<PAGE>


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

                       SECURITIES AND EXCHANGE COMMISSION
                                WASHINGTON, D.C.


                                   FORM 10-K/A



[ ]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
         THE SECURITIES EXCHANGE ACT OF 1934


         FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000

         OR


[ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
         THE SECURITIES EXCHANGE ACT OF 1934



         FOR THE TRANSITION PERIOD FROM              TO
                                        ------------    ------------


                        Commission file number 000-23855

                            U.S. PLASTIC LUMBER CORP.
             (Exact Name of Registrant as specified in its charter)

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


              NEVADA                                     87-0404343
 (State or other jurisdiction of            (I.R.S. Employer Identification No.)
  incorporation or organization)


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

           2300 W. GLADES ROAD, SUITE 440 W, BOCA RATON, FLORIDA 33431
               (Address of Principal Executive Offices) (Zip Code)

                                 (561) 394-3511
              (Registrant's Telephone Number, Including Area Code)

        SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE

           SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:

                         COMMON STOCK, PAR VALUE $.0001
                                (Title of Class)


         Indicate by check mark whether the Registrant (1) filed all reports
required to be filed by Section 13 or 15(d) of the 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   [ ]  NO



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


         The aggregate market value of the voting common equity held by
non-affiliates of the registrant on February 28, 2001 based on the average bid
and asked price on such date, of $1.375 per share, was $31,770,117.

         The number of shares outstanding of the registrant's common stock as of
February 28, 2001 is 34,845,944.

         DOCUMENTS INCORPORATED BY REFERENCE: PART III -- Portions of the
Registrant's definitive Proxy Statement relating to its 2001 Annual Meeting of
Stockholders which will be filed with the Commission within 120 days after the
end of the registrant's fiscal year. Certain exhibits are incorporated by
reference to the Registrants' Registration Statement on Form SB-2 and amendments
thereto filed with the Securities and Exchange Commission on February 11, 1998
and July 22, 1998, respectively.

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


<PAGE>





                                     PART I

                                ITEM 1. BUSINESS

GENERAL


         We are a manufacturer and marketer of recycled plastic lumber products
and a provider of environmental recycling services. We were incorporated in
Nevada in June 1992. In March 1996, we acquired Earth Care Global Holdings, Inc.
as a wholly owned subsidiary through the acquisition of all the issued and
outstanding stock of Earth Care Global Holdings, Inc. in a stock for stock
exchange. At the time of this acquisition, we changed our name from Educational
Storybooks International, Inc. to U.S. Plastic Lumber Corp. As used in this
report, the terms "we," "us," "our," the "Company," and "U.S. Plastic Lumber"
mean U.S. Plastic Lumber Corp. and its subsidiaries.



         We have two distinct business lines, the plastic lumber division and
the environmental recycling division. U.S. Plastic Lumber Ltd., our wholly owned
subsidiary, operates the plastic lumber division, manufactures structural and
non-structural plastic lumber, and fabricates a variety of accessory products,
such as park and site amenities made from 100% recycled high density
polyethylene, a form of plastic. We also manufacture a composite decking product
made from plastic and wood fiber in addition to plastic sheet products,
cornerboards, and other items for the packaging industry. U.S. Plastic Lumber
Ltd. has one wholly owned subsidiary, The Eaglebrook Group, Inc. The Eaglebrook
Group, Inc. operates our Chicago plastic recycling and manufacturing operations.



PLEASE REFER TO THE CONSOLIDATED FINANCIAL STATEMENTS AND "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" FOR
SEGMENT FINANCIAL INFORMATION FOR THE PAST THREE YEARS.


         Clean Earth, Inc. operates our environmental recycling division
including fixed based plants providing thermal desorption and bioremediation,
environmental construction services, upland disposal of dredge materials,
beneficial re-use of industrial wastes, and on-site recycling services.

         Within the plastic lumber division, we operate a total of eight
manufacturing, processing, recycling and fabrication facilities throughout the
United States. The primary product produced in four of these plants is plastic
lumber profiles made from recycled plastic waste. Recycled plastic lumber is
manufactured in a variety of colors, profiles, and shapes including standard
lumber dimensions and many custom engineered profiles and shapes. Two of our
plants primarily manufacture packaging related products made from plastic. Two
of our plants are recycled plastic processing facilities, which include washing,
grinding, and pelletizing of post consumer and postindustrial plastic waste.
Some of the products from these facilities are used as raw material for our
manufacturing plants. Two of our four manufacturing plants also include recycled
plastic processing operations. Plastic lumber's principal intended use is as an
environmentally friendly and non-toxic alternative to pressure treated lumber
and rain forest hardwoods, which is suitable for and provides superior
performance in most outdoor applications.


         Within the environmental operations, we operate five facilities. Two of
our plants treat and recycle soil that has been contaminated with petroleum
hydrocarbons and similar compounds through a process known as thermal
desorption. Our third plant treats and recycles soil through a process, which is
bioorganic in nature. Our fourth plant treats and recycles soil through a
chemical treatment and cold mix process. Finally, we have a plant that
consolidates and stabilizes oils, solvents, and heavy metal contaminated waste
for disposal at unrelated companies.



                                       2
<PAGE>


         Our plastic lumber operation manufactures plastic profiles from
recycled waste plastic, and plastic composite lumber with additives including
wood and fiberglass, to produce a high quality, long lasting alternative to
pressure treated lumber. Plastic lumber provides superior performance in outdoor
uses and is suitable for most nonstructural and structural applications. We have
a license to use a patented technology and also own two patents to manufacture
structural plastic lumber. By producing a high quality recycled plastic lumber
product, we believe that we conserve natural resources through reducing the need
for lumber products made from wood. At the same time we reduce the amount of
plastic waste going into landfills while providing a longer lasting, useful
product. Our plastic lumber products are intended as an excellent replacement
for pressure treated lumber, which is treated with toxic chemicals to retard
decay and insect infestation. Plastic lumber is not subject to decay or insect
infestation and so will outlast wood, especially in applications exposed to
moisture. Recycled plastic lumber is environmentally friendly because it
eliminates potential pollution from these toxic chemicals leaching into the
environment.


         Clean Earth, Inc. operates plants in New Castle, Delaware,
Philadelphia, Pennsylvania, Carteret, New Jersey, Hagerstown, Maryland, and
Kearny, New Jersey. Clean Earth, Inc. also owns two environmental construction
companies: Integrated Technical Services, Inc., in Winslow, New Jersey and
Barbella Environmental Technologies, Inc. in Somerville, New Jersey. Clean
Earth, Inc. also owns Consolidated Technologies, Inc., which provides beneficial
re-use of dredge materials and upland re-use of dredge materials to reclaim
strip mines and brownfields properties.


         Our environmental division offers environmental recycling services and
operates several subsidiaries. Clean Earth of New Castle, Inc. and Clean Earth
of Philadelphia, Inc. operate low temperature thermal desorption treatment
plants that ensure that contaminated soil is treated in accordance with local,
state and federal regulations. This thermal treatment process removes petroleum
hydrocarbons from the soil. Federal and state agencies (including Delaware, New
Jersey, New York, Maryland, and Pennsylvania) have recognized this process as a
cost effective technology. Contaminated solids, soils, and construction debris
are recycled and reused in construction and industrial applications. Our
recycling center in New Castle, Delaware is in a prime location for servicing
the Northeast and Mid-Atlantic regions, where extensive remodeling and
rebuilding of infrastructure and abandoned industrial property is ongoing. This
division also operates Carteret Biocycle Corp., a bioremediation plant located
in Carteret, New Jersey, which also removes petroleum hydrocarbons from soil.
The plant is similar to Clean Earth of New Castle, Inc.'s facility except that
Carteret Biocycle Corp.'s process involves bio-organic destruction of petroleum
hydrocarbons whereas Clean Earth of New Castle, Inc.'s facility uses low
temperature thermal desorption to remove petroleum hydrocarbons from the soil.
The Clean Earth, Inc. division also has a subsidiary, Clean Rock Industries,
Inc., located in Hagerstown, Maryland that provides soil-recycling services in
the Maryland/Washington D.C. region. The Clean Earth, Inc. division also has a
subsidiary, S & W Waste, Inc., which is involved in the recycling and beneficial
re-use of industrial wastes. The plant is a permitted Resource Conservation &
Recovery Act facility. The remaining environmental recycling subsidiaries,
Integrated Technical Services, Inc., Barbella Environmental Technologies, Inc.,
and Consolidated Technologies, Inc., are involved in beneficial re-use of waste
products, upland re-use of dredge materials in strip mines and brownfields
properties, environmental construction services, and on-site recycling services.


FORWARD LOOKING STATEMENTS


         When used in this Annual Report, the words or phrases "will likely
result", "are expected to", "will continue", "is anticipated", "estimate",
"projected", "intends to" or similar expressions are intended to identify
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such statements are subject to numerous risks and
uncertainties, including but not limited to economic conditions, changes in laws
or regulations, exposure on providing extended warranties on



                                       3
<PAGE>


products, demand for products and services of the Company, access to capital,
dilution, expertise, newly developing technologies, loss of permits, conflicts
of interest and related party transactions, regulatory matters, protection of
technology, environmental concerns, ability to implement the Company's growth
strategy, seasonality, operating hazards and insurance coverage, lack of
industry standards, raw material commodity pricing, the ability to receive bid
awards, the effects of competition and the ability of the Company to obtain
additional financing. Such factors, which are discussed in "Risk Factors,"
"Business" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the notes to consolidated financial statements, could
affect the Company's financial performance and could cause the Company's actual
results for future periods to differ materially from any opinions or statements
expressed with undue reliance on any such forward-looking statements, which
speak only as of the date made. See "Risk Factors", "Business" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."


RECENT EVENTS





         On February 20, 2001, we received a Put Notice from the Halifax Fund,
L.P. relative to the 5% convertible debenture issued on February 5, 2000 in the
amount of $7,500,000. Pursuant to the Put Notice, we had the option to either
(a) repurchase the Outstanding Principal Amount plus all accrued, unpaid
interest for a cash price equal to 110% thereof, or (b) have the Minimum
Floating Conversion Price permanently re-set to zero. Prior to the Put Notice,
the Minimum Floating Conversion Price was $8.25 per share; however, since the
stock price of our common stock had traded for less than $8.25 per share for ten
consecutive trading days ending February 16, 2001, Halifax Fund L.P. had this
right of re-set



                                       4
<PAGE>

or buy-out. We did not elect option (a); therefore the Minimum Floating
Conversion Price has permanently re-set to zero.


         On February 28, 2001 and March 31, 2001, we issued 571,429 shares of
its Series E Preferred Stock to the Stout Partnership in exchange for a payment
to the Company of $500,000 on each of the aforesaid dates. The stock pays a
monthly cash dividend at an annual rate of 10%. Each share of Preferred Stock is
convertible into one share of the Company's common stock at the option of the
holder, subject to specific rights of the Company. The Company at its sole
option can redeem the Preferred Stock at 110% of the initial purchase price in
cash prior to December 31, 2001. In addition, if the common stock of the Company
is trading at an average closing price of $1.75 per share or higher for 20
consecutive trading days at any time prior to March 1, 2002 we have the right to
require conversion of the Preferred Stock into common stock. Otherwise, the
Preferred Stock automatically converts into common stock on March 1, 2002.



         On March 2, 2001, under the terms of the common stock purchase
agreement, in connection with the commencement of the first tranche, Fusion
Capital Fund II, LLC received 200,000 shares of common stock as a commitment
fee. Unless an event of default occurs, Fusion Capital must hold these shares
until the common stock purchase agreement has been terminated.



         On March 15, 2001, we entered into a Waiver and Second Amendment to the
Credit Facility Agreement ("Waiver and Second Amendment") with our senior
lenders, Bank of America, LaSalle National Bank and Union Planters Bank, in
which they agreed to waive past defaults on our senior credit facility and the
Waiver and First Amendment. The Waiver and Second Amendment required that, among
other things, we maintain our financial condition and operating profit within
the defined parameters including ratios involving earnings before interest,
taxes, depreciation and amortization and interest expense. In addition, the
Waiver and Second Amendment contains a provision which requires the Credit
Facility to be refinanced or paid in full by April 2002.


         On March 30, 2001, we entered into an Amendment on the Master Credit
Facility with GE Capital to waive the Tangible Net Worth Covenant for the 4th
Quarter 2000 and amended the covenant for each quarter of 2001. Additionally, we
have agreed to accelerate a portion of its principal payments.

HISTORY AND DEVELOPMENT OF THE COMPANY

         In March 1996, U.S. Plastic Lumber Corp. was formed when we entered
into an Agreement and Plan of Reorganization with Earth Care Global Holdings,
Inc., a manufacturer and marketer of recycled plastic products. Pursuant to this
Agreement and Plan of Reorganization, we effected a reverse split of our common
stock on a 1 for 16 basis, and then issued 4,196,316 post split shares of our
authorized but previously unissued common stock to acquire all the issued and
outstanding stock of Earth Care in a stock for stock exchange.


                                       5
<PAGE>


         We completed the following acquisitions during the period from 1996
through 2000:



<TABLE>
<CAPTION>
                                                 DATE OF               DESCRIPTION OF                     TYPE OF
             COMPANY ACQUIRED                  ACQUISITION                 BUSINESS                      ACQUISITION
-------------------------------------------   --------------   ----------------------------------      ---------------

<S>                                           <C>              <C>                                     <C>
DuraTech Industries........................    April 1996      Manufacture of recycled plastic         Asset Purchase
                                                               lumber in Lake Odessa, Michigan

Clean Earth, Inc...........................    December 1996   Treatment of contaminated soil          Merger
                                                               and construction debris

Recycled Plastics Industries, Inc..........    January 1997    Manufacture of specialty profile        Acquisition
                                                               recycled plastic lumber products
                                                               in Green Bay, Wisconsin
Advanced Remediation and Disposal
  Technologies, Inc........................    February 1997   Environmental construction and          Merger
                                                               clean up of contaminated
                                                               industrial sties

Environmental Specialty Plastics, Inc......    March 1997      Marketing, fabrication and              Acquisition
                                                               distribution of recycled plastic
                                                               products in Guasti, California

Integrated Technical Services, Inc.........    March 1997      Environmental construction and          Acquisition
                                                               clean up of contaminated
                                                               industrial sties in Winslow, New
                                                               Jersey

EnviroPlastics Corporation.................    June 1997       Processing of recycled plastic in       Acquisition
                                                               Auburn, Massachusetts

Interstate Industrial Corp.................    July 1997       Dredging and upland disposal            Joint Venture
                                                               projects in Clifton, New Jersey         Partnership

Waste Concepts, Inc........................    November 1997   Removal and recycling of waste          Acquisition
                                                               products

Green Horizon Environmental, Inc...........    January 1998    Removal and recycle of waste            Acquisition
                                                               products

Consolidated Technologies, Inc.............    February and    Disposal of dredge materials for        Acquisition
                                               June 1998       use in strip mines in
                                                               Pennsylvania

Chesapeake Recycled Lumber.................    March 1998      Manufacturer of plastic lumber          Asset Purchase

Cycle-Masters, Inc.........................    May 1998        Manufacture of plastic lumber in        Acquisition
                                                               Sweetser, Indiana

GeoCore, Inc...............................    June 1998       Environmental services company in       Acquisition
                                                               New Jersey

Trimax of Long Island Inc. and Polymerix,      June 1998       Manufacture of structural lumber        Asset Purchase
 Inc.......................................                    in Ronkokoma, Long Island

S & W Waste, Inc...........................    December 1998   Recycling and re-use of                 Acquisition
                                                               industrial waste

Eaglebrook Plastics, Inc. and Eaglebrook
  Products, Inc............................    January 1999    Manufacture of plastic lumber in        Merger
                                                               Chicago, Illinois

Brass Investments, Inc.....................    March 1999      Holding company for Soil                Acquisition
                                                               Remediation of Philadelphia, Inc.
                                                               and Allied Waste Services, Inc.

Soil Remediation of Philadelphia, Inc......    March 1999      Soil remediation in Philadelphia,       Acquisition
                                                               Pennsylvania

Allied Waste Services, Inc.................    March 1999      Environmental services company          Acquisition


Brigadoon Industries, Inc..................    April 1999      Manufacture of plastic lumber in        Acquisition
                                                               Ocala, Florida

Barbarella Environmental Technologies,         June 1999       Environmental construction and          Acquisition
 Inc.......................................                    clean-up of contaminated
                                                               industrial sites

Eureka Plastics, Inc. and EcoSource            June 1999       Environmental construction and          Acquisition
 Plastics, Inc.............................                    clean-up of contaminated
                                                               industrial sites

Clean Rock Properties, Ltd.................    December 1999   Holding company for real estate         Acquisition
                                                               of Clean Rock Industries, Inc.

Clean Rock Industries, Inc.................    December 1999   Recycling of contaminated soils         Acquisition

Baron Enterprises, Inc.....................    February 2000   Manufacture of tier sheets and          Asset Purchase
                                                               slip sheets from recycled plastic
</TABLE>



                                       6
<PAGE>


CORPORATE STRUCTURE

         We are a holding company for our wholly-owned subsidiaries: (i) U.S.
Plastic Lumber Ltd., a Delaware corporation, which has been formed to act as a
holding company for all operating recycled plastic lumber subsidiaries, (ii)
Clean Earth, Inc., a Delaware corporation, the holding company which owns all
operating environmental recycling subsidiaries, and (iii) U.S. Plastic Lumber
Finance Corporation, a Delaware holding company which was established to provide
financing to our subsidiaries. A list of our indirect subsidiaries is presented
below.


         We implemented a corporate restructuring as of December 31, 1998, in
which we merged many of our subsidiaries together. Recycled Plastic Industries,
Environmental Specialty Products, EnviroPlastics, Earth Care of the Midwest,
Earth Care of Tennessee, Chesapeake Plastic Lumber, and CycleMasters were merged
into U.S. Plastic Lumber Ltd. Within the environmental division, Green Horizon
Environmental was merged into Waste Concepts Inc., and Waste Concepts Inc. and
GeoCore were subsequently merged into Integrated Technical Services. Advanced
Remediation and Disposal Technologies, Inc. had previously been merged into
Integrated Technical Services.


U.S. Plastic Lumber Ltd. Subsidiary:

The Eaglebrook Group, Inc., a Delaware corporation

Clean Earth, Inc. Subsidiaries:

Advanced Remediation of Delaware, Inc., a Delaware corporation
Allied Waste Services, Inc., a Delaware corporation
Barbella Environmental Technologies, Inc., a New Jersey corporation
Carteret Biocycle Corporation, a Delaware corporation
Carteret Materials Corporation, a Delaware corporation
Clean Earth of New Castle, Inc., a Delaware corporation
Clean Earth of Maryland, Inc., a Maryland corporation
Clean Rock Properties, Ltd., a Maryland corporation
Consolidated Technologies, Inc., a Pennsylvania corporation
Integrated Technical Services, Inc. a Delaware corporation
S & W Waste, Inc., a New Jersey corporation
Clean Earth of Philadelphia, Inc., a Delaware corporation

U.S. Plastic Lumber Finance Corporation Subsidiary:

U.S. Plastic Lumber IP Corporation, a Delaware corporation


RECYCLED PLASTIC LUMBER OPERATION


         Products. During the past several years, we believe our recycled
plastic lumber division has positioned itself to be a leading manufacturer of
recycled plastic lumber, a newly emerging industry. Recycled plastic lumber is
manufactured in a variety of colors, profiles, and shapes including standard
lumber dimensions and a variety of custom engineered profiles and shapes.

         Our recycled plastic lumber products are primarily made from 100%
recycled, post-consumer, and post-industrial plastics and are used for numerous
municipal, commercial, and residential


                                       7
<PAGE>
applications. We also manufacture a composite lumber product consisting of
plastic and wood fiber. Our products are primarily manufactured for the building
products industry, custom commercial and industrial uses, and the
packaging/shipping industry. Our products are manufactured using a non-toxic
material that is an environmentally friendly alternative to pressure treated
lumber and rain forest woods and provides superior performance for most
nonstructural, outdoor applications where traditional wood is subject to
moisture damage and rotting. We also produce structural plastic lumber
manufactured from a patented process. We believe that our products offer these
unique advantages:

         -        Environmentally friendly and non-toxic

         -        Virtually maintenance free

         -        Promote conservation of trees and reduce use of exotic rain
                  forest hardwoods

         -        Can be worked with conventional tools

         -        Aesthetically pleasing wood-like textured surface

         -        Splinter proof -- never rots

         -        Not affected by termites, ants, or other woodborers

         -        Not affected by moisture

         -        No splitting, cracking, or chipping

         -        Holds nails and screws 40% better than wood

         -        No toxic leaching into soil or groundwater

         -        Most graffiti easily washes off

         Products built with our recycled plastic lumber have the appearance of
freshly stained or painted wood but the longevity and maintenance-free qualities
of plastic. Recycled plastic products are an ideal replacement for wood, metal,
and concrete in numerous applications, including most non-structural exterior
functions. Some of the potential applications include:

         -        Decking systems and platforms, including supporting structures
                  and railings, for residential and commercial projects

         -        Packaging products such as cornerboards used in shipping
                  produce worldwide or slipsheets used in material handling
                  applications

         -        Commercial, municipal, and residential applications such as
                  park benches, picnic tables, trash receptacles, stadium seats,
                  planters, landscaping ties, and similar other uses

         -        Trailer, farm equipment, and railroad box car flooring

         -        Industrial applications such as pallets, walkways in chemical
                  plants, catwalks on factory roofs, coil cradles, and other
                  specialized applications


                                       8
<PAGE>

         -        Sanitary animal pen flooring

         -        Railroad ties


         -        Sea pilings and marine bulkheads


         -        Original Equipment Manufacture custom profiles


         Distribution of the products varies by the type of product. Original
Equipment Manufacture, transportation, and packaging products are sold directly
to end-users. Our decking and railing systems are primarily distributed through
a two-step distribution process. We sell to a building supply company who, in
turn, distributes to mass merchants, lumber yards, and others. For products that
we fabricate, such as park benches, trash receptacles, and others, they are
primarily distributed directly to end-users or in response to government
bidding. We are not dependent upon a single customer or a few customers for the
sale of these products. No single customer accounts for 10% or more of our
consolidated revenues.



         Manufacturing and Recycling Facilities. The Chicago, Illinois
manufacturing facility (approximately 400,000 sq. ft.) operates eleven extruders
that utilize a vacuum calibration continuous flow forming manufacturing line.
This process allows for the manufacture of many special profiles, in any length,
that cannot be produced with conventional roll forming or closed mold systems.
This facility also provides processing of post consumer and postindustrial
plastics, which we utilize as raw material. This facility is the headquarters to
all of our plastic lumber operations. One of the specialty products developed at
this facility is "Smart Deck"(R), a composite product, consisting of plastic and
wood, used for decks in commercial and residential applications. The Smart
Deck(R) product line was developed to compete directly with several
manufacturers of composite deck product throughout the country. In addition, a
plastic slip sheet product, DuraPack(R), and other packaging products are
manufactured at this facility to service the packaging industry. We intend to
expand our production capacity at this facility using equipment from some of our
smaller operations, which during the current year will be consolidated into our
regional facilities.


         The Ocala, Florida manufacturing facility currently operates four
extruders utilizing continuous flow production. This facility produces products
for our packaging division primarily consisting of corner board for the produce
shipping industry worldwide. The facility consists of approximately 140,000 sq.
ft. on 37 acres of land. Additionally, four additional extruders in this
facility are utilized to manufacture our "Smart Deck"(R) product line. This
facility also provides processing of post consumer and postindustrial plastics,
which we utilize as raw material.

         The Sweetser, Indiana manufacturing facility currently has five
extruders utilizing continuous flow production and is approximately 15,600 sq.
ft. This facility produces lumber product primarily for industrial and
commercial customers. The product in this facility is often customized to meet
the specifications of an Original Equipment manufacturer. We currently intend to
relocate the production capacity from this facility to our Chicago facility.

         The Denton, Maryland manufacturing facility currently has eight
extruders utilizing continuous flow production. It produces lumber product
focusing on production of our "Carefree Decking Systems"(R). The plant contains
80,000 square feet.

         The Trenton, Tennessee manufacturing facility currently has two
continuous flow extruders. It is approximately 90,000 sq. ft. The focus of the
production in Tennessee is large dimensional plastic lumber, such as structural
lumber, engineered products such as marine piling cores, retaining wall timbers,
and prototype products including the railroad crosstie, highway guardrail posts,
and highway


                                       9
<PAGE>

spacer blocks. This facility also produces plastic in assorted specialty shapes
such as bench ends and table legs produced in a mold rather than an extruder.

         The Fontana, California facility is our newest operation and consists
of approximately 136,000 sq. ft. We have one operation near the Fontana plant,
located in Chino, California, that processes post consumer and postindustrial
plastics, which we utilize as raw material. Currently, the focus of the Fontana
facility is manufacturing our packaging product, namely cornerboard, and
fabrication of value added products.

         Our Denver, Colorado facility currently has two extruders and consists
of approximately 44,800 sq. ft. This facility only produces slipsheets and tier
sheets for our packaging division, which product is sold to the beverage
industry.


         As a result of management's restructuring of plastic lumber operations,
which commenced in the fourth quarter of 2000, we have committed to a plan to
consolidate some of our smaller plants, including those located in Sweetser,
Indiana, Green Bay, Wisconsin, Vernon, California and Reidsville, North Carolina
into our regional hub facilities. As a result, we have closed or idled three of
our smaller operations and plan to close a fourth facility by the end of the
second quarter of 2001. See "Management's Discussion of Financial Condition and
Results of Operations -- Restructuring, Equipment and Inventory Impairment
Charges."



         Our manufacturing process involves proprietary technologies and
specialized manufacturing equipment that was custom built or modified to our
specifications. The manufacturing process utilizes granulated and/or densified
recycled plastic, which in some cases, contains additives formulated for desired
end use characteristics of the product. A key advantage of the process is the
ability to utilize recycled plastic waste to create a consistent material that
can be extruded into a desired shape. While the end product maintains many of
the desirable properties of traditional wood materials, it also has superior
characteristics such as moisture resistance, which give it an advantage over
wood for many applications.


         The primary product of our manufacturing process is plastic profiles in
various sizes ranging from 3/8" x 1", to 10" diameter profiles in various
lengths and a variety of packaging related products such as cornerboard, slip
sheets and tier sheets. We also market and sell various engineered or value
added products for specific applications, in which the plastic lumber is used to
make the finished product.

         The manufacturing process, which primarily uses 100% recycled plastic
raw material, consists of three stages. First, the recycled plastic materials
received at the plant are identified and categorized by resin type. These
materials are processed through a series of grinding, densifying and other
operations to a consistent particle size. The ground plastic resins are then
blended with other ingredients such as colorant and UV stabilizers to prepare
specific mixes for the products that the plant produced. Second, the plastics
are heated, mixed, and compounded into a thick molten composite which is
extruded through either closed mold, roll forming, or vacuum calibration
finishing lines into specified shapes or profiles using equipment specifically
designed for processing recycled materials. Finally, the extruded products are
cooled in a downstream process, and the resulting profiles are inspected and cut
to specific lengths. The product is then ready to be packaged for shipping. We
utilize only recycled polyethylenes and do not use plastics with PVC, toxic
chemicals, insecticide, or paint residues. We use composite materials for
manufacturing our structural lumber product line and our Smart Deck(R) line of
products. Our manufacturing process produces no harmful environmental
by-products or hazardous waste.

         Raw Materials Supply. We obtain most of our mixed plastics feedstock
through our own operations or from firms who obtain these materials from a large
variety of recycling facilities, including municipal recycling programs, as well
as plastics discarded in various industrial and manufacturing


                                       10
<PAGE>

processes. We are not dependent on any one source to obtain our supplies. We
believe the raw material feedstock is currently purchased from sources that are
dependable and adequate for at least short term and medium term manufacturing
requirements. Availability of raw material has not been a problem for us.
Generally, we attempt to maintain raw material inventory sufficient to supply
our manufacturing requirements for approximately two months, and management
believes that suitable alternative sources are available in the event of
disruption. In the past, we have not experienced any significant disruptions
from a lack of raw material availability or other supply problems. However, the
cost of recycled plastics has been subject to cyclical market fluctuations over
the past several years based on supply and demand. Therefore, no assurances can
be given that raw materials will always be available at commercially reasonable
prices. We are generally of the belief that if significant increases in demand
for recycled plastics of a lasting nature were to occur, the potential supply of
recycled plastics could easily be expanded to meet any lasting increase in
demand. We believe that both supply and demand will continue to increase as
public awareness of the need to recycle plastic waste increases. However, any
disruption of supply arrangements or significant lasting increases in raw
materials prices could have a material adverse effect on our operations.


         Research and Development. We are the only manufacturer of 100% recycled
plastic lumber that has received a successful evaluation report from BOCA
Evaluation Services, Inc., indicating compliance of our Carefree Decking(R) and
Carefree(R) Guardrail System with national building code requirements. BOCA
Evaluation Services, Inc. is a national testing organization that evaluates
building products. Qualified third party laboratories determine compliance with
national building code standards. We are in the process of applying for
evaluation reports for products manufactured by us. We have not incurred any
significant research and development expenditures during the last three years.


         Proprietary Technology. We are generally of the belief that maintaining
state of the art technology in our formulations, molds, and manufacturing
processes and maintaining the proprietary nature of that technology through
trade secrecy is more important to maintaining a competitive position in the
industry than seeking any legal protections that patents may provide. However,
we own two patents on our structural lumber product and have a worldwide license
on the Rutgers patent. We purchased the two patents as part of the
Polymerix/Trimax asset acquisition through the bankruptcy court. The first
Trimax patent expires on July 9, 2008, and the second patent expires on May 18,
2010. We have a patent application pending for process and composition relating
to the manufacture of wood fiber and polymer composite. We believe these patents
are important because they provide us with a competitive position in the market.

         We have several license agreements relative to patented technologies of
others. The Rutgers patent expires on August 4, 2015. Our license agreement with
Rutgers has a duration that extends the life of the patent depending upon us
maintaining our contract rights with Rutgers. We have a license with Paul Adam
for the manufacturing and commercial sale of contaminated or impacted dredge
material from a wide variety of industrial waste streams that we use in our
environmental division. The Adam License extends for the duration of the Adam
patent, December 5, 2011, unless either party to the License seeks to terminate
the agreement earlier for reasons set forth in the License Agreement. We also
have a non-exclusive license with the Strandex Corporation to manufacture
composite lumber products. The Strandex License Agreement expires on April 22,
2011.

         We have several registered trademarks and several more currently
pending application for registration. The registered trademarks of the Company
are as follows: Carefree Decking System(R), Smartdeck(R), Clean Earth(R),
Integrated Technical Services(R), Recyclemaid(R), Cyclewood(R), Trimax(R),
Durawood(R), Durapack(R), RecycleDesign(R), Global Garden(R), SmartTrim(R),
Duratie(R), CrushGuard(R) and GripGuard(R). We take an aggressive attitude
toward the protection of our proprietary technology.


                                       11
<PAGE>


         Competition and Barriers to Entry. The recycled plastic lumber industry
is a young, highly fragmented industry with over 20 small manufacturers and many
more marketers of recycled plastic lumber. The competition is broken down into
two separate categories: plastic lumber manufacturers using strictly
high-density polyethylene and manufacturers that use a mixture of high density
and other polymers to produce a less expensive product.



         We primarily use only high-density polyethylene and additives at all of
our plants. The major competitors in this segment of the market include NEW
Plastics Corp., Luxemburg, Wisconsin and a variety of small "mom and pop"
organizations. We attempt to compete with these competitors on the basis of
price, quality, and service. Two competitors who manufacture commingled plastic
are The Plastic Lumber Company, Inc., Akron, Ohio and Hammer's Plastics
Recycling, Iowa Falls, Iowa.


         Several competitors exist that manufacture a composite product that
consists of a mixture of wood and plastic. TREX(R), TimberTech, Louisiana
Pacific and AERT are competitors of the Company who use a plastic composite
material made with sawdust used to manufacture primarily deckboard. TREX(R) has
a strong distribution system in place and has the most widely disseminated
product of all of our competitors. We compete directly against the composite
deck manufacturers through our Smart Deck(R) product.

         We believe that our competitive position in the market has increased
substantially over the last twelve months. In large part this is due to several
factors, including wider distribution of our products nationally, cross-selling
of separate products to the entire distribution network, increased purchasing
power which can lower our cost basis, and a strong management team with a long
history of success in this industry.


         We manufacture recycled plastic lumber which will be in direct
competition with conventional wood in most of its applications. At present, the
principal competitive disadvantage of recycled plastic lumber compared to wood
is that recycled plastic lumber is generally more expensive to purchase.
Recycled plastic lumber is comparable in price to high-grade cedar and redwood.
Composite lumber is about 20% less expensive than recycled plastic lumber.
Recycled plastic lumber and composite lumber can be more expensive to initially
purchase than comparable wood, but recycled plastic lumber and composite lumber
can be more cost effective because they can substantially outlast wood,
particularly in applications where the lumber is exposed to the elements. We
also believe that environmental restrictions are presently impeding forestry
operations in United States forests. A second factor impeding the use of
pressure treated wood is the toxic leaching characteristics. Chemicals injected
into pressure treated wood contain hazardous constituents that are released into
the soil and create potentially hazardous conditions. These factors may reduce,
if not eliminate, any price advantage that pressure treated wood presently has
with respect to its initial cost.


         There are significant barriers to entry for this line of business.
First and foremost, the technology and cost of development of a successful
product is time consuming and costly. Second, there is a large capital
investment required to build the plants, purchase the equipment necessary to
operate the facilities, and market the product on a national level. In order to
penetrate the market successfully, a company needs to establish a national
presence with the ability to produce in sufficient volumes to attract major
distributors. This type of operation requires technically trained individuals to
operate and ensure that the facility remains in strict compliance with our
formulas and quality control procedures to maintain product consistency on a
national basis.

         Potential Markets. By producing a suitable recycled plastic lumber and
composite lumber product, we conserve natural resources, reduce the plastic
waste entering landfills, and provide a useful, maintenance-free product that
satisfies this growing market. One of the major markets for recycled plastic

                                       12
<PAGE>


lumber and composite lumber is as a substitute for pressure treated lumber.
There are currently a number of states that have either passed laws or have on
their legislative agenda, restrictions on the use and disposal of pressure
treated lumber. The pressure treating process injects Chromated Copper Arsenate
"CCA" (all carcinogens) into the wood. Pressure treated wood has legislative
restrictions in some states on its disposal in toxic waste landfills. Plastic
and composite lumber is a safe alternative that is fully recyclable and
maintenance-free. Home Depot, Inc. and Lowes Inc., leading home improvement
retailers whom carry our decking product in some of their stores, have announced
during the last year that they will curtail purchases of hardwood lumber that
are having an adverse environmental impact. Our product consists of both
structural and non-structural profiles, which are an excellent substitute for
many exterior uses for traditional wood lumber.


         In July 1994, we began to participate in a cooperative venture with
Rutgers University, Norfolk & Southern Railroad, Conrail, and the US Army Corps
of Engineers Research Laboratories. The cooperative venture was formed to
develop a prototype railroad crosstie made from commingled plastic. Rutgers
University performed extensive tests on many formulas. We developed a prototype
that is superior in many ways to the creosote wood crosstie. Norfolk & Southern
and Conrail are currently track testing the new prototype. Our cross ties have
approximately 300 MGT (million gross tons) of service and are performing without
any measurable defects. In contrast, creosote wood ties installed at the same
time have experienced noticeable wear.


         Presently, approximately 180,000 miles of class one railroad track are
being utilized in the United States, with approximately 3,334 crossties per mile
or a total of over 600,000,000 ties in place. In 1999, 15,000,000 crossties were
replaced in the United States, 93% of which were wood ties, and 65,000,000 cross
ties were replaced worldwide. In 1999, the worldwide market for replacing
crossties was approximately $2.5 billion. In some applications, the creosote
wood crosstie may have an expected useful life of less than 5 years, creating a
large demand for the more durable recycled plastic crossties that have an
estimated useful life in excess of 50 years. Moisture, extreme temperature
fluctuations, and location relative to curves and switches are some conditions
which shorten creosote wood tie life. Railroads know from extensive experience
which locations require highest maintenance. These locations will be the initial
target areas for our longer lasting polymer crossties.


         Sufficient test data shows that the plastic railroad tie performs well
enough to enable us to market our railroad tie product to the railroad industry.
The primary issue in our growth plans regarding the plastic railroad tie is
cost. Our current pricing structure is approximately double the cost of a
comparable wood tie. We market our tie on the basis of life cycle cost savings.
We cannot assure you that our marketing strategy will succeed in creating demand
for our railroad tie product.

         During the last twelve months, we have also introduced, several
products specified for original equipment manufacturers. Some of these products
are gaining wide acceptance in such diverse industries such as the door, hot
tub, beverage, trucking and roll or sheet steel industries. Durability of our
product and reduced life cycle costs have been the primary factor in growing
sales in each of these segments of our business.

         Marketing Strategies. Our business and operations are divided into
three distinct divisions: (i) building products, including Carefree Decking(R),
Smartdeck(R), and Trimax structural lumber; (ii) engineered products, including
fabricated products, railroad ties, marine & government, and Original Equipment
manufacture "OEM"/industrial businesses; packaging products, including
DuraPack(R) plastic slipsheets, tier sheets, corner board, and other related
packaging products; and (iii) recycled resins division, including post consumer
and industrial plastic processing and trading of engineering grade resins.


                                       13
<PAGE>


         We employ market focused Sales Specialists and industry specific
representatives to market and sell our products. We utilize traditional sources
of sales including attending trade shows, select advertising, cold calling, and
customer referrals. We also market and sell through distributor relationships.
We are seeking to expand our distribution network nationwide in some markets.


         We focus our selling strategy on the high quality, maintenance-free
aspect of our product along with our superior customer service. We also focus on
the benefits of our products. Benefits include being maintenance free, 100%
recycled, environmentally sensitive, aesthetically pleasing in appearance, free
from rot and insect infestation, and durable. Our sales are not dependent upon a
few customers, but rather we currently have a broad base of customers.

         We have experienced a seasonal slow-down in the winter months during
the past three years, but we are attempting to reduce the seasonality of our
sales. We can do this by increasing our marketing efforts in warmer climates of
the U.S. during winter months, by supplying product for custom items which are
not as seasonal, and by increasing our industrial products sales which tend to
be less seasonal in nature.

         Government Regulation and Environmental Matters. Although the recycled
plastic and composite lumber operations do not generate significant quantities
of waste materials or hazardous substances, our operations are and will in the
future be subject to numerous existing and proposed laws and regulations
designed to protect the environment from waste materials and particularly
hazardous wastes emissions. We are subject to federal, state and local laws
regarding the environment, occupational health and safety, and other regulations
applicable to our business. See "-- Environmental Recycling Operation --
Regulatory Matters" for additional discussion of environmental regulations
affecting the Company's business. The primary regulations affecting the plastic
lumber divisions are air quality emissions from our manufacturing plants,
disposal of solid and liquid wastes, wastewater, and storm water discharge. We
do not believe that our waste disposal practices and manufacturing processes
will be in violation of any existing or presently proposed law or regulation or
require special handling permits or procedures or otherwise result in
significant capital expenditures that would have a material adverse effect on
operations. Currently, costs of compliance with regulatory requirements for the
plastic lumber division do not materially impact our financial condition,
although many times the delays in approving permit modifications can slow our
ability to quickly adapt to changing market conditions. However, we cannot
assure you that regulatory requirements will not in the future adversely affect
operations or require the introduction of costly additional manufacturing or
waste disposal practices, which could adversely affect our financial condition.
Additionally, as with manufacturing practices in general, if we release any
hazardous substance, such a release could have a material adverse effect whether
we (i) directly or indirectly cause the release; or (ii) the release comes from
any of our owned or leased properties; or (iii) the release comes from any
associated offsite disposal of our wastes; or (iv) the release comes from prior
activities on our owned or leased property.


ENVIRONMENTAL RECYCLING OPERATION



         Products and Services. We offer a wide array of services in this
operation including soil treatment through either thermal desorption or
bioremediation, environmental construction services, upland disposal of dredge
materials, beneficial re-use of industrial wastes, and on-site recycling
services. We have a broad base of customers, and we are not dependent upon a
single customer or a few customers for the sale of these services. No single
customer accounts for more than 10% of our consolidated revenues.


         Clean Earth of New Castle, Inc. and Clean Earth of Philadelphia, Inc.
provide a safe, cost effective and final solution to the environmental problem
of dealing with soils and construction debris


                                       14
<PAGE>

contaminated with petroleum hydrocarbons such as diesel fuel, heating fuel,
kerosene, jet fuel, and gasoline. This solution is to treat these soils so they
can be recycled as clean fill. The treatment process heats the contaminated
soils in a controlled environment to a point that the contaminants are volatized
into a gas phase and then incinerated in an afterburner. In 1995, Clean Earth of
New Castle, Inc. modified its plant to recycle products at higher temperatures
(up to 1,100 degrees Fahrenheit). Clean Earth of New Castle, Inc. is now capable
of treating soils contaminated with heavier products such as number six oil,
refinery wastes, waste oils, and coal distillates such as coal tar. The facility
is currently seeking two permit modifications from the Delaware Environment and
Natural Resources Commission to help reduce costs. One permit modification
allows the facility to burn waste oil rather than natural gas in winter months.
Natural gas is at its highest cost in winter months and waste oil is generally
less expensive. Switching to waste oil as a fuel in the winter months enables
more efficient costs, which translates to improved operating margins. The
Delaware Environment and Natural Resources Commission has also approved the
second permit modification for accepting sewer sludge into the process. The
addition of sewer sludge significantly reduces the volume of water which the
plant consumes, increases the volume of clean soil, and generates additional
revenue for us.


         Carteret Biocycle Corp. was founded in 1997 and opened its facility for
business in the third quarter of 1998 in Carteret, New Jersey. This facility
serves a similar function as Clean Earth of New Castle, Inc., except that it
remediates soil contaminated with petroleum hydrocarbons through a bioorganic
process. This facility's operational costs are substantially less than thermal
desorption, yet the tipping fee (the fee it charges its customers to treat
wastes at the facility) is similar to the tipping fee at the Clean Earth of New
Castle, Inc. facility. In addition, Carteret Biocycle Corp. is strategically
located to receive materials by truck, rail, or barge. This location is also
well suited to receive dredge materials from the New York/New Jersey harbor,
transferring the dredge materials to rail and shipping the material for
disposition in Pennsylvania strip mines. We believe we are positioned to be one
of very few companies able to take advantage of this new market.


         We also acquired Clean Rock Industries, Inc., a soil recycling
facility, in December 1999. Located in Hagerstown, Maryland, this site is well
positioned to take advantage of the soil market from Washington, D.C. through
Maryland. In conjunction with our Delaware, Philadelphia, and New Jersey
facilities, we are strategically positioned to exert a dominant influence in the
soil recycling market in the New York to Washington D.C. corridor.

         Our beneficial re-use operation, known as Consolidated Technologies,
Inc., was acquired in early to mid 1998. Consolidated Technologies, Inc.
oversees the business of beneficial re-use of industrial wastes including the
upland re-use of dredge materials. We believe that this area will provide one of
the most important strategic growth opportunities available to us, and in the
environmental industry in general. Consolidated Technologies, Inc. is an
environmental industry group formed with a mission to provide research and
operations for the beneficial re-use of dredged materials from the Raritan
Estuary (New York/New Jersey Harbor) as recyclable fill for the remediation and
reclamation of Pennsylvania strip mines. Consolidated Technologies, Inc. has
experimented with numerous samples of dredge sediments and has identified
proprietary formulations for the creation of engineered fill materials through
solidification and stabilization of the dredged sediments. Essentially, these
mix designs are formulated from 100 percent waste materials and industry
by-products.


         In September 1997, the federal government prohibited offshore dumping
of contaminated dredge material. We are positioned to take advantage of this new
market opportunity by finding alternative ways to re-use contaminated dredge
material mixed with other products to create a pozzolonic fill which can be used
for cover material and clean fill. For example, we have disposal rights which
the Pennsylvania Department of Environmental Protection granted to utilize
dredge material mixed with coal ash or



                                       15
<PAGE>
incinerator ash to produce a grout like substance suitable to reclaim strip
mines. Strip mines represent a very significant environmental issue for
Pennsylvania.

         Consolidated Technologies, Inc. succeeded in the permitting of a
550,000 cubic yard demonstration project involving the beneficial re-use of
treated dredge materials for the reclamation of an abandoned strip mine known as
the Bark Camp Mine Complex. We have entered into a No-Cost Contract with the
Commonwealth of Pennsylvania Department of Environmental Protection to reclaim a
portion of the Bark Camp site with dredge materials and other industrial
by-products. We marketed a turnkey concept for this demonstration which
incorporates everything from the physical dredging activities in the New York
Harbor to the final placement of the engineered fill product at the Bark Camp
Strip Mine site. Approximately 143,000 tons have been placed through December
31, 2000.

         Consolidated Technologies, Inc.'s business consists of the dredging,
processing, and beneficial re-use of contaminated dredge material removed from
harbors as engineered structural fill material capable of being utilized for
development of commercial or industrial sites, or as fill for reclamation of
abandoned strip mines.

         We believe Consolidated Technologies, Inc. is strategically positioned
to capture a major share of the New York/New Jersey Harbor dredge disposal
market. Consolidated Technologies, Inc. has obtained the first and only
beneficial re-use permit for utilizing manufactured fill created from dredge
material for abandoned strip mine reclamation in Pennsylvania.

         In addition to its plants, we have two subsidiaries, Integrated
Technical Services, Inc. and Barbella Environmental Technology, Inc., which
perform services in environmental construction, on-site remediation, beneficial
re-use of industrial wastes, underground storage tank removals, landfill
capping, on-site stabilization and treatment of hazardous waste to non-hazardous
waste materials, consulting services, and other ancillary environmental
services.

         Regulatory Matters. All of our principal business activities within the
environmental division are subject to extensive and evolving environmental,
health, safety, and transportation laws and regulations at the federal, state,
and local levels. The United States Environmental Protection Agency and various
other federal, state, and local environmental, zoning, health, and safety
agencies in the United States and elsewhere administer these regulations. Many
of these agencies periodically examine our operations to monitor compliance with
these laws and regulations. Many of our facilities operate under permits granted
by one or more federal, state, or local agencies. We have found that the
procedures to obtain the necessary permits are often times difficult,
time-consuming, expensive, and may be opposed by local citizens as well as
environmental groups. Once obtained, the issuing agency may modify or revoke the
operating permits. We, as well as others in our industry, may be required, from
time to time, to make significant capital and operating expenditures in order to
comply with current and future regulatory requirements. Federal, state, and
local governments, from time to time, propose or adopt other types of laws,
regulations, or initiatives with respect to the environmental services industry,
including laws, regulations, and initiatives to ban or restrict the
international, interstate, or intrastate shipment of wastes, impose higher taxes
on out-of-state waste shipments than upon in-state shipments, limit the type of
waste that may be disposed of at existing facilities, mandate waste minimization
initiatives, and re-classify categories of non-hazardous waste as hazardous.
These regulations, laws, and initiatives can create situations which have a
material adverse effect on our environmental business.

         We make a continuing effort to anticipate regulatory, political, and
legal developments that might affect operations, but we cannot always do so. We
cannot predict the extent to which any legislation or regulation that may be
enacted, amended, repealed, re-interpreted, or enforced in the future may affect
our operations. These actions could adversely affect our operations or impact
our financial condition or earnings.


                                       16
<PAGE>


         Governmental authorities may enforce compliance with regulations and
permit conditions and obtain injunctions or impose fines in case of violations.
During the ordinary course of our operations, we may, from time to time, receive
citations or notices from these authorities that a facility is not in full
compliance with applicable environmental or health and safety regulations. Upon
receipt of these citations or notices, we will work with the authorities to
address their concerns. Failure to correct the problems to the satisfaction of
the authorities could lead to monetary penalties, curtailed operations, jail
terms, facility closure, or an inability to obtain permits for additional sites
or modifications to permits for existing sites.


         As a result of changing government and changing public attitudes in the
area of environmental regulation and enforcement, management anticipates that
continually changing health, safety, and environmental protection laws will
require us, and others engaged in the environmental industry, to continually
modify and upgrade various facilities including altering methods of operations
and cost that may be substantial. To date, we have not had to expend material
amounts to modify or alter any of our existing facilities resulting from changes
in environmental protection laws. To our knowledge, we are currently in
compliance in all material respects with all applicable federal, state, and
local laws, permits, regulations, and orders affecting our operations. We cannot
assure you that we will not have to expend substantial amounts for these actions
in the future.

         We may grow in part by acquisition of additional environmental
facilities. Although we conduct due diligence investigations of the past
practices of the businesses that we acquire, we cannot assure you that, through
its investigation, we will identify all potential environmental problems or
risks. As a result, we may have acquired, or may in the future acquire,
facilities that have unknown environmental problems and related liabilities. In
order to mitigate the foregoing risks, we obtain environmental representations
and indemnities from the sellers of the businesses that we acquire. However, we
cannot assure you that we will be able to rely on these indemnities if an
environmental liability exists.


         Generally, under environmental laws, the generator of the waste is
financially and legally responsible for that waste forever, and is strictly
liable for the costs of clean up and disposal of these wastes. Disposing of the
waste in a landfill or mixing it with other materials does not eliminate that
liability. Proper control and tracking of all waste materials which are handled
is essential for avoiding any liabilities with respect to these wastes. We take
precautions not only to eliminate, if possible, the liability of our customers,
who are the generators of the contaminated soil and debris, but also to maintain
proper control and tracking of each waste stream. Once the waste has
successfully been treated, the liability is significantly reduced. The product,
once treated, is no longer classified as waste, but is, generally, a reusable
material.


         In order to keep in compliance with applicable environmental, zoning,
health, and safety regulations we may need to expend considerable time, effort
and money. In addition, due to the possibility of unanticipated factual or
regulatory developments, the amounts and timing of future environmental
expenditures and compliance could vary substantially from those currently
anticipated.

         Federal Regulations. The primary U.S. federal statutes affecting our
business are summarized below.

         (1)      The Resource Conservation & Recovery Act of 1976, as amended,
establishes the framework for federal, state, and local government cooperation
in controlling the management of non-hazardous and hazardous solid waste. These
regulations established minimum standards for


                                       17
<PAGE>

environmental facilities and may impose significant liabilities and costs. We do
not believe that the cost of complying with these standards will have a material
adverse effect on our operations.


         (2)      The Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended, provides for the cleanup of sites from where
there is a release or threatened release of a hazardous substance into the
environment. This statute imposes joint and several liability for the cost of
cleanup and for damages to natural resources upon the present and former owners
or operators of facilities or sites from which there is a release or threatened
release of hazardous substances to the extent the disposal of hazardous
substances for which there is a release occurred during their period of
ownership or operation. Waste generators and transporters also have strict
liability under this statute. Liability under this statute is not dependent upon
the intentional disposal of hazardous wastes as defined under the Resource
Conservation & Recovery Act. It can be founded upon the release or threatened
release, even as result of lawful, unintentional, and non-negligent action, of
any one of more than 700 hazardous substances, including very small quantities
of these substances. Therefore, if we have transported waste material and
lawfully disposed of it at a properly licensed facility, we can still have
liability under this statute which can be very substantial. We do have
environmental liability insurance, however, we cannot assure you that the amount
of this insurance would be sufficient to cover costs pursuant to the statute. We
attempt to minimize our exposure under this statute by selecting disposal
facilities and transporters who we believe maintain strict compliance with all
environmental laws and who carry environmental liability insurance of their own.


         (3)      The Clean Air Act provides for the federal, state, and local
regulation for the emission of air pollutants. These regulations impose emission
limitations and monitoring and reporting requirements on our various operations,
including our soil treatment facilities and our S&W Waste facility. We do not
anticipate that the cost of compliance with this statute will have a material
adverse effect on us, however, we cannot assure you that we will be successful
in maintaining compliance with this statute.

         (4)      The Occupational Safety and Health Act of 1970 authorizes the
Occupational Safety and Health Administration to promulgate occupational safety
and health standards. Various provisions of this statute, including provisions
of this statute for notices of hazards, safety within the workplace, and
handling of hazardous substances, may apply to our operations.

         (5)      The Federal Water Pollution Control Act of 1972 establishes
rules for regulating the discharge of pollutants into streams, rivers,
groundwater, or other surface waters from a variety of sources, including
hazardous and non-hazardous disposal sites. Runoff from our facilities could
require us to apply for and obtain discharge permits, conduct a sampling and
monitoring, and reduce the quantity of pollutants, if any, in those discharges.
This statute is likely to affect the construction or expansion of existing
facilities because we would be required to obtain a storm water discharge permit
even before the time we begin development of a facility. This statute provides
civil, criminal, and administrative penalties for violation of its provisions.

         State and Local Regulation. The states in which we operate have their
own laws and regulations that may be more strict than comparable federal laws
and regulations governing hazardous and non-hazardous waste disposal, water and
air pollution releases, and cleanup of hazardous substances and the liability
for these matters. These states have also adopted regulations governing the
siting, design, operation, maintenance, closure, and post closure maintenance of
disposal facilities. Our facilities and operations are likely to be subject to
many, if not all, of these types of requirements. We cannot assure you that
these laws and regulations will not have a material adverse effect on our
operations or financial condition.


                                       18
<PAGE>

         Sales and Marketing. The environmental recycling operation is involved
in a number of markets, including but not limited to remediation of contaminated
soil, coal tar, upland disposal of dredge materials, and the recycling of sewer
sludge and municipal incinerator ash for beneficial re-use. These markets are
substantial. These markets are tied together via the contracting services arm of
Clean Earth, Inc. These service companies can provide on site clean-up, removal,
and transportation of these materials to other of our divisions for recycling
and beneficial re-use of the products in an environmentally safe manner.

         We have recently begun bidding on large contracts to receive dredge
material. Prior to September 1997, contaminated dredge material from harbors was
dumped in the oceans. New federal regulations require upland disposal of this
material. We believe most harbors throughout the United States will be faced
with this issue and will be required to abide by these new government
regulations. This market is new, and we have permits in place to provide for
using the dredge materials to reclaim abandoned strip mines as opposed to
disposing of the material in landfills.

         We are also expanding the capabilities of our facilities in Delaware
and Philadelphia to process and re-use material such as sewer sludge, for which
permitting has already been obtained, and municipal incinerator ash. We
currently landfill these products. We will process the sewer sludge and recover
the nutrients which will be mixed with the clean soil to provide an improved
product for resale.


         The principal sales and marketing advantage that Clean Earth, Inc. has
over its competitors is a broad range of services allowing customers a one stop
shopping concept through not only contracting services but also the facilities
to process material. One distinct advantage we have is our quality control
system. Our comprehensive disclosure and testing systems ensure proper tracking
of material as well as on site testing to insure that only acceptable material
is permitted onto our sites. Rigorous quality control procedures are essential
as they relate to the responsibility and liability in handling of material not
only to us, but also to our customers.


         We do experience a seasonal slow-down during the winter months due to
the fact that our environmental operations are located in the Northeast United
States where adverse weather can impact our performance.


         Competition and Barriers to Entry. Clean Earth, Inc. has several large
competitors that provide similar services within the northeast and Mid-Atlantic
States. These competitors include R-3 Technologies in Bristol, Pennsylvania,
TPST in Baltimore, Maryland, and MART in Vineland, NJ. Clean Earth, Inc. has
obtained a permit to treat coal tar materials from Delaware Natural Resources
and Environmental Commission. We believe that this provides a niche market
because very few competitors have this capability. We also compete in the
Environmental Services arena with IT Group, Inc., Roy F. Weston, and Sevenson
Environmental Services, Inc.


         Significant entry barriers exist for this line of business. First, the
siting, permitting, and licensing process is time consuming and costly. Second,
a large capital investment is required to build the plants and purchase the
equipment necessary to operate the facility. Additionally, contracts must be
awarded to obtain the incoming product as well as contracts to dispose of the
material after it has been treated in order to operate an economically feasible
facility. Finally, this type of operation requires technically trained
individuals to operate and ensure that the facility remains in strict compliance
with environmental laws. Some of our competitors are national companies with
greater name recognition, greater economic resources and significantly larger
business size.

         Plant Operations. The soil treatment plants and the S & W Waste
Resource Conservation & Recovery Act facility are operated with a strict
commitment to safety, health, and environmental issues


                                       19
<PAGE>

coupled with a rigorous system of controls. This commitment provides credibility
to the "Certificate of Destruction and Recycling" issued to each waste
generator.

         The Waste Tracking System starts before the contaminated soil is
accepted at the plant gate. A comprehensive disclosure testing and manifesting
system ensures that the solids brought to the facility fall well within the
limits of Clean Earth, Inc.'s permits and treatment capacities. This system
mirrors the procedures of hazardous waste facilities. Furthermore, Clean Earth
runs an Extractable Organic Halogens test on every load of material before it is
authorized for unloading in the storage buildings. In addition, management runs
several spot checks with the comprehensive on-site laboratory with respect to:

         -        Gas Chromatographer for Poly Chlorinated Biphenyls;

         -        Gas Chromatographer for Volatile Organic Compounds
                  identification; and

         -        Gas Chromatographer with a high temperature desorber for Total
                  Hydrocarbons and Desorption Temperatures Extractable Organic
                  Halogens analyzer and the screening equipment for fines
                  content.

         These tests enable Clean Earth, Inc. to determine quickly and
efficiently that the materials that are received are in accordance with their
characterization by the generator. This sizable investment in equipment and
personnel protects both the facility and the customers against the possibility
of receiving undesirable wastes.


         The storage buildings at each facility are large, fully enclosed
structures and are built on continuous concrete slabs. We regularly collect and
check the run-offs from the buildings. We have divided the buildings into small
compartments to maintain rigorous separation and tracking of each waste stream
and to minimize commingling. This mitigates the potential liability to a small
quantity if undesirable waste is detected after it has been accepted. This also
ties into the sophisticated waste tracking system that mobilizes a network of
eight microcomputers so as to monitor each load of material from the time of
reception to the final treatment test results. These computers function on-line
and enable operators to view and analyze, at any time, all the information
relative to a given shipment.



         In addition, a comprehensive control system exists with recording
devices that insure compliance with the various permit requirements. Clean
Earth, Inc. further guarantees the facility's performance by testing the
production daily. As recommended in Environmental Protection Agency publication
#SW846, Clean Earth, Inc. composites a sample for every 300 tons of production
and tests it for BTEX with a Gas Chromatographer and for TPH by the
Environmental Protection Agency 418 method, using an independent State certified
laboratory. For coal tars, the treated materials are also tested for Polynuclear
Aromatic Hydrocarbons by the Environmental Protection Agency 8270 method. We
believe that this treatment plant is the first in the industry to control its
emissions with a Continuous Emissions Monitoring system. Information is
collected minute-by-minute and stored on computers for control purposes. This
information is available to both customers and regulators. The property itself
is monitored through several monitoring wells. These monitoring wells are tested
quarterly. The test results are reported to the Delaware Environmental and
Natural Resources Commission.



         Liability Insurance and Bonding Capabilities. Clean Earth has fully
bonded the costs of a closure plan approved by the Delaware Environmental and
Natural Resources Commission. In addition, Clean Earth, Inc. has secured a total
of $7.0 million of General Liability and Environmental Impairment Liability
insurance coverages. The waste generating companies' recycled product is also
protected with $1.0 million single/$2.0 million aggregate Products and Completed
Operations coverage that includes a five-year tail coverage.



                                       20
<PAGE>
         The Clean Earth, Inc. division has also obtained a $150 million
performance bond capability to enable the environmental remediation companies to
participate in more significant projects.

EMPLOYEES

         The Company and its subsidiaries employ on a full time basis a total of
approximately 734 employees through the United States. Of this number,
approximately 474 employees are full time permanent employees of the plastic
lumber operations; and 250 persons are full time permanent employees in the
environmental recycling operations. There are 10 full time permanent employees
at the corporate headquarters.


                                       21
<PAGE>


                                  RISK FACTORS


In considering whether to acquire our common stock, you should consider
carefully the risks associated with the ownership of our common stock. These
risks are described in detail below. You should consider carefully these risk
factors, together with all of the other information in this report.



OUR INABILITY TO OBTAIN FINANCING IN ADEQUATE AMOUNTS AND ON ACCEPTABLE TERMS
NECESSARY TO OPERATE OUR BUSINESS OR REPAY OUR DEBT OBLIGATIONS COULD NEGATIVELY
IMPACT OUR BUSINESS, FINANCIAL CONDITION AND LIQUIDITY.



         Capital requirements relating to the implementation of our business
plan have been and will continue to be significant. We believe that our ability
to generate cash from operations is dependent upon, among other things,
increased demand for our products and services and the successful development of
direct marketing and product distribution capabilities. There can be no
assurance that we will have sufficient capital resources to permit us to
continue implementation of our business plan. Additionally, as discussed below,
we have material financial obligations to make payments under our Senior Credit
Facility and our Master Credit Facility. As a result of these funding needs, we
will need to seek additional external debt and/or equity financing. While we
currently have limited lines of credit available and entered into an equity line
agreement with Fusion Capital, these lines of credit or other financing may not
be available to us in the future or these lines may not be available in the
amounts we require to operate our business. In addition, in light of our current
financial condition and the pledge of substantially all of our assets as
security for our current indebtedness, we may not be able to raise additional
capital on terms that are acceptable to us.



         We are highly leveraged and since our inception, we have financed our
operations through a number of stock and debt issuances. To the extent we
determine to issue a new series of preferred stock which is senior in right of
preference to the outstanding shares of preferred stock, shareholder approval
would be required from each series of outstanding preferred stock voting as a
separate class. Adequate funds on terms acceptable to us, whether through
additional equity financing, debt financing or other sources, may not be
available when needed or may result in significant dilution to existing
shareholders.



         Our failure to obtain additional capital to finance our working capital
needs and repay our debt obligations in adequate amounts and on acceptable terms
will negatively impact our business, financial condition and liquidity. See "--
If we are unable to meet our payment obligations or comply with the covenants
contained in our debt agreements in 2001, we will be required to significantly
curtail our operations and it may raise substantial doubt about our ability to
continue as a going concern."



IF WE ARE UNABLE TO MEET OUR PAYMENT OBLIGATIONS OR COMPLY WITH THE COVENANTS
CONTAINED IN OUR DEBT AGREEMENTS IN 2001, WE WILL BE REQUIRED TO SIGNIFICANTLY
CURTAIL OUR OPERATIONS AND IT MAY RAISE SUBSTANTIAL DOUBT ABOUT OUR ABILITY TO
CONTINUE AS A GOING CONCERN.



         Our liquidity and our ability to meet our financial obligations and
maintain our current operations in 2001 and beyond will be dependent on, among
other things, our ability to meet our payment obligations under and maintain
compliance with our debt covenants in our debt agreements.



                                       22
<PAGE>








         We are highly leveraged, and during 2000 we suffered significant losses
from operations, primarily resulting from the significant expenses incurred in
our plastic lumber division related to the expansion of our manufacturing
facilities, the inefficiencies in the production of several products, increases
in raw material costs and product returns from several key customers. Our
accumulated deficit totaled $11.5 million as of December 31, 2000.



         Our obligations to make payments under and maintain compliance with
covenants in our Senior Credit Facility and our Master Credit Facility are
material financial commitments. We are obligated to make term loan payments on
our Senior Credit Facility of $1,250,000 per quarter, which payment will
increase to $2,500,000 in September 2001, and monthly interest payments on the
Senior Credit Facility. In addition, we will be required to refinance or repay
our Senior Credit Facility on or before April 2, 2002. As of December 31, 2000,
the outstanding balance on this Senior Credit Facility was $42,400,000. We
currently do not have the financial resources to retire this debt obligation in
2002. We are currently exploring additional sources of new debt or equity
capital and the sale of some of our assets to meet this requirement.



         In addition, we were not in compliance with some of the covenant
requirements of our Senior Credit Facility and our Master Credit Facility as of
December 31, 2000. We received waivers for these covenant violations as of
December 31, 2000 and entered into amendments to the Senior Credit Facility and
Master Credit Facility.



         The terms of the Senior Credit Facility also require us to raise
$6,500,000 of equity, in increments of $500,000 per month commencing in January
2001 until an aggregate of $6,500,000 has been raised no later than February
2002. As of December 31, 2001, we have raised $2.5 million of the $6,500,000 we
are required to raise under the terms of the Senior Credit Facility. We also
entered into a common stock purchase agreement with Fusion Capital Fund II, LLC
pursuant to which Fusion Capital has agreed to purchase 6 million of our common
stock, subject to increase at our discretion by an additional $6,000,000. Under
this agreement, we cannot complete the sales of common stock to Fusion Capital
until the SEC declares effective a registration statement which registers these
shares for resale. As of this date, we have not filed a registration statement
with the SEC to register shares to be issued to Fusion Capital.



         Fusion Capital may terminate the common stock purchase agreement upon
the occurrence of an event of default, which includes, among other things, our
failure to maintain compliance with the Nasdaq



                                       23
<PAGE>


National Market's continued listing standards. We currently do not meet all of
these standards. If Fusion Capital terminates this agreement, our liquidity
would be impaired. See "-- If our common stock is delisted from the Nasdaq
National Market, your ability to resell your shares at or above the purchase
price will be reduced and the market price of the shares could decrease."



         Other material financial commitments include payments pursuant to real
property leases, equipment leases and manufacturing equipment installment
purchases of approximately $568,000 per month, and interest payments or dividend
payments on our subordinated convertible debentures and our Series D and Series
E convertible preferred stock of approximately $436,000 quarterly. The
agreements related to these commitments also contain covenants establishing
financial operating restrictions.



         At December 31, 2000, we were not in compliance with the minimum
tangible net worth covenant contained in the GE Capital Equipment Term Loan,
referred to as the GE Loan in this document. On March 30, 2001, we entered into
an amendment to the GE Loan pursuant to which GE Capital agreed to waive the
tangible net worth covenant for the fourth quarter of 2000 and amended the
covenant for each quarter of 2001. Additionally, we were required to accelerate
a portion of the principal payments on the GE Loan and will be required to
refinance or repay a portion of the GE Loan upon the refinancing or repayment of
the Senior Credit Facility.



         Our Senior Credit Facility and our other debt instruments contain
covenants establishing financial operating restrictions. Our failure to comply
with any covenant or material obligation contained in these agreements, absent a
waiver from the lenders, would result in an event of default which could
accelerate debt repayment terms under the debt agreements. Due to various
cross-default provisions contained in our credit agreements, an event of default
under our debt agreements could accelerate debt repayment terms under other
credit agreements, all of which would have a material adverse effect on our
liquidity and capital resources.



         If we are unable to meet our payment obligations or comply with the
covenants contained in our debt agreements in 2001, we will be required to
significantly curtail our operations and it may raise substantial doubt about
our ability to continue as a going concern.


WE HAVE A HISTORY OF LOSSES AND IF WE ARE NOT ABLE TO ACHIEVE AND MAINTAIN
PROFITABILITY, THE MARKET PRICE OF OUR COMMON STOCK COULD DECREASE.


         We incurred operating losses during much of our history. Our
accumulated deficit totaled $11,459,022 as of December 31, 2000. We reported a
large loss in the third quarter of 2000 in our plastic lumber division in excess
of $4.0 million which resulted in our non-compliance with financial covenants
contained in our Senior Credit Facility. Although we negotiated a waiver and
amendment to our Senior Credit Facility with our senior lenders dated November
13, 2000, we also reported a large operating loss for the fourth quarter of 2000
of $5.1 million and for the fiscal year 2000 of $2.6 million excluding a
restructuring charge of $3.2 million. As a result of these losses, we did not
meet some of the financial covenants contained in the Waiver and First Amendment
to the Credit Agreement that we entered into with our senior lenders. We have,
however, negotiated a Waiver and Second Amendment to our Senior Credit Facility
restoring us to compliance with the Senior Credit Facility. At December 31,
2000, as a result of these losses, we were not in compliance with the minimum
tangible net worth covenant contained in the GE Loan. On March 30, 2001, we
entered into an amendment on the GE Loan pursuant to which GE Capital agreed to
waive the tangible net worth covenant for the fourth quarter of 2000 and amended
the covenant for each quarter of 2001.


         If we are not able to restore our profitability, which will depend
largely on our ability to substantially increase sales, reduce fixed operating
costs, and limit the growth of overhead and direct


                                       24
<PAGE>


expenses, the market price of our common stock could decrease and our business
and operations could be negatively impacted. See "-- If we are unable to meet
our payment obligations or comply with the covenants contained in our debt
agreements in 2001, we will be required to significantly curtail our operations
and it may raise substantial doubt about our ability to continue as a going
concern" for further information on our failure to meet some of the financial
covenants contained in our Senior Credit Facility.



IF OUR COMMON STOCK IS DELISTED FROM THE NASDAQ NATIONAL MARKET, YOUR ABILITY TO
RESELL YOUR SHARES AT OR ABOVE THE PURCHASE PRICE WOULD BE REDUCED AND THE
MARKET PRICE OF THE SHARES COULD DECREASE.



         In order to maintain the listing of our common stock on the Nasdaq
National Market, we are required to meet specified maintenance standards
including the receipt of shareholder approval in connection with the issuance of
more than 20% of our outstanding common stock and the maintenance of a minimum
bid price of $1.00. For example, recently, on some dates, the bid price of our
common stock fell below $1.00. In addition, the significant decrease in our
stock price and the removal of the floor conversion price on one of our
subordinated debenture agreements could result in the issuance of shares in
excess of the 20% requirement set forth in Nasdaq rules. To the extent we fail
to comply with any of the requirements for continued listing, our common stock
will be delisted from trading on the Nasdaq National Market, subject to our
right to appeal. If we are delisted, we would likely lose some of the market
makers making a market in our stock, as well as coverage by our existing
analysts and reduce your ability to resell our shares at or above the purchase
price. Further, our efforts to seek new analyst coverage would be significantly
impaired and the market price for shares of our common stock could decrease. In
addition, if we are delisted, Fusion Capital can terminate its common stock
purchase agreement with us. See "-- If we are unable to meet our payment
obligations or comply with the covenants contained in our debt agreements in
2001, we will be required to significantly curtail our operations and it may
raise substantial doubt about our ability to continue as a going concern."



         If our common stock is delisted from the Nasdaq National Market,
trading in our common stock may be subject to regulations promulgated by the
Securities and Exchange Commission applicable to "penny stocks." The Securities
and Exchange Commission defines a "penny stock" to be an equity security not
traded on a national securities exchange or NASDAQ that has a market price of
less than $5.00 per share, subject to exemptions. For any transaction involving
a penny stock, unless exempt, the rules require delivery, prior to a transaction
in a penny stock, of a disclosure schedule prepared by the Securities and
Exchange Commission relating to the penny stock market. Disclosure is also
required to be made about commissions payable to both the broker-dealer and the
registered representative and current quotations for the securities. Finally,
monthly statements are required to be sent disclosing recent price information
for the penny stock held in the account and information on the limited market in
penny stock. If our common stock is subject to the rules on penny stocks, the
market liquidity for our common stock could be materially and adversely
affected. Any disruption in the liquid market of our common stock could limit
our access to the equity markets in the future and could have a materially
adverse effect on our business, financial conditions and results of operations.



THE FAILURE OF OUR PRODUCTS TO PERFORM OVER THEIR WARRANTY PERIODS, WHICH FOR
SOME PRODUCTS MAY BE AS LONG AS 50 YEARS, COULD RESULT IN DECREASES IN OUR
OPERATING INCOME AND STOCK PRICE.



         Our plastic lumber products are fairly new, have not been on the market
for long periods of time, and may be used in applications for which we may have
no knowledge or limited experience. Because we have limited historical
experience, we may be unable to predict the potential liability related to
product warranty or product liability issues. During fiscal 2000, our gross
profit in the plastic lumber division declined primarily due to returns of a
product by a major customer. Although we have established an accounting reserve
to handle product issues, given our limited historical experience, our current
reserve may not be sufficient. If our products fail to perform over the extended
warranty periods,



                                       25
<PAGE>


which for some products are as long as 50 years, we may not have the ability to
adequately protect ourselves against this potential liability, which could
reduce our operating income and our stock price.

IF WE ARE UNABLE TO ATTRACT AND KEEP EMPLOYEES WITH THE REQUISITE LEVELS OF
EXPERTISE, IT COULD NEGATIVELY IMPACT OUR ABILITY TO CONDUCT BUSINESS BY
REDUCING REVENUES OR INCREASING OPERATING EXPENSES.

         Our business requires a significant amount of expertise in a wide
variety of functions. We may not be able to maintain employees with the
requisite levels of expertise or to attract and keep these employees in the
future. Our failure to attract and keep employees with the requisite levels of
expertise could negatively impact our ability to conduct business by reducing
revenues or increasing operating expenses.

SEVERAL OF OUR DIRECTORS, OFFICERS, AND EMPLOYEES ARE AFFILIATED WITH ENTITIES
WHICH ARE SIGNIFICANT SHAREHOLDERS OF OURS, WHICH COULD RESULT IN A CONFLICT OF
INTEREST.

         Several of our directors, officers, and employees are affiliated,
through ownership or otherwise, with Stout Partnership, which is a significant
shareholder, or other entities that have an equity interest in us. See Item 12
"Security Ownership of Certain Beneficial Owners and Management." When our
directors who are affiliated with these entities are faced with decisions where
we have interests adverse to those entities, a conflict of interest could arise.
Since a majority of our directors are affiliated with those entities, agreements
related to monies provided by some of those entities were not the result of
arm's-length negotiations and may include terms and conditions that may be less
favorable to us than terms contained in similar agreements negotiated with third
parties.

IF WE ARE UNABLE TO SUCCESSFULLY IMPLEMENT OUR GROWTH STRATEGY, OUR BUSINESS MAY
SUFFER WHICH COULD RESULT IN A DECREASE IN OUR STOCK PRICE.

         The success of our growth strategy depends on our ability to continue
to increase profit margins by increasing revenues and decreasing operating costs
through:

         -        Consolidation of plants and operations;

         -        Reduced costs of operations;

         -        Increased consumer acceptance of alternative wood products;

         -        An increased distribution network;

         -        Increased sales; and

         -        Ability to finance growth.

         Our ability to implement this strategy will depend in large part on
whether we are able to:

         -        Obtain adequate financing on favorable terms to fund this
                  growth strategy;

         -        Develop and expand our customer base;

         -        Hire, train, and retain skilled employees;



                                       26
<PAGE>


         -        Strengthen brand identity and successfully implement our
                  marketing campaigns;

         -        Continue to expand in the face of increasing competition;

         -        Continue to negotiate our supply contracts and sales
                  agreements on terms that increase or maintain our current
                  profit margins; and

         -        Create sufficient demand for plastic lumber and other
                  products.

         Our inability to implement any or all of these strategies could result
in a reduction in our earnings and profits and our stock price could decrease.

AS A RESULT OF OUR ACQUISITION OR LEASE OF REAL ESTATE, WE MAY BECOME LIABLE FOR
THE REMEDIATION AND/OR REMOVAL OF HAZARDOUS OR TOXIC SUBSTANCES FROM THAT REAL
ESTATE WHICH COULD RESULT IN A DECREASE IN OUR OPERATING INCOME AND STOCK PRICE.

         From time to time, we acquire or lease storage facilities or other
properties in connection with the operation of our business. Under various U.S.
federal, state, or local environmental laws, ordinances, and regulations, we
could be required to investigate and clean up hazardous or toxic substances or
chemical releases at properties we acquire or lease. We could also be held
liable to a governmental entity or to third parties for property damage,
personal injury, and investigation and cleanup costs incurred by those parties
in connection with any contamination. The costs of investigation, remediation,
or removal of hazardous or toxic substances may be substantial, and the presence
of those substances, or the failure to properly remediate a property, may
adversely affect our ability to sell or rent a property or to borrow using a
property as collateral. In addition, we could be subject to common law claims by
third parties based on damages and costs resulting from environmental
contamination emanating from these properties, which could result in a decline
in our stock price.

THE SEASONAL NATURE OF OUR BUSINESS COULD HURT OUR REVENUES, WHICH COULD RESULT
IN A DECREASE IN OUR STOCK PRICE.

         Our business is seasonal in nature. Historically, we have generated a
substantial portion of our revenues and profits during the second and third
quarters of our fiscal year. If for any reason our revenues fall below those
normally expected during the second and third quarters of our fiscal year, our
stock price could decrease.

BECAUSE OUR PRODUCTS ARE RELATIVELY NEW, WE MAY ENCOUNTER RESISTANCE FROM
PROSPECTIVE CUSTOMERS WHICH COULD RESULT IN DECREASED REVENUES AND A DECLINE IN
OUR STOCK PRICE.

         The reclamation and recycling of plastic and the manufacture of plastic
lumber for use in construction, and other composite materials containing
recycled plastics, are relatively new. A general reluctance exists in the
construction industry to use new products before they have been extensively
tested, particularly in segments of the construction industry that have exacting
performance standards for component materials. In the case of our recycled
plastic lumber and composite materials in particular, this testing may be
extensive for each prospective customer and may require substantial additional
time and resources. In addition, we may experience resistance from prospective
customers who are accustomed to more conventional, non-artificial wood
materials. Moreover, we may not have sufficient financial and other resources to
undertake extensive marketing and advertising activities or to afford the cost
of the necessary marketing and sales personnel when it becomes appropriate to
broaden our marketing efforts.



                                       27
<PAGE>


IF WE ARE NOT ABLE TO OBTAIN OUR RAW MATERIALS AT COMMERCIALLY REASONABLE TERMS,
OUR EARNINGS MAY BE REDUCED WHICH COULD RESULT IN A DECREASE IN OUR STOCK PRICE.



         The availability of low-cost raw materials, namely post-consumer and
industrial plastic waste products, is a material factor in our costs of
operations. In 2000, we experienced significant cost increases relative to
increases in energy related prices which caused our raw material costs to
increase substantially. The unavailability, scarcity, or increased cost of these
raw materials could continue to affect our profitability. We purchase most of
our raw materials through generators of post-consumer and industrial recycled
plastic materials. We do not rely on contractual arrangements with our raw
materials suppliers and we have no long-term supply contracts. Disruption of our
supply sources could reduce our earnings and result in a decrease in our stock
price.



IF WE ARE UNABLE TO DEVELOP NEW TECHNOLOGIES, WE MAY NOT BE ABLE TO COMPETE
EFFECTIVELY, OUR BUSINESS COULD SUFFER AND OUR STOCK PRICE COULD DECREASE.



         Our products and services involve newly developing technologies and we
may be unable to compete effectively in developing and marketing new products
and services or in developing or maintaining the know-how, technology, and
patents to compete effectively. The public is generally unaware of these newly
developing products and services generally, or as alternatives to more
traditional and well-established products. To compete effectively, we must
increase public knowledge and acceptance of our products and services and
develop and maintain appropriate levels of know-how and technical expertise. Our
failure to develop new technologies could have an adverse effect on our ability
to compete and our business could suffer causing a decrease in our stock price.


A LACK OF UNIFORM STANDARDS EXISTS IN THE PLASTIC LUMBER INDUSTRY IN WHICH WE
OPERATE THAT COULD RESTRICT THE GROWTH OF PLASTIC LUMBER PRODUCTS AND LIMIT THE
MARKET FOR THESE PRODUCTS, WHICH COULD RESULT IN DECREASED REVENUES.


         The American Society for Testing and Materials and other industry trade
organizations have established general standards and methods for measuring the
characteristics of specific building materials. Users of building materials (and
frequently, issuers of building codes) generally specify that the building
materials comply with the standards relative to the proposed applications. Since
uniform, recognized standards or methods have only recently been established for
measuring the characteristics of plastic lumber, potential users may not be
aware of this method of judging whether or not plastic lumber may be suitable
for their particular requirements, without being informed of these standards by
the plastic lumber supplier or otherwise becoming aware of them. The fact that
these standards are not well known for plastic lumber may limit the market
potential for our building materials and make potential purchasers of these
building materials reluctant to use them and result in decreased revenues and a
decline in our stock price.



BECAUSE THE INDUSTRIES IN WHICH WE OPERATE ARE SUBJECT TO EXTENSIVE REGULATION,
THE COST OF COMPLYING WITH THOSE REGULATIONS, OR THE LIABILITY FOR NOT
COMPLYING, COULD BECOME SUBSTANTIAL WHICH COULD REDUCE OUR REVENUES AND RESULT
IN A DECREASE IN OUR STOCK PRICE.


         Our businesses are subject to extensive laws and regulations designed
to protect the environment from toxic wastes and hazardous substances or
emissions and to provide a safe workplace for employees. Under current federal
regulations, the Resource Conservation & Recovery Act, and Comprehensive
Environmental Responsibility, Compensation, and Liability Act, the generator of
toxic or hazardous


                                       28
<PAGE>


waste is financially and legally responsible for that waste forever, and
strictly liable for the clean up and disposal costs. In particular, the business
of treating or otherwise handling toxic or hazardous waste materials is fraught
with potential liability to handlers if the handling and tracking of wastes is
not completed properly. We believe we are either in material compliance with all
currently applicable laws and regulations or that we are operating in accordance
with appropriate variances or similar arrangements, but we cannot be sure that
we will always be deemed in compliance, nor can we be sure that compliance with
current laws and regulations will not require significant capital expenditures
that could have a material adverse effect on our operations. These laws and
regulations are subject to change and could become more stringent in the future.
Although state and federal legislation currently provide for procurement
preferences for recycled materials, the preferences for materials containing
waste plastics are dependent upon the eventual promulgation of product or
performance standard guidelines by state or federal regulatory agencies. The
guidelines for recycled plastic building materials may not be released or, if
released, the product performance standards required by those guidelines may be
incompatible with our manufacturing capabilities. It may be necessary to expend
considerable time, effort and money to keep our existing or acquired facilities
in compliance with applicable environmental, zoning, health, and safety
regulations and as to which there may not be adequate insurance coverage. In
addition, due to the possibility of unanticipated factual or regulatory
developments, the amounts and timing of future environmental expenditures and
compliance could vary substantially from those currently anticipated.

IF WE ARE NOT ABLE TO MAINTAIN OUR PERMITS AND LICENSES NECESSARY TO CONDUCT OUR
BUSINESS, OUR REVENUES AND STOCK PRICE COULD BE REDUCED.

         Our business, especially our environmental recycling operation, depends
on our maintaining permits and licenses from many different federal, state, and
local agencies. Due to changing requirements of these agencies, we may be unable
to maintain our permits and licenses in the future or that we will be able to
modify our permits and licenses, if necessary, to be able to compete
effectively. If we are not successful in maintaining the permits and licenses
necessary to conduct our business, our revenues and stock price could be
reduced.

BECAUSE WE RELY SIGNIFICANTLY ON OUR TRADE SECRETS, OUR INABILITY TO PROTECT
THESE TRADE SECRETS COULD RESULT IN REDUCED REVENUES AND A DECREASE IN OUR STOCK
PRICE.

         Our businesses involve many proprietary trade secrets, including
methods, processes, and equipment designs for which we have not sought patent
protection. Rather than rely on patent protection, we have generally chosen to
rely on the unique and proprietary nature of our processes. If our trade secrets
are disclosed or if our competitors independently develop comparable or superior
technology, our revenues and stock price could decline.

         We have obtained licensing rights with respect to patent technology
related to manufacturing railroad crossties and structural lumber, but we may be
unable to maintain those rights for any length of time. We will seek protection
against known infringement of our patents, but our efforts may be unsuccessful.
Additionally, our patents may not adequately protect us from similar technology
being developed with different formulations or from use of our technology in
countries in which we do not have patent protection.

IF WE ARE NOT ABLE TO SUCCESSFULLY OBTAIN BID WORK AT SUITABLE PROFITABLE
MARGINS, OUR OPERATING INCOME WILL DECREASE AND OUR STOCK PRICE MAY DECLINE.

         Our environmental recycling operation consists of subsidiaries which
are highly reliant upon contract bidding as a significant source of revenues. We
may not be successful in obtaining bid work in the future or if we do obtain bid
work, it may not be at suitable profitable margins. Our failure to



                                       29
<PAGE>


successfully obtain bid work at suitable profitable margins may result in a
decrease in our operating income and stock price.

THE OCCURRENCE OF AN EVENT NOT FULLY COVERED BY INSURANCE COULD REDUCE OUR
OPERATING INCOME OR OUR REVENUES WHICH COULD RESULT IN A DECREASE IN OUR STOCK
PRICE.

         Our business could be disrupted by a variety of occurrences, including:

         -        Fires, explosions, or blowouts;

         -        Environmental hazards;

         -        Hurricanes, floods, fires, or other acts of God; or

         -        Product liability occurrences.

         Any of these occurrences could result in substantial losses due to:

         -        Injury;

         -        Loss of life;

         -        Severe damage;

         -        Clean-up responsibilities;

         -        Regulatory investigation; or

         -        Penalties and suspension of operations.

         We maintain insurance coverage against some, but not all, potential
risks, however, our insurance may not be adequate to cover all losses or
exposure for liability, or continue to be available at premium levels that
justify its purchase, or continue to be available at all. If an event occurs
which is not fully covered by insurance, our revenues and stock price could be
reduced.

A SUBSTANTIAL INCREASE IN INTEREST RATES COULD INCREASE OUR COST OF FUNDS,
REDUCE OUR OPERATING INCOME AND RESULT IN A DECREASE IN OUR STOCK PRICE.

         A substantial portion of our outstanding indebtedness is at variable
interest rates. Our annual cash interest expense on our indebtedness as of
December 31, 2000 is approximately $7.2 million, of which approximately $3.4
million is based indebtedness with variable interest rates. Because of our
variable rate debt, cash interest expense will increase by approximately
$370,000 for each 1% increase in interest rates. As a result, a substantial
increase in interest rates could increase our cost of borrowed money, which
could reduce our cash flow and earnings and result in a decrease in stock price.

WE MAY BE UNABLE TO COMPETE EFFECTIVELY IN THE INDUSTRIES IN WHICH WE OPERATE
WHICH WOULD REDUCE OUR REVENUES AND OUR STOCK PRICE.

         All of our businesses operate in highly competitive industries. For
example, our recycled plastic lumber business faces competition from other
producers of recycled plastic lumber as well as producers of vinyl and aluminum
decking, and traditional wood, especially pressured treated wood. We compete


                                       30
<PAGE>


against other makers of recycled plastic principally upon the basis of price and
quality, as well as the immediate availability of the product. We compete
against other products such as pressure treated lumber by emphasizing the
superior suitability characteristics of plastic lumber for some of the
applications, as well as appealing to the environmental consciousness of
consumers.



         Our environmental recycling operations face competition from several
large competitors that provide similar services throughout the northeast and
Mid-Atlantic States. The resources of these competitors, financial or otherwise,
are such that it is very difficult for us to effectively compete. In some
instances, our competitors have more revenues, larger market share, better name
recognition and more available capital which could make it difficult for us to
compete. In addition, the environmental industry is changing as a result of
rapid consolidation and our future success may be affected by those changes. Our
failure to compete successfully in either the plastic lumber or the
environmental industry could reduce our revenues and our stock price.



SALES OF OUR COMMON STOCK IN THE PUBLIC MARKET COULD ADVERSELY AFFECT OUR STOCK
PRICE AND OUR ABILITY TO RAISE FUNDS NECESSARY TO GROW OUR BUSINESS IN NEW STOCK
OFFERINGS.



         There were approximately 34,845,944 shares of our common stock
outstanding as of February 28, 2001. In addition, we will issue common stock in
connection with our outstanding convertible debt and convertible securities or
in other transactions. Future sales of substantial amounts of our common stock
in the public market, or the perception that these sales could occur, could
adversely affect prevailing market prices of our common stock and could impair
our ability to raise capital through future offerings of equity securities.
Additionally, all shares registered in this offering will be freely tradable.
The sale by the selling shareholders of significant amounts of shares registered
in this offering at any given time could cause the trading price of our common
stock to decline.


ANTI-TAKEOVER PROVISIONS MAY MAKE IT MORE DIFFICULT FOR A THIRD PARTY TO ACQUIRE
CONTROL OF US, COULD ADVERSELY AFFECT THE MARKET PRICE OF OUR COMMON STOCK AND
COULD REDUCE THE AMOUNT THAT SHAREHOLDERS MIGHT RECEIVE IF WE ARE SOLD.

         "Anti-takeover" provisions contained in Nevada law and in our articles
of incorporation, bylaws, and contracts could make it more difficult for a third
party to acquire control of us, even if that change in control would be
beneficial to shareholders. These provisions could adversely affect the market
price of our common stock and could reduce the amount that shareholders might
receive if we are sold. These anti-takeover provisions include the following:

         -        Our articles of incorporation give our board of directors the
                  authority to issue shares of preferred stock without
                  shareholder approval. Any preferred stock could have rights,
                  preferences, and privileges that could adversely affect the
                  voting power and the other rights of the holders of our common
                  stock.


         -        Our bylaws provide for staggered terms for the members of the
                  board of directors, with each board member serving a staggered
                  three year term.



         -        Our employee stock option plan provides that options to
                  purchase our common stock will immediately become exercisable
                  upon a change in control.



EVEN IF OUR STOCK PRICE DECREASES, WE MAY ELECT TO CAUSE PURCHASES OF OUR COMMON
STOCK TO BE MADE UNDER THE FUSION CAPITAL COMMON STOCK PURCHASE AGREEMENT OR
OTHER FINANCIAL AGREEMENTS ENTERED INTO IN THE FUTURE, CAUSING MORE SHARES TO BE
OUTSTANDING AND RESULTING IN SUBSTANTIAL DILUTION.



                                       31
<PAGE>


         The purchase price for the common stock to be issued to Fusion Capital
under the common stock purchase agreement will fluctuate based on the closing
price of our common stock. We may also enter into other financing agreements in
which we issue shares based upon a future closing price of our common stock. The
sale of a substantial number of shares of our common stock or anticipation of
such sales could make it more difficult for us to sell equity or equity related
securities in the future at a time and price we deem appropriate. The Fusion
Capital sales or sales to others can result in significant dilution to the
ownership interests of other holders of our common stock. Such dilution could be
more significant if the trading price of our common stock at the time Fusion
Capital purchases shares of our common stock under the common stock purchase
agreement is lower than the current trading price of our stock, as a lower
trading price would cause more shares of our common stock to be issuable to
Fusion Capital.

         The following table sets forth the number of shares of our common stock
that would be sold to Fusion Capital upon our sale of all of the common stock
under the first tranche of the common stock purchase agreement at varying
purchase prices:




<TABLE>
<CAPTION>
                                                                     PERCENTAGE OF
                         ASSUMED PURCHASE     NUMBER OF SHARES    OUTSTANDING SHARES
         MARKET PRICE         PRICE(1)        TO BE ISSUED(2)       TO BE ISSUED(3)
         ------------    ----------------     ----------------    ------------------
         <S>             <C>                  <C>                 <C>
          $1.00(4)             $1.00              6,200,000              15.1%
          $0.75                $0.75              8,200,000              19.1%
          $0.50                $0.50             12,200,000              25.9%
          $0.25                $0.25             24,200,000              41.0%
</TABLE>



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


(1)      The purchase price per share is equal to the lesser of:

         -        the lowest sale price of our common stock on the purchase
                  date; or

         -        the arithmetic average of the five lowest closing bid prices
                  for the common stock, during the fifteen consecutive trading
                  days ending on the trading day immediately preceding such
                  purchase date (to be appropriately adjusted for any
                  reorganization, recapitalization, non-cash dividend, stock
                  split or other similar transaction occurring during the
                  fifteen consecutive trading days).

For purposes of this table, we have assumed that the purchase price is equal to
the corresponding market price in the adjacent column, but the actual purchase
price may be higher or lower.

(2)      Includes an additional 200,000 shares issued as a commitment fee.

(3)      Based on 34,836,594 shares outstanding as of December 31, 2000.
         Includes the number of shares issuable at the corresponding assumed
         purchase price set forth in the adjacent column.

(4)      Represents the closing price of our common stock as listed on the
         Nasdaq National Market on March 28, 2001.

         Although we have the right to block Fusion Capital's purchases under
the common stock purchase agreement, we may still elect to require Fusion
Capital's purchase of shares under the common stock purchase agreement. We can
require Fusion Capital to purchase additional shares if our trading price is at
least $3.50. In the event that we decide to issue a number of shares that
represents greater than 19.99% of our outstanding shares of common stock, we
would first seek shareholder approval. The purchase under the common stock
purchase agreement of a significant percentage of our outstanding stock may
result in substantial dilution to the ownership interests of other holders of
our common stock.

THE COMMON STOCK PURCHASE AGREEMENT WITH FUSION CAPITAL COULD LEAD TO DOWNWARD
PRESSURE ON OUR STOCK PRICE.



                                       32
<PAGE>


         Either actual dilution caused by sales of our common stock to Fusion
Capital or the perception of such dilution by holders of our common stock could
cause holders to elect to sell the shares of common stock held by them, which
could cause the trading price of our common stock to decrease. Furthermore, a
perception that sales of our common stock to Fusion Capital may lead to downward
pressure on the trading price of our common stock could provide an incentive for
selling our common stock which could also adversely affect the trading price of
our common stock. See "-- If our common stock is delisted from the Nasdaq
National Market, your ability to resell your shares at or above the purchase
price would be reduced and the market price of the shares could decrease."

ANY DECREASE IN OUR STOCK PRICE WOULD RESULT IN THE ISSUANCE OF A GREATER NUMBER
OF SHARES UPON THE CONVERSION OF THE DEBENTURE ISSUED TO ONE OF OUR SHAREHOLDERS
RESULTING IN ADDITIONAL DILUTION TO OUR SHAREHOLDERS AND CREATING ADDITIONAL
DOWNWARD PRESSURE ON OUR STOCK PRICE.

         On February 2, 2000, we sold Halifax Fund, L.P. a debenture in the
principal amount of $7,500,000 and a warrant to purchase 200,000 shares of our
common stock at an exercise price of $10.09125 per share. The debenture is
convertible into common stock at the lower of $9.6525 per share or the lowest
trading price during the four trading days preceding the conversion.

         The table below illustrates that a lower market price of our common
stock will result in a larger number of shares being issued to Halifax upon
conversion of its debenture and exercise of its warrant:




<TABLE>
<CAPTION>
                                                                  NUMBER OF SHARES
                                                                   ISSUABLE UPON          PERCENTAGE OF OUTSTANDING
                                                               CONVERSION, INCLUDING        COMMON STOCK ISSUABLE
     COMMON STOCK PRICE           CONVERSION PRICE(2)           EXERCISE OF WARRANT          UPON CONVERSION(3)
     ------------------           --------------------       -------------------------    ------------------------
<S>                               <C>                        <C>                          <C>
           $1.00(1)                      $1.00                       7,700,000                     16.8%
           $0.75                         $0.75                      10,200,000                     21.1%
           $0.50                         $0.50                      15,200,000                     28.5%
           $0.25                         $0.25                      30,200,000                     44.2%
</TABLE>


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

(1)      Represents the closing price of our common stock as listed on the
         Nasdaq National Market on March 28, 2001.

(2)      For purposes of this table, we have assumed that the conversion price
         is equal to the corresponding market price in the adjacent column, but
         the actual purchase price may be higher or lower.

(3)      Based on 34,836,594 shares outstanding as of December 31, 2000.
         Includes the number of shares issuable at the corresponding assumed
         purchase price set forth in the adjacent column.

         As a result of the conversion price of the debenture fluctuating based
on the trading price of our common stock, Halifax's conversion of its debenture
can result in dilution to the ownership interest of other holders of our common
stock. Such dilution will become more significant if the trading price of our
common stock decreases and the dilution could create additional downward
pressure on our stock price.

                    DIRECTORS AND OFFICERS OF THE REGISTRANT

         The following table sets forth our directors and executive officers,
their ages, terms of office and all positions as of December 31, 2000. Directors
are divided into classes which are elected for staggered terms of three years,
and serve until the annual meeting of the year in which the terms expire, or
until their successors are duly elected by the shareholders and qualify.
Officers serve generally pursuant to employment agreements, and, if no written
agreement exists, then until the next annual meeting of the Board of Directors
or until their successor are elected.



                                       33
<PAGE>


<TABLE>
<CAPTION>
                                                         DIR. SINCE
        NAME OF DIRECTOR/OFFICER             AGE(1)    (TERM EXPIRES)          POSITIONS WITH THE COMPANY
-------------------------------------        ------    --------------   ----------------------------------------
<S>                                          <C>       <C>              <C>
Mark S. Alsentzer....................          45         May 1994      Chairman, President & Chief Executive
                                                             (2004)     Officer

August C. Schultes, III..............          54         Feb 1997      Director
                                                             (2004)

Roger Zitrin.........................          53         Nov 1996      Director
                                                             (2002)

Kenneth Ch'uan-K'ai Leung............          56        July 1999      Director
                                                             (2002)

Gary J. Ziegler......................          53         Feb 1997      Director
                                                             (2003)

John W. Poling.......................          55               --      Chief Financial Officer


Bruce C. Rosetto.....................          42               --      Secretary/Executive Vice President and
                                                                        General Counsel

Michael D. Schmidt...................          52               --      Treasurer and Vice President of Finance
</TABLE>


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


(1)  As of December 31, 2000.



DIRECTORS

         The following is a description of the biographical information of each
of our directors for the last five years:

         MARK S. ALSENTZER. Mr. Alsentzer has been our President and Chief
Executive Officer since December 1996 and Chairman since January 2000. Mr.
Alsentzer has served as a director since May 1994. From 1980 to 1992, Mr.
Alsentzer served as President of Stout Environmental, Inc., a full service
hazardous waste environmental service company. In 1992, Stout Environmental
merged with Republic Industries, where Mr. Alsentzer remained as Vice President
of Republic Environmental Systems, Inc. In addition, Mr. Alsentzer was Director
of Cemtech, an environmental company sold to Waste Management in 1991. Mr.
Alsentzer founded Clean Earth, Inc. which is currently our wholly-owned
subsidiary and a leading recycler of contaminated soil and debris located in the
northeast. Mr. Alsentzer was Chief Executive Officer of Clean Earth from 1993 to
1996. Mr. Alsentzer has a B.S. degree in Chemical Engineering from Lehigh
University and an M.B.A. from Farleigh Dickenson University.

         ROGER N. ZITRIN. Dr. Zitrin has served as a director since November
1996. Dr. Zitrin was the founder and President of the Heart Association of Palm
Beach County where he was a practicing physician specializing in cardiology
until he retired in 1992. He is presently acting as an independent investor and
investment advisor. Dr. Zitrin is the founder of Florida Medical Laser Corp. and
Gold Coast Specialty Lab and co-founder of Physicians Cardiac Imaging. He is
presently acting as financial advisor to Gold Coast Ventures, Inc. and serving
as a board member of Associated Home Health. Dr. Zitrin graduated from Rutgers
College of Medicine and Dentistry.

         AUGUST C. SCHULTES III. Mr. Schultes has served as a director since
February 1997. Since 1991, Mr. Schultes has been the Chairman of the Board and
Chief Executive Officer of A.C. Schultes, Inc., a contracting and service
organization specializing in water well drilling, water and waste water
treatment, and pump and motor repair services with offices in Maryland, Delaware
and two locations in New Jersey for over seventy - five years. He is also the
Chairman of the Board and Chief Executive Officer of Life



                                       34
<PAGE>


Care Institute, a medical diagnostic center with facilities to perform stress
tests, CAT scans, MRI scans and physical therapy located in New Jersey. He was
also the founder, Chairman of the Board and Chief Executive Officer of Stout
Environmental, Inc., a full service hazardous waste environmental company, which
was merged with Republic Industries. Mr. Schultes graduated from Penn State
University and has a B.S. degree in Civil Engineering.



         GARY J. ZIEGLER. Mr. Ziegler has served as a director since February
1997. Since 1992, Mr. Ziegler has been President of Consultants and Planners,
Inc., which provides operating services to several water utility companies in
New Jersey. Mr. Ziegler is a Professional Engineer and Professional Planner in
New Jersey, a Professional Engineer in Maryland, Pennsylvania, Ohio and New York
and a member of the American Society of Civil Engineers and the National Society
of Professional Engineers. He was President of W.C. Services, Inc. and Vice
President of Stout Environmental, Inc. Mr. Ziegler graduated from Clemson
University with a B.S. degree in Civil Engineering.



         KENNETH CH'UAN-K'AI LEUNG. Mr. Leung has served as a director since
July 1999. Mr. Leung heads the Corporate Finance Department of Sanders Morris
Mundy in New York City and is the Chief Investment Officer of Environmental
Opportunities Funds I and II. Prior to joining Sanders Morris Mundy in 1995, Mr.
Leung was a Managing Director at Smith Barney from 1978 to 1994. He has been an
Institutional Investor "All Star" analyst for twenty-one years and has been
involved in many of the major environmental service investment banking
transactions over the last sixteen years. Mr. Leung was a Vice President at F.
Eberstadt & Co. from 1974 to 1978 and an Assistant Treasurer at Chemical Bank
from 1967 to 1974. Mr. Leung holds an M.B.A. in Finance from Columbia University
and a B.A. degree in History from Fordham College. He also serves on the Board
of Directors of Zahren Alternative Power Corp., Capital Environmental Resource
Inc., Avista Resources, Inc., Synagro Technologies, Inc. and Northstar Passenger
Services Ltd.


         The following is a description of our officers who are not also
directors:


         JOHN W. POLING is our Chief Financial Officer, a position he has held
since 1999. Mr. Poling is responsible for our overall financial reporting and
SEC reporting, accounting operations and accounting controls. Prior to joining
us in early 1999, Mr. Poling was Vice President of Finance at Eastern
Environmental from 1996 to 1999. Mr. Poling has held senior financial positions
in publicly-held environmental services companies since 1979, and served as Vice
President and Treasurer of Smith Technology Inc. from 1994 to 1996, Vice
President, Finance and Chief Financial Officer of Envirogen, Inc. from 1993 to
1994, President of Tier Inc. from December 1992 to September 1993, and Vice
President-Finance and Chief Financial Officer of Roy F. Weston, Inc. from 1989
to 1992. Mr. Poling received a B.S. degree in Accounting from Rutgers
University.



         BRUCE C. ROSETTO is Executive Vice President and General
Counsel/Secretary, a position he has held since 1997. Mr. Rosetto joined us in
January 1997 and his primary responsibilities are acting as General Counsel,
providing management support and performing the functions as corporate
secretary. Mr. Rosetto was a partner in a New Jersey law firm, Paschon, Feurey,
and Rosetto from 1982 to 1986. In 1986, Mr. Rosetto became Chairman and Chief
Executive Officer of Consolidated Waste Services of America, Inc., a fully
integrated environmental company. Mr. Rosetto built that company primarily
through mergers and acquisitions into one of the largest privately owned
environmental companies in New Jersey until its acquisition by USA Waste
Services. In 1994, he became Chairman and Chief Executive Officer of Hemo
Biologics International, Inc., a biologic products company. He graduated from
LaSalle University in 1979 with a B.A. Degree in Political Science, and from
Villanova University School of Law in 1982, with a J.D. degree. He is currently
a member of both the Florida and New Jersey Bars.



                                       35
<PAGE>


         MICHAEL D. SCHMIDT is Treasurer and Vice President of Finance,
positions he has held since 1997. Mr. Schmidt joined us in December 1997. Mr.
Schmidt has over 20 years of public and private accounting experience including
ten years in the environmental industry. Prior to joining us, Mr. Schmidt served
as Chief Financial Officer of Republic Environmental Systems, Inc., a publicly
traded company and a leading environmental service provider, headquartered in
Blue Bell, Pennsylvania, a position he held for approximately ten years. Mr.
Schmidt has a B.S. degree in Business Administration from Rowan University and
is a Certified Public Accountant in the State of New Jersey.


SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

         The information contained in the Proxy Statement under the caption
"Section 16(a) Beneficial Ownership Reporting Compliance" relating to the 2001
Annual Meeting is incorporated herein by reference.

ITEM 2.  PROPERTIES

         The properties of the Company consist of administrative offices,
manufacturing plants, fabrication and assembly facilities, and sales offices.
All of the properties of the Company are leased with the exception of the
properties at the S & W Waste, Inc. facility in Kearny, New Jersey, the SRP
facility in Philadelphia, Pennsylvania, the Clean Rock facility in Hagerstown,
Maryland and the USPL Ltd facility in Ocala, Florida. The Company has options to
purchase on several of the properties it leases.


         The primary properties operated by the Company at December 31, 2000 are
as follows:


CORPORATE OFFICE

         Boca Raton, Florida: This location consists of approximately 3,300 sq.
ft. and serves as the Corporate Offices of the Company. There are presently
approximately 10 people employed in this location. The property is in good
condition and is leased. The lease expires in November 2001 and the monthly
rental is $5,067.

PLASTIC LUMBER OPERATING FACILITIES

         Auburn, Massachusetts: This location consists of approximately 34,000
sq. ft. and its function consists of receiving and processing HDPE plastic for
use as raw material for the Company's manufacturing plants and for re-sale to
the marketplace. The process includes sorting, regrinding, washing, and
pelletizing HDPE. The property is in good condition and is leased. The lease is
a month to month tenancy, and the monthly rental is $18,142.

         Chicago, Illinois: This location consists of approximately 400,000 sq.
ft. This location is the headquarters of the Company's plastic division. It
produces plastic and composite lumber profiles through a continuous extrusion
process. It manufactures the Smart Deck(R) product line. It also processes,
sorts, grinds and washes HDPE, much of it used by the Company as a raw material
for its manufacturing plants. The property is in good condition and is leased
with an option to purchase. The lease expires in January 2009 and the monthly
rental is $42,398 per month.


         Ocala, Florida: This location consists of approximately 143,200 sq.
ft. This facility houses the southern Regional office of the Company as well as
consisting of a manufacturing, distribution warehouse, and recycling of resins
for use as raw material. The property is in good condition and is owned by the
Company.



                                       36
<PAGE>
         Green Bay, Wisconsin: This location consists of approximately 38,000
sq. ft. It produces plastic lumber through a continuous extrusion process and
manufactures the Carefree Deck(R) product line. The property is in good
condition and is leased. The lease expires in January 2008, and the monthly
rental is $11,875.


         Sweetser, Indiana: This location consists of approximately 15,600 sq.
ft. and 7.5 acres. The facility manufactures plastic lumber primarily for
industrial and commercial applications through the continuous extrusion process.
The property is in good condition and is leased with an option to purchase. The
lease expires on April 30, 2003 and the monthly rental is currently $3,000 per
month.


         Trenton, Tennessee: This location consists of approximately 90,000 sq.
ft. The plant is also a manufacturer of plastic lumber. One line of this plant
is also dedicated to the manufacture of structural lumber, and one line is
dedicated to the manufacture of railroad ties. The property is in good condition
and is leased with an option to purchase. The lease expires in September 2002
and the monthly rental is $13,491.

         Denver, Colorado: This 44,800 sq. ft. location was acquired with the
acquisition of Baron Enterprises, Inc. and is used to manufacture plastic slip
and tier sheets. The property is in good condition and is leased. The lease
expires August 31, 2005 and the monthly rent is $12,133 per month.

         Denton, Maryland: This location consists of approximately 80,000 sq.
ft. It currently has several continuous extrusion lines manufacturing a wide
variety of plastic lumber profiles. The property is in good condition and is
leased. The lease expires in February 2003, and the monthly rental is $6,000.


         Fontana, California: This location consists of approximately 138,000
sq. ft. This facility houses the western Regional office of USPL Ltd. which
includes a manufacturing, distribution warehouse, and fabrication facility. The
property is in good condition and is leased. The lease expires on September 2004
and the monthly rental is $34,907.



         Chino, California: This location consists of approximately 33,571 sq.
ft. This facility is used for recycling of resins, in part, used as raw material
in our manufacturing operations. The property is in good condition and is
leased. The lease expires in February 2006. The monthly rental is $13,000.



         Vernon, California: This location consists of approximately 25,000 sq.
ft. This facility is used for recycling of resins, in part, used as raw material
in our manufacturing operations. The property is in good condition and is
leased. The lease expires in September 2001 and the monthly rental is $10,070.


         Reidsville, North Carolina: This 35,200 sq. ft. facility was acquired
with the acquisition of Baron Enterprises, Inc. and was used to manufacture
plastic slip and tier sheets. As part of the Company's restructuring plan, this
facility was closed in November 2000. The lease expires in February 2001.

ENVIRONMENTAL RECYCLING OPERATING FACILITIES

         Mt. Laurel, New Jersey: This office consists of approximately 3,000 sq.
ft. and is the headquarters for the Environmental Services Division. The
property is in good condition and is leased. The lease expires in October 2004
and the monthly rental is approximately $5,130.

         Blue Bell, Pennsylvania: This facility serves as an administrative
office for Consolidated Technologies, Inc. consisting of 1,570 sq. ft. The lease
expires in December 2001 and the monthly rental is approximately $2,100.


                                       37
<PAGE>

         New Castle, Delaware: This property consists of 7.5 acres of buildings
and property consisting of the Thermal Desorption soil recycling operation. The
property is in good condition and is leased. The lease expires in August 2003,
and the monthly rental is based upon the volume of tonnage received at the
facility.


         Philadelphia, Pennsylvania: This property consists of 9 acres with a
building of approximately 27,900 sq. ft. The property consists of a Thermal
Desorption soil recycling operation. The property is in good condition and is
owned by the Company.


         Hagerstown, Maryland: This property consists of 13.67 acres and
contains buildings totaling approximately 33,000 sq. ft. The property is
consists of a soil recycling plant. The property is in good condition and is
owned by the Company.


         Carteret, New Jersey: This facility consists of approximately 80,000
sq. ft. and five acres of property. This facility recycles soil through a
bioorganic process. The property is in good condition and is leased with an
option to purchase the leased premises and adjacent property. The lease expires
in December 2027, and the monthly rental is $18,050.


         Kearny, New Jersey: This facility is the administrative offices and
treatment, storage and disposal facility for the S & W Waste operations of the
Company. It consists of approximately 7 acres and is owned by the Company. The
facility is in good condition.


         Somerville, New Jersey: This facility is an administrative office for
the Company's environmental construction services company. The property is in
good condition and is leased. This lease has a rental of $2,730 per month and
expired on July 31, 2000. The Company currently leases the premises on a
month-to-month basis.


         Winslow, New Jersey: This facility is an administrative office for the
Company's environmental construction services company. The property is in good
condition and is leased. This lease has a rental of $2,500 per month and expires
on February 2002.

         Merrick, New York: This facility is an administrative office for the
Company's environmental construction services company. The property is in good
condition and is leased. This lease expires on September 30, 2001 and has a
rental of $2,640 per month.

ITEM 3.  LEGAL MATTERS


         From time to time, we are involved as plaintiff or defendant in various
legal proceedings arising in the usual course of our business. While the
ultimate outcome of these various legal proceedings cannot be predicted with
certainty, it is the opinion of our management that the resolution of these
legal actions should not have a material effect on our financial position,
results of operations or liquidity.


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


         During the fourth quarter of the fiscal year ended December 31, 2000,
no matters were submitted to a vote of the security holders, through proxy
solicitation or otherwise.



                                       38
<PAGE>



                                     PART II

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

MARKET INFORMATION

         Our common stock is currently traded on the NASDAQ National Market
System under the symbol "USPL." Prior to June 1998, we traded sporadically on
the OTC Electronic Bulletin Board under the symbol "ECPL."

         The following table sets forth the high and low sales prices of our
common stock for the periods indicated. On December 29, 2000, the closing price
of the common stock on the NASDAQ National Market System was $1.125.


<TABLE>
<CAPTION>
             QUARTER ENDED                    HIGH                LOW
------------------------------------         -------             -----
<S>                                          <C>                 <C>
March 31, 1999......................          $ 9.13             $4.56
June 30, 1999.......................          $10.75             $7.00
September 30, 1999..................          $13.25             $7.00
December 31, 1999...................          $16.50             $7.50
March 31, 2000......................          $10.69             $7.00
June 30, 2000.......................          $ 9.38             $3.00
September 30, 2000..................          $ 5.00             $3.00
December 31, 2000...................          $ 3.97             $ .84
</TABLE>



         As of February 28, 2001, there were 810 holders and approximately
11,000 beneficial holders of our common stock.

DIVIDEND POLICY


         The Company has not previously paid any cash dividends on its common
stock and does not anticipate or contemplate paying dividends on common stock in
the foreseeable future. It is the present intention of management of the Company
to utilize all available funds for the development of the Company's business.
Under Nevada corporate law, no dividends or other distributions may be made
which would render the Company insolvent or reduce assets to less than the sum
of its liabilities plus the amount needed to satisfy outstanding liquidation
preferences.


RECENT SALES OF SECURITIES DURING THE LAST THREE YEARS


         In the three years preceding the filing of this report, we have issued
the following securities that were not registered under the Securities Act of
1933, as amended (the "Act"):



         On January 2, 1998, the Company acquired Green Horizon Environmental,
Inc. (GHI), an environmental recycling services company located in Norristown,
PA. The stockholders of GHI received 50,000 shares of the common stock of the
Company. These transactions were not registered under the Act in reliance on the
exemption from registration in Section 4(2) of the Act, as transactions not
involving any public offering. This offering was completed without any general
or public solicitation. In each case the offering was made to a very limited
number of officers, directors and shareholders of the company being acquired.
The officers, directors and few shareholders had strong knowledge and experience
in business matters as well as pre-existing business relationships with the
Company. The knowledge and experience of these individuals enabled them to
evaluate the risks and merits of the investment.



                                       39
<PAGE>


         On February 6, 1998, the Company acquired an additional twenty five
percent interest in Consolidated Technologies, Inc. (CTI), an environmental
recycling services company located in Norristown, PA. The stockholders of this
company received 35,000 shares of common stock of the Company. These
transactions were not registered under the Act in reliance on the exemption from
registration in Section 4(2) of the Act, as transactions not involving any
public offering. This offering was completed without any general or public
solicitation. In each case the offering was made to a very limited number of
officers, directors and shareholders of the company being acquired. The
officers, directors and few shareholders had strong knowledge and experience in
business matters as well as pre-existing business relationships with the
Company. The knowledge and experience of these individuals enabled them to
evaluate the risks and merits of the investment.

         On February 27, 1998, the Company acquired substantially all the assets
of Chesapeake Recycled Lumber, Inc. (CRL), a plastic lumber manufacturing
company located in Denton, MD. The stockholders of CRL received cash at closing
plus 97,500 shares of common stock of the Company. These transactions were not
registered under the Act in reliance on the exemption from registration in
Section 4(2) of the Act, as transactions not involving any public offering. This
offering was completed without any general or public solicitation. In each case
the offering was made to a very limited number of officers, directors and
shareholders of the company being acquired. The officers, directors and primary
shareholder had strong knowledge and experience in business matters as well as
pre-existing business relationships with the Company. The knowledge and
experience of these individuals enabled them to evaluate the risks and merits of
the investment.

         On February 27, 1998, the Company acquired a five percent interest in
Consolidated Technologies, Inc. (CTI), an environmental recycling services
company located in Norristown, PA. The stockholder of this company received
1,500 shares of common stock of the Company. These transactions were not
registered under the Act in reliance on the exemption from registration in
Section 4(2) of the Act, as transactions not involving any public offering. This
offering was completed without any general or public solicitation. In each case
the offering was made to a very limited number of officers, directors and
shareholders of the company being acquired. The officers, directors and few
shareholders had strong knowledge and experience in business matters as well as
pre-existing business relationships with the Company. The knowledge and
experience of these individuals enabled them to evaluate the risks and merits of
the investment.

         Effective April 30, 1998 the Company acquired 100% of the stock of
Cycle-Masters, Inc. ("CMI"), a manufacturer of plastic lumber in Sweetser,
Indiana. The stockholder of CMI received 200,000 shares of common stock of the
Company. These transactions were not registered under the Act in reliance on the
exemption from registration in Section 4(2) of the Act, as transactions not
involving any public offering. This offering was completed without any general
or public solicitation. In each case the offering was made to a very limited
number of officers, directors and shareholders of the company being acquired.
The officers, directors and few shareholders had strong knowledge and experience
in business matters as well as pre-existing business relationships with the
Company. The knowledge and experience of these individuals enabled them to
evaluate the risks and merits of the investment.

         During the period from April 1998 through June 1998, the Company had
offered and sold 211,020 shares of Class B Preferred Stock to investors at $21
per share, and raised $4,431,420 in proceeds. These transactions were not
registered under the Act in reliance on the exemption from registration in
Section 4(2) of the Act, as transactions not involving any public offering. The
securities were sold primarily to accredited investors, officers, directors or
other acquaintances who were familiar with the business of the Company and who
were able to assess the risks and merits of the investment. In the third quarter
of 1999, all holders of Series B Preferred Stock converted their shares of
Series B Preferred Stock into common stock of the Company.



                                       40
<PAGE>


         Effective June 30, 1998 the Company acquired 100% of the stock of
Geocore, Inc. ("GCI") a small environmental services company in northern New
Jersey. The stockholder of GCI received 30,000 shares of common stock of the
Company. These transactions were not registered under the Act in reliance on the
exemption from registration in Section 4(2) of the Act, as transactions not
involving any public offering. This offering was completed without any general
or public solicitation. In each case the offering was made to a very limited
number of officers, directors and shareholders of the company being acquired.
The officers, directors and few shareholders had strong knowledge and experience
in business matters as well as pre-existing business relationships with the
Company. The knowledge and experience of these individuals enabled them to
evaluate the risks and merits of the investment.

         On June 30, 1998, the Company acquired the remaining forty-five percent
interest in Consolidated Technologies, Inc. (CTI), an environmental recycling
services company located in Norristown, PA. The stockholder of this company
received 40,000 shares of common stock of the Company with additional shares to
be paid in the event the performance criteria are met. These transactions were
not registered under the Act in reliance on the exemption from registration in
Section 4(2) of the Act, as transactions not involving any public offering. This
offering was completed without any general or public solicitation. In each case
the offering was made to a very limited number of officers, directors and
shareholders of the company being acquired. The officers, directors and few
shareholders had strong knowledge and experience in business matters as well as
pre-existing business relationships with the Company. The knowledge and
experience of these individuals enabled them to evaluate the risks and merits of
the investment.

         The Company purchased substantially all of the assets of Trimax of Long
Island, Inc. and Polymerix, Inc. ("Trimax") with the approval of the U.S.
Bankruptcy Court. The purchase was effective June 30, 1998 and includes two
patents for the manufacture of structural plastic lumber. Upon approval of the
Bankruptcy Plan in December 1998, the Company issued 118,391 shares of common
stock. This offering was completed without any general or public solicitation.
The Company obtained a "No Action" letter from the Securities and Exchange
Commission regarding the ability of the creditors before the bankruptcy court to
sell the stock being issued pursuant to the Plan without restriction.

         On December 31, 1998, the Company acquired the stock of S & W Waste,
Inc. (S & W), an environmental recycling services company located in Kearny, NJ.
The stockholder of S & W received 320,000 shares of common stock of the Company.
These transactions were not registered under the Act in reliance on the
exemption from registration in Section 4(2) of the Act, as transactions not
involving any public offering. This offering was completed without any general
or public solicitation. In each case the offering was made to a very limited
number of officers, directors and shareholders of the company being acquired.
The officers, directors and few shareholders had strong knowledge and experience
in business matters as well as pre-existing business relationships with the
Company. The knowledge and experience of these individuals enabled them to
evaluate the risks and merits of the investment.

         On December 22, 1998 and January 26, 1999, the Company raised
$6,500,000 in the form of convertible securities from Halifax Fund LP and
Societe de General LP. The transaction is structured as a convertible debenture
carrying a 5% coupon. As part of the transaction, the Company has agreed to
register common stock underlying the Debentures at which point the investment
funds can elect to convert all or any portion of their Debentures into common
stock. These transactions were not registered under the Act in reliance on the
exemption from registration in Section 4(2) of the Act, as transactions not
involving any public offering. This offering was completed without any general
or public solicitation. The common stock underlying the Debentures was
registered pursuant to a registration statement filed with the Securities and
Exchange Commission on May 14, 1999. During fiscal 2000, the Halifax Fund LP and
Societe de General LP converted their Debentures to common stock.



                                       41
<PAGE>


         On January 28, 1999, the Company acquired the stock of Eaglebrook
Plastics, Inc. and Eaglebrook Products, Inc., a plastic recycling and
manufacturing company located in Chicago, IL. In addition to cash and a
convertible debenture, the stockholders of these companies received 1,668,025
shares of common stock of the Company. These transactions were not registered
under the Act in reliance on the exemption from registration in Section 4(2) of
the Act, as transactions not involving any public offering. This offering was
completed without any general or public solicitation. In each case the offering
was made to a very limited number of officers, directors and shareholders of the
company being acquired. The officers, directors and few shareholders had strong
knowledge and experience in business matters as well as pre-existing business
relationships with the Company. The knowledge and experience of these
individuals enabled them to evaluate the risks and merits of the investment.

         On March 23, 1999, the Company acquired all of the outstanding stock of
Brass Investment Co. ("Brass"), which owns all the stock of Soil Remediation of
Philadelphia ("SRP") and Allied Waste, Inc. ("AWI"). SRP operates a soil
remediation facility in Philadelphia, PA which is very similar to the Company's
soil remediation facility in New Castle, DE and has been a competitor of the
Company. AWI provides environmental services which are very similar to that
provided by the Company environmental services division. The Company purchased
Brass for cash plus 2,000,000 shares of common stock and granted 500,000
warrants to Louis Paolino, Jr. to purchase common stock of the Company. These
transactions were not registered under the Act in reliance on the exemption from
registration in Section 4(2) of the Act, as transactions not involving any
public offering. This offering was completed without any general or public
solicitation. In each case the offering was made to a very limited number of
officers, directors and shareholders of the company being acquired. The
officers, directors and few shareholders had strong knowledge and experience in
business matters as well as pre-existing business relationships with the
Company. The knowledge and experience of these individuals enabled them to
evaluate the risks and merits of the investment.

         On April 1, 1999, the Company signed a Management Contract with
Brigadoon Industries, Inc., ("Brigadoon") taking over all responsibility for
day-to-day management and financial control as of that date and entitling the
Company to all net profits or losses after April 1, 1999. Brigadoon manufactures
corner boards from recycled plastic for use by the packaging industry. The
Company acquired 100% of the stock of Brigadoon on June 30, 1999. The Company
also purchased a 140,000 sq. ft. facility situated on approximately 39 acres in
Ocala, Florida. The Ocala plant will house expanded operations of Brigadoon plus
a large number of new extruders to manufacture other products for the plastic
lumber division. These transactions were not registered under the Act in
reliance on the exemption from registration in Section 4(2) of the Act, as
transactions not involving any public offering. This offering was completed
without any general or public solicitation. In each case the offering was made
to a very limited number of officers, directors and shareholders of the company
being acquired. The officers, directors and few shareholders had strong
knowledge and experience in business matters as well as pre-existing business
relationships with the Company. The knowledge and experience of these
individuals enabled them to evaluate the risks and merits of the investment.

         On June 25, 1999, the Company acquired 100% of the stock of Barbella
Environmental Technology, Inc. ("BET"), an environmental remediation and
construction service company located in Somerville, New Jersey for 810,000
shares of Company stock. The Company incurred merger costs totaling $595,000 in
the BET transaction that were written off in the second quarter of 1999. These
transactions were not registered under the Act in reliance on the exemption from
registration in Section 4(2) of the Act, as transactions not involving any
public offering. This offering was completed without any general or public
solicitation. In each case the offering was made to a very limited number of
officers, directors and shareholders of the company being acquired. The
officers, directors and few shareholders had strong knowledge and experience in
business matters as well as pre-existing business relationships



                                       42
<PAGE>


with the Company. The knowledge and experience of these individuals enabled them
to evaluate the risks and merits of the investment.

         On September 28, 1999, the Company acquired 100% of the stock of Eureka
Plastics of California, Inc. ("Eureka") and Ecosource Corporation ("Ecosource"),
for 236,600 shares and 392,000 shares, respectively, of Company stock in
unrelated transactions. Both of these companies recycle and process plastics in
Southern California. The Company incurred $ 810,000 of costs related to these
mergers that were written off in the third quarter of 1999. This offering was
completed without any general or public solicitation. In each case the offering
was made to a very limited number of officers, directors and shareholders of the
company being acquired. The officers, directors and few shareholders had strong
knowledge and experience in business matters as well as pre-existing business
relationships with the Company. The knowledge and experience of these
individuals enabled them to evaluate the risks and merits of the investment.

         On December 14, 1999, the Company acquired 100% of the stock of Clean
Rock Industries, Inc. and Clean Rock Properties, Ltd. for 422,164 shares. Clean
Rock Industries, Inc. is a soil recycling facility located in Hagerstown,
Maryland. Clean Rock Properties, Ltd. is a holding company that owns the real
estate upon which this business operates. These transactions were not registered
under the Act in reliance on the exemption from registration in Section 4(2) of
the Act, as transactions not involving any public offering. This offering was
completed without any general or public solicitation. In each case the offering
was made to a very limited number of officers, directors and shareholders of the
company being acquired. The officers, directors and few shareholders had strong
knowledge and experience in business matters as well as pre-existing business
relationships with the Company. The knowledge and experience of these
individuals enabled them to evaluate the risks and merits of the investment.

         In January 2000, the Company issued 632,833 shares to the shareholders
in settlement of the earnout agreements related to the Company's merger with
Clean Earth, Inc. in 1996. These transactions were not registered under the Act
in reliance on the exemption from registration in Section 4(2) of the Act, as
transactions not involving any public offering. This offering was completed
without any general or public solicitation. In each case the offering was made
to a very limited number of officers, directors and shareholders of the company
being acquired. The officers, directors and few shareholders had strong
knowledge and experience in business matters as well as pre-existing business
relationships with the Company. The knowledge and experience of these
individuals enabled them to evaluate the risks and merits of the investment.

         On February 2, 2000, the Company raised $7,500,000 in the form of a
subordinated convertible debenture issued to Halifax Fund, L.P. This private
placement transaction was not registered under the Act in reliance upon the
exemption from registration in Section 4(2) of the Act, as a transaction not
involving a public offering. This offering was completed without any general or
public solicitation; the offering was made to a shareholder of the Company. The
shareholder had strong knowledge and experience in business matters as well as
pre-existing business relationships with the Company. The knowledge and
experience of shareholder enabled it to evaluate the risks and merits of the
investment.

         On February 10, 2000, the Company acquired substantially all of the
assets of Baron Enterprises for 202,376 shares of common stock. Baron
manufactures slipsheets and tier sheets for material handling systems within the
beverage industry. At the time of the Closing, Baron had two facilities, one in
Denver, Colorado and the other in Reidsville, North Carolina. We recently closed
the Reidsville facility and moved the assets to our Chicago facility as part of
our plan to consolidate smaller plants into our regional hubs. These
transactions were not registered under the Act in reliance on the exemption from
registration in Section 4(2) of the Act, as transactions not involving any
public offering. This offering was completed without any general or public
solicitation. In each case the offering was made to a very limited number of



                                       43
<PAGE>

officers, directors and shareholders of the company being acquired. The
officers, directors and few shareholders had strong knowledge and experience in
business matters as well as pre-existing business relationships with the
Company. The knowledge and experience of these individuals enabled them to
evaluate the risks and merits of the investment.


         In September of 2000 the Company issued 1,187,285 shares of its Series
D Preferred Stock. The Series D Preferred Stock pays a quarterly cash dividend
at an annual rate of 15%, with the initial dividend payable on March 31, 2001.
Each share of Series D Preferred Stock is convertible into one share of the
Company's common stock at the option of the holder, subject to the rights of the
Company. In addition, if the common stock of the Company is trading at an
average closing price of $3.50 per share or higher for 20 consecutive trading
days at any time prior to March 1, 2002, the Company has the right to require
conversion of the Series D Preferred Stock into common stock. Otherwise, the
Series D Preferred Stock automatically converts into common stock on March 1,
2002. The net proceeds of $4.1 million from the issuance of Series D Preferred
Stock were used for general corporate purposes. These transactions were not
registered under the Act in reliance on the exemption from registration in
Section 4(2) of the Act, as transactions not involving any public offering. This
offering was completed without any general or public solicitation. The
shareholders had strong knowledge and experience in business matters as well as
pre-existing business relationships with the Company. The knowledge and
experience of these individuals enabled them to evaluate the risks and merits of
the investment.



         In November 2000 - March 2001, the Company issued 1,714,285 shares of
its Series E Preferred Stock. The Series E Preferred Stock pays a monthly cash
dividend at an annual rate of 10%, with the initial dividend payable on January
15, 2001. Each share of Series E Preferred Stock is convertible into one share
of the Company's common stock at the option of the holder, subject to the rights
of the Company. The Company at its sole option can redeem the Series E Preferred
Stock at 110% of the initial purchase price in cash prior to December 31, 2001.
In addition, if the common stock of the Company is trading at an average closing
price of $1.75 per share or higher for 20 consecutive trading days at any time
prior to March 1, 2002, the Company has the right to require conversion of the
Series E Preferred Stock into common stock. Otherwise, the Series E Preferred
Stock automatically converts into common stock on March 1, 2002. The net
proceeds of $3 million from the issuance of Series E Preferred Stock were used
for general corporate purposes. These transactions were not registered under the
Act in reliance on the exemption from registration in Section 4(2) of the Act,
as transactions not involving any public offering. This offering was completed
without any general or public solicitation. The shareholders had strong
knowledge and experience in business matters as well as pre-existing business
relationships with the Company. The knowledge and experience of these
individuals enabled them to evaluate the risks and merits of the investment.



         In addition to the above, the Company issued 52,408 shares of common
stock for miscellaneous reasons, including settlements of litigation and
employee bonuses. These transactions were not registered under the Act in
reliance on the exemption from registration in Section 4(2) of the Act, as
transactions not involving any public offering. These offerings were completed
without any general or public solicitation. The shareholders had strong
knowledge and experience in business matters as well as pre-existing business
relationships with the Company. The knowledge and experience of these
shareholders enabled them to evaluate the risks and merits of the investment.


OPTIONS AND WARRANTS


         There are numerous members of the management, directors, employees,
consultants and financial investors of the Company and its subsidiaries who have
been granted options in 2000 to purchase 675,167 shares of common stock subject
to the terms for vesting and exercise prices. As of December 31, 2000, options
to purchase 3,796,750 shares of common stock were outstanding.



                                       44
<PAGE>

         On or about February 2, 2000, the Company granted 200,000 warrants to
Halifax Fund, L.P. at an exercise price of $10.09 per share as part of the
consideration of a $7,500,000 investment made in the Company's convertible
securities.


         On or about December 6, 2000, the Company granted 250,000 warrants to
the Stout Partnership at an exercise price of $1.50 per share. The warrants were
granted in consideration of the Stout Partnership exchanging its unsecured loan
for convertible debentures and providing the Company with additional funding of
$2,000,000 as part of the Series E Preferred Stock private placement. August C.
Schultes, III and Gary J. Ziegler are individual partners in Stout Partnership
and also serve as directors to the Company. Mark S. Alsentzer is Chairman and
CEO of the Company as well as an individual partner in Stout Partnership. In
addition, Stout Partnership received 250,000 warrants because some of the assets
of the Company were not disposed of as of June 1, 2001.



         As of December 31, 2000, warrants to purchase 1,260,000 shares of
common stock were outstanding.



         These transactions were not registered under the Act in reliance on the
exemption from registration in Section 4(2) of the Act, as transactions not
involving any public offering. These offerings were completed without any
general or public solicitation. The option and warrant holders had strong
knowledge and experience in business matters as well as pre-existing business
relationships with the Company. The knowledge and experience of these holders
enabled them to evaluate the risks and merits of the investment.



                                       45
<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA


         The information below was derived from the audited consolidated
financial statements included in this report and in reports previously filed
with the SEC. This information should be read together with these financial
statements and the notes to the financial statements. For more information
regarding this financial data, see the "Management's Discussion and Analysis of
Financial Condition and Results of Operations" section also included in this
report.


<TABLE>
<CAPTION>
                                                                                    YEARS ENDED DECEMBER 31,
                                                                ---------------------------------------------------------------
                                                                  2000           1999         1998          1997         1996
                                                                ---------      --------     --------      --------      -------
                                                                          (In thousands, except per share data)
<S>                                                             <C>            <C>          <C>           <C>           <C>
STATEMENT OF OPERATIONS DATA:
   Sales, net .............................................     $ 173,744      $138,545     $ 72,794      $ 24,739      $ 6,412
   Operating (loss) income ................................        (5,866)       10,238        1,688          (321)        (291)
   (Loss) earnings before extraordinary item ..............       (11,447)        3,149          304          (706)        (180)
   Net (loss) earnings ....................................       (12,475)        3,149          304          (706)        (113)
   Net (loss) earnings per common share -- Diluted:
   (Loss) earnings before extraordinary item ..............     $   (0.36)     $   0.09     $  (0.02)     $  (0.05)     $ (0.03)
   Net (loss) earnings ....................................     $   (0.39)     $   0.09     $  (0.02)     $  (0.05)     $ (0.02)
   Weighted average common shares outstanding -- Diluted ..        34,297        30,199       18,737        14,054        6,697
BALANCE SHEET DATA (AT END OF PERIOD):
   Cash and cash equivalents ..............................     $   2,211      $  1,808     $  3,053      $  1,170      $   854
   Working capital (deficit) ..............................        10,965        12,189       10,422          (474)         590
   Total assets ...........................................       200,411       166,311       63,336        23,171        7,048
   Long-term debt, including current maturities ...........        78,162        54,690       26,170         3,222          714
   Stockholders' Equity ...................................        85,742        83,010       24,588        11,466        4,340
</TABLE>



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


                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS


         The following discussion is intended to assist in the understanding of
the Company's financial position and results of operations for the years ended
December 31, 2000, 1999 and 1998. This discussion should be read in conjunction
with the consolidated financial statements and notes thereto included elsewhere
herein.

BUSINESS SEGMENTS


         The Company has two distinct business segments-manufacturing plastic
lumber and environmental recycling. The plastic lumber division manufactures
structural and non-structural plastic lumber and a variety of accessory products
such as park and site amenities and products for original equipment
manufacturers, made from recycled high density polyethylene and in some
instances, composite materials. The structural plastic lumber is manufactured
under processes that are protected by patents. The environmental recycling
division provides environmental recycling services including environmental
construction services, upland disposal of dredge materials, beneficial re-use of
industrial wastes, and on-site recycling services. The Division also operates
five plants. Two plants utilize a thermal desorption process, one uses an
organical process and one uses a chemical treatment and cold mix process to
recycle contaminated soil brought to the plants by third parties as well as
their sister environmental service companies. The Company also has a plant that
consolidates and stabilizes oils, solvents and heavy metal contaminated waste
for disposal by unrelated companies. The Company is not dependent upon a single
customer or a few customers for either segment of its business. No single
customer accounts for sales equal to or greater than 10% of the Company's
consolidated revenues.



                                       46
<PAGE>

BUSINESS COMBINATIONS


         The Company makes its decisions to acquire or invest in businesses
based on financial and strategic considerations. See Note 3 to the consolidated
financial statements for summaries of the business combinations completed in
2000, 1999 and 1998. Several of the 1999 acquisitions were accounted for as a
pooling of interests. Accordingly, all amounts in the financial statements and
related notes include the accounts of the pooled companies as if the mergers
took place on January 1, 1998. Charges for merger related expenses in connection
with these pooling of interests totaling $1,035,000 in the environmental
division and $810,000 in the plastic lumber division were recorded in 1999.


RESTRUCTURING, EQUIPMENT AND INVENTORY IMPAIRMENT CHARGES


         In the fourth quarter of 2000, the Company committed to a plan of
restructure with respect to some of the smaller plants in its plastic lumber
division. As a result, the Reidsville, North Carolina plant was closed in
October of 2000, the Green Bay, Wisconsin and Vernon, California plants were
closed in January 2001 and the Company plans to close the Sweetser, Indiana
facility at the end of the third quarter of 2001. As a result, the Company
recorded the following charges in the fourth quarter of 2000:




<TABLE>
<S>                                                                     <C>
Write-down for equipment impairment.................................    $  2,319,000
Lease termination costs in connection with the restructuring........       1,098,000
                                                                        ------------
   Total restructuring charges in 2000..............................    $  3,417,000
                                                                        ============
</TABLE>



         The Company anticipates lease termination costs will be paid throughout
2001, as the Company completes its restructuring plan. As of December 31, 2000,
the Company has accrued $1,098,000 in connection with lease termination costs.
As a result of the restructuring plan, the Company anticipates that its
operating costs to produce plastic lumber will be reduced by elimination of
duplicate manufacturing facilities, fixed overhead expenses and labor expenses
in connection with these facilities, totaling $2.4 million in 2001. The Company
will continue to record depreciation on the property, plant and equipment at the
Sweetser facility while the equipment remains in use. During 2000 and early
2001, the Company eliminated approximately 300 employees as part of this
restructuring plan. The severance cost of the restructuring plan was
communicated to the Company's employees in early January 2001. As a result, the
Company will record a charge in the first quarter of 2001 of $182,000 for
severance.



         During the first quarter of 1999, the Company committed to a plan to
restructure and consolidate its two operating divisions and facilities. As part
of this plan, the plastic lumber division discontinued the labor-intensive flow
mold process and converted entirely to the more efficient continuous extrusion
method of manufacturing plastic lumber. As a result, we closed our facility in
Mulliken, Michigan and one of our facilities in Trenton, Tennessee and the
Company recorded the following charges during the first quarter of 1999:



<TABLE>
<S>                                                                           <C>
Write-down of flow mold inventory to its raw material value.........          $  2,025,000
Write-down of flow mold equipment to its salvage value..............             1,315,000
Severance costs in connection with the restructuring................             1,075,000
Exit costs in connection with the restructuring.....................             1,330,000
                                                                              ------------
                                                                              $  5,745,000
</TABLE>




         Of the total charges recorded, $4,365,000 was recorded by the plastic
lumber division and $1,380,000 was recorded by the environmental recycling
division, which includes the closing of the environmental recycling division's
Norristown, Pennsylvania facility. The write-down of flow mold inventory was
recorded as a component of gross profit within the accompanying consolidated
statement



                                       47
<PAGE>

of operations. Severance costs relates to the 61 employees from plants that were
planned to be closed during the year. Exit costs consist primarily of lease
termination and idle plant costs during the changeover.

         During 1999, the Company terminated 53 employees and paid $697,000 in
severance costs. In addition, the Company charged $973,000 to the exit cost
accrual primarily for lease termination and idle plant costs. As of December 31,
1999, the Company had approximately $378,000 remaining in severance accruals and
approximately $ 357,000 remaining in exit cost accruals, which were primarily
for lease termination costs.

         During 2000, the Company had $232,000 of excess accrual from the
restructuring charges recorded during the first quarter of 1999. The residual
excess accrual was reversed in 2000 and included within the 2000 restructuring
charge. As of December 31, 2000, $51,431 remains in exit cost reserves,
primarily for lease termination costs.


         The following table sets forth sales, with percentages of total sales,
and costs of goods sold, depreciation, selling, general and administrative
expenses and amortization, along with percentages of the applicable segment
revenue, for each of the Company's two business segments. The following amounts
do not include the aforementioned merger, restructuring, inventory and equipment
impairment charges of $3,185,000 and $7,590,000 for 2000 and 1999, respectively.



<TABLE>
<CAPTION>
                                                                               YEAR ENDED DECEMBER 31,
                                                     ---------------------------------------------------------------------------
                                                        2000            %         1999             %         1998            %
                                                     ---------        -----     ---------        -----     --------        -----
                                                                                (DOLLARS IN THOUSANDS)
<S>                                                  <C>              <C>      <C>               <C>      <C>              <C>
Sales, net:
 Plastic Lumber ................................     $  73,214         42.1%    $  53,046         38.3%    $ 21,250         29.2%
 Environmental Recycling .......................       100,530         57.9        85,498         61.7       51,544         70.8
                                                     ---------        -----     ---------        -----     --------        -----
     Total revenue .............................       173,744        100.0       138,544        100.0       72,794        100.0
Cost of goods sold, excluding depreciation:
 Plastic Lumber ................................        64,055         87.5        34,359         64.8       14,986         70.5
 Environmental Recycling .......................        80,213         79.8        62,117         72.7       40,228         78.0
Depreciation:
 Plastic Lumber ................................         2,645          3.6         2,022          3.8        1,104          5.2
 Environmental Recycling .......................         2,275          2.3         1,832          2.1        1,154          2.2
 Corporate .....................................            35          0.0            27          0.0            8          0.0
Selling, General and Administrative:
 Plastic Lumber ................................        14,350         19.6         8,487         16.0        5,518         26.0
 Environmental Recycling .......................         7,885          7.8         8,503          9.9        6,220         12.1
 Corporate .....................................         3,059          1.8         1,881          1.4        1,344          1.8
Amortization:
 Plastic Lumber ................................           526          0.7           529          1.0          264          1.2
 Environmental Recycling .......................           967          1.0           693          0.8          118          0.2
 Corporate .....................................           416          0.2           266          0.2          162          0.2
                                                     ---------        -----     ---------        -----     --------        -----
     Total Operating Expenses ..................       176,426        101.5       120,716         87.1       71,106         97.7
                                                     ---------        -----     ---------        -----     --------        -----
     Total Operating (Loss) Income .............     $  (2,682)        (1.5)%   $  17,828         12.9%    $  1,688          2.3%
                                                     =========        =====     =========        =====     ========        =====
Operating (Loss) Income by Segment
 Plastic Lumber ................................        (8,362)       (11.4)        7,649         14.4         (622)        (2.9)
 Environmental Recycling .......................         9,190          9.1        12,353         14.4        3,824          7.4
 Corporate .....................................        (3,510)        (2.0)       (2,174)        (1.6)      (1,514)        (2.1)
                                                     ---------        -----     ---------        -----     --------        -----
     Total Operating (Loss) Income .............     $  (2,682)        (1.5)%   $  17,828         12.9%    $  1,688          2.3%
                                                     =========        =====     =========        =====     ========        =====
</TABLE>



                                       48
<PAGE>


RESULTS OF OPERATIONS


YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999


CONSOLIDATED REVENUES AND OPERATING (LOSS) INCOME


         Revenues for the Company in 2000 were $173,744,000, an increase of
$35,200,000, or 25.4%, over 1999. Approximately $ 9,439,000 of the increased
revenues is attributable to Plastic Lumber operations acquired in 2000. As a
result of deterioration in gross profit margins at the plastic lumber division
and a shift in revenue mix to lower margin services at the Environmental
Division, operating income versus 1999 was reduced by $20,510,000, resulting in
an operating loss of $(2,682,000) for 2000.



NET SALES BY SEGMENT



         Sales of plastic lumber products increased by 38% in 2000 to
$73,214,000 compared to $53,046,000 in 1999. Approximately $9,439,000 of the
increased revenues is attributable to Plastic Lumber operations acquired in
2000. As a result of capital expenditures in 2000 to increase capacity, the
plastic lumber division's California, Maryland and Florida manufacturing
facilities accounted for $6,983,000 of the increased internal growth for the
plastic lumber division.



         Environmental recycling division revenues increased by 18% in 2000 to
$100,530,000 compared to $85,498,000 in 1999. These increased revenues are
related to several significant projects started in 2000 at the division's
environmental construction operations. Environmental Recycling revenues were
negatively impacted by abnormally wet weather in the northeastern United States
in the first quarter of 2000, which affected all of the soil recycling plants.
In addition, revenues were negatively impacted by the three-month shut down of
the Soil Remediation of Philadelphia (SRP) facility, now known as Clean Earth of
Philadelphia, Inc. ("CEP"), which was retrofitted to process additional waste
streams under its newly expanded permit.


GROSS PROFIT


         Consolidated gross profit at the Company decreased by $(12,592,000), or
30%, compared with 1999. The plastic lumber division's gross profit decreased
$(9,528,000), or 51% compared to 1999. Approximately $1 million of this decrease
was the result of returns of SmartDeck product that were accepted from a large
customer during the third quarter of 2000, due primarily to issues with color
variation. Gross profit was also impacted by approximately $1 million of
additional expenses related to the associated handling and regrind costs and the
write down of inventory for the returned product. In late 1999 and 2000, the
Company invested in a major capacity expansion program to accommodate
anticipated sales of SmartDeck for 2000. While SmartDeck sales and production
were largely curtailed in the second half of 2000 due to the aforementioned
returns and related quality issues, the Company continued to incur significant
fixed manufacturing overhead expenses as a result of the capacity expansion,
causing further deterioration of the Company's gross margins throughout the
second half of 2000. The returns accepted from this single large customer were
outside the Company's normal return policy. The Company accepted these returns
in order to maintain a long-term relationship with this customer. Other than
occasional returns customary in the normal course of business, no SmartDeck
returns were received from other customers. Net sales of SmartDeck in 2000 were
approximately 8% of the plastic lumber division's 2000 revenues. Net sales to
this single customer were approximately 7% of the plastic lumber division's 2000
revenues. The Company has since implemented an extensive engineering and
manufacturing program to ensure that all products entering the distribution
system meet rigorous quality control standards. Gross profit was also negatively
impacted by significantly higher material and direct labor costs. While plans
have been put into place to reduce these costs in the fourth



                                       49
<PAGE>


quarter and in 2001, further increases in the price of oil, which directly
impacts our raw material costs, could adversely affect gross margin. Gross
margin as a percent of revenues in the Plastic Lumber division decreased in
2000, from 35.2% in 1999 to 12.5%, primarily due to higher material and labor
costs, product returns and associated handling and regrind costs and the write
down of inventory that did not meet the newly implemented quality control
standards.



         Gross profit at the environmental recycling division decreased by
$(3,064,000), or 13%, compared to 1999. The decrease was due to a shift in
revenue mix to lower margin replacement revenues for construction services and
higher natural gas prices at two of our five soil recycling plants. Gross margin
at the environmental recycling division decreased to 20.2% in 2000 from 27.3% in
1999. Reduced soil coming to the Clean Earth New Castle, Clean Rock and CEP
facilities, the shut down of the CEP facility and lower margin replacement
revenues for construction services all contributed to this decline.


SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ("SG&A")


         Selling, general and administrative expenses ("SG&A") increased by
$6,423,000 in 2000 to $25,294,000 compared to $18,871,000 in 1999. The increase
was primarily due to increases in marketing and promotion and administrative
costs at the plastic lumber division, and increased bad debt expense of
$1,144,000. Approximately $800,000 of the increase in bad debt expense was due
to the bankruptcy filings of three customers and the remainder was due to the
growth in revenues. The three customers that declared bankruptcy in 2000 were
extended credit based on the Company's normal credit review policies. The
Company believed at the time the product was shipped that these customers had
the ability to pay for the products and services received in accordance with the
Company's normal sales terms and conditions. As a percentage of net sales, SG&A
increased to 14.5% in 2000 from 13.6% in 1999. Cost reduction programs
implemented at the plastic lumber division during the third and fourth quarters
of 2000 are expected to reverse this trend in 2001.


INTEREST EXPENSE

         Interest expense increased by $1,572,000 in 2000 to $7,037,000 compared
to $5,465,000 in 1999. The increase was primarily due to higher average debt
levels in 2000, offset by lower amortization of financing costs, including
discounts on convertible subordinated debentures compared to 1999. Total
amortization of debt and debenture issuance costs included in interest expense
for 2000 was reduced by 41% to $829,000 as compared to $1,410,000 in 1999.

DEPRECIATION AND AMORTIZATION

         Depreciation expense increased $1,074,000 or 28% to $4,955,000 in 2000
compared to $3,881,000 in 1999, reflecting the increase in plant and equipment
from both acquisitions and additional capital investments. Amortization of
intangibles also increased $421,000 to $1,909,000 in 2000 from $1,488,000 in
1999 due to a full-year of amortization from the historical earn-out shares
recorded in 1999 and the acquisition completed during 2000.


YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998


         The Company recognized significant increases in both revenues and
operating income for 1999 compared to 1998. Revenues increased 90% to
$138,544,000 in 1999 from $72,794,000 in 1998. Approximately $23,808,000 of the
increase resulted from internal growth and $41,942,000 of the increase was
attributable to companies purchased in 1999. Consolidated operating income
increased by $16,140,000 to $17,828,000 in 1999 compared to $1,688,000 in 1998,
an increase of 956%.


                                       50
<PAGE>

Approximately $9,678,000 of the increase in operating income came from internal
growth and $6,462,000 came from businesses purchased in 1999.


NET SALES BY SEGMENT


         Plastic lumber division revenues increased 150% to $53,046,000 in 1999
compared to $21,250,000 in 1998. Approximately $4,936,000 or 16% of the
$31,796,000 increase was from internal growth and $26,860,000 was attributable
to the purchases of Eaglebrook and Brigadoon in 1999. Environmental recycling
division revenues increased 66% to $85,498,000 in 1999 from $51,544,000 in 1998.
The purchase of Brass contributed $15,082,000 of the $33,954,000 increase in
environmental recycling division revenues and internal growth contributed
$18,872,000.

GROSS PROFIT

         Consolidated gross profit, excluding the inventory impairment charge
and depreciation, increased $24,488,000 or 139% to $42,068,000 for 1999 as
compared to $17,580,000 in 1998. The gross profit as a percent of revenue
improved by 6 percentage points from 24% in 1998 to 30% in 1999. Approximately
$11,014,000 of the $24,488,000 increase in gross profit came from internal
growth and $13,474,000 of the increase was attributed to purchases of companies
in both business segments in 1999.

         Plastic lumber acquisitions in 1999 accounted for $9,784,000 or 79% of
the $12,423,000 increase in plastic lumber division's gross profit before
depreciation and restructuring charges in 1999. Approximately $2,639,000 of the
increase came from internal growth. Internal growth contributed approximately
$4,913,000 of the $12,061,000 increase in gross profit in the environmental
recycling division and $7,148,000 of the increase in gross profit came from the
purchases of S&W at the end of 1998 and Brass.

         Gross profit, excluding the inventory impairment charge and
depreciation, as a percent of plastic lumber revenues improved significantly
from 29.5% in 1998 to 35.2% in 1999. Most of the plastic business units
contributed to the improvement in plastic lumber profit margins.

         The environmental recycling division's gross profit margin also
improved significantly from 22.0% of revenues in 1998 to 27.3% in 1999. Several
of the environmental owned and pooled business units contributed to the
improvement along with the higher gross margin S&W acquisition.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ("SG&A")


         Consolidated SG&A expenses increased $5,790,000 to $18,871,000 in 1999
from $13,081,000 in 1998. However, SG&A as a percentage of revenue, improved by
4.4% from 1998 to 1999. The plastic lumber division's SG&A expenses as a percent
of sales improved by 10 percentage points, from 26% of revenues to 16%. The
environmental recycling division's SG&A expenses as a percent of revenues also
improved from 12% of revenues in 1998 to 10% of revenues in 1999. The corporate
administrative expense percent improved to 1.4% of revenues in 1999 from 1.8% in
1998. The economies of scale of consolidating administrative functions,
increased purchasing power with vendors and spreading fixed expenses over a
larger revenue base as a result of the numerous acquisitions in the past two
years continue to benefit the entire Company.



                                       51
<PAGE>

INTEREST EXPENSE

         Interest expense increased $3,898,000 to $5,465,000 in 1999 over the
$1,567,000 in 1998. Of this increase, $722,000 pertains to the write-off of the
unamortized discount assigned to the $6,500,000 convertible debentures proceeds
in December 1998 and January 1999.


         Interest expense also includes $439,000 of amortization of deferred
financing costs, an increase of $167,000 over the $272,000 of amortization in
1998. The increase is entirely attributable to costs of obtaining the new credit
agreement form Southern Pacific Bank ("SPB") in October 1998. Interest expense
for 1999 also includes $249,000 of amortization of costs related to the issuance
of $6,500,000 of convertible debentures in December 1998 and January 1999. There
was no similar charge in 1998. Approximately $613,000 of the $1,039,000
unamortized debenture issuance cost at December 31, 1999 will be charged to
additional paid in capital in 2000 related to the conversion of $4,000,000 of
the $6,500,000 of old debentures. Total amortization of debt and debenture
issuance costs should be significantly lower in 2000.


         Most of the increase in interest expense is the result of the following
additional borrowings:

         -        A weighted average outstanding balance of $17,488,000 under
                  the $30 million SPB credit facility in 1999;

         -        Issuing $6,500,000 of convertible debentures;

         -        Issuing $4,000,000 of convertible debentures and a $3,000,000
                  capitalized lease in the Eaglebrook purchase;

         -        Issuing $6,000,000 of additional debt to affiliates; and

         -        Issuing other loans and capitalized leases secured by specific
                  equipment.

         Interest expense also increased as a result of debt service
requirements assumed from businesses acquired during 1998 and 1999.

DEPRECIATION AND AMORTIZATION

         Depreciation expense increased $1,611,000 or 71% to $3,877,000 in 1999
compared to $2,266,000 in 1998, reflecting the significant increase in plant and
equipment from both acquisitions and continued capital investments. Amortization
of intangibles also increased $944,000 to $1,488,000 in 1999 from $544,000 in
1998 due to the numerous acquisitions completed during 1998 and 1999.

SEASONALITY


         The Company experiences a seasonal slow down during the winter months
because its environmental operations are located in the Northeast United States
where adverse weather and normal ground freezing can impact the Company's
performance. Additionally, sales of some plastic lumber products slow
significantly in the winter months.



                                       52
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES


         Net cash used in operating activities for year ended December 31, 2000
is $7,685,000 compared to net cash provided by operating activities of
$5,961,000 for the prior year, an increase of $13,646,000. The increase is
primarily attributable to: (i) an increase of $9,673,000 in accounts receivable,
(ii) an increase of $1,992,000 in inventory, and (iii) payments of $47,000,
$250,000 and $865,000 of issue costs incurred in 2000 relating to the conversion
of subordinated convertible debentures, restricted cash and issue costs
associated with the new senior credit facility, respectively.


         Net cash used in investing activities for the year ended December 31,
2000 was $24,336,000, a decrease of $23,514,000, compared to $47,850,000 used
during the prior year. This decrease was a result of reduced purchases of
machinery and equipment and cash paid for acquisitions during the year ended
December 31, 2000.


         Net cash provided from financing activities for the year ended December
31, 2000 decreased by $8,221,000 to $32,424,000 from net cash provided from
financing activities of $40,644,000 for the year ended December 31, 1999. The
decrease is primarily attributable to decrease in proceeds of $25,207,000 from
the issuance of common stock offset by net borrowings on the Company's revolving
line of credit in the current year, and proceeds from the issuance of
subordinated convertible debentures.


         At December 31, 2000, the Company had net working capital of
$10,965,000 including cash and cash equivalents totaling $2,221,000, compared to
net working capital of $12,189,000 including cash and cash equivalents of
$1,808,000 at December 31, 1999.


         On February 2, 2000 the Company issued $7,500,000 of the 5% convertible
subordinated debenture. The principal terms of the debenture are as follows: the
conversion price is the lower of $9.65 or the lowest trading price of the
Company's common stock during the four trading days prior to the conversion
date, but not less than $8.25 (the "minimum floating conversion price"). If the
market price stays below $8.25 for 10 consecutive trading days after the first
anniversary of the date of issuance, the holder has the right to a put option.
This put option enables the holder to require the Company (at the Company's
option) to either repurchase the debenture for cash or reset the minimum
floating conversion price of the debenture to zero. If the Company elects to
repurchase the debenture for cash, the repurchase price would be equal to 110
percent of the outstanding balance of the debenture plus accrued interest. If
the Company elects to reset the minimum floating conversion price of the
debenture to zero, the conversion price for the debenture into common stock
shall be the lowest trading price between the effective date of the put notice
and the fourth trading day immediately following the Company's notification to
the holder of its election to reset the minimum floating conversion price. The
Company can force conversion of the debenture at $9.65 if the market price stays
above $16.84 for 20 consecutive trading days. The debenture is scheduled to
mature on February 2, 2005. Under the circumstances described in the agreement
with Halifax, the debenture can be redeemed for stock, cash or a combination
thereof. On February 20, 2001 the holders of the debenture exercised their put
option to the Company. The Company elected not to purchase the debenture thereby
the minimum floating conversion price is effectively reset to zero. To date, no
notes have been converted to common stock. See "- Subsequent Events" for
additional information regarding the exercise of the put option.



         In conjunction with the issuance of the debenture, the Company issued
200,000 warrants to purchase common stock at $10.09 per share. The Company has
filed a registration statement with the SEC to register the shares underlying
the debenture and warrant agreements. The Company recognized a beneficial
conversion feature of $270,946 in the first quarter of 2000. The $575,703 value
assigned to the warrants and the $750,000 discount attributed to the put feature
are reflected as discounts from the face value of the debenture and are being
accreted over the term of the debenture. The warrant generally



                                       53

<PAGE>


provides for a weighted average reduction of the initial warrant exercise price
whenever the Company sells common stock or other securities convertible into
common stock at a price less than fair market value or the then effective
warrant exercise price. In addition, concurrent with the price reduction, the
warrant increases the number of shares purchasable by Halifax proportionately
with the reduction in the exercise price. As a result of the issuance of
securities to third parties effected subsequently to the issuance of Halifax'
warrant, the adjustment may be necessary to the exercise price of Halifax'
warrant.

         In September of 2000 the Company issued 1,187,285 shares of its
Series D Preferred Stock. The Series D Preferred Stock pays a quarterly cash
dividend at an annual rate of 15%, with the initial dividend payable on
March 31, 2001. Each share of Series D Preferred Stock is convertible into one
share of the Company's common stock at the option of the holder, subject to the
rights of the Company. The Company at its sole option can redeem the Series D
Preferred Stock at 115% of the initial purchase price in cash prior to March 31,
2001. In addition, if the common stock of the Company is trading at an average
closing price of $3.50 per share or higher for 20 consecutive trading days at
any time prior to March 1, 2002 the Company has the right to require conversion
of the Series D Preferred Stock into common stock. Otherwise, the Series D
Preferred Stock automatically converts into common stock on March 1, 2002. The
net proceeds of $4,100,000 from the issuance of Series D Preferred Stock were
used for general corporate purposes. The Company has not converted any shares of
this series as of March 31, 2001.

         In November of 2000 through March 2001, the Company issued 1,714,285
shares of its Series E Preferred Stock. The Series E Preferred Stock pays a
monthly cash dividend at an annual rate of 10%, with the initial dividend
payable on January 15, 2001. Each share of Series E Preferred Stock is
convertible into one share of the Company's common stock at the option of the
holder, subject to the rights of the Company. The Company at its sole option can
redeem the Series E Preferred Stock at 110% of the initial purchase price in
cash prior to December 31, 2001. In addition, if the common stock of the Company
is trading at an average closing price of $1.75 per share or higher for 20
consecutive trading days at any time prior to March 1, 2002 the Company has the
right to require conversion of the Series E Preferred Stock into common stock.
Otherwise, the Series E Preferred Stock automatically converts into common stock
on March 1, 2002. The net proceeds of $3,000,000 from the issuance of Series E
Preferred Stock were used for general corporate purposes.

         In addition to the above, the Company issued 52,408 shares of common
stock for miscellaneous reasons, including settlements of litigation and
employee bonuses.

         In 1999 and the first six months of 2000, the Company had a line of
credit whereby borrowings would be collateralized by specific equipment and/or
inventory and eligible accounts receivable. On June 30, 2000 the Company
terminated the line of credit and entered into a new senior credit facility with
three banks ("Senior Credit Facility"). The Senior Credit Facility provided for
a $30,000,000 term loan and a $15,000,000 revolving credit line. Under the
conditions described in the senior credit facility, the Company can expand the
revolving credit line to $30,000,000. The Senior Credit Facility allows the
Company to select from two interest rate options, one based on a spread over the
prime rate and the other based on a spread over the Eurodollar deposit rate. The
spread above each interest rate option is determined by the Company's ratio of
consolidated debt to Earnings Before Interest, Taxes, Depreciation and
Amortization. The Senior Credit Facility requires the maintenance of defined
levels of net worth, various financial performance ratios and restrictions on
capital expenditures.

         In terminating the previously existing line of credit, the Company
incurred an extraordinary loss in the second quarter of 2000 for prepayment
penalties and the write off of deferred loan costs amounting to $1,028,000, net
of taxes. Proceeds from the Senior Credit Facility were used to pay down
portions of the Company's existing indebtedness and for general corporate
purposes. At December 31, 2000 the Company had outstanding borrowings of
$42,400,000 under the Senior Credit Facility.



                                       54

<PAGE>


         The Company's liquidity and ability to meet its financial obligations
in 2001 will be dependent on the Company maintaining compliance with its debt
covenants and obtaining the proceeds from the Fusion Capital Fund II LLC common
stock purchase agreement. The Senior Credit Facility requires the maintenance of
defined levels of net worth, various financial performance ratios and
restrictions on capital expenditures, dividend payments, acquisitions and
additional indebtedness. At September 30, 2000 the Company was not in compliance
with some of the financial covenant requirements of the Senior Credit Facility
for which the Company received a waiver and amendment dated November 13, 2000.
In addition to an interest rate increase of 200 basis points and amendment fees
of $428,000, the terms of the amendment required the Company to raise a minimum
of $2,000,000 in equity prior to November 30, 2000, and additional $2,000,000
prior to December 26, 2000, and an additional $500,000 prior to January 31,
2001. The Company has raised only $2.5 million required by the Waiver and First
Amendment as of December 31, 2000. The Waiver and First Amendment also required
that the Company attain appropriate levels of EBITDA and interest expense. The
amended terms also put further limits on the Company's capital expenditures, and
gave the senior lenders the option to permanently reduce their commitment on the
revolving credit line when payments were made on that portion of the Senior
Credit Facility by the amount paid. As of December 31, 2000, as a result of the
operating losses of $2.6 million and $5.1 million incurred in the fourth quarter
and for the year ended December 31, 2000, which excludes restructuring charges
of $3.2 million, respectively, the Company was in default on some of the
financial covenants contained in the Waiver and First Amendment. The default
related to failure to achieve minimum levels of EBITDA, failure to maintain
compliance with financial covenant ratios, including but not limited to ratios
involving EBITDA interest expense and debt, and failure to raise sufficient
equity sums by specified dates. On March 15, 2001, the Company entered into a
Waiver and Second Amendment to the Senior Credit Facility with the senior
lenders in which they agreed to waive past defaults on the Senior Credit
Facility and the Waiver and First Amendment. The Waiver and Second Amendment
contains the same type of waiver provisions as the Waiver and First Amendment,
except that it provides additional flexibility in the financial covenants during
the course of the next several months. In addition, the Waiver and Second
Amendment contains a provision which requires that the Senior Credit Facility be
refinanced or paid in full by April of 2002. The Company currently does not have
the financial resources to repay the outstanding principal balance of its Senior
Credit Facility in 2002 and will need to obtain new debt or equity capital or
sell some of the Company's assets to meet this requirement.

         At December 31, 2000, the Company was not in compliance with the
minimum tangible net worth covenant of the GE Capital Equipment Term Loan ("GE
Loan"). On March 30, 2001, the Company entered into an amendment on the GE Loan
with GE Capital to waive the tangible net worth covenant for the fourth quarter
of 2000 and amended the covenant for each quarter of 2001. Additionally, the
Company will be required to accelerate a portion of the principal payments on
the GE Loan and will be required to refinance or repay a portion of the GE Loan
upon the refinancing or repayment of the Senior Credit Facility.

         The terms of the Senior Credit Facility also require the Company to
raise $6,500,000 of equity, in increments of $500,000 per month commencing in
January and March 2001 and $500,000 per month thereafter until an aggregate of
$6,500,000 has been raised. In December 2000, the Company entered into a common
stock purchase agreement with Fusion Capital Fund II, LLC ("Fusion") pursuant to
which Fusion has agreed to purchase up to $12 million of the Company's common
stock (see note 9 of the Notes to Consolidated Financial Statements). Pursuant
to the terms of the Agreement with Fusion, the Company may not sell shares to
Fusion until such time as the Securities and Exchange Commission declares a
registration statement effective which registers for resale the shares Fusion
Capital has agreed to purchase. As of December 31, 2000, the Company had not
filed a registration statement with the Securities and Exchange Commission. As a
result, there can be no assurance that the Company will be able to obtain such
additional funding. The Company is dependent on Fusion or other sources of
financing to meet its covenant requirements under the Senior Credit Facility.



                                       55

<PAGE>


         Some of our debt instruments contain covenants establishing financial
covenants and operating restrictions. Our failure to comply with any covenant or
material obligation contained these debt agreements, absent a waiver from the
lenders, would result in an event of default which could accelerate debt
repayment terms under the debt agreements. Due to various cross-default
provisions contained within some of our credit agreements, an event of default
under these debt agreements could accelerate debt repayment terms under other
credit agreements, all of which would have a material adverse affect on our
liquidity and capital resources.


         During 2000, the Company's primary sources of working capital have been
the net proceeds from sales of the Company's securities in September and
November 2000, respectively, the Senior Credit Facility, proceeds from the
issuance of convertible debentures and direct sales of the Company's products
and services to its customers. Since its inception, the Company has financed its
operations through a number of stock and debt issuances and conversions.


         The Company's material financial commitments relate principally to its
working capital requirements and its obligations to make term loan payments on
its Senior Credit Facility, currently $1,250,000 per quarter and increasing to
$2,500,000 in September of 2001, monthly interest payments on the senior credit
facility, lease payments pursuant to the real property and equipment leases,
approximately $324,000 per month, installment payments for manufacturing
equipment, approximately $244,000 per month, interest payments on the Company's
Subordinated Convertible Debentures, approximately $206,000 quarterly, and
dividends on the Company's Series D and Series E Convertible Preferred Stock,
approximately $230,000 quarterly.


         Capital requirements relating to the implementation of the Company's
business plan have been and will continue to be significant. The Company
believes that its ability to generate cash from operations is dependent upon,
among other things, increased demand for its products and services and the
successful development of direct marketing, expanded manufacturing capabilities
and product distribution capabilities. There can be no assurance that the
Company will have sufficient capital resources to permit the Company to continue
implementation of its business plan.


         The Company has suffered recurring losses from operations, primarily
resulting from the significant expenses incurred in the establishment of its
manufacturing and marketing organization. As of December 31, 2000, the Company's
accumulated deficit totaled $11,459,000. Since its inception, the Company has
financed its operations through a number of stock and debt issuances and
conversions. The Company believes its cash flows from operations will satisfy
its cash requirements in 2001; however, the Company is seeking additional
sources of financing to supplement its cash flow requirements.



         In November of 2000, the Company retained Bank of America Securities
("BAS") to explore and evaluate strategic alternatives for the Company which
could include the possible sale of the Company's environmental services
division, Clean Earth Inc. ("CEI"). The Company has held discussions with
prospective buyers who have expressed various levels of interest in CEI,
however, no agreement has been reached with any of the buyers and there can be
no assurances that an agreement will be reached. Proceeds from the sale of CEI,
if it occurs, would be used to first pay down the Company's Senior Credit
Facility. Any excess proceeds would be applied to the other debt and provide
working capital.



         If the Company does not comply with its covenants contained within its
debt agreements in 2001, or if adequate cash flows from operations and funds
available from the capital markets are not available to finance its operations
and retire its debt obligations as they become due, the Company may be required
to significantly curtail its operations and the Company's ability to continue as
a going concern would be impaired.



                                       56

<PAGE>


New Accounting Standards

         In June, 1998 the Financial Accounting Standards Board issued Statement
of Accounting Standards No. 133, "Accounting for Derivative Instruments and
Hedging Activities" ("SFAS No. 133"), as amended, which establishes accounting
and reporting standards for derivative instruments, including some derivative
instruments embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. This statement is
effective for all fiscal quarters of fiscal years beginning after June 15, 2000.
The Company will adopt SFAS No. 133 during the fiscal quarter ending March 31,
2001 and anticipates that there will be no material impact to the Company's
financial statements and notes thereto.



Subsequent Events










         On February 20, 2001, the Company received a put notice from the
Halifax Fund, L.P. relative to the 5% convertible debenture issued on February
2, 2000 in the amount of $7,500,000. Pursuant to the put notice, the Company had
the option to either (a) repurchase the Outstanding Principal Amount plus all
accrued, unpaid interest for a cash price equal to 110% thereof, or (b) have the
minimum floating



                                       57

<PAGE>


conversion price permanently re-set to zero. Prior to the put notice, the
minimum floating conversion price was $8.25 per share; however, since the stock
price of our common stock had traded for less than $8.25 per share for ten
consecutive trading days ending February 16, 2001, Halifax Fund L.P. had this
right of re-set or buy-out. We did not elect to option (a); therefore the
minimum floating conversion price has permanently re-set to zero.

         In November of 2000 through March 2001, the Company issued 1,714,285
shares of its Series E Preferred Stock. See "--Liquidity and Capital Resources"
for further discussion of this transaction.

         On March 2, 2001 under the terms of the common stock purchase agreement
and in connection with the commencement of this first tranche, Fusion Capital
Fund II, LLC was issued 200,000 shares of the Company's common stock as a
commitment fee. Unless an event of default occurs, Fusion Capital must hold
these shares until the common stock purchase agreement has been terminated.

         On March 15, 2001, we entered into a waiver and second amendment to the
credit facility agreement ("Waiver and Second Amendment") with our senior
lenders, Bank of America, LaSalle National Bank and Union Planters Bank, in
which they agreed to waive past defaults on our senior credit facility and first
amendment to the credit facility. The Waiver and Second Amendment requires that
we maintain our financial condition and operating profit within defined
parameters including ratios involving earnings before interest, taxes,
depreciation and amortization and interest expense. In addition, the Waiver and
Second Amendment contains a provision which requires the credit facility be
refinanced or paid in full by April 2002.

         On March 30, 2001, the Company entered into an amendment of the master
credit facility with GE Capital to waive the tangible net worth covenant for the
4th Quarter of 2000 and amended the covenant for each quarter of 2001.
Additionally, the Company has agreed to accelerate a portion of its principal
payments.



                                       58

<PAGE>

                   U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


<TABLE>
<CAPTION>
                                                                                                              PAGE
                                                                                                              ----
<S>                                                                                                           <C>
Reports of Independent Certified Public Accountants..................................................          60
Consolidated Balance Sheets as of December 31, 2000 and 1999.........................................          63
Consolidated Statements of Operations for the Years Ended December 31, 2000, 1999 and 1998...........          64
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2000, 1999
   and 1998..........................................................................................          65
Consolidated Statements of Cash Flows for the Years Ended December 31, 2000, 1999 and 1998...........          66
Notes to Consolidated Financial Statements...........................................................          67
</TABLE>



                                       59

<PAGE>

               REPORTS OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


The Board of Directors
U.S. Plastic Lumber Corporation:



We have audited the accompanying consolidated balance sheets of U.S. Plastic
Lumber Corp. (a Nevada Corporation) and subsidiaries as of December 31, 2000 and
1999, and the related consolidated statements of operations, stockholders'
equity, and cash flows for the years then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.


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




In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of U.S. Plastic Lumber
Corp. and subsidiaries as of December 31, 2000 and 1999, and the results of
their operations and their cash flows for the years then ended in conformity
with accounting principles generally accepted in the United States of America.



/s/ KPMG LLP
KPMG LLP



Miami, Florida
March 30, 2001



                                       60

<PAGE>

               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To U.S. Plastic Lumber Corp.:


We have audited the accompanying consolidated statements of operations,
stockholders' equity and cash flows of U.S. Plastic Lumber Corp. (a Nevada
Corporation) and subsidiaries for the year ended December 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit. We did not audit the financial statements of Barbella Environmental
Technology, Inc., a company acquired during 1999 in a transaction accounted for
as a pooling of interests, as discussed in Note 3. Such statements are included
in the consolidated financial statements of U.S. Plastic Lumber Corp. and
subsidiaries and reflect total assets and total revenues of 12% and 25%,
respectively, of the related consolidated totals for 1998. These statements were
audited by other auditors whose report has been furnished to us and our opinion,
insofar as it relates to amounts included for Barbella Environmental Technology,
Inc., is based solely upon the report of the other auditors.


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

In our opinion, based on our audit and report of other auditors, the financial
statements referred to above present fairly, in all material respects, U.S.
Plastic Lumber Corp. and subsidiaries' result of operations and their cash flows
for the year then ended December 31, 1998 in conformity with accounting
principles generally accepted in the United States.



/s/ Arthur Andersen LLP
Arthur Andersen LLP


Miami, Florida,
March 28, 2000.


                                       61

<PAGE>
                          INDEPENDENT AUDITOR'S REPORT

To the Stockholders and
Board of Directors of
Barbella Environmental Technology, Inc.
Somerville, New Jersey

         We have audited the accompanying balance sheets of BARBELLA
ENVIRONMENTAL TECHNOLOGY, INC. as of December 31, 1998 and 1997, and the related
statements of operations and retained earnings, and cash flows for the years
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

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

         In our opinion, the combined financial statements referred to above
present fairly, in all material respects, the financial position of BARBELLA
ENVIRONMENTAL TECHNOLOGY, INC. as of December 31, 1998 and 1997, and the results
of its operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.


/s/ CALLAHAN & COMPANY P.C.
---------------------------
    CALLAHAN & COMPANY P.C.


Neptune, New Jersey
March 12, 1999


                                       62

<PAGE>

                   U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                        AS OF DECEMBER 31, 2000 AND 1999


<TABLE>
<CAPTION>
                                                                                     2000                   1999
                                                                                -------------           -------------
<S>                                                                             <C>                     <C>
ASSETS
CURRENT ASSETS
  Cash and cash equivalents ..........................................          $   2,211,082           $   1,807,588
  Accounts receivable (net) ..........................................             43,763,378              32,915,420
  Inventories ........................................................              9,723,390               7,339,543
  Prepaid expenses and other assets ..................................              2,542,126               2,636,812
                                                                                -------------           -------------
          Total current assets .......................................             58,239,976              44,699,363
Property, plant and equipment (net) ..................................            100,544,939              80,423,952
Acquired intangibles (net) ...........................................             37,033,919              35,837,568
Other assets .........................................................              4,592,125               5,350,549
                                                                                -------------           -------------
          Total assets ...............................................          $ 200,410,959           $ 166,311,432
                                                                                =============           =============

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
  Accounts payable ...................................................          $  27,958,413           $  20,180,807
  Notes and capital leases payable, current portion ..................             11,535,698               5,867,779
  Accrued expenses ...................................................              4,390,344               4,111,309
  Restructuring accrual ..............................................              1,149,431                 734,661
  Other liabilities ..................................................              2,240,721               1,615,800
                                                                                -------------           -------------
          Total current liabilities ..................................             47,274,607              32,510,356
Notes and capital leases payable, net of current portion .............             54,613,509              36,322,452
Notes payable, affiliates -- long term ...............................                     --               6,000,000
Deferred income taxes and other liabilities ..........................                571,382               1,718,061
Minority interest ....................................................                196,383                 250,165
Convertible subordinated debentures, net of unamortized
  discount ...........................................................              7,255,213               6,500,000
Convertible subordinated debentures -- affiliates, net of
  unamortized discount ...............................................              4,757,657                      --
                                                                                -------------           -------------
          Total liabilities ..........................................            114,668,751              83,301,034
                                                                                -------------           -------------
STOCKHOLDERS' EQUITY
  Convertible preferred stock, par value $.001; authorized
     5,000,000 shares; Series D 15%, issued and
     outstanding 1,187,285 and none respectively .....................                  1,187                      --
     Series E 10%, issued and outstanding 1,142,857 and
      none respectively ..............................................                  1,143                      --
  Common stock par value $.0001, authorized 100,000,000
     shares; issued and outstanding 34,836,594 and
     32,077,632 shares, respectively .................................                  3,484                   3,208
  Additional paid-in capital .........................................             97,195,416              81,171,322
  Retained (deficit) earnings ........................................            (11,459,022)              1,835,868
                                                                                -------------           -------------
          Total stockholders' equity .................................             85,742,208              83,010,398
                                                                                -------------           -------------
          Total liabilities and stockholders' equity .................          $ 200,410,959           $ 166,311,432
                                                                                =============           =============
</TABLE>



          See accompanying notes to consolidated financial statements.



                                       63

<PAGE>

                   U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998


<TABLE>
<CAPTION>
                                                               2000                    1999                    1998
                                                          -------------           -------------           -------------
<S>                                                       <C>                     <C>                     <C>
Sales, net ............................................   $ 173,744,343           $ 138,544,512           $  72,794,387
Cost of goods sold ....................................     148,916,681             100,176,431              57,344,285
Inventory impairment ..................................              --               2,025,000
                                                          -------------           -------------           -------------
  Gross profit ........................................      24,827,662              36,343,081              15,450,102
Selling, general and administrative expenses ..........      27,509,565              20,539,660              13,762,466
Merger costs ..........................................              --               1,845,000                      --
Restructuring and asset impairment charges ............       3,184,926               3,720,000                      --
                                                          -------------           -------------           -------------
  Operating (loss) income .............................      (5,866,829)             10,238,421               1,687,636
Interest and other income .............................         215,083                 106,275                 383,776
Interest expense ......................................      (7,037,457)             (5,464,880)             (1,566,854)
Minority interest .....................................          53,782                      --                (262,659)
                                                          -------------           -------------           -------------
  (Loss) earnings before extraordinary item
     and income taxes .................................     (12,635,421)              4,879,816                 241,899
(Benefit from) provision for income taxes .............      (1,188,075)              1,731,000                 (62,181)
                                                          -------------           -------------           -------------
  (Loss) earnings before extraordinary item ...........     (11,447,346)              3,148,816                 304,080
  Extraordinary loss on extinguishment of
     debt, net of taxes of $655,729 ...................      (1,027,785)                     --                      --
                                                          -------------           -------------           -------------
  Net (loss) earnings .................................     (12,475,131)              3,148,816                 304,080
Preferred stock dividend earned .......................        (819,759)               (316,782)               (677,078)
                                                          -------------           -------------           -------------
  Net (loss) earnings attributable to common
     stockholders .....................................   $ (13,294,890)          $   2,832,034           $    (372,998)
                                                          =============           =============           =============
Net (loss) earnings per common share -- Basic:
  (Loss) earnings before extraordinary item ...........   $       (0.36)          $        0.10           $       (0.02)
  Loss on extinguishment of debt ......................   $       (0.03)          $          --           $          --
                                                          -------------           -------------           -------------
  Net (loss) earnings per common share ................   $       (0.39)          $        0.10           $       (0.02)
                                                          =============           =============           =============
Net (loss) earnings per common share -- Diluted:
  (Loss) earnings before extraordinary item ...........   $       (0.36)          $        0.09           $       (0.02)
  Loss on extinguishment of debt ......................   $       (0.03)          $          --           $          --
                                                          -------------           -------------           -------------
  Net (loss) earnings per common share ................   $       (0.39)          $        0.09           $       (0.02)
                                                          =============           =============           =============
Weighted average common shares outstanding:
  Basic ...............................................      34,297,292              28,171,655              18,737,415
                                                          =============           =============           =============
  Diluted .............................................      34,297,292              30,199,499              18,737,415
                                                          =============           =============           =============
</TABLE>



          See accompanying notes to consolidated financial statements.



                                       64

<PAGE>

                   U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998


<TABLE>
<CAPTION>
                                             CONVERTIBLE
                                           PREFERRED STOCK        COMMON STOCK         ADDITIONAL       RETAINED
                                      ---------------------    -------------------      PAID-IN-        (DEFICIT)
                                        SHARES      AMOUNT       SHARES     AMOUNT      CAPITAL         EARNINGS         TOTAL
                                      ----------    -------    ----------   ------   ------------    ------------    ------------
<S>                                   <C>           <C>        <C>          <C>      <C>             <C>             <C>
Balance at December 31, 1997 ......      208,930    $   209    17,482,363   $1,748   $ 13,030,328    $   (258,075)   $ 12,774,210
Business acquisitions and
  earnout agreements ..............           --         --       952,875       96      3,455,857              --       3,455,953
Exercise of options and warrants ..           --         --     1,044,372      105      2,524,762              --       2,524,867
Private placement of preferred
  shares ..........................      211,020        211            --       --      4,431,209              --       4,431,420
Costs of issuing common and
  preferred shares ................           --         --            --       --       (483,788)             --        (483,788)
Shares and value of options
  issued to directors and
  Stout Partnership ...............           --         --         4,400       --        512,685              --         512,685
Stock issued in connection with
  convertible debentures ..........           --         --       114,800       11        548,949              --         548,960
Other issuances ...................           --         --        29,030        3         75,338              --          75,341
Conversion of Preferred to Common .      (66,207)       (66)      463,452       46             20              --              --
Preferred stock dividends .........       28,966         29            --       --        586,745        (586,774)             --
Debenture proceeds allocated
  to 10% conversion discount ......           --         --            --       --        444,444              --         444,444
Net income ........................           --         --            --       --             --         304,080         304,080
                                      ----------    -------    ----------   ------   ------------    ------------    ------------
Balance at December 31, 1998 ......      382,709        383    20,091,292    2,009     25,126,549        (540,769)     24,588,172
Business acquisitions and
  earnout agreements ..............           --         --     4,074,711      407     19,380,593              --      19,381,000
Settlement of Historical
  Shareholders' earnout agreement .           --         --            --       --      5,166,005              --       5,166,005
Value of warrants issued on
  acquisitions ....................           --         --            --       --      1,219,892              --       1,219,892
Exercise of options and warrants ..           --         --       761,226       76      3,009,100              --       3,009,176
Costs of issuing common and
  preferred shares ................           --         --            --       --     (1,978,509)             --      (1,978,509)
Private placement of common shares            --         --     4,090,171      409     26,573,681              --      26,574,090
Stock issued in conjunction with
  private placements ..............           --         --        35,000        4        288,747              --         288,751
Stock & options issued in
  conjunction with debt agreement
  and subordinated debentures .....           --         --        10,000        1        516,733              --         516,734
Debenture proceeds allocated
  to 10% conversion discount ......           --         --            --       --        277,777              --         277,777
Other issuances ...................           --         --       161,040       16      1,078,605              --       1,078,621
Distributions to sub S
  shareholders prior to pooling ...           --         --            --       --             --        (260,127)       (260,127)
Conversion of Preferred to
  Common ..........................     (407,742)      (408)    2,854,192      286            122              --              --
Preferred stock dividends .........       25,033         25            --       --        512,027        (512,052)             --
Net income ........................           --         --            --       --             --       3,148,816       3,148,816
                                      ----------    -------    ----------   ------   ------------    ------------    ------------
Balance at December 31, 1999 ......            0          0    32,077,632    3,208     81,171,322       1,835,868      83,010,398
Business acquisitions and
  earnout agreements ..............           --         --       835,209       84      1,755,332              --       1,755,416
Other issuances ...................           --         --        50,334        5        194,709              --         194,714
Exercise of options and warrants ..           --         --       180,334       18        785,057              --         785,075
Costs of issuing common shares ....           --         --            --       --        (40,485)             --         (40,485)
Value of warrants issued with
  subordinated debentures .........           --         --            --       --        840,077              --         840,077
Private placement of preferred
  shares ..........................    2,330,143      2,330            --       --      6,153,171              --       6,155,501
Costs associated with issuance of
  preferred shares ................           --         --            --       --       (107,282)             --        (107,282)
Amortization of beneficial
  conversion feature --
  Series D preferred ..............           --         --            --       --        617,465        (617,465)             --
Preferred dividends ...............           --         --            --       --             --        (202,294)       (202,294)
Beneficial conversion
  features -- subordinated
  debentures ......................           --         --            --       --        270,946              --         270,946
Conversion of debentures and
  accrued interest ................           --         --     1,693,085      169      6,544,942              --       6,545,111
Costs associated with debentures
  converted .......................           --         --            --       --       (989,838)             --        (989,838)
Net loss ..........................           --         --            --       --             --     (12,475,131)    (12,475,131)
                                      ----------    -------    ----------   ------   ------------    ------------    ------------
Balance at December 31, 2000 ......    2,330,143    $ 2,330    34,836,594   $3,484   $ 97,195,416    $(11,459,022)   $ 85,742,208
                                      ==========    =======    ==========   ======   ============    ============    ============
</TABLE>



          See accompanying notes to consolidated financial statements.



                                       65

<PAGE>


                  U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998



<TABLE>
<CAPTION>
                                                                           2000              1999               1998
                                                                      -------------      -------------      -------------
<S>                                                                   <C>                <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net (Loss) Income .............................................     $ (12,475,131)     $   3,148,816      $     304,080
                                                                      -------------      -------------      -------------
  Adjustments to reconcile net cash (used in) provided by
    operating activities:
    Depreciation ................................................         4,955,080          3,880,752          2,265,561
    Amortization ................................................         1,908,719          2,491,769            635,829
    Deferred income tax (benefit) provision .....................        (2,062,184)         1,148,159           (861,744)
    Amortization of deferred financing and debenture
      discount costs ............................................           673,659          1,442,646            272,366
    (Gain) on sale of property, plant & equipment ...............           (17,430)                --                 --
    Loss on early extinguishment of debt ........................         1,683,514                 --                 --
    Non cash restructuring charges and asset impairment charge ..         3,184,926          3,972,142                 --
    Beneficial conversion feature of convertible subordinated
      debentures ................................................           270,946                 --                 --
    Non cash merger costs .......................................                --          1,461,766                 --
  Changes in operating assets and liabilities, net of
    acquisitions:
    Accounts receivable .........................................        (9,672,757)       (13,028,090)        (5,385,858)
    Inventories .................................................        (1,991,917)        (3,276,013)        (2,620,970)
    Prepaid expenses and other current assets ...................           144,707           (769,129)        (1,060,050)
    Other assets ................................................        (1,999,388)            60,432            288,965
    Accounts payable ............................................         7,548,605          6,966,968           (583,173)
    Other liabilities ...........................................           329,338            (89,645)           563,075
    Accrued expenses ............................................          (165,194)        (1,449,962)        (1,275,185)
                                                                      -------------      -------------      -------------
        Net cash (used in) provided by operating activities .....        (7,684,507)         5,960,611         (7,457,104)
CASH FLOWS FROM INVESTING ACTIVITIES:
  Capital expenditures for property and equipment ...............       (24,808,163)       (31,909,978)        (8,486,863)
  Capital expenditures for dredge disposal site permits and
    Costs .......................................................                --                 --         (2,045,436)
  Cash paid for acquisitions, net of cash received ..............           (62,297)       (15,098,104)        (3,885,197)
  Proceeds from the sale of property, plant and equipment .......           534,893                 --             76,500
  Payments on non-compete agreements ............................                --           (841,591)                --
                                                                      -------------      -------------      -------------
        Net cash used in investing activities ...................       (24,335,567)       (47,849,673)       (14,340,996)
CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from exercise of warrants and options, net of                                                                7
    issuance costs ..............................................           744,590          1,924,381          2,524,86
  Proceeds from the sale of common stock, net of issuance                                                               2
    costs .......................................................                --         25,206,612          3,947,63
  Sale of preferred stock, net of issuance costs ................         6,045,889                 --                 --
  Proceeds from sale of convertible debentures ..................         7,500,000          2,500,000          4,000,000
  Advances from (repayment to) affiliates, net ..................        (1,000,000)         6,000,000         (1,730,317)
  Proceeds from notes payable ...................................        61,610,619         23,128,118         25,227,300
  Payment of deferred financing costs ...........................                --           (632,373)          (715,946)
  Distributions to shareholders of pooled companies .............                --           (260,128)          (509,299)
  Payments of notes payable and capital leases ..................       (42,477,530)       (17,222,478)       (12,500,320)
                                                                      -------------      -------------      -------------
        Net cash provided by financing activities ...............        32,423,568         40,644,132         20,243,917
                                                                      -------------      -------------      -------------
Net change in cash and cash equivalents .........................           403,494         (1,244,930)        (1,554,183)
Cash and cash equivalents, beginning of period ..................         1,807,588          3,052,518          4,606,701
                                                                      -------------      -------------      -------------
Cash and cash equivalents, end of period ........................     $   2,211,082      $   1,807,588      $   3,052,518
                                                                      =============      =============      =============
Supplemental disclosure of cash flow information:
Cash paid during the period for:
  Interest ......................................................     $   5,994,687      $   3,772,631      $   1,191,281
  Income taxes ..................................................     $     (98,202)     $     704,453      $     638,980
Capitalized interest ............................................     $   1,379,818      $     236,115      $          --
Capitalized leases ..............................................         1,832,657             77,801            864,367
Number of shares issued during the period for non-cash
transactions:
  Acquisitions and Clean Earth merger ...........................           835,209          4,074,711            952,875
  Compensation -- employees and directors .......................            45,934            117,408             28,400
  Litigation settlements ........................................            11,666             30,000              5,166
  Conversion of debentures ......................................         1,693,085                 --                 --
  Financing fees and other ......................................                --            107,082            114,800
  Conversion of preferred stock .................................                --          2,854,192            463,452
</TABLE>



           See accompanying notes to consolidated financial statements



                                       66

<PAGE>

                   U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.       NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF OPERATIONS

         U.S. Plastic Lumber Corp. and its subsidiaries (collectively the
"Company") are engaged in the manufacturing of recycled plastic lumber and other
products and environmental remediation services, including recycling of soils
which have been exposed to hydrocarbons and the beneficial reuse of dredge
materials. The Company's plastic lumber customers are located throughout the
United States. The Company's environmental remediation, dredge and soil
recycling customers are located primarily in the Northeastern United States.

PRINCIPLES OF CONSOLIDATION

         The accompanying consolidated financial statements include the accounts
of U.S. Plastic Lumber Corp. and its wholly-owned subsidiaries U.S. Plastic
Lumber LTD, Eaglebrook Group, Inc., Clean Earth, Inc., Carteret Biocycle Corp.
("CBC") Clean Earth of New Castle, Inc. ("CENC"), Clean Earth of Philadelphia,
Inc. ("CEP"), Consolidated Technologies, Inc. ("CTI"), Integrated Technical
Services, Inc. ("ITS"), S&W Waste, Inc. ("S&W"), Barbella Environmental
Technologies, Inc. ("Barbella"), Clean Rock Industries, Inc. and Clean Rock
Properties, LTD. All significant intercompany balances and transactions have
been eliminated in consolidation.


         In July 1997, the Company and Interstate Industrial Corp. ("IIC")
formed a 50/50 joint venture dredging business. The Company manages the
day-to-day dredging operations and began consolidating 100% of the assets and
liabilities of the joint venture after the Company obtained majority control
effective April 1, 1998. Funds advanced to the joint venture, for which the
Company had an ownership percentage of 51.1% at December 31, 2000, 1999 and
1998, have been eliminated in consolidation. A summary of the 1998 operations of
the Joint Venture follows:



<TABLE>
         <S>                                                      <C>
         Revenues ..............................................  $ 3,062,903
         Operating costs and expenses ..........................    2,298,779
                                                                  -----------
         Operating income ......................................      764,124
         Minority interest .....................................     (382,062)
                                                                  -----------
         Company's portion of income before income taxes .......  $   382,062
                                                                  ===========
</TABLE>



The IIC minority interest in the net income of the joint venture since inception
totaling $250,165 and $196,383 is shown as minority interest in the accompanying
consolidated balance sheet at December 31, 1999 and 2000 respectively. The
decrease in 2000 is due to the $53,782 of minority interest in the joint
venture's net loss for the year 2000. The IIC joint venture had no operating
activity in 1999. The $119,403 minority interest in the CTI losses prior to June
30, 1998, when the Company had a 55% ownership interest, are combined with the
$382,062 minority interest in the IIC joint venture in the statement of
Operations for the year ended December 31, 1998.


USE OF ESTIMATES

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

CASH AND CASH EQUIVALENTS

         The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.


                                       67

<PAGE>

                  U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES


                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


INVENTORIES

         Inventories are valued at the lower of cost or market, cost being
determined by the first-in, first-out method.

PROPERTY, PLANT AND EQUIPMENT

         Property, plant and equipment are stated at cost. Depreciation is
computed using the straight-line method over the estimated useful lives of the
assets. Expenditures for maintenance and repairs are charged to operations as
incurred. Significant renewals, improvements and betterments are capitalized.
Leasehold improvements are amortized over the shorter of the underlying lease
term or the asset's useful life. Applicable interest charges incurred during the
construction of the new facilities are capitalized and amortized over the
asset's estimated useful lives.

ACQUIRED INTANGIBLES, NET


         Acquired intangibles are amortized on a straight-line basis as follows
at December 31, 2000 and 1999:



<TABLE>
<CAPTION>
                                            USEFUL LIVES       2000            1999
                                           -------------  -------------   ------------
         <S>                               <C>            <C>             <C>
         Goodwill -- acquisitions.......      20 years    $  13,872,583   $ 13,872,583
         Goodwill -- acquisitions.......      25 years        5,457,264      4,791,199
         Goodwill -- acquisitions.......      40 years       10,831,355      9,039,542
         Permits -- acquired............      25 years       10,575,891     10,172,000
                                                          -------------   ------------
                                                             40,737,093     37,875,324
         Less accumulated amortization..                     (3,703,174)    (2,037,756)
                                                          -------------   ------------
         Acquired intangibles (net).....                  $  37,033,919   $ 35,837,568
                                                          =============   ============
</TABLE>



         The Company assesses the recoverability of acquired intangibles by
determining whether the amortization of the balance over their remaining lives
can be recovered through undiscounted future operating cash flows of the
acquired operation. The amount of acquired intangibles impairment, if any, is
measured based on projected discounted future operating cash flows using a
discount rate commensurate with the risk of the acquired intangible. The
assessment of the recoverability of acquired intangibles will be impacted if
estimated future operating cash flows are not achieved.


IMPAIRMENT OF LONG LIVED ASSETS


         It is the Company's policy to review the carrying value of acquired
intangibles and property, plant and equipment based on an evaluation of such
factors as the occurrence of a significant adverse event or changes in the
environment in which the business operates. The Company accounts for long-lived
assets in accordance with the provisions of SFAS No. 121, "Accounting for the
Impairment of Long Lived Assets and for Long Lived Assets to be Disposed of."
This statement requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell.



                                       68

<PAGE>

                  U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES


                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


OTHER ASSETS

         Other assets are summarized as follows at December 31, 2000 and 1999:


<TABLE>
<CAPTION>
                                                                                              2000                  1999
                                                                                         -------------          -------------
<S>                                                                                      <C>                    <C>
         Dredge disposal permits and deferred site development costs,
           Net ................................................................          $     946,247          $   1,008,717
         Deferred financing costs, net ........................................                864,721              1,014,085
         Deferred convertible debenture issuance costs, net ...................                 47,434              1,038,898
         Non compete agreements, net ..........................................                608,654                762,500
         Restricted cash ......................................................                250,000                     --
         Deferred tax asset ...................................................                672,285                     --
         Patents, net .........................................................                644,482                538,981
         Other ................................................................                558,302                987,368
                                                                                         -------------          -------------
                   Total other assets .........................................          $   4,592,125          $   5,350,549
                                                                                         =============          =============
</TABLE>



The Company incurred $2,165,397 of costs to permit and develop dredge material
disposal sites in strip mines in Pennsylvania. In 1999 and 1998, these costs
were being amortized over the estimated number of cubic yards of dredge material
to be disposed of, which was 550,000 cubic yards. This resulted in amortization
expense of $1,003,519 and $71,071 in 1999 and 1998 respectively. Based on the
success of the dredge disposal project through 1999, in 2000 the Company
increased the estimated number of cubic yards over which the permit is being
amortized to approximately 2,000,000 cubic yards, including ash material, to
better reflect the expected work to be done under the permit. As a result,
amortization in 2000 was $68,588. Had the Company not changed the estimated
units available for disposal in 2000, amortization expense related to this
permit would have been $456,776.



         The $825,000 cost of non-compete agreements is being amortized over 6
years resulting in amortization expense of $137,500 in 2000 and $39,600 in 1999
(none in 1998). The $625,915 value assigned to the Trimax patents acquired in
1998 is being amortized over 15 years resulting in $52,164, $50,269 and $25,000
of amortization expense in 2000, 1999 and 1998, respectively. The restricted
cash of $250,000 is a certificate of deposit held as collateral for a letter of
credit to secure a lease.


REVENUE RECOGNITION


         Revenues from the Company's plastic lumber division are recognized at
the date the products are shipped and risk of ownership transfers to the buyer.
Title passes to the customer upon shipment of goods. The Company does not accept
returns or issue credits for damaged or defective goods if not notified by the
customer within five days from the date of delivery. In the event that the
Company accepts a claim from a customer, the Company has sole discretion with
regard to replacing the goods, repairing the product or issuing a credit to the
customer. The Company has a warranty policy for its plastic lumber products
which includes a warranty period ranging from seven to fifty years, depending on
the type of product, for structural damage. The Company's liability for warranty
claims is limited to the replacement of substitute product.


         Revenues from the environmental construction services companies are
recognized on the percentage of completion method or as units are processed.
Revenues from the environmental recycling facilities are recognized when
material is treated. Under the percentage of completion method, contract revenue
is recognized in the ratio of contract costs incurred to date to the estimated
total costs to complete the project. Contract costs include all direct and
indirect labor, material and equipment depreciation required to complete the
contract. A liability is recorded for estimated losses, if any, on uncompleted
contracts. Billings in excess of costs incurred and estimated profit recognized
are included in other liabilities. Costs incurred and profits recognized in
excess of billings on applicable contracts are included in accounts receivable.


                                       69

<PAGE>


                  U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES



                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


         The following is a summary of the costs and estimated earnings on
uncompleted contracts at December 31:


<TABLE>
<CAPTION>
                                                                                2000                1999               1998
                                                                           -------------       -------------       -------------
         <S>                                                               <C>                 <C>                 <C>
         Costs incurred on uncompleted contracts ....................      $  33,951,824       $  18,697,161       $  11,912,140
         Estimated profit ...........................................          4,402,705           4,520,207             521,604
                                                                           -------------       -------------       -------------
                   Total included in sales ..........................         38,354,529          23,217,368          12,433,744
         Less billings to date ......................................        (34,101,682)        (21,387,899)         13,071,445
                                                                           -------------       -------------       -------------
         Billings under (over) costs and estimated
               profits ..............................................      $   4,252,847       $   1,829,469       $    (637,701)
                                                                           =============       =============       =============
</TABLE>



In accordance with industry practice, the Company classifies as current all
assets and liabilities related to the performance of long-term contracts. The
contracting cycle for certain long-term contracts may extend beyond one year
and, accordingly, collection or payment of amounts related to these contracts
may extend beyond one year. Also included within accounts receivable are
unbilled revenues which represent revenue earned for work completed in
accordance with contract provisions.


STOCK-BASED COMPENSATION

         The Company follows Statement of Financial Accounting Standards
("SFAS") No. 123, "Accounting for Stock-Based Compensation." In accounting for
stock-based transactions with nonemployees, the Company records the fair value
of these instruments as compensation expense when these types of instruments are
issued. As permitted by SFAS No. 123, the Company accounts for stock-based
compensation granted to employees using the intrinsic value method prescribed in
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees."

INCOME TAXES

         The Company provides for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." SFAS No. 109 requires the recognition of deferred
tax liabilities and assets for the expected future tax consequences of temporary
differences between the financial statement carrying amounts and the tax basis
of assets and liabilities.

ADVERTISING COSTS

         Advertising production costs are expensed the first time the
advertisement is run. Media (TV and print) placement costs are expensed in the
month the advertising appears. Advertising costs charged to operations were
approximately $3,550,671, $391,581 and $106,022 in 2000, 1999 and 1998,
respectively.

CONCENTRATIONS OF CREDIT RISK


         Financial instruments that potentially subject the Company to
significant concentrations of credit risk consist primarily of cash and cash
equivalents and trade receivables. The Company maintains its cash and cash
equivalents with various financial institutions which are primarily located in
the Eastern United States. At December 31, 2000, the Company had bank balances
of approximately $2,584,093 in excess of amounts insured by federal deposit
insurance. Trade receivables are concentrated primarily in the Northeastern
United States. The Company does not require collateral from its customers. The
Company has only one customer which accounted for more than five percent of
total net accounts receivable balances. This customer comprised nine and eleven
percent of net accounts receivable as of December 31, 2000 and 1999,
respectively. The Company is not dependent upon a single customer or a few
customers for either segment of its business. No single customer accounts for
sales equal to or greater than 10% of the Company's consolidated revenues.



                                       70

<PAGE>


                  U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES



                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


FAIR VALUE OF FINANCIAL INSTRUMENTS

         Financial instruments include cash and cash equivalents, receivables,
accounts payable, due to affiliates, notes payable and convertible subordinated
debentures. The carrying amounts reported in the consolidated balance sheet for
these financial instruments approximate their fair value. For certain
instruments, including cash and cash equivalents, trade accounts receivable,
other current assets, other assets, accounts payable and accrued expenses, the
carrying amount approximates fair value due to their short maturity.

INCOME (LOSS) PER SHARE


         Basic income or loss per share is computed by dividing net income or
loss attributable to common stockholders by the weighted average number of
shares outstanding during the year. Diluted income or loss per share
attributable to common stockholders further considers the impact of dilutive
common stock equivalents. Diluted loss per share has not been presented
separately for 2000 and 1998 because the effect of the additional shares which
would be issued assuming conversion of the convertible debentures, convertible
preferred stock and the outstanding common stock options and warrants are
anti-dilutive for the aforementioned years. Common shares which would be issued
assuming conversion of the convertible debentures, convertible preferred stock
and common stock options and warrants total 13,284,796 and 5,726,359 shares, for
2000 and 1998.


         The following is a reconciliation of the numerator (net earnings) and
the denominator (common shares outstanding) of the basic and diluted per share
computations for 1999):


<TABLE>
<CAPTION>
                                                                           NET EARNINGS           SHARES           AMOUNT
                                                                           ------------         ----------         ------
         <S>                                                               <C>                  <C>                <C>
         BASIC EPS
         Net earnings available to common shareholders...............      $ 2,832,034          28,171,655         $  .10
         EFFECT OF DILUTIVE SECURITIES
         Stock options ..............................................               --           2,027,844             --
         DILUTED EPS ................................................      $ 2,832,034          30,199,499         $  .09
</TABLE>



Common shares assumable in connection with convertible debentures, convertible
preferred stock and common stock options and warrants total 6,832,329 for 1999.
These shares were not included in the computation of diluted EPS in 1999 because
their effect is anti-dilutive.


COMPREHENSIVE INCOME

         During the years ended December 31, 2000, 1999 and 1998 the Company did
not have any changes in its stockholders equity resulting from non-owner
sources. Accordingly, comprehensive income as set forth in SFAS No. 130 was
equal to the net income/loss amounts presented in the statements of operations.

2.       LIQUIDITY AND CAPITAL RESOURCES


         The Company's liquidity and ability to meet its financial obligations
in 2001 will be dependent on, among other things, the Company's ability to
maintain compliance with its debt covenants and obtaining the proceeds from the
Fusion Capital Fund II LLC common stock purchase agreement or a similar source
of equity. The Company is highly leveraged and during 2000, the Company suffered
significant losses from operations, primarily resulting from the significant
expenses incurred in its plastic lumber division related to the expansion of its
manufacturing facilities, the inefficiencies in the production of certain
products, increases in raw material costs and product returns from certain key
customers. The Company's accumulated deficit totaled $11,459,000 as of
December 31, 2000. Since its inception, the Company has financed its operations
through a number of stock and debt issuances and conversions. During 2000, the
Company's primary sources of working capital have been the net proceeds from
sales of the Company's preferred stock, proceeds from its Senior Credit Facility
and the issuance of convertible debentures and direct sales of the Company's
products and services to its customers. The Company was not in compliance with
certain covenant requirements of its Senior Credit Facility and its Master
Credit Facility as of December 31, 2000. The Company received waivers for these
covenant violations as of December 31, 2000 and



                                       71

<PAGE>


                  U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES



                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


entered into amendments to the Senior Credit Facility and Master Credit
Facility. See note 7 for a description of the Company's notes and capital lease
payable.


         The Company's material financial commitments relate principally to its
working capital requirements and obligations to make term loan payments on its
Senior Credit Facility of currently $1,250,000 per quarter and increasing to
$2,500,000 in September of 2001, monthly interest payments on the Senior Credit
Facility, lease payments pursuant to certain real property and equipment leases
of approximately $324,000 per month, installment payments for manufacturing
equipment of approximately $244,000 per month, interest payments on the
Company's Subordinated Convertible Debentures of approximately $206,000
quarterly, and dividends on the Company's Series D and Series E Convertible
Preferred Stock, approximately $230,000 quarterly.



         In addition, the Company will be required to refinance or repay its
Senior Credit Facility on or before April 2, 2002. As of December 31, 2000, the
outstanding balance on this Senior Credit Facility is $42,400,000. The Company
currently does not have the financial resources to retire these debt obligations
in 2002 and the Company will need to obtain new debt or equity capital or sell
certain assets to meet this requirement.



         The terms of the Senior Credit Facility also require the Company to
raise $6,500,000 of equity, in increments of $500,000 per month in January and
March 2001 and $500,000 per month thereafter until an aggregate of $6,500,000
has been raised. In December 2000, the Company entered into a common stock
purchase agreement with Fusion Capital Fund II, LLC ("Fusion Capital") pursuant
to which Fusion has agreed to purchase up to $12 million of the Company's common
stock (see note 9). Pursuant to the terms of the Agreement with Fusion, the
Company may not sell shares to Fusion Capital until such time as the Securities
and Exchange Commission declares a registration statement effective which
registers for resale the shares Fusion Capital has agreed to purchase. As of
April 2, 2001, the Company has not filed a registration statement with the
Securities and Exchange Commission. As a result, there can be no assurance that
the Company will be able to obtain such additional funding. The Company is
dependent on Fusion or other sources of financing to meet its covenant
requirements under the Senior Credit Facility.


         Certain of the Company's debt instruments contain covenants
establishing certain financial covenants and operating restrictions. The
Company's failure to comply with any covenant or material obligation contained
in these debt agreements or any of the Company's other debt agreements, absent a
waiver from the lenders, would result in an event of default which could
accelerate debt repayment terms under the debt agreements. Due to various
cross-default provisions contained within certain of the Company's credit
agreements, an event of default under certain of our senior debt agreements
could accelerate debt repayment terms under certain other credit agreements, all
of which would have a material adverse affect on the Company's liquidity and
capital resources.


         In November of 2000, the Company retained Bank of America Securities
("BAS") to explore and evaluate strategic alternatives for the Company which
could include the possible sale of the Company's environmental services
division, Clean Earth Inc. ("CEI"). The Company has held discussions with
prospective buyers who have expressed various levels of interest in CEI,
however, no agreement has been reached with any of the buyers and there can be
no assurances that an agreement will be reached. Proceeds from the sale of CEI,
if it occurs, would be used to first pay down the Company's Senior Credit
Facility. Any excess proceeds would be applied to certain other debt and provide
working capital.


         Capital requirements relating to the implementation of the Company's
business plan have been and will continue to be significant. The Company
believes that its ability to generate cash from operations is dependent upon,
among other things, increased demand for its products and services and the
successful development of direct marketing, expanded manufacturing capabilities
and product distribution capabilities. There can be no assurance that the
Company will have sufficient capital resources to permit the Company to continue
implementation of its business plan.

         While there can be no assurances, the Company believes its cash flows
from operations will satisfy its liquidity requirements in 2001. However, the
Company is seeking additional sources of financing to supplement its


                                       72

<PAGE>


                  U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES



                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



cash flow requirements. Although the Company believes that it will be able to
secure additional financing in the near future, there can be no assurance that
any additional financing will be available to the Company on acceptable terms,
or at all. If the Company does not comply with its covenants contained within
its debt agreements in 2001, or if adequate cash flows from operations and funds
available from the capital markets are not available to finance its operations
and retire its debt obligations as they become due, the Company may be required
to significantly curtail its operations and the Company's ability to continue as
a going concern would be impaired.


3.       ACQUISITIONS

1998 ACQUISITIONS

         In January 1998 the Company acquired Green Horizon Environmental, Inc.
("GHE"), an environmental services company located in Norristown, Pennsylvania.

         In February 1998, the Company acquired 55% of the stock of Consolidated
Technologies, Inc. ("CTI"), an environmental recycling services company located
in Norristown, Pennsylvania.

         On February 28, 1998 the Company acquired substantially all of the
assets of Chesapeake Plastic Lumber, Inc. ("CPL"), a manufacturer of plastic
lumber in Denton, Maryland.

         Effective April 30, 1998 the Company acquired 100% of the stock of
Cycle-Masters, Inc. ("CMI"), a manufacturer of plastic lumber in Sweetser
Indiana.


         Effective June 30, 1998 the Company acquired 100% of the stock of
Geocore, Inc. ("GCI") a small environmental services company in northern New
Jersey.


         Effective June 30, 1998 the Company acquired the remaining 45% of CTI.
The $119,403 minority interest in the CTI losses prior to June 30, 1998 are
combined with the minority interest in the joint venture with IIC in the
statement of Operations.

         Effective June 30, 1998 the Company purchased substantially all of the
assets of Trimax of Long Island, Inc. and Polymerix, Inc. ("Trimax") through the
U.S. Bankruptcy Court. The Trimax purchase includes two patents for the
manufacture of structural plastic lumber.

         On December 30, 1998 the Company acquired 100% of S&W Waste, Inc.
("S&W"). S&W recycles and beneficially re-uses industrial wastes and disposes of
contaminated materials, located in northern New Jersey.


         The total purchase price of $ 8,517,273 for all of the 1998
acquisitions consisted of 952,875 shares of the Company common stock valued at
an aggregate of $3,535,660, cash payments of $3,705,000, issuance of debt
totaling $954,952, costs totaling $303,868 and $17,793 assigned to options
granted to a former owner. Several of the acquisitions include non compete
agreements, stock options and earnout provisions based on achieving specified
profitability levels for key employees and former owners. The earnout provisions
were payable entirely in the form of the Company's common stock. No shares were
issued under the earnout provisions in 2000. At December 31, 2000 all of the
Company's obligations related to the earnout provisions have been satisfied and
there are no outstanding liabilities related to the earnout agreements.



                                       73

<PAGE>


                  U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES



                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


         A summary of the allocation of the aggregate purchase price of the 1998
acquisitions follows:


<TABLE>
         <S>                                                      <C>
         Working capital (deficit) ...........................    $  (846,926)
         Long-term assets ....................................      7,101,976
         Net deferred tax assets .............................        333,303
         Long-term debt ......................................     (1,535,609)
         Acquired intangibles ................................      3,464,529
                                                                  -----------
         Aggregate purchase price ............................    $ 8,517,273
                                                                  ===========
</TABLE>


         All of the acquisitions in 1998 have been accounted for as purchases.
Accordingly, the results of operations of the acquired companies are included in
the Consolidated Financial Statements for periods subsequent to the date of
acquisition. The excess of the aggregate purchase price over the estimated fair
value of the net assets acquired has been recorded as acquired intangibles and
is being amortized on a straight-line basis over a period of twenty years from
the effective date of each acquisition (15 years for the Trimax patents).

         Effective December 31, 1998 all of the companies in the Plastic Lumber
division were merged into U.S. Plastic Lumber, LTD and Waste Concepts, Inc., GHE
and GCI were merged into ITS.

1999 ACQUISITIONS

PURCHASE TRANSACTIONS

         On March 23, 1999, the Company acquired all of the stock of Brass
Investment Co. ("Brass") and its wholly owned subsidiaries Soil Remediation of
Philadelphia ("SRP") and Allied Waste, Inc. ("AWI"). SRP operates a soil
remediation facility in Philadelphia, PA. AWI provides environmental services.
The Company entered into a Management Contract taking over all responsibility
for day to day management and financial control of SRP and AWI as of January 7,
1999 and entitling the Company to all net profits or losses after January 4,
1999.


         On January 28, 1999, the Company acquired 100% of the stock of
Eaglebrook Plastics, Inc. and Eaglebrook Products, Inc. (collectively
"Eaglebrook"), a plastic recycling and plastic lumber manufacturing company
located in Chicago, IL. The Company is leasing the 300,000 square foot Chicago
facility from the sellers for ten years at a monthly rental of $39,181 with an
option to purchase the facility for $3,000,000. The Company intends to purchase
the Chicago facility and has recorded the appraised value of the land and
building in property and equipment and the applicable lease payments and the
option price in notes and capital leases payable.


         On April 1, 1999, the Company signed a Management Contract with
Brigadoon Industries, Inc., ("Brigadoon") taking over all responsibility for
day-to-day management and financial control as of that date and entitling the
Company to all net profits or losses after April 1, 1999. Brigadoon manufactures
corner boards from recycled plastic for use by the packaging industry. The
Company acquired 100% of the stock of Brigadoon on June 30, 1999. The Company
also purchased a 140,000 sq. ft. facility situated on approximately 39 acres in
Ocala, Florida. The Ocala plant will house expanded operations of Brigadoon plus
a large number of new extruders to manufacture other products for the plastic
lumber division.


         The $41,965,833 total purchase price for all of the 1999 acquisitions
consisted of 4,244,525 shares of the Company's common stock valued at an
aggregate of $19,343,714, cash payments of $14,800,000 and issuance of debt
totaling $5,763,494, costs totaling $838,733 and $1,219,892 assigned to warrants
granted to a former owner. Several of the acquisitions included non compete
agreements, stock options and earnout provisions based on achieving specified
profitability levels for key employees and former owners. The earnout provisions
were payable entirely in the form of the Company's common stock. No shares were
issued under the earnout provisions in 2000. At December 31, 2000 all of the
Company's obligations related to the earnout provisions have been satisfied and
there are no outstanding liabilities related to the earnout agreements. A
summary of the allocation of the $41,965,833 aggregate purchase price of the
1999 acquisitions to the net assets acquired follows:



                                       74

<PAGE>

                  U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES



                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



<TABLE>
         <S>                                                      <C>
         Working capital (deficit) ...........................    $ (9,296,459)
         Long-term assets ....................................      29,517,927
         Deferred tax liabilities ............................      (2,655,384)
         Acquired intangibles ................................      24,399,749
                                                                  ------------
         Aggregate purchase price ............................    $ 41,965,833
                                                                  ============
</TABLE>


         All of the aforementioned acquisitions in 1998 and 1999 have been
accounted for as purchases. Accordingly, the results of operations of the
purchased companies are included in the consolidated financial statements for
periods subsequent to the date of acquisition or the date management obtained
day-to-day management and financial control. The excess of the aggregate
purchase price over the estimated fair value of the net assets acquired in all
of the acquisitions has been recorded as acquired intangibles. The acquired
intangibles are being amortized on a straight-line basis over periods of twenty
to forty years.

         The unaudited pro forma combined results of operations of the Company
and all of its subsidiaries for the years ended December 31, 1999 and 1998,
after giving effect to certain pro forma adjustments as if the acquisitions had
taken place on January 1, 1998, are as follows:


<TABLE>
<CAPTION>
                                                                                   1999                    1998
                                                                               -------------          -------------
         <S>                                                                   <C>                    <C>
         Net sales ..................................................          $ 141,401,003          $ 118,546,658
                                                                               =============          =============
         Net income (loss) ..........................................          $   3,117,343          $     845,244
                                                                               =============          =============
         Net income (loss) attributable to common ...................          $   2,800,561          $     168,166
                                                                               =============          =============
         stockholders
         Net income (loss) per share -- diluted .....................          $         .09          $         .01
                                                                               =============          =============
         Weighted average shares used in computation ................             30,467,766             24,357,338
                                                                               =============          =============
</TABLE>


         The foregoing unaudited pro forma results of operations reflect
adjustments for amortization of goodwill, depreciation on re-valued buildings
and equipment and interest on cash paid to the sellers. Per share amounts are
calculated after preferred dividends are subtracted from net income. They do not
purport to be indicative of the results of operations which actually would have
resulted had the acquisitions occurred at January 1, 1998 or of future results
of operations of the consolidated entities.


POOLING TRANSACTIONS



         On June 25, 1999, the Company acquired 100% of the stock of Barbella
Environmental Technology, Inc. ("Barbella"), an environmental remediation and
construction service company located in Somerville, New Jersey, for 810,000
shares of the Company's common stock. The Company incurred merger costs totaling
$595,000 in the Barbella transaction which were charged to expenses in the
second quarter of 1999. On September 28, 1999, the Company acquired 100% of the
stock of Eureka Plastics of California, Inc. ("Eureka"), and Ecosource
Corporation ("Ecosource"), for 236,600 and 392,000 shares respectively of the
Company's common stock, in unrelated transactions. Both of these companies
recycle and process plastics in Southern California. The Company incurred $
810,000 of costs related to these mergers that were written off in the third
quarter of 1999. On December 14, 1999, the Company acquired 100% of the stock of
Clean Rock Industries, Inc. and Clean Rock Properties, Ltd. (collectively "Clean
Rock"), for 422,164 shares of the Company's common stock. Clean Rock Industries,
Inc. is a soil recycling facility located in Hagerstown, Maryland. Clean Rock
Properties, Ltd. is a holding company that owns the real estate upon which this
business operates. The Company incurred $440,000 of costs related to the Clean
Rock merger which were charged to expense in the fourth quarter of 1999.


         The Company has accounted for each of the Barbella, Eureka, Ecosource
and Clean Rock transactions as a pooling of interests. Accordingly, the
accompanying financial statements include the applicable amounts for the pooled
companies as if the acquisitions had taken place on January 1, 1998. Following
is a summary of the amounts included in the accompanying statements of
operations for the years ended December 31 for all of the pooled companies:


                                       75

<PAGE>

                  U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES



                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



<TABLE>
<CAPTION>
                                                               1999                    1998
                                                           -------------          -------------
         <S>                                               <C>                    <C>
         Net sales ..............................          $  34,480,025          $  27,089,447
         Net income .............................              1,747,110                208,282
         Net income per share ...................          $         .06          $         .01
</TABLE>



         The statement of stockholders' equity was also restated to include
$850,523 of retained earnings and $457,302 of additional paid in capital for all
of the pooled companies as of January 1, 1998. The Company had no inter-company
transactions with the pooled entities prior to their acquisition.



         The following table reconciles the 1998 revenue and earnings previously
reported by the Company to the 1998 amounts currently presented in the Company's
2000 financial statements.



<TABLE>
<CAPTION>
                                                                                                         LOSS PER COMMON SHARE
                                                                       NET SALES          NET INCOME      -- BASIC AND DILUTED
                                                                      ------------        ----------     ---------------------
<S>                                                                   <C>                 <C>            <C>
Year ended December 31, 1998 as originally
   reported ................................................          $ 45,704,940         $  95,798            $(0.03)
Results of pooled companies for the year ended
   December 31, 1998 .......................................          $ 27,089,447         $ 208,282            $ 0.01
                                                                      ------------         ---------            ------
Year ended December 31, 1998 as currently
   reported in the financial statements ....................            72,794,387           304,080            $(0.02)
                                                                      ============         =========            ======
</TABLE>


2000 ACQUISITIONS

         On February 10, 2000, the Company acquired certain assets and certain
liabilities of Baron Enterprises, Inc. ("Baron"), a manufacturer of plastic slip
and tier sheets used in handling freight. Baron operates facilities in Denver,
CO and Reidsville, NC. Both plants manufacture tier and slip sheets that are
similar to products manufactured in the Company's Chicago facility. The
acquisition was accounted for as a purchase. Accordingly the $1,635,147 excess
of the purchase price over the value of the net tangible assets acquired is
included in acquired intangibles as of December 31, 2000.

         The $2,105,000 purchase price of the Baron acquisition consisted of
202,376 shares of the Company's common stock valued at an aggregate of
$1,800,000 and acquisition related costs of $305,000.

         A summary of the allocation of the purchase price of the Baron
acquisition to the net assets acquired follows:


<TABLE>
         <S>                                                         <C>
         Working capital .......................................     $ 1,540,072
         Long-term assets ......................................       3,096,778
         Long-term debt ........................................      (4,166,997)
         Acquired intangibles ..................................       1,635,147
                                                                     -----------
         Aggregate purchase price ..............................     $ 2,105,000
                                                                     ===========
</TABLE>


         The unaudited pro forma combined results of operations of the Company
and all of its subsidiaries for the years ended December 31, 2000 and 1999 after
giving effect to certain pro forma adjustments as if the Baron acquisition had
taken place on January 1, 1999, are as follows:


<TABLE>
<CAPTION>
                                                                                   1999                    1998
                                                                               -------------          -------------
         <S>                                                                   <C>                    <C>
         Net sales ..................................................          $ 175,226,924          $ 153,913,003
                                                                               =============          =============
         Net (loss) income ..........................................          $ (12,653,499)         $   1,973,498
                                                                               =============          =============
         Net (loss) income attributable to common stockholders ......          $ (13,473,255)         $   1,656,716
                                                                               =============          =============
         Net (loss) income per share -- diluted .....................          $        (.39)         $         .05
                                                                               =============          =============
         Weighted average shares used in computation ................             34,319,470             30,670,142
                                                                               =============          =============
</TABLE>


         The foregoing unaudited pro forma results of operations reflect
adjustments for amortization of goodwill, depreciation on re-valued buildings
and equipment and interest on cash paid to the sellers. Per share amounts are
calculated after preferred dividends are subtracted from net income. They do not
purport to be indicative of the results of operations which actually would have
resulted had the acquisitions occurred at January 1, 1999 or of future results
of operations of the consolidated entities.


                                       76

<PAGE>

                  U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


4.       ACCOUNTS RECEIVABLE, NET

         Accounts receivable consist of the following at December 31, 2000 and
1999:


<TABLE>
<CAPTION>
                                                                                   2000                   1999
                                                                               -------------          -------------
         <S>                                                                   <C>                    <C>
         Trade receivables ..........................................          $  29,679,374          $  24,729,525
         Unbilled receivables related to long-term
           contracts ................................................              8,749,307              5,922,762
         Cost in excess of billings .................................              4,252,847              1,829,469
         Retainage ..................................................              3,457,329              1,573,534
         Allowance for doubtful accounts ............................             (2,375,479)            (1,139,870)
                                                                               -------------          -------------
         Accounts receivable (net) ..................................          $  43,763,378          $  32,915,420
                                                                               =============          =============
</TABLE>



         In 1999 and 2000 the Company was involved in a project with a large
governmental agency in which work was performed beyond the scope of the original
project. Under the terms of the contract the Company was required to perform the
additional work and notify the customer that additional claims under the
contract would be forthcoming. Included in the unbilled receivables related to
long-term contracts are $3,780,000 and $2,660,204 at December 31, 2000 and 1999,
respectively, in unbilled claims for additional work performed beyond the
original scope of this project with the customer's acknowledgement that it would
be billed for additional claims. The Company is in the process of resolving this
contract claim, and the Company believes that these receivables are fully
collectible. With the exception of payments due under long-term contracts, as
discussed in the Revenue Recognition section of Note 1, the Company believes
that all receivables included in the table above are collectible within one
year.



         The increase in the allowance for doubtful accounts is primarily due to
the bankruptcy filings of three customers in 2000.


5.       INVENTORIES

         Inventories consist of the following at December 31, 2000 and 1999:

<TABLE>
<CAPTION>
                                                                                   2000                    1999
                                                                               -------------          -------------
         <S>                                                                   <C>                    <C>
         Raw materials ..............................................          $   5,626,356          $   2,673,427
         Finished goods .............................................              4,097,034              4,666,116
                                                                               -------------          -------------
         Inventories ................................................          $   9,723,390          $   7,339,543
                                                                               =============          =============
</TABLE>


6.       PROPERTY, PLANT AND EQUIPMENT, NET

         Property, plant and equipment consist of the following at December 31,
2000 and 1999:

<TABLE>
<CAPTION>
                                                      USEFUL LIVES             2000             1999
                                                     --------------       -------------      ------------
         <S>                                         <C>                  <C>                <C>
         Land...................................                          $   6,257,500      $  6,264,240
         Buildings..............................     30 to 40 years          21,460,673        19,868,966
         Machinery & equipment in use...........      5 to 20 years          69,427,149        41,543,210
         Leasehold improvements.................      Life of lease           5,486,112         1,327,298
         Furniture and office equipment.........      5 to 7 years            2,364,176         1,433,380
         Construction in progress...............                             11,841,860        21,447,443
                                                                           ------------      ------------
                                                                            116,837,470        91,884,537
         Less accumulated depreciation..........                            (16,292,531)      (11,460,585)
                                                                          -------------      ------------
         Property, plant and equipment (net)....                          $ 100,544,939      $ 80,423,952
                                                                          =============      ============
</TABLE>


7.       NOTES AND CAPITAL LEASES PAYABLE

         In 1999 and the first six months of 2000, the Company had a line of
credit with a division of Southern Pacific Bank ("SPB") whereby borrowings would
be collateralized by specific equipment and/or inventory and eligible accounts
receivable. On June 30, 2000 the Company terminated the line of credit with SPB
and entered into a new three-year Senior Credit Facility with three banks. The
Senior Credit Facility provides for a $30,000,000 term loan and a $15,000,000
revolving credit line. The Senior Credit Facility allows the Company to select
from two interest rate options, one based on a spread over the prime rate and
the other based on a spread over the Eurodollar deposit

                                       77

<PAGE>


                  U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES



                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



rate. The spread above each interest rate option is determined by the Company's
ratio of consolidated debt to Earnings Before Interest, Taxes, Depreciation and
Amortization. The revolving credit line has an unused commitment fee of .5%. The
weighted average interest rate on short term borrowing on this revolving credit
line was approximately 11.2% during 2000. The term loan is due in two quarterly
installments of $1,250,000 on March 31, and June 30, 2001, four quarterly
installments of $2,500,000 for the year thereafter with the remaining amount due
in April of 2002.


         In terminating the previously existing line of credit, the Company
incurred an extraordinary loss in the second quarter of 2000 for prepayment
penalties and the write off of deferred loan costs amounting to $1,027,785, net
of taxes. Proceeds from the Senior Credit Facility were used to pay down
approximately $8.7 million of the Company's existing indebtedness and for
general corporate purposes. At December 31, 2000 the Company had outstanding
borrowings of $42,400,000 under the Senior Credit Facility.


         The Senior Credit Facility requires the maintenance of defined levels
of net worth, various financial performance ratios and restrictions on capital
expenditures, dividend payments, acquisitions and additional indebtedness.


         At September 30, 2000 the Company was not in compliance with certain
covenant requirements of the Senior Credit Facility for which the Company
received waivers and amendments dated November 13, 2000. In addition to an
interest rate increase of 200 basis points and amendment fees of $428,125, the
terms of the amendments required the Company to raise a minimum of $2 million in
equity prior to November 30, 2000, and additional $2 million prior to
December 26, 2000, and an additional $500,000 prior to January 31, 2001. The
amended terms also put further limits on the Company's capital expenditures, and
gave the senior lenders the option to permanently reduce their commitment on the
revolving credit line when payments were made on that portion of the Senior
Credit Facility by the amount paid.


         At December 31, 2000, the Company was not in compliance with certain
financial covenant requirements of its amended Senior Credit Facility, for which
the Company received a waiver and second amendment dated March 12, 2001. In
addition to an interest rate increase of 50 basis points and amendment fees of
$106,250, the terms of the amendment require the Company to raise $500,000 in
equity in January and March 2001 and $500,000 per month thereafter until an
aggregate of $6,500,000 is reached. The amended terms also put further limits on
the Company's capital expenditures, and gives the banking group the option to
permanently reduce their commitment on the revolving credit line when payments
are made on that portion of the Senior Credit Facility by the amount paid. In
addition, the Waiver and Second Amendment contain a provision which requires
that the Senior Credit Facility be refinanced or paid in full by April of 2002.
See note 2.



         During 2000, the Company obtained $14,600,000 in new equipment
financing through a Master Credit Facility with GE Capital in order to finance
the expansion of its plastic lumber manufacturing facilities. The Master Credit
Facility is secured by certain equipment and contains a minimum tangible net
worth covenant. At December 31, 2000 the Company was not in compliance with the
minimum tangible net worth covenant requirement. On March 30, 2001, the Company
entered into amendments on the Master Credit Facility with GE Capital to waive
the Tangible Net Worth Covenant for the fourth quarter 2000 and amended the
covenant for each quarter of 2001. The Company will be required to accelerate a
portion of the principal payments on the Master Credit Facility and will be
required to refinance or repay a portion of the outstanding balance on the
Master Credit Facility upon the refinancing or repayment of the Senior Credit
Facility.



         At December 31, 2000, the Company had interest rate swap agreements
outstanding with a notional amount of $20,000,000 under which the Company paid a
fiscal rate of interest and received a floating rate of interest over the term
of the interest rate swap agreement without the exchange of the underlying
notional amounts. The interest rate swap agreements converted a portion of the
Senior Credit Facility from a floating rate to a fixed rate obligation. The fair
value of the interest rate swap agreements outstanding at December 31, 2000 was
$453,615. The fair value of the interest rate swap agreement was not recognized
in the accompanying consolidated balance sheet since the agreement was accounted
for as a hedge.



                                       78




<PAGE>
                   U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


         Notes payable and capital leases consist of the following at December
31, 2000 and 1999:


<TABLE>
<CAPTION>
                                                                                                 2000                1999
                                                                                             ------------        ------------
<S>                                                                                          <C>                 <C>
Revolving credit line under the Senior Credit Facility with interest payments
  monthly at prime plus 3.5% collateralized by accounts receivable, inventory and
  equipment of certain subsidiaries of the company ...................................         14,900,000                  --

Term loan under the Senior Credit Facility with quarterly installments of
  $1,250,000 through June 30, 2001, quarterly installments of $2,500,000 through
  March 31, 2002, and the remainder due April 2, 2002, with monthly interest
  payments at prime plus 3.5% collateralized by substantially all the assets of
  certain subsidiaries of the company ................................................         27,500,000                  --

Equipment term loans under the Master Credit Facility due in monthly
  installments of approximately $270,000 due March 2007 bearing interest at LIBOR
  plus 3.5% ..........................................................................         13,514,733                  --

Low interest bearing money purchase mortgage note payable in monthly
  installments of $18,939 through December 31, 2009 including interest imputed at
  8.5%, collateralized by the S&W facility ...........................................          1,426,229           1,535,610

Insurance premium finance agreement payable in monthly installments including
  interest ranging from 5.64% to 7.12% ...............................................                 --             375,732

Real estate loan payable in monthly installments of approximately $14,720
  through June 1, 2009 bearing interest at .50% over prime, collateralized by the
  SRP facility .......................................................................          1,093,559           1,159,538

Bridge loan converted to Real Estate Loan under the loan agreement with SPB on
  March 1, 1999 payable in monthly installments of $6,000 with a balloon payment
  due October 10, 2003, bearing interest at 2% over prime, collateralized by the
  CBC facility .......................................................................                 --           1,386,000

Equipment term loans under loan agreement with SPB, due in monthly installments
  with a balloon payment due October 9, 2003, bearing interest at prime plus
  1.25%, collateralized by equipment of certain subsidiaries of the Company ..........                 --          11,137,073

Notes payable to government agency, payable in monthly installments totaling
  $9,505 through July 1, 2003, including interest at 5% to 5.5% ......................            285,665             387,427

Non interest bearing note with customer, payable at $.01 per pound of plastic
 shipped to the customer (approximately 700,000 pounds per month) ....................                 --              39,153

Receivables and Inventory loans under loan agreement with SPB, interest payments
  due monthly at prime plus 1%, collateralized by substantially all accounts
  receivable and inventories of subsidiaries of the Company ..........................                 --          14,679,515

Other notes payable to financial institutions in monthly installments of $20,479,
  including interest at 8.15% to 8.5%, through 2014 ..................................                 --             891,050

Capital lease payable on real estate in monthly installments of $41,566 through
  January 31, 2009 bearing interest of 10% collateralized by Chicago facility ........          3,000,000           3,013,813

Note payable assumed in acquisition of Brass payable in annual installments of
  $267,000 through December 31, 2002 plus interest accrued at 5% (interest imputed
  at 8.5%) ...........................................................................            800,000             800,000

Other notes and capital leases payable in monthly installments of approximately
  $150,000, maturing from May 29,2001 to January 1, 2006, with interest ranging
  from 5.9% to 11.75%, collateralized by various equipment of subsidiaries of the
  Company ............................................................................          3,629,021           6,785,320
                                                                                             ------------        ------------

              Total notes payable and capital leases .................................         66,149,207          42,190,231

Less current portion .................................................................        (11,535,698)         (5,867,779)
                                                                                             ------------        ------------

Long-term portion ....................................................................       $ 54,613,509        $ 36,322,452
                                                                                             ============        ============
</TABLE>


         Notes payable and capital leases mature as follows:


<TABLE>
<CAPTION>
YEAR ENDING                       AMOUNTS
-----------                     -----------
<S>                             <C>
2001 ....................       $11,535,698
2002 ....................        42,320,355
2003 ....................         2,820,367
2004 ....................         2,398,114
2005 ....................         2,324,498
2006 and later ..........         4,750,175
                                -----------
                                $66,149,207
                                ===========
</TABLE>



                                       79

<PAGE>


                   U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES



                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


8. CONVERTIBLE SUBORDINATED DEBENTURES

         On February 2, 2000 the Company issued $7,500,000 of 5% convertible
subordinated debentures. The principal terms of the debentures are as follows:

         -        The conversion price is the lower of $9.65 or the lowest
                  trading price of the Company's common stock during the four
                  trading days prior to the conversion date, but not less than
                  $8.25 (the "minimum floating conversion price").


         -        If the market price stays below $8.25 for 10 consecutive
                  trading days after the first anniversary of the date of
                  issuance, the holder has the right to a put option. This put
                  option enables the holder to require the Company (at the
                  Company's option) to either repurchase the debentures for cash
                  or reset the minimum floating conversion price of the
                  debentures to zero. If the Company elects to repurchase the
                  debentures for cash, the repurchase price would be equal to
                  110 percent of the outstanding balance of the debentures plus
                  accrued interest. If the Company elects to reset the minimum
                  floating conversion price of the debentures to zero, the
                  conversion price for the debentures into common stock shall be
                  the lowest trading price between the effective date of the put
                  notice and the fourth trading day immediately following the
                  Company's notification to the holder of its election to reset
                  the minimum floating conversion price. The right of the
                  debenture holder to convert the debenture to common stock is
                  limited in that the holder may not convert the debenture if
                  upon such conversion the holder will become a beneficial owner
                  of more than 9.9% of the total issued and outstanding shares
                  of the Company's common stock. If the holder elects to convert
                  and the entire debenture cannot be converted due to this
                  limitation, the Company must settle in cash that portion of
                  the debenture which cannot be converted to stock when the
                  debenture matures in February of 2005, at 110% of the sum of
                  the outstanding balance of the debenture that is in excess of
                  the limitation and accrued but unpaid interest and default
                  payments.


         -        The Company can force conversion of the debentures at $9.65 if
                  the market price stays above $16.84 for 20 consecutive trading
                  days.

         -        The debentures are scheduled to mature on February 2, 2005.

         -        Under certain circumstances, the debentures can be redeemed
                  for stock, cash or a combination thereof.


         On February 20, 2001 the holders of the convertible subordinated
debentures exercised their put option to the Company. The Company elected not to
repurchase the debentures thereby the minimum floating conversion price is
effectively reset to zero. In conjunction with the issuance of the debentures,
the Company issued 200,000 warrants to purchase Common stock at $10.09 per
share. The Company expensed a beneficial conversion feature of $270,946 in the
first quarter of 2000. The $575,703 value assigned to the warrants and the
$750,000 discount attributed to the put feature are reflected as discounts from
the face value of the debentures and are being accreted into interest expense
over the term of the debentures. The unamortized discount on the debentures was
$244,787 as of December 31, 2000.



         On December 22, 1998 the Company issued $4,000,000 of convertible
subordinated debentures and on January 26, 1999 the Company issued another
$2,500,000 to the same debenture holders. The debentures were convertible into
common stock at the lower of $5.29 or 90% of the lowest trading price in the
four days preceding the conversion date. The $722,222 allocated to the 10%
discount on conversion was recorded as additional paid-in-capital and interest
expense on January 27, 1999, the earliest conversion date. The conversion price
was adjustable downward if, in the one-year period after each issuance, the
Company issues convertible securities or common stock at a more favorable price
than the debenture conversion price. The 5% per annum debenture interest was
payable 1.25% per quarter starting April 1, 1999. The Company issued the
debenture holders warrants to purchase 100,000 and 62,500 shares of common stock
at any time before December 22, 2003 and January 22, 2004, respectively, for
$7.22 per share.



         The Company incurred costs totaling $1,289,703 related to the
$6,500,000 debentures including $335,852 assigned to the 162,500 warrants. These
costs were being amortized as additional interest expense over the five-year
term of the debentures.



                                       80

<PAGE>


                   U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES



                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



         On March 1, 2000 $4,000,000 of the previously issued debentures and
$33,440 of unpaid interest were converted into 762,465 shares of common stock at
the $5.29 conversion price. On May 5, 2000, the remaining $2,500,000 of the
debentures and $12,671 of unpaid interest were converted into 930,620 shares of
common stock at the conversion price of $2.70 per share. Both debentures were
converted in accordance with the terms of the debentures. Unamortized debenture
issue costs of $987,792 were charged to additional paid-in-capital in 2000.


9. CAPITAL STOCK

SERIES A CONVERTIBLE PREFERRED STOCK


         The Series A preferred shares were non-voting and had a 10% cumulative
stock dividend payable semi-annually. Each share was convertible into seven
shares of the Company's common stock at the option of the stockholder. In the
event of any liquidation, after payment of debts and other liabilities, the
holders of Series A Preferred Stock were entitled to receive, before the holder
of any of the common stock, the stated value of $20.00 per share plus any unpaid
dividends. The Series A Preferred Stock were redeemable at any time at the sole
option of the Company for $25.00 per share.


         In 1998 approximately 2,431 Series A shares were converted into 17,017
common shares. Semi annual 5% stock dividends were declared as of March 31, 1998
and September 30, 1998 for a total of 21,511 Series A shares in 1998. At
December 31, 1998 approximately 228,012 Series A shares were outstanding.


         In the first quarter of 1999, 1,050 Series A shares were converted into
7,350 shares of common stock. A 5% stock dividend of 11,351 Series A shares was
declared as of March 31, 1999 to shareholders of record on March 1, 1999. In the
second quarter of 1999, the Company notified all Series A Preferred shareholders
of its intent to redeem the Series A Preferred Shares at the $25 per share
redemption price unless the shareholder elected to convert the shares to common
stock prior to the May 5, 1999 redemption date set by the Company. A dividend
for the pro rata period from April 1, 1999 to May 5, 1999 totaling 2,285 Series
A preferred shares was paid to shareholders in May. All Series A Preferred
shareholders elected to convert to common stock resulting in the issuance of
1,684,187 common shares in the second quarter of 1999. At December 31, 2000 and
1999 no Series A Preferred shares were outstanding.


SERIES B CONVERTIBLE PREFERRED STOCK

         In the summer of 1998, the Company issued 211,020 shares of the
Company's Series B Preferred Stock to accredited investors. The Series B shares
had substantially the same rights and features as the Series A Preferred shares
except that the stated and liquidation value of the Series B shares was $21.00
per share. A 5% stock dividend of 7,455 Series B shares was declared as of
September 30, 1998 for the pro rata portion of the six month period that the
Series B preferred shares were outstanding. In 1998 approximately 63,776 Series
B shares were converted into 446,432 common shares. At December 31, 1998
approximately 154,697 Series B shares were outstanding.


         In the first quarter of 1999, 48,113 Series B shares were converted
into 336,790 common shares. A 5% stock dividend of 6,565 Series B shares was
declared effective March 31, 1999 to shareholders of record on March 1, 1999. In
July 1999, the Company notified all Series B Preferred shareholders of its
intent to redeem the Series B Preferred Shares at the $25 per share redemption
price, unless the Series B Preferred shareholders elected to convert their
Series B Preferred Shares to common stock prior to the August 31, 1999
redemption date set by the Company. A dividend for the pro rata period from
April 1, 1999 to August 31, 1999 totaling 4,747 Series B preferred shares was
paid to shareholders of record July 1, 1999. All Series B shareholders elected
to convert resulting in the issuance of 825,865 shares of common stock in the
third quarter of 1999. As of December 31, 2000 and 1999, no Series B Preferred
shares were outstanding.



                                       81

<PAGE>


                   U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES



                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


SERIES D CONVERTIBLE PREFERRED STOCK


         In September of 2000 the Company issued 1,187,285 shares of its Series
D Preferred Stock and received net proceeds of $4.1 million. The Series D
Preferred Stock pays a quarterly cash dividend at an annual rate of 15%, with
the initial dividend payable on March 31, 2001. Each share of Series D Preferred
Stock is convertible into one share of the Company's common stock at the option
of the holder any time after March 31, 2001, subject to certain rights of the
Company. The Company at its sole option can redeem the Series D Preferred Stock
at 115% of the initial purchase price in cash prior to March 31, 2001. In
addition, if the common stock of the Company is trading at an average closing
price of $3.50 per share or higher for 20 consecutive trading days at any time
prior to March 1, 2002 the Company has the right to require conversion of the
Series D Preferred Stock into common stock. Otherwise, the Series D Preferred
Stock automatically converts into common stock on March 1, 2002. The beneficial
conversion feature in the amount of $1,080,563 is being accreted and recorded as
preferred stock dividend from the date the Series D Preferred Stock was issued
until the earliest possible conversion date.


SERIES E CONVERTIBLE PREFERRED STOCK


         In November of 2000, the Company issued 1,142,857 shares of its Series
E Preferred Stock to the Stout Partnership, a related party, and received net
proceeds of $2 million. The Series E Preferred Stock pays a monthly cash
dividend at an annual rate of 10%, with the initial dividend payable on January
15, 2001. Each share of Series E Preferred Stock is convertible into one share
of the Company's common stock at the option of the holder any time after
December 31, 2001, subject to certain rights of the Company. The Company can at
its sole option redeem the Series E Preferred Stock at 110% of the initial
purchase price in cash prior to December 31, 2001. In addition, if the common
stock of the Company is trading at an average closing price of $1.75 per share
or higher for 20 consecutive trading days at any time prior to March 1, 2002 the
Company has the right to require conversion of the Series E Preferred Stock into
common stock. Otherwise, the Series E Preferred Stock automatically converts
into common stock on March 1, 2002.



         During February and March 2001, the Company issued an additional
571,428 of Series E Preferred stock to the Stout Partnership and received net
proceeds of $1 million.


FUSION CAPITAL FUND II


         On December 7, 2000, the Company has entered into a common stock
purchase agreement with Fusion Capital Fund II, LLC pursuant to which Fusion
Capital agreed to purchase up to $12.0 million of the Company's common stock in
two tranches with each tranche representing $6.0 million of common stock. The
$6.0 million of common stock purchasable under the first tranche of the common
stock purchase agreement is to be purchased over a twelve-month period, subject
to a 6-month extension or earlier termination at our discretion. The selling
price of the shares will be equal to the lesser of (1) $15.00 or (2) a price
based upon the future market price of the common stock without any fixed
discount to the market price. Pursuant to the terms of the Agreement with
Fusion, the Company may not sell shares to Fusion until such time as the
Securities and Exchange Commission declares a registration statement effective
which registers for resale the shares Fusion Capital has agreed to purchase. As
of April 2, 2001, the Company has not filed a registration statement with the
Securities and Exchange Commission.


EMPLOYEE STOCK OPTIONS

         The Company has granted stock options to key employees and directors.
The option price at the date of grant is determined by the Board of Directors
and is generally tied to the market price of the Company's freely trading
shares. The term for exercising the stock options is generally ten years. Stock
options granted by the Company generally vest ratably over a period of three
years. Employee stock option activity in 2000, 1999 and 1998 is as follows:


                                       82

<PAGE>


                  U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES



                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



<TABLE>
<CAPTION>
                                                                NUMBER OF
                                          WEIGHTED AVERAGE      OPTIONS
                                           EXERCISE PRICE     OUTSTANDING
                                          ----------------    ------------
<S>                                       <C>                 <C>
Outstanding at December 31, 1997 ...       $       3.54          1,350,000
  Granted ..........................               3.65            536,000
  Exercised ........................                 --                 --
  Canceled .........................               4.43           (215,000)
                                           ------------       ------------
Outstanding at December 31, 1998 ...       $       3.46          1,671,000
  Granted ..........................               6.93          3,040,250
  Exercised ........................               2.94           (343,332)
  Canceled .........................               5.04           (465,500)
                                           ------------       ------------
Outstanding at December 31, 1999 ...       $       6.01          3,902,418
  Granted ..........................               4.41            572,667
  Exercised ........................               3.75            (85,335)
  Canceled .........................               7.98           (803,000)
                                           ------------       ------------
Outstanding at December 31, 2000 ...       $       5.37          3,586,750
                                           ============       ============
</TABLE>


         The weighted average remaining contractual life of all outstanding
employee stock options is 7.8 years at December 31, 2000. Additional information
regarding options outstanding at December 31, 2000, 1999 and 1998 follows:


<TABLE>
<CAPTION>
                                                   OUTSTANDING                   EXERCISABLE
                        RANGE OF            --------------------------   --------------------------
                     EXERCISE PRICES                        WEIGHTED                    WEIGHTED
                    ------------------                      AVERAGE                     AVERAGE
                     LOW         HIGH        NUMBER     EXERCISE PRICE    NUMBER     EXERCISE PRICE
                    -----       ------      ---------   --------------   ---------   --------------
         <S>        <C>         <C>         <C>         <C>              <C>         <C>
         1998:
                    $2.25       $ 4.00      1,533,500        $3.30       1,109,833       $3.23
                     4.50         7.22        137,500         5.24          97,501        5.42
                    -----       ------      ---------        -----       ---------       -----
                    $2.25       $ 7.22      1,671,000        $3.46       1,207,334       $3.41
                    =====       ======      =========        =====       =========       =====
         1999:
                    $2.25       $ 6.00      2,406,918        $4.45       1,182,875       $3.71
                     7.22        12.50      1,495,500         8.53         284,166        8.27
                    -----       ------      ---------        -----       ---------       -----
                    $2.25       $12.50      3,902,418        $6.01       1,467,041       $4.59
                    =====       ======      =========        =====       =========       =====
         2000:
                    $1.25       $ 6.25      2,634,250        $4.34       1,706,128       $4.23
                     6.25        12.50        952,500         8.22         396,673        8.02
                    -----       ------      ---------        -----       ---------       -----
                    $1.25       $12.50      3,586,750        $5.37       2,102,801       $4.95
                    =====       ======      =========        =====       =========       =====
</TABLE>



                                       83

<PAGE>


                   U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES



                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


         The following table summarizes the pro forma consolidated results of
operations of the Company as though the fair value based accounting method in
SFAS 123 had been used in accounting for employee stock options for the years
ended December 31, 2000, 1999 and 1998.


<TABLE>
<CAPTION>
                                                                     2000                1999             1998
                                                                 ------------         ----------        ---------
<S>                                                              <C>                  <C>               <C>
As reported results of operations:
  Net (loss) income .....................................        $(12,475,131)        $3,148,816        $ 304,080
                                                                 ============         ==========        =========
  Net (loss) income attributable to common
     stockholders .......................................        $(13,294,807)        $2,832,034        $(372,998)
                                                                 ============         ==========        =========
  Basic (loss) income per share .........................        $       (.39)        $      .10        $    (.02)
                                                                 ============         ==========        =========
  Diluted (loss) income per share .......................        $       (.39)        $      .09        $    (.02)
                                                                 ============         ==========        =========
Pro forma results of operations:
  Net (loss) income .....................................        $(14,199,284)        $1,086,001        $ 107,460
                                                                 ============         ==========        =========
Net (loss) income attributable to common stockholders ...        $(15,019,040)        $  769,219        $(569,618)
                                                                 ============         ==========        =========
  Basic (loss) income per share .........................        $       (.41)        $      .03        $    (.03)
                                                                 ============         ==========        =========
  Diluted (loss) income per share .......................        $       (.44)        $      .03        $    (.03)
                                                                 ============         ==========        =========
</TABLE>


         For purposes of the above disclosure, the determination of the fair
value of stock options granted in 2000 was based on the following: (i) a risk
free interest rate of 7%; (ii) expected option lives of four years; (iii)
expected volatility in the market price of the Company's common stock of 100%;
and (iv) 2.5% expected dividends on the underlying common stock.

         In 1999 and 1998 the determination of the fair value of stock options
granted was based on the following: (i) a risk free interest rate of 7%; (ii)
expected option lives of four years; (iii) expected volatility in the market
price of the Company's common stock of 75%; and (iv) 2.5% expected dividends on
the underlying common stock.


         The weighted average fair value of options granted to employees were
$2.96, $4.60 and $2.72 per share for the years ended December 31, 2000, 1999 and
1998 respectively.


NON-EMPLOYEE STOCK OPTIONS

         Magellan Finance Corporation ("Magellan"), a stockholder, was
originally granted options to purchase up to 353,684 shares of the Company's
common stock at $1.77 per share. Magellan exercised 117,895 of the options in
1997 and another 117,895 options in September 1998. The remaining 117,894
options were exercised on June 30, 1999.

         The Stout Partnership was granted 320,000 options at $2.25 per share in
January 1998 in exchange for enabling the Company to obtain a line of credit by
providing guarantees (see Notes 7 and 13). Stout Partnership exercised 250,000
shares in September 1999.


                                       84

<PAGE>


                   U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES



                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


         Nonemployee stock option activity in 2000, 1999 and 1998 is summarized
as follows:


<TABLE>
<CAPTION>
                                                                                    NUMBER OF
                                                               WEIGHTED AVERAGE      OPTIONS
                                                                EXERCISE PRICE     OUTSTANDING
                                                               ----------------    -----------
         <S>                                                   <C>                 <C>
         Outstanding at December 31, 1997 .................          $1.83           255,790
           Granted ........................................           2.55           387,500
           Exercised ......................................           1.80          (122,895)
           Canceled .......................................             --                --
                                                                     -----          --------
         Outstanding at December 31, 1998 .................          $2.37           520,395
           Granted ........................................           7.38            25,000
           Exercised ......................................           2.32          (427,895)
           Canceled .......................................             --                --
                                                                     -----          --------
         Outstanding at December 31, 1999 .................          $3.38           117,500
           Granted ........................................           3.79           102,500
           Exercised ......................................           5.00           (10,000)
           Canceled .......................................             --                --
                                                                     -----          --------
         Outstanding at December 31, 2000 .................          $3.50           210,000
                                                                     =====          ========
         Stock options exercisable at December 31, 2000 ...          $3.50           210,000
                                                                     =====          ========
</TABLE>


STOCK WARRANTS


         Warrants to purchase 62,500 common shares at $7.22 per share were
issued to the purchasers of $2,500,000 of convertible subordinated debentures in
January 1999. Another 85,000 and 42,500 warrants to purchase common stock at
$5.00 and $7.50, respectively, were also issued in conjunction with the sale of
the $2,500,000 convertible subordinated debentures in 1999. The Company issued
500,000 warrants to purchase the Company's common stock at $6.00 per share to
the shareholders of Brass Investment Company as part of the acquisition
consideration. The company issued warrants to purchase 200,000 common shares at
$10.09 in conjunction with the issuance of $7,500,000 of convertible
subordinated debentures in February 2000 (see note 7). In December 2000, the
company granted 250,000 warrants to the Stout Partnership at an exercise price
of $1.50 per share. The warrants were granted in consideration of the Stout
Partnership for exchanging the unsecured loan to a convertible subordinated
debenture and providing the additional funding of Series E Preferred Stock (see
note 7 and 13). In addition, Stout Partnership will receive 250,000 warrants in
the event certain assets of the Company are not disposed of as of June 1, 2001.
At December 31, 2000 a total of 1,260,000 warrants are outstanding.


EARNOUT AGREEMENT WITH "HISTORICAL SHAREHOLDERS"


         The Company had previously reserved 4,609,386 shares for issuance
pursuant to earnout provisions in the Agreement and Plan of Reorganization
entered into by the Company on December 15, 1995 and subsequently in an Earn Out
Rights Agreement dated October, 1997. The parties to the agreement specified
that the shares would be paid to certain shareholders (Historical Shareholders),
who held the common stock as of the date of the Agreement and Plan of
Reorganization, when net sales or production of Earth Care Global Holdings, on a
consolidated basis, meet or exceed 2.0 million pounds of plastic lumber per
month for three consecutive months, subject to certain limitations contained in
the Agreement.



         In 1999 the Company determined that it was unlikely to meet the
performance goals set out in the Earnout Rights Agreement and approached all of
the Historical Shareholders and requested that they sign a Settlement Agreement.
Under the terms of the Settlement Agreement, the historical shareholders
individually waived any future rights to Earnout Shares in exchange for a
reduced payment in the form of Company shares upon signing the agreement.
Approximately 99% of the Historical Shareholders (representing 4,553,606 shares
of the total 4,609,386 earn out shares) agreed to accept 15% of the original
earnout shares. The remaining 1% of the Historical Shareholders could not be
located by the Company, and there are no pending proceedings with these
remaining shareholders.


         On January 17, 2000, the Company issued 632,833 shares to the
Historical Shareholders who accepted the Settlement Agreement. The Company has
included the $5,166,005 value of the shares issued in acquired intangibles and
additional paid in capital on the balance sheet as of December 31, 1999.


                                       85

<PAGE>


                   U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

STOCK RESERVED

         At December 31, 2000, common stock was reserved for the following:



<TABLE>
         <S>                                                                   <C>
         Shares contingently issuable to USPL and CEI shareholders.....            55,845
         Non employee stock options....................................           210,000
         Employee stock options........................................         3,586,750
         Warrants......................................................         1,260,000
         Convertible debentures........................................         5,842,058
         Preferred Stock...............................................         2,330,143
                                                                               ----------
                                                                               13,284,796
                                                                               ==========
</TABLE>


10. RESTRUCTURING, EQUIPMENT AND INVENTORY IMPAIRMENT CHARGES

         In the fourth quarter of 2000, the Company committed to a plan of
restructure with respect to some of the smaller plants in its plastic lumber
division. As a result, the Reidsville, North Carolina plant was closed in
October of 2000, the Green Bay, Wisconsin and Vernon, California plants were
closed in January 2001 and the Company plans to close the Sweetser, Indiana
facility at the end of the third quarter of 2001. As a result, the Company
recorded the following charges in the fourth quarter of 2000:


<TABLE>
         <S>                                                      <C>
         Write-down for equipment impairment................      $2,319,000
         Lease termination costs in connection with the
           Restructuring....................................       1,098,000
                                                                  ----------
                   Total restructuring charges in 2000......       3,417,000
                                                                  ==========
</TABLE>


         The Company anticipates lease termination costs will be paid throughout
2001, as the Company completes its restructuring plan. As of December 31, 2000,
the Company has accrued $1,098,000 in connection with lease termination costs.
During 2000 and early 2001, the Company eliminated approximately 300 employees
as part of this restructuring plan. The severance component of the restructuring
plan was communicated to the employees in early January 2001. As a result, the
Company will record a charge of $182,000 in the first quarter of 2001 in
connection with severance. No severance cost was incurred for those employees
terminated in 2000.

         During the first quarter of 1999, the Company committed to a plan to
restructure and consolidate its two operating divisions and facilities. As part
of this plan, the plastic lumber division discontinued the labor intensive flow
mold process and converted entirely to the more efficient continuous extrusion
method of manufacturing plastic lumber. As a result, the Company closed its
facility in Mulliken, Michigan and one of its facilities in Trenton, Tennessee
and recorded the following charges during the first quarter of 1999:


<TABLE>
         <S>                                                               <C>
         Write-down of flow mold inventory to its raw material
           Value....................................................       $2,025,000
         Write-down of flow mold equipment to its salvage value.....        1,315,000
         Severance costs in connection with the restructuring.......        1,075,000
         Exit costs in connection with the restructuring............        1,330,000
                                                                           ----------
                                                                           $5,745,000
                                                                           ==========
</TABLE>



         Of the total charges recorded, $4,365,000 was recorded by the plastic
lumber division and $1,380,000 was recorded by the environmental division, which
includes the closing of the environmental division's Norristown, Pennsylvania
facility. The write-down of flow mold inventory was recorded as a component of
gross profit within the accompanying consolidated statement of operations.
Severance costs relates to the 61 employees from plants that were planned to be
closed during the year. Exit costs consist primarily of lease termination and
idle plant costs during the changeover.



                                       86

<PAGE>


                   U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES



                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


         During 1999, the Company terminated 53 employees and paid $697,000 in
severance costs. In addition, the company charged $973,000 to the exit cost
accrual primarily for lease termination and idle plant costs. As of December 31,
1999, the Company has approximately $378,000 remaining in severance reserves and
approximately $ 357,000 remaining in exit cost reserves, which are primarily for
lease termination costs.

         During 2000, the Company determined it had $232,000 of excess accrual
from the restructuring charges recorded during the first quarter of 1999. The
residual excess reserve was reversed in 2000. As of December 31, 2000,
approximately $51,431 remains in exit cost accruals, primarily for lease
termination costs.

11. EMPLOYEE BENEFIT PLANS

         The Company has defined contribution 401(k) and profit sharing plans
that cover substantially all employees who have met the eligibility
requirements. Employees may contribute up to the maximum allowable under current
regulations to the 401(k). There are no employee contributions to the profit
sharing plan. The Company's contribution to each plan is at the discretion of
the Company. The Company contributed $127,374, $132,493 and $5,772 in 2000, 1999
and 1998, respectively.


12. INCOME TAXES


         The provision for income taxes (benefit) includes federal and state
taxes currently payable and those deferred because of temporary differences
between financial statement and tax basis of assets and liabilities. The
components of the provision for income taxes (benefit) included in the
consolidated statements of operations is as follows:


<TABLE>
<CAPTION>
                                                                  2000                1999                1998
                                                               -----------         -----------         ---------
<S>                                                            <C>                 <C>                 <C>
         Current:
           Federal ....................................        $   509,108         $   178,647         $ 485,595
           State ......................................           (290,728)            404,204           313,968
                                                               -----------         -----------         ---------
                                                                   218,380             582,851           799,563
                                                               -----------         -----------         ---------
         Deferred:
           Federal ....................................           (778,147)          1,225,417          (563,758)
           State ......................................           (628,308)            (77,268)         (297,986)
                                                               -----------         -----------         ---------
                                                                (1,406,455)          1,148,149          (861,744)
                                                               -----------         -----------         ---------
                   Total continuing operations ........         (1,188,075)          1,731,000           (62,181)
         Extraordinary item ...........................           (655,729)                 --                --
                                                               -----------         -----------         ---------
         Total (benefit) provision for income taxes ...        $(1,843,804)        $ 1,731,000         $ (62,181)
                                                               ===========         ===========         =========
</TABLE>


         The total provision for income taxes (benefit) differed from the amount
obtained by applying the federal statutory income tax rate to pre-tax accounting
income (loss), as follows:


<TABLE>
<CAPTION>
                                                                    2000                1999                1998
                                                                 -----------         -----------         ---------
<S>                                                              <C>                 <C>                 <C>
          Tax at statutory rate of 34% ..................        $(4,322,902)        $ 1,659,136         $  82,246
          State taxes, net of Federal benefit ...........           (803,245)            198,518            10,820
          Nondeductible goodwill amortization ...........            207,597             656,910           155,601
          Increases (decreases) in valuation reserves ...          4,268,771            (435,500)         (157,494)
          Earnings of Pooled Sub S corporations .........                 --            (223,412)           39,957
          Other .........................................           (538,296)           (124,652)         (193,311)
                                                                 -----------         -----------         ---------
            Income tax (benefit) expense ................        $(1,188,075)        $ 1,731,000         $ (62,181)
                                                                 ===========         ===========         =========
</TABLE>


         A valuation allowance is provided when it is more likely than not that
some portion or all of the deferred tax assets will not be realized. The Company
determines a valuation allowance based on its analysis of amounts available in
the statutory carryback period, consideration of future deductible amounts, and
assessment of future profitability. As a result of the substantial operating
losses incurred during 2000, the Company established valuation allowances for
portions of the net operating loss carryforwards. The net change in the
valuation allowance was an increase of $4,268,771 for the year ended December
31, 2000. The Company had net operating loss carryforwards


                                       87

<PAGE>


                   U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES



                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



of approximately $15,000,000 as of December 31, 2000 which begin to expire in
2010. A portion of these losses is subject to limitations regarding the offset
of the Company's future taxable income.


         In 1999 the Company used approximately $8,200,000 of Federal net
operating loss carryforwards of to reduce taxes that would otherwise be payable.
For financial reporting purposes a valuation allowance of $2,824,000 had been
established to offset the net deferred tax assets related to these carryforwards
at December 31, 1998. With the realization of the tax benefit of these loss
carryforwards in 1999, the valuation allowance was no longer needed and
$2,388,500 of the reduction in the valuation allowance was recorded as a
reduction of acquired intangible assets in 1999. The remaining $435,500 decrease
in the valuation allowance was recorded as a reduction of income tax expense in
1999.


         The Company also realized $1,084,796 of tax benefits related to the
exercise of non-qualified stock options in 1999. There was no exercise of
non-qualified stock options in 2000 and 1998. The $1,084,796 of tax benefits and
$1,439,966 net proceeds on the exercise of stock options was recorded as
additional paid in capital in 1999.


         Temporary differences between financial statement carrying amounts and
tax basis of assets and liabilities that give rise to significant deferred tax
assets and liabilities as of December 31, 2000, 1999 and 1998 are as follows:


<TABLE>
<CAPTION>
                                                                        2000                1999                 1998
                                                                    ------------         -----------         -----------
         <S>                                                        <C>                  <C>                 <C>
          Deferred tax assets:
          Goodwill .........................................        $  2,703,389         $ 2,994,000         $   409,000
          Merger reserves and accrued expenses .............           2,542,012           1,176,000             113,000
          Allowance for doubtful accounts ..................             998,192             383,000             173,000
          Original issue discount on debentures ............             288,800             289,000                  --
          Net operating loss ...............................           5,606,598           1,134,000           2,565,000
          Inventory overhead ...............................             324,699             252,000              57,000
          Other ............................................             218,277              74,000               6,000
                                                                    ------------         -----------         -----------
                    Total deferred tax assets ..............          12,681,967           6,302,000           3,323,000
          Less valuation allowance .........................          (4,268,771)                 --          (2,824,000)
                                                                    ------------         -----------         -----------
          Net deferred tax asset ...........................           8,413,196           6,302,000             499,000
          Deferred tax liabilities:
          Property and equipment basis difference ..........           7,473,353           6,585,000             219,000
          Goodwill on asset purchases ......................             241,099             250,000                  --
          Long term contracts ..............................                  --             226,000             360,000
          Other ............................................              26,459             178,000             430,000
                                                                    ------------         -----------         -----------
                    Total gross deferred tax liabilities ...           7,740,911           7,239,000           1,009,000
                                                                    ------------         -----------         -----------
            Deferred tax asset (liabilities), net ..........        $    672,285         $  (937,000)        $  (510,000)
                                                                    ============         ===========         ===========
</TABLE>


13. RELATED PARTY TRANSACTIONS

         In 1999 and 1998, the Company borrowed up to $2,400,000 under a
$2,500,000 line of credit agreement from a company controlled by a member of the
Board of Directors and his family. The line of credit bears interest at prime
plus 1% and expires on June 30, 2001. At December 31, 1999 $1,500,000 was
outstanding under the line. No balance was outstanding at December 31, 1998. The
Company paid $109,933 and $171,849 in interest on this line in 1999 and 1998,
respectively. During 2000 the line of credit was paid-off and terminated in
conjunction with the entering into the new three year credit agreement on June
30, 2000. See Note 7 -- Notes and Capital Leases Payable.

         On February 2, 1999 the Stout Partnership made a $5,000,000 unsecured
loan to the Company. The loan bears interest at 10% and matures on June 30,
2001. The proceeds were used in the purchase of Eaglebrook. The Stout
Partnership borrowed the $5,000,000 from PNC Bank and the individual partners
have personally guaranteed the loan. At December 31, 1999, the balance
outstanding on this loan was $4,500,000. The Company paid $529,055 and $321,644
in interest on this loan in 2000 and 1999 respectively.


                                       88

<PAGE>


                   U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES



                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



         On December 1, 2000 the Stout Partnership exchanged the $5,000,000
unsecured loan into a subordinated convertible debenture of an equal dollar
amount with a due date of July 1, 2002, with interest payable monthly in arrears
at 11.5% per annum. The debenture is convertible into common stock at the lower
of $2.00 per share or the lowest closing price of the Company's common stock
during the four trading days prior to but not including the conversion date. The
debenture is convertible at any time, in whole or part, at the option of the
holder.


         In addition Stout Partnership provided the Company with an additional
funding of $2,000,000 as part of the Series E Preferred stock private placement
in 2000. See Note 9 -- Capital Stock.


         In consideration of the Stout Partnership exchanging its unsecured loan
for a subordinated convertible debenture and providing the additional funding of
Series E Preferred Stock, the Company granted 250,000 warrants at the exercise
price of $1.50 per share. The $264,374 value assigned to the warrants is
reflected as a discount from the face value of the debentures and is being
accreted over the term of the debenture. In addition, Stout Partnership will
receive 250,000 warrants in the event certain assets of the Company are not
disposed of as of June 1, 2001.


         In June 1999 the Company entered into an agreement to charter air
services from a company owned by a former director. During 2000, the Company did
not utilize any services under this agreement and the charter service was
discontinued. The Company leases approximately 3,240 square feet of office space
for $51,000 per year from that same former director. The lease expires in
October 2004.


         The Company has a professional services contract with Rosetto &
Associates LLC, a private law firm, that performs legal work for the company as
well as unrelated third parties. Mr. Rosetto, Executive Vice President, General
Counsel and Secretary for the Company, is the sole principal of Rosetto &
Associates. During 2000, Rosetto & Associates billed the Company $465,145 for
legal services and the Company billed $160,800 to Rosetto & Associates for use
of office space, office equipment and other shared services.


14. COMMITMENT AND CONTINGENCIES

OPERATING LEASES

         The Company leases office space, equipment, manufacturing facilities,
and land under non-cancelable operating leases that expire at various dates
through year 2028. Rent expense for all operating leases for the years ended
December 31, 2000, 1999 and 1998 was approximately $2,514,000, $2,186,000 and
$1,013,000, respectively. Future minimum payments are as follows for the year
ending December 31:


<TABLE>
         <S>                    <C>
         2001...............    $1,964,000
         2002...............     1,436,000
         2003...............     1,167,000
         2004...............       768,000
         2005...............       217,000
         Thereafter.........     5,289,000
                               -----------
                   Total....   $10,841,000
                               ===========
</TABLE>


         The Company leases approximately 7.5 acres of land at its Delaware soil
recycling facility at a rental of $1.00 per ton of soil received with a minimum
rental of $50,000 per year. Rent expense under this lease was $213,000, $190,000
and $219,986 in 2000, 1999 and 1998, respectively. The lease was renewed for
five years in 1998 and contains two five-year renewal options. The lessor has
the right and option at the time of renewal to require the Company to purchase
the property at a purchase price of $100,000 per acre subject to annual
escalation based on the Consumer Price Index from inception of the lease. The
Company currently leases approximately 5 acres of land under the New Jersey soil
recycling facility. The lease term is 30 years with two renewal options.


                                       89

<PAGE>

                   U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


EMPLOYMENT AGREEMENTS

         At December 31, 2000, the Company had employment agreements with
certain officers and key employees. Salaries and benefits expense recorded under
the Agreements totaled approximately $3,234,000, $2,544,000 and $1,714,000
during years ended December 31, 2000, 1999 and 1998, respectively. Future
minimum payments under these employment agreements are as follows:


<TABLE>
<CAPTION>
 YEAR ENDING DECEMBER 31,                  AMOUNT
 ------------------------                ----------
<S>                                      <C>
           2001.....................     $3,044,000
           2002.....................      1,995,000
           2003.....................        182,000
           2004 and thereafter......             --
                                         ----------
                                         $5,221,000
                                         ==========
</TABLE>


LEGAL PROCEEDINGS

The Company is subject to claims and legal actions that arise in the ordinary
course of its business. The Company believes that the ultimate liability, if
any, with respect to these claims and legal actions, will not have a material
effect on the financial position or results of operations of the Company.

LICENSING AGREEMENTS

         During February of 1997, the Company entered into a licensing agreement
with Rutgers University for the rights to commercially develop, manufacture and
sell a composite building material from recycled waste. In exchange for $10,000
in cash and 187,500 shares of the Company's common stock, the Company received
an exclusive license to use this material for certain applications, including
railroad ties, marine pilings and building materials. The total consideration
was valued at $103,750 and has been recorded as a component of other assets in
the consolidated balance sheet. This agreement is in effect for at least ten
years from the date of the initial product sales and requires the Company to pay
a maintenance fee and a 3% royalty fee. Such fees are subject to certain minimum
future payment thresholds, as follows:


<TABLE>
<CAPTION>
                               MAINTENANCE       ROYALTY
                                   FEE             FEE
                               -----------      --------
         <S>                   <C>             <C>
          2001 .........        $ 10,000        $ 60,000
          2002 .........          10,000          60,000
          2003 .........          10,000          60,000
          2004 .........          10,000          60,000
          Thereafter ...          50,000         280,000
                                --------        --------
                                $ 90,000        $520,000
                                ========        ========
</TABLE>


         The Company had minimal initial product sales in 1998 and paid $21,667
of maintenance and prorated royalty fees in 1998 after the initial shipments of
railroad ties were made to potential customers for testing. The company had no
sales in 1999. The company had no in sales in 2000 and 1999.

         Carteret Biocycle Corp. ("CBC") has a license and operating agreement
with SD&G Aggregates, Inc. ("SD&G") to conduct remediation of contaminated
soils. The Company pays SD&G a royalty of 2% of CBC's sales. CBC commenced
operations in July 1998 and recorded royalty expense of $73,288, $77,790 and $
33,360 in 2000, 1999 and 1998, respectively.


         The Company also has a license agreement with Paul T. Adam for the
manufacture and commercial sale of contaminated or impacted dredge material from
a wide variety of industrial waste streams that the Company uses in its
environmental division. The license requires that the Company pay a royalty fee
equal to 10% of net sales or 25% of net income, but in no event less than $.20
per ton. No royalty fee was paid in 2000. Minimum annual royalties are paid
through 2003, although the license does not expire until December 5, 2011.



                                       90
<PAGE>


                   U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES



                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


         The Company also has a non-exclusive license with the Strandex
Corporation to manufacture a composite railing product and deck plank, although
the Company no longer uses the Strandex technology to manufacture composite
planks. The license expires on April 22, 2011. The license requires a royalty
fee equal to $.032 per pound of product manufactured.


         LOSS CONTINGENCIES



         Loss contingencies are recorded and recognized by accruing a charge to
income if it is probable that a liability has been incurred and the amount of
the loss can be reasonably estimated.


15. SEGMENT REPORTING


         The Company's sales generating operations are conducted through its
environmental recycling division. Separate monthly consolidated financial
statements are prepared for each division. There are no inter segment or foreign
revenues. The corporate administrative expenses consist of the executive
officers of the Company and include the legal, accounting and enterprise wide
cash management functions and public company expenses. Substantially all of the
debt and related interest expense is also retained at corporate. The corporate
administrative and interest expenses are not allocated to the two Divisions for
management reports. The operating income of each of the Divisions is the
principal measurement tool used to manage the two segments. The operating
results of each segment, excluding the aforementioned merger and restructuring,
inventory and equipment impairment charges, and the reconciliation of each
element to the consolidated statement of operations for each of the years ended
December 31, 2000, 1999 and 1998 follows (in thousands):



<TABLE>
<CAPTION>
                                                       2000              1999             1998
                                                    ---------         ---------         --------
         <S>                                        <C>               <C>               <C>
          Revenues:
            Environmental recycling ........        $ 100,530         $  85,498         $ 51,544
            Plastic lumber .................           73,214            53,046           21,250
                                                    ---------         ---------         --------
                                                    $ 173,744         $ 138,544         $ 72,794
                                                    =========         =========         ========
          Operating (loss) income:
            Environmental recycling ........        $   9,190         $  12,353         $  3,824
            Plastic lumber .................           (8,362)            7,649             (622)
            Corporate ......................           (3,510)           (2,174)          (1,514)
                                                    ---------         ---------         --------
                                                    $  (2,682)        $  17,828         $  1,688
                                                    =========         =========         ========
          Depreciation and amortization:
            Environmental recycling ........        $   3,242         $   2,525         $  1,272
            Plastic lumber .................            3,171             2,551            1,368
            Corporate ......................              451               293              170
                                                    ---------         ---------         --------
                                                    $   6,864         $   5,369         $  2,810
                                                    =========         =========         ========
</TABLE>



         Information with respect to assets of the segments and reconciliation
to the financial statements is set forth below (in thousands):



<TABLE>
<CAPTION>
                                                      2000            1999
                                                    --------        --------
          <S>                                       <C>             <C>
          Segment assets at December 31:
          Environmental recycling ..........        $ 92,784        $ 77,471
          Plastic lumber ...................         103,222          85,045
          Corporate ........................           4,405           3,795
                                                    --------        --------
                                                    $200,411        $166,311
                                                    ========        ========
</TABLE>



                                       91

<PAGE>


                   U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

         Expenditures for long-lived assets for the segments is set forth below
(in thousands):




<TABLE>
<CAPTION>
                                                     2000           1999            1998
                                                    -------        -------        -------
          <S>                                       <C>            <C>            <C>
          Segment assets at December 31:
          Environmental recycling ..........        $ 8,278        $21,346        $ 6,933
          Plastic lumber ...................         19,354         33,344          5,029
          Corporate ........................            186          5,529            740
                                                    -------        -------        -------
                                                    $27,818        $60,219        $12,702
                                                    =======        =======        =======
</TABLE>


16. CHANGES IN VALUATION ACCOUNTS


<TABLE>
<CAPTION>
                                           BALANCE AT        CHARGES TO          CHARGED TO                          BALANCE AT
                                           BEGINNING         COSTS AND             OTHER                               END OF
DESCRIPTION                                OF PERIOD          EXPENSES            ACCOUNTS          DEDUCTIONS         PERIOD
-----------                                ----------        -----------         -----------        ----------       ----------
<S>                                        <C>               <C>                 <C>                <C>              <C>
AT DECEMBER 31, 2000:
Allowance for Doubtful Accounts
   Receivable .....................        $1,139,870        $ 1,766,109                  --         $530,500        $2,375,479
Deferred Tax Asset Valuation
   Allowance ......................                --          4,268,771                  --               --         4,268,771
AT DECEMBER 31, 1999:
Allowance for Doubtful Accounts
   Receivable .....................        $  460,907        $   621,755              57,208               --        $1,139,870
Deferred Tax Asset Valuation
   Allowance ......................         2,824,000           (435,500)         (2,388,500)              --                --
AT DECEMBER 31, 1998:
Allowance for Doubtful Accounts
   Receivable .....................        $  475,030        $   100,769         $   150,808         $265,700        $  460,907
Deferred Tax Asset Valuation
   Allowance ......................         2,993,252           (169,252)                                             2,824,000
</TABLE>















                                       92

<PAGE>

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


The Company's major market risk exposure is to changing interest rates. The
Company's policy is to manage interest rates through the use of a combination of
fixed and floating-rate debt. The Company uses interest rate swap contracts to
manage its exposure to fluctuations in interest rates on its floating-rate debt,
substantially all of which is based on LIBOR. At December 31, 2000, the Company
had effectively capped its interest rate exposure at approximately 6.77% on
approximately $20 million of its floating-rate as of December 31, 2000. A 100
basis point interest rate increase would result in approximately $370,000 of
additional interest expense per year based on the Company's outstanding debt at
December 31, 2000 for which an effective hedge was not in place.


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The following consolidated financial statements are attached hereto and made a
part hereof:


<TABLE>
<CAPTION>
                                                                                                                      PAGE
                                                                                                                      ----
         <S>                                                                                                          <C>
         Reports of Independent Certified Public Accountants.......................................................    60
         Consolidated Balance Sheets as of December 31, 2000 and 1999..............................................    63
         Consolidated Statements of Operations for the Years Ended December 31, 2000, 1999 and 1998................    64
         Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2000, 1999 and 1998......    65
         Consolidated Statements of Cash Flows for the Years Ended December 31, 2000, 1999 and 1998................    66
         Notes to Consolidated Financial Statements................................................................    67
</TABLE>


SUMMARIZED QUARTERLY DATA (UNAUDITED):

Following is a summary of the quarterly results of operations for the years
ended December 31, 2000 and 1999:


<TABLE>
<CAPTION>
                                                                                    FISCAL QUARTER
                                                       -------------------------------------------------------------------------
                                                        FIRST         SECOND           THIRD           FOURTH            TOTAL
                                                       --------      --------        --------         --------         ---------
                                                                        $ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
          <S>                                          <C>           <C>             <C>              <C>              <C>
          2000
          Sales, net ..............................    $ 30,404      $ 44,260        $ 50,088         $ 48,992         $ 173,744
          Gross profit ............................       5,517         9,630           6,115            3,566            24,828
          (Loss) earnings before extraordinary
            item ..................................        (670)        1,735          (2,450)         (10,062)          (11,447)
          Net (loss) earnings .....................        (670)          796          (2,450)         (10,151)          (12,475)
          Net (loss) earnings attributable to
            common shareholders ...................        (670)          796          (2,633)         (10,788)          (13,295)
          Net (loss) earnings per common
            share -- Basic:
            (Loss) earnings before
               extraordinary item .................        (.02)          .05            (.08)            (.31)             (.36)
          Net (loss) earnings per common share.....        (.02)          .02            (.08)            (.31)             (.39)
                                                       --------      --------        --------         --------         ---------
          Net (loss) earnings per common
            share -- Diluted:
            (Loss) earnings before
               extraordinary item .................        (.02)          .05            (.08)            (.31)             (.36)
          Net (loss) earnings per common share.....        (.02)          .02            (.08)            (.31)             (.39)
                                                       --------      --------        --------         --------         ---------
          1999
          Sales, net ..............................    $ 24,971      $ 36,858        $ 40,741         $ 35,974         $ 138,544
          Gross profit ............................       4,850        10,691          11,206            9,596            36,343
</TABLE>



                                       93

<PAGE>


<TABLE>
<CAPTION>
                                                                                    FISCAL QUARTER
                                                       -------------------------------------------------------------------------
                                                        FIRST         SECOND           THIRD           FOURTH            TOTAL
                                                       --------      --------        --------         --------         ---------
                                                                        $ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
          <S>                                          <C>           <C>             <C>              <C>              <C>

          (Loss) earnings before extraordinary
            item ..................................      (5,345)        3,281           3,150            2,063             3,149
          Net (loss) earnings .....................      (5,345)        3,281           3,150            2,063             3,149
            Net (loss) earnings attributable to
               common shareholders ................      (5,515)        3,176           3,108            2,063             2,832
          Net (loss) earnings per common
            share -- Basic:
            (Loss) earnings before
               extraordinary item .................        (.23)          .12             .10              .11               .10
            Net (loss) earnings ...................        (.23)          .12             .10              .11               .10
            Net (loss) earnings per common
               share attributable to common
               shareholders .......................        (.23)          .12             .10              .10               .10
          Net (loss) earnings per common
            share -- Diluted:
            (Loss) earnings before
               extraordinary item .................        (.23)          .11             .10              .11               .09
            Net (loss) earnings ...................        (.23)          .11             .10              .11               .09
            Net (loss) earnings per common
               share attributable to common
               shareholders .......................        (.23)          .11             .10              .10               .09
</TABLE>


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

The information contained in the Proxy Statement under the caption "Changes in
and Disagreements with Accountants on Accounting and Financial Disclosure"
relating to the 2001 Annual Meeting is incorporated herein by reference.


                                       94


<PAGE>

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information regarding the directors of the Company is incorporated by reference
from the heading in the Proxy Statement for the 2001 Annual Meeting which will
be filed with the SEC within 120 days of the Company's fiscal year end.

Information regarding the officers of the Company who are not also directors is
incorporated by reference from ITEM 1, DIRECTORS AND OFFICERS OF THE REGISTRANT.

ITEM 11. EXECUTIVE COMPENSATION

The information contained in the Proxy Statement under the caption "Executive
Compensation" relating to the 2001 Annual Meeting is incorporated herein by
reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT


The following table sets forth information as of December 31, 2000 with respect
to the beneficial ownership of our common stock by: (i) each person who is known
by us to be the beneficial owner of five percent (5%) or more of our outstanding
common stock, (ii) each of our directors, (iii) our chief executive officer and
each other officer whose salary and bonus totaled $100,000 or more during fiscal
2000; and (iv) all of our directors and executive officers as a group. As of
December 31, 2000, 34,836,594 shares of our common stock were outstanding.



The securities "beneficially owned" by an individual are determined in
accordance with the definition of "beneficial ownership" set forth in the
regulations of the Securities and Exchange Commission. Accordingly they may
include securities owned by or for, among others, the wife and/or minor children
or the individual and any other relative who has the same home as such
individual, as well as other securities as to which the individual has or shares
voting or investment power or has the right to acquire under outstanding stock
options, warrants and/or convertible debentures within 60 days after the date of
this table. Beneficial ownership may be disclaimed as to some of the securities.




                                       95

<PAGE>


<TABLE>
<CAPTION>
                                                                               AMOUNT OF SHARES      PERCENT
                                   NAME AND ADDRESS**                         BENEFICIALLY OWNED     OF CLASS
                                   ------------------                         ------------------     --------
         <S>                                                                  <C>                    <C>
         DIRECTORS AND EXECUTIVE OFFICERS
          Mark S. Alsentzer .............................................         9,749,740(1)         25.2%
          Roger Zitrin ..................................................           393,974(2)          1.1%
          August C. Schultes, III .......................................         8,725,969(3)         23.2%
          Gary J. Ziegler ...............................................         9,055,808(4)         24.0%
          Kenneth Leung .................................................           475,121(5)          1.4%
          Bruce C. Rosetto ..............................................           200,704(6)            *
          Michael D. Schmidt ............................................           155,641(7)            *
          John W. Poling ................................................           108,333(8)            *
          All directors and executive officers as a group (8 persons) ...        11,691,606(9)         29.9%
          5% HOLDERS
          Stout Partnership .............................................         8,568,842(10)        22.8%
               101 Jessup Rd., Thorofare, NJ 08086
          Halifax Fund, LP. .............................................         3,827,772(11)         9.9%
               195 Maplewood Ave., Maplewood NJ 07040
</TABLE>


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

*        Less than 1%.

**       The business address of all of the executive officers and directors is
         2300 W. Glades Road, Suite 440 W, Boca Raton, Florida 33431.

(1)      Includes 85,383 shares held directly by Mr. Alsentzer, 5,000 shares
         owned by Mr. Alsentzer's spouse, as to which Mr. Alsentzer has shared
         voting and dispositive power, 1,033,333 shares which Mr. Alsentzer has
         the right to acquire through the exercise of outstanding options,
         8,568,842 shares, as to which Mr. Alsentzer has shared voting power as
         a general partner of Stout Partnership (see Notes 9 and 10 below),
         39,182 shares held by Marrin LLP, a limited partnership, as to which
         Mr. Alsentzer has full voting power and shared dispositive power, and
         18,000 shares held by Adams Oil Inc., as to which Mr. Alsentzer has
         shared voting and dispositive power.

(2)      Includes 16,474 shares held directly by Mr. Zitrin, 350,000 shares held
         by Mr. Zitrin's spouse, as to which Mr. Zitrin has shared voting and
         dispositive power, and 27,500 shares which Mr. Zitrin has the right to
         acquire through the exercise of options.

(3)      Includes 111,627 shares held directly by Mr. Schultes, 27,500 shares
         which Mr. Schultes has the right to acquire through the exercise of
         options. Includes 8,568,842 shares, as to which Mr. Schultes has shared
         voting power as a general partner of Stout Partnership (see Notes 9 and
         10 below), and 18,000 shares held by Adams Oil Inc., as to which Mr.
         Schultes has shared voting and dispositive power.

(4)      Includes 432,328 shares held directly by Mr. Ziegler and 27,500 shares
         which Mr. Ziegler has the right to acquire through the exercise of
         options. Includes 8,568,842 shares, as to which Mr. Ziegler has shared
         voting power as a general partner of Stout Partnership (see Notes 9 and
         10 below), 18,000 shares held by Adams Oil Inc., as to which Mr.
         Ziegler has shared voting and dispositive power, and 9,138 shares held
         by Bedford 5 LP, as to which Mr. Schultes has shared voting and
         dispositive power.

(5)      Includes 6,000 shares held directly by Mr. Leung, 550 shares held by a
         family member, as to which Mr. Leung has shared voting and dispositive
         power, 15,000 shares which Mr. Leung has the right to acquire through
         the exercise of options, and 453,571 shares owned by EOF II, of which
         Mr. Leung is a member of the investment committee with shared voting
         and dispositive power.

(6)      Includes 62,371 shares held directly by Mr. Rosetto and 138,333 shares
         which Mr. Rosetto has the right to acquire through the exercise of
         options.

(7)      Includes 17,308 shares held directly by Mr. Schmidt and 138,333 shares
         which Mr. Schmidt has the right to acquire through the exercise of
         options.

(8)      Includes 25,000 shares held directly by Mr. Poling and 83,333 shares
         which Mr. Poling has the right to acquire through the exercise of
         options.

(9)      Some of our officers and directors are general partners of Stout
         Partnership, including Mark S. Alsentzer, August C. Schultes III, and
         Gary J. Ziegler. All of the shares beneficially owned by Stout
         Partnership are owned by the general partnership, whose ownership is
         described in the Schedule 13D dated March 13, 1998 and Note 10 below.
         Each of the individual partners of Stout Partnership have voting power
         and dispositive power equal to their pro rata interest.

(10)     Includes 5,748,842 shares beneficially owned by Stout Partnership (as
         reported in Schedule 13D dated March 13, 1998), 70,000 shares subject
         to options granted to Stout Partnership, 250,000 shares subject to
         warrants granted to Stout Partnership, and 2,500,000 shares subject to
         the convertible debentures of Stout Partnership. The debentures convert
         at the lowest of $2.00 per share or the lowest closing price for the
         four trading days immediately preceding the conversion.

(11)     Halifax and its investment advisor, The Palladin Group, L.P., share
         voting and dispositive power with respect to 3,827,772 shares of our
         common stock and disclaim beneficial ownership with respect to the
         remaining shares as a result of an ownership limitation contained in
         agreements entered into between us and Halifax and The Palladin Group,
         which restrict the number of shares of our common stock into which such
         entities may convert the 5% convertible debenture, the warrant (which
         is exercisable for 200,000 shares of common stock), and Series D
         Convertible Preferred Stock (which is convertible into 285,714 shares
         of common stock) to 9.9% of our outstanding common stock or 3,827,772.
         Yarmouth Investments, Ltd. is the sole general



                                       96

<PAGE>


         partner of Halifax. Palladin Capital Management, LLC is the sole
         general partner of Palladin Group. Yarmouth and Palladin Capital are
         controlled by Jeffrey Devers.


ITEM 13. CERTAIN TRANSACTIONS

The information contained in the Proxy Statement under the caption "Certain
Transactions" relating to the 2001 Annual Meeting is incorporated herein by
reference.


                                       97

<PAGE>

                                     PART IV

ITEM 14. EXHIBITS AND REPORTS

EXHIBITS


<TABLE>
<CAPTION>
EXHIBIT NO.       DESCRIPTION
-----------       -----------
<S>               <C>
2.1               Agreement and Plan of Reorganization between Educational Storybooks
                  International, Inc. and Earth Care Global Holdings, Inc. (Incorporated
                  by reference from Exhibit 2.1 to the Company's Registration Statement
                  on Form SB-2 (File No. 333-22949) filed with the SEC on March 7, 1997)

3.1               Restated Articles of Incorporation of U.S. Plastic Lumber Corp.

3.2               Amended and Restated Bylaws (Incorporated by reference from Exhibit 3.7
                  to the Company's Form 10-K for the year ended December 31, 2000 filed
                  with the SEC on April 3, 2001)

3.3               Articles of Incorporation of Educational Resources, Inc., the
                  predecessor of the Company (Incorporated by reference from Exhibit 3.4
                  to the Company's Registration Statement on Form SB-2 (File No.
                  333-22949) filed with the SEC on March 7, 1997)

3.4               Plan and Articles of Merger of Educational Resources, Inc. into Earth
                  Care Global Holdings, Inc. (Incorporated by reference from Exhibit 3.5
                  to the Company's Registration Statement on Form SB-2 (File No.
                  333-22949) filed with the SEC on March 7, 1997)

3.5               Certificate of Amendment to the Certificate of Designation of
                  Preferences, Rights and Limitations of Series D Preferred Stock.
                  (Incorporated by reference from Exhibit 4.1 to the Company's Current
                  Report on Form 8-K filed with the SEC on June 22, 2001)

3.6               Series E Preferred Stock Certificate of Designation (Incorporated by
                  reference from Exhibit 10.49 to the Company's Form 10-K for the year
                  ended December 31, 2000 filed with the SEC on April 3, 2001)

4.1               5% Convertible Debenture issued to Halifax Fund, L.P. (Incorporated by
                  reference from Exhibit 4.1 to the Company's Registration Statement on
                  Form S-3 filed with the SEC on March 10, 2000 (File No. 333-32148))

4.2               Common Stock Purchase Warrant issued to Halifax Fund, L.P. dated
                  February 2, 2000. (Incorporated by reference from Exhibit 4.2 to the
                  Company's Registration Statement on Form S-3 filed with the SEC on
                  March 10, 2000 (File No. 333-32148))

4.3               Form of the 11.5% Convertible Debenture issued to Stout Partnership

10.1              Jeanell Sales Corp. Acquisition Agreement (Incorporated by reference
                  from Exhibit 10.1 to the Company's Registration Statement on Form SB-2
                  (File No. 333-22949) filed with the SEC on March 7, 1997)

10.2              Duratech Acquisition Agreement (Incorporated by reference from Exhibit
                  10.2 to the Company's Registration Statement on Form SB-2 (File No.
                  333-22949) filed with the SEC on March 7, 1997)
</TABLE>



                                       98

<PAGE>


<TABLE>
<CAPTION>
EXHIBIT NO.       DESCRIPTION
-----------       -----------
<S>               <C>
10.3              Clean Earth Acquisition Agreement (Incorporated by reference from
                  Exhibit 10.3 to the Company's Registration Statement on Form SB-2 (File
                  No. 333-22949) filed with the SEC on March 7, 1997)

10.4              RPI Acquisition Agreement (Incorporated by reference from Exhibit 10.4
                  to the Company's Registration Statement on Form SB-2 (File No.
                  333-22949) filed with the SEC on March 7, 1997)

10.5              ARDT Acquisition Agreement (Incorporated by reference from Exhibit 10.5
                  to the Company's Registration Statement on Form SB-2 (File No.
                  333-22949) filed with the SEC on March 7, 1997)

10.6              Employment Agreement -- Harold Gebert (Incorporated by reference from
                  Exhibit 10.7 to the Company's Registration Statement on Form SB-2 (File
                  No. 333-22949) filed with the SEC on March 7, 1997)

10.7              Employment Agreement -- David Farrow (Incorporated by reference from
                  Exhibit 10.8 to the Company's Registration Statement on Form SB-2 (File
                  No. 333-22949) filed with the SEC on March 7, 1997)

10.8              Rutgers Licensing Agreement (Incorporated by reference from Exhibit
                  10.9 to the Company's Registration Statement on Form SB-2 (File No.
                  333-22949) filed with the SEC on March 7, 1997)

10.9              ESP Acquisition Agreement (Incorporated by reference from Exhibit 10.10
                  of Amendment One to the Company's Registration Statement on Form SB-2
                  (File No. 333-22949) filed with the SEC on August 26, 1997)

10.10             ITS Acquisition Agreement (Incorporated by reference from Exhibit 10.11
                  of Amendment One to the Company's Registration Statement on Form SB-2
                  (File No. 333-22949) filed with the SEC on August 26, 1997)

10.11             EPC Acquisition Agreement (Incorporated by reference from Exhibit 10.12
                  of Amendment One to the Company's Registration Statement on Form SB-2
                  (File No. 333-22949) filed with the SEC on August 26, 1997)

10.12             IIC/USPL Joint Venture Agreement (Incorporated by reference from
                  Exhibit 10.13 of Amendment One to the Company's Registration Statement
                  on Form SB-2 (File No. 333-22949) filed with the SEC on August 26,
                  1997)

10.13             S D & G License and Operating Agreement (Incorporated by reference from
                  Exhibit 10.14 of Amendment One to the Company's Registration Statement
                  on Form SB-2 (File No. 333-22949) filed with the SEC on August 26,
                  1997)

10.14             Ground Lease Agreement (Carteret Biocycle) (Incorporated by reference
                  from Exhibit 10.15 of Amendment One to the Company's Registration
                  Statement on Form SB-2 (File No. 333-22949) filed with the SEC on
                  August 26, 1997)
</TABLE>



                                      99

<PAGE>


<TABLE>
<CAPTION>
EXHIBIT NO.       DESCRIPTION
-----------       -----------
<S>               <C>
10.15             Lease Agreement (Brock Mgt/Earth Care TN) (Incorporated by reference
                  from Exhibit 10.16 of Amendment One to the Company's Registration
                  Statement on Form SB-2 (File No. 333-22949) filed with the SEC on
                  August 26, 1997)

10.16             Lease Agreement (APEC/Earth Care Midwest) (Incorporated by reference
                  from Exhibit 10.17 of Amendment One to the Company's Registration
                  Statement on Form SB-2 (File No. 333-22949) filed with the SEC on
                  August 26, 1997)

10.17             Lease Agreement (Plastic Properties LLC/RPI) (Incorporated by reference
                  from Exhibit 10.18 of Amendment One to the Company's Registration
                  Statement on Form SB-2 (File No. 333-22949) filed with the SEC on
                  August 26, 1997)

10.18             Lease Agreement (Dalphon Sr./Clean Earth) (Incorporated by reference
                  from Exhibit 10.19 of Amendment One to the Company's Registration
                  Statement on Form SB-2 (File No. 333-22949) filed with the SEC on
                  August 26, 1997)

10.19             Lease Agreement (Glades Twin Plaza/Earth Care) (Incorporated by
                  reference from Exhibit 10.20 of Amendment One to the Company's
                  Registration Statement on Form SB-2 (File No. 333-22949) filed with the
                  SEC on August 26, 1997)

10.20             Lease Agreement (Consol. Realty/EPC) (Incorporated by reference from
                  Exhibit 10.21 of Amendment One to the Company's Registration Statement
                  on Form SB-2 (File No. 333-22949) filed with the SEC on August 26,
                  1997)

10.21             Lease Agreement (Waste Concepts, Inc.) (Incorporated by reference from
                  Exhibit 10.22 of Amendment Two to the Company's Registration Statement
                  on Form SB-2 (File No. 333-22949) filed with the SEC on January 9,
                  1998)

10.22             Lease Agreement (Earth Care Products of Tennessee) (Incorporated by
                  reference from Exhibit 10.23 of Amendment Two to the Company's
                  Registration Statement on Form SB-2 (File No. 333-22949) filed with the
                  SEC on January 9, 1998)

10.23             WCI Acquisition Agreement (Incorporated by reference from Exhibit 10.24
                  of Amendment Two to the Company's Registration Statement on Form SB-2
                  (File No. 333-22949) filed with the SEC on January 9, 1998)

10.24             CTI Securities Purchase Agreement (Incorporated by reference from Exhibit
                  10.25 of Amendment Two to the Company's Registration Statement on Form
                  SB-2 (File No. 333-22949) filed with the SEC on January 9, 1998)

10.25             Employment Agreement -- Steven Sands (Incorporated by reference from
                  Exhibit 10.26 of Amendment Two to the Company's Registration Statement
                  on Form SB-2 (File No. 333-22949) filed with the SEC on January 9,
                  1998)

10.26             ICC/USPL Joint Venture Agreement II (Incorporated by reference from
                  Exhibit 10.28 of Amendment Two to the Company's Registration Statement on
                  Form SB-2 (File No. 333-22949) filed with the SEC on January 9, 1998)
</TABLE>



                                      100

<PAGE>


<TABLE>
<CAPTION>
EXHIBIT NO.       DESCRIPTION
-----------       -----------
<S>               <C>
10.27             PNC Bank of Delaware -- Promissory Note (Incorporated by reference from
                  Exhibit 10.22 of Amendment Two to the Company's Registration Statement
                  on Form SB-2 (File No. 333-22949) filed with the SEC on January 9,
                  1998)

10.28             Eaglebrook Plastics, Inc. Stock Purchase Agreement (Incorporated by
                  reference from Exhibit 10.1 to the Company's Form 8-K filed with the SEC
                  on February 10,1999)

10.29             Eaglebrook Plastics, Inc. Stock Purchase Agreement (Incorporated by
                  reference from Exhibit 10.2 to the Company's Form 8-K filed with the SEC
                  on February 10,1999)

10.30             Coast Business Credit Loan and Security Agreement; Amendment to Loan
                  and Security Agreement; Second Amendment to Loan and Security
                  Agreement; Third Amendment to Loan and Security Agreement; and Fourth
                  Amendment to Loan and Security Agreement (Incorporated by reference
                  from Exhibit 10.33 to the Company's Form 10KSB filed with the SEC on
                  March 30, 1999)

10.31             Convertible Debenture Purchase Agreement dated December 22, 1998
                  (Incorporated by reference from Exhibit 10.34 to the Company's Form
                  10KSB filed with the SEC on March 30, 1999)

10.32             Convertible Debenture Purchase Agreement dated January 26, 1999
                  (Incorporated by reference from Exhibit 10.35 to the Company's
                  Form 10KSB filed with the SEC on March 30, 1999)

10.33             1999 Non-Employee Director Stock Option Plan (Incorporated by reference
                  from Exhibit 10.37 to the Company's Form 10KSB filed with the SEC on
                  March 30, 1999)

10.34             Amended and Restated 1999 Employee Stock Option Plan (Incorporated
                  by reference from Exhibit 10.38 to the Company's Form 10KSB  filed with
                  the SEC on March 30, 2000)

10.35             Employment Agreement of Bruce C. Rosetto (Incorporated by reference
                  from Exhibit 10.39 to the Company's Form 10KSB filed with the SEC on
                  March 30, 2000)

10.36             Employment Agreement of Michael D. Schmidt (Incorporated by reference
                  from Exhibit 10.40 to the Company's Form 10KSB filed with the SEC on
                  March 30, 2000)

10.37             Employment Agreement of John W. Poling (Incorporated by reference from
                  Exhibit 10.41 to the Company's Form 10KSB filed with the SEC on
                  March 30, 2000)

10.38             Employment Agreement of Mark S. Alsentzer (Incorporated by reference
                  from Exhibit 10.42 to the Company's Form 10KSB filed with the SEC on
                  March 30, 2000)

10.39             Private Placement Stock Purchase Agreement dated August 20, 1999
                  (Incorporated by reference from Exhibit 10.43 to the Company's Form
                  10KSB filed with the SEC on March 30, 2000)
</TABLE>



                                      101

<PAGE>


<TABLE>
<CAPTION>
EXHIBIT NO.       DESCRIPTION
-----------       -----------
<S>               <C>
10.40             Asset Purchase Agreement -- Baron Enterprises, Inc. (Incorporated by
                  reference from Exhibit 10.44 to the Company's Form 10-Q filed with the
                  SEC on May 16, 2000)

10.41             Master Security Agreement with GE Capital Corporation (Incorporated by
                  reference from Exhibit 10.45 to the Company's Form 10-Q filed with the SEC on
                  May 16, 2000)

10.42             Credit Agreement with Bank of America dated as of June 30, 2000 (Incorporated
                  by reference from Exhibit 10.46 to the Company's Form 10-Q filed with the
                  SEC on August 14, 2000)

10.43             Waiver and First Amendment to the Credit Agreement with Bank of America
                  (Incorporated by reference from Exhibit 10.47 to the Company's Form 10-Q
                  filed with the SEC on November 14, 2000)

10.44             Convertible Debenture Purchase Agreement by and between the Company and
                  Halifax Fund, L.P. dated February 2, 2000 (Incorporated by reference
                  from Exhibit 99.1 to the Company's Registration Statement on Form S-3 filed
                  with the SEC on March 10, 2000 (File No. 333-32148))

10.45             Registration Rights Agreement by and between the Company and Halifax
                  Fund, L.P. dated February 2, 2000 (Incorporated by reference from
                  Exhibit 99.2 to the Company's Registration Statement on Form S-3 filed
                  with the SEC on March 10, 2000 (File No. 333-32148))

10.46             Common Stock Purchase Agreement with Fusion Capital Fund II, LCC (Incorporated
                  by reference from Exhibit 10.50 to the Company's Form 10-K for the year
                  ended December 31, 2000 filed with the SEC on April 3, 2001)

10.47             Waiver and Second Amendment to the Credit Agreement with Bank of America
                  (Incorporated by reference from Exhibit 10.51 to the Company's Form 10-K
                  for the year ended December 31, 2000 filed with the SEC on April 3, 2001)

10.48             Amendments to the Master Security Agreement with GE Capital Corporation
                  (Incorporated by reference from Exhibit 10.52 to the Company's Form 10-K
                  for the year ended  December 31, 2000 filed with the SEC on April 3, 2001)

10.49             Form of the Letter Agreement by and between the Company and Stout Partnership, dated
                  November 13, 2000

10.50             Form of the Convertible Debenture Purchase Agreement by and between the Company and Stout
                  Partnership, dated December 1, 2000

10.51             Form of the Amendment to the Convertible Debenture Purchase Agreement by and between the
                  Company and Stout Partnership, dated March 15, 2001

10.52             Form of the Amendment to the Convertible Debenture Purchase Agreement by and between the
                  Company and Stout Partnership, dated November, 2001

11.1              Statement or Computation of Per Share Earnings (Included in Note 1 of
                  the Notes to Consolidated Financial Statements)

21.1              List of Subsidiaries of the Company

23.1              Consent of KPMG LLP

23.2              Consent of Arthur Andersen LLP

23.3              Consent of Callahan & Company P.C.
</TABLE>



                                      102

<PAGE>

                                   SIGNATURES

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



                                     U.S. Plastic Lumber Corporation




                                     By: /s/ Mark S. Alsentzer
                                        --------------------------------------
                                        Mark S. Alsentzer, Chairman of the Board
                                        Chief Executive Officer and President



                                     Date: January 11, 2002


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


<TABLE>
<S>                                                              <C>
/s/ Mark S. Alsentzer                                            Date: January 11, 2002
----------------------------------------
Mark S. Alsentzer, Chairman of the Board
Chief Executive Officer and President



/s/ John W. Poling                                               Date: January 11, 2002
----------------------------------------
John W. Poling, Chief Financial Officer



/s/ August C. Schultes III                                       Date: January 11, 2002
----------------------------------------
August C. Schultes III, Director



/s/ Gary J. Ziegler                                              Date: January 11, 2002
----------------------------------------
Gary J. Ziegler, Director



/s/ Roger N. Zitrin                                              Date: January 11, 2002
----------------------------------------
Roger N. Zitrin, Director



/s/ Kenneth Leung                                                Date: January 11, 2002
----------------------------------------
Kenneth Leung, Director
</TABLE>


                                      103
<PAGE>
                                 EXHIBIT INDEX



<TABLE>

<S>               <C>
2.1               Agreement and Plan of Reorganization between Educational Storybooks
                  International, Inc. and Earth Care Global Holdings, Inc. (Incorporated
                  by reference from Exhibit 2.1 to the Company's Registration Statement
                  on Form SB-2 (File No. 333-22949) filed with the SEC on March 7, 1997)

3.1               Restated Articles of Incorporation of U.S. Plastic Lumber Corp.

3.2               Amended and Restated Bylaws (Incorporated by reference from Exhibit 3.7
                  to the Company's Form 10-K for the year ended December 31, 2000 filed
                  with the SEC on April 3, 2001)

3.3               Articles of Incorporation of Educational Resources, Inc., the
                  predecessor of the Company (Incorporated by reference from Exhibit 3.4
                  to the Company's Registration Statement on Form SB-2 (File No.
                  333-22949) filed with the SEC on March 7, 1997)

3.4               Plan and Articles of Merger of Educational Resources, Inc. into Earth
                  Care Global Holdings, Inc. (Incorporated by reference from Exhibit 3.5
                  to the Company's Registration Statement on Form SB-2 (File No.
                  333-22949) filed with the SEC on March 7, 1997)

3.5               Certificate of Amendment to the Certificate of Designation of
                  Preferences, Rights and Limitations of Series D Preferred Stock.
                  (Incorporated by reference from Exhibit 4.1 to the Company's Current
                  Report on Form 8-K filed with the SEC on June 22, 2001)

3.6               Series E Preferred Stock Certificate of Designation (Incorporated by
                  reference from Exhibit 10.49 to the Company's Form 10-K for the year
                  ended December 31, 2000 filed with the SEC on April 3, 2001)

4.1               5% Convertible Debenture issued to Halifax Fund, L.P. (Incorporated by
                  reference from Exhibit 4.1 to the Company's Registration Statement on
                  Form S-3 filed with the SEC on March 10, 2000 (File No. 333-32148))

4.2               Common Stock Purchase Warrant issued to Halifax Fund, L.P. dated
                  February 2, 2000. (Incorporated by reference from Exhibit 4.2 to the
                  Company's Registration Statement on Form S-3 filed with the SEC on
                  March 10, 2000 (File No. 333-32148))

4.3               Form of the 11.5% Convertible Debenture issued to Stout Partnership

10.1              Jeanell Sales Corp. Acquisition Agreement (Incorporated by reference
                  from Exhibit 10.1 to the Company's Registration Statement on Form SB-2
                  (File No. 333-22949) filed with the SEC on March 7, 1997)

10.2              Duratech Acquisition Agreement (Incorporated by reference from Exhibit
                  10.2 to the Company's Registration Statement on Form SB-2 (File No.
                  333-22949) filed with the SEC on March 7, 1997)
</TABLE>




<PAGE>


<TABLE>
<S>               <C>
10.3              Clean Earth Acquisition Agreement (Incorporated by reference from
                  Exhibit 10.3 to the Company's Registration Statement on Form SB-2 (File
                  No. 333-22949) filed with the SEC on March 7, 1997)

10.4              RPI Acquisition Agreement (Incorporated by reference from Exhibit 10.4
                  to the Company's Registration Statement on Form SB-2 (File No.
                  333-22949) filed with the SEC on March 7, 1997)

10.5              ARDT Acquisition Agreement (Incorporated by reference from Exhibit 10.5
                  to the Company's Registration Statement on Form SB-2 (File No.
                  333-22949) filed with the SEC on March 7, 1997)

10.6              Employment Agreement -- Harold Gebert (Incorporated by reference from
                  Exhibit 10.7 to the Company's Registration Statement on Form SB-2 (File
                  No. 333-22949) filed with the SEC on March 7, 1997)

10.7              Employment Agreement -- David Farrow (Incorporated by reference from
                  Exhibit 10.8 to the Company's Registration Statement on Form SB-2 (File
                  No. 333-22949) filed with the SEC on March 7, 1997)

10.8              Rutgers Licensing Agreement (Incorporated by reference from Exhibit
                  10.9 to the Company's Registration Statement on Form SB-2 (File No.
                  333-22949) filed with the SEC on March 7, 1997)

10.9              ESP Acquisition Agreement (Incorporated by reference from Exhibit 10.10
                  of Amendment One to the Company's Registration Statement on Form SB-2
                  (File No. 333-22949) filed with the SEC on August 26, 1997)

10.10             ITS Acquisition Agreement (Incorporated by reference from Exhibit 10.11
                  of Amendment One to the Company's Registration Statement on Form SB-2
                  (File No. 333-22949) filed with the SEC on August 26, 1997)

10.11             EPC Acquisition Agreement (Incorporated by reference from Exhibit 10.12
                  of Amendment One to the Company's Registration Statement on Form SB-2
                  (File No. 333-22949) filed with the SEC on August 26, 1997)

10.12             IIC/USPL Joint Venture Agreement (Incorporated by reference from
                  Exhibit 10.13 of Amendment One to the Company's Registration Statement
                  on Form SB-2 (File No. 333-22949) filed with the SEC on August 26,
                  1997)

10.13             S D & G License and Operating Agreement (Incorporated by reference from
                  Exhibit 10.14 of Amendment One to the Company's Registration Statement
                  on Form SB-2 (File No. 333-22949) filed with the SEC on August 26,
                  1997)

10.14             Ground Lease Agreement (Carteret Biocycle) (Incorporated by reference
                  from Exhibit 10.15 of Amendment One to the Company's Registration
                  Statement on Form SB-2 (File No. 333-22949) filed with the SEC on
                  August 26, 1997)
</TABLE>




<PAGE>


<TABLE>
<S>               <C>
10.15             Lease Agreement (Brock Mgt/Earth Care TN) (Incorporated by reference
                  from Exhibit 10.16 of Amendment One to the Company's Registration
                  Statement on Form SB-2 (File No. 333-22949) filed with the SEC on
                  August 26, 1997)

10.16             Lease Agreement (APEC/Earth Care Midwest) (Incorporated by reference
                  from Exhibit 10.17 of Amendment One to the Company's Registration
                  Statement on Form SB-2 (File No. 333-22949) filed with the SEC on
                  August 26, 1997)

10.17             Lease Agreement (Plastic Properties LLC/RPI) (Incorporated by reference
                  from Exhibit 10.18 of Amendment One to the Company's Registration
                  Statement on Form SB-2 (File No. 333-22949) filed with the SEC on
                  August 26, 1997)

10.18             Lease Agreement (Dalphon Sr./Clean Earth) (Incorporated by reference
                  from Exhibit 10.19 of Amendment One to the Company's Registration
                  Statement on Form SB-2 (File No. 333-22949) filed with the SEC on
                  August 26, 1997)

10.19             Lease Agreement (Glades Twin Plaza/Earth Care) (Incorporated by
                  reference from Exhibit 10.20 of Amendment One to the Company's
                  Registration Statement on Form SB-2 (File No. 333-22949) filed with the
                  SEC on August 26, 1997)

10.20             Lease Agreement (Consol. Realty/EPC) (Incorporated by reference from
                  Exhibit 10.21 of Amendment One to the Company's Registration Statement
                  on Form SB-2 (File No. 333-22949) filed with the SEC on August 26,
                  1997)

10.21             Lease Agreement (Waste Concepts, Inc.) (Incorporated by reference from
                  Exhibit 10.22 of Amendment Two to the Company's Registration Statement
                  on Form SB-2 (File No. 333-22949) filed with the SEC on January 9,
                  1998)

10.22             Lease Agreement (Earth Care Products of Tennessee) (Incorporated by
                  reference from Exhibit 10.23 of Amendment Two to the Company's
                  Registration Statement on Form SB-2 (File No. 333-22949) filed with the
                  SEC on January 9, 1998)

10.23             WCI Acquisition Agreement (Incorporated by reference from Exhibit 10.24
                  of Amendment Two to the Company's Registration Statement on Form SB-2
                  (File No. 333-22949) filed with the SEC on January 9, 1998)

10.24             CTI Securities Purchase Agreement (Incorporated by reference from Exhibit
                  10.25 of Amendment Two to the Company's Registration Statement on Form
                  SB-2 (File No. 333-22949) filed with the SEC on January 9, 1998)

10.25             Employment Agreement -- Steven Sands (Incorporated by reference from
                  Exhibit 10.26 of Amendment Two to the Company's Registration Statement
                  on Form SB-2 (File No. 333-22949) filed with the SEC on January 9,
                  1998)

10.26             ICC/USPL Joint Venture Agreement II (Incorporated by reference from
                  Exhibit 10.28 of Amendment Two to the Company's Registration Statement on
                  Form SB-2 (File No. 333-22949) filed with the SEC on January 9, 1998)
</TABLE>




<PAGE>


<TABLE>
<S>               <C>
10.27             PNC Bank of Delaware -- Promissory Note (Incorporated by reference from
                  Exhibit 10.22 of Amendment Two to the Company's Registration Statement
                  on Form SB-2 (File No. 333-22949) filed with the SEC on January 9,
                  1998)

10.28             Eaglebrook Plastics, Inc. Stock Purchase Agreement (Incorporated by
                  reference from Exhibit 10.1 to the Company's Form 8-K filed with the SEC
                  on February 10,1999)

10.29             Eaglebrook Plastics, Inc. Stock Purchase Agreement (Incorporated by
                  reference from Exhibit 10.2 to the Company's Form 8-K filed with the SEC
                  on February 10,1999)

10.30             Coast Business Credit Loan and Security Agreement; Amendment to Loan
                  and Security Agreement; Second Amendment to Loan and Security
                  Agreement; Third Amendment to Loan and Security Agreement; and Fourth
                  Amendment to Loan and Security Agreement (Incorporated by reference
                  from Exhibit 10.33 to the Company's Form 10KSB filed with the SEC on
                  March 30, 1999)

10.31             Convertible Debenture Purchase Agreement dated December 22, 1998
                  (Incorporated by reference from Exhibit 10.34 to the Company's Form
                  10KSB filed with the SEC on March 30, 1999)

10.32             Convertible Debenture Purchase Agreement dated January 26, 1999
                  (Incorporated by reference from Exhibit 10.35 to the Company's
                  Form 10KSB filed with the SEC on March 30, 1999)

10.33             1999 Non-Employee Director Stock Option Plan (Incorporated by reference
                  from Exhibit 10.37 to the Company's Form 10KSB filed with the SEC on
                  March 30, 1999)

10.34             Amended and Restated 1999 Employee Stock Option Plan (Incorporated
                  by reference from Exhibit 10.38 to the Company's Form 10KSB  filed with
                  the SEC on March 30, 2000)

10.35             Employment Agreement of Bruce C. Rosetto (Incorporated by reference
                  from Exhibit 10.39 to the Company's Form 10KSB filed with the SEC on
                  March 30, 2000)

10.36             Employment Agreement of Michael D. Schmidt (Incorporated by reference
                  from Exhibit 10.40 to the Company's Form 10KSB filed with the SEC on
                  March 30, 2000)

10.37             Employment Agreement of John W. Poling (Incorporated by reference from
                  Exhibit 10.41 to the Company's Form 10KSB filed with the SEC on
                  March 30, 2000)

10.38             Employment Agreement of Mark S. Alsentzer (Incorporated by reference
                  from Exhibit 10.42 to the Company's Form 10KSB filed with the SEC on
                  March 30, 2000)

10.39             Private Placement Stock Purchase Agreement dated August 20, 1999
                  (Incorporated by reference from Exhibit 10.43 to the Company's Form
                  10KSB filed with the SEC on March 30, 2000)
</TABLE>




<PAGE>


<TABLE>
<S>               <C>
10.40             Asset Purchase Agreement -- Baron Enterprises, Inc. (Incorporated by
                  reference from Exhibit 10.44 to the Company's Form 10-Q filed with the
                  SEC on May 16, 2000)

10.41             Master Security Agreement with GE Capital Corporation (Incorporated by
                  reference from Exhibit 10.45 to the Company's Form 10-Q filed with the SEC on
                  May 16, 2000)

10.42             Credit Agreement with Bank of America dated as of June 30, 2000 (Incorporated
                  by reference from Exhibit 10.46 to the Company's Form 10-Q filed with the
                  SEC on August 14, 2000)

10.43             Waiver and First Amendment to the Credit Agreement with Bank of America
                  (Incorporated by reference from Exhibit 10.47 to the Company's Form 10-Q
                  filed with the SEC on November 14, 2000)

10.44             Convertible Debenture Purchase Agreement by and between the Company and
                  Halifax Fund, L.P. dated February 2, 2000 (Incorporated by reference
                  from Exhibit 99.1 to the Company's Registration Statement on Form S-3 filed
                  with the SEC on March 10, 2000 (File No. 333-32148))

10.45             Registration Rights Agreement by and between the Company and Halifax
                  Fund, L.P. dated February 2, 2000 (Incorporated by reference from
                  Exhibit 99.2 to the Company's Registration Statement on Form S-3 filed
                  with the SEC on March 10, 2000 (File No. 333-32148))

10.46             Common Stock Purchase Agreement with Fusion Capital Fund II, LCC (Incorporated
                  by reference from Exhibit 10.50 to the Company's Form 10-K for the year
                  ended December 31, 2000 filed with the SEC on April 3, 2001)

10.47             Waiver and Second Amendment to the Credit Agreement with Bank of America
                  (Incorporated by reference from Exhibit 10.51 to the Company's Form 10-K
                  for the year ended December 31, 2000 filed with the SEC on April 3, 2001)

10.48             Amendments to the Master Security Agreement with GE Capital Corporation
                  (Incorporated by reference from Exhibit 10.52 to the Company's Form 10-K
                  for the year ended  December 31, 2000 filed with the SEC on April 3, 2001)

10.49             Form of the Letter Agreement by and between the Company and Stout Partnership, dated
                  November 13, 2000

10.50             Form of the Convertible Debenture Purchase Agreement by and between the Company and Stout
                  Partnership, dated December 1, 2000

10.51             Form of the Amendment to the Convertible Debenture Purchase Agreement by and between the
                  Company and Stout Partnership, dated March 15, 2001

10.52             Form of the Amendment to the Convertible Debenture Purchase Agreement by and between the
                  Company and Stout Partnership, dated November, 2001

11.1              Statement or Computation of Per Share Earnings (Included in Note 1 of
                  the Notes to Consolidated Financial Statements)

21.1              List of Subsidiaries of the Company

23.1              Consent of KPMG LLP

23.2              Consent of Arthur Andersen LLP

23.3              Consent of Callahan & Company P.C.
</TABLE>