<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

[X]  Annual Report Pursuant to Section 13 or 15(d) of the Securities and
     Exchange Act of 1934

     For the fiscal year ended December 31, 2000

[ ]  Transition Report Pursuant to Section 13 or 15 (c) of the Securities
     Exchange Act of 1934

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

                        COMMISSION FILE NUMBER 000-24685

                                EARTHCARE COMPANY
             (Exact name of registrant as specified in its charter)

        DELAWARE                                       58-2335973
(State or other jurisdiction of          (I.R.S. Employer Identification Number)
incorporation or registration)

     14901 QUORUM DRIVE, SUITE 200
             DALLAS, TEXAS                                            75240
    (Address of principal executive offices)                        (Zip Code)

        Registrant's telephone number, including area code (972) 858-6025

        Securities registered pursuant to Section 12(b) of the Act: None

          Securities registered pursuant to Section 12(g) of the Act:
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         TITLE OF EACH CLASS                       NAME OF EACH EXCHANGE ON WHICH REGISTERED
         -------------------                       -----------------------------------------
<S>                                                            <C>
            Common Stock, par value $.0001                     Nasdaq National Market

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

     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 (Section 229.405 of this chapter) is not contained herein,
and will be contained, to the best of registrant's knowledge, in definitive
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to the Form 10-K.

     As of April 18, 2001, the aggregate market value of the voting stock held
by nonaffiliates of the registrant was $6,241,105.

     Indicate by check mark whether the registrant has filed all documents and
reports required by Section 12, 13 or 15(d) of the Securities Exchange Act of
1934 subsequent to the distribution of securities under a plan confirmed by a
court. Yes   X     No
          -------    -------

     On April 18, 2001, the number of shares outstanding of the registrant's
common stock, $.0001 par value, was 17,761,080 shares.


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                                EARTHCARE COMPANY
                           ANNUAL REPORT ON FORM 10-K
                                TABLE OF CONTENTS
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                                       Description                                               Page
                                       -----------                                              -----
PART I
<S>                                                                                               <C>
     Item 1   Business................................................................               3
     Item 2   Properties..............................................................              23
     Item 3   Legal Proceedings.......................................................              25
     Item 4   Submission of Matters to a Vote of Security Holders.....................              25

PART II
     Item 5   Market for EarthCare Company's Common Stock
                  and Related Stockholder Matters.....................................              25
     Item 6   Selected Financial Data.................................................              28
     Item 7   Management's Discussion and Analysis of Financial Condition and Results of
                  Operations..........................................................              30
     Item 7A  Quantitative and Qualitative Disclosures About Market Risk..............              37
     Item 8   Financial Statements and Supplementary Data
                  Consolidated balance sheets at December 31, 2000 and 1999...........              39
                  Consolidated statements of operations for the years ended
                      December 31, 2000, 1999 and 1998................................              40
                  Consolidated statements of cash flows for the years ended
                      December 31, 2000, 1999 and 1998................................              41
                  Consolidated statement of changes in stockholders' equity
                      (deficit) for the years ended December 31, 2000, 1999 and 1998..              42
                  Notes to consolidated financial statements..........................              43
                  Management's report.................................................              70
                  Report of independent accountants...................................              70
     Item 9   Changes In and Disagreements With Accountants on Accounting and Financial
                  Disclosure..........................................................              71

PART III
     Item 10  Directors, Executive Officers, Promoters and Control Persons of EarthCare
                  Company.............................................................              71
     Item 11  Executive Compensation..................................................              73
     Item 12  Security Ownership of Certain Beneficial Owners and Management..........              76
     Item 13  Certain Relationships and Related Transactions..........................              77

PART IV
     Item 14  Exhibits, Financial Statement Schedules and Reports on Form 8-K.........              80

Signatures............................................................................              83

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PART I

ITEM 1 BUSINESS

     GENERAL

     EarthCare Company (the "Company" or "EarthCare") is a publicly traded
company whose common stock is currently traded on the Nasdaq National Market
under the symbol "ECCO". EarthCare and its subsidiaries are engaged in three
non-hazardous waste divisions. Our EarthCare Solid Waste division provides
collection, transfer and disposal of non-hazardous solid waste ("NSW") in
Hillsborough County, Florida, the adjoining counties and Palm Beach County,
Florida. Our EarthAmerica division provides non-hazardous liquid waste ("NLW")
collection, processing, treatment, disposal, bulk transportation, pumping,
plumbing and maintenance services from its operating locations in New York, New
Jersey, Pennsylvania, Florida, Georgia and Texas. Our EarthLiquids division
provides NLW used oil and oily wastewater recovery and treatment services in
Florida, Delaware, Louisiana, New Jersey and Pennsylvania. EarthLiquids also
sells refined oil derived from used oil and oily wastewater.

     RECENT DEVELOPMENTS

     During the third quarter of 2000, our management group and Board of
Directors decided to focus EarthCare's future management and financial resources
principally on the NSW business in an effort to build a stronger company with
more predictable revenue, earnings and cash flows. As part of this change of
focus, we sold our environmental compliance software company, Allen Tate
Commercial Software LLP ("Allen Tate"), during the fourth quarter of 2000 to a
private company owned by William Addy, one of our executive officers.

     We amended our credit agreement ("Senior Credit Facility") in October 2000
(the "Second Amendment"). As part of the amendment, Bank of America N.A. and
Fleet Bank N.A. ("Senior Lenders") waived our lack of compliance with certain
financial covenants in the credit agreement. The Second Amendment also reduced
the total availability under the Senior Credit Facility by $5 million and
revised the financial covenants to require that we maintain monthly earnings
before interest, taxes, depreciation and amortization ("EBITDA") of $500,000. In
addition, the Second Amendment suspended the application of certain other
financial covenants, including minimum net worth, interest coverage and debt to
capitalization, until the quarterly period beginning July 1, 2001.

     As of December 31, 2000, we were not in compliance with certain financial
covenants under the Second Amendment, including the monthly EBITDA requirement.
We began exploring certain financing and strategic alternatives for our
EarthAmerica and EarthLiquids divisions. On April 12, 2001, our Board of
Directors approved a plan to sell both divisions. We are currently negotiating
the sale of each division to two different strategic buyers. We expect to
complete these sales, subject to normal terms and conditions, by the end of the
second quarter of 2001 for EarthAmerica and by the end of the third quarter of
2001 for EarthLiquids, but there can be no assurance that we will be able to do
so.

     On April 16, 2001, we entered into the third amendment to our Senior Credit
Facility (the "Third Amendment"). Pursuant to the Third Amendment, our lenders
waived our lack of compliance with certain financial covenants, including (i)
the monthly EBITDA requirement; and (ii) the requirement that our Chairman
provide the remainder of his $35 million of collateral by December 31, 2000
pursuant to the terms of certain guaranty agreements. In addition, the Third
Amendment requires us to sell both (x) our EarthAmerica division by April 30,
2001 and (y) our EarthLiquids division by May 31, 2001. If we have not sold our
EarthLiquids division by May 31, 2001, the Third Amendment requires us to hire a
financial advisor to assist us with an orderly sale of this division. The Third
Amendment also requires that any net proceeds from the sale of our EarthAmerica
and EarthLiquids divisions, expected to be approximately $54.0 million in the
aggregate, be used to pay down the outstanding balance of our Senior Credit
Facility ($50.7 million as of April 13, 2001).


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     Based on the expected net sales prices for the EarthAmerica and
EarthLiquids divisions, we have recorded a $60.4 million loss on the expected
sale of these divisions. Our Senior Lenders have indicated that they will not
provide additional debt financing to support our acquisition strategy in the NSW
industry if we have not sold our EarthAmerica and our EarthLiquids divisions. If
we are unable to sell our EarthAmerica and our EarthLiquids divisions to the
current prospective buyers, we will pursue other buyers for the divisions, as
required by the Third Amendment. If we are unable to sell our EarthAmerica
division by April 30, 2001 and our EarthLiquids division by May 31, 2001, we
will not be in compliance with our Senior Credit Facility. To the extent that
our management is required to devote additional effort to the sale of these two
divisions, our ability to develop our NSW business will be limited.

     After the sale of the EarthAmerica and EarthLiquids divisions, our company
will consist of our EarthCare Solid Waste Division and our corporate office. We
plan to either amend our existing Senior Credit Facility or seek new senior debt
financing to assist with the financing of our strategic and acquisition growth
plans in the NSW industry. We also intend to raise additional equity or debt
capital to support our growth plans. We can provide no assurance that we will be
able to raise the necessary capital to support our NSW growth plans. If we are
unable to raise the necessary capital to support our NSW growth plans, then we
will continue to operate our EarthCare Solid Waste division and focus on
internal growth funded by our operating cash flow. If our operating cash flow
from our Solid Waste Division is not adequate to fund our internal growth, we
will be required to reduce our operating expenses, most likely with personnel
reductions and reductions in our corporate general and administrative expense.
We may also be required to sell certain operating assets.

     We have received a notice from the Nasdaq National Market that our common
stock may be delisted because our common stock has not traded above the minimum
$5 bid price, has not been traded actively by four market makers and has not had
a market value for shares held by non-affiliates exceeding $15 million. We have
requested a hearing with Nasdaq to present our position on these matters. We are
not able to give any assurance that we will continue to be listed on the Nasdaq
National Market after the hearing. We have applied for listing with Nasdaq's
Small Cap Market and with Amex; however, our common stock does not currently
satisfy the Nasdaq Small Cap or Amex listing requirements. As a result, there
can be no assurance that our common stock listing applications will be accepted
by the Amex or the Nasdaq Small Cap or that we will be listed on any exchange or
be able to develop or maintain any market for our shares.

     The financial statements as of and for the year ended December 31, 2000
have been prepared assuming that EarthCare will continue as a going concern.
EarthCare has incurred net losses of $84.4 million in 2000, $16.4 million in
1999 and $1.4 million in 1998 and has an accumulated deficit of $102.4 million
as of December 31, 2000. In addition, our working capital deficiency was $19.5
million and our total debt amounted to $102.1 million at December 31, 2000. Due
to our history of net operating losses, our capital and working capital
deficiency, the uncertainty surrounding the completion of the sale of
EarthAmerica and EarthLiquids and uncertainty about our future operating
results, our independent accountants have expressed substantial doubt about
EarthCare's ability to continue as a going concern. The financial statements do
not include any adjustments that might result from the outcome of these
uncertainties.

     We currently are negotiating with two strategic buyers to sell our
EarthAmerica and our EarthLiquids divisions, the proceeds of which are required
to reduce our existing debt. We expect to complete these transactions, subject
to normal terms and conditions, by the end of the second quarter of 2001 for the
sale of EarthAmerica and during the third quarter of 2001 for the sale of
EarthLiquids. Although we believe that these transactions will be completed, we
cannot provide any assurance that these transactions will be completed or that
they will be completed at favorable terms.

     We believe that EarthCare is a going concern. We believe that we have
implemented a plan that will allow EarthCare to continue as a going concern
focused on the solid waste industry. Our plans relating to our capital structure
are discussed herein and include the steps shown below to improve the cash flow
from operations and reduce our debt level.

o    Reduce the operating expenses (in addition to personnel reductions that
     have occurred in the fourth quarter of 2000) including the integration of
     certain management and administrative functions.


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o    Aggressively manage working capital to improve cash flow from operating
     activities,

o    Sell the EarthAmerica and EarthLiquids divisions,

o    Refinance certain existing debt, and

o    Raise additional debt and equity capital.

     DESCRIPTION OF BUSINESS

     EarthCare serves the waste services needs of a variety of residential,
commercial and industrial customers. EarthCare has grown rapidly through
acquisitions and internal growth. EarthCare is also dedicated to establishing a
higher standard of environmental compliance and customer service. All EarthCare
company employees sign an EarthCare Company Employee Environmental Agreement.
Each business unit has adapted these principles in unique ways to develop a high
growth, differentiated business.

     During the fiscal year ended December 31, 2000, EarthCare conducted
business through three business units: EarthCareSM (also referred to as
EarthCare Solid Waste), EarthAmericaSM, and EarthLiquidsSM. A description of
each business unit follows.

     EARTHCARE SOLID WASTE

     EarthCare Solid Waste is focused on building a solid waste company that
utilizes the best practices of the NSW industry. Currently, EarthCare Solid
Waste consists of the operations of EarthCare Resource Management of Florida,
Inc. ("ERMF"), a wholly owned subsidiary. ERMF is a Florida based NSW company
with operations largely concentrated in Tampa, Hillsborough County, Florida and
adjoining counties. ERMF owns a construction and demolition landfill in
Hillsborough County, Florida. Collection fees charged to customers vary by waste
stream, according to constituents of the waste, expenses associated with
collecting and processing the waste, and competitive factors. EarthCare Solid
Waste operates a fleet of approximately 100 vehicles to collect waste directly
from customers and also to receive waste from independent companies.

     Following the sale of EarthAmerica and EarthLiquids, we intend to grow
EarthCare Solid Waste through acquisitions and internal growth. However, because
of our current liquidity condition, there can be no assurance that we will be
able to secure the financing necessary to grow our NSW business.

     EARTHAMERICA

     EarthAmerica focuses on septic tank services and restaurant grease trap
services. These services are provided within several service programs including
SeptiMax(SM), SeptiMaxPlus(SM), SeptiShield(SM), TrapCare(SM),
Trap&LineCare(SM), and TotalCare(SM). All programs provide for regular,
scheduled service with convenient payment plans. In addition, restaurant
customers benefit from online account management and information through our
RestaurantCare.com(SM) internet-based customer portal. EarthAmerica generally
receives fees to collect, process, treat and dispose of NLW. Collection fees
charged to customers vary by waste stream according to constituents of the
waste, expenses associated with collecting and processing the waste and
competitive factors. EarthAmerica operates a fleet of vehicles to collect waste
directly from customers and receives some waste from independent transporters
servicing additional waste generators. In addition, EarthAmerica utilizes
EarthAmerica branded distributors to provide service in some areas. At most
locations, EarthAmerica does not have pretreatment or treatment facilities. The
waste is transported to private pretreatment facilities, or, where permitted by
local regulations, directly to municipal or private wastewater treatment
facilities.

     Our Board of Directors has approved a plan providing for the disposition of
this division. We are currently negotiating with a strategic buyer for the sale
of our EarthAmerica division and, subject to normal terms and conditions, we
expect this transaction to be completed by the end of the second quarter of
2001. There can be no assurance that we will be able to sell our EarthAmerica
division on satisfactory terms or at all. If we are unsuccessful in selling or
disposing of our EarthAmerica division, we will not be in compliance with our
Senior Credit Facility. As a result of the interest of certain of our directors
and officers in the financial condition of EarthCare, including the guarantee of
the entire Senior Credit Facility


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by our Chairman and Vice Chairman, our Board of Directors formed a special
committee comprised of Philip Siegel, Elroy Roelke and Brian Rosborough, to
review and negotiate the terms of any proposed transaction to dispose of both
divisions. The Special Committee has retained financial and legal advisors to
assist it in evaluating a proposed transaction for our EarthAmerica division.

     EARTHLIQUIDS

     EarthLiquids focuses on used oil recovery and oily wastewater management.
Through the acquisition of Magnum Environmental Services and International
Petroleum Corporation, EarthLiquids has become one of the largest national
companies in the 1.3 billion gallon waste oil recovery industry. EarthLiquids'
fleet of over 140 waste transport trucks collects and transports used oil and
oily wastewater mainly to our own processing facilities. In addition, third
party collection companies deliver their used oil and oily wastewater to
EarthLiquids' facilities for processing. Recovered oil is sold into a variety of
applications that displace in part the need for virgin crude oil and reduce
dependence on imported oil.

     Our Board of Directors has approved a plan providing for the disposition of
this division. We are currently negotiating with a strategic buyer for the sale
of our EarthLiquids division and, subject to normal terms and conditions, we
expect this transaction to be completed during the third quarter of 2001. There
can be no assurance that we will be able to sell our EarthLiquids division. If
we are unsuccessful in selling or disposing of our EarthLiquids division by May
31, 2001, our Senior Credit Facility requires that we retain a financial advisor
to assist us in an orderly sale of the division. The Special Committee has been
authorized to review and negotiate the terms of any proposed transaction to
dispose of the EarthLiquids division. The Special Committee has retained
financial and legal advisors to assist it in evaluating a proposed sale of our
EarthLiquids division. If we enter into a definitive agreement to sell our
EarthLiquids division, we will submit the transaction to our shareholders for
their approval.

     EarthLiquids has NLW operations in Delaware, Florida, Louisiana, Maryland,
New Jersey, New York, Pennsylvania and Texas. In addition to serving customers
in these states, the Company also provides services to customers in Alabama,
Mississippi, Pennsylvania, Virginia and West Virginia.

     THE NSW AND THE NLW INDUSTRIES

     The NSW industry is a $40 billion industry with approximately 40% of the
industry volume collected by municipal collection and disposal entities. The
rest of the industry is composed of three publicly traded companies with
revenues greater than $1 billion and hundreds of public and private companies
with revenues below $1 billion. We believe that there is an opportunity to
develop a new, national NSW company that differentiates itself through a strong
focus on customer service and internal growth and continues to make strategic
acquisitions in the United States.

     The NLW industry is impacted by commercial and residential expansion. We
estimate that the septic tank and grease trap business segments of the U.S.
domestic NLW industry generate approximately $20 billion in revenues annually.
Other service lines, such as bulk transportation and plumbing, generate
significant additional domestic service revenues. As of March 31, 2001, there
were approximately 25,000 service providers in the septic tank and grease trap
segments of the NLW industry and, of these service providers, approximately 75%
generate less than $500,000 of annual revenues. Services in this segment of the
NLW industry have generally been performed on an event driven or emergency
basis. In other business segments such as oily wastewater, bulk transportation
and used oil services, competitors tend to be larger and more regional in terms
of their operations and services generally are scheduled. We believe the NLW
industry will continue to grow based on increased waste from a growing
population and general economic conditions that are driving new building demand
and industrial production and the related need for NLW services.



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     COMPETITION

     EarthCare competes with a significant number of other NLW and NSW service
providers, primarily on the basis of proximity to collection operations, fees
charged, quality and cost of service. EarthCare Solid Waste must compete with
alternate landfills. Future technological changes and innovations may result in
a reduction in the amount of NLW and NSW generated, or in alternative methods of
treatment and disposal being developed. EarthCare also faces competition from
customers who may seek to enhance or develop their own methods of disposal.
Increased use of internal treatment and disposal methods and other competitive
factors may have a material adverse effect on EarthCare's business, results of
operations and financial condition.

     EarthCare will be at a disadvantage in competing against many service
providers that are better capitalized, have greater name recognition, have more
background and experience, have greater financial, technical, marketing, and
other resources and skills, have better facilities and are able to provide
services or products at a lower cost than EarthCare. New competitors may enter
EarthCare's markets due to the low barriers to entry in the NLW and NSW
industries. As a result of these competitive factors, there can be no assurance
that EarthCare's growth and strategy will be successful or that EarthCare will
be able to generate cash flow adequate for its operations and to support future
acquisitions and internal growth.

     In addition to internal growth, the growth of EarthCare may depend on its
continued acquisition of NSW service providers. EarthCare expects competition to
exist in the industry to acquire these candidates, which may limit the number of
acquisition opportunities and may lead to higher acquisition costs. Acquisitions
of these entities entail various risks, including failure of the acquired
service providers to achieve expected results, diversion of management's
attention, failure to retain key personnel of the acquired service providers and
risks associated with unanticipated events and liabilities. All of these risks
may have an adverse effect on the ability of EarthCare to make additional
acquisitions and on its business condition and results of operations. Any
complementary businesses that are acquired also may not be successfully
integrated.

     PERSONNEL AND ORGANIZATION

     As of March 31, 2001, we employed 11 persons in our principal executive
office in Dallas, Texas. Each of our divisions is organized as an autonomous
business unit with its own management team. Our executive office provides
executive level management, human resource, payroll, risk management, treasury,
information systems, accounting and reporting services to each of the business
units. Our executive office consists of our five executive officers, corporate
controller and accounting staff, human resources director, investor relations
director and administrative support staff.

     We believe that our relations with our existing employees at all our
locations are good.

     EARTHCARE SOLID WASTE

     As of March 31, 2001, we employed 139 persons in our EarthCare Solid Waste
division, of which 6 are management personnel, 6 are sales and marketing
personnel, 87 are collection drivers, 8 are general and administrative personnel
and 32 are mechanics, landfill and other support personnel.

     Our management team for EarthCare Solid Waste is located in Boca Raton,
Florida and consists of our division president and our division chief financial
officer. The majority of our solid waste operations are located in Tampa and
Hillsborough County, Florida where we have operations and landfill managers,
supported by an appropriate level of supervisory personnel.



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     EARTHLIQUIDS

     As of March 31, 2001, we employed 272 employees in our EarthLiquids
division, of which 12 are management personnel, 13 are sales and marketing
personnel, 119 are collection and delivery drivers, 46 are general and
administrative personnel and 82 are mechanics, support and other personnel.

     Our management team for EarthLiquids is located in Plant City, Florida and
consists of EarthLiquids' president, its national sales manager and its
controller. Our main service centers in Plant City, Florida, Wilmington,
Delaware, New Orleans, Louisiana, Bayonne, New Jersey, Pompano Beach, Florida
and Ft. Pierce, Florida are each managed by a general manager and appropriate
levels of supervisory staff. In addition, we maintain staff at satellite service
centers.

     EARTHAMERICA

     As of March 31, 2001, we employed 339 employees in our EarthAmerica
division, of which 22 are management personnel, 26 are sales and marketing
personnel, 178 are drivers, 46 are general and administrative personnel and 67
are mechanics, support and other personnel.

     Our management team for EarthAmerica is located in Dallas, Texas at our
principal executive office and consists of EarthAmerica's president, its
national sales manager and its controller. Our main service centers in Vernon,
New Jersey, Deer Park, New York, Eagle, Pennsylvania, Orlando, Florida, Dallas,
Texas, Houston, Texas, Gainesville, Georgia and Austell, Georgia are each
managed by a general manager and appropriate levels of supervisory staff.

     ACQUISITIONS

     EARTHCARE SOLID WASTE

     On March 31, 2000, we entered into a management agreement with Liberty
Waste, Inc. ("Liberty Waste"), a privately owned Florida corporation engaged in
the collection, transfer and disposal of NSW in Hillsborough County, Florida and
the adjoining counties. We agreed to provide management services such as
accounting services, investment banking advisory services, bid and bond advice,
municipal contract assistance and advice with commercial banking services. Under
the terms of this agreement, we recognized $702,477 in management fee revenue
during the year ended December 31, 2000, after eliminating our share of the
earnings of Liberty Waste. Liberty Waste was a majority owned subsidiary of
Solid Waste Ventures, Inc. ("Solid Waste Ventures"), a privately owned company
that also owns NSW collection, transfer and disposal operations in Missouri.
Donald Moorehead, Chairman, Chief Executive Officer and a significant
stockholder in the Company, has provided subordinated debt financing to Solid
Waste Ventures and has personally guaranteed the senior debt of Solid Waste
Ventures.

     On July 7, 2000, we acquired a 43% minority interest in Liberty Waste by
issuing 356,000 shares of our common stock to certain minority stockholders of
Liberty Waste. We issued common shares with an aggregate market value of
$2,358,464. From July 7, 2000 until December 30, 2000, we recorded our share in
the earnings of Liberty Waste and included such amount in other income and
expense in our results from continuing operations.

     On December 30, 2000, we acquired the remaining shares of Liberty Waste
from Solid Waste Ventures and a minority stockholder by issuing 520,100 shares
of our common stock with an aggregate market value of $1,267,952. During the
fourth quarter of 2000, Liberty Waste changed its name to EarthCare Resource
Management of Florida, Inc. ("ERMF").

     On April 2, 2001, we acquired the equipment and intangible assets of Palm
Carting, Inc., an NSW collection company located in Palm Beach County, Florida
for $350,000 in cash and future earn outs of up to $250,000 to be paid in shares
of our common stock if certain revenue targets are met, with the number of
shares determined by the closing price on the dates of measurement.


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     EARTHLIQUIDS

     On February 15, 2000, we acquired all of the outstanding capital stock of
World Fuel Services Corporation's ("WFS") oil recycling services subsidiary,
International Petroleum Corporation ("IPC"). IPC operates used oil recycling and
treatment centers in Wilmington, Delaware, Plant City, Florida and New Orleans,
Louisiana. In addition, IPC operates satellite collection centers located near
its customer base. IPC collects and receives, directly from customers,
nonhazardous used oil, oil filters and oily wastewater. We acquired IPC for
$28,000,000 in cash and 750,458 shares of our common stock with an aggregate
market value of $5,000,000 at the time of issuance.

     On September 1, 1999, we acquired all of the outstanding capital stock of
Magnum Environmental, Inc. ("Magnum"), a Florida corporation, for $12,000,000 in
cash and 310,000 shares of our common stock. In addition, we issued 275,000
shares of common stock, which were being held in escrow until the attainment of
certain financial performance targets after the acquisition. The aggregate
market value of the common stock issued, including those shares in escrow, was
$7,605,000 at the time of issuance. Since the acquisition, we have released
137,500 shares from escrow. Magnum's core business is the transportation,
treatment and disposal of used oil and petroleum wastewater streams.

     EARTHAMERICA

     On March 10, 2000, we acquired all of the outstanding capital stock of All
County Resource Management Corporation ("All County"), an NLW collection,
treatment, transportation and disposal services company located in Vernon, New
Jersey. We acquired All County for $7,800,000 in cash and 598,686 shares of
EarthCare's common stock with an aggregate market value of $4,500,000 at
issuance. Our EarthAmerica service center in Vernon, New Jersey includes the
former operations of All County.

     On November 16, 1999, we acquired all of the outstanding capital stock of
Hulsey Plumbing, Heating & Cooling, Inc. and Hulsey Environmental Services,
Inc., each a Georgia corporation (collectively, "Hulsey"). Hulsey was engaged in
the NLW and plumbing business in and around Gainesville, Georgia. We acquired
Hulsey for $1,406,250 in cash, 28,005 shares of EarthCare's common stock and up
to $586,750 in assumed liabilities. Our EarthAmerica service center in
Gainesville includes the former operations of Hulsey.

     On November 3, 1999, we acquired all of the outstanding stock of Food
Service Technologies, Inc., a Texas corporation engaged in the grease trap
services business in and around Dallas, Texas. We issued 80,383 shares of common
stock and assumed up to $85,000 in liabilities as consideration for this
acquisition. Our EarthAmerica service center in Dallas, Texas includes the
former operations of Food Service Technologies, Inc.

     On May 1, 1999, we acquired the assets of Rooter Plus, Inc. ("Rooter
Plus"), a Georgia corporation, in exchange for $2,600,000 in cash and the
issuance of 100,000 shares of EarthCare's common stock. Rooter Plus was a
residential and commercial sewer and drain services company servicing customers
in Georgia. Rooter Plus is now part of our EarthAmerica service center in
Austell, Georgia, a suburb of Atlanta, Georgia.

     On April 1, 1999, we acquired all of the outstanding capital stock of
National Plumbing & Drain, Inc. ("National"), a Georgia corporation, in exchange
for $1,325,000 in cash and the issuance of 125,159 shares of EarthCare's common
stock. National was a residential and commercial sewer and drain services
company with customers in Georgia. National is now part of our EarthAmerica
service center in Austell, Georgia, a suburb of Atlanta, Georgia.

     On March 31, 1999, we acquired all of the outstanding capital stock of
Brehm's Cesspool, Inc. ("Brehm's"), a Pennsylvania corporation. Brehm's was
engaged in the septic waste collection, transportation, management and disposal
business in and around eastern Pennsylvania. We paid $1,000,000 in cash and
issued 35,367 shares of common stock as consideration for this acquisition. Our


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EarthAmerica service center in Eagle, Pennsylvania, a suburb of Philadelphia,
includes Brehm's former operations.

     On March 1, 1999, we acquired all of the outstanding capital stock of
Reifsneider Transportation, Inc. ("Reifsneider"), a Pennsylvania corporation.
Reifsneider was engaged in the NLW transportation, management and disposal
business in and around Pennsylvania, New Jersey, New York, Maryland and
Delaware. We paid $5,050,000 in cash, issued 350,000 shares of common stock,
assumed a note payable for $200,000 and assumed a working capital liability for
$715,000 as consideration for this acquisition. Our EarthAmerica service center
in Eagle, Pennsylvania includes Reifsneider's former operations.

     On May 8, 1998, we acquired certain assets of Eldredge Wastewater
Management, Inc. ("Eldredge"), a Pennsylvania corporation. Eldredge provided NLW
septic waste, collection, management and disposal services in and around
Philadelphia, Pennsylvania. We paid $2,040,000 in cash and we issued 85,000
shares of EarthCare's common stock as consideration for this acquisition. In
1999, we paid $360,000 in cash and issued 15,000 shares of common stock as
contingent consideration for this acquisition. Our EarthAmerica service center
in Eagle, Pennsylvania includes Eldredge's former operations.

     On May 1, 1998, we acquired certain assets of RGM Liquid Waste Removal
Corporation and Affiliates ("RGM"), consisting of four New York corporations.
RGM was engaged in the NLW liquid and septic waste collection, transportation,
management and disposal business in and around Long Island, New York. We paid
$4,500,000 in cash and issued 105,000 shares of common stock. Subsequently in
1999, we paid contingent consideration of $1,000,000 and issued 55,000 shares of
common stock. Our EarthAmerica service center in Deer Park, New York includes
RGM's former operations.

     On March 6, 1998, we acquired the assets of Seagraves, Inc. (d/b/a Brownie
Environmental) and Grease-Tec, Inc. (collectively "Brownie"), two Florida
corporations. Brownie was engaged in NLW septic and waste collection,
transportation, management and disposal in and around Orlando, Florida. We paid
$3,250,000 in cash, issued a note payable of $2,000,000 and issued 60,000 shares
of common stock. Our EarthAmerica service center in Orlando, Florida includes
Brownie's former operations.

     On February 17, 1998, we acquired the assets of Quality Plumbing and
Septic, Inc. ("Quality"), a Georgia corporation. Quality was engaged in NLW
septic waste collection, transportation, management and disposal business in and
around Douglasville, Georgia. We paid $2,000,000 in cash and, subsequently in
June 1998, paid additional contingent consideration of $250,000 in cash and
10,000 shares of common stock. Our EarthAmerica service center in Austell,
Georgia includes Quality's former operations.

     On February 13, 1998, we acquired the assets of A Rapid Rooter Sewer &
Drain Service, Inc. ("A Rapid"), a Florida corporation. A Rapid was engaged in
NLW septic waste collection, transportation, management and disposal services in
and around Pompano Beach, Florida. We paid $3,990,120 in cash and issued 100,000
shares of common stock as consideration for this acquisition.

     On January 22, 1998, we acquired the assets of Ferrero Wastewater
Management, Inc. ("Ferrero"), a Pennsylvania corporation. Ferrero was engaged in
NLW septic waste collection, transportation, management and disposal services in
and around Ambler, Pennsylvania, a suburb of Philadelphia. We paid $2,240,100 in
cash and issued 90,000 shares of common stock. During the fourth quarter of
1998, we paid $248,930 in cash and issued 10,000 shares of common stock as
contingent consideration. Our EarthAmerica service center in Eagle includes the
former operations of Ferrero.

     DISPOSITION

     On February 28, 2001, we sold the property, equipment and intangible assets
of our service center in Pompano Beach to a privately owned company for $950,000
in cash. We retained the cash, accounts receivable, accounts payable and accrued
liabilities for this service center.



                                       10
<PAGE>   11



     ALLEN TATE

     On August 1, 1999, we acquired certain assets of Allen Tate Commercial
Software LLP ("Allen Tate"), a Texas limited liability partnership, in exchange
for 75,000 shares of common stock and the assumption of up to $200,000 in
liabilities. In addition, we agreed to issue up to 120,000 additional shares of
common stock if certain earnings targets were achieved. As of March 31, 2001, we
had issued 60,000 of such additional shares. Allen Tate specialized in
environmental software development and Internet services for industrial
companies. On October 31, 2000, we sold the assets of Allen Tate to a private
company owned by an executive officer, William Addy.

     GOVERNMENTAL REGULATIONS AND ENVIRONMENTAL MATTERS

     EarthCare is subject to rules and regulations of various federal, state and
local governmental agencies. Environmental laws and regulations are, and will
continue to be, a principal factor affecting the marketability of the services
provided by EarthCare. Any changes in these laws or regulations may adversely
affect the operations of EarthCare by imposing additional regulatory compliance
costs on the Company, requiring the modification of or adversely affecting the
market for EarthCare's services. To the extent that demand for these services is
based upon the need to comply with these regulations, any modification to these
regulations may decrease the demand for these services and adversely affect
EarthCare's business condition and results of operations.

     Additionally, if new environmental legislation or regulations are enacted
or existing legislation or regulations are amended or enforced differently,
EarthCare may be required to obtain additional operating permits, registrations
or approvals. The process of obtaining required permits, registrations or
approvals can be lengthy and expensive and the issuance of such permits or the
obtaining of such approvals may be subject to public opposition. There can be no
assurance that EarthCare will be able to meet the applicable regulatory
requirements.

     The Resource Conservation and Recovery Act ("RCRA") is the principal
federal statute governing hazardous and solid waste generation, treatment,
storage and disposal. RCRA and state hazardous waste management programs govern
the handling and disposal of hazardous waste. The U.S. Environmental Protection
Agency ("EPA") has issued regulations pursuant to RCRA. States have also
promulgated regulations under comparable state statutes that govern hazardous
waste generators, transporters and owners and operators of hazardous waste
treatment, storage and disposal facilities. These regulations impose detailed
operating, inspection, training and emergency preparedness and response
standards and requirements for the financial responsibility, manifesting of
wastes, record keeping and reporting, as well as treatment standards for any
hazardous wastes intended for land disposal.

     On November 29, 1985, the EPA issued final regulations under RCRA, which
restrict the burning of waste oil. These regulations prohibit burning waste oil
in non-industrial boilers unless the oil meets certain standards of lead,
arsenic, chromium, chlorine, cadmium, and flashpoint levels. The regulations do
not restrict the burning of waste oil in industrial boilers and furnaces. These
regulations have not had a significant impact on the Company's business because
the Company does not presently sell recycled fuel to non-industrial burners.
Industrial burners of recycled oil, however, must comply with certain
notification and administrative procedures.

     NLW is currently exempt from the requirements of RCRA. The repeal or
modification of the RCRA exemption covering NLW or the modification of
applicable regulations or interpretations regarding the treatment or disposal of
NLW or NSW may require EarthCare to alter its method of treating and disposing
of NLW and NSW. EarthCare 's current methods for treatment and disposal of NLW
do not comply with the methods prescribed by the EPA for treatment and/or
disposal of waste as defined by RCRA. These potential changes may result in
decreased demand for EarthCare 's services and could have a material adverse
effect on EarthCare's business.



                                       11
<PAGE>   12

     The Comprehensive Environmental Response, Competition and Liability Act
("CERCLA") provides for immediate response and removal actions coordinated by
the EPA for releases of hazardous substances into the environment and authorizes
the government or private parties to respond to the release or potential release
of hazardous substances. The government may also order persons responsible for
the release to perform any necessary cleanup. Liability extends to the present
owners and operators of waste disposal facilities from which a release occurs,
persons who owned or operated the facilities at the time the substance was
released, persons who arranged for the disposal or treatment of hazardous
substances and waste transporters who selected such facilities for treatment or
disposal of hazardous substances. CERCLA creates strict, joint and several
liability for all costs of removal and remediation, other necessary response
costs and damages for injury to natural resources.

     Because the Company will be engaged in businesses that involve the
treatment and removal of non-hazardous waste, EarthCare does not expect to be
subject to CERCLA. However, if EarthCare were to acquire a business that in the
past has disposed of hazardous waste or treated hazardous waste that falls
within the parameters of CERCLA, EarthCare may be held jointly and severally
liable for the costs of any damage or required cleanup of the site.

     The Clean Air Act of 1978 was the first major federal environmental law to
establish National Ambient Air Quality Standards for certain air pollutants,
which are to be achieved by the individual states through State Implementation
Plans ("SIPs"). SIPs typically attempt to meet ambient standards by regulating
the quantity and quality of emissions from specific industrial sources. For
toxic emissions, the Clean Air Act of 1978 authorizes the EPA to regulate
emissions from industrial facilities directly. The EPA also directly establishes
emissions limits for new sources of pollution, and is responsible for ensuring
compliance with air quality standards. The Clean Air Act Amendments of 1990 (the
"1990 Amendments") place the primary responsibility for the prevention and
control of air pollution upon state and local governments. The 1990 Amendments
require regulated emission sources to obtain operating permits, which could
impose emission limitations, standards, and compliance schedules.

     The Clean Water Act of 1972, as amended in 1987, establishes water
pollutant discharge standards applicable to many basic types of manufacturing
plants and imposes standards on municipal sewage treatment plants. The Clean
Water Act requires states to set water quality standards for significant bodies
of water within their boundaries and to ensure attainment and/or maintenance of
those standards. Most industrial and government facilities must apply for and
obtain discharge permits, monitor pollutant discharges, and under certain
conditions reduce certain discharges.

     The Safe Drinking Water Act, as amended in 1986, regulates public water
supplies by requiring the EPA to establish primary drinking water standards.
These standards are likely to be further expanded under the EPA's evolving
groundwater protection strategy which is intended to set levels of protection or
clean-up of the nation's groundwater resources. These groundwater quality
requirements will then be applied to RCRA facilities and CERCLA sites, and
remedial action will be required for releases of contaminants into groundwater.

     The National Pollutant Discharge Elimination System ("NPDES"), a program
promulgated under the Clean Water Act of 1972, permits states to issue permits
for the discharge of pollutants into the waters of the United States in lieu of
federal EPA regulation. State programs must be consistent with minimum federal
requirements, although they may be more stringent. NPDES permits are required
for, among other things, certain industrial discharges of storm water.

     The Oil Pollution Act of 1990 imposes liability for oil discharges, or
threats of discharge, into the navigable waters of the United States on the
owner or operator of the responsible vessel or facility. Oil is defined to
include oil refuse and oil mixed with wastes other than dredged soil, but does
not include oil designated as a hazardous substance under CERCLA. The Oil
Pollution Act requires the responsible party to pay all removal costs, including
the costs to prevent, minimize or mitigate oil pollution in any case in which
there is a discharge or a substantial threat of an actual discharge of oil. In
addition, the responsible party may be held liable for damages for injury to
natural resources, loss of use of natural resources and loss of revenues from
the use of such resources.


                                       12
<PAGE>   13

     During the ordinary course of its operations, the Company has from time to
time received, and expects that it may in the future receive, citations or
notices from governmental authorities that its operations are not in compliance
with its permits or certain applicable regulations, including various
transportation, environmental or land use laws and regulations. The Company
generally seeks to work with the authorities to resolve the issues raised by
such citations or notices. There can be no assurance, however, that the Company
will always be successful in this regard, and the failure to resolve a
significant issue could result in adverse consequences to the Company.

     CUSTOMERS

     We do not have any customer that accounted for more than 10% of our revenue
in 2000.

     EARTHCARE SOLID WASTE

     The customers of our EarthCare Solid Waste division include counties,
residential, industrial and commercial customers in Florida, primarily in
Hillsborough County, the counties adjoining Hillsborough County and Palm Beach
County for whom we collect, haul, transfer and dispose of non-hazardous solid
waste.

     EARTHAMERICA

     The customers of our EarthAmerica division include restaurants, hospitals,
military bases, office buildings, apartments, schools, municipalities,
industrial businesses, auto and truck service centers and single-family
residences.

     EARTHLIQUIDS

     The customers of our EarthLiquids division include primarily commercial and
industrial entities and governmental authorities from whom we collect used oil,
used oil filters and oily wastewater streams and to whom we sell refined oil
products.

     INSURANCE

     While we maintain insurance coverage for property damage, general
liability, workers' compensation, business vehicles, environmental issues and
crime, beginning in 2001 our insurance plans include various deductible amounts
and coverage limits. Generally, our insurance deductible amounts are $250,000
per claim. We cannot provide any assurance that insurance will continue to be
available to the Company on commercially reasonable terms, that the possible
types of liabilities that may be incurred by the Company will be covered by our
insurance plans, that our insurance carriers will be able to meet their
obligations under their policies or that the dollar amount of such claim
liabilities will not exceed our insurance policy limits. Any one claim that
exceeds our insurance coverage may have a material adverse affect on our
business, financial condition, operating results and cash flows. Since we are
subject to a $250,000 deductible amount for substantially all our property,
casualty and general liability insurance plans, if we incur a series of claims
close to or above our insurance deductible amount of $250,000, these claims may
also have a material adverse effect on our business, financial condition,
operating results and cash flows.

     PREDECESSOR CORPORATIONS

     SanTi Group, Inc. ("SGI"), a privately-held corporation, was incorporated
in Delaware on August 19, 1997, for the purpose of engaging, through its
operating subsidiaries, in the following businesses related to the NLW industry:
grease trap pumping, septic tank services (including designing, pumping,
installation and maintenance), sewer and drain cleaning services, high pressure
jetting services, portable toilet servicing, bulk liquid waste transportation,
biosolids management, on-site biotreatment systems and liquid waste processing.
In December 1997, SGI acquired the assets of Bone-Dry Enterprises, Inc.
("Bone-Dry")


                                       13
<PAGE>   14

in a share exchange in which each share of Bone-Dry was exchanged for 1.3 shares
of SGI. Bone-Dry was formed in March 1997 to acquire businesses in the NLW
industry. SGI and Bone-Dry were primarily controlled by Raymond Cash, our Vice
Chairman, and entities controlled by Mr. Cash. Following a stock split effected
in the form of a 0.25 stock dividend effective January 30, 1998 (the "Stock
Dividend"), SGI had 8,088,379 shares of common stock, $0.0001 par value per
share (the "SGI Stock"), issued and outstanding as of the date of the merger of
SGI into Microlytics, Inc. ("Micro"), as described below.

     Micro was incorporated in Delaware in 1985 for the purposes of engaging in
the business of developing, manufacturing and marketing electronic reference
products, including computer software programs which provided linguistic and
information compression technology, bilingual dictionaries and thesaurus
products. In 1989, Micro operated as a wholly-owned subsidiary of Selectronics,
Inc., which changed its name to Microlytics, Inc. in 1995. In the early 1990's,
Micro began experiencing financial difficulties as a result of the highly
competitive nature of the computer software industry. On November 27, 1996,
Micro filed for protection under Chapter 11 of the United States Bankruptcy Code
in the United States Bankruptcy Court for the Western District of New York (the
"Court"). In July 1997, substantially all of the intangible assets of Micro and
its subsidiary were sold to Metro One Telecommunications, Inc. In August 1997,
substantially all of the tangible assets of Micro were also sold. The proceeds
of these sales were held in a segregated trust account by the debtor's counsel
prior to the court's confirmation of Micro's plan of reorganization.

     In April 1998, Micro filed a Plan of Reorganization (the "Plan") that was
approved by its stockholders, the creditors' committee and the court. Pursuant
to the Plan, Micro effected a 1 for 400 reverse stock split, distributed the
proceeds from asset liquidations to its creditors, and distributed shares and
warrants to its creditors and stockholders. The Plan provided for this reverse
stock split prior to the merger of SGI and Micro, as described below. Pursuant
to the Plan, any shareholder of Micro as of April 30, 1998 who, as a result of
the 1 for 400 reverse stock split, held less than 100 shares, had his or her
shares rounded up to 100 shares. Also under the Plan, Micro issued warrants for
500,000 shares of Micro common stock, exercisable at $5.80 per share.

     THE MERGER AND NAME CHANGES

     On May 13, 1998, SGI was merged (the "Merger") with and into Micro under an
agreement and plan of merger, with Micro surviving and changing its name to
SanTi Group, Inc. ("New SGI"). The Merger was subject to the approval of the
court. On the effective date of the Merger, each issued and outstanding share of
SGI stock was converted into one share of common stock of New SGI. These
exchange ratios were determined after the 1 for 400 reverse split of common
stock pursuant to the Plan. This exchange resulted in the receipt by SGI
stockholders of approximately 8,088,379 shares of common stock, representing
86.2% of the shares of common stock issued and outstanding on the effective date
of the Merger. All options to acquire shares of SGI stock were also converted
into options to receive shares of common stock. Effective September 21, 1998,
New SGI changed its name to EarthCare by filing with the Delaware Secretary of
State an amendment to its Certificate of Incorporation. EarthCare succeeded to
all of the assets, liabilities and NLW business of SGI.

     EXECUTIVE OFFICE

     Our executive offices are located at 14901 Quorum Drive, Suite 200, Dallas,
Texas 75240. Our telephone number is 972-858-6025, our fax number is
972-858-6024 and our web site is www.earthcareus.com. EarthCare was formerly
known as SanTi Group, Inc.

     RISK FACTORS

     This Annual Report on Form 10-K contains certain forward-looking statements
and information relating to us that are based on the beliefs of management as
well as assumptions made by and information currently available to management.
When used in this report, the words "anticipate," "believe," "estimate,"
"expect," "intend," "plan," or any similar expressions, as they relate to us or
our management, or the management of any of our businesses, are intended to
identify forward-looking statements. Such



                                       14
<PAGE>   15

statements reflect our current views with respect to future events and are
subject to certain risks, uncertainties and assumptions. Should one or more of
these risks or uncertainties materialize, or should underlying assumptions prove
incorrect, actual results may vary materially from those described herein as
anticipated, believed, estimated, expected, intended or planned. We do not
intend to update these forward-looking statements. The following risk factors
set forth some of the factors that could cause our actual results to differ
materially from the expected results described in our forward-looking
statements.

     WE HAVE RECENTLY CHANGED OUR OPERATING STRATEGY FOCUS AND OUR ACQUISITION
FOCUS.

     During the third quarter of 2000, our management group and Board of
Directors decided to focus EarthCare's future management and financial resources
principally on the NSW industry in an effort to build a stronger company with
more predictable revenue, earnings and cash flow. We will continue to support
our EarthAmerica and EarthLiquids divisions as we explore financial and
strategic alternatives, but we believe that the NSW industry provides a better
opportunity for profitable growth and improvement in shareholder value. If we
are not able to execute successfully our strategy in the NSW industry, you could
suffer a permanent decline in the value of your common stock.

     FAILURE TO COMPLY WITH COVENANTS AND CONDITIONS OF OUR SENIOR CREDIT
FACILITY MAY AFFECT ADVERSELY OUR BUSINESS.

     Our Senior Credit Facility requires us to comply with certain financial
covenants. For each of the last four quarters, we have not complied with certain
of these covenants in our Senior Credit Facility and been required to negotiate
amendments to the Senior Credit Facility. On April 16, 2001, we amended our
Senior Credit Facility, which now requires that we sell our EarthAmerica
division by April 30, 2001 and our EarthLiquids division by May 31, 2001. If we
have not sold our EarthLiquids division by May 31, 2001, the Third Amendment
requires us to hire a financial advisor acceptable to our Senior Lenders to
assist with the sale of our EarthLiquids division. During this process, we also
plan to seek new sources of debt or equity capital. We cannot be assured that we
will be able to sell either or both of our divisions for an amount that will
allow us to fully repay our Senior Lenders. If (i) we are unable to sell our
EarthAmerica division by April 30, 2001 and (ii) we are unable to sell our
EarthLiquids division by May 31, 2001 or we do not hire a financial advisor
after that date, we will be in default under our Senior Credit Facility. We can
provide no assurance that we will be able to comply with the financial covenants
in future quarters, nor can we provide assurance that we will successfully be
able to negotiate amendments to our credit agreement with our Senior Lenders.
Our failure to comply with these covenants may result in a default under our
Senior Credit Facility, which could allow our lending banks to accelerate the
date for repayment of debt incurred under the credit facility and materially and
adversely affect our business and financial results.

     WE MAY NOT BE ABLE TO COMPLETE THE SALE OF OUR EARTHAMERICA AND
EARTHLIQUIDS DIVISIONS.

     Although we are negotiating acquisition agreements with two strategic
buyers to sell our EarthAmerica and EarthLiquids divisions, for any one of a
number of reasons, these transactions may not be completed on satisfactory terms
or at all. If we are unable to sell our EarthAmerica and our EarthLiquids
divisions to the current prospective buyers, we will pursue other buyers for the
divisions. If we (i) are unable to sell our EarthAmerica division by April 30,
2001 and (ii) are unable to our EarthLiquids division by May 31, 2001 or do not
hire a financial advisor after that date, we will not be in compliance with the
terms of our Senior Credit Facility.

     OUR COMMON STOCK MAY BE DELISTED FROM THE NASDAQ NATIONAL MARKET.

     EarthCare currently does not meet the requirements for continued listing of
its common stock for trading on the Nasdaq National Market. We have received a
notice from the Nasdaq National Market that our common stock may be delisted
because our common stock has not traded above the minimum $5 bid price, has not
been traded actively by four market makers and has not had a market value for
shares held by non-affiliates exceeding $15 million. We have requested a hearing
with Nasdaq to present our position on these matters. We are not able to give
any assurance that we will continue to be listed on the Nasdaq


                                       15
<PAGE>   16

National Market after the hearing. We have applied for listing with Nasdaq's
Small Cap Market ("Nasdaq Small Cap") and with the American Stock Exchange
("Amex"); however, our common stock does not currently satisfy the Nasdaq Small
Cap or Amex listing requirements. As a result, there can be no assurance that
our common stock listing applications will be accepted by the Amex or the Nasdaq
Small Cap or that we will be listed on any exchange or able to develop any
market for our shares. Delisting may negatively impact the value of our common
stock as securities trading on the over the counter market are typically less
liquid and trade with larger variations between the bid and ask price.

     WE MAY NOT HAVE ENOUGH CAPITAL OR BE ABLE TO RAISE ENOUGH ADDITIONAL
CAPITAL ON SATISFACTORY TERMS TO MEET OUR CAPITAL REQUIREMENTS.

     Continued operations may and future growth will require additional capital.
We expect to finance our continuing operations with our cash flow. We expect to
finance future acquisitions through cash from operations, to the extent
available. We may need to finance our current operations and our future
acquisitions with borrowings under our existing or future credit facilities,
issuing additional equity or debt securities and/or seller financing. Our common
stock price may make acquisition candidates unwilling to accept shares of our
common stock as part of the consideration for acquisitions. If our common stock
does not reach a sufficient market value, we may have to use more of our cash or
borrowings under our credit facilities to fund acquisitions. Using cash for
acquisitions limits our financial flexibility and makes us more likely to seek
additional capital through future debt or equity financings. If available cash
from operations and borrowings under the credit facility are not sufficient to
fund acquisitions, we may need additional equity and/or debt financing. If we
seek more debt, our interest expense would increase and we may have to agree to
financial covenants that limit our operations and financial flexibility. We may
not be able to issue equity securities on favorable terms or at all. If we are
successful in raising more equity, we could dilute the ownership interests of
our then-existing stockholders. If we are unable to obtain additional equity
and/or debt financing on attractive terms, our rate of growth through
acquisitions could decline. We will also need to make substantial capital
expenditures to develop or acquire new landfills, transfer stations, vehicles
and equipment, other facilities and to maintain such properties.

     WE MAY NOT BE ABLE TO OBTAIN ADEQUATE FINANCING TO EXECUTE OUR INTERNAL
GROWTH.

     In addition to growing our business by acquiring other NSW companies, we
plan to pursue internal growth in the NSW business by expanding into geographic
territories where we do not currently have any operations. These efforts will
require continued financing from equity and/or debt sources. As we execute our
internal growth strategy, we cannot give any assurance that our cash flow from
operations and our available debt capital will be adequate to finance our growth
strategy. To the extent that we are not able to obtain adequate equity or debt
capital, adequate cash flow from operations or a favorable market price for our
common stock, we may not be able to execute successfully our internal growth
strategy.

     WE HAVE A LIMITED OPERATING HISTORY AND AN ABSENCE OF COMBINED OPERATING
HISTORY.

     We were organized in 1997 and began active operations at that time. As a
result, we have very little operating history as an integrated NLW and NSW
business to which investors may look to evaluate our performance. Since we began
operations, we have completed twenty acquisitions. We cannot provide assurance
that we will be able to institute the necessary systems and procedures,
including accounting and financial reporting systems, to manage the entire
combined enterprise on a profitable basis. In addition, we cannot assure you
that we will be able to effectively manage the combined entity or to effectively
implement our acquisition program and internal growth strategy.



                                       16
<PAGE>   17



     OUR EXECUTIVE OFFICERS AND DIRECTORS CONTROL APPROXIMATELY 57% OF THE
VOTING POWER FOR EARTHCARE.

     As of March 31, 2001, our executive officers and directors control over 57%
of the voting power of our common and preferred stock. As a result, this group
may be able to control matters requiring the approval of a majority of the
stockholders, such as election of directors. The voting power of these
stockholders under certain circumstances could have the effect of delaying or
preventing a change in control of EarthCare. Donald Moorehead, our Chairman and
Chief Executive Officer, and Raymond Cash, our Vice Chairman and a director,
together control over 56% the voting power. In addition, our officers and
directors hold options to acquire approximately 383,000 shares of common stock,
subject to vesting and other requirements.

     WE MAY HAVE DIFFICULTY EXECUTING OUR STRATEGY.

     Our strategy includes generating internal growth. Whether we can execute
our strategy depends on several factors, including the availability of capital
to support our continuing operations, the success of existing and emerging
competitors, the availability of acquisition candidates, our ability to maintain
profit margins in the face of competitive pressures, our ability to continue to
recruit, train and retain qualified employees and the strength of demand for our
services. Our ability to increase revenues and generate adequate cash flows to
support our operations and internal growth could be adversely affected by these
factors.

     OUR RAPID GROWTH MAY STRAIN OUR MANAGEMENT, OPERATIONAL, FINANCIAL AND
OTHER RESOURCES.

     Since our inception, we have acquired twenty businesses in our NLW and NSW
business segments. To maintain and manage our growth, we will need to expand our
management information systems capabilities and our operations and financial
systems and controls. We will also need to attract, train, motivate, retain and
manage senior managers, technical professionals and other employees. Failure to
do any of these things could materially and adversely affect our business and
financial results.

     WE MAY BE UNABLE TO COMPETE EFFECTIVELY WITH GOVERNMENTAL SERVICE PROVIDERS
AND LARGER, WELL-CAPITALIZED COMPANIES.

     The NLW and NSW industries are highly competitive and fragmented and
require substantial labor and capital resources. Some of the markets in which we
compete or will likely compete are served by one or more large national solid or
liquid waste companies, as well as by numerous regional and local solid and
liquid waste companies of varying sizes and resources, some of which have
accumulated substantial goodwill in their markets. We also compete with
counties, municipalities and other waste districts that maintain their own waste
collection and disposal operations. These operators may have financial
advantages over us because of their access to user fees and similar charges, tax
revenues and tax-exempt financing. Some of our competitors are also better
capitalized, have greater name recognition or are able to provide services at a
lower cost.

     OUR GROWTH AND FUTURE FINANCIAL PERFORMANCE DEPEND SIGNIFICANTLY ON OUR
ABILITY TO INTEGRATE ACQUIRED BUSINESSES INTO OUR ORGANIZATION AND OPERATIONS.

     Part of our strategy is to achieve economies of scale and operating
efficiencies by growing through acquisitions. We may not achieve these goals
unless we combine effectively the operations of acquired businesses with our
existing operations. Our senior management team may not be able to integrate our
completed and future acquisitions. Any difficulties we encounter in the
integration process could affect materially and adversely our business and
financial results.


                                       17
<PAGE>   18




     TIMING AND STRUCTURE OF DISPOSITIONS AND ACQUISITIONS MAY CAUSE
FLUCTUATIONS IN OUR QUARTERLY RESULTS.

     We are not always able to control the timing of our dispositions and
acquisitions. Obtaining third party consents and regulatory approvals,
completing due diligence on the acquired businesses, and finalizing transaction
terms and documents are not entirely within our control and may take longer than
we anticipate, causing certain transactions to be delayed. Our inability to
complete acquisitions and dispositions in the time frames that we expect may
adversely affect our business, financial condition and operating results. In
addition, whether we account for an acquisition using the purchase or the
pooling-of-interests method determines how the acquisition affects our financial
results.

     WE MAY LOSE CONTRACTS THROUGH COMPETITIVE BIDDING, EARLY TERMINATION OR
GOVERNMENTAL ACTION.

     We derive a substantial portion of our NSW revenue at EarthCare Solid Waste
from services provided under an exclusive municipal contract. We also intend to
bid on additional municipal contracts and franchise agreements. Many of these
will be subject to competitive bidding at some time in the future. However, we
may not be the successful bidder. In addition, some of our customers may
terminate their contracts with us before the end of the contract term. If we
were not able to replace revenues from contracts lost through competitive
bidding or early termination or from the renegotiation of existing contracts
with other customers within a reasonable time period, the lost revenues could
materially and adversely affect our business and financial results.

     OUR GROWTH MAY BE LIMITED BY THE INABILITY TO MAKE ACQUISITIONS ON
ATTRACTIVE TERMS.

     Although we have identified numerous acquisition candidates that we believe
are suitable, we may not be able to acquire them at prices or on terms and
conditions favorable to us. As a result, our growth could be limited.

     WE COMPETE FOR ACQUISITION CANDIDATES WITH OTHER PURCHASERS, MOST OF WHICH
HAVE GREATER FINANCIAL RESOURCES THAN EARTHCARE.

     Other companies have adopted, or possibly will adopt, our strategy of
acquiring and consolidating regional and local NSW and NLW businesses. We expect
that increased consolidation in the NLW and NSW industries will increase
competitive pressures. Increased competition for acquisition candidates may make
fewer acquisition opportunities available to us, and may cause us to make
acquisitions on less attractive terms, such as higher purchase prices.
Acquisition costs may increase to levels beyond our financial capability or to
levels that would adversely affect our operating results and financial
condition. Our ongoing ability to make acquisitions will depend in part on the
relative attractiveness of our common stock as consideration for potential
acquisition candidates. This attractiveness may depend largely on the relative
market price and capital appreciation prospects of our common stock compared to
the common stock of our competitors. If the market price of our common stock
were to remain at current levels or decline further over a prolonged period of
time, we could find it difficult to make acquisitions on attractive terms.

     WE FACE SIGNIFICANT COMPETITION IN THE MARKETS IN WHICH WE OPERATE.

     We compete with a significant number of other NSW and NLW companies. We
compete primarily on the basis of proximity to collection operations, fees
charged and quality of service. We also compete with other landfills and
disposal sites. Future technological changes and innovations may result in a
reduction in the amount of NLW generated or in alternative methods of treatment
and disposal being developed. We also compete with customers who may seek to
enhance or develop their own methods of disposal. We may be at a disadvantage
competing against other companies that are better capitalized, have greater name
recognition, have more background and experience, have greater financial,
technical,


                                       18
<PAGE>   19

marketing and other resources and skills, have better facilities or are able to
provide services or products at a lower cost than us. In the currently highly
fragmented NLW industry, there is a low barrier to entry and we may not be able
to penetrate existing markets. Even if we are successful at penetrating the
markets in which we operate and implementing our new programs, we cannot be
assured that new competitors will not enter the markets. If we are not able to
compete effectively in the markets in which we operate, we could suffer material
and adverse effects on our business and financial results.

     WE DEPEND SIGNIFICANTLY ON THE SERVICES OF THE MEMBERS OF OUR SENIOR
MANAGEMENT TEAM, AND THE DEPARTURE OF ANY OF THOSE PERSONS MIGHT MATERIALLY AND
ADVERSELY AFFECT OUR BUSINESS AND FINANCIAL RESULTS.

     We do not currently maintain any "key man" life insurance on any of our
senior managers. Key members of our management team have entered into employment
agreements with us with terms ranging from one to three years. We may not be
able to enforce these agreements. We are dependent on the services of management
and key personnel and we believe that our success will depend upon the efforts
and abilities of management and such key personnel. Furthermore, we may be
dependent on the management and key personnel of companies that we may acquire
in the future. If any of these individuals do not continue in their position
with us or if we are unable to attract and retain other skilled employees, our
business, financial condition and operating results may be affected materially.
The competition for qualified personnel is intense, and we cannot assure you
that we will be able to continue to hire and retain sufficiently qualified
management and key personnel needed to operate our businesses successfully. Our
executive officers have orally indicated that they will waive the change of
control provisions in their employment agreements when we sell our EarthLiquids
division.

     WE HAVE A HISTORY OF NET LOSSES.

     We have experienced operating losses since our inception, and, as of
December 31, 2000, we had an accumulated deficit of approximately $102.4
million. We incurred a net loss of approximately $64.4 million on the planned
sale of our discontinued EarthAmerica, EarthLiquids and Allen Tate operations,
and we incurred a net loss of approximately $13.4 million from their operations.
We cannot provide assurance that we will actually achieve profitability.

     WE MAY ENCOUNTER POTENTIAL ENVIRONMENTAL LIABILITIES THAT OUR INSURANCE MAY
NOT COVER.

     During the ordinary course of our operations, we have from time to time
received, and expect that we may in the future receive, citations or notices
from governmental authorities that our operations are not in compliance with our
permits or certain applicable regulations, including various transportation,
environmental or land use laws and regulations. We generally seek to work with
the authorities to resolve the issues raised by such citations or notices. There
can be no assurance, however, that we will always be successful in this regard,
and the failure to resolve a significant issue could result in adverse
consequences to us.

     While we maintain insurance, such insurance is subject to various
deductible and coverage limits and certain policies exclude coverage for damages
resulting from environmental contamination. There can be no assurance that
insurance will continue to be available to us on commercially reasonable terms,
that the possible types of liabilities that may be incurred by us will be
covered by our insurance, that our insurance carriers will be able to meet their
obligations under their policies or that the dollar amount of such liabilities
will not exceed our policy limits. An uninsured claim, if successful and of
significant magnitude, could have a material adverse effect on our business,
results of operations and financial condition.

     WE WILL NEED TO HIRE ADDITIONAL EMPLOYEES AS WE GROW.

     When we complete acquisitions of NSW companies, there may be opportunities
for a reduction of employees as duplicate administrative processes are
eliminated. However, we may need to hire additional employees to implement our
acquisition strategy and our internal growth strategy. In order to continue to



                                       19
<PAGE>   20

grow effectively and efficiently, we will need to implement and improve our
operational, financial and management information systems and controls and to
train, motivate and manage our employees. We intend to review continually and
upgrade our management information systems and to hire additional management and
other personnel in order to maintain the adequacy of its operational, financial
and management controls. There can be no assurance, however, that we will be
able to meet these objectives.

     VARIOUS EVENTS, INCLUDING SOME BEYOND OUR CONTROL, MAY NEGATIVELY AFFECT
THE VALUE OF OUR STOCK.

     The market price of our common stock could be subject to significant
fluctuations in response to various factors and events, including the issuance
of shares in acquisitions, the liquidity of the market for the common stock,
differences between our actual financial or operating results and those expected
by investors and analysts, changes in analysts' recommendations or projections,
new statutes or regulations or changes in interpretations of existing statutes
and regulations affecting our business, changes in general economic conditions
or broad stock market fluctuations.

     EXTENSIVE AND EVOLVING ENVIRONMENTAL LAWS AND REGULATIONS MAY ADVERSELY
AFFECT OUR BUSINESS.

     Environmental laws and regulations have been enforced more and more
stringently in recent years because of greater public interest in protecting the
environment. These laws and regulations impose substantial costs on us and
affect our business in many other ways, including as described below. In
addition, federal, state and local governments may change the rights they grant
to and the restrictions they impose on solid and liquid waste services
companies, and some changes could have a material adverse effect on us.

     WE MAY BE UNABLE TO OBTAIN AND MAINTAIN LICENSES OR PERMITS AND ZONING,
ENVIRONMENTAL AND/OR OTHER LAND USE APPROVALS THAT WE NEED TO OWN AND OPERATE
OUR LANDFILL AND OUR OPERATING SITES.

     These licenses or permits and approvals are difficult and time-consuming to
obtain and renew, and elected officials and citizens' groups frequently oppose
them. Failure to obtain and maintain the permits and approvals we need to own or
operate our landfill and NLW and NSW operating sites, including increasing their
capacity, could materially and adversely affect our business and financial
condition.

     EXTENSIVE REGULATIONS THAT GOVERN THE DESIGN, OPERATION AND CLOSURE OF
LANDFILLS MAY ADVERSELY AFFECT OUR BUSINESS.

     These regulations include the Subtitle D Regulations that establish minimum
federal requirements adopted by the U.S. Environmental Protection Agency in
October 1991 under Subtitle D of the Resource Conservation and Recovery Act of
1976. If we fail to comply with these regulations, we could be required to
undertake investigatory or remedial activities, curtail operations or close a
landfill or operating site temporarily or permanently. Future changes to those
regulations may require us to modify, supplement or replace equipment or
facilities at substantial costs. If regulatory agencies fail to enforce these
regulations vigorously or consistently, our competitors whose facilities do not
comply with the Subtitle D Regulations or their state counterparts could obtain
an advantage over us. Our financial obligation arising from any failure to
comply with these regulations could materially and adversely affect our business
and financial results.

     WE MAY BE SUBJECT IN THE NORMAL COURSE OF BUSINESS TO JUDICIAL AND
ADMINISTRATIVE PROCEEDINGS INVOLVING FEDERAL, STATE OR LOCAL AGENCIES OR
CITIZENS' GROUPS, WHICH COULD ADVERSELY AFFECT OUR BUSINESS.

     Governmental agencies might impose fines or penalties on us. They might
also attempt to revoke or deny renewal of our operating permits, franchises or
licenses for violations or alleged violations of environmental laws or
regulations, or to require us to remediate potential environmental problems
relating to waste that we or our predecessors collected, transported, disposed
of or stored. Individuals or community groups might also bring actions against
us in connection with our operations. Any adverse outcome in these proceedings
could have a material adverse effect on our business and financial results and
create adverse publicity about us.


                                       20
<PAGE>   21

     OUR GROWTH IN THE NSW INDUSTRY MAY BE LIMITED BY OUR INABILITY TO OBTAIN
NEW LANDFILLS AND EXPAND OUR EXISTING LANDFILL.

     We currently own and operate one landfill in Florida. Our ability to grow
may depend in part on our ability to acquire, lease and expand landfills and
develop new landfill sites. We may not be able to obtain new landfill sites or
expand the permitted capacity of our landfill when necessary.

     IN SOME AREAS IN WHICH WE MAY OPERATE, SUITABLE LAND FOR NEW SITES OR
EXPANSION OF EXISTING LANDFILL SITES MAY BE UNAVAILABLE.

     Operating permits for landfills in Florida and in states in which we plan
to operate must generally be renewed at least every five years. It has become
increasingly difficult and expensive to obtain required permits and approvals to
build, operate and expand solid waste management facilities, including landfills
and transfer stations. The process often takes several years, requires numerous
hearings and compliance with zoning, environmental and other requirements and
permitting and approval are often resisted by citizen, public interest or other
groups. We may not be able to obtain or maintain permits we require to expand,
and such permits may contain burdensome terms and conditions. Even when granted,
final permits to expand are often not approved until the remaining permitted
disposal capacity of a landfill is very low. Local laws and ordinances also may
affect our ability to obtain permits to expand landfills. If we were to exhaust
our permitted capacity at a landfill, our ability to expand internally could be
limited, and we could be required to cap and close that landfill and forced to
dispose of collected waste at more distant landfills or at landfills operated by
our competitors. The resulting increased costs could materially and adversely
affect our business and financial results.

     OUR ACCRUALS FOR LANDFILL CLOSURE AND POST-CLOSURE COSTS MAY BE INADEQUATE.

     We could be required to pay closure and post-closure costs of landfills and
any disposal facilities that we own or operate. We currently accrue for future
closure and post-closure costs of our owned landfill for a term of 30 years
after final closure of the landfill, based on engineering estimates of
consumption of permitted landfill airspace over the useful life of the landfill.
Our obligations to pay closure or post-closure costs may exceed the amount we
accrued and reserved and other amounts available from funds or reserves
established to pay such costs. This could materially and adversely affect our
business and financial results.

     WE MAY INCUR ADDITIONAL CHARGES RELATED TO CAPITAL EXPENDITURES.

     In accordance with generally accepted accounting principles, we capitalize
some expenditures and advances relating to acquisitions, pending acquisitions
and landfill development projects. We expense indirect acquisition costs such as
executive salaries, general corporate overhead, public affairs and other
corporate services as we incur those costs. We charge against earnings any
unamortized capitalized expenditures and advances, net of any amount that we
estimate we will recover, through sale or otherwise that relate to any operation
that is permanently shut down, any pending acquisition that is not consummated
and any landfill development project that we do not expect to complete.
Therefore, we might incur charges against earnings in future periods that could
materially and adversely affect our business and financial results.

     WE HAVE A SUBSTANTIAL NUMBER OF OPTIONS AND WARRANTS OUTSTANDING WHICH MAY
DILUTE YOUR OWNERSHIP.

     We have outstanding options to purchase 1,015,829 shares of common stock at
an average price of $9.65 per share and we have outstanding warrants to purchase
2,268,969 shares of common stock at an average price of $3.15 per share. These
outstanding options and warrants may deter investors from providing future
equity or debt investments to us. These outstanding options and warrants, if
exercised, would also dilute your current ownership. To the extent that such
options and warrants are exercised and sold in the future, the timing of such
sale may adversely affect the prevailing market price for our common stock. The
holders of the outstanding options and warrants may exercise and sell their
shares at a time


                                       21
<PAGE>   22

when we would otherwise be able to obtain additional equity
capital on terms more favorable to us. We have filed a Registration Statement on
Form S-8 to register the shares of common stock issuable upon the exercise of
options.

     YOU WILL EXPERIENCE DILUTION IF WE ISSUE ADDITIONAL SHARES OF OUR COMMON
STOCK OR OUR PREFERRED STOCK.

     Investors will experience dilution if we issue common stock as
consideration for acquisitions and on the exercise of outstanding stock options
and warrants. We currently have 17,761,080 shares of our common stock
outstanding. Our authorized capital consisted of 70,000,000 shares of common
stock and 30,000,000 shares of preferred stock. We may make additional primary
public or private offerings of our common stock or our preferred stock in the
future. We have 3,284,798 options and warrants outstanding and have the ability
to issue an additional 784,171 options under our current stock option plan.
These future issuances will cause additional dilution.

     YOU MAY SUFFER SUBSTANTIAL DILUTION FROM FUTURE CONVERSION OF OUR 10%
DEBENTURES AND 10% PREFERRED IF THE CONVERSION PRICE IS LOWERED BELOW $3.60 PER
SHARE.

     Our 10% Debentures and our 10% Preferred contain conversion rights that
allow the holders of such instruments to convert the face amount of the
instruments into our common stock at a conversion price of $3.60 per share. If
we issue common stock for less than $3.60 per share or we issue any convertible
debt instrument or equity security with a conversion or exercise price of less
than $3.60 per share, the conversion price for our 10% Debentures and our 10%
Preferred will be reduced as a result of these provisions. For every $1.00 that
the price is reduced, we will be obligated to issue approximately 2.1 million
shares for the 10% Debentures and approximately 1.5 million shares for the 10%
Preferred.

     YOU WILL SUFFER DILUTION AS WE PAY INTEREST ON OUR 12% DEBENTURES.

     Our 12% Debentures provide for semi-annual payments of interest at 12% per
year, payable in shares of our common stock on March 30 and September 30 of each
year. We may pay interest on the 12% Debentures by issuing our common shares.
The number of common shares issued is determined by dividing the interest
payable by the closing price of our common stock on the day the interest is
paid. On March 31, 2001, we issued 3,090,966 shares of our common stock as the
first interest payment on our 12% Debentures at a market value per share of
$1.047. If the market price of our common stock is $1.00 lower at the time of
the next scheduled interest payments on September 30, 2001 and March 30, 2002,
we will be obligated to issue approximately 48.8 million additional shares above
the approximately 2.3 million shares we would issue if the market price per
common share remained at the $1.047 price on March 31, 2001.

     YOU WILL SUFFER DILUTION IF THE SANDERS BRIDGE LOAN IS NOT REPAID APRIL 30,
2001

     If we do not repay in full the outstanding Sanders Bridge Loan of $2.5
million, including interest payable, by April 30, 2001, we will be required to
issue an additional 100,000 shares per month for each month the loan is not
repaid in full. This will lead to a dilution in your current ownership
percentage.

     PROVISIONS IN OUR CHARTER AND BYLAWS MAY DETER CHANGES IN CONTROL THAT
COULD BENEFIT OUR STOCKHOLDERS.

     Certain provisions of Delaware law and certain provisions of our
certificate of incorporation and bylaws could delay or impede the removal of
incumbent directors and could make it more difficult for a third-party to
acquire of could discourage a third-party from attempting to acquire, control of
the company. Such provisions could limit the price that investors might be
willing to pay in the future for shares of the company's common stock. The
certificate and bylaws impose various procedural and other requirements
(including a staggered board of directors, removal of directors only for cause
and the issuance of preferred stock as described below) that could make it more
difficult for stockholders to effect certain corporate actions. The certificate
gives the company's board of directors the authority to issue up to 30 million
shares of preferred stock and to determine the price, rights, preferences and
restrictions, including the voting rights


                                       22
<PAGE>   23
of such shares, without any further vote or action by the company's
stockholders. The rights of holders of common stock will be subject to, and may
be adversely affected by, the rights of the holders of any preferred stock
issued in the future. We may issue preferred stock in the future as part of our
efforts to raise equity capital. The "business combinations" statute under
Delaware law may restrict certain business combinations by interested
stockholders. We have entered into employment agreements with our executive
officers that contain change in control provisions. The change in control
provisions may hinder, delay, deter or prevent a tender offer, proxy contest or
other attempted takeover because the covered employees can terminate their
employment in such event and receive payments for 24 months to 60 months after
termination pursuant to their respective agreements.

ITEM 2   PROPERTIES

     Our principal executive office at 14901 Quorum Drive in Dallas, Texas is
subleased for a current rate of $17,089 per month, with the sublease expiring on
July 31, 2002.

     EARTHCARE SOLID WASTE

     TAMPA AND CLEARWATER, FLORIDA

     Our principal operating location in Tampa is located at 1601 34th Street
North. We own six acres used for office space, a truck shop and parking space
for our fleet of approximately 100 vehicles. We lease two office trailers with
3,000 square feet of space and own two office trailers with 2,300 square feet of
space. Our truck shop is located in a building on site with approximately 4,000
square feet of space.

     We own one material transfer station at 5113 Uceta Road in Tampa on an
8-acre parcel of land with a tipping floor of 10,500 square feet and a scale
house of approximately 300 square feet. We also own a material transfer station
located at 12875 60th Street North in Clearwater, Florida, on a 5.9 acre parcel
of land with a tipping floor of 18,000 square feet and a scale house of 250
square feet. The tipping floor is the area where materials are unloaded and
sorted. The scale house is the area where incoming and outgoing trucks are
weighed.

     HILLSBOROUGH COUNTY, FLORIDA

     We operate a construction and demolition landfill located at 11457 County
Road 672 in Balm, Florida. This site covers 280 acres of which 55 acres
currently operate under a Class III permit. Our current usable airspace for our
permitted site is approximately 1.3 million cubic yards and the total airspace
for the full site is approximately 30 million cubic yards. At our current
compaction rates of 2.7 tons per cubic yard, our current permitted capacity is
approximately 3.2 million tons and our total site capacity is approximately 81
million tons. We maintain an owned metal office building with approximately
10,500 usable square feet and a 224 square foot scale house.

     EARTHLIQUIDS

     PLANT CITY, FLORIDA

     We own and operate a used oil recovery and processing facility located at
103 Alexander Street, Plant City, Florida on an 8-acre site. We operate from two
owned buildings and two owned office trailers with a total of 9,700 square feet.
We also operate from a leased office and warehouse with 13,000 usable square
feet. In addition, our plant at this site includes 23 above ground storage tanks
with a capacity of 1,400,000 gallons, one furnace and the needed piping, heat
exchangers, vessels and pumps to operate the plant.

     WILMINGTON, DELAWARE

     We own and operate a used oil recovery and processing facility located at
505 South Market Street in Wilmington, Delaware on a 7.2-acre site. We operate
from three buildings with a total of 8,460 square


                                       23
<PAGE>   24

feet. In addition, our plant at this site includes 14 above ground storage tanks
with a capacity of 3,220,000 gallons, 2 furnaces and the needed piping, heat
exchangers, vessels and pumps to operate the plant.

     NEW ORLEANS, LOUISIANA

     We own and operate a used oil recovery and processing facility located at
14890 Intracoastal Drive, New Orleans, Louisiana on a 15-acre site. We operate
from one building with a total of 10,000 usable square feet. In addition, our
plant at this site includes 20 above ground storage tanks with a capacity of
2,300,000 gallons and the needed furnaces, piping, heat exchangers, vessels and
pumps to operate the plant.

     BALTIMORE, MARYLAND

     We own and operate a collection center at 6305 East Lombard Street in
Baltimore, Maryland on a 2-acre site. We operate from one building with 10,500
usable square feet. In addition, our collection center includes 9 above ground
storage tanks with a total capacity of 241,000 gallons.

     POMPANO BEACH, FLORIDA

     We own and operate a used oil and oily wastewater collection facility at
1280 NE 48th Street, Pompano Beach, Florida on a 2.5-acre site. We operate from
one building with 10,000 usable square feet. In addition, our collection center
includes 27 above ground storage tanks with a total capacity of 417,000 gallons.

     WEST PALM BEACH, FLORIDA

     We operate a soil treatment facility at 9401 Fairgrounds Road, West Palm
Beach, Florida on a 4-acre site. We use the site and a 29,000 square foot
building to collect, treat and transfer soil.

     FORT PIERCE, FLORIDA

     We own and operate a used oil and used oil filter recovery and treatment
facility at 5690 West Midway Road, Ft. Pierce, Florida on a 9.5-acre site. We
operate from three buildings with a total of 17,600 usable square feet. In
addition, our collection center includes 30 above ground storage tanks with a
total capacity of 604,000 gallons.

     SATELLITE COLLECTION CENTERS

     We operate satellite collection centers in Lafayette, Port Allen,
Patterson, Houma, Alexandria and Lake Charles, Louisiana to collect used oil.
All the facilities are leases except the one located in Lafayette.

     EARTHAMERICA

     We operate approximately 300 trucks and 140 trailers in our EarthAmerica
division to provide our NLW services. Our current equipment is in good condition
and is adequate to handle our current level of revenue.

     We own or lease and operate the following facilities, which are in good
condition and which are adequate to handle our current NLW service volume, in
our EarthAmerica division:



                                       24
<PAGE>   25

<TABLE>
<CAPTION>



      EARTHAMERICA               LAND                               BUILDINGS
     SERVICE CENTER        OWNED OR LEASED             ACRES     OWNED OR LEASED    USABLE SQUARE FEET
     --------------        ---------------             ------    ---------------    ------------------

<S>                             <C>                  <C>             <C>                <C>
Austell, Georgia                Leased               3.10 acres      Leased                 9,360

Gainesville, Georgia            Owned                9.54 acres       Owned                10,000

Vernon, New Jersey              Owned               11.73 acres       Owned                14,500

Deer Park, New York             Leased               2.50 acres      Leased                19,750

Eagle, Pennsylvania             Owned               10.48 acres       Owned                22,198

Houston, Texas                  Leased               1.00 acres      Leased                 6,250

Dallas, Texas                   Leased               1.00 acres      Leased                 6,000

Orlando, Florida                Owned                4.80 acres
                                Leased               3.25 acres      Leased                 6,500

</TABLE>


ITEM 3 LEGAL PROCEEDINGS

     In March 2001, EarthCare and World Fuel Services ("WFS") settled a dispute
in arbitration. EarthCare and WFS agreed to settle any known and unknown claims
against each other. As part of such settlement, on April 12, 2001, we paid $1.75
million to WFS.

     In November 2000, EarthAmerica Houston, Inc., a company owned by Donald
Moorehead, EarthCare's Chairman, Chief Executive Officer and a director,
acquired all the tangible and intangible assets of Sewer Management, Inc. The
intangible assets that were acquired included the rights to a lawsuit filed by
Sewer Management, Inc. in the State of Texas relating to the use of the name
EarthCare and its derivatives. We anticipate that this lawsuit will be
dismissed.

     Except for the two matters described above, we are not involved in any
material litigation matters at the time of the filing of this report. We become
involved in claims, disputes and litigation matters during the ordinary course
of our business. These matters typically involve litigation with current or
former employees, customers, vendors and various governmental authorities. While
we are currently involved in several matters like we just described, we do not
believe that any of these matters individually or in the aggregate will have a
material effect on our financial condition, results of operations or cash flows.


ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     We did not submit any matters to a vote of security holders during the
quarterly reporting period ended December 31, 2000.


PART II

ITEM 5 MARKET FOR EARTHCARE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER
       MATTERS

     Our common stock is currently listed on the Nasdaq National Market under
the trading symbol "ECCO". Prior to July 1999, our common stock was listed for
trading on the Nasdaq Over-The-Counter ("OTC") Bulletin Board under the symbol
"ECUS". Our common stock's closing price on April 12, 2001 on the Nasdaq
National Market was $0.90 per common share.


                                       25
<PAGE>   26

     We have received a notice from the Nasdaq National Market that our common
stock may be delisted because our common stock has not traded above the minimum
$5 bid price, has not been traded actively by four market makers and has not had
a market value for shares held by non-affiliates exceeding $15 million. We have
requested a hearing with Nasdaq to present our position on these matters. We are
not able to give any assurance that we will continue to be listed on the Nasdaq
National Market after the hearing. We have applied for listing with Nasdaq Small
Cap and with Amex; however, our common stock does not currently satisfy the
Nasdaq Small Cap or Amex listing requirements. As a result, there can be no
assurance that our common stock listing applications will be accepted by the
Amex or the Nasdaq Small Cap or that we will be listed on any exchange or able
to develop any market for our shares.

     Our common stock's high and low closing prices are shown below. The high
and low closing prices for the common stock as reported by Nasdaq OTC market
quotations reflect inter-dealer prices without retail mark-up, mark-down or
commissions and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>

       YEAR                        FISCAL QUARTER ENDED                       HIGH              LOW
       ----                        --------------------                       ----              ---

<S>                 <C>                                                     <C>               <C>
       2001         March 31, 2001...................................        $  3.563          $  1.047

       2000         December 31, 2000................................        $  5.375          $  2.250
                    September 30, 2000...............................        $  7.500          $  5.063
                    June 30, 2000....................................        $  7.813          $  6.375
                    March 31, 2000...................................        $  9.750          $  5.750

       1999         December 31, 1999................................        $ 12.375          $  8.000
                    September 30, 1999...............................        $ 16.125          $ 11.375
                    June 30, 1999....................................        $ 16.188          $ 14.000
                    March 31, 1999...................................        $ 16.750          $ 14.000
</TABLE>

     As of April 12, 2001, we had approximately 1,000 record holders of our
common stock.

     We have never declared or paid any cash dividends on our common stock. We
currently intend to retain future earnings to finance our growth and development
and, therefore, do not anticipate paying cash dividends in the foreseeable
future. Our ability to pay any future dividends will depend on the future
earnings and capital requirements of EarthCare and other factors that our Board
of Directors considers appropriate. Additionally, our Senior Credit Facility
agreement restricts the payment of cash dividends on any of our capital stock.

     We have contractual obligations to issue up to 528,495 shares of our common
stock, of which 465,567 shares are held in escrow if the conditions relating to
financing guarantees contained in certain acquisition agreements with NLW
service providers are met.

     As of April 13, we had options outstanding to various employees, officers,
directors and non-employees to purchase 1,015,829 of our common shares at an
average exercise price of $9.65 per share.

     As of April 16, 2001, warrants to purchase 2,268,969 shares of our common
stock were outstanding at an average exercise price of $3.15. We issued these
warrants as follows:

o    April 16, 2001 - warrants to purchase up to 150,000 shares of our common
     stock with an exercise price of $3.60 per share were issued to our Senior
     Lenders, Bank of America N.A. and Fleet Bank N.A., in connection with our
     Third Amendment to our Senior Credit Facility. These warrants contain
     dilution protection.

o    April 4, 2001 - warrants to purchase up to 680,000 shares of our common
     stock with an exercise price of $0.001 per share were issued to Sagemark
     Capital in connection with the Sagemark Loan. These warrants vested one
     half in April 2001 and the remainder will vest on October 3, 2001 if the
     Sagemark Loan is not fully repaid at that time.

o    September 30, 2000 - warrants to purchase up to 400,000 shares of our
     common stock with a current exercise price of $3.60 per common share were
     issued to the holders of our 12% Debentures. These warrants were issued in
     connection with a deferral of the interest payment on the 12% Debentures
     due September 30, 2000. These warrants contain dilution price protection.
     The original exercise price was $5.00 per share.


                                       26
<PAGE>   27

o    July 1, 2000 - warrants to purchase 50,000 shares of our common stock with
     an exercise price of $7.81 per common share were issued to a former
     employee and consultant in connection with the settlement of a litigation
     matter.

o    June 30, 2000 - warrants to purchase up to 200,000 shares of our common
     stock with a current exercise price of $3.60 per common share were issued
     to Founders Equity Group, an investment bank, in connection with a private
     placement of 599,807 shares of our common stock. These warrants contain
     dilution price protection. The original exercise price was $6.67 per share.

o    May 25, 2000 - warrants to purchase up to 75,000 shares of our common stock
     with an exercise price of $7.00 per common share were issued to three
     current directors and two former directors. The warrants issued to former
     directors replaced options previously held by those directors.

o    February 16, 2000 - warrants to purchase up to 400,000 shares of our common
     stock with a current exercise price of $3.60 per share were issued to the
     holders of our 12% Debentures. These warrants were issued in connection
     with our private placement of our 12% Debentures. These warrants contain
     dilution protection. The original exercise price was $6.63 per share.

o    May 1, 1999 - warrants to purchase up to 10,000 shares of our common stock
     were issued to one of our Senior Lenders, Fleet Bank N.A., at an exercise
     price of $15.50 per common share. As part of our Third Amendment, the
     exercise price for these warrants was reduced to $3.60 per share.

o    April 1, 1999 - warrants to purchase up to 35,000 shares of our common
     stock were issued to one of our Senior Lenders, Bank of America N.A., at an
     exercise price of $14.00 per common share. As part of our Third Amendment,
     the exercise price for these warrants was reduced to $3.60 per share.

o    June 1, 1998 - warrants to purchase up to 50,000 shares of our common stock
     were issued to one of our Senior Lenders, Bank of America N.A., at an
     exercise price of $13.00 per common share. As part of our Third Amendment,
     the exercise price for these warrants was reduced to $3.60 per share.

o    April 1, 1998 - warrants to purchase 500,000 shares of our common stock at
     an exercise price of $5.80 per common share were issued to former
     shareholders of our predecessor company, Microlytics, Inc., in connection
     with our reverse merger. As of March 31, 2001, 163,969 warrants are still
     outstanding. Since April 1, 1998, the holders of these warrants have
     exercised their rights to purchase 336,031 shares of common stock for cash.

o    January 1, 1998 - warrants to purchase 55,000 shares of our common stock at
     an exercise price of $14.50 were issued to shareholders of a private
     company in Houston in order to acquire the right to use the name
     "EarthCare" and its derivatives on a non-exclusive basis.

RECENT SALES OF UNREGISTERED SECURITIES

     On April 11, 2001, we completed a private placement of a $1.5 million
bridge loan with Sagemark Capital, an investment fund in which our Chairman is a
limited partner. In connection with this loan, we issued a warrant to purchase
up to 680,000 shares of our common stock at $0.001 per share. One half of the
warrant vested at closing and the remainder vests on October 3, 2001, if the
loan is not repaid in full by such date.

     On March 5, 2001, we issued 100,000 unregistered shares of our common stock
to various individuals in connection with a $2,500,000 loan placed by Sanders
Morris Harris ("Sanders Bridge Loan"). If the Sanders Bridge Loan is not repaid
by April 30, 2001, we will be obligated to issue 100,000 shares of our common
stock for each month that the Sanders Bridge Loan is not repaid in full.

     On December 4, 2000, we sold $7,000,000 of our 10% mandatory redeemable
convertible preferred stock ("10% Preferred") in a private placement to Donald
Moorehead. In exchange we received $3,000,000 in cash and 599,807 shares of our
common stock, which were then cancelled.

     On September 30, 2000, we sold 1,000,000 shares of our common stock for
$5,000,000 in cash, at $5.00 per share, which represented a 9.3% discount from
the closing price on that date, to Donald Moorehead. We used the proceeds from
that sale to pay down our Senior Credit Facility in order to meet our Senior
Lenders requirement to pay down part of the facility or provide additional cash
collateral.


                                       27
<PAGE>   28

     On June 30, 2000, we sold 599,807 shares of our common stock for $4,000,000
in cash, at $6.669 per share, which represented an 8.9% discount from the
closing price on that date, to Founders Equity Group in a transaction on behalf
of Donald Moorehead. We also paid Founders Equity Group a cash fee of $120,000
for arranging this transaction. We used the proceeds from this sale to repay a
loan to EarthCare from Donald Moorehead in the amount of $1,800,000. The
remainder of the cash was used for general working capital.

     On February 16, 2000, we sold $20,000,000 of our 12% subordinated
debentures ("12% Debentures") in a private placement for cash. In connection
with this sale, we also issued warrants to purchase 400,000 shares of our common
stock as described above. The warrants are exercisable for five years from
February 16, 2000. The 12% Debentures accrue interest at 12% per year from the
date of the sale, payable semi-annually on September 30 and March 30 of each
year. The first interest payment due September 30, 2000 was deferred to March
30, 2001, and in return for such deferral, we issued additional warrants to
purchase 400,000 shares of our common stock. We paid the interest due on March
30, 2001 by issuing 3,090,966 shares of our common stock. We may pay interest on
the 12% Debentures by issuing our common shares. The number of common shares
issued is determined by dividing the interest payable by the closing price of
our common stock on the day the interest is paid. We used the proceeds from this
sale to finance acquisitions and for general working capital.

     On October 11, 1999, we completed a private placement of $15,000,000 of our
10% convertible subordinated debentures ("10% Debentures"). We sold $13,962,500
of our 10% Debentures by December 31, 1999, and we sold the remaining $1,037,500
in January 2000. We used the cash from the sale of the 10% Debentures for
acquisitions and general working capital. The 10% Debentures accrue interest at
10% payable each calendar quarter. For the first two years, we may elect to pay
the interest by issuing additional 10% Debentures. For the next two years, we
are to pay the interest in cash unless such payment is prohibited by our Senior
Lenders. After such time, we are to pay the interest in cash. Through March 31,
2001, we have issued an additional $2,220,571 of our 10% Debentures as interest
payments. The 10% Debentures may be converted to our common shares at a current
conversion price of $3.60 per share. This conversion price is protected against
dilution. We may call the 10% Debentures at any time and we are required to
redeem the 10% Debentures on October 31, 2006. We sold $3,537,500 of the 10%
Debentures to Donald Moorehead and his affiliates, and we sold $2,000,000 to
Raymond Cash and his affiliates.


ITEM 6 SELECTED FINANCIAL DATA

     The following table sets forth our selected financial data. Our selected
financial data for the years ended December 31, 2000, 1999 and 1998 and for the
period from inception (March 19, 1997) through December 31, 1997 are derived
from the audited financial statements of EarthCare. The selected financial data
for the period from January 1, 1997 through March 18, 1997 and for the year
ended December 31, 1996 is derived from the audited financial statements of the
predecessor of the Company. As a result of acquisitions occurring in 2000 and
1999 and as a result of the discontinued operations of certain business segments
of EarthCare, our historical financial statements are not representative of the
financial results expected for future periods. This information should be read
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements of
EarthCare and notes thereto contained in this Annual Report on Form 10-K.



                                       28
<PAGE>   29
<TABLE>
<CAPTION>

                                                             EarthCare                                       Predecessor
                                       -----------------------------------------------                ---------------------------
                                                                                        Period from   Period from
                                                                                         inception     January 1
                                                                                      (March 19, 1997)    to        Year ended
                                                   Year ended December 31,            to December 31,  December 31, December 31,
                                             2000            1999             1998          1997         1997          1996
                                       ---------------  ---------------   ------------  ------------  -----------  --------------
STATEMENT OF OPERATIONS DATA:

CONTINUING OPERATIONS:
<S>                                    <C>              <C>               <C>           <C>           <C>          <C>
Revenues                               $       702,477  $             -    $         -   $         -   $        -   $           -
                                       ---------------  ---------------    -----------   -----------   ----------   -------------
Operating expenses:
General and administrative expense           5,791,546        5,422,364      2,899,820             -            -               -
Depreciation and amortization                  154,872          146,556        103,624             -            -               -
                                       ---------------  ---------------    -----------   -----------   ----------   -------------
Total operating expenses                     5,946,418        5,568,920      3,003,444             -            -               -
                                       ---------------  ---------------    -----------   -----------   ----------   -------------
Operating loss                              (5,243,941)      (5,568,920)    (3,003,444)            -            -               -
Interest expense                             1,415,313          235,832         94,523             -            -               -
Other                                         (101,221)         (40,619)             -             -            -               -
                                       ---------------  ---------------    -----------   -----------   ----------   -------------
Loss before income tax provision            (6,558,033)       5,764,133)    (3,097,967)            -            -               -
(benefit)

Income tax provision (benefit)                       -                -       (823,002)            -            -               -
                                       ---------------  ---------------    -----------   -----------   ----------   -------------
Loss from continuing operations             (6,558,033)      (5,764,133)    (2,274,965)            -            -               -

DISCONTINUED OPERATIONS:

Income (loss) from discontinued
operations
EarthAmerica                               (11,627,417)      (9,859,742)       845,875      (258,352)       2,320          58,634
EarthLiquids                                   503,023         (344,182)             -             -            -               -
Allen Tate                                  (2,239,454)        (478,119)             -             -            -               -
                                       ---------------  ---------------    -----------   -----------   ----------   -------------
Income (loss) from discontinued            (13,363,848)     (10,682,043)       845,875      (258,352)       2,320          58,634
operations

Loss from sale of discontinued
operations
EarthAmerica                               (32,043,044)               -              -             -            -               -
EarthLiquids                               (28,380,660)               -              -             -            -               -
Allen Tate                                  (4,021,018)               -              -             -            -               -
                                       ---------------  ---------------    -----------   -----------   ----------   -------------
Loss from sale of discontinued             (64,444,722)               -              -             -            -               -
operations                             ---------------  ---------------    -----------   -----------   ----------   -------------

Net income (loss) from discontinued        (77,808,570)     (10,682,043)       845,875      (258,352)       2,320          58,634
operations                             ---------------  ---------------    -----------   -----------   ----------   -------------

Income (loss) before extraordinary         (84,366,603)     (16,446,176)    (1,429,090)     (258,352)       2,320          58,634
items

Extraordinary gain on early retirement               -           86,817              -             -            -               -
of debt                                ---------------  ---------------    -----------   -----------   ----------   -------------

Net loss                                   (84,366,603)     (16,359,359)    (1,429,090)     (258,352)       2,320          58,634
Dividends and accretion of discount on         (62,632)               -              -             -            -               -
10% Preferred                          ---------------  ---------------    -----------   -----------   ----------   -------------

Net loss available to common           $   (84,429,235) $   (16,359,359)   $(1,429,090)  $  (258,352)  $     2,320  $      58,634
stockholders                           ===============  ===============    ===========   ===========   ===========  =============


Net loss per share - basic and diluted:
Continuing operations                  $         (0.50) $         (0.56)$        (0.27) $          -          N/A             N/A
Discontinued operations                          (5.94)           (1.03)          0.10         (0.13)         N/A             N/A
Dividends, accretion of discount on
preferred
and extraordinary item                               -                -              -             -          N/A             N/A
                                       ===============  =============== ==============  ============   ==========   =============
Net loss                               $         (6.44) $         (1.59)$       (0.17)  $      (0.13)         N/A             N/A
                                       ===============  =============== ==============  ============   ==========   =============
Weighted average number of common           13,101,022       10,321,164      8,427,407     1,940,536          N/A             N/A
shares
</TABLE>
<TABLE>
<CAPTION>



                                                                         At December  31,
                                         ----------------------------------------------------------------------------------
                                             2000              1999             1998            1997               1996
                                         -------------    --------------    ------------    --------------    -------------
BALANCE SHEET DATA:
<S>                                     <C>               <C>               <C>             <C>               <C>
Working capital (deficit)               $  (19,477,413)   $    2,426,363    $    938,120    $   (1,153,561)   $    (130,188)
Intangibles, net                             7,311,210                 -               -                 -                -
Net assets of discontinued operations       56,801,400        66,783,661      28,337,691           812,453        1,102,047
Total assets                                88,605,366        70,692,008      33,290,279         1,584,712          971,859
Long-term debt, including current          102,143,019        47,448,606       9,327,940           303,955          539,849
portion
Retained earnings (accumulated            (102,424,185)      (18,046,801)     (1,687,442)         (258,352)         270,441
deficit)
Total shareholders' equity (deficit)       (42,409,571)       19,615,724      19,016,070           812,453          270,941
</TABLE>





                                       29
<PAGE>   30
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
       OF OPERATIONS

BUSINESS

         EarthCare is a publicly traded company whose common stock is currently
traded on the Nasdaq National Market under the symbol "ECCO". EarthCare and its
subsidiaries are engaged in three non-hazardous waste divisions. Our EarthCare
Solid Waste division provides collection, transfer and disposal of NSW in
Hillsborough County, Florida, the adjoining counties and Palm Beach County,
Florida. Our EarthAmerica division provides NLW collection, processing,
treatment, disposal, bulk transportation, pumping, plumbing and maintenance
services from its operating locations in New York, New Jersey, Pennsylvania,
Florida, Georgia and Texas. Our EarthLiquids division provides NLW used oil and
oily wastewater recovery and treatment services in Florida, Delaware, Louisiana,
New Jersey and Pennsylvania. EarthLiquids also sells refined oil derived from
used oil and oily wastewater.

         RECENT DEVELOPMENTS

         During the third quarter of 2000, our management group and Board of
Directors decided to focus EarthCare's future management and financial resources
principally on the NSW business in an effort to build a stronger company with
more predictable revenue, earnings and cash flows. As part of this change of
focus, we sold our environmental compliance software company, Allen Tate
Commercial Software LLP, during the fourth quarter of 2000 to a private company
owned by William Addy, one of our executive officers.

         In October 2000, we amended our Senior Credit Facility (the "Second
Amendment"). As part of the amendment, the banking group waived our lack of
compliance with certain financial covenants in the credit agreement. The Second
Amendment also reduced the total availability under the Senior Credit Facility
by $5 million and revised the financial covenants to require that we maintain
monthly earnings before interest, taxes, depreciation and amortization
("EBITDA") of $500,000. In addition, the Second Amendment suspended the
application of certain other financial covenants, including minimum net worth,
interest coverage and debt to capitalization, until the quarterly period
beginning July 1, 2001.

         As of December 31, 2000, we were not in compliance with certain
financial covenants under the Second Amendment, including the monthly EBITDA
requirement. We began exploring certain financing and strategic alternatives for
our EarthAmerica and EarthLiquids divisions. On April 12, 2001, our Board of
Directors approved a plan to sell both divisions. We are currently negotiating
the sale of each division to two different strategic buyers, and we expect to
complete the sale, subject to normal terms and conditions, of EarthAmerica by
the end of the second quarter of 2001 and of EarthLiquids during the third
quarter of 2001.

         On April 16, 2001, we entered into the third amendment to our Senior
Credit Facility (the "Third Amendment"). Pursuant to the Third Amendment, our
lenders waived our lack of compliance with certain financial covenants,
including (i) the monthly EBITDA requirement; and (ii) the requirement that our
Chairman provide all of his required $25.0 million collateral by December 31,
2000 pursuant to the terms of certain guaranty agreements. In addition, the
Third Amendment requires us to sell (x) our EarthAmerica division by April 30,
2001 and (y) our EarthLiquids division by May 31, 2001. If we have not sold our
EarthLiquids division by May 31, 2001, the Third Amendment requires us to hire a
financial advisor to assist us with an orderly sale of this division. The Third
Amendment also requires that any net proceeds from the sale of our EarthAmerica
and EarthLiquids divisions, expected to be approximately $54.0 million in the
aggregate, be used to pay down the outstanding balance of our Senior Credit
Facility ($50.7 million as of April 13, 2001).

         Based on the expected net sales prices for the EarthAmerica and
EarthLiquids divisions, we have recorded a loss on the expected sale of these
divisions of approximately $60.4 million. Our Senior Lenders have indicated that
they will not provide additional debt financing to support our acquisition
strategy in the

                                       30

<PAGE>   31

NSW industry if we have not sold our EarthAmerica and our
EarthLiquids divisions. If we are unable to sell our EarthAmerica and our
EarthLiquids divisions to the current prospective buyers, we will pursue other
buyers for the divisions, as required by the Third Amendment. If we (i) are
unable to sell our EarthAmerica division by April 30, 2001 and (ii) we are
unable to sell our EarthLiquids division by May 31, 2001 and do not hire a
financial advisor by that date, we will not be in compliance with our Senior
Credit Facility. To the extent that our management is required to devote
additional effort to the sale of these two divisions, our ability to develop our
NSW business will be limited.

         We have received a notice from the Nasdaq National Market that our
common stock may be delisted because our common stock has not traded above the
minimum $5 bid price, has not been traded actively by four market makers and has
not had a market value for shares held by non-affiliates exceeding $15 million.
We have requested a hearing with Nasdaq to present our position on these
matters. We are not able to give any assurance that we will continue to be
listed on the Nasdaq National Market after the hearing. We have applied for
listing with Nasdaq's Small Cap Market and with Amex; however, our common stock
does not currently satisfy the Nasdaq Small Cap or Amex listing requirements. As
a result, there can be no assurance that our common stock listing applications
will be accepted by the Amex or the Nasdaq Small Cap or that we will be listed
on any exchange or be able to develop or maintain any market for our shares.

         The financial statements as of and for the year ended December 31, 2000
have been prepared assuming that EarthCare will continue as a going concern.
EarthCare has incurred net losses of $84.4 million in 2000, $16.4 million in
1999 and $1.4 million in 1998 and has an accumulated deficit of $102.4 million
as of December 31, 2000. In addition, our working capital deficiency was $19.5
million and our total debt amounted to $102.1 million at December 31, 2000. Due
to our history of net operating losses, our capital and working capital
deficiency, the uncertainty surrounding the completion of the sale of
EarthAmerica and EarthLiquids and uncertainty about our future operating
results, our independent accountants have expressed substantial doubt about
EarthCare's ability to continue as a going concern. The financial statements do
not include any adjustments that might result from the outcome of these
uncertainties.

         We currently are negotiating with two strategic buyers to sell our
EarthAmerica and our EarthLiquids divisions, the proceeds of which are required
to reduce our existing debt. We expect to complete these transactions, subject
to normal terms and conditions, by the end of the second quarter of 2001 for the
sale of EarthAmerica and during the third quarter of 2001 for the sale of
EarthLiquids. Although we believe that these transactions will be completed, we
cannot provide any assurance that these transactions will be completed or that
they will be completed at favorable terms.

         We believe that EarthCare is a going concern. We believe that we have
implemented a plan that will allow EarthCare to continue as a going concern
focused on the solid waste industry. Our plans relating to our capital structure
are discussed herein and include the steps shown below to improve the cash flow
from operations and reduce our debt level.

o    Reduce the operating expenses (in addition to personnel reductions that
     have occurred in the fourth quarter of 2000) including the integration of
     certain management and administrative functions.

o    Aggressively manage working capital to improve cash flow from operating
     activities,

o    Sell the EarthAmerica and EarthLiquids divisions,

o    Refinance certain existing debt, and

o    Raise additional debt and equity capital.

         OPERATING RESULTS

         During 2000 and 1999, we incurred a loss from operations of both our
continuing and discontinued operations of approximately $19.9 million and $16.4
million, respectively. After deducting the loss recognized on the impairment of
EarthAmerica's long-lived assets of $3.4 million and $11.3 million, we incurred
a net loss from operating activities of $16.5 million and $5.1 million,
respectively. During the same period, our cash used by these operating
activities was $1.3 million in 2000 and $5.5 million in 1999. The differences
between the net loss from operating activities and the cash needs for operating
activities are principally caused by the following factors:

                                       31
<PAGE>   32

o    Depreciation and amortization expense - $6.7 million in 2000 and $2.7
     million in 1999,

o    Non-cash interest expense of $4.8 million in 2000, and

o    Net changes in working capital of $6.8 million in 2000 and $(4.3) million
     in 1999 that generated cash.

Despite the significant losses sustained during 2000 and 1999, we were able to
manage our levels of working capital to reduce the need for cash to fund our
operating activities. To the extent that cash was needed to fund operating
activities during 2000 and 1999, we raised equity capital or we borrowed from
our lenders to finance these needs. Management expects to continue to
aggressively manage its working capital during 2001 in order to reduce the cash
needs for its operating activities.

         Our operating results for our EarthAmerica, EarthLiquids and Allen Tate
divisions are presented in Note 4 to our audited financial statements for the
years ended December 31, 2000, 1999 and 1998. These operating results have been
reported as one amount for each year and presented in the net income (loss) from
discontinued operations line on our consolidated statements of operations. The
results of our discontinued operations were negatively affected by the
performance of the EarthAmerica and Allen Tate divisions.

         During 2000, the operating results for EarthAmerica deteriorated. While
revenue increased principally due to the acquisition of All County Resource
Management, an NLW company in New Jersey, operating expenses increased
significantly. The following factors contributed to the lower operating results
of EarthAmerica in 2000:

o    Sales and marketing expense to implement new service programs,

o    Information system development costs associated with a new operating system
     for our service centers,

o    Weather conditions in the Northeast and Southeast that negatively affected
     revenue,

o    Significant turnover in management personnel at our service centers in
     Pompano, Eagle, Deer Park and Austell, and

o    A poorly conceived yellow page advertising campaign launched in late 1999
     and continuing through the third quarter of 2000 that did not succeed in
     attracting enough customer interest in our services.

         During 2000, we incurred a net loss of $2.2 million from our Allen Tate
environmental compliance software division. This was due to a much slower than
anticipated development cycle for its software product, ISNetworld, and the
operating information software system for the EarthAmerica division. Primarily
as a result of the failure of ISNetworld to develop a completed software product
for sale and the losses sustained while we owned Allen Tate, we sold the assets
of Allen Tate on October 31, 2000 to a private company owned by one of our
executive officers, William Addy.

         Following the sale of the EarthAmerica and EarthLiquids divisions in
2001, we expect that the operating results and cash flow from ERMF will help
support the corporate office of EarthCare. Until these divisions are sold, the
cash flows from the EarthLiquids and EarthAmerica divisions are expected to be
adequate to fund their operating needs, service the interest expense on our
outstanding debt and, if adequate cash flows are available from the operating
activities after interest expense, fund our capital expenditures.

         Under our current debt structure, ERMF is financed separately from the
rest of EarthCare and, except for allocated insurance and certain payroll
benefit costs, does not provide any cash flow to support EarthCare. Assuming
that we sell the EarthAmerica and the EarthLiquids divisions and repay the
Senior Credit Facility, we intend to either amend the ERMF senior debt credit
facility to allow the funding of our corporate costs or to repay that facility
with funds borrowed under a new senior credit facility. Until such time, our
ERMF operations are expected to generate an adequate level of cash flow to meet
ERMF's operating, financing and investing cash needs. Earthcare and ERMF do not
guarantee each other's debt and do not provide any financing to each other. We
can provide no assurance that we will be able to enter into a new senior credit
facility; however, we believe it is likely that we will be able to enter into a
new senior credit facility or other debt agreements with the continued guaranty
or collateral support of our Chairman. Our Chairman has orally indicated a
willingness to provide his continued guaranty and collateral support for a new
senior credit facility until we are able to arrange such financing without his
guaranty and collateral support.

                                       32
<PAGE>   33

         During 2000, we needed $8.5 million in cash to fund our corporate
expenses ($3.3 million) and to fund our interest expense ($5.2 million) that was
paid in cash. During 1999, we needed $5.5 million in cash to fund our corporate
expenses ($3.7 million) and to fund our interest expense ($1.8 million) that was
paid in cash. During 1998, we needed $1.5 million in cash to fund our corporate
expenses ($843,000) and to fund our interest expense ($657,000) that was paid in
cash. During 1999 and 2000, our interest expense in cash increased significantly
due to the additional debt we incurred to fund our acquisitions, our capital
expenditures and our operating cash flow needs. In addition, during 2000, we
incurred approximately $4.8 million in non-cash interest expense principally
associated with our 10% Debentures ($1.6 million), our 12% Debentures ($2.1
million) and the amortization of deferred financing costs.

         We recognized $702,477 in management fee revenue from ERMF, after
eliminating our share of the earnings of ERMF, under terms of a management
agreement in place between ERMF and EarthCare for the first three quarters of
2000.

          We increased our corporate general and administrative costs for 2000
by $400,000, from $5.4 million in 1999 to $5.8 million in 2000, primarily as a
result of the following:

o    $800,000 of severance costs relating to an executive officer and several
     key employees,

o    $300,000 of litigation settlement costs relating to a former employee and
     consultant,

o    $500,000 of accounting fees for our audits,

o    $300,000 of legal fees associated with various legal matters during 2000,
     and

o    ($1.5) million reduction in all other corporate costs.

          We incurred an increase in corporate general and administrative costs
of $2.2 million, from $2.9 million in 1998 to $5.4 million in 1999 due to the
following reasons:

o    $2.5 million related to an increase in the size of our corporate
     infrastructure,

o    $300,000 related to our new information technology system,

o    $100,000 related to our acquisition costs,

o    $300,000 related to our severance costs for certain executive officers and
     employees in 1999,

o    ($400,000) related to a reduction in other corporate costs, and

o    ($600,000) related to reversals of accruals from 1998 for bonuses,
     relocation costs and insurance reserves due to changes in our estimates.

         During 2000, 1999 and 1998, we made several acquisitions in our
EarthAmerica and EarthLiquids divisions and, as a result, the operating results
for 2000, 1999 and 1998 are significantly affected by the size and timing of
these acquisitions. For this reason, we have not provided a comparative analysis
of these operating results.

LIQUIDITY AND CAPITAL RESOURCES

         CASH FLOW - OPERATING ACTIVITIES

         Our operating activities required net cash funding of $1.3 million in
2000, $5.5 million in 1999 and $1.5 million in 1998. This requirement was
principally due to the losses sustained by our divisions on a combined basis. We
financed the cash needs of our operating activities with a combination of debt
and equity capital as more fully described below. In addition, we relied upon
our management of working capital in order to partly offset the cash needs of
our operating activities. These efforts included increased collection efforts
and a lengthening of vendor payment terms.

         During 2000, the operating results and cash flows of the EarthLiquids
division helped to support the operating cash flow needs of EarthAmerica and
Allen Tate. For the year, however, our total cash flow from operations to
finance our aggregate funding needs. For the year ended December 31, 2000, we
had negative cash flow from operations of $1.3 million.

                                       33
<PAGE>   34

         In order for EarthCare to continue to meet its current obligations
prior to selling the EarthAmerica and EarthLiquids divisions, the operating
results and cash flows for its EarthAmerica division must improve from the 2000
results and the operating results and cash flows of its EarthLiquids and
EarthCare Solid Waste divisions must remain at or improve from the levels
attained in 2000.

         During the first quarter of 2001, we have generated cash from our
discontinued operations adequate to support the needs of our operations to fund
EarthCare's corporate costs and to service interest payments on our debt. During
the first quarter of 2001, we have continued to aggressively manage the working
capital of EarthCare in order to help generate an adequate level of cash for
operating needs and to service our debt. We have deferred capital expenditures
that are not critical to support known revenue, maintenance or safety needs.

         Working capital deficiency

         At December 31, 2000, we had a working capital deficiency of
approximately $19.5 million. Because the Third Amendment requires us to sell our
EarthAmerica division and our EarthLiquids division and because we anticipate
that we will sell both of these divisions during the year ending December 31,
2001, we have included the entire outstanding balance of our Senior Credit
Facility as current indebtedness.

         The current portion of long-term debt at December 31, 2000 includes the
following amounts that management intends to refinance during 2001 on a
long-term basis, but we can provide no assurance that it will be able to do so:

o    $7.8 million due to one of ERMF's senior lenders - This senior lender has
     orally indicated a willingness to refinance this debt on a long-term basis
     when the current debt agreements expire in June 2001.

o    $4.0 million in bridge loans - We expect to refinance these loans with
     alternate sources of debt or equity capital and we also expect to repay one
     of these loans following the sale of our EarthAmerica and our EarthLiquids
     division.

o    $3.0 million in subordinated debt due to Donald Moorehead, our Chairman -
     This debt is in turn owed by Donald Moorehead to a third party. This debt
     is not secured by any assets of the Company. Although it is due June 30,
     2001, if we don't repay the debt in full at that time, we are charged
     interest at an annual rate of 24% payable monthly in cash.

         As of December 31, 2000, our accrued liabilities amounted to $16.0
million and included the following items that are not expected to be paid during
2001 or are intended to be refinanced during 2001 on a long-term basis, but have
been classified as current liabilities for the reasons described:

o    $2.3 million for insurance - This represents insurance premium assessments
     due as the result of insurance audits. We are currently negotiating a
     payment plan for this liability, which if successfully negotiated would
     allow us to repay this amount over two to four years.

o    $2.1 million in accrued interest on our 12% subordinated debentures - This
     interest is payable in common stock and will not affect our cash flow.

o    $2.8 million accrued for environmental remediation costs - This amount
     consists primarily of environmental liabilities as part of the acquisition
     of EarthLiquids's subsidiary, International Petroleum Corporation. At the
     time the purchase price was finalized, we recorded a reserve for the
     estimated remediation costs associated with various sites, as the amount
     was estimable and probable of being paid. We have not been able to
     determine when such liability will be discharged and, as a result, have
     included the liability as a current liability.

o    $1.8 million to cover the settlement of a dispute in arbitration. This
     amount was paid April 12, 2001 and was financed with $250,000 from our
     operating cash flow and $1.5 million from a bridge loan.

         If we are unable to refinance our debt that is due during 2001 or if we
are unable to defer the payment of our insurance or environmental liabilities
mentioned above with cash during 2001, and if the cash flows from our operating
activities are not adequate to fund these cash requirements, we will be unable
to maintain our current operations without obtaining alternate sources of debt
or equity capital,


                                       34
<PAGE>   35

significantly reducing our operating expense or selling certain of our operating
assets. Although we intend to refinance our debt that is due during 2001 and we
intend to defer cash payments on our insurance and environmental liabilities
during 2001, we can provide no assurance that we will be able to do so.

         Assuming that we have completed the sale of the EarthAmerica and the
EarthLiquids divisions, our company will consist of our EarthCare Solid Waste
division and our corporate office. In order to continue our operations, we will
be required to either amend our existing Senior Credit Facility or seek new
senior debt financing to finance our ongoing operations and our strategic and
acquisition growth plans in the NSW industry. We also intend to raise additional
equity or debt capital to support our growth plans. We can provide no assurance
that we will be able to raise the necessary capital to support our NSW growth
plans. If we are unable to raise the necessary capital to support our NSW growth
plans, then we will continue to operate our EarthCare Solid Waste division and
focus on internal growth funded by our operating cash flow. If our operating
cash flow from our Solid Waste Division is not adequate to fund our internal
growth, we will be required to reduce our operating expenses, most likely with
personnel reductions and reductions in our corporate general and administrative
expense. We may also be required to sell certain operating assets.

         CASH FLOWS - INVESTING ACTIVITIES

         During the last two quarters in 2000 and during 2001 to date, we have
significantly reduced the level of our capital expenditures. During the
remainder of 2001, we expect that we will limit our capital expenditures to
those items that are needed to directly support known revenue growth and to meet
existing critical safety, maintenance or environmental needs. If we are able to
generate adequate levels of operating cash flows or if we are able to obtain
alternate sources of debt or equity capital, we expect to expend approximately
$3,000,000 for capital expenditures during 2001. If we are unable to generate an
adequate level of operating cash flows or are unable to obtain alternate debt or
equity capital, we will reduce the level of our capital expenditures. If we are
forced to reduce the planned level of capital expenditures, this may negatively
affect the future revenue growth of our divisions and the current operations of
certain of our facilities.

         During 2000, we used proceeds from the issuance of our 10% Debentures
($1.0 million), the issuance of our 12% Debentures ($20.0 million) and
borrowings under our Senior Credit Facility to finance the acquisitions of IPC
and All County for $35.8 million. In addition, we used the sale of our 10%
Preferred ($3.0 million) and the sale of 1,599,807 shares of common stock ($8.9
million) to repay a portion of the outstanding Senior Credit Facility. During
1999, we used proceeds from our Senior Credit Facility and proceeds from the
issuance of our 10% Debentures to finance the acquisition of Magnum for $12.0
million. Proceeds from the exercise of stock options and warrants were used to
fund general working capital and capital expenditures. During 1998, we used the
proceeds from the sale of common stock ($15.5 million), proceeds from the
exercise of stock options and warrants ($2.4 million) and proceeds from debt
borrowings to finance the acquisitions of businesses during the year.

         CASH FLOWS - FINANCING ACTIVITIES

         EarthCare's debt has risen significantly from $9.3 million at December
31, 1998 to $102.1 million at December 31, 2000. The capital raised by this
increase in debt has been used to finance $47.0 million and $33.2 million of
cash used to pay for acquisitions and, to a lesser extent, capital expenditures.
We spent $35.8 million in 2000 and $27.2 million in 1999 to acquire businesses
and $7.5 million in 2000 and $4.8 million in 1999 on capital expenditures.
Although operating activities have needed $1.3 million in 2000, $5.5 million in
1999 and $1.5 million in 1998, such needs have been financed with debt or equity
capital. We have been able to service our interest expense during 2000 and the
first quarter of 2001. We expect to be able to continue to service our interest
expense during 2001. We do not expect to reduce the outstanding principal
balance of our debt unless we sell the EarthAmerica and the EarthLiquids
divisions, unless we raise additional debt or equity capital or unless we
refinance certain of our existing debt.

                                       35
<PAGE>   36

         Approximately $36.7 million of our debt is subordinated, and we do not
currently pay interest in cash on this debt. Therefore, although we will incur
approximately $4.0 million in interest expense on this debt during 2001, we will
not be required to pay this interest in cash.

         During the second quarter of 2001, we intend to evaluate our existing
capital structure. We are evaluating an exchange offer to the holders of our 10%
Debentures, our 12% Debentures and our 10% Preferred. This exchange offer would
consist of two parts. Holders of our 10% Debentures and our 12% Debentures would
be offered two exchange choices. One exchange would consist of receiving 10%
Preferred with a conversion price lower than the current conversion price for
the 10% Debentures of $3.60 per share. A second exchange choice would consist of
a new series of convertible preferred stock with no redemption feature but with
a lower conversion price than the first exchange offer. This second exchange
offer would also be made to the current holders of our 10% Preferred. Although
we have not formalized these plans, we expect that our exchange offers may be
attractive enough to convince our current holders of 10% Debentures, 12%
Debentures and 10% Preferred to convert their securities to a new series of
preferred stock. There can be no assurances that we will be successful in
exchanging our 10% Debentures, our 12% Debentures and our 10% Preferred on
favorable terms to all.

         12% Debentures

         On February 16, 2000, we completed a $20,000,000 private placement of
our 12% subordinated debentures, due March 30, 2008 (the "12% Debentures"),
including the issuance of warrants to purchase 400,000 shares of EarthCare's
common stock. We may pay the interest on the 12% Debentures by issuing shares of
our common stock, which we did on March 31, 2001 by issuing approximately 3.1
million shares.

         10% Debentures

         On October 11, 1999, we completed a $15,000,000 private placement of
our 10% convertible subordinated debentures ("10% Debentures"), due October 31,
2006. Interest is payable quarterly at the rate of 10% per year on the 10%
Debentures. From the closing through October 2001, interest is payable in kind
issuing additional 10% Debentures. For the two years ending October 2003,
interest may be paid in cash if permitted by our Senior Lenders, otherwise
interest is payable in additional debentures. For the last three years, interest
is payable in cash. To date, we have paid all the interest on the 10% Debentures
by issuing additional 10% Debentures.

         Sanders Bridge Loan

         On March 5, 2001, EarthCare Resource Management of South Florida, Inc.
("ERMSF"), a wholly-owned subsidiary of ERMF, obtained a $2,500,000 loan (the
"Sanders Bridge Loan") in a private placement by Sanders Morris Harris, an
investment-banking firm located in Houston, Texas. We agreed to pay interest at
14% per year payable monthly in cash. If we do not repay the loan in full by
April 30, 2001, interest will be payable at 18% per year payable monthly in
cash. We issued the lenders 100,000 shares of our common stock at the time of
the loan closing. For each month after April 30, 2001 that any balance remains
outstanding, we are obligated to issue an additional 100,000 shares of our
common stock. Our Chairman has personally guaranteed the Sanders Bridge Loan and
has provided collateral of $500,000 to support this loan. In addition, we have
provided the common stock of ERMSF and EarthCare Acquisition Sub, Inc. ("EAS"),
a wholly owned subsidiary of ERMF, as collateral for the Sanders Bridge Loan. We
have also provided a security interest in all the assets of ERMF and EAS.

         We used the proceeds from the Sanders Bridge Loan as follows:

o    We loaned $1,055,000 to a privately owned landfill company,

o    We paid $445,000 to the shareholders of the same landfill company for an
     option to acquire all the capital stock of the landfill company,

o    We used $350,000 to purchase the equipment and the intangible assets of a
     collection company in Palm Beach County, Florida,

o    We paid $85,000 in fees to Sanders Morris Harris, and

                                       36
<PAGE>   37

o    We retained the remaining $565,000 for general working capital for ERMSF,
     of which we plan to use $200,000 for additional option fee payments to the
     owners of the landfill company.

         Sagemark Loan

         On April 11, 2001, ERMF's subsidiary, ERMSF, obtained a $1,500,000 loan
from Sagemark Capital (the "Sagemark Loan") in a private placement. Our Chairman
is a limited partner in Sagemark Capital. We agreed to pay interest at 14% per
year payable monthly in cash. In addition, we issued a warrant to purchase
680,000 shares of common stock at $0.001 per share. The warrant vested one half
at closing and the remainder will vest on October 3, 2001 if the loan is not
fully repaid at that time. Our Chairman has personally guaranteed the Sagemark
Loan and we have agreed not to pledge any additional assets of ERMF or EAS.

ACQUISITIONS

         Since our inception, we have made twenty acquisitions and sold the
assets of one of our EarthAmerica service centers. Please refer to page 11 for a
more detailed description of our acquisitions and disposal.

SEASONALITY AND INFLATION

         Our EarthLiquids division is subject to variations in the prices of
virgin and used oil products. Our pricing for our refined products varies in
relation to the prices for virgin oil and natural gas products. To the extent
that the pricing for virgin oil products varies over time, the revenues we
generate from the sales of used oil products will also vary and may have a
significant effect on the results of our operations. In addition, our cost to
operate our vehicles in both the EarthLiquids and the EarthCare Solid Waste
divisions is directly affected by the prices of diesel fuel, finished oil and
other refined petroleum products.

NEW ACCOUNTING PRONOUNCEMENTS

         The Financial Accounting Standards Board ("FASB") issued Statements of
Financial Accounting Standards Nos. 133, 137 and 138, all related to the
accounting for derivative instruments and derivative activities, which are
effective for annual reporting periods beginning after June 15, 2000. We are
required to adopt these standards during our fiscal year ending December 31,
2001. Because we presently only enter into short-term interest rate swap
agreements relating to a portion of our Senior Credit Facility and have no other
derivative instruments, SFAS No. 133, as amended, will not have a material
effect on our financial position or results of operations. The Securities and
Exchange Commission issued Staff Accounting Bulletin No. 101, Revenue
Recognition, which we adopted during the fourth quarter of 2000; however, such
adoption did not have any material effect on our financial condition or results
of operations.

ITEM 7A  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         Our Senior Credit Facility and our ERMF senior debt bear interest rates
that are based on the prime-lending rate, as published at various times by our
banks. A portion of our combined outstanding balance of our Senior Credit
Facility, our ERMF senior debt and our mortgage loan amounted to approximately
$29.7 million as of December 31, 2000. If the prime lending rate moves up or
down by 1%, we will incur an increase or a decrease in annual interest expense
of approximately $297,000. We have $3.0 million in subordinated debt and $4.0
million in Bridge Loans that are subject to an increase in interest rates if
these loans are not repaid at the end of April 2001 and June 2001. Based on our
current operating cash flow and available debt capital, it is not likely that
these loans will be repaid on those dates. The increase in interest rates
provided for in these loan agreements will mean that we will pay additional
annual cash interest expense of approximately $280,000. In addition, we will be
obligated to issue 100,000 shares of common stock for each month after April
2001 if the Sanders Bridge Loan is not fully repaid. Also, warrants issued under
the Sagemark Loan will vest an additional 340,000 shares if the Sagemark Loan is
not fully repaid on October 3, 2001. The remainder of our debt is set at fixed
rates and is not subject to changes in interest rates.

                                       37
<PAGE>   38

         Our 10% Debentures and our 10% Preferred contain conversion rights that
allow the holders of such instruments to convert the face amount of the
instruments into our common stock at a conversion price of $3.60 per share. If
we issue common stock for less than $3.60 per share or we issue any convertible
debt instrument or equity security with a conversion or exercise price of less
than $3.60 per share, the conversion price for our 10% Debentures and our 10%
Preferred will be reduced. For every $1.00 that the price is reduced, we will be
obligated to issue approximately 2.1 million shares for the 10% Debentures and
approximately 1.5 million shares for the 10% Preferred during the year ending
December 31, 2001.

         Our 12% Debentures provide for semi-annual payments of interest at 12%,
payable in shares of our common stock on March 30 and September 30. On March 31,
2001, we issued 3,090,966 shares of our common stock as the first interest
payment on our 12% Debentures at a market value per share of $1.047. If the
market price of our common stock is $1.00 lower at the time of the next
scheduled interest payments on September 30, 2001 and March 30, 2002, we will be
obligated to issue approximately 48.8 million additional shares above the
approximately 2.3 million shares we would issue if the market price per common
share remained at the $1.047 level on March 31, 2001.

         We have 1,245,000 warrants outstanding as of April 16, 2001 with an
exercise price of $3.60 per common share and dilution protection. If we reduce
the conversion price on any of our convertible securities or we issue common
stock at a price less than $3.60, the exercise price of the warrants will be
reduced to the new conversion or issuance price.

                                       38
<PAGE>   39
ITEM 8  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                                EARTHCARE COMPANY
                           CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>

                                                                                               December 31,
                                                                                ------------------------------------------
                                                                                      2000                      1999
                                                                                ---------------           ----------------
 ASSETS
<S>                                                                             <C>                       <C>
Current assets:
     Cash and cash equivalents                                                  $     1,784,361           $        281,995
     Accounts receivable, net of allowance for doubtful
         accounts of $610,000
                                                                                      2,450,983                         --
     Prepaid expenses and other current assets                                          734,866                    611,040
     Net assets of discontinued operations                                           56,801,400                  5,439,440
                                                                                ---------------           ----------------
         Total current assets                                                        61,771,610                  6,332,475

Property, plant and equipment, net                                                   15,472,481                    941,701
Intangible assets, net                                                                7,311,210                         --
Other long-term assets                                                                4,050,065                  2,073,611
Net assets of discontinued operations                                                        --                 61,344,221
                                                                                ---------------           ----------------
             Total assets                                                       $    88,605,366           $     70,692,008
                                                                                ===============           ================

          LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Current liabilities:
     Accounts payable                                                           $     2,099,158           $      1,606,633
     Accrued liabilities                                                             15,972,512                  2,021,045
     Current portion of long-term debt                                               63,177,353                    278,434
                                                                                ---------------           ----------------
         Total current liabilities                                                   81,249,023                  3,906,112

Long-term debt                                                                       38,965,666                 47,170,172

Commitments and contingencies

Mandatory redeemable convertible preferred stock                                     10,800,248                         --

Stockholders' equity (deficit):
     Preferred stock, $.0001 par value; 30,000,000 shares
         authorized, none issued
     Common stock, $.0001 par value; 70,000,000 shares authorized, 14,569,349
        and 11,250,793 shares issued, respectively                                        1,457                      1,125
     Additional paid-in capital                                                      60,013,157                 37,661,400
     Accumulated deficit                                                           (102,424,185)               (18,046,801)
                                                                                ---------------           ----------------
         Total stockholders' equity (deficit)                                       (42,409,571)                19,615,724
                                                                                ---------------           ----------------
             Total liabilities and stockholders' equity (deficit)               $    88,605,366           $     70,692,008
                                                                                ===============           ================
</TABLE>



          See accompanying notes to consolidated financial statements.


                                       39
<PAGE>   40



                               EARTHCARE COMPANY
                     CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>

                                                                              Year ended December 31,
                                                              -------------------------------------------------------
                                                                   2000                 1999                1998
                                                              --------------      ---------------      --------------
<S>                                                           <C>                 <C>                  <C>
Revenues                                                      $       702,477     $            --      $           --

Expenses:
     General and administrative                                     5,791,546           5,422,364           2,899,820
     Depreciation and amortization                                    154,872             146,556             103,624
                                                              ---------------     ---------------      --------------
       Operating expenses                                           5,946,418           5,568,920           3,003,444
                                                              ---------------     ---------------      --------------
Operating loss                                                     (5,243,941)         (5,568,920)         (3,003,444)
Interest expense                                                    1,415,313             235,832              94,523
Other                                                                (101,221)            (40,619)                 --
                                                              ---------------     ---------------      --------------
Net loss before income tax provision (benefit)                     (6,558,033)         (5,764,133)         (3,097,967)
Income tax provision (benefit)                                             --                  --            (823,002)
                                                              ---------------     ---------------      --------------
Loss from continuing operations                                    (6,558,033)         (5,764,133)         (2,274,965)
Discontinued operations:
     Income (loss) from discontinued operations:
       EarthAmerica                                               (11,627,417)         (9,859,742)            845,875
       EarthLiquids                                                   503,023           (344,182)                  --
       Allen Tate                                                  (2,239,454)           (478,119)                 --
                                                              ---------------     ---------------      --------------
        Income (loss) from discontinued operations                (13,363,848)        (10,682,043)            845,875
                                                              ---------------     ---------------      --------------
     Loss from sale of discontinued operations:
       EarthAmerica                                               (32,043,044)                 --                  --
       EarthLiquids                                               (28,380,660)                 --                  --
       Allen Tate                                                  (4,021,018)                 --                  --
                                                              ---------------     ---------------      --------------
        Loss from sale of discontinued operations                 (64,444,722)                 --                  --
                                                              ---------------     ---------------      --------------
Income (loss) from discontinued operations                        (77,808,570)        (10,682,043)            845,875
                                                              ---------------     ---------------      --------------
Loss before extraordinary item                                    (84,366,603)        (16,446,176)         (1,429,090)
Extraordinary item - gain on early retirement of debt
     (net of income taxes of $53,000)                                      --              86,817                  --
                                                              ---------------     ---------------      --------------
Net loss                                                          (84,366,603)        (16,359,359)         (1,429,090)
Dividends and accretion of discount on 10% Preferred                   62,632)                 --                  --
                                                              ---------------     ---------------      --------------
Net loss available to common stockholders                     $   (84,429,235)    $   (16,359,359)     $   (1,429,090)
                                                              ===============     ===============      ==============
Net loss per share - basic and diluted:
     Continuing operations                                    $         (0.50)    $         (0.56)     $        (0.27)
     Discontinued operations                                            (5.94)              (1.03)               0.10
     Dividends, accretion of discount on preferred
         and extraordinary item                                            --                  --                  --
                                                              ---------------     ---------------      --------------
         Net loss                                             $         (6.44)    $         (1.59)     $        (0.17)
                                                              ===============     ===============      ==============
Weighted average number of common shares                           13,101,022          10,321,164           8,427,407

</TABLE>

          See accompanying notes to consolidated financial statements.


                                       40
<PAGE>   41

                                EARTHCARE COMPANY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                              Year ended December 31,
                                                              -------------------------------------------------------
                                                                   2000                 1999                1998
                                                              ---------------     ---------------      --------------
<S>                                                           <C>                <C>                 <C>
Cash flows from operating activities:
     Net loss                                                 $   (84,366,603)    $   (16,359,359)     $   (1,429,090)
     Adjustments to reconcile loss to net cash
         provided (used) in operating activities:
         Net loss from sale of discontinued operations             64,444,722                   -                   -
         Depreciation and amortization                                154,872             146,556             103,624
         Gain on early extinguishment of debt                               -            (139,817)                  -
         Deferred income taxes                                              -                   -            (823,002)
         Non cash interest expense                                  4,753,099                   -                   -
         Other non-cash expenses                                      285,000             150,000              36,521
         Changes in assets and liabilities,
             excluding effects of acquired businesses:
             Accounts receivable                                     (468,806)                  -                   -
             Other current assets                                     158,084            (201,479)           (370,495)
             Other assets                                             486,535            (352,363)           (189,358)
             Accounts payable                                        (388,263)           (285,745)          3,554,976
             Accrued expenses and other, net                        9,551,749             773,551           1,247,494
         Net change from discontinued operations                    4,083,558          10,773,963          (3,601,353)
                                                              ---------------     ---------------      --------------
     Net cash used in operating activities                         (1,306,053)         (5,494,693)         (1,470,683)
                                                              ---------------     ---------------      --------------
Cash flows from investing activities:
     Capital expenditures                                            (250,780)           (428,210)           (237,030)
     Business acquisitions                                            613,900                   -                   -
     Issuance of notes receivable                                           -             (15,000)                  -
     Collection of notes receivable                                    17,072              66,293                   -
     Net change from discontinued operations                      (47,402,980)        (32,844,113)        (21,223,465)
                                                              ---------------     ---------------      --------------
     Net cash used in investing activities                        (47,022,788)        (33,221,030)        (21,460,495)
                                                              ---------------     ---------------      --------------
Cash flows from financing activities:
     Borrowings under Senior Credit Facility and other debt       145,500,000          36,862,731          15,632,187
     Payments on Senior Credit Facility and other debt           (126,893,685)        (13,100,166)         (9,740,954)
     Proceeds from issuance of 10% Debentures                       1,037,500          13,962,500                   -
     Proceeds from issuance of 12% Debentures                      20,000,000                   -                   -
     Sale of common stock                                           8,880,000                   -          15,500,000
     Sale of 10% Preferred                                          3,000,000                   -                   -
     Payment of debt issue costs                                   (1,692,708)           (872,131)                  -
     Exercise of stock options and warrants                               100           1,105,190           2,383,987
                                                              ---------------     ---------------      --------------
     Net cash provided by financing activities                     49,831,207          37,958,124          23,775,220
                                                              ---------------     ---------------      --------------
Net increase (decrease) in cash and cash equivalents                1,502,366            (757,599)            844,042
Cash and cash equivalents, beginning of period                        281,995           1,039,594             195,552
                                                              ---------------     ---------------      --------------
Cash and cash equivalents, end of period                      $     1,784,361     $       281,995      $    1,039,594
                                                              ===============     ===============      ==============
Supplemental cash flow information:
     Cash paid for interest                                   $     5,165,727     $     1,777,714      $      657,455
                                                              ===============     ===============      ==============
</TABLE>
          See accompanying notes to consolidated financial statements.


                                       41
<PAGE>   42
                                EARTHCARE COMPANY
               CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS'
                EQUITY (DEFICIT) FOR THE YEARS ENDED DECEMBER 31,
                               2000, 1999 AND 1998

<TABLE>
<CAPTION>
                                                     COMMON STOCK
                                                  -------------------
                                                                        ADDITIONAL
                                                                         PAID IN       ACCUMULATED
                                                   SHARES      AMOUNT    CAPITAL         DEFICIT       TOTAL
                                                  ---------    ------  -----------     -----------  -----------
<S>                                               <C>          <C>     <C>             <C>         <C>
Balance, December 31, 1997                        4,401,695    $ 441   $ 1,070,364     $ (258,352)  $   812,453

Sale of common stock                              3,753,397      375    15,499,625              -    15,500,000
Common stock issued for acquisitions of
  businesses                                        460,000        46    1,544,454              -     1,544,500
Exercise of stock options                           627,500        63      473,062              -       473,125
Exercise of warrants                                328,941        32    1,910,830              -     1,910,862
Issuance of warrant for debt issuance costs               -        -       100,000              -       100,000
Issuance of options for non-employee compensation         -        -       104,220              -       104,220
Net loss                                                  -        -            -      (1,429,090)   (1,429,090)
                                                 ----------   -------   ----------   ------------  ------------
Balance, December 31, 1998                        9,571,533       957   20,702,555     (1,687,442)   19,016,070

Common stock issued for acquisitions of
  businesses                                      1,493,437       149   15,485,930              -    15,486,079
Exercise of stock options                           178,750        18    1,065,165              -     1,065,183
Exercise of warrants                                  7,073         1       40,008              -        40,009
Issuance of warrant for debt issuance costs               -        -        70,714              -        70,714
Issuance of options for non-employee compensation         -        -       297,028              -       297,028
Net loss                                                  -        -            -     (16,359,359)  (16,359,359)
                                                 ----------   -------   ----------  -------------  ------------
Balance, December 31, 1999                       11,250,793     1,125   37,661,400    (18,046,801)   19,615,724

Common stock issued for acquisitions of
  businesses                                      2,228,164       223   13,532,294              -    13,532,517
Sale of common stock in a private placement       1,599,807       160    8,879,840              -     8,880,000
Exchange of common stock for preferred stock       (599,807)      (60)  (1,874,337)             -    (1,874,397)
Exercise of stock options                                17        -            99              -            99
Issuance of warrants                                      -        -     1,362,000              -     1,362,000
Conversion of 10% subordinated notes                 30,375         3      109,347              -       109,350
Common stock issued for earn-out obligations         40,000         4      227,516              -       227,520
Common stock issued for litigation settlement        20,000         2      114,998              -       115,000
Accretion of discount on 10% preferred                    -        -            -         (10,781)      (10,781)
Net loss                                                  -        -            -     (84,366,603)  (84,366,603)
                                                 ----------   -------   ----------  -------------  ------------
Balance, December 31, 2000                       14,569,349   $ 1,457  $60,013,157  $(102,424,185) $(42,409,571)
                                                 ==========   =======  ===========  =============  ============
</TABLE>




           See accompanying notes to consolidated financial statements.


                                       42
<PAGE>   43



                                EARTHCARE COMPANY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

1.       BUSINESS AND BASIS OF PRESENTATION

         EarthCare Company (the "Company" or "EarthCare") is a publicly traded
company whose common stock is currently traded on the Nasdaq National Market
under the symbol "ECCO". EarthCare and its subsidiaries are engaged in three
non-hazardous waste divisions. Our EarthCare Solid Waste division provides
collection, transfer and disposal of non-hazardous solid waste ("NSW") in
Hillsborough County, Florida, the adjoining counties and Palm Beach County,
Florida. Our EarthAmerica division provides non-hazardous liquid waste ("NLW")
collection, processing, treatment, disposal, bulk transportation, pumping,
plumbing and maintenance services from its operating locations in New York, New
Jersey, Pennsylvania, Florida, Georgia and Texas. Our EarthLiquids division
provides NLW used oil and oily wastewater recovery and treatment services in
Florida, Delaware, Louisiana, New Jersey and Pennsylvania. EarthLiquids also
sells refined oil derived from used oil and oily wastewater.

         As a result of our discontinued operations, we have restated the
consolidated financial statements for the years ended December 31, 1999 and 1998
to reflect the discontinued operations of our EarthAmerica, EarthLiquids and
Allen Tate divisions. Our discontinued operations are discussed further in Note
4. All other notes relate only to continuing operations, except for the
acquisitions and disposal described in Note 6.

2.       RECENT DEVELOPMENTS

         During the third quarter of 2000, our management group and Board of
Directors decided to focus EarthCare's future management and financial
resources principally on the NSW business. As part of this change of focus, we
sold our environmental compliance software company, Allen Tate Commercial
Software LLP ("Allen Tate"), during the fourth quarter of 2000 to a private
company owned by William Addy, one of our executive officers.

         We amended our credit agreement ("Senior Credit Facility") in October
2000 (the "Second Amendment"). As part of the amendment, Bank of America N.A.
and Fleet Bank N.A. ("Senior Lenders") waived our lack of compliance with
certain financial covenants in the credit agreement. The Second Amendment also
reduced the total availability under the Senior Credit Facility by $5 million
and revised the financial covenants to require that we maintain monthly earnings
before interest, taxes, depreciation and amortization ("EBITDA") of $500,000. In
addition, the Second Amendment suspended the application of certain other
financial covenants, including minimum net worth, interest coverage and debt to
capitalization, until the quarterly period beginning July 1, 2001.

         As of December 31, 2000, we were not in compliance with certain
financial covenants under the Second Amendment, including the monthly EBITDA
requirement. We began exploring certain financing and strategic alternatives for
our EarthAmerica and EarthLiquids divisions. On April 12, 2001, our Board of
Directors approved a plan to sell both divisions. We are currently negotiating
the sale of each division to two different strategic buyers, and we expect to
complete these sales, subject to normal terms and conditions, by the end of the
second quarter of 2001 for EarthAmerica and by the end of the third quarter of
2001 for EarthLiquids.

         On April 16, 2001, we entered into the third amendment to our Senior
Credit Facility (the "Third Amendment"). Pursuant to the Third Amendment, our
lenders waived our lack of compliance with certain financial covenants,
including (i) the monthly EBITDA requirement; and (ii) the requirement that our
Chairman provide the remainder of his required $35.0 million of collateral by
December 31, 2000 pursuant to the terms of certain guaranty agreements. In
addition, the Third Amendment requires us to sell both (x) our EarthAmerica
division by April 30, 2001 and (y) our EarthLiquids division by May 31, 2001. If
we have not sold our EarthLiquids division by May 31, 2001, the Third Amendment
requires us to hire a




                                       43
<PAGE>   44
                                EARTHCARE COMPANY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

financial advisor to assist us with an orderly sale of this division. The Third
Amendment also requires that any net proceeds from the sale of our EarthAmerica
and EarthLiquids divisions, expected to be approximately $54.0 million in the
aggregate, be used to pay down the outstanding balance of our Senior Credit
Facility ($50.7 million as of April 13, 2001).

         Based on the expected net sales prices for the EarthAmerica and
EarthLiquids divisions, we have recorded a loss on the expected sale of these
divisions of approximately $60.4 million. Our Senior Lenders have indicated that
they will not provide additional debt financing to support our acquisition
strategy in the NSW industry if we have not sold our EarthAmerica and our
EarthLiquids divisions. If we are unable to sell our EarthAmerica and our
EarthLiquids divisions to the current prospective buyers, we will pursue other
buyers for the divisions, as required by the Third Amendment. If we are unable
to sell our EarthAmerica division by April 30, 2001 and our EarthLiquids
division by May 31, 2001, we will not be in compliance with our Senior Credit
Facility. To the extent that our management is required to devote additional
effort to the sale of these two divisions, our ability to develop our NSW
business will be limited.

         After the sale of the EarthAmerica and the EarthLiquids divisions, our
company will consist of our EarthCare Solid Waste Division and our corporate
office. We plan to either amend our existing Senior Credit Facility or seek new
senior debt financing to assist with the financing of our strategic and
acquisition growth plans in the NSW industry. We also intend to raise additional
equity or debt capital to support our growth plans. We can provide no assurance
that we will be able to raise the necessary capital to support our NSW growth
plans. If we are unable to raise the necessary capital to support our NSW growth
plans, then we will continue to operate our EarthCare Solid Waste division and
focus on internal growth funded by our operating cash flow. If our operating
cash flow from our Solid Waste Division is not adequate to fund our internal
growth, we will be required to reduce our operating expenses, most likely with
personnel reductions and reductions in our corporate general and administrative
expense. We may also be required to sell certain operating assets.

         We have received a notice from the Nasdaq National Market that our
common stock may be delisted because our common stock has not traded above the
minimum $5 bid price, has not been traded actively by four market makers and has
not had a market value for shares held by non-affiliates exceeding $15 million.
We have requested a hearing with Nasdaq to present our position on these
matters. We are not able to give any assurance that we will continue to be
listed on the Nasdaq National Market after the hearing. We have applied for
listing with Nasdaq's Small Cap Market ("Nasdaq Small Cap") and with the
American Stock Exchange ("Amex"); however, our common stock does not currently
satisfy the Nasdaq Small Cap or Amex listing requirements. As a result, there
can be no assurance that our common stock listing applications will be accepted
by the Amex or the Nasdaq Small Cap or that we will be listed on any exchange or
able to develop any market for our shares.

         During the second quarter of 2001, we intend to evaluate our existing
capital structure. We are evaluating an exchange offer to the holders of our 10%
Debentures, our 12% Debentures and our 10% Preferred. This exchange offer would
consist of two parts. Holders of our 10% Debentures and our 12% Debentures would
be offered two exchange choices. One exchange would consist of receiving 10%
Preferred with a conversion price lower than the current conversion price for
the 10% Debentures of $3.60 per share. A second exchange choice would consist of
a new series of convertible preferred stock with no redemption feature but with
a lower conversion price than the first exchange offer. This second exchange
offer would also be made to the current holders of our 10% Preferred. Although
we have not formalized these plans, we expect that our exchange offers may be
attractive enough to convince our current holders of 10% Debentures, 12%
Debentures and 10% Preferred to convert their securities to a new series of
preferred stock. There can be no assurances that we will be successful in
exchanging our 10% Debentures, our 12% Debentures and our 10% Preferred on
favorable terms to all.

                                       44
<PAGE>   45
                                EARTHCARE COMPANY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998


3.       MANAGEMENT'S PLANS WITH REGARD TO CAPITAL DEFICIENCY AND WORKING
         CAPITAL DEFICIENCY

         BASIS OF PRESENTATION

         We have prepared the accompanying financial statements assuming that
EarthCare is a going concern. EarthCare has experienced net losses of $84.4
million in 2000, $16.4 million in 1999 and $1.4 million in 1998 and has an
accumulated deficit of $102.4 million as of December 31, 2000. In addition, the
working capital deficiency was $19.5 million and total debt amounted to $102.1
million as of December 31, 2000. Due to requirements of our amended Senior
Credit Facility, we currently are negotiating with two strategic buyers to sell
our EarthAmerica and our EarthLiquids divisions, the proceeds of which are
required to reduce our existing debt. We expect to complete these transactions,
subject to normal terms and conditions, by the end of the second quarter of 2001
for the sale of EarthAmerica and the third quarter of 2001 for the sale of
EarthLiquids. Although we believe that these transactions will be completed, we
cannot provide any assurance that these transactions will be completed or that
they will be completed at favorable terms.

         Due to our history of net operating losses, our capital and working
capital deficiency, the uncertainty surrounding the completion of the sale of
EarthAmerica and EarthLiquids and uncertainty about our future operating
results, our independent accountants have expressed substantial doubt about
EarthCare's ability to continue as a going concern.

         We believe that we have a plan that will allow EarthCare to continue as
a going concern focused on the solid waste industry. Our plans relating to our
capital structure are discussed in Note 2. Our plans include the steps shown
below to improve the cash flow from operations and reduce our debt level.

o    EarthAmerica - Reduce the operating expenses, including personnel
     reductions that have occurred in the fourth quarter of 2000 and including
     the integration of certain management and administrative functions.

o    Aggressively manage working capital to improve the cash flow from operating
     activities,

o    Sell the EarthAmerica and EarthLiquids divisions to strategic or financial
     buyers,

o    Refinance certain existing debt, and

o    Raise additional debt and equity capital.

         The financial statements do not include any adjustments that might
result from the outcome of the uncertainties related to management plans with
regard to capital deficiency and working capital deficiency.

         CASH FLOW AND LIQUIDITY

         In order for EarthCare to continue to meet its current obligations and
prior to selling the two divisions, the operating results and cash flows for its
EarthAmerica division must improve from the 2000 results and the operating
results and cash flows of its EarthLiquids and EarthCare Solid Waste must remain
at the levels attained in 2000.

         EarthCare's debt has risen significantly from $9.3 million at December
31, 1998 to $102.1 million at December 31, 2000. The capital raised by this
increase in debt has been used to finance $47.0 million and $33.2 million of
cash used to pay for acquisitions and, to a lesser extent, capital expenditures.
We spent $35.8 million in 2000 and $27.2 million in 1999 to acquire businesses
and $7.5 million in 2000 and $4.8 million in 1999 on capital expenditures.
Although operating activities have needed $1.3 million in 2000, $5.5 million in
1999 and $1.5 million in 1998, such needs have been financed with debt or equity
capital. We have been able to service our cash interest expense during 2000. We
expect to be able to continue to service our cash interest expense during 2001.
We will not be able to reduce the outstanding principal balance of our debt
unless we sell the EarthAmerica and the EarthLiquids divisions, unless we raise
additional debt or equity capital or unless we refinance certain of our
existing debt.

                                       45
<PAGE>   46
                                EARTHCARE COMPANY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

         Approximately $36.7 million of our debt is subordinated and we do not
currently pay interest in cash on this debt. Therefore, although we will incur
approximately $4.0 million in interest expense on this debt during 2001, we will
not be required to pay this interest in cash.

         WORKING CAPITAL DEFICIENCY

         At December 31, 2000, we had a working capital deficiency of
approximately $19.5 million. However, this working capital deficiency is in
large part due to the fact that we have included $52.0 million of our Senior
Credit Facility as current indebtedness because we are required to repay such
debt following the sale of the EarthAmerica and the EarthLiquids divisions.

         In addition, the current portion of long-term debt at December 31, 2000
includes amounts that management plans to refinance during 2001 on a long-term
basis. This includes $7.8 million due to one of ERMF's senior lenders, $4.0
million in bridge loans, and $3.0 million in subordinated debt due to Donald
Moorehead, our Chairman.

         As of December 31, 2000, the following items are not expected to be
paid in full during the next year but have been classified as current
liabilities for the reasons described:

o    $2.3 million for insurance - This represents insurance premium assessments
     due as the result of insurance audits. We are currently negotiating a
     payment plan for this liability, which if successfully negotiated, would
     allow us to repay this amount over two to four years.

o    $2.1 million in accrued interest on our 12% subordinated debentures - This
     interest is payable in common stock and will not affect our cash flow.

o    $2.8 million accrual for environmental remediation costs - This amount
     consists primarily of an estimate for an environmental liability recorded
     as part of the acquisition of EarthLiquids's subsidiary, International
     Petroleum Corporation. At the time the purchase price was finalized, we
     recorded this liability for the estimated remediation costs associated with
     various sites, as the amount was reasonably estimable and probable of being
     paid. We have not been able to determine when such liability will be
     discharged and, as a result, have included the liability as a current
     liability.

         CAPITAL DEFICIENCY

         As of December 31, 2000, we had a capital deficiency of approximately
$42.4 million as compared to positive stockholder's equity of approximately
$19.6 million at December 31, 1999. Our accompanying statement of changes in
stockholders' equity describes the principal changes that led to the capital
deficiency at December 31, 2000.

         From December 31, 1998 to December 31, 2000, our accumulated deficit
increased $100.7 million from approximately $1.7 million to $102.4 million
principally for the following reasons:

o    During 2000, we recognized a loss on the planned sale of our EarthAmerica
     and EarthLiquids divisions of approximately $60.4 million. This loss was a
     non-cash loss.

o    During 2000, we recognized a loss on the sale of approximately $4.0 million
     on the sale of our Allen Tate division. This loss was also a non-cash loss.

o    As part of the operating results for our discontinued operations during
     2000 and 1999, we recognized an aggregate impairment loss on long-lived
     assets of our EarthAmerica division of approximately $14.7 million. This
     loss was also a non-cash loss.

The cumulative amount of the non-cash losses identified above is $79.1 million.

         OPERATING RESULTS

         During 2000 and 1999, we incurred a loss from operations of both our
continuing and our discontinued operations of approximately $19.9 million and
$16.4 million, respectively. After deducting the loss recognized on impairment
of EarthAmerica's long-lived assets of $3.4 million and $11.3 million, we
incurred a net loss from operating activities of $16.5 million and $5.1 million,
respectively. It should be



                                       46
<PAGE>   47
                                EARTHCARE COMPANY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

noted that during the same period, our cash used by these operating activities
was $1.3 million in 2000 and $5.5 million in 1999. The differences between the
net loss from operating activities and the cash needs for operating activities
are principally caused by the following factors:

o    Depreciation and amortization expense - $6.7 million in 2000 and $2.7
     million in 1999,
o    Non cash interest expense of $4.8 million in 2000, and
o    Net changes in working capital of $6.8 million in 2000 and ($4.3) million
     in 1999 that generated cash.

Despite the significant losses sustained during 2000 and 1999, we were able to
manage our levels of working capital to reduce the need for cash to fund our
operating activities. To the extent that cash was needed to fund operating
activities during 2000 and 1999, we raised equity capital or we borrowed from
our lenders to finance these needs.

         Our operating results for our EarthAmerica, EarthLiquids and Allen Tate
divisions are presented in Note 4 for the years ended December 31, 2000, 1999
and 1998. These operating results have been reported as one amount for each year
and presented in the net income (loss) from discontinued operations line on our
consolidated statements of operations. The results of our discontinued
operations have been negatively affected by the performance of the EarthAmerica
and Allen Tate divisions.

4.       DISCONTINUED OPERATIONS

         On April 12, 2001, our Board of Directors approved a plan to sell our
EarthAmerica and our EarthLiquids divisions. We are currently negotiating to
sell our EarthAmerica and our EarthLiquids divisions to two strategic buyers.
Subject to normal terms, conditions and events, we expect to complete these
transactions by the end of the second quarter of 2001. If we are unable to sell
these two divisions to the two strategic buyers, we will pursue other buyers for
these divisions, as required by our Senior Lenders. Based on the expected net
sales price of $54.0 million for these two divisions, we have recorded a loss on
the expected sale of these divisions of approximately $60.4 million.

         On October 31, 2000, we sold Allen Tate, our environmental compliance
software division, to ISN Software, a private company owned by William Addy, one
of our executive officers, and recorded a loss of $4.0 million. We sold the
division for an unsecured note of $3,000,000, bearing interest to be paid in
kind at 10% per year. Payments on the note are to be made based on 10% of the
revenue of ISN Software. To date, no payments have been received on the note. We
have agreed to amend the note so that no payments will be due under the note
unless ISN Software is sold within two years and the proceeds from the sale of
ISN Software exceed $1,500,000. Given the uncertainty surrounding future
collectibility of the note, we have provided a full reserve on the note.

         We also entered into an information services outsourcing agreement with
ISN Software pursuant to which we pay $67,500 per month to ISN Software. Our
monthly fee covers information services for our computer hardware and software
and telecommunication charges. For the last two months of 2000 and all of 2001
to date, ISN Software's employees remain EarthCare employees and are leased to
ISN Software at our cost. ISN Software's management has the right to hire,
retain or terminate any of these employees and is fully liable for any costs
associated with these employees.

         We have presented the results of operations for EarthAmerica,
EarthLiquids and Allen Tate in our consolidated statements of operations as
losses from discontinued operations. We have included in the losses from
discontinued operations the interest expense associated with financing provided
to EarthAmerica, EarthLiquids and Allen Tate. We have not included any
allocation for our corporate general and administrative expenses in the losses
from discontinued operations. We have not included any future losses from the
operations of EarthAmerica or EarthLiquids, as we did not have a reasonable
basis upon which to predict what the future losses would be for these divisions.


                                       47
<PAGE>   48

                                EARTHCARE COMPANY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998


         We have presented below a summary of the operating results from the
discontinued operations for the years ended December 31, 2000, 1999 and 1998:
<TABLE>
<CAPTION>


                                                                YEAR ENDED DECEMBER 31,
                                                     --------------------------------------------
                                                          2000           1999            1998
                                                     ------------    ------------    ------------
<S>                                                  <C>             <C>             <C>
EarthAmerica:
  Net sales                                          $ 47,897,856    $ 38,684,660    $ 25,690,672
  Cost of operations                                   32,680,272      25,690,708      17,907,036
  Selling, general and administrative expense          14,569,922       7,227,999       4,505,931
  Depreciation and amortization expense                 3,441,338       2,180,538       1,348,357
  Provision for impairment of assets                    3,350,574      11,261,000              -
                                                     ------------    ------------    ------------
  Operating income (loss)                              (6,144,250)     (7,675,585)      1,929,348
  Interest and other expense                            5,483,167       1,613,097         565,033
  Income tax provision                                         -          571,060         518,440
                                                     ------------    ------------    ------------
  Income (loss) from discontinued operations         $(11,627,417)   $ (9,859,742)   $    845,875
                                                     ============    ============    ============

EarthLiquids:
  Net sales                                          $ 36,735,909    $  3,128,673    $         -
  Cost of operations                                   24,170,842       1,910,565              -
  Selling, general and administrative expense           5,960,241         760,497              -
  Depreciation and amortization expense                 2,800,280         238,812              -
                                                     ------------    ------------    ------------
  Operating income (loss)                               3,804,546         218,799              -
  Interest and other expense                            3,301,523         562,981              -
                                                     ------------    ------------    ------------
  Income (loss) from discontinued operations         $    503,023    $   (344,182)   $         -
                                                     ============    ============    ============
Allen Tate:
  Net sales                                          $     87,661    $          -    $         -
  Cost of operations                                       59,829               -              -
  Selling, general and administrative expense           1,644,133          355,834             -
  Depreciation and amortization expense                   330,598           97,380             -
                                                     ------------    ------------    ------------
  Operating income (loss)                              (1,946,899)        (453,214)            -
  Interest and other expense                              292,555           24,905             -
                                                     ------------    ------------    ------------
  Loss from discontinued operations                  $ (2,239,454)   $    (478,119)  $         -
                                                     ============    ============    ============
Total:
  Net sales                                          $ 84,721,426    $  41,813,333    $25,690,672
  Cost of operations                                   56,910,943       27,601,273     17,907,036
  Selling, general and administrative expense          22,174,296        8,344,330      4,505,931
  Depreciation and amortization expense                 6,572,216        2,516,730      1,348,357
  Provision for impairment of assets                    3,350,574       11,261,000             -
  Operating income (loss)                              (4,286,603)      (7,910,000)     1,929,348
                                                     ------------    ------------    ------------
  Interest and other expense                            9,077,245        2,200,983        565,033
                                                               -           571,060        518,440
                                                     ------------    ------------    ------------
  Income (loss) from discontinued operations         $(13,363,848)   $ (10,682,043)  $    845,875
                                                     ============    ============    ============
</TABLE>




                                       48
<PAGE>   49

                                EARTHCARE COMPANY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998


         We have presented below a summary of the net assets of the discontinued
operations as of December 31, 2000 and 1999.
<TABLE>
<CAPTION>

                                                                        YEAR ENDED DECEMBER 31,
                                                                    --------------------------------
                                                                        2000                1999
                                                                    ------------        ------------

<S>                                                                 <C>                 <C>
Accounts receivable                                                 $ 11,654,143        $  8,584,578
Prepaid expenses and other current assets                              2,363,465           1,284,564
Property, plant and equipment, net                                    54,461,874          29,936,275
Intangible assets, net                                                56,730,800          29,577,480
Other assets                                                              47,908           1,869,448
Accounts payable                                                      (5,766,653)         (3,266,961)
Accrued liabilities                                                   (3,856,433)         (1,201,723)
Estimated loss on the planned sale of EarthAmerica                   (30,453,044)                 --
- excludes $1,590,000 of liabilities that were included in
the estimated loss on sale of EarthAmerica and are
reflected as current liabilities on the balance sheet at
December 31, 2000
Estimated loss on the planned sale of EarthLiquids                   (28,380,660)                 --
                                                                    ------------        ------------
Net assets of discontinued operations                               $ 56,801,400        $ 66,783,661
                                                                    ============        ============
</TABLE>

5.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         CONSOLIDATION

         Our consolidated financial statements include the accounts of EarthCare
and its majority-owned subsidiaries. We eliminate intercompany transactions and
balances in our consolidated financial statements.

         CASH AND CASH EQUIVALENTS

         We consider all highly liquid investments with maturities of three
months or less at the date of purchase to be cash equivalents. We maintain cash
in bank deposit accounts, which balances may at times exceed the federal
insurance limits. As of December 31, 2000 and 1999, we had $2,123,000 and
$711,000, respectively, of cash in bank accounts in excess of federal depository
insurance limits.

         ACCOUNTS RECEIVABLE

         We grant short-term credit to our customers for which collateral is
generally not required and, as a result, carry accounts receivable at the end of
each of our reporting periods. We consider the credit risk on our accounts
receivable to be limited due to the variety of industries served and the
geographic dispersion of our customers. All our EarthCare Solid Waste division's
customers are located in the state of Florida.

         ACCOUNTING FOR ACQUISITIONS

         We record the excess of the total purchase price for acquisitions over
the fair market value of the tangible and identified intangible assets acquired
and the liabilities assumed as goodwill. We include the operating results of the
companies acquired from the date of their acquisition.



                                       49
<PAGE>   50

                                EARTHCARE COMPANY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998


         PROPERTY, PLANT AND EQUIPMENT

         We record property, plant and equipment at cost. We provide for
depreciation on a straight-line basis over the following estimated useful lives
of the property, plant and equipment:
<TABLE>

<S>                                                     <C>
         Machinery and equipment...................     5 to 12 years
         Office equipment..........................     3 to 7 years
         Buildings and improvements................     20 years
         Leasehold improvements....................     Shorter of the term of the lease or the useful life
</TABLE>

         INTANGIBLE ASSETS

         Our intangible assets consist principally of goodwill, which we
amortize on a straight-line basis over 40 years.

         LONG-LIVED ASSETS

         Each reporting period when deemed necessary, we evaluate the net
realizable value of our long-lived assets. We project the net cash flows from
EarthCare Solid Waste, without discounting, for the expected period of time we
expect to operate the division. We compare the operating cash flows to the
carrying value of our long-lived assets. If the carrying value of our long-lived
assets exceeds the projected operating cash flows for EarthCare Solid Waste,
then we project the discounted operating cash flows for the division and compare
this figure to the carrying value of the division's long-lived assets. If the
carrying value of the division's long-lived assets exceeds the projected
discounted cash flows, then we record a permanent reduction in the carrying
value of the long-lived assets. Initially, this reduction is recorded against
intangible assets and any remainder is recorded against other long-lived assets,
primarily property, plant and equipment.

         DEFERRED FINANCING COSTS

         Our deferred financing costs include the costs for bank fees, attorney
fees and the fair market value of securities issued to lenders. We amortize
deferred financing costs on a straight-line basis over the term of the debt
agreements and include this amortization in our interest expense.

         CLOSURE AND POST CLOSURE LIABILITY

         We accrue for the final closure and post closure costs as the airspace
for the landfill site is consumed with the disposal of solid waste at our
landfill site in Hillsborough County, Florida. Costs to close the landfill cells
are charged to the closure and post closure liability as incurred.

         REVENUE RECOGNITION

         We recognize revenue as we provide services. If we bill for services
rendered in advance, we record the amounts billed as deferred revenue.

         ADVERTISING COSTS

         We charge advertising costs to operating results as incurred.

         INCOME TAXES

         We record a current income tax provision for the federal and state
income tax liability based on each period's taxable income. We record a deferred
income tax provision each period for the federal and state income tax effects of
the changes in our deferred tax assets and liabilities between the beginning and




                                       50
<PAGE>   51
                                EARTHCARE COMPANY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

end of each year. We calculate the deferred tax assets and liabilities based on
the temporary differences between the financial reporting and the tax bases of
our assets and liabilities. Temporary differences are those differences that
originate in one year and reverse in another year. We do not calculated deferred
taxes on permanent differences.

         Each year we evaluate the likelihood that we will realize the future
benefits of our net deferred tax assets. If it is more likely than not that we
do not expect to realize the future benefits of our net deferred tax assets,
then we record a valuation allowance for the amount of the net deferred tax
assets that we do not expect to realize. Any changes in the valuation allowance,
other than those that originate as a result of purchase price allocations, are
recorded as a component of our deferred tax provision or benefit.

         STOCK BASED COMPENSATION

         We have adopted the disclosure only method for accounting for options
granted to purchase common shares when the options are granted at an exercise
price that equals or is less than their fair market value. If we grant options
at a fair value that exceeds the exercise price, then we record compensation
expense over the vesting period for the stock options.

         EARNINGS PER SHARE

         We present earnings per share by dividing our net income or loss,
adjusted for dividends on preferred stock and accretion of preferred stock
discount, by the number of basic and diluted common shares. We calculate the
number of basic common shares by using a weighted average calculation of the
number of our common shares actually issued for each day of each reporting
period. We calculate the number of diluted common shares by adding to the basic
number of common shares the number of common share equivalents that would be
outstanding during each period. We consider common share equivalents to be any
security that may be converted or exercised into common shares. For each
reporting period, we calculate the average closing price of our publicly traded
common stock. For each reporting period, we assume conversion of the potentially
dilutive common stock equivalents if their conversion or exercise price is less
than the average closing price of our common stock. If the common stock
equivalents are assumed to be converted, then we assume that any proceeds from
conversion are used to repurchase our common stock at the average closing price
during the reporting period. In addition, if we will derive a tax benefit from
the exercise of the common stock equivalents, then we assume that the tax
benefit proceeds that we also assume are used to repurchase our common shares at
the average closing price during the reporting period. We calculate the net
number of additional common shares to be issued as the number of common shares
converted less the number of common shares repurchased. We add this net number
to the number of basic common shares to arrive at the diluted number of common
shares. Whenever the number of diluted shares would result in a calculation of
higher earnings per share or lower loss per share than the number of basic
shares, this is considered to be anti-dilutive. In such cases, we set the
diluted number of common shares to equal the number of basic common shares. For
all three years included in these financial statements, the number of basic and
diluted common shares is equal because of the net losses incurred in each of
these years.

         For the years ended December 31, 2000, 1999 and 1998, we excluded the
following potentially dilutive common stock equivalents from our calculations of
diluted shares:

                                       51
<PAGE>   52
                                EARTHCARE COMPANY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

<TABLE>
<CAPTION>

                                                                   YEAR ENDED DECEMBER 31,
                                                      -----------------------------------------------------
                                                         2000                    1999               1998
                                                      ----------               ---------          ---------
<S>                                                    <C>                     <C>                <C>
Common stock equivalent

Stock options and warrants                             2,454,798               2,976,140          2,304,009
Contingently issuable shares                             465,567                 460,271             70,000
Shares issuable upon conversion of:
10% Debentures                                         4,483,101               1,304,348                 -
10% Preferred                                          3,601,884                      -                  -
Shares issuable                                                                       -                  -
to pay interest on 12% Debentures                      2,471,366
                                                      ----------               ---------          ---------
                                                      13,476,716               4,740,759          2,374,009
                                                      ==========               =========          =========
</TABLE>




         REPORTABLE SEGMENTS

         We operate in one business segment, EarthCare Solid Waste. Prior to
2001, we operated in three additional business segments that were discontinued.
On April 12, 2001, our Board of Directors approved a plan to dispose of our
EarthAmerica and EarthLiquids divisions, which are being reported as
discontinued operations.

         USE OF ESTIMATES

         As we have prepared these consolidated financial statements in
conformity with generally accepted accounting principles, we have made estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of these financial
statements and the reported amount of revenues and expenses during each
reporting period. Our actual results may differ materially when we realize the
actual amounts. Our estimates and assumptions affect the following significant
balance sheet and statement of operations accounts:

o    Accounts receivable - allowance for uncollectible amounts,

o    Prepaid expenses - amortization period and methods,

o    Property, plant and equipment - estimated useful lives of assets and
     depreciation methods,

o    Intangible assets - estimated useful lives and amortization methods,

o    Long-lived assets - estimated future net cash flows,

o    Accrued expenses - amount of expenses in each reporting period,

o    Operating costs - amount of expenses accrued in each reporting period,

o    Depreciation and amortization expense - estimated useful lives of assets,
     depreciation and amortization methods,

o    Income tax expense - amount of tax expense accrued in each period,

o    Environmental liabilities - amount of reserve needed to cover known
     exposure, and

o    Discontinued operations - estimated sales price, costs to complete
     transactions and reserves for future costs to be incurred.

         RECLASSIFICATIONS

         We have made certain reclassifications, none of which affected our net
loss, to the 1999 and 1998 financial statements to conform to the presentation
followed in the 2000 financial statements.

6.       ACQUISITIONS AND DISPOSALS

         EARTHCARE SOLID WASTE

         On March 31, 2000, we entered into a management agreement with Liberty
Waste, Inc. ("Liberty Waste"), a privately owned Florida corporation engaged in
the collection, transfer and disposal of NSW in



                                       52
<PAGE>   53
                                EARTHCARE COMPANY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

Hillsborough County, Florida and the adjoining counties. We agreed to provide
management services such as accounting services, investment banking advisory
services, bid and bond advice, municipal contract assistance and advice with
commercial banking services. Under the terms of this agreement, we recognized
$702,477 in management fee revenue during the year ended December 31, 2000,
after eliminating our share of the earnings of Liberty Waste. Liberty Waste was
a majority owned subsidiary of Solid Waste Ventures, Inc. ("Solid Waste
Ventures"), a privately owned company. Donald Moorehead, Chairman, Chief
Executive Officer and a significant stockholder in the Company, has provided
subordinated debt financing to Solid Waste Ventures and has personally
guaranteed the senior debt of Solid Waste Ventures.

         On July 7, 2000, we acquired a 43% minority interest in Liberty Waste
by issuing 356,000 shares of our common stock to certain minority stockholders
of Liberty Waste. We issued common shares with an aggregate market value of
$2,358,464. From July 7, 2000 until December 30, 2000, we recorded our share in
the earnings of Liberty Waste and included such amount in other income and
expense in our results from continuing operations.

         On December 30, 2000, we acquired the remaining shares of Liberty Waste
from Solid Waste Ventures and a minority stockholder by issuing 520,100 shares
of our common stock with an aggregate market value of $1,267,952. During the
fourth quarter of 2000, Liberty Waste changed its name to EarthCare Resource
Management of Florida, Inc. ("ERMF").

         We preliminarily allocated the total consideration to the fair market
value of ERMF's assets and liabilities as follows:


<TABLE>

<S>                                                                <C>
Aggregate consideration for acquisition of ERMF                    $  9,641,392
Allocated to assets and liabilities at estimated fair values:
  Cash                                                                  613,900
  Accounts receivable                                                 1,982,177
  Other current assets                                                  789,631
  Property, plant and equipment                                      15,405,397
  Accounts payable and accrued expenses                              (3,146,220)
  Long-term debt                                                    (13,314,703)
                                                                    -----------
  Goodwill                                                         $  7,311,210
                                                                   ============
</TABLE>


         On April 2, 2001, we acquired the equipment and intangible assets of
Palm Carting, Inc., an NSW collection company located in Palm Beach County,
Florida for $350,000 in cash and future earn outs of up to $250,000 to be paid
in shares of our common stock if certain revenue targets are met, with the
number of shares determined by the closing price on the dates of measurement.

         EARTHLIQUIDS

         On February 15, 2000, we acquired all of the outstanding capital stock
of World Fuel Services Corporation's ("WFS") oil recycling services subsidiary,
International Petroleum Corporation ("IPC"). IPC operates used oil recycling and
treatment centers in Wilmington, Delaware, Plant City, Florida and New Orleans,
Louisiana. In addition, IPC operates satellite collection centers located near
its customer base. IPC collects and receives, directly from customers,
nonhazardous used oil, oil filters and oily wastewater. We acquired IPC for
$28,000,000 in cash and 750,458 shares of our common stock with an aggregate
market value of $5,000,000 at the time of issuance.

                                       53
<PAGE>   54
                                EARTHCARE COMPANY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

         On September 1, 1999, we acquired all of the outstanding capital stock
of Magnum Environmental, Inc. ("Magnum"), a Florida corporation, for $12,000,000
in cash and 310,000 shares of our common stock. In addition, we issued 275,000
shares of common stock, which were being held in escrow upon the attainment of
certain financial performance targets after the acquisition. The aggregate
market value of the common stock issued, including those shares in escrow, was
$7,605,000 at the time of issuance. Since the acquisition, we have released
137,500 shares from escrow. Magnum's core business is the transportation,
treatment and disposal of used oil and petroleum wastewater streams.

         EARTHAMERICA

         On March 10, 2000, we acquired all of the outstanding capital stock of
All County Resource Management Corporation ("All County"), an NLW collection,
treatment, transportation and disposal services company located in Vernon, New
Jersey. We acquired All County for $7,800,000 in cash and 598,686 shares of
EarthCare's common stock with an aggregate market value of $4,500,000 at
issuance. Our EarthAmerica service center in Vernon, New Jersey includes the
former operations of All County.

         On November 16, 1999, we acquired all of the outstanding capital stock
of Hulsey Plumbing, Heating & Cooling, Inc. and Hulsey Environmental Services,
Inc., each a Georgia corporation (collectively "Hulsey"). Hulsey was engaged in
the NLW and plumbing business in and around Gainesville, Georgia. We acquired
Hulsey for $1,406,250 in cash, 28,005 shares of EarthCare's common stock and up
to $586,750 in assumed liabilities. Our EarthAmerica service center in
Gainesville includes the former operations of Hulsey.

         On November 3, 1999, we acquired all of the outstanding stock of Food
Service Technologies, Inc., a Texas corporation engaged in the grease trap
services business in and around Dallas, Texas. We issued 80,383 shares of common
stock and assumed up to $85,000 in liabilities as consideration for this
acquisition. Our EarthAmerica service center in Dallas, Texas includes the
former operations of Food Service Technologies, Inc.

         On May 1, 1999, we acquired the assets of Rooter Plus, Inc. ("Rooter
Plus"), a Georgia corporation, in exchange for $2,600,000 in cash and the
issuance of 100,000 shares of EarthCare's common stock. Rooter Plus was a
residential and commercial sewer and drain services company servicing customers
in Georgia. Rooter Plus is now part of our EarthAmerica service center in
Austell, Georgia, a suburb of Atlanta, Georgia.

         On April 1, 1999, we acquired all of the outstanding capital stock of
National Plumbing & Drain, Inc. ("National"), a Georgia corporation, in exchange
for $1,325,000 in cash and the issuance of 125,159 shares of EarthCare's common
stock. National was a residential and commercial sewer and drain services
company with customers in Georgia. National is now part of our EarthAmerica
service center in Austell, Georgia, a suburb of Atlanta, Georgia.

         On March 31, 1999, we acquired all of the outstanding capital stock of
Brehm's Cesspool, Inc. ("Brehm's"), a Pennsylvania corporation. Brehm's was
engaged in the septic waste collection, transportation, management and disposal
business in and around eastern Pennsylvania. We paid $1,000,000 in cash and
issued 35,367 shares of common stock as consideration for this acquisition. Our
EarthAmerica service center in Eagle, Pennsylvania, a suburb of Philadelphia,
includes Brehm's former operations.

         On March 1, 1999, we acquired all of the outstanding capital stock of
Reifsneider Transportation, Inc. ("Reifsneider"), a Pennsylvania corporation.
Reifsneider was engaged in the NLW transportation, management and disposal
business in and around Pennsylvania, New Jersey, New York, Maryland and
Delaware. We paid $5,050,000 in cash, issued 350,000 shares of common stock,
assumed a note payable for $200,000 and assumed a working capital liability for
$715,000 as consideration for this acquisition. Our EarthAmerica service center
in Eagle, Pennsylvania includes Reifsneider's former operations.

                                       54
<PAGE>   55
                                EARTHCARE COMPANY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

         On May 8, 1998, we acquired certain assets of Eldredge Wastewater
Management, Inc. ("Eldredge"), a Pennsylvania corporation. Eldredge provided NLW
septic waste, collection, management and disposal services in and around
Philadelphia, Pennsylvania. We paid $2,040,000 in cash and we issued 85,000
shares of EarthCare's common stock as consideration for this acquisition. In
1999, we paid $360,000 in cash and issued 15,000 shares of common stock as
contingent consideration for this acquisition. Our EarthAmerica service center
in Eagle, Pennsylvania includes Eldredge's former operations.

         On May 1, 1998, we acquired certain assets of RGM Liquid Waste Removal
Corporation and Affiliates ("RGM"), consisting of four New York corporations.
RGM was engaged in the NLW liquid and septic waste collection, transportation,
management and disposal business in and around Long Island, New York. We paid
$4,500,000 in cash and issued 105,000 shares of common stock. Subsequently in
1999, we paid contingent consideration of $1,000,000 and issued 55,000 shares of
common stock. Our EarthAmerica service center in Deer Park, New York includes
RGM's former operations.

         On March 6, 1998, we acquired the assets of Seagraves, Inc. (d/b/a
Brownie Environmental) and Grease-Tec, Inc. (collectively "Brownie"), two
Florida corporations. Brownie was engaged in NLW septic and waste collection,
transportation, management and disposal in and around Orlando, Florida. We paid
$3,250,000 in cash, issued a note payable of $2,000,000 and issued 60,000 shares
of common stock. Our EarthAmerica service center in Orlando, Florida includes
Brownie's former operations.

         On February 17, 1998, we acquired the assets of Quality Plumbing and
Septic, Inc. ("Quality"), a Georgia corporation. Quality was engaged in NLW
septic waste collection, transportation, management and disposal business in and
around Douglasville, Georgia. We paid $2,000,000 in cash and, subsequently in
June 1998, paid additional contingent consideration of $250,000 in cash and
10,000 shares of common stock. Our EarthAmerica service center in Austell,
Georgia includes Quality's former operations.

         On February 13, 1998, we acquired the assets of A Rapid Rooter Sewer &
Drain Service, Inc. ("A Rapid"), a Florida corporation. A Rapid was engaged in
NLW septic waste collection, transportation, management and disposal services in
and around Pompano Beach, Florida. We paid $3,990,120 in cash and issued 100,000
shares of common stock as consideration for this acquisition.

         On January 22, 1998, we acquired the assets of Ferrero Wastewater
Management, Inc. ("Ferrero"), a Pennsylvania corporation. Ferrero was engaged in
NLW septic waste collection, transportation, management and disposal services in
and around Ambler, Pennsylvania, a suburb of Philadelphia. We paid $2,240,100 in
cash and issued 90,000 shares of common stock. During the fourth quarter of
1998, we paid $248,930 in cash and issued 10,000 shares of common stock as
contingent consideration. Our EarthAmerica service center in Eagle includes the
former operations of Ferrero.

         DISPOSITION

         On February 28, 2001, we sold the property, equipment and intangible
assets of our service center in Pompano Beach to a privately owned company for
$950,000 in cash. We retained the cash, accounts receivable, accounts payable
and accrued liabilities for this service center.

         ALLEN TATE

         On August 1, 1999, we acquired certain assets of Allen Tate Commercial
Software LLP ("Allen Tate"), a Texas limited liability partnership, in exchange
for 75,000 shares of common stock and the assumption of up to $200,000 in
liabilities. In addition, we agreed to issue up to 120,000 additional shares of
common stock if certain earnings targets were achieved. As of March 31, 2001, we
had issued 60,000 of such additional shares. Allen Tate specialized in
environmental software development and Internet services for industrial
companies. On October 31, 2000, we sold the assets of Allen Tate to a private
company owned by one of our executive officers, William Addy.


                                       55
<PAGE>   56
                                EARTHCARE COMPANY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998


         PRO FORMA RESULTS (UNAUDITED)

         Our unaudited pro forma results of continuing operations for the years
ended December 31, 2000 and 1999 are shown below. We have included the following
information in these unaudited pro forma results of operations:
o     Results of operations for ERMF and
o     Adjustments for goodwill amortization, interest expense and income taxes
      relating to ERMF.

<TABLE>
<CAPTION>
                                                               YEAR ENDED DECEMBER 31,
                                                          -------------------------------
                                                              2000               1999
                                                          ------------      -------------
                                                                     (UNAUDITED)
<S>                                                       <C>               <C>
Revenues                                                  $ 18,540,637      $   5,884,853
Net loss from continuing operations                       $ (6,679,672)     $  (6,275,862)
Net loss from continuing operations per share             $      (0.46)     $       (0.43)
</TABLE>

7.       PROPERTY AND EQUIPMENT

         As of December 31, 2000 and 1999, our property, plant and equipment
consisted of the following:
<TABLE>
<CAPTION>


                                                               DECEMBER 31,
                                                      -----------------------------
                                                          2000              1999
                                                      -------------      ----------
<S>                                                   <C>                <C>
Land                                                  $  5,708,800       $  152,100
Machinery and equipment                                  8,377,499          165,754
Buildings and improvements                               1,124,552                -
Office equipment                                           124,906                -
Leasehold improvements                                           -                -
Construction-in-progress                                   136,724          623,847
                                                      -------------      ----------
                                                        15,472,481          941,701
Less accumulated depreciation                                    -                -
                                                      -------------      ----------
                                                      $ 15,472,481       $  941,701
                                                      =============      ==========
</TABLE>


8.       INTANGIBLE ASSETS

         Our intangible assets consist of goodwill at December 31, 2000. We
amortized none of our intangible assets during the year ended December 31, 2000
since we did not fully acquire ERMF until the end of 2000.


                                       56
<PAGE>   57

                                EARTHCARE COMPANY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

9.       DEBT

         As of December 31, 2000 and 1999, our debt consisted of the following:

<TABLE>
<CAPTION>
                                                           DECEMBER 31,
                                             -----------------------------------
                                                  2000                 1999
                                             --------------       --------------
<S>                                           <C>                 <C>
Senior Credit Facility                        $  52,000,000       $   33,100,000
ERMF Senior Debt                                  7,817,693                  -
ERMF Subordinated Debt                            3,000,000                  -
ERMF Other Debt                                   2,111,794                  -
12% Debentures                                   20,000,000                  -
10% Debentures                                   16,696,765           13,962,500
Other                                               516,767              386,106
                                              -------------       --------------
Total debt                                      102,143,019           47,448,606
Less current portion                            (63,177,353)            (278,434)
                                              -------------       --------------
Long-term debt                                $  38,965,666       $   47,170,172
                                              =============       ==============
</TABLE>

         Senior Credit Facility

         Our Senior Credit Facility currently provides that, as of March 1,
2001, we may borrow up to $51,100,000 at prime plus 1 1/2%. The prime rate was
9.5 % at December 31, 2000 and was 8.0% as of April 13, 2001. The prime rate is
based on the published rate of Bank of America N.A. On April 16, 2001, we
entered into a third amendment (the "Third Amendment") to our Senior Credit
Facility, with our Senior Lenders, Bank of America N.A. and Fleet Bank N.A, due
to non-compliance with certain covenants as of December 31, 2000. The key terms
of this amendment include the following:
o    Until we sell our EarthAmerica division, we must maintain a monthly EBITDA
     level of $500,000, excluding the operating results of ERMF but including
     the results of our discontinued operation. This requirement is reduced to
     $375,000 after the planned sale of the EarthAmerica division. EBITDA is
     defined as earnings before interest, taxes, depreciation and amortization.
o    We must remit the proceeds from any asset sale, including the sale of our
     EarthAmerica and EarthLiquids divisions, directly to our Senior Lenders.
o    We issued warrants to purchase 75,000 shares of our common stock at an
     exercise price of $3.60 to each of our Senior Lenders.

         As part of our Third Amendment, we agreed with our Senior Lenders to
sell our EarthAmerica division by April 30, 2001 and our EarthLiquids division
by May 31, 2001. If we are unable to sell both divisions by such dates, we will
not be in compliance with our Senior Credit Facility. Also, if we have not sold
the EarthLiquids division May 31, 2001, we will be required to hire a financial
advisor acceptable to our Senior Lenders to assist us with the sale of that
division. Any net proceeds from the sale of either division, less $1.5 million
for the sale of EarthAmerica and $2.0 million for the sale of EarthLiquids, must
be used to pay down our Senior Credit Facility.

         Because our Senior Lenders are requiring us to sell our EarthAmerica
division and our EarthLiquids division, and because we expect that both
divisions will be sold by the third quarter of 2001, we have included the entire
outstanding balance in our Senior Credit Facility as current indebtedness.

         Our Senior Credit Facility is personally guaranteed in its entirety by
our Chairman and is personally guaranteed for $20,000,000 by our Vice Chairman.
In addition, our Chairman has provided approximately $20,000,000 of collateral
and our Vice Chairman has provided approximately $10,000,000 of collateral to
support our Senior Credit Facility.

         We were not in compliance with various covenants in our Senior Credit
Facility for each quarter of 2000. We agreed to amendments of our Senior Credit
Agreements after each quarter that included waivers of non-compliance up to such
dates. Prior to the Third Amendment, we were not in compliance with multiple
covenants in our Senior Credit Facility.

                                       57
<PAGE>   58
                                EARTHCARE COMPANY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998


         We have entered into various short-term fixed interest rate swap
contracts covering $30,000,000 of our Senior Credit Facility. We record and pay
interest expense at the fixed rate provided of 10.0%. Fees associated with these
swap contracts are charged to interest expense as incurred.

         ERMF Senior Debt

         We have a revolving line of credit and a mortgage note payable ("ERMF
Senior Debt") agreement with CIB Marine Bank ("CIB Marine"). We may borrow up to
$6,000,000 under the revolving line of credit based on certain asset levels. We
pay interest at prime plus 1 1/2% monthly in cash. In addition, we are obligated
to make monthly payments of $55,600 on the mortgage note payable. We have
provided CIB Marine with a security interest in all of the assets of ERMF,
except for the stock of and the assets owned by EarthCare Resource Management of
South Florida, Inc. ("ERMSF") and EarthCare Acquisition Sub, Inc. ("EAS"), both
wholly owned subsidiaries of ERMF. In addition, we have provided CIB Marine with
a security interest in 57% of the outstanding common stock of ERMF. We have
provided our Senior Lenders with a security interest in 43% of the outstanding
common stock of ERMF. We are obligated to maintain an EBITDA to debt service
coverage of 1.25 for each year. We did not comply with certain covenants in the
ERMF senior debt agreement relating to certain financial ratios for the year
ended December 31, 2000. The ERMF Senior Debt is due June 30, 2001. Since the
ERMF Senior Debt is due within one year, we have included the ERMF Senior Debt
in the current portion of long-term debt.

         ERMF Subordinated Debt

         On December 4, 2000, we agreed to borrow $3,000,000 pursuant to a new
subordinated loan ("ERMF Subordinated Debt") from Donald Moorehead, our
Chairman, as part of a related financing transaction. At the same time, our
Chairman borrowed $3,000,000 from a private lender. The terms of our
subordinated loan are identical to the terms of the loan from the private lender
to our Chairman. We used the proceeds from this loan to pay down our Senior
Credit Facility. We are obligated to pay interest at the rate of 10.9% per year
under this loan until June 13, 2001, after which time we are obligated to pay
interest at 24% per year. We are also obligated to pay $150,000 in fees and an
additional $218,000 in interest in April 2001. We are also obligated to pay a
$150,000 placement fee in April 2001 to a private individual who arranged this
loan. Our Chairman has personally guaranteed the loan to the private lender and
has provided collateral of approximately $7,000,000 consisting of shares of our
10% mandatory redeemable convertible preferred stock ("10% Preferred").

         ERMF Other Debt

         We have four separate notes payable used to finance vehicle and
equipment purchases. The vehicles and equipment that were financed collateralize
all the notes. We pay interest on these notes ranging from 7.82% to 10% per
year. ERMF's President provided $35,000 of financing for one of the notes
payable. Our Chairman guarantees one of the notes payable.

         In November 2000, we obtained a mortgage note payable for $400,000 to
finance the acquisition of our principal operating location in Tampa, Florida.
We pay interest monthly at a rate of 9.75% per year and the land and building in
Tampa, Florida collateralize the mortgage note payable.

         12% Debentures

         On February 16, 2000, we completed a $20,000,000 private placement of
our 12% subordinated debentures, due March 30, 2008 (the "12% Debentures"),
including issuance of warrants to purchase



                                       58
<PAGE>   59

                                EARTHCARE COMPANY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

400,000 shares of EarthCare's common stock. We placed the 12% Debentures with
the following related parties:

o    Donald Moorehead, Chairman and Chief Executive Officer - $7,500,000,
o    Moorehead Charitable Remainder Trust, for which Donald Moorehead is the
     trustee - $1,500,000,
o    Cash Family Limited Partnership, an affiliate of Raymond Cash, Vice
     Chairman - $5,000,000,
o    Founders Equity Group, - $3,000,000,
o    George Moorehead, brother of Donald Moorehead - $2,000,000, and
o    An individual investor who has provided collateral for our Senior Credit
     Facility - $1,000,000

         The 12% Debentures mature March 30, 2008 and accrue interest at 12% per
year from the date of the sale, payable semi-annually on September 30 and March
30 of each year. The first interest payment due September 30, 2000 was deferred
to March 31, 2001, and in return for such deferral, we issued additional
warrants to purchase 400,000 shares of our common stock. We may pay interest on
the 12% Debentures by issuing our common stock. The number of shares issued is
determined by dividing the interest payable by the closing price of our common
stock on the day the interest is paid. On March 31, 2001, we issued 3,090,966
shares of EarthCare's common stock at a market value of $1.047 per share for the
first interest payment on the 12% Debentures. We used the proceeds from this
sale to finance acquisitions and for general working capital.

         10% Debentures

         On October 11, 1999, we completed a $15,000,000 private placement of
our 10% convertible subordinated debentures ("10% Debentures"), due October 31,
2006. We placed $7,887,000 of our 10% Debentures with the following related
parties:
o    Donald Moorehead, Chairman and Chief Executive Officer, and his immediate
     family - $3,537,000,
o    Raymond Cash, Vice Chairman - $2,000,000,
o    George Moorehead, brother of Donald Moorehead - $1,250,000,
o    Certain principals of the investment bank, Sanders Morris Harris, and their
     immediate families - $1,075,000, and
o    Founders Equity Group, an investment bank to whom Donald Moorehead provided
     debt and equity financing - $25,000.

         Interest is payable quarterly at the rate of 10% per year on the 10%
Debentures. From the closing through October 2001, interest is payable in kind
issuing additional 10% Debentures. For the two years ending October 2003,
interest may be paid in cash if permitted by our Senior Lenders, otherwise
interest is payable in additional debentures. For the last three years, interest
is payable in cash. The holders of the 10% Debentures may convert the 10%
Debentures into shares of our common stock at a rate of $3.60 per share. Based
on the balance of the 10% Debentures at March 31, 2001, if the holders converted
their 10% Debentures, they would receive 4,483,101 shares of our common stock.
The conversion price is protected against dilution and may be lowered.

         Through March 31, 2001, we have issued an additional $2,220,571 of our
10% Debentures as interest payments ($1,839,427 at December 31, 2000). We may
call the 10% Debentures at any time, and we are required to redeem the 10%
Debentures on October 31, 2006.

         ERMSF Bridge Loans

         On March 5, 2001, ERMSF obtained a $2,500,000 loan (the "Sanders Bridge
Loan") in a private placement by Sanders Morris Harris, an investment-banking
firm. We agreed to pay interest at 14% per year payable monthly in cash. If we
do not repay the loan by April 30, 2001, interest will be payable at a rate of
18% per year payable monthly in cash. We issued the private lenders 100,000
shares of our common stock at the time of the loan closing. For each month after
April 30, 2001 that any amount remains payable under the Sanders Bridge Loan, we
are obligated to issue an additional 100,000 shares of our common stock. Our
Chairman has personally guaranteed the Sanders Bridge Loan and has provided




                                       59
<PAGE>   60

                                EARTHCARE COMPANY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

collateral of $500,000. In addition, we have provided the common stock of ERMSF
and EAS, as collateral for the Sanders Bridge Loan. We have also provided a
security interest in all the assets of ERMSF and EAS.

         On April 11, 2001, ERMSF obtained a $1,500,000 loan from Sagemark
Capital (the "Sagemark Loan") in a private placement. Our Chairman is a limited
partner in Sagemark Capital. We agreed to pay interest at 14% per year payable
monthly in cash. In addition, we issued a warrant to purchase 680,000 shares of
common stock at $0.001 per share. The warrant vested one half at closing and the
remainder will vest on October 3, 2001 if the loan is not fully repaid at that
time. Our Chairman has personally guaranteed the Sagemark Loan and we have
agreed not to pledge any additional assets of ERMF or EAS.

         Quantitative and qualitative risk for interest rate and conversion
prices

         Our Senior Credit Facility and our ERMF senior debt bear interest rates
that are based on the prime-lending rate, as published at various times by our
banks. A portion of our combined outstanding balance of our Senior Credit
Facility, our ERMF senior debt and our mortgage loan amounted to approximately
$29.7 million as of December 31, 2000. If the prime lending rate moves up or
down by 1%, we will incur an increase or a decrease in annual interest expense
of approximately $297,000. We have $3.0 million in subordinated debt and $4.0
million in Bridge Loans that are subject to an increase in interest rates if
these loans are not repaid at the end of April 2001 and June 2001. Based on our
current operating cash flow and available debt capital, it is not likely that
these loans will be repaid on those dates. The increase in interest rates
provided for in these loan agreements will mean that we will pay additional
annual cash interest expense of approximately $280,000. In addition, we will be
obligated to issue 100,000 shares of common stock for each month after April
2001 if the Sanders Bridge Loan is not fully repaid. Also, warrants issued under
the Sagemark Loan will vest an additional 340,000 shares if the Sagemark Loan is
not fully repaid on October 3, 2001. The remainder of our debt is set at fixed
rates and is not subject to changes in interest rates.

         Our 10% Debentures and our 10% Preferred contain conversion rights that
allow the holders of such instruments to convert the face amount of the
instruments into our common stock at a conversion price of $3.60 per share. If
we issue common stock for less than $3.60 per share or we issue any convertible
debt instrument or equity security with a conversion or exercise price of less
than $3.60 per share, the conversion price for our 10% Debentures and our 10%
Preferred will be reduced. For every $1.00 that the price is reduced, we will be
obligated to issue approximately 2.1 million shares for the 10% Debentures and
approximately 1.5 million shares for the 10% Preferred during the year ending
December 31, 2001.

         Our 12% Debentures provide for semi-annual payments of interest at 12%,
payable in shares of our common stock on March 30 and September 30. On March 31,
2001, we issued 3,090,966 shares of our common stock as the first interest
payment on our 12% Debentures at a market value per share of $1.047. If the
market price of our common stock is $1.00 lower at the time of the next
scheduled interest payments on September 30, 2001 and March 30, 2002, we will be
obligated to issue approximately 48.8 million additional shares above the
approximately 2.3 million shares we would issue if the market price per common
share remained at the $1.047 level on March 31, 2001.

         Future principal payments

         We are obligated to make the following principal payments on our debt
during the next five years:
              o   2001 - $63,177,353
              o   2002 - $321,747
              o   2003 - $427,020
              o   2004 - $256,864
              o   2005 - $281,231
              o   Future years - $37,678,804


                                       60
<PAGE>   61

                                EARTHCARE COMPANY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998


10.      MANDATORY REDEEMABLE CONVERTIBLE PREFERRED STOCK

         On December 4, 2000, we sold $7,000,000 of our 10% Preferred in a
private placement to Donald Moorehead. In exchange for 7,000,000 shares of our
10% Preferred, we received $3,000,000 in cash and 599,807 shares of our common
stock, which shares have been cancelled. We sold the 10% Preferred for
$4,874,397, representing a discount of $2,125,603 and an effective yield of
17.37%. The 10% Preferred is reported at its net value. The unamortized discount
is being recognized using the effective interest rate method over the redemption
period of the 10% Preferred.

         On December 30, 2000, we issued $5,915,000 of our 10% Preferred to
Solid Waste Ventures in exchange for $5,915,000 of subordinated debt owed by
ERMF to Solid Waste Ventures.

         We may declare a 10% quarterly dividend at the end of each fiscal
quarter. No dividends have been declared to date on our 10% Preferred. Our 10%
Preferred is convertible at the holder's option into our common stock at a
current conversion price of $3.60 per share. The conversion price is protected
against dilution and is lowered upon the sale of common shares with a sales
price lower than $3.60 or the issuance of convertible securities with a
conversion price lower than $3.60. The holders of the 10% Preferred are entitled
to vote with our common stockholders based on the number of common shares into
which the 10% Preferred would convert. We are required to redeem the 10%
Preferred on December 31, 2005.

11.      FAIR MARKET VALUE OF DEBT AND PREFERRED SECURITIES

         Our debt and preferred securities do not currently trade in an
established market as they are all privately held or held by lending
institutions. We believe that the carrying value of our senior debt does not
differ materially from the fair market value of our senior debt. We derived this
belief based on the interest rates charged on our senior debt and the fact that
all our senior debt is personally guaranteed by our Chairman, Donald Moorehead,
partly guaranteed by our Vice Chairman, Raymond Cash, and supported by
collateral provided by both individuals. We believe that the carrying value of
our other debt instruments does not differ materially from their fair market
value based on the interest rates charged, the value of the equity securities
provided, the collateral provided directly by EarthCare or by our Chairman and
the personal guarantees provided by our Chairman on substantially all such debt.
We believe that the carrying value of our 10% Preferred does not differ
materially from its fair market value due to the increasing value of the 10%
Preferred over time from its pay in kind dividends and due to the future growth
prospects of the Company in the NSW industry.

12.      STOCKHOLDERS' EQUITY

         PREFERRED STOCK

         We have 17,085,000 shares of $0.0001 par value preferred stock
available for future issuance. Our Board of Directors decides the terms of the
series of preferred stock as to dividend rights, preferences, conversion
privileges, participation in earnings and redemption. Any preferred stock issued
may vote along with our common shares based upon the number of common shares
that would be issued if converted to common stock.

         COMMON STOCK

         On March 5, 2001, we issued 100,000 unregistered shares of our common
stock to various individuals associated with the investment-banking firm Sanders
Morris Harris in connection with the $2,500,000 Sanders Bridge Loan. If the
Sanders Bridge Loan is not repaid by April 30, 2001, we will be obligated to
issue 100,000 shares of our common stock for each month that the Sanders Bridge
Loan is not repaid in full.

                                       61
<PAGE>   62

                                EARTHCARE COMPANY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

         On September 30, 2000, we sold 1,000,000 shares for $5,000,000 in cash,
at $5.00 per share, which represented a 9.3% discount from the closing price on
that date, to Donald Moorehead.

         On June 30, 2000, we sold for $4,000,000 cash 599,807 shares of our
common stock at $6.669 per share, which represented an 8.9% discount from the
closing price on that date, to Founders Equity Group in a transaction on behalf
of Donald Moorehead. We also paid Founders Equity Group a cash fee of $120,000
for arranging this transaction.

         During March and April 1998, we sold 2,500,000 shares of our common
stock through private placements for total cash proceeds of $15,500,000.

         On January 30, 1998, we declared a 1.25-for-1 stock split effected in
the form of a stock dividend. All share amounts have been restated for this
stock split.

         On January 12, 1998, we sold 1,250,000 shares of our common stock to a
group of investors for $1,000,000 in cash or $0.80 per common share.

         WARRANTS

         As of April 16, 2001, warrants to purchase 2,268,969 shares of our
common stock were outstanding at an average exercise price of $3.15. At December
31, 2000, warrants to purchase 1,438,969 were outstanding at an average exercise
price of $5.73. We issued these warrants as follows:

o    April 16, 2001 - warrants to purchase up to 150,000 shares of our common
     stock with an exercise price of $3.60 per share were issued to our Senior
     Lenders, Bank of America N.A. and Fleet Bank N.A., in connection with our
     Third Amendment to our Senior Credit Facility. These warrants contain
     dilution protection.
o    April 4, 2001 - warrants to purchase up to 680,000 shares of our common
     stock with an exercise price of $0.001 per share were issued to Sagemark
     Capital in connection with the Sagemark Loan. These warrants vested one
     half in April 2001 and the remainder will vest on October 3, 2001 if the
     Sagemark Loan is not fully repaid at that time.
o    September 30, 2000 - warrants to purchase up to 400,000 shares of our
     common stock with a current exercise price of $3.60 per common share were
     issued to the holders of our 12% Debentures. These warrants were issued in
     connection with a deferral of the interest payment on the 12% Debentures
     due September 30, 2000. These warrants contain dilution price protection.
     The original exercise price was $5.00 per share.
o    July 1, 2000 - warrants to purchase 50,000 shares of our common stock with
     an exercise price of $7.81 per common share were issued to a former
     employee and consultant in connection with the settlement of a litigation
     matter.
o    June 30, 2000 - warrants to purchase up to 200,000 shares of our
     common stock with a current exercise price of $3.60 per common share were
     issued to Founders Equity Group, an investment bank, in connection with a
     private placement of 599,807 shares of our common stock. These warrants
     contain dilution price protection. The original exercise price was $6.67
     per share.
o    May 25, 2000 - warrants to purchase up to 75,000 shares of our common stock
     with an exercise price of $7.00 per common share were issued to three
     current directors and two former directors. The warrants issued to former
     directors replaced options previously held by those directors.
o    February 16, 2000 - warrants to purchase up to 400,000 shares of our common
     stock with a current exercise price of $3.60 per share were issued to the
     holders of our 12% Debentures. These warrants were issued in connection
     with our private placement of our 12% Debentures. These warrants contain
     dilution protection. The original exercise price was $6.63 per share.
o    May 1, 1999 - warrants to purchase up to 10,000 shares of our common stock
     were issued to one of our Senior Lenders, Fleet Bank N.A., at an exercise
     price of $15.50 per common share. As part of our Third Amendment, the
     exercise price for these warrants was reduced to $3.60 per share.


                                       62
<PAGE>   63
                                EARTHCARE COMPANY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

o    April 1, 1999 - warrants to purchase up to 35,000 shares of our common
     stock were issued to one of our Senior Lenders, Bank of America N.A., at an
     exercise price of $14.00 per common share. As part of our Third Amendment,
     the exercise price for these warrants was reduced to $3.60 per share.
o    June 1, 1998 - warrants to purchase up to 50,000 shares of our common stock
     were issued to one of our Senior Lenders, Bank of America N.A., at an
     exercise price of $13.00 per common share. As part of our Third Amendment,
     the exercise price for these warrants was reduced to $3.60 per share.
o    April 1, 1998 - warrants to purchase 500,000 shares of our common stock at
     an exercise price of $5.80 per common share were issued to former
     shareholders of our predecessor company, Microlytics, Inc., in connection
     with our reverse merger. As of March 31, 2001, 163,969 warrants are still
     outstanding. Since April 1, 1998, the holders of these warrants have
     exercised their rights to purchase 336,031 shares of common stock for cash.
o    January 1, 1998 - warrants to purchase 55,000 shares of our common stock at
     an exercise price of $14.50 were issued to shareholders of a private
     company in Houston in order to acquire the right to use the name
     "EarthCare" and its derivatives on a non-exclusive basis.

         OPTIONS

         INCENTIVE STOCK OPTION PLAN

         On September 22, 1998, our Board of Directors adopted an incentive
stock option plan (the "Option Plan"), which provides for the issuance of
options to purchase up to 1,800,000 shares of our common stock to key employees
and directors. Incentive stock options granted under the Option Plan are
generally granted with an exercise price equal to the fair market value of our
common stock at the date of grant, vest over a four-year period, and are
exercisable for a period of ten years from the date of grant, except that the
term of an incentive stock option granted under the Option Plan to any
stockholder owning more than 10% of our outstanding common stock must not exceed
five years. The exercise price of an incentive stock option granted to such a
stockholder must not be less than 110% of the fair market value of our common
stock on the date of grant.

         STOCK BASED COMPENSATION

         We have adopted the disclosure only provisions for accounting for stock
based compensation. Accordingly, we have not recorded any compensation costs for
our stock options granted to employees. If we had recorded compensation expense
for our grants of stock options based on the fair value of the options, our net
loss from continuing operations would have increased to the pro forma net loss
from continuing operations shown below.
<TABLE>
<CAPTION>

                                                                  YEAR ENDED DECEMBER 31,
                                                   --------------------------------------------------------
                                                       2000                 1999                  1998
                                                   -------------      ----------------       --------------
<S>                                                <C>                <C>                    <C>
Net loss from continuing operations
  As reported                                      $  (6,558,033)     $    (5,764,133)       $  (2,274,965)
  Pro forma                                        $  (8,084,934)     $   (12,386,952)       $  (4,088,058)
Pro forma net loss per share                       $       (0.62)     $         (1.20)       $       (0.49)
</TABLE>




                                       63
<PAGE>   64

                                EARTHCARE COMPANY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998


STOCK OPTION ACTIVITY

         The following table shows the activity for the Option Plan for the
three-year period ended December 31, 2000.
<TABLE>
<CAPTION>


                                   BEGINNING OF                                                    EXERCISABLE AT
OPTION HOLDERS                        YEAR         GRANTED    EXERCISED   CANCELLED  END OF YEAR     END OF YEAR
----------------                   ------------   ---------   ---------   ---------  -----------   --------------
<S>                                <C>            <C>          <C>       <C>          <C>            <C>
YEAR ENDED DECEMBER 31, 2000
Employees                             483,250      220,000          --     226,773      476,477        113,245
Non-employees                         527,200           --      25,000     426,200       76,000         38,000
Executive officers and Directors    1,706,704      225,000          --   1,468,352      463,352        133,588
                                    ---------    ---------     -------   ---------    ---------        -------
Total                               2,717,154      445,000      25,000   2,121,325    1,015,829        284,833
                                    =========    =========     =======   =========    =========        =======

YEAR ENDED DECEMBER 31, 1999
Employees                             350,750      155,000       3,750      18,750      483,250         86,750
Non-employees                         527,200       20,000          --      20,000      527,200        394,300
Executive officers and Directors    1,205,000    1,071,704     175,000     395,000    1,706,704        200,838
                                    ---------    ---------     -------     -------    ---------        -------
Total                               2,082,950    1,246,704     178,750     433,750    2,717,154        681,888
                                    =========    =========     =======     =======    =========        =======

YEAR ENDED DECEMBER 31, 1998
Employees                                  --      478,250      15,000     112,500      350,750
Non-employees                              --      527,200          --          --      527,200
Executive officers and Directors      612,500    1,395,000     612,500     190,000    1,205,000
                                    ---------    ---------     -------     -------    ---------
Total                                 612,500    2,400,450     627,500     302,500    2,082,950
                                    =========    =========     =======     =======    =========
</TABLE>




                                       64
<PAGE>   65

                                EARTHCARE COMPANY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998


         During the three-year period ended December 31, 2000, our stock option
activity by exercise price has been as follows:
<TABLE>
<CAPTION>

Fair value at the             Exercise    Beginning                                                        Exercisable at
date of grant                   price     of year       Granted     Exercised   Cancelled   End of year     end of year
-------------------------     --------    ---------     ---------    ---------   ---------   -----------   ---------------
<S>                            <C>        <C>           <C>          <C>         <C>          <C>            <C>
YEAR ENDED DECEMBER 31, 2000
$3.75                          $  3.75          -         75,000           -           -        75,000             -
$6.00                          $  6.00    275,000         25,000           -           -       300,000         137,500
$6.87                          $  6.87          -         95,000           -        10,000      85,000             -
$7.00                          $  7.00          -         85,000           -        15,000      70,000             -
$7.13                          $  7.13          -        150,000           -       150,000          -              -
$7.81                          $  7.81          -         15,000           -           -        15,000             -
$6.00                          $ 10.00    175,000             -            -       100,000      75,000          37,500
$13.00                         $ 13.00     50,000             -            -        22,500      27,500           6,875
$13.56                         $ 13.56    200,000             -            -       200,000          -              -
$14.00                         $ 14.00    230,000             -        25,000      205,000          -              -
$14.50                         $ 14.50    286,704             -            -        20,000     266,704          66,676
$6.00 to $15.00                $ 15.00    697,950             -            -       626,325      71,625          28,782
$15.88                         $ 15.88     65,000             -            -        35,000      30,000           7,500
$6.00 to $15.00                $ 20.00    300,000             -            -       300,000          -              -
$6.00 to $15.00                $ 25.00    437,500             -            -       437,500          -              -
                                        ---------       -------       -------    ---------   ---------         -------
                                        2,717,154       445,000        25,000    2,121,325   1,015,829         284,833
                                        =========       =======       =======    =========   =========         =======


YEAR ENDED DECEMBER 31, 1999
$5.00                           $ 5.00      3,750             -         3,750          -           -               -
$6.00                           $ 6.00    460,000             -       175,000       10,000     275,000          68,750
$6.00                           $10.00    175,000             -            -           -       175,000          50,000
$13.00                          $13.00         -         50,000            -           -        50,000             -
$13.56                          $13.56         -        200,000            -           -       200,000             -
$14.00                          $14.00         -        230,000            -           -       230,000             -
$14.50                          $14.50         -        286,704            -           -       286,704          53,338
$6.00 to $15.00                 $15.00    809,200        75,000            -       186,250     697,950         406,050
$15.88                          $15.88         -         65,000            -           -        65,000             -
$6.00 to $15.00                 $20.00    100,000       200,000            -           -       300,000          25,000
$6.00 to $15.00                 $23.50     20,000             -            -        20,000         -               -
$6.00 to $15.00                 $25.00    515,000       140,000            -       217,500     437,500          78,750
                                        ---------     ---------       -------    ---------   ---------         -------
                                        2,082,950     1,246,704       178,750      433,750   2,717,154         681,888
                                        =========     =========       =======    =========   =========         =======

YEAR ENDED DECEMBER 31, 1998
$0.65                           $ 0.65    612,500             -       612,500                      -
$5.00                           $ 5.00          -       131,250        15,000      112,500       3,750
$6.00                           $ 6.00          -       500,000            -        40,000     460,000
$6.00                           $10.00          -       175,000            -           -       175,000
$6.00 to $15.00                 $15.00          -       859,200            -        50,000     809,200
$6.00 to $15.00                 $20.00          -       100,000            -           -       100,000
$6.00 to $15.00                 $23.50          -        20,000            -           -        20,000
$6.00 to $15.00                 $25.00          -       615,000            -       100,000     515,000
                                        ---------     ---------      -------       -------   ---------
                                          612,500     2,400,450      627,500       302,500   2,082,950
                                        =========     =========      =======       =======   =========
</TABLE>


         We estimated the fair values of options granted during 2000, 1999 and
1998 using the Black-Scholes Model in 2000 and 1999 and the minimum value
approach in 1998. Our stock volatility was 77% in 2000, 76% in 1999 and 110% in
1998. We assumed that our dividend yield was zero, as we do not pay cash
dividends on our common shares. In addition, we assumed that our risk free
interest rates were 5.8% to 6.6% in 2000, 6.0% in 1999 and 5.9% in 1998. The
weighted average estimated fair values of employee




                                       65
<PAGE>   66
                                EARTHCARE COMPANY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

stock options were $4.31 in 2000, $8.90 in 1999 and $5.23 in 1998. The estimated
fair values of options granted were $1,812,105 in 2000, $10,190,236 in 1999 and
$8,184,352 in 1998.

13.      INCOME TAXES

         The components of our income tax provision (benefit) are shown below:
<TABLE>
<CAPTION>

                                                          YEAR ENDED DECEMBER 31,
                                                 ---------------------------------------
                                                    2000         1999           1998
                                                 ----------   ----------    ------------
<S>                                              <C>          <C>           <C>
Current provision                                $      -     $       -     $        -
Deferred taxes                                          -             -        (823,000)
                                                 ----------   ----------    -----------
Income tax benefit (provision)                   $      -     $       -     $  (823,000)
                                                 ==========   ==========    ===========
</TABLE>

         Our reconciliation of the federal income tax provision (benefit)
relating to continuing operations at the statutory income tax rate to the actual
income tax provision (benefit) is shown below:
<TABLE>
<CAPTION>

                                                                 YEAR ENDED DECEMBER 31,
                                                 ----------------------------------------------------
                                                       2000               1999               1998
                                                 ---------------     --------------     -------------
<S>                                               <C>                <C>                <C>
Statutory federal tax rate                        $  (2,492,053)     $  (1,959,805)     $ (1,177,227)
State income taxes, net of federal tax benefit                -           (230,565)         (123,919)
Change in valuation allowance                         2,474,599          2,145,346           348,034
Other, primarily goodwill amortization                   17,454             45,024           130,112
                                                  -------------      -------------      ------------
                                                  $           -      $         -        $   (823,000)
                                                  =============      =============      ============
</TABLE>


         The following table reflects the sources of differences between the
financial accounting and the tax bases of our assets and liabilities that give
rise to the deferred tax assets and liabilities as of December 31, 2000 and
1999:
<TABLE>
<CAPTION>

                                                                 DECEMBER 31,
                                                      -------------------------------------
                                                           2000                    1999
                                                      -------------          --------------
<S>                                                      <C>                      <C>
Deferred tax assets:
Allowance for doubtful accounts                       $     231,743           $         -
Accrued expense                                           3,411,509                     -
Net operating loss carryforward                           2,703,635               3,129,900
Discontinued operations                                  32,648,242               3,645,753
Valuation allowance                                     (38,995,129)             (6,775,653)
                                                      -------------           -------------
Net deferred tax asset                                $          -            $         -
                                                      =============           =============
</TABLE>


         As of December 31, 2000 and 1999, our deferred tax assets include tax
operating loss carryforward amounts of approximately $7,100,000 and $8,700,000,
respectively, which are available to offset future taxable income through 2021.
Our ability to realize the future benefit of such tax carryforward losses is
dependent on our ability to generate future taxable income. Based on our past
operating results, we have determined that we are not able to reasonably
estimate when we will be able to realize the future benefit of our tax
carryforward losses, and we have determined that it is more than likely that we
will not be able to realize future benefit or our tax carryforward loss during
the foreseeable future. As a result, we have provided a full valuation allowance
on our net deferred tax assets.

         Our net loss from discontinued operations includes a tax provision of
none, $571,060 and $518,440 for the years ended December 31, 2000, 1999 and
1998, respectively.

                                       66
<PAGE>   67
                                EARTHCARE COMPANY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

14.      RELATED PARTY TRANSACTIONS

         ADVANCE TO AND LOANS FROM CHAIRMAN

         On December 30, 2000, we advanced $400,000 to our Chairman as a
short-term non-interest bearing loan. This advance was repaid in full on January
4, 2001. From May to June 2000, we obtained a loan of $1,800,000 from our
Chairman, which loan was repaid in full on June 30, 2000, including interest of
$13,852.

         GUARANTEES AND COLLATERAL FROM CHAIRMAN AND VICE CHAIRMAN

         Our Chairman has personally guaranteed the majority of our debt, except
for our 10% Debentures and our 12% Debentures. In addition, he has provided
collateral with an approximate value of $20,000,000 to our Senior Lenders, has
provided collateral with an approximate value of $8,000,000 for our ERMF senior
debt and has provided collateral with an approximate value of $10,500,000 for
our bridge loans. Our Vice Chairman has personally guaranteed $20,000,000 of our
Senior Credit Facility and has provided $10,000,000 as collateral for our Senior
Credit Facility. We have not provided any compensation to either individual for
their guarantees or collateral.

         OUTSOURCING AGREEMENT FOR INFORMATION SYSTEMS

         On October 31, 2000, we entered into an information services
outsourcing agreement with ISN Software, a private company owned by an executive
officer, whereby we agreed to pay $67,500 per month to cover information
services support, office rent and telecommunications charges. In addition, we
currently are leasing certain of our employees to ISN Software at our cost for
these employees. During 2000, we charged ISN Software $76,983 relating to
employee leasing and certain other operating costs, which amount was outstanding
at December 31, 2000 and subsequently paid in February 2001.

         Additional related party transactions are disclosed in Notes 4, 6, 9,
10, 11, 12 and 15.

15.      COMMITMENTS AND CONTINGENCIES

         LEASES

         We lease certain buildings, machinery, equipment and automobiles under
non-cancelable operating leases. Under certain of these leases, we are required
to pay property taxes, insurance, repairs and other costs related to the leased
property. At December 31, 2000, we were obligated for the following future
minimum lease payments under non-cancelable lease agreements in excess of one
year as follows: $1,219,000 in 2001; $1,080,000 in 2002; $761,000 in 2003;
$462,000 in 2004 and $484,000 in 2005 and future years. We incurred rent expense
for all leases of our operations of $1,472,577 in 2000, $799,245 in 1999 and
$604,413 in 1998.

         LITIGATION

         In March 2001, EarthCare and World Fuel Services ("WFS") settled a
dispute in arbitration. EarthCare and WFS agreed to settle any known and unknown
claims against each other. As part of such settlement, on April 12, 2001, we
paid $1.75 million to WFS, which was fully accrued at December 31, 2000.

         In November 2000, EarthAmerica Houston, Inc., a company owned by Donald
Moorehead, EarthCare's Chairman, Chief Executive Officer and a director,
acquired all the tangible and intangible assets of Sewer Management, Inc. The
intangible assets that were acquired included the rights to a lawsuit filed by
Sewer Management, Inc. in the State of Texas relating to the use of the name
EarthCare and its derivatives. We anticipate that this lawsuit will be
dismissed.

                                       67
<PAGE>   68

                                EARTHCARE COMPANY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

         Except for the two matters described above, we are not involved in any
material litigation matters at the time of the filing of this report. We become
involved in claims, disputes and litigation matters during the ordinary course
of our business. These matters typically involve litigation with current or
former employees, customers, vendors and various governmental authorities. While
we are currently involved in several matters like we just described, we do not
believe that any of these matters individually or in the aggregate will have a
material effect on our financial condition, results of operations or cash flows.

         EMPLOYMENT AGREEMENTS

         We have entered into employment agreements with certain of our
executive officers and other key employees. Our employment agreements run from
one to three years and are generally renewable for an additional year at the end
of each year. Our annual salary commitment to these executive officers and
employees amounts to approximately $2,900,000. Upon an employee's termination
without cause or, in the case of our executive officers upon a change in control
of ownership of our Company, we are obligated to pay from one to three years'
compensation to these individuals. During 1999, we recognized an aggregate of
$338,000 in expense for salaries, stock options and other benefits associated
with the termination of two executive officers. During 2000, we recognized
$1,151,000 in expense associated with the termination of one executive officer
and certain key employees.

         CLOSURE AND POST-CLOSURE LIABILITY

         We have financial commitments aggregating $708,000 for costs associated
with the final closure and post-closure operation of our landfill site in
Hillsborough County, Florida. We have obtained performance bonds from a surety
company for these commitments as required by our operating permit with
Hillsborough County.

16.      ENVIRONMENTAL REGULATIONS

         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 the public's increased concern over environmental
issues. In the normal course of business, we will make capital expenditures
necessary to comply with the environmental laws and regulations. To the best of
our knowledge, we are in compliance, in all material respects, with the
environmental laws and regulations affecting our business.

         As part of our acquisition of IPC, we provided a reserve of
approximately $2,700,000 to cover the estimated costs to resolve various
environmental matters, including remediation costs. There has been no activity
in this reserve during 2000.


                                       68
<PAGE>   69
                                EARTHCARE COMPANY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

17.      ACCRUED LIABILITIES

         Our accrued liabilities consist of the following as of December 31,
2000 and 1999:
<TABLE>
<CAPTION>

                                                                      DECEMBER 31,
                                                              -----------------------------
                                                                  2000               1999
                                                              -----------        ----------
<S>                                                           <C>                <C>
Payroll, bonuses, payroll taxes and benefits                  $   835,166        $  789,761
Interest                                                        2,694,167           428,806
Insurance                                                       3,274,679           137,892
Severance, legal and indemnification                            4,340,170            58,040
Environmental matters                                           2,791,075                -
Other                                                           2,037,255           606,546
                                                              -----------        ----------
Total accrued liabilities                                     $15,972,512        $2,021,045
                                                              ===========        ==========
</TABLE>



18.      QUARTERLY OPERATING RESULTS (UNAUDITED)

         Our unaudited quarterly operating results for the years ended December
31, 2000 and 1999 are shown below.

<TABLE>
<CAPTION>

                                                                    QUARTER ENDED
                                         ---------------------------------------------------------------
                                          DECEMBER 31       SEPTEMBER 30        JUNE 30        MARCH 31
                                         -------------      ------------     ------------    -----------
<S>                                      <C>                 <C>             <C>             <C>
Year ended December 31, 2000

Revenues                                 $         -        $    70,319      $   352,158     $   280,000

Operating loss                           $ (1,872,735)       $(1,536,478)    $(2,046,285)    $   211,557

Net loss                                 $(75,530,148)      $(3,994,711)     $(4,566,901)    $  (274,843)

Net loss per share                       $      (5.23)      $      (0.29)    $     (0.36)    $     (0.02)

Weighted shares                            14,452,561         13,545,218      12,606,613      11,608,473


Year ended December 31, 1999

Revenues                                 $          -       $         -      $         -     $        -

Operating loss                           $ (2,376,311)      $(1,254,782)     $(1,120,389)    $  (817,438)

Net income (loss)                        $(15,482,112)      $  (336,164)     $  (266,240)    $  (274,843)

Net income (loss) per share              $      (1.42)      $     (0.03)     $     (0.03)    $     (0.03)

Weighted shares                            10,923,210        10,487,586       10,162,162       9,698,531
</TABLE>


                                       69
<PAGE>   70



                               MANAGEMENT'S REPORT

The accompanying consolidated financial statements have been prepared by the
management of EarthCare Company in conformity with generally accepted accounting
principles to reflect the financial position of EarthCare and its operating
results. Financial information appearing throughout this Annual Report on Form
10-K is consistent with that in the consolidated financial statements.
Management is responsible for the information and financial statements.
Management is responsible for the information and representations in such
financial statements, including the estimates and judgments required for their
preparation. In order to meet its responsibility, management maintains internal
controls, including policies and procedures, which are designed to assure that
assets are safeguarded and reliable financial records are maintained. The report
of PricewaterhouseCoopers LLP, the Company's independent accountants, covering
their audit of EarthCare's consolidated financial statements, is included in
this Annual Report on Form 10-K. Their independent audit of EarthCare's
financial statements includes a review of internal accounting controls to the
extent they consider necessary as required by generally accepted auditing
standards. The Board of Directors annually appoints an Audit Committee,
consisting of at least three outside directors. The Committee meets with
management and the independent accountants to review any significant accounting
and auditing matters and to discuss the results of audit examinations. The Audit
Committee also reviews the consolidated financial statements, the Report of
Independent Accountants and other information in the Annual Report on Form 10-K
and recommends their approval to the Board of Directors.

/s/  Donald F. Moorehead, Jr.                /s/  William W. Solomon, Jr.
-----------------------------                --------------------------------
     Donald F. Moorehead, Jr.                William W. Solomon, Jr.
     Chairman and Chief Executive            Vice President and Chief
     Officer                                 Financial Officer

                        REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders of EarthCare Company:

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, stockholders' equity (deficit) and cash
flows present fairly, in all material respects, the financial position of
EarthCare Company and its subsidiaries at December 31, 2000 and 1999, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2000, in conformity with accounting principles
generally accepted in the United States of America. 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 audit. We
conducted our audit of these financial statements in accordance with auditing
standards generally accepted in the United States of America, which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 3 to the
financial statements the Company has suffered recurring losses from operations
and has a working capital and net capital deficiency that raise substantial
doubt about its ability to continue as a going concern. Management's plans in
regard to these matters are also described in Notes 2 and 3. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.

PricewaterhouseCoopers LLP

Tulsa, Oklahoma
April 17, 2001

                                       70
<PAGE>   71
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
       DISCLOSURE

         We have not changed accountants and we do not have any disagreements
with our accountants on accounting and financial disclosure matters.

PART III

ITEM 10 DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS OF
        EARTHCARE COMPANY

         Our directors and executive officers are as follows:

<TABLE>
<CAPTION>
                    OFFICERS              AGE                 POSITION
                    --------              ---                 --------
<S>                                       <C>      <C>
EXECUTIVE OFFICERS

Donald F. Moorehead, Jr...............     50      Chief Executive Officer, Chairman of our
                                                        Board of Directors
Raymond M. Cash.......................     71      Vice Chairman and Director

Harry M. Habets.......................     51      President, Chief Operating Officer and
                                                        Director
William M. Addy.......................     41      Vice President of Marketing, Sales and
                                                        Corporate Development, Director
Brian Rosborough......................     60      Director

Philip S. Siegel......................     36      Director

Elroy G. Roelke.......................     70      Director

William W. Solomon, Jr................     44      Vice President, Chief Financial Officer
                                                        and Director
Peter H. Trembath.....................     48      Vice President and General Counsel
</TABLE>

         Donald F. Moorehead, Jr.- (age 50), has served as our Chairman and
Chief Executive Officer since June 1998. From August 1997 to June 1998, he was a
private investor. Mr. Moorehead served as Vice Chairman and Chief Development
Officer of USA Waste, a company he founded, from May 1994 through August 1997.
From October 1990 until May 1994, he served as Chairman of the Board and Chief
Executive Officer of USA Waste. Mr. Moorehead has served as Director for the
Environmental Research and Education Foundation since May 1996. Mr. Moorehead
serves on the board of FYI, Inc., a document and information outsourcing
company.

         Raymond Cash - (age 71), a founder of EarthCare, has served as our Vice
Chairman since 1998. Mr. Cash is the founder of two solid waste companies,
Sanifill, Inc. and Southern States Environmental Services, Inc. From August 1997
to June 1998, he served as Chairman of our board of directors and our Chief
Executive Officer. From 1993 to 1997, he served as Chairman and President of
Resource, Recovery, Transfer & Transportation, Inc., a solid waste company.

         Harry M. Habets - (age 51), has served as our President, Chief
Operating Officer, and as a member of our board of directors since August 1999.
Mr. Habets was Managing Director of UK Waste, a $350 million joint venture of
Wassex Water and Waste Management International in the United Kingdom from July
1997 to May 1999. Waste Management employed Mr. Habets from 1985 to 1999 where
he served as Vice President of Operations for Waste Management International,
President of WMI Medical Services and Vice President and Region Manager in the
United States.

         William M. Addy - (age 41), has served as our Vice President Sales,
Marketing & Corporate Development since April 1999 and has served as a member of
our board of directors since March 2000. Mr. Addy was employed by the Boston
Consulting Group ("BCG") as a consultant on issues of marketing, sales and
strategy with packaged goods, industrial products and service companies. Mr.
Addy was elected


                                       71
<PAGE>   72

a partner of BCG in 1992 and moved to Dallas to help establish the firm's Dallas
office, where he remained until January 1999. Mr. Addy earned an M.B.A. from
Harvard Business School in 1986 and graduated with an honors degree in chemical
engineering from Princeton University in 1982.

         Brian Rosborough - (age 60), has served as a member of our board of
directors since December 16, 1998. Mr. Rosborough is the Founder Chairman of
Earthwatch Institute, a sponsor of conservation science. Mr. Rosborough has been
involved in social venture capital since leaving the investment banking business
in 1972. Mr. Rosborough serves as a trustee of several civic and educational
institutions.

         Philip S. Siegel - (age 36), has served as a member of our board of
directors since March 2000. Since October 1999, Mr. Siegel has been a Venture
Fellow at AV Labs, an Austin Ventures spinout in Austin, Texas that invests in
early stage technology companies as well as an adjunct professor in
Entrepreneurial Studies in the M.B.A. program at the University of Texas. He has
been the Chief Executive Officer of a variety of companies in the AV Labs fund
since December 1999. From May 1995 until January 1999, Mr. Siegel was a partner
in the Chicago and Dallas offices of BCG. At BCG, Mr. Siegel worked as a
consultant to packaged goods and financial services companies. Mr. Siegel
received his M.B.A. with honors from the University of Chicago Graduate School
of Business in 1988 and a bachelor's degree in chemistry from the University of
Chicago in 1985.

         Elroy G. Roelke - (age 70), has served as a member of our board of
directors since May 1998. Mr. Roelke has served as the Chairman and Founder of
the Knollwood Mercantile Company, a retail convenience store company, from 1985
to the present. From 1989 to 1996, Mr. Roelke served as Senior Vice President
and General Counsel of the Renaissance Capital Group, an investment company, and
also served as the administrator of the Portfolio Management Division and as a
director designee to portfolio companies. Mr. Roelke served as the President and
Director of Island Marine Supply Company, a maritime supply company and was
managing partner for Roelke & Jordan, a law firm located in Dallas, Texas. From
July 1997 to May 1998, Mr. Roelke also served as Chairman of the Board of
Microlytics, Inc., the predecessor corporation to EarthCare. From March 1995 to
March 2001, Mr. Roelke served as a director of Tutogen Medical, Inc., a medical
technology company.

         William W. Solomon, Jr. - (age 44), has served as Vice President and
Chief Financial Officer of EarthCare since July 2000. In November 2000, Mr.
Solomon was appointed a Director of EarthCare. Mr. Solomon previously served as
Executive Vice President, Chief Financial Officer and Treasurer of Precept
Business Services, Inc., a Nasdaq listed company in Dallas, Texas, from June
1998 to June 2000. Precept Business Services engaged primarily in the
distribution of office products and also provided executive transportation
services. From August 1996 to May 1998, Mr. Solomon served as Vice President and
Corporate Controller of American Pad & Paper Company, a manufacturer of paper
based office products, in Dallas, Texas. From August 1994 to July 1996, Mr.
Solomon served as a Senior Audit Manager for PricewaterhouseCoopers in Dallas,
Texas, and from November 1992 to July 1994, Mr. Solomon served as a Senior Audit
Manager for BDO Seidman in Grand Rapids, Michigan. Mr. Solomon received his B.A.
degree in Business Administration - Accounting from Washington State University
in 1978 and is a certified public accountant.

         Peter H. Trembath - (age 48), has served as Vice President and General
Counsel of EarthCare since September 2000. Mr. Trembath previously served as
Senior Vice President, General Counsel and Secretary of Precept Business
Services, Inc. from July 1999 through September 2000. From January 1999 through
June 1999, Mr. Trembath was engaged in the private practice of law and acted as
an independent consultant. From November 1993 to December 1998, Mr. Trembath
served as Vice President, Secretary and General Counsel of Benson Eyecare
Corporation, a manufacturer, retailer and wholesaler of prescription and
non-prescription eyewear and related products, and then its successor, Lumen
Technologies, Inc. (f/k/a BEC Group, Inc.), which was engaged principally in the
manufacture and sale of specialty lighting products. Both Benson and Lumen were
publicly held corporations listed on the Nasdaq National Market. He also served
from March 1997 to December 1998 as Vice President, Secretary and General
Counsel of Bolle, Inc., a Nasdaq listed company and manufacturer and distributor
of designer sunglasses, sport eyewear and goggles, which was spun off by Lumen
Technologies in March 1997. Prior to November 1993, Mr. Trembath served as Vice
President, Secretary and General Counsel of BMC Industries, Inc., an NYSE listed
corporation engaged in the manufacture and distribution of ophthalmic


                                       72
<PAGE>   73

lenses and precision etched electronic parts. Mr. Trembath received his A. B.
and M.A. degrees in European history from The University of Michigan. He
received his J.D. degree from The University of Michigan Law School in 1982.

ITEM 11  EXECUTIVE COMPENSATION

         SUMMARY COMPENSATION TABLE

         The following table sets forth certain information concerning the
compensation of EarthCare's Chief Executive Officer and the next four highest
paid executive officers (the "Named Executive Officers").

<TABLE>
<CAPTION>
                                           Annual Compensation                   Long-term Compensation
                                -------------------------------------------   ----------------------------
                                                               Other Annual   Securities
                                                               Compensation   Underlying      All Other
Name and principal position     Year   Salary ($)   Bonus ($)       ($)       Options (#)     Compensation
---------------------------     ----   ----------  ----------  ------------   ----------      ------------
<S>                             <C>    <C>         <C>         <C>              <C>              <C>
Donald F. Moorehead, Jr
  Chairman and Chief            2000   $      --   $      --   $      9,172          --(2)        $ --
  Executive Officer (1)         1999   $ 175,000   $      --   $         --     133,352(3)        $ --
                                1998   $      --   $      --   $         --     525,000           $ --

Harry M. Habets
  President and Chief           2000   $ 190,000   $  60,500   $     21,500          --(5)        $ --
  Operating Officer (4)         1999   $  57,692   $ 135,000   $         --     340,000           $ --
                                1998

William M. Addy
  Vice President of             2000   $ 165,000   $  45,700   $      6,850            (7)        $ --
  Marketing, Sales and          1999   $  88,942   $  45,700   $         --     400,000           $ --
  Corporate Development (6)

William W. Solomon, Jr
  Vice President and            2000   $ 165,000   $      --   $      6,850          --(9)        $ --
  Chief Financial Officer (8)

Peter H. Trembath
  Vice President and            2000   $ 145,000   $      --   $      6,650      50,000(11)       $ --
  General Counsel (10)
</TABLE>
-------------------
(1)  Mr. Moorehead was named Chief Executive Officer on June 29, 1998. Mr.
     Moorehead elected not to draw a salary for 1998 or 2000.

(2)  During September 2000, Mr. Moorehead returned options to purchase 175,000
     shares at $15.00 per share and options to purchase 200,000 options at
     $25.00 per share.

(3)  Included bonus grant for fiscal 1998 of options to acquire 133,352 shares
     of common stock granted on March 1, 1999 at $14.50 per share.

(4)  Mr. Habets was elected President and Chief Operating Officer effective
     August 9, 1999.

(5)  During September 2000, Mr. Habets returned options to purchase 200,000
     shares at $13.56 per share and options to purchase 140,000 options at
     $25.00 per share.

(6)  Mr. Addy was elected Vice President of Marketing, Sales and Corporate
     Development on April 12, 1999.

(7)  During September 2000, Mr. Addy returned options to purchase 200,000 shares
     at $14.00 per share and options to purchase 200,000 options at $20.00 per
     share.

(8)  Mr. Solomon was elected Vice President and Chief Financial Officer
     effective July 5, 2000. The salary disclosed represents the full annual
     salary based on his employment contract.

(9)  During September 2000, Mr. Solomon returned options to purchase 150,000
     shares at $7.13 per share.

(10) Mr. Trembath was elected Vice President and General Counsel effective
     September 11, 2000. The salary disclosed represents the full annual salary
     based on his employment contract.

(11) At the time of his employment, Mr. Trembath was granted options to purchase
     50,000 shares of common stock at an exercise price of $3.75 per share.


                                       73
<PAGE>   74

         OPTION GRANTS IN LAST FISCAL YEAR

         The following table sets forth information regarding stock option
grants for the year ended December 31, 2000 to the Chief Executive Officer and
the Named Executive Officers.

<TABLE>
<CAPTION>
                                                                                     Potential realizable value
                                                                                      at annual assumed rates
                                                                                     of stock price appreciation
                                            Individual Grants                            for option terms (1)
                             --------------------------------------------------     ------------------------------
                             Number of     Percent of
                             securities   total options
                             underlying    granted to     Exercise
                              options     employees in    price per  Expiration
                              granted     fiscal 2000       share       date          0%        5%           10%
                             ----------   -------------   ---------  ----------     ------   --------     --------
<S>                           <C>            <C>            <C>      <C>            <C>      <C>          <C>
Donald F. Moorehead, Jr            --         n/a           $  --         n/a       $   --   $     --     $     --

Harry M. Habets                    --         n/a           $  --         n/a       $   --   $     --     $     --

William M. Addy                    --         n/a           $  --         n/a       $   --   $     --     $     --

William W. Solomon, Jr. (2)   150,000         33.7%         $ 7.13     7/5/10       $   --   $     --     $     --

Peter H. Trembath              50,000         11.2%         $ 3.75    9/11/10       $   --   $118,500     $298,000
</TABLE>

(1)  The 5% and 10% assumed annual rates of compounded stock price appreciation
     are mandated by rules of the SEC. There can be no assurance provided to any
     executive officer or any other holders of EarthCare's securities that the
     actual stock price appreciation over the term will be at the assumed 5% and
     10% levels or at any other defined level.

(2)  During September 2000, Mr. Solomon returned options to purchase 150,000
     shares at $7.13 per share.



AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUE

<TABLE>
<CAPTION>
                                   Securities underlying number        Value of unexercised
                                    of unexercised options at         in-the-money options at
                                       fiscal year end (#)             fiscal year end ($) (1)
                                  -----------------------------    ------------------------------
                                  Exercisable     Unexercisable    Exercisable      Unexercisable
                                  -----------     -------------    -----------      -------------
<S>                                  <C>             <C>             <C>              <C>
Donald F. Moorehead, Jr. (2)         133,338         200,014         $     --         $      --

Harry M. Habets (3)                       --              --         $     --         $      --

William M. Addy (4)                       --              --         $     --         $      --

William W. Solomon, Jr. (5)               --              --         $     --         $      --

Peter H. Trembath                         --          50,000         $     --         $      --
</TABLE>

(1)  Based on a closing price of $2.438 at December 31, 2000.

(2)  Does not include options to purchase 375,000 shares cancelled during
     September 2000.

(3)  Does not include options to purchase 340,000 shares cancelled during
     September 2000.

(4)  Does not include options to purchase 400,000 shares cancelled during
     September 2000.

(5)  Does not include options to purchase 150,000 shares cancelled during
     September 2000.

         NONCOMPETITION AND EMPLOYMENT CONTRACTS

         On June 1, 1998, EarthCare entered into an employment agreement with
Mr. Moorehead to serve in the capacity of Chief Executive Officer and Chairman
of the Board of Directors of EarthCare. Mr. Moorehead will receive a base salary
of $250,000 annually and is eligible for an annual bonus, which will be a
minimum of 50% of the annual salary under the agreement. This employment
agreement for Mr. Moorehead is for a term of five years, with automatic renewal
for twelve-month periods. The agreement provides that upon the merger,
consolidation or other business combination of EarthCare with another publicly
traded or private entity where EarthCare is not the surviving entity or upon the
sale of substantially all of EarthCare's assets, Mr. Moorehead is entitled to
terminate the agreement and receive a severance


                                       74
<PAGE>   75

payment equal to the remaining salary and bonus for each of the remaining years
(or portions thereof) under the full term of the agreement. The employment
agreement also provides that Mr. Moorehead is entitled to participate in any
stock option plan instituted by EarthCare. Mr. Moorehead is also bound by a
noncompetition and nonsolicitation clause for the term of the agreement and for
one year after termination of employment.

         On April 12, 1999, EarthCare entered into an employment agreement with
William M. Addy, which provides for Mr. Addy to serve in the capacity of Vice
President of Marketing, Sales and Corporate Development for an annual salary of
$165,000 plus a guaranteed bonus of 33% of his annual salary. In addition,
EarthCare, in its discretion may from time to time grant bonuses to Mr. Addy.
Mr. Addy's employment agreement is for a term of three years, with automatic
renewals on each anniversary date for additional twelve-month periods.

         On August 9, 1999, EarthCare entered into an employment agreement with
Harry Habets, which provides for Mr. Habets to serve in the capacity of
President and Chief Operating Officer of EarthCare and as a member of the Board
of Directors of EarthCare and provides for an annual salary of $190,000. In
addition, the agreement provides, effective January 1, 2001, the annual salary
will be a minimum of $225,000 and EarthCare, in its discretion, may from time to
time grant bonuses to Mr. Habets. The employment agreement for Mr. Habets is for
a term of three years, with automatic renewals on each anniversary for
three-year periods.

         On July 5, 2000, EarthCare entered into an employment agreement with
William W. Solomon, Jr., which provides for Mr. Solomon to serve in the capacity
of Vice President and Chief Financial Officer of EarthCare and as a member of
the Board of Directors of EarthCare and provides for an annual salary of
$165,000. In addition, the agreement provides EarthCare, in its discretion, may
from time to time grant bonuses to Mr. Solomon. The employment agreement for Mr.
Solomon is for a term of three years, with automatic renewals on each
anniversary for three-year periods.

         On September 11, 2000, EarthCare entered into an employment agreement
with Peter H. Trembath, which provides for Mr. Trembath to serve in the capacity
of Vice President and General Counsel of EarthCare and provides for an annual
salary of $145,000. In addition, the agreement provides EarthCare, in its
discretion, may from time to time grant bonuses to Mr. Trembath. The employment
agreement for Mr. Trembath is for a term of three years, with automatic renewals
on each anniversary for three-year periods.

         The employment agreements for Messrs. Habets, Addy, Solomon and
Trembath provide that upon the merger, consolidation or other business
combination of EarthCare with another entity where EarthCare is not the
surviving entity or upon the sale of substantially all of EarthCare's assets,
Messrs. Habets, Addy, Solomon and Trembath are entitled to terminate the
agreements and receive severance payments equal to the remaining salary and
bonus for each of the remaining years (or portions thereof) under the full term
of the agreements. The employment agreements also provide that Messrs. Habets,
Addy, Solomon and Trembath are entitled to participate in any stock option plan
instituted by EarthCare. Messrs. Habets, Addy, Solomon and Trembath are each
bound by a noncompetition and nonsolicitation clause for the term of their
respective agreements and for one year after termination of employment.

         All the executive officers have orally agreed to waive their change in
control provisions following the planned sale of EarthLiquids.

         DIRECTOR COMPENSATION

         We pay our non-employee directors $1,500 for each non-telephonic board
meeting attended and from $500 to $1,000 for each telephonic meeting attended.
All directors are reimbursed for any expenses incurred in attending board or
committee meetings.

                                       75
<PAGE>   76

         We made the following grants of warrants during 2000 to non-employee
directors for their services as directors: Philip Siegel - 25,000 shares at
$7.00; Elroy Roelke - 10,000 shares at $7.00; and Brian Rosborough - 10,000
shares at $7.00.

ITEM 12  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following table sets forth the beneficial ownership of shares of
our common stock as of March 31, 2001 for:

o    Our directors,

o    Our Chief Executive Officer and the Named Executive Officers,

o    Our directors and executive officers as a group, and

o    Each person who holds more than a 5% interest in our outstanding common
     stock.

         Unless otherwise indicated in the footnotes, all of such interests are
owned directly, and the indicated person or entity has sole voting power and
disposition power.

<TABLE>
<CAPTION>
                                                                  PERCENT
                                            NUMBER OF SHARES     OF COMMON
                                           OF COMMON STOCK         STOCK
                                             BENEFICIALLY       BENEFICIALLY
NAME OF BENEFICIAL OWNER                       OWNED (1)           OWNED
------------------------                      ----------        ------------
<S>                                            <C>                 <C>
Donald F. Moorehead (2)                        7,514,498           31.1%
Raymond M. Cash (3)                            5,143,681           21.3%
Cash Family Limited Partnership (4)            3,599,569           14.9%
Harry M. Habets                                  106,500            0.4%
Philip S. Siegel                                      --             *
William M. Addy                                  109,200            0.5%
Elroy G. Roelke (5)                               47,500            0.2%
Brian Rosborough (6)                              22,500            0.1%
Peter H. Trembath                                  6,500             *
William W. Solomon, Jr                                --             *
Solid Waste Ventures, Inc. (7)                 1,823,281            7.5%
All executive officers, directors and
5% shareholders as a group                    14,773,660           61.1%
</TABLE>

* Less than 1%

(1)  Includes shares of common stock that may be acquired upon the exercise of
     stock options or warrants exercisable within 60 days. Each person named
     above has sole voting and dispositive power with respect to all the shares
     listed opposite such person's name, unless indicated otherwise. Unless
     otherwise indicated, each stockholder's address is 14901 Quorum Drive,
     Suite 200, Dallas, Texas 75240.

(2)  Includes 898,000 shares held by Moorehead Property Company Ltd., which is
     controlled by Mr. Moorehead. Includes 255,000 shares owned by Shelly
     Moorehead, Mr. Moorehead's wife. Includes 2,007,127 shares that may be
     issued upon the conversion of 10% Preferred owned by Mr. Moorehead.
     Includes 216,676 shares that may be issued upon the exercise of options and
     340,000 shares that may be issued upon the exercise of warrants.

(3)  Includes 1,522,269 shares owned by MR. Cash Trust, a trust controlled by
     Mr. Cash, and other affiliates related to Mr. Cash. Includes 1,658,750
     shares owned by Cash Family Limited Partnership, an affiliated of by Mr.
     Cash. Includes 407,550 shares owned by Karen Cash, Mr. Cash's wife.
     Includes 11,000 shares owned by Eric W. Cash, custodian for Courtlyn Cash.
     Mr. Cash disclaims beneficial ownership of the shares owned by the various
     trusts affiliated with Mr. Cash. Includes 5,000 shares which may be issued
     upon the exercise of options and 60,000 shares which may be issued upon the
     exercise of warrants.

(4)  Includes warrants to purchase 300,000 shares of common stock.

(5)  Includes options to purchase 17,500 shares of common stock and warrants to
     purchase 5,000 shares of common stock.

(6)  Includes options to purchase 17,500 shares of common stock and warrants to
     purchase 5,000 shares of common stock.

(7)  Solid Waste Ventures, Inc. is a privately owned company which is an
     affiliate of Mr. Moorehead. Includes 1,823,281 shares of common stock that
     may be issued upon the conversion of 10% Preferred.


                                       76
<PAGE>   77


ITEM 13  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

RELATED PARTY TRANSACTIONS

         Our Chairman has personally guaranteed the majority of our debt, except
for our 10% Debentures and our 12% Debentures. In addition, he has provided
collateral with an approximate value of $20,000,000 to our Senior Lenders, has
provided collateral with an approximate value of $8,000,000 for our ERMF senior
debt and has provided collateral with an approximate value of $10,500,000 for
our bridge loans. Our Vice Chairman has personally guaranteed $20,000,000 of our
Senior Credit Facility and has provided $10,000,000 as collateral for our Senior
Credit Facility. We have not provided any compensation to either individual for
their guarantees or collateral.

         On April 11, 2001, we completed a private placement of a $1.5 million
bridge loan with Sagemark Capital, an investment fund in which our Chairman is a
limited partner. In connection with this loan, we issued a warrant to purchase
up to 680,000 shares of our common stock at $0.001 per share. One half of the
warrant vested at closing and the second half vests on October 3, 2001, if the
loan is not repaid in full by such date.

         On December 4, 2000, we agreed to borrow $3,000,000 pursuant to a new
subordinated loan ("ERMF Subordinated Debt") from Donald Moorehead, our
Chairman, as part of a related financing transaction. At the same time, our
Chairman borrowed $3,000,000 from a private lender. The terms of our
subordinated loan are identical to the terms of the loan from the private lender
to our Chairman. We used the proceeds from this loan to pay down our Senior
Credit Facility. We are obligated to pay interest at the rate of 10.9% per year
under this loan until June 13, 2001, after which time we are obligated to pay
interest at 24% per year. We are also obligated to pay $150,000 in fees and an
additional $218,000 in interest in April 2001. We are also obligated to pay a
$150,000 placement fee in April 2001 to a private individual who arranged this
loan. Our Chairman has personally guaranteed the loan to the private lender and
has provided collateral of approximately $7,000,000 consisting of shares of our
10% mandatory redeemable convertible preferred stock ("10% Preferred").

         On March 31, 2000, we entered into a management agreement with Liberty
Waste, a privately owned Florida corporation engaged in the collection, transfer
and disposal of NSW in Hillsborough County, Florida and the adjoining counties.
We agreed to provide management services such as accounting services, investment
banking advisory services, bid and bond advice, municipal contract assistance
and advice with commercial banking services. Under the terms of this agreement,
we recognized $702,477 in management fee revenue during the year ended December
31, 2000, after eliminating our share of the earnings of Liberty Waste. Liberty
Waste was a majority owned subsidiary of Solid Waste Ventures, a privately owned
company that also owns NSW collection, transfer and disposal operations in
Missouri. Donald Moorehead, Chairman, Chief Executive Officer and a significant
stockholder in the Company, has provided subordinated debt financing to Solid
Waste Ventures and has personally guaranteed the senior debt of Solid Waste
Ventures.

         On July 7, 2000, we acquired a 43% minority interest in Liberty Waste
by issuing 356,000 shares of our common stock to the minority stockholders of
Liberty Waste. We issued common shares with an aggregate market value of
$2,358,464. From July 7, 2000 until December 30, 2000, we recorded our share in
the earnings of Liberty Waste and included such amount in other income and
expense in our results from continuing operations.

         On December 30, 2000, we acquired the remaining shares of Liberty Waste
from Solid Waste Ventures and a minority stockholder by issuing 520,100 shares
of our common stock with an aggregate market value of $1,267,952. During the
fourth quarter of 2000, Liberty Waste changed its name to ERMF.

         On March 5, 2001, we issued 100,000 shares of our common stock to
various individuals in a private placement. The investment-banking firm Sanders
Morris Harris acted as placement agent in connection with a $2,500,000 bridge
loan ("Sanders Bridge Loan"). If the Sanders Bridge Loan is not


                                       77
<PAGE>   78

repaid by April 30, 2001, we will be obligated to issue 100,000 shares of our
common stock for each month that any portion of the Sanders Bridge Loan remains
outstanding.

         On December 30, 2000, we advanced $400,000 to Donald Moorehead, our
Chairman, which advance was fully repaid on January 4, 2001.

         On December 30, 2000, we issued $5,915,000 of our 10% Preferred to
Solid Waste Ventures in exchange for $5,915,000 of subordinated debt owed by
ERMF to Solid Waste Ventures. Solid Waste Ventures is a privately owned company
that also owns solid waste collection, transfer and landfill operations in
Missouri. Donald Moorehead has provided subordinated debt financing to Solid
Waste Ventures and is a personal guarantor of Solid Waste Ventures' senior debt.

         On December 4, 2000, we sold $7,000,000 of our 10% Preferred in a
private placement to Donald Moorehead. In exchange for the 7,000,000 shares of
our 10% Preferred, we received $3,000,000 in cash and 599,807 shares of our
common stock, which shares were cancelled. We sold the 10% Preferred for a
discount of $2,125,603 and an effective yield of 17.37%. The 10% Preferred is
presented at its net value. The unamortized discount is being recognized on the
effective interest rate method over the redemption period of the 10% Preferred.

         On October 31, 2000, we sold Allen Tate Commercial Software LLP, our
environmental compliance software division, to ISN Software, a private company
owned by William Addy, one of our executive officers. We sold the division for
an unsecured note of $3,000,000, bearing interest to be paid in kind at 10% per
year. Payments on the note are to be made based on 10% of the revenue of ISN
Software. To date, no payments have been received on the note. We have agreed to
amend the note so that no payments will be due under the note unless ISN
Software is sold within two years and the proceeds from the sale of ISN Software
exceed $1,500,000. Given the uncertainty surrounding future collectibility of
the note, we have provided a full reserve on the note.

         On October 31, 2000, we entered into an information outsourcing
agreement with ISN Software, a private company owned by William Addy, an
executive officer and Director of EarthCare, whereby we agreed to pay $67,500
per month to cover information services support, office rent and
telecommunications charges. In addition, we currently are leasing certain of our
employees to ISN Software at our cost for these employees.

         On September 30, 2000, we sold 1,000,000 shares of our common stock for
$5,000,000 in cash at $5.00 per share, which represented a 9.3% discount from
the closing price on that date, to Donald Moorehead. We used the proceeds from
that sale to repay a portion of our Senior Credit Facility in order to meet our
Senior Lenders requirement to pay down part of the facility or provide cash
collateral.

         Beginning in May 2000 and ending June 30, 2000, we borrowed $1,800,000
from Donald Moorehead in order to finance our general working capital needs.
When the loan was repaid on June 30, 2000, we also repaid interest amounting to
$13,820.

         On June 30, 2000, we sold 599,807 shares of our common stock for
$4,000,000 cash at $6.669 per share, which represented an 8.9% discount from the
closing price on that date, to Founders Equity Group in a transaction on behalf
of Donald Moorehead. We also paid Founders Equity Group a cash fee of $120,000
for arranging this transaction. We used the proceeds from this sale to repay a
loan from Donald Moorehead in the amount of $1,800,000. The remainder of the
cash was used for general working capital.

         On February 16, 2000, we completed a $20,000,000 private placement of
our 12% Debentures, due March 30, 2008. We placed the 12% Debentures with the
following related parties:

o    Donald Moorehead, Chairman and Chief Executive Officer - $7,500,000,

o    Moorehead Charitable Remainder Trust, for which Donald Moorehead is the
     trustee - $1,500,000,

o    Cash Family Limited Partnership, an affiliate of Raymond Cash, Vice
     Chairman - $5,000,000,

o    Founders Equity Group, - $3,000,000,

o    George Moorehead, brother of Donald Moorehead - $2,000,000, and

                                       78
<PAGE>   79

o    An individual investor who has provided collateral for our Senior Credit
     Facility - $1,000,000

         The 12% Debentures mature March 30, 2008 and accrue interest at 12% per
year from the date of the issuance, payable semi-annually on September 30 and
March 30. The first interest payment due September 30, 2000 was deferred to
March 31, 2001, and in return for such deferral, we issued additional warrants
to purchase 400,000 shares of our common stock to the holders of the 12%
Debentures. We may pay interest on the 12% Debentures by issuing our common
shares. The number of common shares issued is determined by dividing the
interest payable by the closing price of our common stock on the day the
interest is paid. On March 31, 2001, we issued 3,090,966 shares of EarthCare's
common stock at a market value of $1.047 per share for the first interest
payment on the 12% Debentures. We used the proceeds from this sale to finance
acquisitions and for general working capital.

         We also issued 400,000 warrants with an exercise price of $6.63 on
February 16, 2000 as part of the closing of the 12% Debentures. On September 30,
2000, we issued an additional 400,000 warrants in connection with the deferral
of the first interest payment on September 30, 2000. We issued the warrants in
proportion to the amount of the $20,000,000 placed with the holders. The
warrants are exercisable for five years from the date of issue and they contain
anti-dilution provisions that may result in a reduction of their exercise price.
The current exercise price on these warrants is $3.60 per share. We pay the
interest on the 12% Debentures semi-annually on March 30 and September 30 with
our common stock valued at the closing price on the day the interest is due. On
March 30, 2001, we issued 3,090,966 shares of common stock with a market value
of $1.047 per share to the holders of the 12% Debentures in proportion to the
amount of the $20,000,000 placed with the holders. Each semi-annual interest
payment that is made to holders of the 12% Debentures will result in the
issuance of approximately 1.1 shares based on the closing price of $1.047 at
March 31, 2001.

         On October 11, 1999, we completed a $15,000,000 private placement of
our 10% convertible subordinated debentures ("10% Debentures"), due October 31,
2006. We placed $7,887,000 of our 10% Debentures with the following related
parties:

o    Donald Moorehead, Chairman and Chief Executive Officer, and his immediate
     family - $3,537,000,

o    Raymond Cash, Vice Chairman - $2,000,000,

o    George Moorehead, brother of Donald Moorehead - $1,250,000,

o    Certain principals of the investment bank, Sanders Morris Harris, and their
     immediate families - $1,075,000, and

o    Founders Equity Group, an investment bank to whom Donald Moorehead provided
     debt and equity financing - $25,000.

         Interest is payable quarterly at the rate of 10% per year on the 10%
Debentures. From the closing through October 2001, interest is payable in kind
issuing additional 10% Debentures. For the two years ending October 2003,
interest may be paid in cash if permitted by our Senior Lenders, otherwise
interest is payable in additional debentures. For the last three years, interest
is payable in cash. The holders of the 10% Debentures may convert the 10%
Debentures into shares of our common stock at a rate of $3.60 per share. Based
on the balance of the 10% Debentures at March 31, 2001, if the holders converted
their 10% Debentures, they would receive 4,334,313 shares of our common stock.
The conversion price is protected against dilution and may be lowered. We may
issue securities to employees or lenders with a sales price or a conversion
price of less than $3.60 per share as long as the total of such outstanding
securities does not exceed 15% of our outstanding common shares.

                                       79
<PAGE>   80

PART IV

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

     (A)  CERTAIN DOCUMENTS FILED AS PART OF THE FORM 10-K

     None.

     (B)  REPORTS ON FORM 8-K

         During the year ended December 31, 2000, we filed the following current
reports on Form 8-K (unless otherwise noted) and Form 8-K/A:

     o    February 15, 2000 - Announcement of our acquisition of IPC from WFS

     o    March 10, 2000 - Announcement of our acquisition of All County
          Resource Management Corporation

     o    March 29, 2000 - Announcement of our preliminary 1999 operating
          results, our restatement of quarterly financial statements for the
          first three quarters in 1999, our search for a chief financial
          officer, our solid waste management fee from ERMF, the resignation of
          William F. Hulligan and Earl E. DeFrates as directors, and our
          appointment of William M. Addy and Philip S. Siegel as directors.

     o    May 1, 2000 - Audited historical financial statements for IPC and
          unaudited pro forma financial statements for EarthCare (amendment to
          8-K report dated February 15, 2000)

     (C)  EXHIBITS REQUIRED BY ITEM 601 OR REGULATION S-K

<TABLE>
<CAPTION>
 EXHIBIT
 NUMBER                                        DESCRIPTION OF EXHIBITS
 -------                                       -----------------------
 <S>        <C>
    3.1     -  Certificate of Incorporation of the Company dated May 13, 1998 (1)
    3.2     -  Bylaws of the Company (1)
    4.1     -  Article IV of the Company's Certificate of Incorporation (2)
    4.2     -  Article VI of the Company's Certificate of Incorporation (2)
    4.3     -  Preferred stock certificate of designations for 13,000,000 shares (7)
   10.1     -  Stock Purchase Agreement between EarthCare Company and Reifsneider Transportation, Inc.
                 dated February 26, 1999 (3)
   10.2     -  Stock Purchase Agreement between EarthCare Company and Charles Brehm, dated March 31,
                 1999 (2)

   10.3     -  Stock Purchase Agreement between EarthCare Company and National Plumbing & Drain, Inc.,
                 dated April 1, 1999 (2)
   10.4     -  Agreement and Plan of Merger, by and between EarthCare Company and Vince Hills, Michael
                 H. Patton, George Propes, Elizabeth Renee Propes, and David Christopher Propes,
                 dated as of April 5, 1999 (2)
   10.5     -  Asset Purchase Agreement between EarthCare Company and Rooter Plus, Inc., dated May 1,
                 1999 (4)

   10.6     -  Asset Purchase Agreement between EarthCare Company and AllenTate Commercial Software,
                 L.L.P., dated August 1, 1999 (2)
   10.7     -  Stock Purchase Agreement by and between EarthCare Company and Albert DiMaria, James
                 Frederico and Osiris Ramos, dated September 1, 1999 (2)
   10.8     -  Stock Purchase Agreement between EarthCare Company and Food Services Technologies, Inc.,
                 dated November 3, 1999 (2)
   10.9     -  Stock Purchase Agreement between EarthCare Company and John Hulsey, dated November 16,
                 1999 (2)

   10.10    -  Stock Purchase Agreement by and between EarthCare Company and World Fuel Services
                 Corporation, effective as of February 1, 2000 (5)
</TABLE>


                                       80
<PAGE>   81

<TABLE>
 <S>        <C>
   10.11    -  Amended and Restated Credit Agreement by and between EarthCare Company, various
                 financial institutions, BankBoston, N.A. and Bank of America, N.A., dated as of
                 February 15, 2000 (2)

   10.12    -  Note Agreement by and between EarthCare Company and Donald Moorehead, Cash Family
                 Limited Partnership, Founders' Equity Group, Thomas P. Hughes and George O.
                 Moorehead, dated February 1, 2000 (2)

   10.13    -  Stock Purchase Agreement by and between EarthCare Company and All County Resource
                 Management Corporation, dated March 10, 2000 (6)

   10.14    -  Management Agreement by and between Liberty Waste, Inc. and EarthCare Company, dated
                 March 31, 2000 (2)

   10.15    -  Form of 10% Convertible Subordinated Debenture Due 2006 (2)

   10.16    -  First Amendment to the Amended and Restated Credit Agreement, dated as of April 14, 2000 among
                 EarthCare Company, various financial institutions, and Bank of America, N.A., as
                 administrative agent (7)

   10.17    -  Second Amendment to the Amended and Restated Credit Agreement, dated as of October 31,
                 2000 among EarthCare Company, various financial institutions, and Bank of America,
                 N.A., as administrative agent (7)

   10.18    -  Third Amendment to the Amended and Restated Credit Agreement, dated as of April 13, 2001 among
                 EarthCare Company, various financial institutions, and Bank of America, N.A., as
                 administrative agent (7)

   10.19    -  Guaranty for Amended and Restated Credit Agreement from Donald. F. Moorehead and Raymond
                 M. Cash, dated February 15, 2000 (7)

   10.20    -  Side letter agreement among EarthCare Company, Donald F. Moorehead and Raymond M. Cash
                 relating to Guaranty for Amended and Restated Credit Agreement, dated November 28,
                 2000 (7)

   10.21    -  Additional Guaranty from Donald Moorehead for Amended and Restated Credit Agreement,
                 dated October 31, 2000 (7)

   10.22    -  Form of Promissory Note dated March 5, 2001 (7)

   10.23    -  Letter Loan Agreement dated March 5, 2001 among EarthCare Company, Inc., EarthCare
                 Resource Management of South Florida, Inc. and EarthCare Acquisition Sub, Inc. (7)

   10.24    -  Guaranty Agreement dated March 5, 2001 from Donald F. Moorehead (7)

   10.25    -  Security Agreement dated March 5, 2001 from EarthCare Resource Management of South
                 Florida, Inc. (7)

   10.26    -  Security Agreement dated March 5, 2001 from EarthCare Acquisition Sub, Inc. (7)

   10.27    -  14.00% Convertible Debenture dated April 3, 2001 by EarthCare Resource Management of
                 Florida, Inc., EarthCare Resource Management of South Florida, Inc. and EarthCare
                 Acquisition Sub, Inc. (7)

   10.28    -  Convertible Loan Agreement dated April 3, 2001 by and between EarthCare Resource
                 Management of Florida, Inc., EarthCare Resource Management of South Florida, Inc.,
                 and EarthCare Acquisition Sub, Inc. as borrowers, EarthCare Company, as parent, and
                 Sagemark Capital, LP, as lender (7)

   10.29    -  Guaranty by Donald F. Moorehead dated as of April 3, 2001 in favor of Sagemark Capital,
                 LP (7)

   10.30    -  Asset Purchase Agreement by and between ISN Software Corporation and EarthCare Company,
                 dated October 31, 2000 (7)

   10.31    -  License Agreement by and between ISN Software Corporation and EarthCare Company, dated
                 October 31, 2000 (7)

   10.32    -  Assumption Agreement by ISN Software Corporation in favor of EarthCare Company, dated
                 October 31, 2000 (7)

   10.33    -  Promissory Note by ISN Software Corporation, dated October 31, 2000 (7)

   10.34    -  Mortgage and Security Agreement dated December 18, 2000 among EarthCare Resource
                 Management of Florida, Inc. and Community Bank of Manatee (7)

   10.35    -  Promissory Notes dated December 22, 2000 from EarthCare Resource Management of Florida,
                 Inc. to Marine Bank (7)

   10.36    -  Commercial Security Agreement dated December 22, 2000 among EarthCare Resource
                 Management of Florida, Inc. and Marine Bank (7)
</TABLE>

                                       81
<PAGE>   82
<TABLE>
 <S>        <C>
   10.37    -  Business Loan Agreement dated December 22, 2000 among EarthCare Resource Management of
                 Florida, Inc. and Marine Bank (7)

   10.38    -  First amendment to Guaranty dated April 14, 2000 among Donald Moorehead, Raymond Cash
                 and Bank of America, N.A. (7)

   10.39    -  Agreement and Plan of Reorganization dated July 7, 2000 between EarthCare Company and
                 certain persons relating to EarthCare Resource Management of Florida, Inc. (7)

   10.40    -  Agreement and Plan of Reorganization dated December 30, 2000 between EarthCare Company,
                 James Waters, and Solid Waste Ventures relating to EarthCare Resource Management of
                 Florida, Inc. (7)

   21       -  Subsidiaries of EarthCare Company (7)

   23       -  Consent of PricewaterhouseCoopers LLP (7)

   (1)      -  Incorporated by reference from the Company's Registration Statement on Form 10,
                 Registration No. 00024685, as amended

   (2)      -  Incorporated by reference from the Company's Annual Report on Form 10-K for the year
                 ended December 31, 1999

   (3)      -  Incorporated by reference from the Company's Current Report on Form 8-K dated March 1,
                 1999

   (4)      -  Incorporated by reference from the Company's Current Report on Form 8-K filed May 1, 1999

   (5)      -  Incorporated by reference from the Company's Current Report on Form 8-K dated February
                 15, 2000

   (6)      -  Incorporated by reference from the Company's current Report on Form 8-K dated March 10,
                 2000

   (7)      -  Exhibit is included with this filing
</TABLE>

         You may request a copy of this Annual Report on Form 10-K or its
exhibits by contacting the Chief Financial Officer of EarthCare. This Annual
Report on Form 10-K and its exhibits are also available at the website for the
Securities and Exchange Commission at www.sec.gov.

     (D)  FINANCIAL STATEMENT SCHEDULES REQUIRED BY REGULATION S-X

          None.

                                       82
<PAGE>   83

                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Annual Report on Form
10-K to be signed on its behalf by the undersigned, thereunto duly authorized.

                             EARTHCARE COMPANY

                             By: /s/  William W. Solomon, Jr.
                                 -----------------------------------------------
                                      William W. Solomon, Jr.
                                      Vice President and Chief Financial Officer

     Pursuant to the requirements of the Securities Exchange Act of 1934, the
following persons on behalf of the registrant and in the capacities and on the
date indicated have signed this report.

<TABLE>
<S>                                   <C>                                               <C>
/s/  Donald F. Moorehead, Jr.         Chairman, Chief Executive Officer                 April 19, 2001
---------------------------------     (Principal Executive Officer) and Director
     Donald F. Moorehead, Jr.

/s/  Raymond M. Cash                  Vice Chairman and Director                        April 19, 2001
---------------------------------
     Raymond M. Cash

/s/  Harry M. Habets                  President, Chief Operating Officer and Director   April 19, 2001
---------------------------------
     Harry M. Habets

/s/  Philip S. Siegel                 Director                                          April 19, 2001
---------------------------------
     Philip S. Siegel

/s/  Brian Rosborough                 Director                                          April 19, 2001
---------------------------------
     Brian Rosborough

/s/  Elroy G. Roelke                  Director                                          April 19, 2001
---------------------------------
     Elroy G. Roelke

/s/  William M. Addy                  Vice President of Marketing, Sales                April 19, 2001
---------------------------------     & Corporate Development, Director
     William M. Addy

/s/  William W. Solomon, Jr.          Vice President and Chief Financial Officer        April 19, 2001
---------------------------------     (Principal Accounting Officer), Director
     William W. Solomon, Jr.
</TABLE>

                                       83
<PAGE>   84

                               INDEX TO EXHIBITS
<TABLE>
<CAPTION>
 EXHIBIT
 NUMBER                                        DESCRIPTION OF EXHIBITS
 -------                                       -----------------------
 <S>        <C>
    3.1     -  Certificate of Incorporation of the Company dated May 13, 1998 (1)

    3.2     -  Bylaws of the Company (1)

    4.1     -  Article IV of the Company's Certificate of Incorporation (2)

    4.2     -  Article VI of the Company's Certificate of Incorporation (2)

    4.3     -  Preferred stock certificate of designations for 13,000,000 shares (7)

   10.1     -  Stock Purchase Agreement between EarthCare Company and Reifsneider Transportation, Inc.
                 dated February 26, 1999 (3)

   10.2     -  Stock Purchase Agreement between EarthCare Company and Charles Brehm, dated March 31,
                 1999 (2)

   10.3     -  Stock Purchase Agreement between EarthCare Company and National Plumbing & Drain, Inc.,
                 dated April 1, 1999 (2)

   10.4     -  Agreement and Plan of Merger, by and between EarthCare Company and Vince Hills, Michael
                 H. Patton, George Propes, Elizabeth Renee Propes, and David Christopher Propes,
                 dated as of April 5, 1999 (2)

   10.5     -  Asset Purchase Agreement between EarthCare Company and Rooter Plus, Inc., dated May 1,
                 1999 (4)

   10.6     -  Asset Purchase Agreement between EarthCare Company and AllenTate Commercial Software,
                 L.L.P., dated August 1, 1999 (2)

   10.7     -  Stock Purchase Agreement by and between EarthCare Company and Albert DiMaria, James
                 Frederico and Osiris Ramos, dated September 1, 1999 (2)

   10.8     -  Stock Purchase Agreement between EarthCare Company and Food Services Technologies, Inc.,
                 dated November 3, 1999 (2)

   10.9     -  Stock Purchase Agreement between EarthCare Company and John Hulsey, dated November 16,
                 1999 (2)

   10.10    -  Stock Purchase Agreement by and between EarthCare Company and World Fuel Services
                 Corporation, effective as of February 1, 2000 (5)
</TABLE>

<PAGE>   85

<TABLE>
 <S>        <C>
   10.11    -  Amended and Restated Credit Agreement by and between EarthCare Company, various
                 financial institutions, BankBoston, N.A. and Bank of America, N.A., dated as of
                 February 15, 2000 (2)

   10.12    -  Note Agreement by and between EarthCare Company and Donald Moorehead, Cash Family
                 Limited Partnership, Founders' Equity Group, Thomas P. Hughes and George O.
                 Moorehead, dated February 1, 2000 (2)

   10.13    -  Stock Purchase Agreement by and between EarthCare Company and All County Resource
                 Management Corporation, dated March 10, 2000 (6)

   10.14    -  Management Agreement by and between Liberty Waste, Inc. and EarthCare Company, dated
                 March 31, 2000 (2)

   10.15    -  Form of 10% Convertible Subordinated Debenture Due 2006 (2)

   10.16    -  First Amendment to the Amended and Restated Credit  Agreement, dated as of
                 April 14, 2000 among EarthCare Company, various financial institutions, and
                 Bank of America, N.A., as administrative agent (7)

   10.17    -  Second Amendment to the Amended and Restated Credit Agreement, dated as of October 31,
                 2000 among EarthCare Company, various financial institutions, and Bank of America,
                 N.A., as administrative agent (7)

   10.18    -  Third Amendment to the Amended and Restated Credit Agreement, dated as of April 13,
                 2001 among EarthCare Company, various financial institutions, and Bank of
                 America, N.A., as administrative agent (7)

   10.19    -  Guaranty for Amended and Restated Credit Agreement from Donald. F. Moorehead and Raymond
                 M. Cash, dated February 15, 2000 (7)

   10.20    -  Side letter agreement among EarthCare Company, Donald F. Moorehead and Raymond M. Cash
                 relating to Guaranty for Amended and Restated Credit Agreement, dated November 28,
                 2000 (7)

   10.21    -  Additional Guaranty from Donald Moorehead for Amended and Restated Credit Agreement,
                 dated October 31, 2000 (7)

   10.22    -  Form of Promissory Note dated March 5, 2001 (7)

   10.23    -  Letter Loan Agreement dated March 5, 2001 among EarthCare Company, Inc., EarthCare
                 Resource Management of South Florida, Inc. and EarthCare Acquisition Sub, Inc. (7)

   10.24    -  Guaranty Agreement dated March 5, 2001 from Donald F. Moorehead (7)

   10.25    -  Security Agreement dated March 5, 2001 from EarthCare Resource Management of South
                 Florida, Inc. (7)

   10.26    -  Security Agreement dated March 5, 2001 from EarthCare Acquisition Sub, Inc. (7)

   10.27    -  14.00% Convertible Debenture dated April 3, 2001 by EarthCare Resource Management of
                 Florida, Inc., EarthCare Resource Management of South Florida, Inc. and EarthCare
                 Acquisition Sub, Inc. (7)

   10.28    -  Convertible Loan Agreement dated April 3, 2001 by and between EarthCare Resource
                 Management of Florida, Inc., EarthCare Resource Management of South Florida, Inc.,
                 and EarthCare Acquisition Sub, Inc. as borrowers, EarthCare Company, as parent, and
                 Sagemark Capital, LP, as lender (7)

   10.29    -  Guaranty by Donald F. Moorehead dated as of April 3, 2001 in favor of Sagemark Capital,
                 LP (7)


   10.30    -  Asset Purchase Agreement by and between ISN Software Corporation and EarthCare Company,
                 dated October 31, 2000 (7)

   10.31    -  License Agreement by and between ISN Software Corporation and EarthCare Company, dated
                 October 31, 2000 (7)

   10.32    -  Assumption Agreement by ISN Software Corporation in favor of EarthCare Company, dated
                 October 31, 2000 (7)

   10.33    -  Promissory Note by ISN Software Corporation, dated October 31, 2000 (7)

   10.34    -  Mortgage and Security Agreement dated December 18, 2000 among EarthCare Resource
                 Management of Florida, Inc. and Community Bank of Manatee (7)

   10.35    -  Promissory Notes dated December 22, 2000 from EarthCare Resource Management of Florida,
                 Inc. to Marine Bank (7)

   10.36    -  Commercial Security Agreement dated December 22, 2000 among EarthCare Resource
                 Management of Florida, Inc. and Marine Bank (7)
</TABLE>

<PAGE>   86
<TABLE>
 <S>        <C>
   10.37    -  Business Loan Agreement dated December 22, 2000 among EarthCare Resource Management of
                 Florida, Inc. and Marine Bank (7)

   10.38    -  First amendment to Guaranty dated April 14, 2000 among Donald Moorehead, Raymond Cash
                 and Bank of America, N.A. (7)

   10.39    -  Agreement and Plan of Reorganization dated July 7, 2000 between EarthCare Company and
                 certain persons relating to EarthCare Resource Management of Florida, Inc. (7)

   10.40    -  Agreement and Plan of Reorganization dated December 30, 2000 between EarthCare Company,
                 James Waters, and Solid Waste Ventures relating to EarthCare Resource Management of
                 Florida, Inc. (7)

   21       -  Subsidiaries of EarthCare Company (7)

   23       -  Consent of PricewaterhouseCoopers LLP (7)

   (1)      -  Incorporated by reference from the Company's Registration Statement on Form 10,
                 Registration No. 00024685, as amended

   (2)      -  Incorporated by reference from the Company's Annual Report on Form 10-K for the year
                 ended December 31, 1999

   (3)      -  Incorporated by reference from the Company's Current Report on Form 8-K dated March 1,
                 1999


   (4)      -  Incorporated by reference from the Company's Current Report on Form 8-K filed May 1, 1999

   (5)      -  Incorporated by reference from the Company's Current Report on Form 8-K dated February
                 15, 2000

   (6)      -  Incorporated by reference from the Company's current Report on Form 8-K dated March 10,
                 2000

   (7)      -  Exhibit is included with this filing
</TABLE>

         You may request a copy of this Annual Report on Form 10-K or its
exhibits by contacting the Chief Financial Officer of EarthCare. This Annual
Report on Form 10-K and its exhibits are also available at the website for the
Securities and Exchange Commission at www.sec.gov.

     (D  FINANCIAL STATEMENT SCHEDULES REQUIRED BY REGULATION S-X

         None.