by Nasdaq. These prices are based on quotations
between dealers, which do not reflect retail mark-up, mark-down or commissions
and might not reflect actual transactions.

                               High          Low
                              -------      -------
2000
          First quarter       $12.875       $9.500
          Second quarter      $11.250       $8.250
          Third quarter       $11.750       $7.500
          Fourth quarter      $ 6.625       $6.641

2001
          First quarter       $ 7.625       $5.250
          Second quarter      $ 8.750       $5.750
          Third quarter       $ 9.550       $6.000
          Fourth quarter      $ 6.550       $4.450

     As of December 31, 2001, the number of record holders of our common stock
was 96 and we believe that the number of beneficial owners was more than 1,500.

     Since our conversion from S corporation to C corporation status in
connection with and prior to our initial public offering in June 1997, we have
never paid a cash dividend on our common stock and we anticipate that for the
foreseeable future any earnings will be retained for use in our business and,
accordingly, do not anticipate the payment of cash dividends. Our credit
facilities contain covenants that prohibit the payment of cash dividends.

     We did not sell any equity securities during the quarter ended December 31,
2001.

ITEM 6. SELECTED FINANCIAL DATA

     The following selected financial data should be read in conjunction with
the financial statements and the notes thereto included elsewhere in this
report. The consolidated statement of operations data set forth below with
respect to the years ended December 31, 1999, 2000, and 2001 and the
consolidated balance sheet data as of December 31, 2000 and 2001 are derived
from, and are referenced to, our audited consolidated financial statements
included elsewhere in this report. The consolidated statement of operations data
set forth below with respect to the years ended December 31, 1997 and 1998 and
the consolidated balance sheet data as of December 31, 1997, 1998 and 1999 are
derived from financial statements not included in this report.

                                       18

<PAGE>

<TABLE>
<CAPTION>
                                                                       YEAR ENDED DECEMBER 31
                                                       1997(1)     1998(1)      1999        2000        2001
                                                      --------    --------    --------    --------    --------
                                                               (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                   <C>         <C>         <C>         <C>         <C>
Statement of Operations Data:
Service revenues                                      $127,581    $169,527    $213,384    $240,733    $248,074
Equipment sales                                          1,601       1,732       1,335       1,701       1,221
                                                      --------    --------    --------    --------    --------
Total revenues                                         129,182     171,259     214,719     242,434     249,295
Cost of service operations                              79,775     105,633     133,923     149,429     156,825
Cost of equipment sales                                  1,171       1,268         821         920         805
                                                      --------    --------    --------    --------    --------
Total cost of operations                                80,946     106,901     134,744     150,349     157,630
Selling, general and administrative                     23,105      26,386      31,196      38,576      37,455
Depreciation and amortization                           11,797      16,981      22,298      26,402      28,924
Organization costs                                          --         926         432         567         570
Loss on sale of a business unit(s)                          --          --          --       1,049         359
                                                      --------    --------    --------    --------    --------
Operating income                                        13,334      20,065      26,049      25,491      24,357
Interest expense                                         3,021       4,812       8,653      14,637      14,193
Interest income                                           (312)        (93)     (1,287)     (1,634)     (1,276)
Other income                                              (322)       (538)       (441)       (284)       (186)
                                                      --------    --------    --------    --------    --------
Income before income taxes                              10,947      15,884      19,124      12,772      11,626
Income tax expense                                       7,011       5,606       7,100       5,113       4,244
                                                      --------    --------    --------    --------    --------
Net income                                            $  3,936    $ 10,278    $ 12,024    $  7,659    $  7,382
                                                      ========    ========    ========    ========    ========
Earnings per share:
  Basic                                               $   0.34    $   0.80    $   0.88    $   0.56    $   0.56
                                                      ========    ========    ========    ========    ========
  Diluted                                             $   0.33    $   0.77    $   0.86    $   0.56    $   0.55
                                                      ========    ========    ========    ========    ========
Pro forma income before income taxes (2)              $ 10,947    $ 15,884
Pro forma income taxes (2)                               4,202       5,803
                                                      --------    --------
Pro forma net income (2)                              $  6,745    $ 10,081
                                                      ========    ========
Pro forma earnings per share (2):
  Basic                                               $   0.58    $   0.78
                                                      ========    ========
  Diluted                                             $   0.56    $   0.76
                                                      ========    ========
Weighted-average shares outstanding:
  Basic                                                 11,709      12,875      13,707      13,615      13,286
                                                      ========    ========    ========    ========    ========
  Diluted                                               12,068      13,266      14,051      13,729      13,342
                                                      ========    ========    ========    ========    ========

Other Operating Data:
Net cash provided by operating activities             $ 22,949    $ 27,456    $ 29,182    $ 35,701    $ 40,181
Net cash used in investing activities                  (59,284)    (57,005)    (69,148)    (74,488)    (30,869)
Net cash provided by (used in) financing activities     35,431      31,659      39,856      43,012     (14,826)
EBITDA (3)                                              25,453      37,584      48,788      53,226      53,826
Balance Sheet Data:
Cash and cash equivalents                             $  1,176    $  3,665    $  3,176    $  7,401    $  1,887
Working capital                                          1,635       6,943       7,042      15,498       5,567
Property and equipment, net                             65,044      88,801     138,530     193,295     197,274
Total assets                                           113,417     176,201     249,204     307,748     302,621
Long-term debt and capital lease obligations,
   net of current maturities                            50,788      86,465     139,700     194,609     163,237
Shareholders' equity                                  $ 41,167    $ 64,662    $ 69,375    $ 66,926    $ 87,428
</TABLE>

(1)  On June 16, 1998, we exchanged 21,244 shares of our common stock (with a
     fair value of $449,000) for all of the issued and outstanding shares of
     common stock of Dumpsters, Inc. On June 30, 1998, we exchanged 330,000
     shares of our common stock

                                       19

<PAGE>

     (with a fair value of $7.4 million) for all of the issued and outstanding
     shares of common stock of Reliable Trash Services, Inc. On August 28, 1998,
     we exchanged 388,311 shares of our common stock (with a fair value of
     approximately of $8.5 million) for all of the issued and outstanding shares
     of common stock of Railroad Avenue Disposal, Inc. These business
     combinations have been accounted for as poolings-of-interests. Accordingly,
     we have restated our previously issued consolidated financial statements.
(2)  Prior to January 1, 1997 and for the period from January 1, 1997 to May 8,
     1997, Waste Holdings was an S corporation and, accordingly, was not subject
     to federal and some state corporate income taxes. Additionally, some
     companies we acquired in pooling-of-interests transactions were previously
     taxed as S corporations. The pro forma information has been computed as if
     we were subject to federal and all applicable state corporate income taxes
     for each of the periods presented assuming the tax rate that would have
     applied had we been taxed as a C corporation. For a more detailed
     discussion see "Management's Discussion and Analysis of Financial Condition
     and Results of Operations--Overview."
(3)  EBITDA is defined as income before income taxes plus interest expense (net
     of interest income), depreciation and amortization and loss on sale of
     business units. EBITDA should not be considered an alternative to (i)
     operating income or net income (as determined in accordance with GAAP) as
     an indicator of our operating performance or (ii) cash flows from operating
     activities (as determined in accordance with GAAP) as a measure of
     operating performance or liquidity. However, we have included EBITDA data
     (which is not a measure of financial performance under GAAP) because we
     understand that such data is commonly used by investors to evaluate a
     company's performance in the solid waste industry. Furthermore, we believe
     that EBITDA data is relevant to an understanding of our performance because
     it reflects our ability to generate cash flows sufficient to satisfy our
     debt service, capital expenditure and working capital requirements. We
     therefore interpret the trends that EBITDA depicts as one measure of our
     operating performance. However, funds depicted by the EBITDA measure may
     not be available for debt service, capital expenditures or working capital
     due to legal or functional requirements to conserve funds or other
     commitments or uncertainties. EBITDA, as measured by us, might not be
     comparable to similarly titled measures reported by other companies.
     Therefore, in evaluating EBITDA data, investors should consider, among
     other factors: the non-GAAP nature of EBITDA data; actual cash flows; the
     actual availability of funds for debt service, capital expenditures and
     working capital; and the comparability of our EBITDA data to similarly
     titled measures reported by other companies.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

     The following discussion should be read in conjunction with our
consolidated financial statements and notes thereto included in this report for
the years ended December 31, 2000 and 2001. Some matters discussed in this
Management's Discussion and Analysis are "forward-looking statements". These
forward-looking statements can generally be identified as such because the
context of the statement will include words such as we "believe", "anticipate,"
"expect" or words of similar import. Similarly, statements that describe our
future plans, objectives or goals are also forward-looking statements.
Forward-looking statements are subject to certain risks and uncertainties which
could cause actual results to differ materially from those currently anticipated
including our ability to manage growth, the availability and integration of
acquisition targets, competition, weather conditions, geographic concentration
and government regulation. You should consider these factors carefully in
evaluating the forward-looking statements and are cautioned not to place undue
reliance on such forward-looking statements.

Overview

     Waste Holdings is a regional, vertically integrated provider of solid waste
services. Waste Holdings was founded by members of the current senior management
team in 1970. We operate primarily in North Carolina, South Carolina, Virginia,
Tennessee, Mississippi, Alabama, Georgia and Florida, providing solid waste
collection, transfer, recycling, processing and disposal services for
commercial, industrial, municipal and residential customers. At December 31,
2001, we operated 40 collection operations, 26 transfer stations, approximately
100 county convenience drop-off centers, eight recycling facilities and ten
landfills in the southeastern U.S. We had revenues of $242.4 million and
operating income of $25.5 million in the year ended December 31, 2000, and
revenues of $249.3 million and operating income of $24.4 million in the year
ended December 31, 2001.

     Our presence in high-growth markets in the southeastern U.S., including
North Carolina, Georgia and Virginia, has supported our internal growth. From
1990 through 2001, we acquired, either by merger or asset purchase, 61 solid
waste collection or disposal operations. Fifty-seven of these acquisitions were
accounted for as purchases. Accordingly, the results of operations of these
acquired businesses have been included in our financial statements only from the
respective dates of acquisition and have affected period-to-period comparisons
of our operating results. For the 12 months ended December 31, 2001, we did not
have any significant acquisitions requiring historical or pro forma financial
statements to be presented. We anticipate that a significant part of our future
growth will come from acquiring additional solid waste collection, transfer and
disposal businesses and, therefore, we expect that additional acquisitions could
continue to affect period-to-period comparisons of our operating results.
Current levels of population growth and economic development in the southeastern
U.S. and our strong market presence in the region should provide an opportunity
to increase our revenues and market share. As we add customers in existing
markets, our density should improve, which we expect will increase our
collection efficiencies and profitability.

                                       20

<PAGE>

Results of Operations

General

     Our branch waste collection operations generate revenues from fees
collected from commercial, industrial and residential collection and transfer
station customers. We derive a substantial portion of our collection revenues
from commercial and industrial services that are performed under one-year to
five-year service agreements. Our residential collection services are performed
either on a subscription basis with individual households, or under contracts
with municipalities, apartment owners, homeowners associations or mobile home
park operators. Residential customers on a subscription basis are billed
quarterly in advance and provide us with a stable source of revenues. A
liability for future service is recorded upon billing and revenues are
recognized at the end of each month in which services are actually provided.
Municipal contracts in our existing markets are typically awarded, at least
initially, on a competitive bid basis and thereafter on a bid or negotiated
basis and usually range in duration from one to five years. Municipal contracts
generally provide consistent cash flow during the term of the contracts.

     Our prices for our solid waste services are typically determined by the
collection frequency and level of service, route density, volume, weight and
type of waste collected, type of equipment and containers furnished, the
distance to the disposal or processing facility, the cost of disposal or
processing, and prices charged in our markets for similar services.

     Our ability to pass on price increases is sometimes limited by the terms of
our contracts. Long-term solid waste collection contracts typically contain a
formula, generally based on a predetermined published price index, for automatic
adjustment of fees to cover increases in some, but not all, operating costs.

     At December 31, 2001, we operated approximately 100 convenience sites under
contract with 14 counties in order to consolidate waste in rural areas. These
contracts, which are usually competitively bid, generally have terms of one to
five years and provide consistent cash flow during the term of the contract
since we are paid regularly by the local government. At December 31, 2001, we
also operated eight recycling processing facilities as part of our collection
and transfer operations where we collect, process, sort and recycle paper
products, aluminum and steel cans, pallets, plastics, glass and other items. Our
recycling facilities generate revenues from the collection, processing and
resale of recycled commodities, particularly recycled wastepaper. Through a
centralized effort, we resell recycled commodities using commercially reasonable
practices and seek to manage commodity pricing risk by spreading the risk among
our customers. We also operate curbside residential recycling programs in
connection with our residential collection operations in most of the communities
we serve.

     Operating expenses for our collection operations include labor, fuel,
equipment maintenance and tipping fees paid to landfills. At December 31, 2001,
we owned, operated or transferred from 26 transfer stations that reduce our
costs by improving our utilization of collection personnel and equipment and by
consolidating the waste stream to gain more favorable disposal rates. At
December 31, 2001, we owned and operated ten landfills. Operating expenses for
these landfill operations include labor, equipment, legal and administrative,
ongoing environmental compliance, host community fees, site maintenance and
accruals for closure and post-closure maintenance. Cost of equipment sales
primarily consists of our cost to purchase the equipment that we resell.

     We capitalize certain expenditures related to pending acquisitions or
development projects. Indirect acquisition and project development costs, such
as executive and corporate overhead, public relations and other corporate
services, are expensed as incurred. Our policy is to charge against net income
any unamortized capitalized expenditures and advances (net of any portion
thereof that we estimate to be recoverable, through sale or otherwise) relating
to any operation that is permanently shut down, any pending acquisition that is
not consummated and any landfill development project that is not expected to be
successfully completed. Engineering, legal, permitting, construction and other
costs directly associated with the acquisition or development of a landfill,
together with associated interest, are capitalized.

     Selling, general and administrative, or SG&A, expenses include management
salaries, clerical and administrative overhead, professional services, costs
associated with our marketing and sales force and community relations expense.

     Property and equipment is depreciated over the estimated useful life of the
assets using the straight-line method.

     Other income has not historically been material to our results of
operations.

     To date, inflation has not had a significant impact on our operations.

                                       21

<PAGE>

Critical Accounting Policies

     We have established various accounting policies which govern the
application of accounting principles generally accepted in the United States of
America in the preparation of our financial statements. Our significant
accounting policies are described in Note 1 to the Consolidated Financial
Statements. Accounting policies require us to make significant estimates and
assumptions which have a material impact on the carrying value of our assets and
liabilities, and we consider these to be critical accounting policies. The
estimates and assumptions we use are based on historical experience and other
factors, which we believe to be reasonable under the circumstances. Actual
results could differ significantly from these estimates and assumptions which
could have a material impact on the carrying value of assets and liabilities at
the balance sheet dates and our results of operations for the reporting periods.

     We believe the following are critical accounting policies that require the
most significant estimates and assumptions that are particularly susceptible to
a significant change in the preparation of our financial statements:

Allowance For Doubtful Accounts

     We maintain allowances for doubtful accounts for estimated losses resulting
from the inability of our customers to make required payments. If the financial
condition of our customers was to deteriorate, resulting in an impairment of
their ability to make payments, additional allowances may be required.

Landfill Accounting

     Landfill permitting, acquisition and preparation costs are amortized using
a units-of-production method as permitted airspace of the landfill is consumed.
Landfill permitting and preparation costs represent only direct costs related to
these activities, including legal, engineering and construction. Landfill
preparation costs include the costs of construction associated with excavation,
liners, site berms and the installation of leak detection and leachate
collection systems. In determining the amortization rate for a landfill,
preparation costs include the total estimated costs to complete construction of
the landfill's permitted and probable to-be-permitted capacity.
Units-of-production amortization rates are determined annually. We determine the
rates based on estimates provided by our internal and third party engineers, and
consider the information provided by surveys which are performed at least
annually. Significant changes in our estimates could result in material
increases to our landfill depletion rates, which could have a material adverse
impact on our financial condition and results of operations.

     We routinely review our investment in operating landfills to determine
whether the costs of these investments are realizable. Judgments regarding the
existence of impairment indicators are based on regulatory factors, market
conditions and operational performance of our landfills. Future events could
cause us to conclude that impairment indicators exist and that our landfill
carrying costs are impaired. Any resulting impairment loss could have a material
adverse impact on our financial condition and results of operations.

Disposal Site Closure and Long-term Care

     Landfill closure and post-closure costs represent an estimate of the
current value of the future obligations associated with closure and post-closure
monitoring of non-hazardous solid waste landfills currently owned by us. Closure
and post-closure monitoring and maintenance costs represent the costs related to
cash expenditures yet to be incurred when a landfill facility ceases to accept
waste and closes. In determining accruals for closure and post-closure
monitoring and maintenance requirements, we consider final capping of the site,
site inspection, groundwater monitoring, leachate management, methane gas
control and recovery, and operating and maintenance costs to be incurred during
the period after the facility closes. Some of these environmental costs,
principally capping and methane gas control costs, are also incurred during the
operating life of the site in accordance with the landfill operation
requirements of the Subtitle D Regulations and the air emissions standards. Our
accounting personnel and consultants review at least annually the future cost
requirements for closure and post-closure monitoring and maintenance for our
operating landfills. The impact of changes determined to be changes in
estimates, based on the annual update, are accounted for on a prospective basis.

     While the precise amounts of these future obligations cannot be determined,
at December 31, 2001, we estimate the total landfill closure and post-closure
costs to range from $44.1 million to $48.5 million. We provide accruals for
these estimated costs as the remaining permitted airspace of landfills is
consumed. These costs are expressed in current dollars and are not discounted to
reflect anticipated timing of future expenditures. At December 31, 2000 and
2001, we had accrued approximately $2.7 million and $3.8 million for such costs.
Significant revisions in the estimated lives of our landfills or significant
increases in our estimates of landfill closure and post closure costs could have
a material adverse impact on our financial condition and results of operations.

                                       22

<PAGE>

Long-lived Assets

     In accordance with Statement of Financial Accounting Standards ("SFAS") No.
121, Accounting For The Impairment of Long-lived Assets And For Long-lived
Assets To Be Disposed Of, we review long-lived assets for impairment on a
market-by-market basis whenever events or changes in the circumstances indicate
that the carrying amount of an asset might not be recoverable. If an evaluation
is required, the projected future net cash flows on an undiscounted basis
attributable to each market would be compared to the carrying value of the
long-lived assets (including an allocation of goodwill, if appropriate) of that
market. If an impairment is indicated, the amount of the impairment is measured
based on the fair value of the asset. We also evaluate the remaining useful
lives to determine whether events and circumstances warrant revised estimates of
such lives. Any resulting impairment loss could have a material adverse impact
on our financial condition and results of operations.

     The following table sets forth for the periods indicated the percentage of
revenues represented by the individual line items reflected in our statements of
operations (some items have been reclassified for presentation purposes only):

                                                YEAR ENDED DECEMBER 31,
                                                -----------------------
                                                1999     2000     2001
                                                ----     ----     ----
Total revenues                                   100%     100%     100%
Service revenues                                99.4     99.3     99.5
Equipment sales                                  0.6      0.7      0.5
                                                ----     ----     ----
Total cost of operations                        62.8     62.0     63.2
Selling, general and administrative             14.5     15.9     15.0
Depreciation and amortization                   10.4     10.9     11.6
Organizational costs                             0.2      0.2      0.2
Loss on sale of business units                    --      0.5      0.2
                                                ----     ----     ----
Operating income                                12.1     10.5      9.8
Interest expense, net of interest income         3.4      5.3      5.2
Other income                                    (0.2)    (0.1)    (0.1)
                                                ----     ----     ----
Income before income tax expense                 8.9      5.3      4.7
Income tax expense                               3.3      2.1      1.7
                                                ----     ----     ----
Net income                                       5.6%     3.2%     3.0%
                                                ====     ====     ====

Year Ended December 31, 2001 Compared To Year Ended December 31, 2000

     Revenues. Total revenues increased $6.9 million, or 2.8%, to $249.3 million
in 2001, from $242.4 million in 2000. This increase was attributable primarily
to the following factors: (1) the effect of seven businesses acquired during the
year ended December 31, 2000 and three businesses and contracts acquired during
the year ended December 31, 2001, resulting in an $8.6 million increase, offset
by the decrease in revenues associated with collection operations sold of $5.4
million; and (2) the effect of prices and collection volumes resulting from new
municipal and commercial contracts and residential subscriptions and annexation
fees, resulting in an increase of $3.7 million.

     Total Cost of Operations. Total cost of operations increased $7.3 million,
or 4.8%, to $157.6 million in 2001 from $150.3 million in 2000. This increase
was attributable primarily to increased insurance expense of approximately $3.7
million, increased labor costs and associated expenses of approximately $3.5
million, increased landfill expense of approximately $1.3 million offset by a
decrease of disposal fees of approximately $5.1 million, increased fleet
maintenance costs of approximately $1.7 million, as well as a $2.2 million
increase due to general costs associated with the acquisition of seven
businesses in 2000 and three businesses in 2001. Total cost of operations as a
percentage of revenues increased from 62.0% to 63.2% for 2000 and 2001,
respectively.

     SG&A. SG&A decreased $1.1 million, or 2.9%, to $37.5 million in 2001 from
$38.6 million in 2000. This decrease was attributable primarily to a decrease in
labor costs and associated expenses of approximately $2.0 million offset by an
increase in professional fees of approximately $0.5 million and an increase of
approximately $0.4 million due to the effect of the seven businesses acquired in
2000 and the three businesses acquired in 2001. SG&A as a percentage of revenues
decreased to 15.0% in 2001 from 15.9% in 2000.

     Depreciation and Amortization. Depreciation and amortization increased $2.5
million, or 9.6%, to $28.9 million in 2001 from $26.4 million in 2000. The
primary components of this increase were (1) the effect of additional
depreciation related to the seven businesses acquired during the year ended
December 31, 2000 and the three businesses acquired during the year ended

                                       23

<PAGE>

December 31, 2001 of $1.0 million and (2) $0.5 million resulting from equipment
acquired for the operation at the landfills. The remaining $1.0 million related
to increased property, equipment and landfill site and cell costs due to higher
collection volumes. Depreciation and amortization, as a percentage, of revenues
increased to 11.6% in 2001 from 10.9% in 2000.

     Organization and Start-up Costs. We incurred costs of approximately
$567,000 and $570,000 for 2000 and 2001, respectively, which were primarily
related to our holding company reorganization. The reorganization enabled us to
(1) simplify our organizational structure, (2) segregate for operational and
liability purposes our distinct business activities and those of our
subsidiaries, (3) allow greater autonomy to companies currently owned or to be
acquired by us in the future, and (4) make it easier to implement future secured
credit facilities at reduced costs of implementation.

     Loss on Disposal of Business Units. We recognized a loss on sale of
business units totaling approximately $1.0 million and $0.4 million at December
31, 2000 and 2001, respectively. These sales were a divestiture of noncore
operations to better align us for enhanced profitability.

     Interest Expense (net of interest income). Interest expense (net of
interest income) decreased $0.1 million, or 0.7%, to $12.9 million in 2001 from
$13.0 million in 2000. This decrease was primarily due to the lower average
interest rate of 7.2% for 2001 compared to 8.9% for 2000 and lower average
borrowings ($192.8 million for 2001 compared to $201.6 million in 2000).

     Income Tax Expense. Income tax expense decreased $0.9 million, or 17.0%, to
$4.2 million in 2001 from $5.1 million in 2000. This decrease was attributable
to a decline in income before income taxes and a decrease in the effective tax
rate of approximately 3.5% (from 40.0% to 36.5%) as a result of our holding
company reorganization completed in 2001.

     Net Income. Net income decreased $0.3 million, or 3.6%, to $7.4 million in
2001 from $7.7 million in 2000. This decrease was primarily attributable to an
increase in total cost of operations, insurance expense and depreciation and
amortization expense offset by a decrease in income tax expense in 2001.

Year Ended December 31, 2000 Compared To Year Ended December 31, 1999

     Revenues. Total revenues increased $27.7 million, or 12.9%, to $242.4
million in 2000, from $214.7 million in 1999. This increase was attributable
primarily to the following factors: (1) the effect of 17 businesses acquired
during the year ended December 31, 1999 and seven businesses acquired during the
year ended December 31, 2000, resulting in a $20.2 million increase, offset by
the decrease in revenues associated with collection operations sold of $5.6
million; and (2) increased prices and collection volumes resulting from new
municipal and commercial contracts and residential subscriptions of $13.1
million.

     Total Cost of Operations. Total cost of operations increased $15.6 million,
or 11.6%, to $150.3 million in 2000 from $134.7 million in 1999. This increase
was attributable primarily to increased labor costs and associated expenses of
approximately $5.6 million, increased fuel expense of approximately $3.2
million, increased landfill and disposal expenses of approximately $4.8 million,
increased repairs and maintenance of approximately $1.3 million, and a $4.4
million increase due to collection volumes resulting from new municipal and
commercial contracts and residential subscriptions, all of which were offset by
operating costs related to collection operations sold of $3.7 million. Of this
increase attributable to collection volume, $8.8 million was directly related to
the acquisition of new businesses during the period. Total cost of operations as
a percentage of revenues decreased from 62.8% to 62.0% for 1999 and 2000,
respectively, due primarily to synergies achieved through acquisitions in
existing markets.

     SG&A. SG&A increased $7.4 million, or 23.7%, to $38.6 million in 2000 from
$31.2 million in 1999. This increase was attributable primarily to increased
labor costs and associated expenses of approximately $3.2 million, increased
professional fees of approximately $0.2 million, increased rent expense of
approximately $0.5 million, offset by the sale of collection operations of $0.8
million, with the remaining $4.3 million increase due to increased collection
volumes resulting from new municipal and commercial contracts and residential
subscriptions. Of the increase attributable to collection volume, $3.3 million
was directly related to the acquisition of new businesses during the period.
SG&A increased to 15.9% of revenue for 2000 from 14.5% of revenue for the same
period in 1999 due to the aforementioned increases.

     Depreciation and Amortization. Depreciation and amortization increased $4.1
million, or 18.4%, to $26.4 million in 2000 from $22.3 million in 1999. The
primary components of this increase were (1) increased amortization related to
newly acquired landfills of approximately $2.7 million and (2) depreciation
resulting from additional property acquired and placed into service due to
higher collection volumes and depreciation related to the acquisition of new
businesses of $1.4 million.

     Loss on Sale of Business Units. In 2000, we recognized a loss on the sale
of a business unit totaling $1.0 million. This sale was made in connection with
the acquisition of collection and landfill operations to better align us for
enhanced profitability.

                                       24

<PAGE>

     Organizational and Start-up Costs. We incurred costs of approximately
$327,000 and $562,000 in December 31, 1999 and 2000, respectively, which were
primarily related to merger and integration costs and to our holding company
reorganization. The reorganization enabled us to (1) simplify our organizational
structure, (2) segregate for operational and liability purposes our distinct
business activities and those of our subsidiaries, (3) allow greater autonomy to
companies currently owned or to be acquired in the future, and (4) make it
easier to implement future secured credit facilities at reduced costs of
implementation. Additionally, during fiscal 1999 and 2000, we incurred
nonrecurring start-up costs related to deployment of service equipment and
personnel associated with a new service contract of approximately $105,000 and
$5,000, respectively. These organization and start-up costs had been expended at
December 31, 1999 and 2000.

     Interest Expense (net of interest income). Interest expense (net of
interest income) increased $5.6 million, or 76.5%, to $13.0 million in 2000 from
$7.4 million in 1999. This increase was primarily due to the higher level of our
average outstanding indebtedness as well as a higher interest rate related to
our purchases of assets of businesses acquired and the debt required to fund our
stock repurchase plan.

     Income Tax Expense. Income tax expense decreased $2.0 million, or 28.0%, to
$5.1 million in 2000 from $7.1 million in 1999. This decrease was attributable
to a decline in income before income taxes, which was offset by an increase in
the effective tax rate of approximately 3.0% (from 37.0% to 40.0%). The increase
in the effective tax rate was due to reduced tax credits available to us.

     Net Income. Net income decreased $4.4 million, or 36.3%, to $7.7 million in
2000 from $12.0 million in 1999. This decrease was primarily attributable to
increased labor costs and associated expenses, loss on sale of collection
operations and interest expense (net of interest income) offset by a decrease in
income tax expense in 2000.

Liquidity and Capital Resources

     Our working capital at December 31, 2001 was $5.6 million and $15.5 million
at December 31, 2000. Our strategy in managing our working capital has been to
apply the cash generated from operations that remains available after satisfying
our working capital and capital expenditure requirements to reduce indebtedness
under our bank revolving credit facility and to minimize our cash balances. We
generally finance our working capital requirements from internally generated
funds and bank borrowings. In addition to internally generated funds, we have in
place financing arrangements to satisfy our currently anticipated working
capital needs in 2002. Prior to 2000, we had fully drawn our three $25 million
term facilities with Prudential Insurance Company of America. In 2000, we began
principal repayments on the first $25 million term facility. The Prudential
facilities require us to maintain financial ratios, such as minimum net worth,
net income, and limits on capital expenditures and indebtedness. Interest on the
three Prudential facilities is paid quarterly, based on fixed rates for the
three facilities of 7.28%, 6.96% and 6.84%, respectively, and the facilities
mature as follows: $17.9 million in April 2006, $25 million in June 2008 and $25
million in February 2009, subject to renewal.

     We maintain a revolving credit agreement with a syndicate of lending
institutions for which Fleet National Bank, formerly known as BankBoston, N.A.,
acts as agent. This credit facility provides up to $200 million through November
2004. Virtually all of our assets, and those of our subsidiaries, including our
interest in the equity securities of our subsidiaries, secure our obligations
under the Fleet credit facility. Pursuant to an intercreditor agreement with
Fleet, Prudential shares in the collateral pledged under the Fleet credit
facility. In addition, our subsidiaries have guaranteed our obligations under
the Prudential term loan facilities. The Fleet credit facility bears interest at
a rate per annum equal to, at our option, either a Fleet base rate or at the
Eurodollar rate (based on Eurodollar interbank market rates) plus, in each case,
a percentage rate that fluctuates, based on the ratio of our funded debt to
EBITDA (income before income taxes plus interest expense and depreciation and
amortization), from 0% to 0.5% for base rate borrowings and 1.5% to 2.5% for
Eurodollar rate borrowings. The Fleet facility requires us to maintain financial
ratios and satisfy other requirements, such as minimum net worth, net income,
and limits on capital expenditures and indebtedness. It also requires the
lenders' approval of acquisitions in some circumstances. As of December 31,
2001, $70 million was outstanding under the Fleet credit facility, and the
average interest rate on outstanding borrowings was approximately 5.88%.

     At December 31, 2001, we were in violation of the interest coverage
covenant contained in the Fleet facility. We received a waiver for this
violation from Prudential and Fleet for the year ended December 31, 2001. We
have executed an amendment to the Fleet facility that lowered our interest
coverage ratio requirements, reduced permitted capital expenditures and raised
our senior funded debt to EBITDA ratio requirements.

     On April 5, 2001, we closed on a variable rate development bond with
Sampson County ("Sampson facility"). This bond provides up to $33.7 million of
income tax exempt funding. As of December 31, 2001, an aggregate of
approximately $30.9 million was outstanding under the Sampson facility. The
bonds are backed by a letter of credit issued by Wachovia Bank & Trust as a
participating lender under our Fleet syndication. The average interest rate on
outstanding borrowings under the Sampson facility was approximately 3.9% at
December 31, 2001.

                                       25

<PAGE>

     As of December 31, 2001, we had drawn approximately $30.9 million from the
Sampson facility in order to repay funds borrowed from the Fleet syndication
used to finance the original Sampson County Landfill acquisition.

     As of December 31, 2001, we had the following contractual obligations and
commercial commitments (in thousands):

                                               PAYMENTS DUE BY PERIOD
<TABLE>
<CAPTION>
Contractual                                Less Than
Obligations                       Total     1 Year     1 to 3 Years   4 to 5 Years   Over 5 Years
-----------                     --------   ---------   ------------   ------------   ------------
<S>                             <C>          <C>          <C>           <C>             <C>
Long-Term Debt (1)              $170,338     $7,498       $91,497       $21,484         $49,859
Operating Leases                  10,340      1,497         2,459         2,021           4,363
Capital Leases                     1,379        959           420            --              --
                                --------     ------       -------       -------         -------
Total Contractual Cash
Obligations                     $182,057     $9,954       $94,376       $23,505         $54,222
                                ========     ======       =======       =======         =======
</TABLE>

     (1) Long-term debt payments include $10.7 million due in 2003 under our
Prudential credit facility. As of December 31, 2001, our Fleet credit facility
allows us to borrow up to $200 million provided our loan covenants are
maintained.

                                      AMOUNT OF COMMITMENT EXPIRATION PER PERIOD
<TABLE>
<CAPTION>
Commerical                   Total Amounts   Less Than
Commitments                    Committed      1 Year     1 to 3 Years   4 to 5 Years   Over 5 Years
-------------------------    -------------   ---------   ------------   ------------   ------------
<S>                             <C>           <C>           <C>             <C>            <C>
Standby Letters of Credit       $ 4,735       $ 4,735       $   --          $--            $--
Performance Bonds                20,626        19,413        1,213           --             --
                                -------       -------       ------          ---            ---
Total Commericial
Commitments                     $25,361       $24,148       $1,213          $--            $--
                                =======       =======       ======          ===            ===
</TABLE>

     Net cash provided by operating activities totaled $40.2 million for the
year ended December 31, 2001. Of this, $2.9 million was generated from decreases
in current operating net assets for the period.

     For the year ended December 31, 2001, net cash used in investing activities
was $30.9 million. Of this, $7.0 million was used to fund the cash portion of
acquisitions and $25.0 million was used to fund capital expenditures, which was
primarily for investments in property and equipment, consisting primarily of
trucks, containers and other equipment. Cash inflows from investing activities
include $1.1 million received from the disposal of a business unit and property
and equipment.

     Capital expenditures were $25.0 million for 2001 compared to $42.3 million
in 2000. In 2002, we expect to spend approximately $20.0 million on capital
expenditures, including $7.2 million for vehicle and equipment additions and
replacements, approximately $6.8 million for landfill site and cell development,
approximately $4.4 million for support equipment and approximately $1.6 million
for facilities, additions and improvements. We expect to fund our planned 2002
capital expenditures principally through internally generated funds and
borrowings under existing credit facilities. As an owner and potential acquirer
of additional new landfill disposal facilities, we might also be required to
make significant expenditures to bring newly acquired disposal facilities into
compliance with regulatory requirements. We might also be required to make
significant expenditures to obtain permits for newly acquired disposal
facilities or expand the available disposal capacity at any newly acquired
disposal facilities. We cannot currently determine the amount of these
expenditures because they will depend on the nature and extent of any acquired
landfill disposal facilities, the condition of any facilities acquired and the
permitting status of any acquired sites. We expect we would fund any capital
expenditures to acquire solid waste collection and disposal businesses, to the
extent we could not fund such acquisitions with our common stock, and any
regulatory expenses for newly acquired disposal facilities through borrowings
under our existing credit facilities.

     We have financial obligations relating to closure and post-closure costs,
or long-term care, or remediation of disposal facilities we operate or for which
we are or might become responsible. Landfill closure and post-closure costs
include estimated costs to be

                                       26

<PAGE>

incurred for final closure of landfills and estimated costs for providing
required post-closure monitoring and maintenance of landfills. We estimate these
future cost requirements based on our interpretation of the technical standards
of the Environmental Protection Agency's Subtitle D Regulations.

     While we cannot determine the precise amounts of these future obligations,
at December 31, 2001, we estimate the total costs to be approximately $44.1
million to approximately $48.5 million for remediation, final closure of our
operating facilities and post-closure monitoring costs. Our estimate of these
costs is expressed in current dollars and is not discounted to reflect
anticipated timing of future expenditures. We provide accruals for these future
costs (generally for a term of 30 years after final closure of any landfill),
and will provide additional accruals for these and other landfills we might
acquire or develop in the future, based on engineering estimates of consumption
of airspace over the useful lives of such facilities. There can be no assurance
that our ultimate financial obligations for actual closure or post-closure costs
will not exceed the amount accrued and reserved or amounts otherwise receivable
pursuant to insurance policies or trust funds. Such a circumstance could have a
material adverse effect on our financial condition and results of operations.
Due to the inherent uncertainties related to the total costs for remediation,
final closure of our operating facilities and post-closure monitoring costs, we
cannot reasonably estimate any additional financial obligation, if any.

     For the year ended December 31, 2001, net cash used in financing activities
was $14.8 million, which included net repayments under long-term debt (including
capital leases) of $27.9 million. Additionally, we received proceeds of $11.5 in
satisfaction of a note receivable from Liberty Waste and proceeds of $1.1
million related to exercises of stock options.

     At December 31, 2001, we had approximately $171.7 million of long-term and
short-term borrowings outstanding (including capital leases) and approximately
$25.4 million in letters of credit including performance bonds. At December 31,
2001, the ratio of our total debt (including capital leases) to total
capitalization was 66.2%, compared to 74.9% at December 31, 2000.

Seasonality

     Our results of operations tend to vary seasonally, with the first quarter
typically generating the least amount of revenues, higher revenues in the second
and third quarters, and a decline in the fourth quarter. This seasonality
reflects the lower volume of waste during the fall and winter months. Also,
operating and fixed costs remain relatively constant throughout the calendar
year, which, when offset by these revenues, results in a similar seasonality of
operating income.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK

     Quantitative Disclosures. We currently utilize no material derivative
financial instruments which expose us to significant market risk. We are exposed
to cash flow and fair value risk due to changes in interest rates with respect
to our long-term debt. The table below presents principal cash flows and related
weighted average interest rates of our long-term debt at December 31, 2001 by
expected maturity dates. Fair values have been determined based on quoted market
prices as of December 31, 2001.

     Our market risk exposure has not changed materially during the 12 months
ended December 31, 2001.

<TABLE>
<CAPTION>
                         2002     2003     2004      2005     2006    Thereafter    Total
                        ------   ------   -------   ------   ------   ----------   --------
                                                 (In thousands)
<S>             <C>     <C>      <C>      <C>       <C>      <C>        <C>         <C>
Fixed Rate
                7.28%   $  750   $  750   $   750   $  750   $  750     $11,770    $ 15,520
                6.96%    1,336    1,336     1,336    1,336    1,336      15,727      22,407
                6.84%    1,315    1,315     1,315    1,315    1,315      15,626      22,201
                7.00%      289       41        27       27       27         139         550

Variable Rate
                4.75%                      70,000                                    70,000
                4.72%                                                    30,855      30,855

                        $3,690   $3,442   $73,428   $3,428   $3,428     $74,117    $161,533
</TABLE>

                                       27

<PAGE>

     Qualitative Disclosures. Our primary exposure relates to:
     .    interest rate risk on long-term and short-term borrowings;
     .    the impact of interest rate movements on our ability to meet interest
          expense requirements and exceed financial covenants; and
     .    the impact of interest rate movements on our ability to obtain
          adequate financing to fund future acquisitions.

     We manage interest rate risk on outstanding long-term and short-term debt
through the use of fixed and variable rate debt. While we cannot predict the
impact interest rate movements will have on existing debt, we continue to
evaluate our financial position on an ongoing basis.

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     See Index to Consolidated Financial Statements.

Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

     Not Applicable

                                    PART III

     Some information required by Part III is omitted from this report because
we will file a definitive proxy statement for our 2002 Annual Meeting of
Shareholders (the "Proxy Statement") within 120 days after the end of our fiscal
year pursuant to Regulation 14A promulgated under the Securities Exchange Act of
1934, as amended, and the information included therein is incorporated herein by
reference to the extent provided below.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The other information required by Item 10 of Form 10-K is incorporated by
reference to the information under the heading "Election of Directors" and
"Section 16(a) Beneficial Ownership Reporting Compliance" in the Proxy
Statement.

     The information required by Item 10 of Form 10-K concerning our executive
officers is set forth under the heading "Executive Officers" located at the end
of Part I of this Form 10-K.

ITEM 11. EXECUTIVE COMPENSATION

     The information required by Item 11 of Form 10-K is incorporated by
reference to the information under the heading "Proposal No. 1 - Election of
Directors - Information Concerning the Board of Directors and Its Committees",
"Other Information - Compensation of Executive Officers", " - Compensation of
Directors", " - Report of the Compensation Committee on Executive Compensation",
" - Compensation Committee Interlocks and Insider Participation" and " -
Performance Graph" in the Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The information required by Item 12 of Form 10-K is incorporated by
reference to the information under the heading "Other Information - Principal
Shareholders" in the Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information required by Item 13 of Form 10-K is incorporated by
reference to the information under the heading "Other Information - Certain
Transactions" in the Proxy Statement.

                                       28

<PAGE>

                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

     (a)  The following Financial Statements, Financial Statement Schedules and
          Exhibits are filed as part of this report or incorporated herein by
          reference:

          1.   Financial Statements. See Index to Consolidated Financial
               Statements on page F-1.

          2.   Financial Statement Schedules.

                    Report of Independent Auditors on page S-1.

                    Schedule II - Valuation and Qualifying Accounts on page S-2.

               The financial statement schedule should be read in conjunction
          with the consolidated financial statements. The financial statement
          schedules not included in this annual report on Form 10-K have been
          omitted because they are not applicable or the required information is
          shown in the financial statements or included in the notes thereto.

     (b)  Reports on Form 8-K

     We filed no reports on Form 8-K during the fourth quarter of the fiscal
year ended December 31, 2001.

     (c) Exhibits.

          The exhibits filed as part of this Report are listed.

<TABLE>
<CAPTION>
EXHIBIT NO.                               DESCRIPTION
-----------                               -----------
<S>              <C>
  2.2(a)         Agreement and Plan of Merger dated as of September 9, 1998, by and
                 among the Registrant, TWS Merger Corporation, TransWaste Services, Inc.,
                 the shareholders of TransWaste Services, Inc., Thomas C. Cannon and
                 James F. Taylor.
  3.1(b)         Articles of Incorporation, as currently in effect.
  3.2(b)         Bylaws.
 10.1(b)         1997 Stock Plan.
 10.2(b)         Credit Agreement with Branch Banking and Trust Company dated April 3,
                 1996.
 10.3(b)         Note Purchase and Private Shelf Agreement with The Prudential Insurance
                 Company of America dated April 3, 1996.
 10.4(c)         Note Purchase and Private Shelf Agreement with The Prudential Insurance
                 Company of America dated as of June 30, 1998.
 10.5(d)         Senior Subordinated Loan and Security Agreement dated
                 February 2, 1999 between Liberty Waste Lending
                 Company, LLC, a subsidiary of the Registrant, and
                 Liberty Waste Services, LLC and its direct and
                 indirect subsidiaries.
 10.6(d)         Option Agreement dated February 2, 1999 between the Registrant and
                 Liberty Waste Services, LLC.
 10.7(e)         Revolving Credit Agreement dated as of November 9,
                 1999 by and among the Registrant and its subsidiaries,
                 the lending institutions party thereto, BankBoston,
                 N.A., as Administrative Agent, BancBoston Robertson
                 Stephens Inc., as Arranger, and Branch Banking and
                 Trust Company, as Documentation Agent.
 10.8(f)         First Amendment to Credit Agreement dated February 10, 2000.
 10.9(f)         Second Amendment to Credit Agreement dated June 14, 2000.
10.10(f)         Third Amendment to Credit Agreement dated October 31, 2000.
</TABLE>

                                       29

<PAGE>

EXHIBIT NO.                          DESCRIPTION
-----------                          -----------
10.11(f)         Fourth Amendment to Credit Agreement dated November, 2000
10.12            Fifth Amendment to Credit Agreement dated March 31, 2001
10.13            Sixth Amendment to Credit Agreement dated March 29, 2002
11.1             Computation re: Earnings Per Share
21(g)            List of Subsidiaries
23.1             Consent of Independent Auditors

(a)  Incorporated by reference to the similarly numbered Exhibit to the
     Registrant's Current Report on Form 8-K dated September 25, 1998.

(b)  Incorporated by reference to the similarly numbered Exhibit to the
     Registrant's Registration Statement on Form S-1 (File No. 333-25631).

(c)  Incorporated by reference to the similarly numbered Exhibit to the
     Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30,
     1998.

(d)  Incorporated by reference to the similarly numbered Exhibit to the
     Registrant's Annual Report on Form 10-K for the year ended December 31,
     1998.

(e)  Incorporated by reference to the similarly numbered Exhibit to the
     Registrant's Quarterly Report on Form 10-Q for the quarter ended September
     30, 1999.

(f)  Incorporated by reference to the similarly numbered Exhibit to the
     Registrant's Annual Report on Form 10-K for the year ended December 31,
     2000.

(g)  Incorporated by reference to the similarly numbered Exhibit to the
     Registrant's Registration Statement on Form S-4 (File No. 333-47966).

                                       30

<PAGE>

                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                          WASTE HOLDINGS, INC.


Date: March 27, 2002                      By:/s/ Lonnie C. Poole, Jr.
                                          ---------------------------

                                          LONNIE C. POOLE, JR.
                                          CHAIRMAN AND CHIEF EXECUTIVE OFFICER

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

    SIGNATURE                         CAPACITY                       DATE
    ---------                         --------                       ----


/S/ Lonnie C. Poole, Jr.     Director, Chairman and Chief        March 27, 2002
------------------------     Executive Officer
LONNIE C. POOLE, JR.         (Principal Executive Officer)


/S/ D. Stephen Grissom       Chief Financial Officer             March 27, 2002
----------------------       (Principal Financial and
D. STEPHEN GRISSOM           Accounting Officer)


/S/ Jim W. Perry             Director                            March 27, 2002
----------------
JIM W. PERRY


/S/ Gregory Poole, Jr.       Director                            March 27, 2002
----------------------
J. GREGORY POOLE, JR.


/S/ Thomas F. Darden         Director                            March 27, 2002
--------------------
THOMAS F. DARDEN


/S/ Thomas C. Cannon         Director                            March 27, 2002
--------------------
THOMAS C. CANNON


/S/ Paul L. Brunswick        Director                            March 27, 2002
---------------------
PAUL L. BRUNSWICK

                                       31

<PAGE>


                      WASTE HOLDINGS, INC. AND SUBSIDIARIES

                          INDEX TO FINANCIAL STATEMENTS

                                                                         Page
                                                                         ----
Independent Auditors' Report                                              F-2
Consolidated Balance Sheets as of December 31, 2000 and 2001              F-3
Consolidated Statements of Operations for the Years Ended December 31,
 1999,2000, and 2001                                                      F-4
Consolidated Statements of Shareholders' Equity for the Years Ended
 December 31, 1999, 2000 and 2001                                         F-5
Consolidated Statements of Cash Flows for the Years Ended December 31,
 1999, 2000 and 2001                                                      F-6
Notes to Consolidated Financial Statements                                F-8

<PAGE>

                          INDEPENDENT AUDITORS' REPORT

To The Board of Directors and Shareholders of
Waste Holdings, Inc. and Subsidiaries
Raleigh, North Carolina

     We have audited the accompanying consolidated balance sheets of Waste
Holdings, Inc. and subsidiaries (the "Company") as of December 31, 2000 and
2001, and the related consolidated statements of operations, shareholders'
equity and cash flows for each of the three years in the period ended December
31, 2001. 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 auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the 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, such consolidated financial statements present fairly, in
all material respects, the financial position of Waste Holdings, Inc. and
subsidiaries at December 31, 2000 and 2001, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 2001, in conformity with accounting principles generally accepted in the
United States of America.


/S/ DELOITTE & TOUCHE LLP
RALEIGH, NORTH CAROLINA
MARCH 29, 2002

                                     F-2

<PAGE>

                      WASTE HOLDINGS, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                        (In Thousands, Except Share Data)

<TABLE>
<CAPTION>
                                                                             December 31,   December 31,
                                                                                 2000           2001
                                                                             ------------   ------------
<S>                                                                            <C>            <C>
ASSETS
CURRENT ASSETS:
    Cash and cash equivalents                                                  $  7,401       $  1,887
    Accounts receivable - trade, less allowance for uncollectible accounts
       (2000 - $1,957; 2001 - $2,096)                                            27,983         26,307
    Accounts receivable - other                                                     663             --
    Income taxes receivable (Note 12)                                               857             --
    Inventories                                                                   1,778          1,541
    Prepaid insurance                                                               626            473
    Deferred income taxes (Note 12)                                               1,183          2,337
    Prepaid expenses and other current assets                                     3,620          4,148
                                                                               --------       --------
    Total current assets                                                         44,111         36,693
                                                                               --------       --------
PROPERTY AND EQUIPMENT, net (Notes 2 and 3)                                     193,295        197,274
INTANGIBLE ASSETS, net (Note 2)                                                  67,918         65,972
OTHER NONCURRENT ASSETS                                                           2,424          2,682
                                                                               --------       --------
TOTAL ASSETS                                                                   $307,748       $302,621
                                                                               ========       ========

LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
    Current maturities of long-term debt (Note 4)                              $  4,008       $  7,498
    Current maturities of capital lease obligations (Note 5)                        995            931
    Accounts payable - trade                                                     12,178         10,512
    Acquisition related obligations                                               3,338          3,273
    Accrued interest payable                                                      2,462          1,457
    Accrued wages and benefits payable                                            2,003          3,647
    Income taxes payable (Note 12)                                                   --             84
    Accrued expenses and other liabilities (Note 8)                               1,745          1,924
    Deferred revenue                                                              1,884          1,800
                                                                               --------       --------
    Total current liabilities                                                    28,613         31,126
                                                                               --------       --------
LONG-TERM DEBT, net of current maturities (Note 4)                              193,382        162,840
LONG-TERM LEASE OBLIGATIONS, net of current                                       1,227            397
    maturities (Note 5)
NONCURRENT DEFERRED INCOME TAXES (Note 12)                                       14,875         17,068
CLOSURE/POSTCLOSURE LIABILITIES (Note 9)                                          2,725          3,762
COMMITMENTS AND CONTINGENCIES (Notes 5, 7, 9 and 10)                                 --             --
SHAREHOLDERS' EQUITY (Notes 2, 6 and 7):
    Common stock, no par value, shares authorized 80,000,000 shares              37,037         38,088
       issued and outstanding:  2000 - 13,119,171; 2001 - 13,334,061
    Paid-in capital                                                               7,245          7,245
    Retained earnings                                                            36,279         43,661
    Note receivable - Liberty Waste (Note 6)                                    (11,538)            --
    Shareholders' loans and other receivables                                    (2,097)        (1,566)
                                                                               --------       --------
    Total shareholders' equity                                                   66,926         87,428
                                                                               --------       --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                     $307,748       $302,621
                                                                               ========       ========
</TABLE>
                 See Notes to Consolidated Financial Statements.

                                      F-3

<PAGE>

                      WASTE HOLDINGS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                  Years Ended December 31, 1999, 2000 and 2001

                      (In Thousands, Except Per Share Data)

<TABLE>
<CAPTION>
                                                                   1999        2000        2001
                                                                 --------    --------    --------
<S>                                                              <C>         <C>         <C>
REVENUES:
    Service revenues                                             $213,384    $240,733    $248,074
    Equipment sales                                                 1,335       1,701       1,221
                                                                 --------    --------    --------
       Total revenues                                             214,719     242,434     249,295
                                                                 --------    --------    --------
OPERATING COSTS AND EXPENSES:
    Operations                                                    133,923     149,429     156,825
    Equipment sales                                                   821         920         805
    Selling, general and administrative (Notes 5, 7, 8 and 11)     31,196      38,576      37,455
    Depreciation and amortization                                  22,298      26,402      28,924
    Organization and start-up costs (Note 2)                          432         567         570
    Loss of sale of business units (Note 2)                            --       1,049         359
                                                                 --------    --------    --------
    Total operating costs and expenses                            188,670     216,943     224,938
                                                                 --------    --------    --------
OPERATING INCOME                                                   26,049      25,491      24,357
                                                                 --------    --------    --------
    Interest expense (Note 4)                                       8,653      14,637      14,193
    Interest income                                                (1,287)     (1,634)     (1,276)
    Other (Note 7)                                                   (441)       (284)       (186)
                                                                 --------    --------    --------
       Total other expense, net                                     6,925      12,719      12,731
                                                                 --------    --------    --------
INCOME BEFORE INCOME TAXES                                         19,124      12,772      11,626
INCOME TAX EXPENSE (Note 12):                                       7,100       5,113       4,244
                                                                 --------    --------    --------
NET INCOME                                                       $ 12,024    $  7,659    $  7,382
                                                                 ========    ========    ========
EARNINGS PER SHARE
    Basic                                                        $   0.88    $   0.56    $   0.56
    Diluted                                                      $   0.86    $   0.56    $   0.55
WEIGHTED-AVERAGE NUMBER OF SHARES OUTSTANDING (Note 6)
    Basic                                                          13,707      13,615      13,286
                                                                 ========    ========    ========
    Diluted                                                        14,051      13,729      13,342
                                                                 ========    ========    ========
</TABLE>
                 See Notes to Consolidated Financial Statements.

                                      F-4

<PAGE>

                      WASTE HOLDINGS, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                  Years Ended December 31, 1999, 2000 and 2001
                      (In Thousands, Except Per Share Data)

<TABLE>
<CAPTION>
                                                                SHARES
                                                                ------              COMMON     PAID-IN
                                                        AUTHORIZED   OUTSTANDING     STOCK     CAPITAL
                                                        ----------   -----------   ---------   -------
<S>                                                       <C>           <C>        <C>          <C>
Balance, January 1, 1999                                  80,000        13,381     $ 41,148     $7,245
Net income                                                    --            --           --         --
Issuances of stock                                            --           464        7,699         --
Exercise of stock options                                     --             9           34         --
Issue of Liberty Waste receivable                             --            --           --         --
Fair value adjustment related to stock issued
    in business purchase transaction                          --            --       (2,181)        --
Increase in shareholders' loans and other receivables         --            --           --         --
                                                          ------   -    ------     --------     ------
Balance, December 31, 1999                                80,000        13,854       46,700      7,245
Net income                                                    --            --           --         --
Issuances of stock                                            --             4           47         --
Stock repurchases                                             --        (1,000)     (11,006)        --
Exercise of stock options                                     --           273        1,372         --
Cancellation of shares                                        --           (12)         (76)        --
Increase in shareholders' loans and other receivables         --            --           --         --
                                                          ------        ------     --------     ------
Balance, December 31, 2000                                80,000        13,119       37,037      7,245
Net income                                                    --            --           --         --
Issuances of stock                                            --             4           24         --
Stock repurchases                                             --            --           --         --
Exercise of stock options                                     --           216        1,109         --
Cancellation of shares                                        --            (5)         (82)        --
Collection of note receivable from Liberty Waste              --            --           --         --
Decrease in shareholders' loans and other receivables         --            --           --         --
                                                          ------        ------     --------     ------
Balance, December 31, 2001                                80,000        13,334     $ 38,088     $7,245
                                                          ======        ======     ========     ======
<CAPTION>
                                                                       NOTE          SHAREHOLDERS'       TOTAL
                                                        RETAINED     RECEIVABLE    LOANS AND OTHER   SHAREHOLDERS'
                                                        EARNINGS   LIBERTY WASTE     RECEIVABLES        EQUITY
                                                        --------   -------------   ---------------   -------------
<S>                                                      <C>         <C>               <C>             <C>
Balance, January 1, 1999                                 $16,596     $     --          $  (327)        $ 64,662
Net income                                                12,024           --               --           12,024
Issuances of stock                                            --           --               --            7,699
Exercise of stock options                                     --           --               --               34
Issue of Liberty Waste receivable                             --      (11,538)              --          (11,538)
Fair value adjustment related to stock issued
    in business purchase transaction                          --           --               --           (2,181)
Increase in shareholders' loans and other receivables         --           --           (1,325)          (1,325)
                                                         -------     --------          -------         --------
Balance, December 31, 1999                                28,620      (11,538)          (1,652)          69,375
Net income                                                 7,659           --               --            7,659
Issuances of stock                                            --           --               --               47
Stock repurchases                                             --           --               --          (11,006)
Exercise of stock options                                     --           --               --            1,372
Cancellation of shares                                        --           --               --              (76)
Increase in shareholders' loans and other receivables         --           --             (445)            (445)
                                                         -------     --------          -------         --------
Balance, December 31, 2000                                36,279      (11,538)          (2,097)          66,926
Net income                                                 7,382           --               --            7,382
Issuances of stock                                            --           --               --               24
Stock repurchases                                             --           --               --
Exercise of stock options                                     --           --               --            1,109
Cancellation of shares                                        --           --               --              (82)
Collection of note receivable from Liberty Waste              --       11,538               --           11,538
Decrease in shareholders' loans and other receivables         --           --              531              531
                                                         -------     --------          -------         --------
Balance, December 31, 2001                               $43,661           --          $(1,566)        $ 87,428
                                                         =======     ========          =======         ========
</TABLE>

                 See Notes to Consolidated Financial Statements.

                                       F-5

<PAGE>

                      WASTE HOLDINGS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                  Years Ended December 31, 1999, 2000 and 2001
                                 (In Thousands)
<TABLE>
<CAPTION>
                                                                           1999          2000           2001
                                                                         ---------   --------------   --------
<S>                                                                      <C>           <C>            <C>
OPERATING ACTIVITIES:
  Net income                                                             $  12,024     $   7,659      $  7,382
 Adjustments to reconcile net income to net cash provided by operating
      activities:
  Depreciation and amortization                                             22,298        26,402        28,924
  Gain on sale of property and equipment                                      (298)         (251)         (225)
  Loss on sale of business units                                                           1,049           359
  Provision for deferred income taxes                                        1,451         4,496         1,061
  Changes in operating assets and liabilities, net of effects
      from acquisition and disposition of related businesses:
      Current operating assets and liabilities (excluding cash
         and cash equivalents)                                              (6,171)       (4,147)        2,888
      Other noncurrent assets                                                 (853)         (642)       (1,245)
      Closure/postclosure liabilities                                          731         1,135         1,037
                                                                         ---------     ---------      --------
              Net cash provided by operating activities                     29,182        35,701        40,181
                                                                         ---------     ---------      --------
INVESTING ACTIVITIES:
  Proceeds from sale of property and equipment                                 721         1,836           712
  Proceeds from disposal of business units                                      --         9,897           426
  Purchases of property and equipment                                      (34,935)      (42,258)      (25,012)
  Acquisitions of related business, net of cash acquired                   (34,934)      (43,963)       (6,995)
                                                                         ---------     ---------      --------

              Net cash used in investing activities                        (69,148)      (74,488)      (30,869)
                                                                         ---------     ---------      --------

FINANCING ACTIVITIES:
  Proceeds from issuance of long term debt                                 186,809       172,541        57,750
  Principal payments of long-term debt                                    (135,143)     (118,340)      (84,802)
  Debt issuance costs                                                       (1,323)           --            --
  Principal payments of capital lease obligations                             (906)       (1,157)         (894)
  (Increase) decrease in advances under shareholder loans and
      other receivables                                                     (1,325)         (445)          531
  Net proceeds from common stock issuance                                    3,250            47           (58)
  Net proceeds from exercised options                                           34         1,372         1,109
  Repurchase of common stock                                                    --       (11,006)           --
  (Issuance) repayment of Liberty Waste note                               (11,538)           --        11,538
  Other                                                                         (2)           --            --
                                                                         ---------     ---------      --------
              Net cash provided by (used in) financing activities           39,856        43,012       (14,826)
                                                                         ---------     ---------      --------
INCREASE (DECREASE)                                                           (110)        4,225        (5,514)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                                 3,286         3,176         7,401
                                                                         ---------     ---------      --------
CASH AND CASH EQUIVALENTS, END OF YEAR                                   $   3,176     $   7,401      $  1,887
                                                                         =========     =========      ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid for interest                                                   $   8,530     $  12,483      $ 15,342
                                                                         =========     =========      ========
Cash paid for taxes                                                      $   4,301     $   2,954      $  3,281
                                                                         =========     =========      ========
</TABLE>

                                      F-6

<PAGE>

Supplemental Schedule of Noncash Transactions--

     During 1999, the Company issued 281,250 shares of common stock with a fair
value of approximately $4.5 million as partial consideration for certain
business acquisitions.

     During 2000, the Company forgave accounts receivable from an affiliated
party totaling approximately $76,000, in exchange for the return and
cancellation of the Company's common stock.

     During 2001, the Company cancelled 5,136 shares of common stock with a fair
value of $82,176 as settlement of certain business acquisitions.

                 See Notes to Consolidated Financial Statements.

                                       F-7

<PAGE>

                      WASTE HOLDINGS, INC. AND SUBSIDIARIES

                          NOTES TO FINANCIAL STATEMENTS

                  Years Ended December 31, 1999, 2000 and 2001

1.   Basis of Presentation and Accounting Policies

     Business Operations--Waste Holdings, Inc. (the "Company") is a regional
solid waste services company providing solid waste collection, transfer,
recycling, processing and disposal services to customers in North Carolina,
South Carolina, Alabama, Georgia, Mississippi, Tennessee, Virginia and Florida.

     Basis of Presentation--The Company's consolidated financial statements
include its wholly-owned subsidiaries. All intercompany balances and
transactions have been eliminated.

     Significant Accounting Policies--The significant accounting policies are
summarized below:

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

          a. Cash and Cash Equivalents--For the purposes of presentation in the
     financial statements, cash equivalents include highly liquid investments
     with original maturities of three months or less.

          c. Inventories--Inventories consist of (i) trucks and containers held
     for sale and (ii) operating materials and supplies held for use and are
     stated at the lower of cost or market (less costs to sell) using the
     specific-identification method.

          d. Property and Equipment--Property and equipment are stated at cost.
     Depreciation and amortization expense are calculated on the straight-line
     method. Estimated useful lives are as follows:

     Machinery and equipment                 5 to 12 years
     Furniture, fixtures and vehicles        5 to 10 years
     Building                                30 years

               Landfill permitting, acquisition and preparation costs are
     amortized using a units-of-production method as permitted airspace of the
     landfill is consumed. Landfill permitting and preparation costs represent
     only direct costs related to these activities, including legal, engineering
     and construction. Landfill preparation costs include the costs of
     construction associated with excavation, liners, site berms and the
     installation of leak detection and leachate collection systems. Interest is
     capitalized on landfill permitting and construction projects and other
     projects under development while the assets are undergoing activities to
     ready them for their intended use. The interest capitalization rate is
     based on the Company's weighted average cost of indebtedness. Interest
     capitalized for the years ended December 31, 1999, 2000 and 2001 was $-0-,
     $85,000 and $541,000, respectively. In determining the amortization rate
     for a landfill, preparation costs include the total estimated costs to
     complete construction of the landfill's permitted and probable to be
     permitted capacity. Units-of-production amortization rates are determined
     annually. The rates are determined by management based on estimates
     provided by the Company's internal and third party engineers, and consider
     the information provided by surveys which are performed at least annually.

               Management routinely reviews its investment in operating
     landfills to determine whether the costs of these investments are
     realizable. Judgments regarding the existence of impairment indicators are
     based on regulatory factors, market conditions and operational performance
     of the Company's landfills.

          e. Intangible Assets--Intangible assets primarily consist of goodwill,
     customer lists and noncompete and consulting agreements acquired in
     business combinations. Intangible assets are net of accumulated
     amortization and consist of the following (in thousands):

                                      F-8

<PAGE>

                      WASTE HOLDINGS, INC. AND SUBSIDIARIES

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

1.   Basis of Presentation and Accounting Policies--(Continued)

                                                               2000      2001
                                                             -------   -------
Goodwill                                                     $67,515   $65,729
Customer lists                                                    13        13
Noncompete agreements                                            390       230
                                                             -------   -------
Intangible assets                                            $67,918   $65,972
                                                             =======   =======

          Customer lists are amortized using the straight-line method over 5 to
     10 years. Noncompete agreements are amortized using the straight-line
     method over the lives of the agreements. Goodwill is amortized using the
     straight-line method, generally over 15 to 40 years (weighted-average life:
     2000 - 32.5 years; 2001 - 33.1 years). Such estimated useful lives assigned
     to goodwill are based on the period over which management believes that
     such goodwill can be recovered through undiscounted future operating cash
     flows of the acquired operations. Accumulated amortization was
     approximately $8,619,000 and $11,745,000 at December 31, 2000 and 2001
     respectively.

          Should events or circumstances occur subsequent to the acquisition of
     a business which bring into question the realizable value or impairment of
     the related goodwill or other intangible assets, the Company will evaluate
     the remaining useful life and balance of goodwill and make appropriate
     adjustments. See also Note 1.g. and 1.o.

          f. Other Noncurrent Assets--Included in other noncurrent assets are
     debt issue costs relating to borrowings (see Note 4). Debt issue costs are
     amortized to interest expense using the effective interest method over the
     life of the related debt.

          g. Long-lived Assets--In accordance with Statement of Financial
     Accounting Standards ("SFAS") No. 121, Accounting For The Impairment of
     Long-lived Assets And For Long-lived Assets To Be Disposed Of, long-lived
     assets are reviewed for impairment on a market-by-market basis whenever
     events or changes in the circumstances indicate that the carrying amount of
     an asset may not be recoverable. If an evaluation is required, the
     projected future net cash flows on an undiscounted basis attributable to
     each market would be compared to the carrying value of the long-lived
     assets (including an allocation of goodwill, if appropriate) of that
     market. If an impairment is indicated, the amount of the impairment is
     measured based on the fair value of the asset. The Company also evaluates
     the remaining useful lives to determine whether events and circumstances
     warrant revised estimates of such lives.

          h. Disposal Site Closure and Long-term Care-- Landfill closure and
     post-closure costs represent an estimate of the current value of the future
     obligation associated with closure and post-closure monitoring of
     non-hazardous solid waste landfills currently owned by the Company. Closure
     and post-closure monitoring and maintenance costs represent the costs
     related to cash expenditures yet to be incurred when a landfill facility
     ceases to accept waste and closes. Accruals for closure and post-closure
     monitoring and maintenance requirements in the U.S. consider final capping
     of the site, site inspection, groundwater monitoring, leachate management,
     methane gas control and recovery, and operating and maintenance costs to be
     incurred during the period after the facility closes. Certain of these
     environmental costs, principally capping and methane gas control costs, are
     also incurred during the operating life of the site in accordance with the
     landfill operation requirements of Subtitle D and the air emissions
     standards. Reviews of the future cost requirements for closure and
     post-closure monitoring and maintenance for the Company's operating
     landfills by the Company accounting personnel and consultants are performed
     at least annually. The impact of changes determined to be changes in
     estimates, based on the annual update, are accounted for on a prospective
     basis.

          i. Self -Insurance Reserves-- The Company assumes the risks for
     medical and dental insurance exposures up to certain loss thresholds set
     forth in separate insurance contracts. The Company has established self
     insurance reserves for these risks, which are estimated based on
     evaluations performed by independent third parties.

                                      F-9

<PAGE>

                      WASTE HOLDINGS, INC. AND SUBSIDIARIES

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

1.   Basis of Presentation and Accounting Policies--(Continued)

          j. Earnings Per Share and Pro Forma Information--Basic earnings per
     share computations are based on the weighted-average common stock
     outstanding. Diluted earnings per share include the dilutive effect of
     stock options using the treasury stock method. For the years ended December
     31, 1999, 2000 and 2001, 250,061, 350,029 and 347,949 stock options,
     respectively, were excluded from the computations of diluted earnings per
     share because the impact of their inclusion would be anti-dilutive.

          k. Stock Option Plan--The Company accounts for employee stock
     compensation in accordance with APB No. 25, Accounting For Stock Issued To
     Employees. Under APB No. 25, the total compensation expense is equal to the
     difference between the award's exercise price and the intrinsic value at
     the measurement date, which is the first date that both the exercise price
     and number of shares to be issued is known.

     SFAS No. 123, Accounting For Stock-based Compensation, requires disclosures
     of stock-based compensation arrangements with employees and encourages (but
     does not require) compensation cost to be measured based on the fair value
     of the equity instrument awarded. Companies are, however, permitted to
     continue to apply APB No. 25. The Company applies APB No. 25 to its
     stock-based compensation awards to employees and discloses the required
     information by SFAS No. 123 (see Note 11).

          l. Revenue Recognition and Deferred Revenue--The Company recognizes
     collection, transfer, recycle and disposal revenues as the services are
     provided. Certain customers are billed in advance and, accordingly,
     recognition of the related revenues is deferred until the services are
     provided. Revenues from the sale of recycled materials and finished
     products are recognized upon shipment.

          m. Segment Information--The Company identifies its operating segments
     based on geographical location. The Company considers each of its five
     divisions that report stand-alone financial information and have division
     managers that report to the Company's chief operating decision maker to be
     an operating segment; however, all operating segments have been aggregated
     together and are reported as a single segment consisting of the collection,
     transfer, recycling and disposal of non-hazardous solid waste primarily in
     the Southeastern United States.

          n. Income Taxes-- In accordance with the provisions of SFAS No. 109,
     Accounting For Income Taxes, deferred income taxes (benefits) are provided
     on temporary differences between financial statement carrying values and
     the tax basis of assets and liabilities.

          o. New Accounting Standards--Effective January 1, 2001, the Company
     adopted Financial Accounting Standards Board ("FASB") Statement of
     Financial Standards "(SFAS") No. 133, Accounting for Derivative Instruments
     and Hedging Activities, as amended by SFAS No. 138, Accounting for Certain
     Derivative Instruments and Certain Hedging Activities. SFAS No. 133
     establishes accounting and reporting standards for derivative instruments,
     including certain derivative instruments embedded in other contracts
     (collectively referred to as derivatives), and for hedging activities. The
     adoption of SFAS No. 133 did not have a material impact on the Company's
     consolidated financial statements.

          In June of 2001, the FASB approved SFAS No. 141, Business
     Combinations, which establishes accounting and reporting standards for all
     business combinations initiated after June 30, 2001, and establishes
     specific criteria for the recognition of intangible assets separately from
     goodwill. SFAS No. 141 eliminates the pooling-of-interest method of
     accounting and requires all acquisitions consummated subsequent to June 30,
     2001, to be accounted for under the purchase method. The adoption of SFAS
     No. 141 did not have a material impact on the Company's consolidated
     financial statements.

          In June 2001, the FASB issued SFAS No. 142, Goodwill and Other
     Intangible Assets, which addresses financial accounting and reporting for
     acquired goodwill and other intangible assets. SFAS No. 142 eliminates
     amortization of goodwill and other intangible assets that are determined to
     have an indefinite useful life and instead requires an impairment only
     approach. At adoption, any goodwill impairment loss will be recognized as
     the cumulative effect of a change in accounting principal. Subsequently,
     any impairment losses will be recognized as a component of income from
     operations. As of December 31, 2001, the Company had net goodwill of $65.7
     million and incurred $2.5 million in goodwill amortization in the statement
     of operations during fiscal 2001. The adoption of SFAS No. 142 will result
     in the discontinuation of goodwill amortization. The Company will be
     required to test goodwill using an impairment method under the new standard
     at adoption and at least annually thereafter, which could have an adverse
     effect on our future results of operations if an impairment occurs. SFAS
     No. 142 is required to be adopted on January 1, 2002.

                                      F-10

<PAGE>

                      WASTE HOLDINGS, INC. AND SUBSIDIARIES

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

1.   Basis of Presentation and Accounting Policies--(Continued)

          In August 2001, FASB issued SFAS No. 143, Accounting For Asset
     Retirement Obligations. This statement requires recording the fair value of
     a liability for an asset retirement obligation in the period in which it is
     incurred, and a corresponding increase in the carrying value of the related
     long-lived asset. Over time, the liability is accreted to its present value
     each period and the capitalized cost is depreciated over the useful life of
     the related asset. Upon settlement of the liability, its is either settled
     for its recorded amount or a gain or loss upon settlement is recorded. This
     statement is effective for fiscal years beginning after June 15, 2002. The
     Company is currently evaluating the effect, if any, SFAS No. 143 will have
     on the Company's results of operations or financial position.

          In August 2001, FASB issued SFAS No. 144, Accounting for the
     Impairment or Disposal of Long-Lived Assets. This statement addresses
     financial accounting and reporting for the impairment or disposal of
     long-lived assets. This Statement supersedes SFAS No 121, Accounting for
     the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
     Disposed Of, and the accounting and reporting provisions of APB Opinion No.
     30 for the disposal of a segment of a business. This Statement retains many
     of requirements of SFAS No. 121, but establishes approaches to deal with
     fair value issues for long-lived assets.

     The statement also retains the basic provisions of APB Opinion No. 30, but
     broadens that presentation to include a component of an entity rather than
     a segment of a business. SFAS No. 144 is effective for fiscal years
     beginning after December 15, 2001. The Company is currently evaluating the
     effect , if any, SFAS No. 144 will have on the Company's results of
     operations or financial position.

          p. Presentation--Certain 1999 and 2000 financial statement amounts
     have been reclassified to conform with the 2001 presentation.

2.   Acquisitions and Disposition

     Purchase Transactions--During 2000 and 2001 the Company acquired eight and
three waste collection and disposal services businesses, respectively, to expand
its operations. The assets acquired and liabilities assumed were accounted for
by the purchase method of accounting and included the following (in thousands):

                                                             2000       2001
                                                            -------    ------
Tangible Net Assets Acquired:
  Accounts receivable                                       $ 2,178    $   --
  Prepaid expenses and other current assets                      --        --
  Property and equipment                                      7,318     1,596
  Landfill assets                                            33,384     5,632
  Accounts payable and accrued expenses                      (4,048)     (289)
  Deferred revenue                                               --        --
  Notes payable                                                  --        --
  Capital lease obligations                                      --        --
                                                            -------    ------
    Total net tangible assets acquired                       38,832     6,939

Intangible Assets:
  Noncompete agreements                                           7        --
  Customer lists, contracts and goodwill                      5,124        56
                                                            -------    ------
Total acquisition costs                                     $43,963    $6,995
                                                            =======    ======

     On May 30, 2000, through an asset swap, the Company acquired the Sampson
County Landfill, a municipal solid waste landfill in Roseboro, North Carolina,
and a collection operation as a tuck-in to our existing Fayetteville, North
Carolina operation, from Allied

                                      F-11

<PAGE>

                      WASTE HOLDINGS, INC. AND SUBSIDIARIES

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

2.   Acquisitions--(Continued)

     Waste Industries for $27.4 million in cash. Simultaneously, the Company
sold its collection operations in Ooltewah, Tennessee and Dalton, Georgia to
Allied Waste Industries for $9.9 million in cash for a loss of approximately $1
million.

     On March 1, 2001, the Company acquired commercial routes in Memphis and
Nashville, Tennessee; Norfolk, Virginia; Augusta, Georgia; and Pensacola,
Florida for $5.0 million in cash from Allied Waste Industries, Inc. The Memphis
and Norfolk operations are tuck-ins to existing operations. Subsequently, the
Augusta and Pensacola routes were sold for approximately $800,000 in cash.

     On May 15, 2001, the Company disposed of a business unit for $426,000 in
cash and notes to Capital Cartage, Inc.

     On September 27, 2001, the Company acquired residential and commercial
routes from Andrews Garbage Service as a tuck-in to existing operations in
Crossville, Tennessee for approximately $216,000 in cash.

     On November 1, 2001, the Company acquired real estate and the permit to
construct and develop a construction and demolition landfill in Holly Springs,
NC from Holly Springs Landfill, LLC for $5.6 million in cash.

     The following unaudited pro forma results of operations assume the
transactions described above occurred as of January 1, 2000 and 2001 after
giving effect to certain adjustments, including the amortization of the excess
of cost over the underlying assets (in thousands except per share data):

                                                 2000                 2001
                                           -----------------    ----------------
                                           (In Thousands, Except Per Share Data)

Total revenues                                 $253,697             $249,943
Operating income                                 28,246               24,479
Net income                                        8,426                7,442
Earnings per common share:
Basic                                          $   0.62             $   0.56
Diluted                                        $   0.61             $   0.56

     The pro forma financial information does not purport to be indicative of
the results of operations that would have occurred had the transactions taken
place at the beginning of the periods presented or of future operating results.

     In 1999, the Company incurred merger and integration costs of approximately
$327,000. In fiscal years 2000 and 2001, the Company incurred costs of
approximately $567,000 and $570,000, respectively, related to a corporate
reorganization. The corporate reorganization enabled the Company to (1) simplify
its organizational structure, (2) segregate for operational and liability
purposes the distinct business activities of the Company and its subsidiaries,
(3) allow greater autonomy to companies currently owned or to be acquired in the
future, and (4) make it easier to implement future secured credit facilities at
reduced costs of implementation.

     Additionally, the Company incurred non-recurring start-up costs related to
deployment of service equipment and personnel associated with a new contract of
approximately $105,000 in fiscal 1999 and $5,000 in fiscal 2000.

3.   Property and Equipment

     Property and equipment consisted of the following at December 31, 2000 and
2001(in thousands):

                                      F-12

<PAGE>

                      WASTE HOLDINGS, INC. AND SUBSIDIARIES

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

3.   Property and Equipment--(Continued)

                                                            2000          2001
                                                          --------      --------
Land, land improvements and buildings                     $ 34,502      $ 32,452
Landfills and associated land                               60,037        77,210
Machinery and equipment                                    196,204       206,242
Furniture, fixtures and vehicles                             5,215         5,297
In-process equipment                                           237             2
                                                          --------      --------
              Total property and equipment                 296,195       321,203
Less accumulated depreciation                              102,900       123,929
                                                          --------      --------
Property and equipment, net                               $193,295      $197,274
                                                          ========      ========

     In-process equipment includes equipment not placed in service at year end.

     Landfill costs include land held for development, representing various
landfill properties with an aggregate cost of approximately $0.6 million and
$5.0 million at December 31, 2000 and 2001, respectively, which is not being
amortized.

4.   Long-term Debt

     Long-term debt consists of the following at December 31, 2000 and 2001 (in
thousands):

<TABLE>
<CAPTION>
                                                                      2000       2001
                                                                    --------   --------
<S>                                                                 <C>        <C>
Bank Credit Facilities:
       Prudential                                                   $ 71,429   $ 67,857
       Fleet                                                         125,000     70,000
Bonds                                                                     --     30,855
Other installment notes payable, interest ranging from 1% to 7%          782      1,460
Present value of noncompete agreement liabilities with the former
       shareholders of related businesses acquired due in various
       monthly installments through 2002                                 179        166
                                                                    --------   --------
Total notes payable                                                  197,390    170,338
Less current portion                                                   4,008      7,498
                                                                    --------   --------
Long-term portion                                                   $193,382   $162,840
                                                                    ========   ========
</TABLE>

     On November 9, 1999, the Company entered into a revolving credit agreement
with a syndicate of lending institutions for which Fleet National Bank, formerly
known as Bank Boston, N.A. ("Fleet") acts as agent. This credit facility
provides up to $200 million through November 2004. Virtually all of the assets
of the Company and its subsidiaries, including the Company's interest in the
equity securities of its subsidiaries, secure the Company's obligations under
the Fleet credit facility. Pursuant to an intercreditor agreement with Fleet,
Prudenital Insurance Company of America ("Prudential") shares in the collateral
pledged under the Fleet credit facility. In addition, the Company's subsidiaries
have guaranteed the Company's obligations under the Prudential term loan
facilities. The Fleet credit facility bears interest at a rate per annum equal
to, at the Company's option, either a Fleet base rate or at the Eurodollar rate
(based on Eurodollar interbank market rates) plus, in each case, a percentage
rate that fluctuates, based on the ratio of the Company's funded debt to EBITDA
(income before income taxes plus interest expense and depreciation and
amortization), from 0% to 0.5% for

                                      F-13

<PAGE>

                      WASTE HOLDINGS, INC. AND SUBSIDIARIES

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

4.   Long-term Debt--(Continued)

base rate borrowings and 1.5% to 2.5% for Eurodollar rate borrowings. The Fleet
facility requires the Company to maintain certain financial ratios and satisfy
other predetermined requirements, such as minimum net worth, net income, and
limits on capital expenditures and indebtedness. It also requires the lenders'
approval of acquisitions in some circumstances. As of December 31, 2001, $70.0
million was outstanding under the Fleet credit facility, and the average
interest rate on outstanding borrowings was approximately 5.88%.

     As of January 1, 2000, the Company had fully drawn three of the Prudential
$25 million term facilities, leaving the Company with an uncommitted shelf
facility of $25 million. In 2000 we began principal repayments on the first $25
million term facility. The Prudential credit facilities require the Company to
maintain certain financial ratios, such as debt to earnings and fixed charges to
earnings, and satisfy other predetermined requirements, such as minimum net
worth and net income. Interest on the three Prudential term facilities is paid
quarterly, based on a fixed rate of 7.28%, 6.96% and 6.84%, respectively. Of the
Company's committed Prudential facilities, $17.9 million mature in April 2006,
$25 million mature in June 2008, and $25 million mature in February 2009,
subject to renewal.

     On April 5, 2001, the Company closed on a variable rate development bond
with Sampson County ("Sampson facility"). This bond provides up to $33.7 million
of income tax exempt funding. As of December 31, 2001, an aggregate of
approximately $30.9 million was outstanding under the Sampson facility. The
bonds are backed by a letter of credit issued by Wachovia Bank & Trust as a
participating lender under our Fleet syndication. The average interest rate on
outstanding borrowings was approximately 3.9% at December 31, 2001.

     As of December 31, 2001, the Company has drawn approximately $30.9 million
from the Sampson facility in order to repay funds borrowed from the Fleet
syndication used to finance the original Sampson County Landfill acquisition.

     Annual aggregate principal maturities at December 31, 2001 are as follows
(in thousands):

2002                      $  7,498
2003                        10,755
2004                        80,742
2005                        10,742
2006                        10,742
Thereafter                  49,859
                          --------

Total                     $170,338
                          ========

     At December 31, 2001, the Company was in violation of the interest coverage
covenant contained in the Fleet facility. The Company received a waiver for this
violation from Prudential and Fleet for the year ended December 31, 2001. The
Company has executed an amendment to the Fleet facility that lowered the
interest coverage ratio requirements, reduced permitted capital expenditures and
raised the Senior Funded Debt to EBITDA ratio requirements.

     Based on the borrowing rates currently available to the Company for bank
loans with similar terms and average maturities, the fair value of long-term
debt was $205.2 million and $161.5 million at December 31, 2000 and 2001,
respectively.

5.   Leases

     The Company leases certain property and equipment under both capital and
operating leases. Gross property and equipment recorded under capital leases and
the related accumulated amortization were approximately $4.1 million and $1.2
million, respectively, at December 31, 2001.

                                      F-14

<PAGE>

                      WASTE HOLDINGS, INC. AND SUBSIDIARIES

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

5.   Leases-- (Continued)

     Future minimum lease payments as of December 31, 2001 for capital and
operating leases that have initial or remaining terms in excess of one year are
as follows (in thousands):

                                              Capital     Operating
                                               Leases       Leases       Total
                                              -------     ---------     -------
2002                                             959         1,497        2,456
2003                                             357         1,304        1,661
2004                                              63         1,155        1,218
2005                                              --         1,033        1,033
2006                                              --           988          988
Thereafter                                        --         4,363        4,363
                                              ------       -------      -------

Total minimum lease payments                  $1,379       $10,340      $11,719
                                              ======       =======      =======
Less amount representating interest
     (ranging from 5.25% to 6.96%)                51
                                              ------
                                               1,328
Less current portion                             931
                                              ------
Long term lease obligation                    $  397
                                              ======

     The total rental expense for all operating leases for the years ended
December 31, 1999, 2000 and 2001 is as follows (in thousands):

                                             1999           2000           2001
                                            ------         ------         ------
Buildings and sites                         $1,474         $1,962         $1,901
Trucks and equipment                         1,310            910            687
                                            ------         ------         ------
Total                                       $2,784         $2,872         $2,588
                                            ======         ======         ======

     Direct rental expense is included in cost of operations in the statements
of operations and indirect rental expense is included in selling, general and
administrative in the statements of operations.

6.   Shareholders' Equity

     During 1999, the Company loaned Liberty Waste Services, LLC ("Liberty
Waste") $11,538,000 under a senior subordinated note purchase agreement due
December 31, 2001. Interest is payable annually at the rate of 11% per annum.
The Company also received an option to purchase ("Option") any subsidiary of
Liberty Waste that operates a landfill or a waste disposal business within a 75
miles radius of a landfill owned by one of the Liberty Waste subsidiaries or any
other waste disposal business wherever located if the Company's funds loaned
under the note purchase agreement are used, directly or indirectly, to purchase,
develop or operate such business (a "Business Unit"). The Option became
exercisable for an 18-month period beginning July 1, 2000. The exercise price
for each Business Unit will equal 75% of the Company's market capitalization
multiple times the Business Unit's annualized EBITDA, less the Business Unit's
funded debt assumed by the Company, as defined in the note purchase agreement.

     During 2001, Liberty Waste repaid the note in full, including all accrued
and unpaid interest and all options expired unexercised.

                                      F-15

<PAGE>

                      WASTE HOLDINGS, INC. AND SUBSIDIARIES

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

6.   Shareholders' Equity-- (Continued)

     During 1999, the Company sold 183,000 shares of the Company's common stock
with a fair value of approximately $3.3 million to Liberty Waste.

     The classification of the note purchase agreement from Liberty Waste, at
December 31, 2000, is based on SEC Staff Accounting Bulletin Topic 4E,
Receivables from Sale of Stock, EITF Issue No. 85-1, Classifying Notes Received
for Capital Stock, and Footnote 2 to APB Opinion 25, Accounting for Stock Issued
to Employees. These pronouncements address the presentation of shareholder
receivables arising from capital stock transactions and situations involving
stock issued for nonrecourse receivables. Based on (i) Liberty Waste's equity
ownership in the Company and (ii) the nature and terms of the note purchase
agreement, the Company believes these pronouncements are applicable in
evaluating the substance and, consequently, appropriate classification, of the
note from Liberty Waste. Accordingly, the Company has classified the note
purchase agreement as a deduction in shareholders' equity.

     During 1999, the Company issued 281,250 shares of Company common stock with
a fair value of approximately $4.5 million as partial consideration for certain
business acquisitions.

     During 2000 and 2001, the Company issued 4,434 shares and 3,722 shares,
respectively, of Company common stock with a fair value of approximately $47,000
and $24,000, respectively, as partial compensation paid to Directors.

     During 2000 and 2001, stock options totaling 273,043 and 216,304,
respectively, were exercised. The net proceeds approximated $1.4 million and
$1.1 million, respectively.

     On September 18, 2000, the Company completed its stock repurchase program
with the purchase of 1,000,500 shares of its common stock at a cost of $11.0
million. Cash for the stock repurchase program was funded by the Company's
existing revolving credit facilities.

7.   Related Party Transactions

     Shareholder loans, included in shareholders' equity of the accompanying
consolidated balance sheets, are notes receivable (including unpaid interest
thereon) from shareholders of $1,864,585 and $1,525,958 at December 31, 2000,
and 2001, respectively. The notes bear interest at an annual rate of 7% and are
payable on demand. The loans are full recourse obligations and are
collateralized and backed by the holders good faith and credit to repay.
Shareholders' receivables, included in the shareholders' equity of the
accompanying consolidated balance sheets, are from a related company owned by
certain shareholders and officers of the Company. These receivables of $232,700
and $39,674 at December 31, 2000 and 2001, respectively, are interest-free and
are payable on demand. The Company has other shareholder transactions as
indicated in Note 6.

     One executive officer is a 50% partner in a partnership that owns the
building in Raleigh, North Carolina in which the Company leases its headquarters
office space. The lease was entered into in June of 1999 with a term of 10
years. Rental expense related to this lease was $97,850, $468,221 and $477,566
in 1999, 2000 and 2001, respectively, and is included in selling, general and
administrative expenses in the accompanying statements of operations. The lease
is on terms comparable to those with third parties.

     The Company has other related party transactions pertaining to the leasing
of office space and equipment from officers of the Company and from other
partnerships and corporations controlled by these officers, the sale and leasing
of equipment and vehicles to affiliated companies, and the providing of
management and accounting services and technical advice to other companies
affiliated by common shareholder interests (other affiliated companies). These
other transactions are on terms comparable to those with third parties, and are
immaterial individually and in the aggregate to the Company's financial
condition and results of operations.

8.   Benefit Plans

     401(K) Profit Sharing And Retirement Plan--The Company has a 401(k) Savings
and Retirement Plan and Trust ("401(k)" or the "Plan") for the benefit of its
full-time employees who have more than one year of service and are over 21 years
of age. The plan also benefits employees of certain related parties through
separate funding arrangements. Employees make contributions to this retirement
plan under a 401(k) pre-tax contribution plan and by the Company through 401(k)
matching contributions. The Company's matching contributions to the 401(k) plan
were $667,799, $735,355 and $737,820 for the years ended December 31, 1999, 2000
and 2001, respectively. Contributions by the Company are included in operating
costs and expenses in the accompanying statements of operations.

                                      F-16

<PAGE>

                      WASTE HOLDINGS, INC. AND SUBSIDIARIES

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

8.   Benefit Plans-- (Continued)

     Self-insured Medical and Dental Plan--The Company has a self-insured plan
for employee medical and dental benefits. The plan covers all full-time
employees of the Company beginning on the 91st day of employment. The Company
pays a portion of the premiums for its employees and dependents and withholds
from employee's wages additional amounts for the premium balance. As claims are
processed by the plan's third-party administrator ("TPA"), the TPA requests
funds from the Company. The Company maintains stop loss coverage for the plan.
The Company's administrative expense relating to the plan for 1999, 2000 and
2001 were $239,580, $291,565 and $240,519, respectively.

9.   Commitments and Contingencies

     Certain claims and lawsuits arising in the ordinary course of business have
been filed or are pending against the Company. In the opinion of management, all
such matters have been adequately provided for, are adequately covered by
insurance, or are of such kind that if disposed of unfavorably, would not have a
material adverse effect on the Company's financial position or results of
operations. Landfill closure and post-closure costs represent an estimate of the
current value of the future obligation associated with closure and post-closure
monitoring of non-hazardous solid waste landfills currently owned by the
Company. Closure and post-closure monitoring and maintenance costs represent the
costs related to cash expenditures yet to be incurred when a landfill facility
ceases to accept waste and closes. Accruals for closure and post-closure
monitoring and maintenance requirements in the U.S. consider final capping of
the site, site inspection, groundwater monitoring, leachate management, methane
gas control and recovery, and operating and maintenance costs to be incurred
during the period after the facility closes. Certain of these environmental
costs, principally capping and methane gas control costs, are also incurred
during the operating life of the site in accordance with the landfill operation
requirements of Subtitle D and the air emissions standards. Reviews of the
future cost requirements for closure and post-closure monitoring and maintenance
for the Company's operating landfills by the Company accounting personnel and
consultants are performed at least annually. The impact of changes determined to
be changes in estimates, based on the annual update, are accounted for on a
prospective basis.

     While the precise amounts of these future obligations cannot be determined,
at December 31, 2001, the Company estimates the total landfill closure and
post-closure costs to range from $44.1 million to $48.5 million. The Company
provides accruals for these estimated costs as the remaining permitted airspace
of landfills is consumed. These costs are expressed in current dollars and are
not discounted to reflect anticipated timing of future expenditures. At December
31, 2000 and 2001, the Company had accrued approximately $2.7 million and $3.8
million for such costs. Significant revisions in estimated lives of the
Company's landfills or significant increases in our estimates of landfill
closure and post closure costs could have a material adverse impact on our
financial condition and results of operations.

10.  Letters of Credit

     At December 31, 2000 and 2001, the Company had entered into irrevocable
letters of credit including performance bonds totaling approximately $24.3
million and $25.4 million, respectively. According to the terms of the $200
million Fleet facility, the availability of funds on that facility are reduced
by the lesser of outstanding letters of credit or $45 million (See Note 4). At
December 31, 2000 and 2001, no amounts have been drawn under the outstanding
letters of credit.

11.  Stock Option Plan

     The Company's has a Stock Plan (the "Plan") whereby a total of 1,800,000
shares of common stock reserved for issuance under the Stock Plan. The Stock
Plan provides for grants of "incentive stock options," within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), to
employees (including officers and employee directors), and the Plan provides for
grants of nonstatutory options to employees and consultants. The Plan also
allows for the grant of purchase rights. The Plan is administered by the
Compensation Committee of the Board of Directors. The Plan will terminate in
April 2007, unless sooner terminated by the Board of Directors. A summary of the
status of the Plan as of December 31, 1999, 2000 and 2001 and changes during the
years ending on those dates is as follows:

                                      F-17

<PAGE>

                      WASTE HOLDINGS, INC. AND SUBSIDIARIES

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

11.  Stock Option Plans--(Continued)

                                  OPTION PLANS

                                                               Shares     Price
                                                              --------    ------
Balance, December 31 1999                                      764,625    $ 9.55
Granted                                                        108,142     10.75
Forfeitures                                                    (13,657)     9.05
Exercised                                                     (273,043)     5.13
                                                              --------    ------
Balance, December 31, 2000                                     586,067     11.88
Granted                                                        217,178      6.36
Forfeitures                                                   (101,104)    10.25
Exercised                                                     (216,304)     5.13
                                                              --------    ------
Balance, December 31, 2001                                     485,837    $12.76
                                                               =======    ======

     The following table summarizes information about the Company's Plans at
December 31, 2001:

<TABLE>
<CAPTION>
                                       Weighted    Weighted           Exercisable
                                       --------    --------   ---------------------------
                          Number of     Average     Average                   Weighted
                          ---------     -------     -------                   --------
      Range of             Shares      Remaining   Exercise   Number of       Average
      --------             ------      ---------   --------   ---------       -------
      Exercise Prices    Outstanding     Life        Price      Shares    Exercise Prices
      ---------------    -----------     ----        -----      ------    ---------------
<S>                        <C>           <C>        <C>         <C>           <C>
$6.10 - $6.94              177,704       4.21       $ 6.43      12,000        $ 6.20
$8.25                        7,662       4.42       $ 8.25          --        $   --
$11.00 - $12.10             79,426       3.25       $11.12      34,754        $11.25
$15.25 - $16.78             59,487       2.25       $16.58      37,179        $16.58
$17.88                      50,000       2.42       $17.88      31,250        $17.88
$19.69 - $20.81            111,558       1.36       $20.18      97,610        $20.18
</TABLE>

     The Company applies ABP No. 25 and related Interpretations in accounting
for the Plans. Accordingly, no compensation cost has been recognized for the
Plans. Had compensation cost for the Plan been determined based on the fair
value at the grant dates for awards under the Plans consistent with the method
of SFAS No. 123, the Company's net income, net income and earnings per share for
the years ended December 31, 1999, 2000 and 2001 would have been reduced to the
pro forma amounts indicated below (in thousands, except per share data):

                                      F-18

<PAGE>

                      WASTE HOLDINGS, INC. AND SUBSIDIARIES

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

11.  Stock Option Plans--(Continued)

                                                       1999      2000      2001
                                                     -------    ------    ------
Net Income:
  As reported                                        $12,024    $7,659    $7,382
  Proforma -- for SFAS No. 123                        11,176     7,139     6,904

Earnings Per Share:
  Basic:
   As reported                                       $  0.88    $ 0.56    $ 0.56
   Pro forma -- for SFAS No. 123                     $  0.82    $ 0.52    $ 0.52
  Diluted
   As reported                                       $  0.86    $ 0.56    $ 0.55
   Pro forma -- for SFAS No. 123                     $  0.80    $ 0.52    $ 0.52

     As permitted under SFAS No. 123, the fair value of options granted under
the Company's plan during 1999, 2000 and 2001 was estimated on the Black-Scholes
option-pricing model using the following assumptions:

<TABLE>
<CAPTION>
                                                             1999     2000     2001
                                                            ------   ------   ------
<S>                                                         <C>      <C>      <C>
Weighted-average grant-date fair value of options granted   $12.64   $ 8.07   $ 6.31
Weighted- average expected lives (years)                      7.28     4.25     5.00
Risk-free interest rate                                       5.24%    6.50%    4.64%
Volatility                                                   51.00%   47.00%   50.58%
</TABLE>

12.  Income Taxes

     The balance of deferred income tax assets and liabilities at December 31,
2000 and 2001 are as follows (in thousands):

                                      F-19

<PAGE>

                      WASTE HOLDINGS, INC. AND SUBSIDIARIES

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

12.  Income Taxes-- (Continued)

<TABLE>
<CAPTION>
                                                                  2000       2001
                                                                -------    -------
<S>                                                             <C>        <C>
Current deferred income tax assets relate to:
     Allowance for bad debts                                    $   757    $ 1,303
     Accrued vacation                                               282        203
     Accruals to related parties                                      2         22
     Accrued health benefits                                         88        697
     Other accruals not currently deductible                         54        112
                                                                -------    -------
Net current deferred tax assets                                 $ 1,183    $ 2,337
                                                                =======    =======
Noncurrent deferred income tax assets(liabilities) relate to:
     Basis and depreciation differences                         $15,538    $17,638
     Other                                                         (663)      (570)
                                                                -------    -------
Net noncurrent deferred tax liabilities                         $14,875    $17,068
                                                                =======    =======
</TABLE>

     The components of income tax expense for the years ended December 31, 1999,
2000 and 2001 are as follows (in thousands):

                                                         1999     2000     2001
                                                        ------   ------   ------
Current income taxes:
Federal                                                 $4,716   $  522   $2,769
State                                                      933       95      414
                                                        ------   ------   ------
Total current income taxes                               5,649      617    3,183
Deferred income taxes                                    1,451    4,496    1,061
                                                        ------   ------   ------
Total                                                   $7,100   $5,113   $4,244
                                                        ======   ======   ======

     The following is a reconciliation of income taxes at the Federal statutory
rate (34%) to actual taxes provided for each of the three years in the period
ended December 31, 2001 (in thousands):

                                                        1999     2000     2001
                                                       ------   ------   ------
Federal tax at the staturtory rate                     $6,502   $4,342   $3,953
State income taxes, net of federal tax benefit            791      542      389
Other                                                    (193)     229      (98)
                                                       ------   ------   ------
Total                                                  $7,100   $5,113   $4,244
                                                       ======   ======   ======

                                      F-20

<PAGE>

                      WASTE HOLDINGS, INC. AND SUBSIDIARIES

                   NOTES TO FINANCIAL STATEMENTS--(Continued)

13.  Quarterly Financial Information (Unaudited)

<TABLE>
<CAPTION>
                                                         FIRST     SECOND    THIRD     FOURTH
                                                        QUARTER   QUARTER   QUARTER   QUARTER
                                                        -------   -------   -------   -------
                                                       (In thousands, except per share data)
<S>                                              <C>    <C>       <C>       <C>       <C>
Total revenues                                   2000   $57,283   $62,247   $62,766   $60,138
                                                 2001    60,047    64,522    62,786    61,940
Gross profit                                     2000    21,552    23,809    23,355    23,369
                                                 2001    23,012    23,706    22,608    22,339
Net income                                       2000     2,350     1,915     1,730     1,664
                                                 2001     1,192     2,096     2,023     2,071
Earnings per share:
Basic                                            2000   $  0.17   $  0.14   $  0.13   $  0.12
                                                 2001      0.09      0.16      0.16      0.15
Diluted                                          2000      0.16      0.14      0.13      0.13
                                                 2001   $  0.09   $  0.16   $  0.15   $  0.15
Weighted average number of shares outstanding:
Basic                                            2000    13,854    13,850    13,633    13,113
                                                 2001    13,141    13,333    13,332    13,333
Diluted                                          2000    14,132    14,098    13,815    13,169
                                                 2001    13,172    13,346    13,355    13,334
</TABLE>

                               * * * * * * * * * *

                                      F-21

<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Shareholders of
Waste Holdings, Inc. and Subsidiaries
Raleigh, North Carolina

          We have audited the consolidated financial statements of Waste
Holdings, Inc. and subsidiaries (the "Company") as of December 31, 2000 and
2001, and for each of the three years in the period ended December 31, 2001, and
have issued our report thereon dated March 29, 2002; such report is included
elsewhere in this Form 10-K. Our audits also included the financial statement
schedule of Waste Holdings, Inc. and subsidiaries, listed in Item 14. This
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion based on our audits. In our opinion,
such financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.


\s\ DELOITTE & TOUCHE LLP
RALEIGH, NORTH CAROLINA
MARCH 29, 2002

<PAGE>


                      WASTE HOLDINGS, INC. AND SUBSIDIARIES

                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

                                 (In Thousands)

<TABLE>
<CAPTION>
                                           Balance    Charges to   Write-offs/     Balance
                                         12/31/1998     Expense      Payments     12/31/1999
                                         ----------   ----------   ------------   ----------
<S>                                        <C>          <C>          <C>            <C>
Allowance for doubtful accounts             $700        $1,242       $(1,021)       $  921
Accrued closure and post-closure costs       262         1,328            --         1,590
</TABLE>

<TABLE>
<CAPTION>
                                           Balance    Charges to    Write-offs/   Balance
                                         12/31/1999     Expense      Payments     12/31/2000
                                         ----------   ----------   ------------   ----------
<S>                                        <C>          <C>           <C>           <C>
Allowance for doubtful accounts            $  921       $1,958        $(922)        $1,957
Accrued closure and post-closure costs      1,590        1,173          (38)         2,725
</TABLE>

<TABLE>
<CAPTION>
                                           Balance    Charges to    Write-offs/     Balance
                                         12/31/2000     Expense       Payments    12/31/2001
                                         ----------   ----------   ------------   ----------
<S>                                        <C>          <C>          <C>            <C>
Allowance for doubtful accounts            $1,957       $2,017       $(1,878)       $2,096
Accrued closure and post-closure costs      2,725        1,037            --         3,762
</TABLE>